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Market
Commentary
January 6th, 2006
The Federal Reserve is nearing the end of its string of rate hikes.
In my opinion, the Federal Reserve will increase the Fed Funds Rate one or two times. This will provide investors with investment opportunities in both Stocks and bonds.
BONDS
Treasury Yields
| January 6th, 2006 |
|
January 22nd, 2005 |
|
| 6 MO |
4.22% |
6 MO |
2.54% |
| 2 YR |
4.36% |
2 YR |
3.13% |
| 5 YR |
4.31% |
5 YR |
3.63% |
| 10 YR |
4.37% |
10 YR |
4.14% |
| 30 YR |
4.56% |
30 YR |
4.64% |
As you can see from the above mentioned yields, the 10 year Treasury Rates and the
30 year Treasury Rates have remained relatively unchanged. Treasury Rates of 5
years or less have seen the largest increases.
The shape of the Treasury yield curve is very flat (i.e.; differential between 6 month
rates and 10 year rates). History tells us a flat yield curve is a strong indication
of a Global economic slowdown in the next 12 to18 months.
The 10 year rate indicates a domestic GDP growth rate of 1% to 1.5% for the
balance of this year. Global competition for jobs, high worker productivity, and
a slower economy will lead to a low inflationary environment.
Bond investors should lengthen their maturities according to their time frames and
risk profiles. Tax Free Municipal Bonds offer above average total returns
for investors in Federal Tax Bracket of 28% or greater. STOCKS
Despite a slowing economy, I expect above average returns from the stock market.
Stocks that are dependent on consumer spending should be avoided (i.e.; consumer durable, retail). Health care, consumer non-durables, and technology
productivity stocks look attractive.
Volatility in the stock market should be high this year. Covered call writing strategies should perform very well in this market environment.
Sincerely,
Sam
Clem
Clem Investments
Registered
Investment Advisor
Past
Commentaries:
July
2, 2003
July
28, 2003
September
29, 2003
December
3, 2003
January
6, 2004
January 22, 2005
January 6th, 2006
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