Week of November 5, 2007

The Markets
 
Recent volatility in the stock market has been good for the bond market.

When investors get nervous, sometimes they flee to the presumed safety of government bonds. This so-called “flight to safety” has helped drive the 10-year Treasury bond’s yield down to 4.15 percent, as of November 16, according to Barron’s. That’s the lowest yield in more than two years. Lower bond yields may help revive the housing market and, ironically, may eventually lure investors back into the stock market.

If we go back a few years, the yield on the 10-year Treasury bond hit a cyclical low of 3.10 percent on June 13, 2003, according to data from Yahoo! Finance. On that same day, the Dow Jones Industrial Average closed at 9117. Fast forward to last Friday and the Dow has risen nearly 45 percent since the 10-year bond hit its low. Now, the rise in the Dow over that period is not solely due to investors fleeing the bond market and putting their money in stocks. However, low interest rates tend to lubricate the economy in a variety of ways such as lowering borrowing costs and improving corporate earnings.

As the current credit crunch and business slow down works its way through our economic system, interest rates may continue to drop. And as long as we’re patient, it may be setting us up for the next positive move in the stock market. 

Sources: Yahoo! Finance, Barron’s. Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly. Three-, 5-, and 10-year returns are annualized.  Assumes dividends are not reinvested.

ABOUT 73 MILLION U.S. HOUSEHOLDS NOW HAVE DISCRETIONARY INCOME, up from about 57 million in 2002, according to a recent report by The Conference Board. The percent of the U.S. population with discretionary income has increased to nearly 64 percent, up from 52 percent in 2002. Total discretionary income in the U.S. topped $1.7 trillion in 2006, with the household average at $24,335.

Also interesting: Of the 43.7 million households of baby boomers (born between 1946-1964), more than two-thirds have discretionary income. As the largest group, the boomer segment also has the highest average discretionary income, $29,754.

Households with discretionary income, as defined by the study, are those whose spendable income exceeds that held by households with similar demographic features.

Weekly Focus – Thanksgiving

In the spirit of the upcoming Thanksgiving holiday -- “Let us remember that, as much has been given us, much will be expected from us, and that true homage comes from the heart, as well as from the lips, and shows itself in deeds."  Theodore Roosevelt

Best regards,

Fredrick J. Livingston, CLU, CFP

Securities offered through LPL Financial, Member NASD/SIPC

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. 

* The Nasdaq Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

Brain Teaser Answer:  It contains the numbers one to nine, in alphabetical order.