Wealth Pinnacle Inc.
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Independent Advice. Personal Service.
Registered Investment Adviser
Investment Commentary
April 2012
THE ECONOMY
The US economy expanded at a 2.2% annual rate in the first quarter,
moderating from the fourth quarter's 3% rate. However, this recent
report shows a clearer picture of the economy compared with the fourth
quarter, when inventory building accounted for two-thirds of the growth.
In the first quarter, consumers spending was driving growth. This is key
because consumer spending accounts for about 70% of US economic
activity. Consumer spending increased at a 2.9% rate, the fastest pace
since the fourth quarter of 2010.
Retail sales rose in March despite high gasoline prices, as consumers
bought a broad range of goods and services. Retail sales increased
0.8%, after rising 1% in February. Auto sales rose 0.9% after increasing
1.3% in February, due to pent-up demand. Building materials sales
jumped 3%, the largest gain since December, thanks to unseasonably
mild weather. Sales of electronics and appliances increased 1%, the
largest gain since October, while sales at furniture stores climbed 1.1%.
Industrial production rose at an annual rate of 5.4% in the first quarter,
with manufacturing advancing at a 10.4% annual pace - the largest gain
since the second quarter of 2010. Orders for long-lasting manufactured
goods ("durable goods") declined 4.2% in March, the biggest drop since
early 2009. This report suggests the economy lost some momentum at
the end of the first quarter.
The US economy added 120k new jobs in March, below expectations, as
a mild Winter pulled forward some hiring in previous months. The
unemployment rate dropped to 8.2%, partly due to people dropping out
of the workforce. Initial jobless claims rose slightly in recent weeks, but
are still way down from their recession highs. The US labor market has
been improving slowly for several months.
Federal Reserve Chairman Ben Bernanke said US monetary policy is
appropriate given the current slack in the economy, and added that the
central bank would not hesitate to launch another round of bond
purchases if the economy were to weaken. "We remain entirely prepared
to take additional balance sheet actions as necessary to achieve our
objectives," Bernanke said. "Those tools remained very much on the
table, and we would not hesitate to use them should the economy require
that additional support." The Fed reiterated its expectation that the
Federal Funds Rate would not rise until late 2014. The Fed sees both a
labor market that is improving and stronger than expected economic
growth this year. The central bank could be spurred into action if the US
unemployment rate failed to keep moving lower. The Fed sees higher
inflation as temporary, due to a notable rise in gasoline prices. The Fed
has an inflation target of 2%.
The Federal Reserve is encouraging banks to turn more of their
foreclosed homes into rental properties to help lessen the flood of
distressed property sales depressing home prices. Banks converting
single-family homes into rentals could curb declines in home prices that
have fallen more than 30% from their peak in 2006. The central bank
suggested lenders enter the rental market to reduce their losses on
foreclosed properties, which would also help the housing market and
meet the demand for rentals. Banks are allowed to rent out foreclosed
properties "without having to demonstrate continuous active marketing of
the property." If banks use property managers to manage the rental
properties, the Fed said contracts and solid track records are necessary.
STOCKS
Earnings season is in full swing, and 75% of companies that have
reported so far have beaten expectations. We have taken some profits
in stocks recently, after the huge rally that began last October. We
expect some great buying opportunities in the coming months.
Apple's quarterly profit almost doubled after a jump in iPhone sales,
particularly for the greater China region. The results prompted a slew of
analysts to raise their target price for Apple. Apple sold 35 million
iPhones, which account for about half its revenue. Pent-up demand for
the iPhone 4S helped lift revenue in China, Taiwan and Hong Kong
400%. Currently, Apple stores are only open in large cities in China, so
there's still much room for growth. Net income soared 94% to $11.6
billion, from a year earlier. Quarterly revenue jumped 59% to $39 billion.
The company will finally begin sharing its record cash hoard of $110
billion with investors via a quarterly dividend.
Luxury leather goods maker Coach posted a higher-than-expected
quarterly profit, benefiting from sales gains in China and at its own North
American stores. Revenue in the quarter rose 16.6% to $1.1 billion.
Sales at Coach's North American stores open at least a year rose 6.7%.
In China, a small but fast-growing market for Coach, sales soared 60%
and were on pace to hit $300 million this year. Coach's net income
increased 21% to $225 million, compared with a year earlier. Coach
raised its dividend 33% to $1.20 per share, and will continue to use
excess cash to buy back stock.
