April 2015
April 24, 2015 05:20 p.m.
Your Retirement Finance Week in Review
There wasn’t much major news this week to affect markets.
The week got off to a rocky start because of new reports that Greece might default on its loans from the IMF. But these fears were reduced as the week went on.
The Nasdaq had modest gained during the week, but they were enough finally to push the index above its previous all-time high, which occurred in the tech stock rally in 2000. The long climb back for the Nasdaq shows how dangerous it is to invest in the latest fad and without paying attention to fundamentals and valuations. Some analysts were quick to adjust the Nasdaq for inflation or other measures and show that on an adjusted basis the Nasdaq is still well below its peak.
The big news, though it isn’t receiving enough attention, is the new rally in China and related stocks. While some focus on headlines of slowing growth and growing debt in China, investors who are pushing the markets higher are focusing on changes and reforms China is announcing to deal with the problems. Investors are responding, and that’s helping push a number of emerging market indexes and funds higher.
While earnings season is in swing in the U.S., it’s been very quiet. Before earnings were announced, many investors and analysts were expecting disappointments, especially among global companies that would see declining revenues and earnings because of the rising dollar. So far, those companies generally have managed expectations and their currency problems to the point that earnings season is almost a non-event so far.
The Data
There wasn’t much data for investors to react to this week. Most of the reports were in housing, and once again the reports were mixed.
Two of the three reports indicated that the recent slow down probably was due to winter weather and that with spring housing is rebounding. Existing home sales increased 6.1% for the month, and last month’s number was revised higher. The 12-month increase for existing home sales now is 10.4%. In addition, the median home price increased while these higher sales were occurring. The FHFA Home Price Index also rose and reported a 12-month price increase of 5.4%.
But new home sales declined fairly substantially, and after last month’s sales were revised higher. The median price of new homes also declined. This report is consistent with recent data on housing starts and permits but is inconsistent with fairly high optimism among home builders that the NAHB has reported recently. But the two previous months’ sales numbers were revised higher.
The new home sales data are based on a small sample, so it is important not to get wrapped up in one month’s report. Overall, new home sales are ahead of last year, so putting the numbers in perspective paints a different perspective that looking at one month’s report.
Manufacturing continues to slow. The PMI Manufacturing Index Flash declined after hitting a five-month high last month. It still indicates positive growth, but the details were weak, especially foreign sales. Durable Goods orders also were not encouraging. The headline number was strong. But after subtracting the volatile transportation sector, orders were negative and now are negative over 12 months. Last month’s orders also were negative. Perhaps the softest part of the report was nondefense capital goods, which is equipment purchased by businesses.
The labor market continues to improve. New unemployment claims increased only 1,000, and that puts the four-week moving average at a low 284,000.
The Markets
Markets were fairly quiet this week with the only significant moves coming on Wednesday and Thursday.
Emerging markets continue to rally on the recovery in China’s stock markets. The problems in Brazil, Russia, and other commodity-dependent countries are being offset by improvements in China, India, and elsewhere. The emerging markets index rose 2.5% for the week. The All-Country World Index was next with a gain of just under 1.5%. The S&P 500 gained just under 1%, while the Russell 2000 U.S. Smaller Companies Index gained just over 0.5%. The Dow Jones Industrial Average gained a fraction.
Bonds didn’t fare well. Long-term treasuries did worst, losing 1.4% after being down almost 2.6% midweek. Investment-grade bonds lost 0.4% while Treasury Inflation-Protected Securities (TIPS) lost over 0.2%. High-yield bonds broke even.
The dollar had another bad week, losing 1%.
Most commodities had what has been a rare good week. Energy-based commodities led the way with a 1% gain. Broader-based commodities gained just under 0.5%. Gold didn’t participate in this rally, losing 1.5%.
Some Reading for You
Here’s a good analysis of the latest new homes sales report.
This is a study on how to successfully pass on the family business.
This survey on money and happiness indicates that more money doesn’t make most people happy because they’re trying to keep up with the Joneses, or beat them.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
April 17, 2015 04:20 p.m.
