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Matthew Sauer, Esq.
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Matthew Sauer, Esq. is the President and Chief Investment Officer of the Mutual Fund Investor Guide. Each month he publishes the Investor Guide to Fidelity Funds, Investor Guide to Vanguard Funds and ETF Investor Guide. On a weekly basis he publishes the Global Momentum Guide, focusing on sector... More
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Mutual Fund Investor Guide
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Mutual Fund Investor Guide
  • Week In Review: August 30, 2013 0 comments
    Aug 30, 2013 12:17 PM

    Good morning,

    It was a wild week for stocks. Although the U.S. markets were relatively tame, India and Indonesia saw massive declines in their currencies and stock markets before rebounding on Thursday. The big rebounds may not last however, after U.S. GDP growth figures were revised upwards, increasing the likelihood of a Fed taper in September.

    Going into the latter part of the week, analysts had begun asking if the Fed would reduce or delay the taper in order to aid emerging markets. This was a stretch to begin with, considering the Fed refuses to see bubbles it created in the United States, let alone bubbles blown overseas. The Fed also has a better reason to ignore foreign bubbles: there is a foreign central bank that is known for implementing loose monetary policy.

    Optimists looking for a delay in the taper were then hit by a strong GDP number for the second quarter. It feels funny writing that, but that's exactly the way this market works: strong GDP is bad news because it means the Fed is more likely to taper in September. The overall mood was positive on Thursday when the GDP report was released and stocks climbed, but this was mainly carry through from the bounce that started in Asia. In early trading on Friday, markets were back even or trading lower.

    Speaking of the GDP report, the second estimate was raised to 2.5 percent, well above the 1.7 percent reported a month ago. Straight from the BEA report, it states that the increase over the first estimate came from: personal consumption expenditures (PCE), exports, private inventory investment, nonresidential fixed investment, and residential fixed investment. On the negative side were federal government spending and rising imports.

    The report shows what we've consistently said about the slowdown in federal spending: it will at most be a short-term blip to growth, but a long-term benefit. The result has been a stronger economy that plowed through government spending reductions and made a mockery of all the scare talk surrounding the sequester.

    Between the strong GDP report and the emerging collapses in emerging markets, the week was mixed, with stocks poised for a down week absent a strong rally today. Still, this week may deserve to be chalked up as a win for bullish investors because the losses remain small. Furthermore, interest rates did not increase with the release of the second quarter GDP revision. Rates have been key to weakness in stocks this summer and given the implications for the Fed's taper, it would not have been a surprise had yields jumped higher on Thursday. It may be a sign that the bond bears are at least taking a breather, in which case the bulls may find some room to run in September.

    Finally, we are very pleased to update you on the long-term performance of our model portfolios. Since 1995, the Fidelity Select Portfolio has returned 486% versus 188% for the S&P 500. Additionally, the Growth & Income Portfolio has returned 364%, the Growth Portfolio is up 357% and the International Portfolio is positive 275%. Even our very conservative Retirement Income Portfolio has beaten the S&P 500.

    I encourage you to join the Fidelity Independent Adviser Investment Service by visiting www.fidelityadviser.com. For $49.95 you will receive 12 monthly issues of my newsletter, plus four weekly email hotlines to update you on the market.

    Have a safe and enjoyable Labor Day weekend.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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