Total Returns %

1 Week

YTD
Dow Jones Industrial Average

-2.10%

+4.78%
NASDAQ Composite

-1.87%

+4.83%
S&P 500 Index

-1.72%

+4.95%
Russell 2000

-1.54%

+4.89%
U.S. Aggregate Bond Index

+0.73%

-0.28%
MSCI All Country World

-1.71%

+3.40%

Source: Yahoo! Finance.  Data through 2-25-11

As I’m sure many of you were too, I was definitely happy when 3:00 on Friday came so we could put an end to the week.  While it was certainly an ugly week in the financial markets, the positions in my clients’ portfolios (cash, gold, silver, commodities, and balanced/hedge investments) buoyed their accounts from “taking it on the chin” along with the broad indexes.  The current state of the market has been referred to this past week as between a rock and a hard place, or no man’s land.  Just like a few weeks ago (protests in Egypt), who would have thought Libya would be the country to stir the pot?

The problem this time is that Libya is a serious oil producer with a loose cannon leader claiming that he will burn the place.  The sell-off early in the week was tempered Thursday and Friday by the white knight, Saudi Arabia, as they agreed to make up oil shortages from Libya.  While this placated the markets, we are far from out of the woods in the Middle East.  I read that the famed Washington Post writer Thomas Friedman suspects the issues in the Middle East are going to be prolonged (I think he is probably correct).  He points to the fact that we are seeing the beginning of the unraveling of decades of oppression in the Middle East.  The problem is volatile oil prices play havoc with stock prices.  Below are two charts that plot oil and the S&P 500 in 2008 and 2011 year-to-date.

 

As I said in last week’s update, it could be that we don’t see a large correction in the market, but a series of mid-size drops in the range of 4-6% (possibly around Middle East volatility).  How can this market keep a steep drop at arm’s length?  The answer would be low interest rates, central banks printing money, Saudi Arabia pumping extra oil, and shifting flows of global money (money market, bonds, emerging markets going to US equities).  It is still possible that we see a 10% +/- drop.  Regardless of the size of the drop, a pullback is an entry point to establish new positions.  The key here is patience to not take full positions at this point, thereby leaving some cash aside should the markets go lower and give a better buying point.

Would you like an analysis of your current investment portfolio?  Call me to schedule your free consultation- 913.693.7918.

John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals.  For more information, visit http://www.chladekwealth.com.

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