Your Retirement Finance Week in Review
This is the last chance to register for one of the two free presentations I’ll be making on April 22 in Stamford, Connecticut. There’s both a morning and evening opportunity. The topic at each will be Retirement Planning: How to Create and Implement a Successful Plan. The presentations are sponsored by TJT Capital Group, and I’ll be presenting jointly with them. As I said, attendance is free, and the talks will be at 9 West Broad St., Stamford, CT. To register, call 877-282-4609 or visit www.tjtjcapital.com/seminar.
There was a lot of economic data issued this week. We’ll discuss it in detail below. For now, let’s look at the conclusions we can draw by viewing the data as a whole.
The U.S. economy is growing, but at a slower rate than in in late 2014. At that point, the economy was growing faster than at any time since the bottom in 2009. U.S. growth now is closer to the average since the bottom. Part of the decline was due to the bad winter weather. The major causes of the decline are commodity prices and the dollar, as we’ve discussed in the past.
The labor market still looks healthy. Jobs continue to be created, and unemployment is low. There even are signs that wage growth might increase. In the published data wage growth still is modest. But survey of small businesses and others indicate higher wages are in the future if growth continues at recent levels.
Inflation is picking up a bit from the low levels of the recent past. This is the effect of prices of oil and other commodities no longer declining precipitously. It means deflation is off the table for now. We’re still a long way for sustained, high inflation.
Interest rates will remain low despite attempts to scare people into believing that high rates are coming soon. Low inflation, weak growth abroad, the strong dollar, and the recent decline in U.S. growth all will convince the majority of Fed officials to avoid significant interest rate increases. They might increase rates a bit in an upcoming meeting so show people that they really can do it, but I don’t expect a sustained move.
Household demand for goods and services remains fairly strong. Consumer sentiment readings are high because of rising stock and housing prices and the stable job market. Lower oil prices also help with sentiment, but the data indicate that households are savings rather than spending the benefits.
The big questions are “What’s next?” and “Is it different from what the markets are expecting?”
I think U.S. growth is sustainable at the current rate. The positive effects of the oil price decline largely are fading. There’s still a few more months of negative effects from the oil price decline and strong dollar to be felt. Because of the strong dollar and low commodity prices, the manufacturing sector of the economy is weak. Jobs are being lost as companies cut back operations. But the services sector of the economy (which is 70% to 80% of the total) is doing well.
Growth in Europe should increase a bit as policy makers there take actions. Investors also are feeling more positive about China.
Much of this outlook already is priced into markets. Markets will make significant moves only if events occur that differ from the expectations. I think there’s more downside risk than upside potential, but there’s enough upside potential to stay invested.
The Data
This was a fairly busy week for data releases.
Let’s look first at the sentiment data. Consumer sentiment as measured by the University of Michigan rose again and was well ahead of last month and of expectations. It’s still a bit below the eight-year high reached in January but is a strong reading.
Small Business Optimism as measured by the NFIB declined and was below expectations. The report was weak across the board and indicated that the recent slowing in the economy reduced the optimism of small business owners. Even so, the reading is among the stronger ones of the recovery.
Inflation made news this week. Not surprisingly, the major inflation measured increased in line with the recent modest recovery in oil prices. Producer Prices increased 0.2% after a decline of 0.5% last month. The 12-month rate still is negative. After excluding food and energy the 12-month rate still is less than 1%.
The Consumer Price Index also rose 0.2% for the month. That brings the 12-month change up to a whopping 0.0%. After excluding food and energy, the CPI again is 0.2% for the month but is up 1.8% for 12 months. That still puts the measure below the Fed’s target and a long way for a dangerous inflation level.
The Index of Leading Economic Indicators from The Conference Board rose modestly, and last month’s rise was revised down. Since this Index is a compilation of recent economic data, this is no surprise.
