Stocks Bounce Back |

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Thomas J. Feeney's Measure of Value offers periodic commentary on leading financial issues of the day. Additionally, we present occasional articles explaining the philosophical underpinnings of the investment approach that our firms have employed successfully since 1986. Our thinking frequently differs from the common wisdom of the investment industry. The investment approaches we employ always recognize this as a probability business, not a certainty business. In evaluating any investment action, we always weigh the potential damage should the market prove us wrong.

While we have great respect for investment history, we recognize that each era introduces unprecedented specifics. In all that we do, we attempt to identify value, in both a relative and absolute sense. History has demonstrated that long run investment performance leaders need not be the leaders in bull markets as long as they avoid giving up significant portions of their assets during bear markets.

We firmly believe that one need not be fully invested at all times. In fact, we far prefer to assume relatively large levels of risk when assets are historically cheap and to be heavily risk-averse when assets are historically expensive. This approach has proven successful for our clients over nearly a quarter century.

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Stocks Bounce Back

July 9, 2010

We are in the process of working on our quarterly commentary letter, which we will send out soon. It will be posted on this site after we have sent it to clients.

As we suggested last week, the stock market went into the long Independence Day weekend significantly oversold and in need of “at least a brief recovery rally.” This holiday-shortened week saw that rally begin. Each day produced gains, albeit on rather tepid volume. This week’s rally recovered slightly more than half the decline of the prior two weeks. It has served to work off the short-term oversold condition and has forced many shorts to cover. The weak volume signals a rally that was largely an internal affair for Wall Street firms with minimal public participation. While that could, of course, change, most lasting rallies begin with a more enthusiastic sendoff.

The rally has also partially repaired some of the technical damage done since late-April. A great deal more needs to be done, however, to prove that this is anything but a relief rally in a more extended down leg.

Next week begins the second quarter earnings announcement parade. Expectations are for strong year-over-year growth compared to the very weak results of second quarter 2009. There is room for disappointment if earnings are less than great or if guidance for future quarters reflects diminished enthusiasm.

Bond yields ticked up this week, and next week’s new issue calendar is heavy. Analysts will be looking to see whether that bond supply will divert money from the equity market. We are eager to see whether the public returns to equities next week to sustain this week’s rally or whether this proves to be no more than a technical bounce from a severely oversold condition.

Tom Feeney is the chief investment officer for Marathon Asset Management Co, a registered investment advisor with the Securities and Exchange Commission, and for Mission Management & Trust Co., a full service trust company regulated by the Arizona Department of Financial Institutions. If you would like to explore the management of an investment portfolio of $1 million or more by either of the firms, you are invited to email your interest to Tom@missiontrust.com or call (520) 529-2900 to speak with one of the Portfolio Coordinators.