Hershey, the world's largest chocolate maker, posted a
higher-than-expected first quarter profit, helped by price increases, and
raised its full-year outlook. Net profit rose 24% to $198 million, from a
year earlier. Price increases were responsible for its 10.7% increase in
first-quarter sales dollars, even though sales volume declined due to
those increases. Hershey is often viewed as having more pricing power,
since chocolate serves as an affordable indulgence.
Caterpillar's first-quarter profit jumped 29%, and it boosted its outlook for
the year. US construction firms are replacing old gear, and global
demand is booming for mining equipment. The company generated $1.6
billion in net income during the quarter. Revenue grew 23% to $16 billion
from last year. "We're seeing strong global demand for most mining
products and significant growth in replacement demand for products in
the United States, which more than offset slowing in China and Brazil,"
Caterpillar Chairman and CEO Doug Oberhelman said. Caterpillar's
results are watched closely because they are considered an indicator of
industrial activity and the health of the overall economy.
Boeing, the world's largest aerospace company, posted a higher
quarterly profit, helped by an increase in commercial airplane deliveries,
and raised its earnings forecast for the year. The company is raising
production rates on commercial airplanes to meet increased demand.
Quarterly profit was up 58% to $923 million, compared with a year earlier.
Revenue rose 30% to $19.4 billion.
BONDS
CORPORATE BONDS: Fitch Ratings has affirmed Johnson & Johnson's
(JNJ) long-term 'AAA' debt ratings and removed the Negative Rating
Watch. The Rating Outlook is Stable. Lowe's Cos issued $2 billion in 5,
10 and 30-year corporate bonds rated A3/A-. Corporate bonds offer an
attractive alternative to Treasury bonds, with higher yields and exposure
to a recovering economy. Hire a knowledgeable bond professional like
Wealth Pinnacle to determine which corporate bonds are right for you.
MUNICIPAL BONDS: The Texas Department of Transportation plans to
issue an estimated $8 billion in municipal bonds over the next couple of
years. Only about $149 million of the total is expected to go toward
refunding existing debt, according to Ted Houghton, Chairman of the
Texas Transportation Commission. It is very important to research
municipal bonds before investing. Municipal bonds may be a value for
investors in high tax brackets with a need for investment income. Many
municipal bonds provide interest that is free of federal and state income
tax, depending on the state in which you live. It is very important to buy
bonds with strong credit quality and the dedicated revenue or tax base to
pay principal and interest. Wealth Pinnacle has the experience to help
you choose the right municipal bonds for your portfolio. We can even
create and manage a municipal bond portfolio for you.
THE ECONOMY
The US economy expanded at a 2.2% annual rate in the first quarter,
moderating from the fourth quarter's 3% rate. However, this recent
report shows a clearer picture of the economy compared with the fourth
quarter, when inventory building accounted for two-thirds of the growth.
In the first quarter, consumers spending was driving growth. This is key
because consumer spending accounts for about 70% of US economic
activity. Consumer spending increased at a 2.9% rate, the fastest pace
since the fourth quarter of 2010.
Retail sales rose in March despite high gasoline prices, as consumers
bought a broad range of goods and services. Retail sales increased
0.8%, after rising 1% in February. Auto sales rose 0.9% after increasing
1.3% in February, due to pent-up demand. Building materials sales
jumped 3%, the largest gain since December, thanks to unseasonably
mild weather. Sales of electronics and appliances increased 1%, the
largest gain since October, while sales at furniture stores climbed 1.1%.
Industrial production rose at an annual rate of 5.4% in the first quarter,
with manufacturing advancing at a 10.4% annual pace - the largest gain
since the second quarter of 2010. Orders for long-lasting manufactured
goods ("durable goods") declined 4.2% in March, the biggest drop since
early 2009. This report suggests the economy lost some momentum at
the end of the first quarter.
The US economy added 120k new jobs in March, below expectations, as
a mild Winter pulled forward some hiring in previous months. The
unemployment rate dropped to 8.2%, partly due to people dropping out
of the workforce. Initial jobless claims rose slightly in recent weeks, but
are still way down from their recession highs. The US labor market has
been improving slowly for several months.