Retail sales were the major positive surprise of the week, rising 0.9% last month. This follows several months of disappointing sales. As we said at those times, however, the measure is volatile month to month. We need to examine several months to see a trend. Even so, the number was a little below average expectations and was viewed as a disappointment by some analysts. Sales after excluding autos and gas were slightly above expectations.
The manufacturing reports issued were weak. The Empire State Manufacturing Survey actually declined after rising for two months. This is only the second negative month in the last 23, with the other coming in December. New orders were very weak and an indicator of more weakness in this report to come. Industrial Production declined for the second month of the last three and was well below expectations. The manufacturing component was barely positive but also below expectations.
There were two housing reports, which were viewed as mixed. Housing starts increased but not as much as expected. Last month was considered an especially weak month because of the weather. While it is good that they increased in the latest month, analysts in general were expecting a greater rebound.
The Housing Market Index compiled by the NAHB, however, showed a nice rebound after last month’s disappointment and was above expectations. This Index is based on a survey of home builders who give their subjective views about the economy and housing market conditions. The builders have positive expectations and also feel good about current conditions. But they do report a lack of first-time home buyers.
The Fed released its Beige Book, summarizing the state of the economy by region. The book was consistent with the recent data and our interpretation of it. The economy is growing in general, but growth is down and there is weakness in some sectors of the economy (manufacturing related) and regions of the country.
The Markets
Markets were having a quiet week until Friday. The head of the IMF stated in Europe that Greece would not be allowed to skip or defer its next debt payments, which are due soon. The Greek government had asked if it would be allowed to defer payments until it had its full reform package in order. The news alarmed investors and raised fears of a Greek default and its consequences.
Most global market indexes lost about 1% on Friday, and some U.S. indexes lost 1.5%. For the week, the All-Country World Index and emerging market equities both lost around 0.75%. The S&P 500 and Russell 2000 U.S. Smaller Companies Index each lost around 1.25%. The Dow Jones Industrial Average lost 1.5%.
Bonds had a better reaction for the most part. Long-term treasuries gained 1.5% for the week, and Treasury Inflation-Protected Securities (TIPS) gained a shade less. Investment-grade bonds gained 0.5%. High-yield bonds lost a fraction.
The dollar had a bad week all week and closed with a 2% loss.
Commodities also did well, and it seemed unrelated to the Greek news. Energy-based commodities gained almost 4% and were up almost 5% late Thursday. Broad-based commodities gained about 2.5%. Gold was flat all week and gained only a bit under 0.5%.
Some Reading for You
Here’s a case for investing in energy soon.
This article explains the recent rise in China’s stock indexes and why it is likely to continue.
The Economist explains why wage growth has been slow in the U.S. and argues that is likely to continue.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
April 10, 2015 04:20 p.m.
Your Retirement Finance Week in Review
There still is room at the two free presentations I’ll be making on April 22 in Stamford, Connecticut. There’s both a morning and evening opportunity. The topic at each will be Retirement Planning: How to Create and Implement a Successful Plan. The presentations are sponsored by TJT Capital Group, and I’ll be presenting jointly with them. As I said, attendance is free, and the talks will be at 9 West Broad St., Stamford, CT. To register, call 877-282-4609 or visit www.tjtjcapital.com/seminar.
It’s the waiting period for investors and analysts. The big economic reports for the month are done, the Fed isn’t going to do anything before June, and global events have settled down for now.
What we’re waiting for is the first quarter earnings season. The first quarter ended, and it takes a few weeks for publicly-traded companies to start issuing their results. This earnings season has more uncertainty than we’ve seen for a few quarters.
I expect a lot of divergence in the reports. The U.S. economy overall is doing well. But it is slower than its 2014 peak. Also, the manufacturing sector is hurt by the combination of low commodities prices (especially oil) and the strong dollar. The questions on investors’ minds are how much have these events hurt earnings, and what will corporate officials say about the rest of the year.
Earnings forecasts have been scaled back for most of the companies likely to be affected. So, probably few companies will have big negative surprises. But analysts aren’t clear about the rest of the year. Will company officials say they’ve weathered the worst and made appropriate changes? Or will they be cautious or even pessimistic about the rest of the year? Stocks will be volatile and probably make no net change until the answers are clear.
