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Multi Asset Investments Weekly 05-06-2012 | Markets Sold Off On Disappointing Job Reports

Top Stories Last Week

  • US Added 115K Jobs in April, Disappointing the Markets

Hiring in the US slowed down in April as only 115K jobs were created in April, sharply below expectation. The unemployment rate dipped to 8.1%, but mostly because some 342K people had dropped out of the labor force. Most economists believe that the US is on a pace of adding 100k to 200k jobs per month in 2012, consistent with the sluggish economic growth of about 2%. The US stocks markets ended the worst week of 2012, the Dow Jones Industrial Average and S&P 500 index retreated 1.4% and 2.1%, respectively.

  • Manufacturing Activities Were Strengthening in US, Slowing in China and Weakening in Europe

US manufacturing activities expanded at a fastest rate in half a year. A monthly index compiled by the Institute for Supply Management showed a 54.8 reading, the largest gain since November 2011. In China, the official purchasing managers' index for manufacturing rose to 53.3 last month, its highest in more than a year, suggesting that Chinese economy is on track for a soft landing. In Europe, the economic activities declined at a faster pace than expected in April, according to PMI survey. The index slumped to 45.9. European recession is getting deeper as Spanish economy declined for the second quarter and was officially in recession. We believe that the divergences of economic performance across the major economic blocs will continue.

  • ECB kept interest rates unchanged, Reserve Bank of Australia lowered interest rates by 50 basis points unexpectedly

The European Central Bank kept its key interest rates unchanged at 1% in its monthly meeting Thursday, consistent with market expectation. It did not give any indication on any new three-year loans to banks, or LTRO, despite its positive impact on market liquidity.

Reserve Bank of Australia (NYSE:RBA) surprised the markets with 50 basis points cut on its benchmark interest from 4.25% to 3.75%. The RBA also lowered its growth and inflation forecasts as weak job and housing markets keep price gains in check. One of the world's largest commodity-exporting economies is suffering from Chinese economic slowdown.

Top Stories to Watch This Week

  • Earning season is winding down. CISCO and Disney will report earnings this week

Among the companies which have reported, 80% of them beat earning expectations. U.S. corporate profits have returned to prerecession levels of about 15 percent of gross domestic product, according to a report by the International Institute for Labour Studies released on Friday. This week, some bellwether corporations such as CISCO and Disney will report Q1 earnings.

  • French Presidential Election

Socialist François Hollande defeated Nicolas Sarkozy on Sunday to become France's next president. This may have big impacts on how Europe tackles its debt crisis. Hollande wanted to renegotiate a European treaty on budget cuts that Germany's Angela Merkel and Sarkozy had championed.

  • Greek Parliamentary Election

Greeks are voting in parliamentary polls on Sunday. The country's two mainstream parties, the centre-left Pasok and centre-right New Democracy, are expected to lose support to anti-austerity candidates. Any political instability may prompt fresh questions over the country's ability to stick to the austerity measures and continue getting the international bailout fund.

  • Bank of England Rate Decision

Bank of England's monetary policy committee will meet this week. It is expected to keep interest rate at 0.5% and bond purchase program unchanged.

Weekly Performance Summary

All the portfolios declined last week as results of negative performance across all the risk assets.

Table 1: ETF Performance

Asset Class Return     Last Week Return MTD Return YTD Return
Equities          
  SPY US Large Cap -2.4% -2.1% 9.6%
  IWM US Small Cap -4.0% -2.9% 7.6%
  EFA Developed Market Equity -3.3% -2.8% 5.5%
  VWO Emerging Market Equity -2.3% -2.0% 9.1%
Dividend Assets          
  IYR US REIT -0.5% -0.4% 13.0%
  AMJ US Energy Master Trust 0.0% -0.4% 3.4%
Commodities          
  GLD Gold -1.2% -1.5% 4.9%
  GSG Commodity -4.3% -4.6% 0.3%
Bonds          
  HYG US High Yield 0.4% 0.2% 4.0%
  AGG US Bond 0.2% 0.3% 1.3%
  TIP US Treasury Inflation Indexed Bond 0.1% 0.2% 2.9%
  IEF US Treasury Bond 0.5% 0.4% 1.0%
  TLT US Long Term Treasury Bond 1.0% 0.9% -1.6%
  SHY US Short Term Bond 0.1% 0.0% 0.1%

Table 2: Portfolio Performance

 

 

Portfolio Solutions WTD
(1 day delay)
MTD
(1 day delay)
YTD
(1 day delay)
1-YR
(as of 12/11)
5-YR
(as of 12/11)
10-YR
(as of 12/11)
Aggressive -2.1% -1.8% 5.9% 12.4% 16.4% 16.1%
Moderate -1.6% -1.3% 5.1% 12.4% 14.8% 14.4%
Conservative -0.9% -0.7% 4.5% 12.5% 13.7% 12.8%
Defensive -0.2% -0.1% 3.8% 13.2% 12.5% 11.1%
Concentrated Portfolio -1.5% -1.2% 5.3% 12.1% 19.1% 19.3%
S&P 500 Index -2.4% -2.1% 9.6% 2.0% -0.3% 2.9%
Barclays Bond Index 0.2% 0.3% 1.3% 10.3% 6.9% 5.8%
CPI Inflation       3.2% 2.3% 2.5%

For more information about the multi-asset investment strategies, please visit allseasoninvesting.com.

About ALL SEASON INVESTING: All Season Investing is an investment blog, created in December 2011 to offer investors insights and researches on how to implement a dynamic multi asset allocation strategy with the low-cost index funds or ETFs to achieve consistent returns while limiting downside risks through all stages of a market cycle.

Disclosure: I am long SPY, IWM, EFA, VWO, IYR, AMJ, GLD, GSG, HYG, JNK, AGG, TIP, IEF, TLT, VNQ.