Federal Reserve Chairman Ben Bernanke said US monetary policy is
appropriate given the current slack in the economy, and added that the
central bank would not hesitate to launch another round of bond
purchases if the economy were to weaken. "We remain entirely prepared
to take additional balance sheet actions as necessary to achieve our
objectives," Bernanke said. "Those tools remained very much on the
table, and we would not hesitate to use them should the economy require
that additional support." The Fed reiterated its expectation that the
Federal Funds Rate would not rise until late 2014. The Fed sees both a
labor market that is improving and stronger than expected economic
growth this year. The central bank could be spurred into action if the US
unemployment rate failed to keep moving lower. The Fed sees higher
inflation as temporary, due to a notable rise in gasoline prices. The Fed
has an inflation target of 2%.
The Federal Reserve is encouraging banks to turn more of their
foreclosed homes into rental properties to help lessen the flood of
distressed property sales depressing home prices. Banks converting
single-family homes into rentals could curb declines in home prices that
have fallen more than 30% from their peak in 2006. The central bank
suggested lenders enter the rental market to reduce their losses on
foreclosed properties, which would also help the housing market and
meet the demand for rentals. Banks are allowed to rent out foreclosed
properties "without having to demonstrate continuous active marketing of
the property." If banks use property managers to manage the rental
properties, the Fed said contracts and solid track records are necessary.
STOCKS
Earnings season is in full swing, and 75% of companies that have
reported so far have beaten expectations. We have taken some profits
in stocks recently, after the huge rally that began last October. We
expect some great buying opportunities in the coming months.
Apple's quarterly profit almost doubled after a jump in iPhone sales,
particularly for the greater China region. The results prompted a slew of
analysts to raise their target price for Apple. Apple sold 35 million
iPhones, which account for about half its revenue. Pent-up demand for
the iPhone 4S helped lift revenue in China, Taiwan and Hong Kong
400%. Currently, Apple stores are only open in large cities in China, so
there's still much room for growth. Net income soared 94% to $11.6
billion, from a year earlier. Quarterly revenue jumped 59% to $39 billion.
The company will finally begin sharing its record cash hoard of $110
billion with investors via a quarterly dividend.
Luxury leather goods maker Coach posted a higher-than-expected
quarterly profit, benefiting from sales gains in China and at its own North
American stores. Revenue in the quarter rose 16.6% to $1.1 billion.
Sales at Coach's North American stores open at least a year rose 6.7%.
In China, a small but fast-growing market for Coach, sales soared 60%
and were on pace to hit $300 million this year. Coach's net income
increased 21% to $225 million, compared with a year earlier. Coach
raised its dividend 33% to $1.20 per share, and will continue to use
excess cash to buy back stock.
Hershey, the world's largest chocolate maker, posted a
higher-than-expected first quarter profit, helped by price increases, and
raised its full-year outlook. Net profit rose 24% to $198 million, from a
year earlier. Price increases were responsible for its 10.7% increase in
first-quarter sales dollars, even though sales volume declined due to
those increases. Hershey is often viewed as having more pricing power,
since chocolate serves as an affordable indulgence.
Caterpillar's first-quarter profit jumped 29%, and it boosted its outlook for
the year. US construction firms are replacing old gear, and global
demand is booming for mining equipment. The company generated $1.6
billion in net income during the quarter. Revenue grew 23% to $16 billion
from last year. "We're seeing strong global demand for most mining
products and significant growth in replacement demand for products in
the United States, which more than offset slowing in China and Brazil,"
Caterpillar Chairman and CEO Doug Oberhelman said. Caterpillar's
results are watched closely because they are considered an indicator of
industrial activity and the health of the overall economy.
Boeing, the world's largest aerospace company, posted a higher
quarterly profit, helped by an increase in commercial airplane deliveries,
and raised its earnings forecast for the year. The company is raising
production rates on commercial airplanes to meet increased demand.
Quarterly profit was up 58% to $923 million, compared with a year earlier.
Revenue rose 30% to $19.4 billion.
BONDS
CORPORATE BONDS: Fitch Ratings has affirmed Johnson & Johnson's
(JNJ) long-term 'AAA' debt ratings and removed the Negative Rating
Watch. The Rating Outlook is Stable. Lowe's Cos issued $2 billion in 5,
10 and 30-year corporate bonds rated A3/A-. Corporate bonds offer an
attractive alternative to Treasury bonds, with higher yields and exposure
to a recovering economy. Hire a knowledgeable bond professional like
Wealth Pinnacle to determine which corporate bonds are right for you.