The Data
This was the usual quiet week of the month for economic data.
There were two reports about the non-manufacturing sector of the economy. The ISM Non-Manufacturing Index reported another strong number, indicating that the service sector of the economy is growing at a good rate. All key elements of the report were positive with only exports being weak. The PMI Services Index jumped even more than the PMI. This was the strongest month since last August.
The consumer credit report was a mixed picture. The headline number indicated a strong increase in credit. But the headline was misleading. For the fourth of five months, use of revolving, or credit card, debt declined. Auto loans increased, but the most growth was in the government’s purchase of student loans.
New unemployment claims increased by 14,000. But last week’s number was such a substantial decline that claims still are well under 300,000, as is the four-week moving average.
The Job Openings and Labor Turnover Survey (JOLTS) delivered no surprises. The labor market continues to approach normal levels, except for wage growth. The factors I’ve been watching since 2008 is the quit rate. Once the economic crisis began, the quits rate dived. People were unwilling to leave jobs they had, because they had no confidence they could find additional jobs. But the quits rate gradually climbed back to historic normal levels, and it has remained there. It’s clear that the labor market is close to normal.
Though there wasn’t much to go by this week, the bottom line continues to be that overall the U.S. economy is doing well. The manufacturing sector is slowing and even contracted in a few places. But the services sector, which makes up the bulk of the economy, is growing at average or higher levels.
The Markets
It was another good week for stocks. They increased fairly steadily all week. The leader was emerging markets with almost a 2.5% gain. The All-Country World Index gained 1.5%. Just a shade ahead were both the S&P 500 and Dow Jones Industrial Average. Registering a 0.5% gain for the week was the Russell 2000 U.S. Smaller Companies Index.
Bonds were mixed for the week. Following stocks as usual, high yield bonds rose 0.75%. Investment-grade bonds lost about 0.4% and Treasury Inflation-Protected Securities (TIPS) lost 0.75%. Long-term treasuries lost about 1.25%.
The dollar had a strong week, gaining 3%.
Energy-based commodities had a good though volatile week. They gained 1% but were up more than 3% on Tuesday. Other commodities didn’t fare as well. Broad-based commodities lost 0.5% while gold lost 1%.
Some Reading for You
Earning season starts soon. Here’s an outlook.
Here’s some data about the differences in income and spending habits between Americans of different income levels.
Medicare Advantage plans received some good news this week.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
April 3, 2015 04:20 p.m.
Your Retirement Finance Week in Review
This is another reminder of the two free presentations I’ll be making on April 22 in Stamford, Connecticut. There’s both a morning and evening opportunity. The topic at each will be Retirement Planning: How to Create and Implement a Successful Plan. The presentations are sponsored by TJT Capital Group, and I’ll be presenting jointly with them. As I said, attendance is free, and the talks will be at 9 West Broad St., Stamford, CT. To register, call 877-282-4609 or visit www.tjtjcapital.com/seminar.
The first quarter came to a close this week. It was a mixed period for both the markets and the economy.
The Dow Jones Industrial Average closed with a modest loss. This was its first quarterly loss since the first quarter of 2014. Other U.S. indexes have done better. Both the S&P 500 and Nasdaq Composite managed gains, giving each nine consecutive quarters of positive returns. But the numbers weren’t much for the quarter. The S&P 500 rose less than 0.50% for the quarter. The Dow lost about 0.25%. The Nasdaq rose 2.28%.
Some other U.S. indexes, especially the midcap and small cap indexes, did better. The S&P 400 Midcap rose 4.96% for the quarter. The S&P Small Cap 600 rose 3.48%. Smaller growth stocks did even better. The S&P 500 Growth rose 2.11%; the Midcap 400 Growth rose 7.42%; and the Small Cap 600 Growth rose 6.34%. Value stocks lagged. The quarter’s returns for the respective value indexes was -1.29%, 2.44%, and 0.82%.
