1st Quarter 2011 Stats: S&P 500, Small Caps, Foreign Stocks, T-Notes

The S&P 500 gained +5.9% in the 1st quarter of 2011.  For all of calendar year 2010, the S&P 500 gained +15.1%.  The S&P 500 has gained an average of +9.7% per year (total return) over the last 50 calendar years (i.e., 1961-2010) (source: BTN Research).    

As of its end of the 1st quarter closing value (1326), the S&P 500 is still -18% below its all-time closing high of 1565 set on 10/09/07. (source: BTN Research).     

The international stock index EAFE gained +3.4% YTD (total return) through 03/31/11 and is up +10.4% on a trailing 1-year basis as of the end of the first quarter this year.  The EAFE stock index has bested the S&P 500 on a total return basis in 7 of the previous 10 calendar years.  The EAFE is an unmanaged index that is generally considered representative of the international stock market (source: BTN Research). 

The small-cap Russell 2000 is up +7.9% YTD (total return) through 03/31/11 and is up +25.8% on a trailing 1-year basis as of that date.  The Russell 2000 index is an unmanaged index of small-cap securities which generally involve greater risks (source: BTN Research).     

The yield on the 10-year Treasury note was 3.46% on 03/31/11.  The yield on the 10-year Treasury note was 8.05% on 03/31/91 or 20 years ago (source: Treasury Department). 

Foreign Oil Dependency by U.S. President

The Energy Department was established during the Carter Administration to reduce foreign oil dependency.
The Energy Department's annual budget is over $28 billion!
Are the taxpayers getting their money's worth?
Gee, despite this abysmal track record, I'm confident that the government will do a better job reducing health care costs, aren't you?

From Paul Kedrosky.

Foreign Equities or U.S. Equities: How to Make the Allocation Decision

Charts courtesy of www.StockCharts.com

The EAFE iShares ETF (EFA) is our proxy for foreign equities. It covers Europe, Australia, the Far East, but not the emerging markets or any U.S. based companies.

The SPY ETF tracks the S&P 500 (S&P 500 SPDR).

• In other words, for every $1.00 in foreign equity funds, hold $2.00 in U.S. equity funds

When the RED line trades ABOVE the BLUE line, we are BULLISH on foreign equity mutual funds (EFA) and recommend a 2-to-1 ratio allocation of foreign funds relative to U.S. (domestic) equity funds. 

• In other words, for every $1.00 in U.S. equity funds, hold $2.00 in foreign equity funds.

When the RED line trades BELOW the BLUE line, we are BULLISH on U.S. equity mutual funds (SPY) and recommend a 2-to-1 ratio allocation of  U.S. (domestic) equity funds relative to foreign  foreign equity funds.

The RED line has traded ABOVE the BLUE line since May 15, 2009. Therefore, we favor EFA over SPY by a 2-to-1 margin until the relationship reverses. Since May 15, EFA is up +31.6% versus a +24.9% gain for SPY, a +6.7% outperformance difference in only six months.