MUNICIPAL BONDS: The Texas Department of Transportation plans to
issue an estimated $8 billion in municipal bonds over the next couple of
years. Only about $149 million of the total is expected to go toward
refunding existing debt, according to Ted Houghton, Chairman of the
Texas Transportation Commission. It is very important to research
municipal bonds before investing. Municipal bonds may be a value for
investors in high tax brackets with a need for investment income. Many
municipal bonds provide interest that is free of federal and state income
tax, depending on the state in which you live. It is very important to buy
bonds with strong credit quality and the dedicated revenue or tax base to
pay principal and interest. Wealth Pinnacle has the experience to help
you choose the right municipal bonds for your portfolio. We can even
create and manage a municipal bond portfolio for you.
| Gary Downie, CFA is CEO & Chief Investment Officer of Wealth Pinnacle Inc., a premier investment management and financial planning firm. Mr. Downie is also a member of the CFA Institute & CFA Society of Los Angeles. He has been the keynote speaker at several investment industry events held |
This material is not intended to be relied upon as a forecast,
research or investment advice, and is not a recommendation, offer
or solicitation to buy or sell any securities or to adopt any investment
strategy. The opinions expressed may change as subsequent
conditions vary. The information and opinions contained in this
material are derived from proprietary and nonproprietary sources
deemed by Wealth Pinnacle to be reliable, are not necessarily
all-inclusive and are not guaranteed as to accuracy. Wealth
Pinnacle and its clients may own positions in securities referred to
here. Past performance is no guarantee of future results. There is no
guarantee that any forecasts made will come to pass. Reliance upon
information in this material is at the sole discretion of the reader.
Investing involves the risk of loss, including loss of principal.
International investing involves additional risks, including risks
related to foreign currency, limited liquidity, less government
regulation and the possibility of substantial volatility due to adverse
political, economic or other developments. The two main risks
related to fixed income investing are interest rate risk and credit risk.
Typically, when interest rates rise, there is a corresponding decline
in the market value of bonds. Credit risk refers to the possibility that
the issuer of the bond will not be able to make principal and interest
payments. Index performance is shown for illustrative purposes only.
You cannot invest directly in an index. Please consult your
Investment Adviser before investing. Neither Wealth Pinnacle, Inc.
nor its representatives provide tax or legal advice. Consult your
attorney or tax adviser for specific issues. The information
throughout this site is for educational purposes only.
research or investment advice, and is not a recommendation, offer
or solicitation to buy or sell any securities or to adopt any investment
strategy. The opinions expressed may change as subsequent
conditions vary. The information and opinions contained in this
material are derived from proprietary and nonproprietary sources
deemed by Wealth Pinnacle to be reliable, are not necessarily
all-inclusive and are not guaranteed as to accuracy. Wealth
Pinnacle and its clients may own positions in securities referred to
here. Past performance is no guarantee of future results. There is no
guarantee that any forecasts made will come to pass. Reliance upon
information in this material is at the sole discretion of the reader.
Investing involves the risk of loss, including loss of principal.
International investing involves additional risks, including risks
related to foreign currency, limited liquidity, less government
regulation and the possibility of substantial volatility due to adverse
political, economic or other developments. The two main risks
related to fixed income investing are interest rate risk and credit risk.
Typically, when interest rates rise, there is a corresponding decline
in the market value of bonds. Credit risk refers to the possibility that
the issuer of the bond will not be able to make principal and interest
payments. Index performance is shown for illustrative purposes only.
You cannot invest directly in an index. Please consult your
Investment Adviser before investing. Neither Wealth Pinnacle, Inc.
nor its representatives provide tax or legal advice. Consult your
attorney or tax adviser for specific issues. The information
throughout this site is for educational purposes only.
by major financial services firms for their best clients. Prior
to founding Wealth Pinnacle, Mr. Downie managed $2
billion at Nuveen Investments and pension and endowment
fund transitions at Barclays Global Investors. He holds an
MBA and a Bachelor's Degree in Finance.
Contact Wealth Pinnacle to receive personalized
investment advice for your specific circumstances. We
welcome the opportunity to help you achieve your goals.
to founding Wealth Pinnacle, Mr. Downie managed $2
billion at Nuveen Investments and pension and endowment
fund transitions at Barclays Global Investors. He holds an
MBA and a Bachelor's Degree in Finance.
Contact Wealth Pinnacle to receive personalized
investment advice for your specific circumstances. We
welcome the opportunity to help you achieve your goals.
by Gary Downie, CFA
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