The big news in the quarter was the strong dollar (up over 11% against the euro) and continuing weakness in commodities. Oil dropped over 17% for the quarter while broader-based commodities lost 7.48%. Gold about broke even.
The strong dollar still allowed for positive returns in most international stocks. The EAFE index gained 5.47% in dollar terms (much more in local currencies), and emerging markets gain 2.14%. But there was a lot of diversity in emerging markets. Brazil lost over 14% while China gained almost 7%.
Despite all the worry about rising interest rates, bonds had a good quarter. Long-term treasuries gained 3.79%.
The economy continues to grow but at a slower rate than late in 2014. The labor market seemed to do doing well earlier in the quarter and had the strongest data. Manufacturing slowed as the quarter went on and probably is the weakest part of the economy now. That is partly due to the strong dollar and partly to the strong drop in oil prices. The rest of the U.S. economy is doing well despite the weak global economy and is growing at average or a better rate.
Markets have been volatile, and you should expect that to continue. We’re past the midpoint of the economic cycle, so the data will be mixed. Those who chase headlines will be optimistic one day and pessimistic the next. Investors also continue to worry and prognosticate about the timing of the Fed’s next policy move. There’s additional uncertainty from Europe, China, and global tensions. Don’t try to anticipate when things will change. Instead, maintain current investment positions and change only when there’s a clear change in the markets or economy.
The Data
This week’s big data was the overhyped Employment Situation reports. This had been the strongest part of the economy in recent months. The last few reports had convinced many analysts that the Fed would increase interest rates sooner rather than later. That changed this week, with the number of new jobs coming in well below expectations and the last few months. The unemployment rate stayed the same, but the labor force participation rate and hours worked both declined slightly. The only bright spot in the report was a 0.3% increase in average hourly earnings. That beat expectations and the last few month’s tepid growth.
Other employment data was mixed. The ADP Employment Report was similar to the government reports, coming in well below expectations and recent months. But new unemployment claims declined sharply. This week’s number and the four-week average are back well below 300,000.
A handful of manufacturing reports this week were somewhat mixed but still point to much less activity than in previous years. The Dallas Fed Manufacturing Survey, which was the leader earlier in the recovery, posted its third consecutive negative month, and it was a sharp drop. The Chicago PMI Index remained below 50, though better than last month, which is a sign of economic contraction in the Midwest.
The PMI Manufacturing Index different from most other reports by improving and continuing to indicate growth in manufacturing and production. The ISM Manufacturing Index remained above 50, indicating expansion, but it declined again and is close to slipping below 50. Factor orders also varied from the trend. After six straight declines orders increased a bit. On the other hand, January’s number was revised down significantly, so this number might change next month.
Consumer Confidence as measured by The Conference Board increased sharply when estimates were for a decrease. The measure now is close to January’s figure, which was a 7.5 year high. Much of the increase was concentrated in a very strong increase in expectations.
The Markets
Stocks had a bumpy weak but ended positive. Emerging markets led the way with a gain of more than 4.5%. The Russell 2000 U.S. Smaller Companies Index was next with a 1.5% gain. The All-Country World Index gained just under 1%. The Dow Jones Industrial Index and S&P 500 tied with gains just under 0.5%.
Bonds also had a wild week but mostly ended with positive returns. High-yield bonds were the exception, losing a fraction. Long-term bonds (which were up almost 1.4% on Thursday) remarkably tied for a 0.2% return with investment-grade bonds and Treasury Inflation-Protected Securities (TIPS).
The dollar gained just over 0.2%, though it was up 1.2% around midweek. It fell sharply with the release of the Friday employment reports.
Gold fared best of the commodities, gaining almost 0.5%. Broad-based commodities broke even, while energy-based commodities lost about 0.6%.
Some Reading for You
To remember better, take notes by hand instead of computer. See here.
Read about the changes planned for seniors’ home care.
Here’s an interesting profile of people whose passion is to maximize credit card points, even if it means having dozens of cards and taking trips they don’t care about.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
