October 2014
October 31, 2014 04:20 p.m.
Your Retirement Finance Week in Review
Happy Halloween.
First I want to thank all of you who joined us for the recent webinar, “Your Portfolio and Your Heirs.” It was an important presentation, and we had a strong turnout. If you weren’t able to attend the webinar, you can view a replay on demand by clicking here. When I discuss these webinars I conduct with TJT Capital Group, I do so in my role as managing member of Carlson Wealth Advisors, L.L.C.
It was a second strong week for many markets. Stock indexes rose sharply after hitting a bottom on October 16. The S&P 500 now has almost a 4% positive return for the last month despite being down 4% from October 1 to October 16. The S&P 500 and Dow Jones Industrial Average set new records on Friday.
Some of the rise is the result of being short term oversold at the recent bottom. But investors also have been encouraged by positive economic data from the U.S. and the lack of bad news from abroad. Part of the rally might be an anticipation of the outcome of next week’s elections.
The week closed with a bang as Japan surprised everyone with a new round of substantial stimulus. Investors were concerned recently about signs of fresh deflation risk in Japan and Europe. The Bank of Japan announced a substantial easing campaign last year, but after a brief burst the economy fizzled, thanks partly to tighter fiscal policies. The BOJ responded Friday by announcing about a 33% increase in its asset buying. It also is going to buy stocks and real estate funds in addition to government bonds. This is the largest monetary stimulus ever. The BOJ will be buying the equivalent of twice the new bonds issued by the Japanese government.
At the same time, in a move the two said wasn’t coordinated, Japan’s largest pension fund ($1.2 trillion in assets) said it would reduce its bond allocation in favor of both Japanese and international stocks.
Investors no doubt are hoping this dramatic move puts pressure on the European Central Bank to make a similar move.
Central banks are in a bit of a bind. To prevent economic downturns they have to make unconventional moves such as these, because interest rates already are near zero. But big moves by central banks take the pressure off fiscal policymakers to take the kinds of actions they need to take and that would be more effective.
The dollar has been strong lately, and Friday’s moves made it even stronger. This will have some negative effects on the U.S. economy and likely will delay higher rates in the U.S.
Despite all the gloom a few weeks ago, there wasn’t a strong case for a bear market. The U.S. economy is growing, and a little past the midpoint of the business cycle. Stocks probably are ahead of themselves at this point, but we’re a year or more away from a market peak.
The Data
There was a lot of data this week, and almost all of it was above expectations.
Let’s start with the first third quarter GDP report. The data were indicating strong growth in the third quarter with growth slowing a bit in late September and into October. We saw that in the GDP report with a strong 3.5% annualized growth rate, well above consensus 3% expectations. But the rate is slower than the second quarter’s. The GDP always is a backward-looking report and subject to substantial revisions. But so far, it reflects what we were seeing in other data during the third quarter.
The manufacturing reports during the week generally were strong. The Dallas Fed Manufacturing Survey reported another strong month. The Richmond Fed Manufacturing Index rose sharply, the strongest growth in the Fed surveys for October. The Chicago Purchasing Managers Index also had a sharp increase. The only negative for manufacturing was in Durable Goods Orders. The headline number was a 1.3% decline. Even after excluding the volatile transportation sector, the report was negative.
There were a a couple of housing reports. The Pending Home Sales Index increased a small amount. The S&P Case-Shiller Home Price Index recorded the fourth straight month of price declines. The 12-month price change is down to a positive 5.6%, the lowest rate since November 2012.
Despite the lower stock market, slower housing market, and reduced economic growth, consumers are feeling better. The Consumer Confidence Index from the Conference Board rose sharply to a new high for the post 2008 period. It hasn’t been this strong since October 2007. But the gain came almost entirely from improved expectations, not from reports on current conditions. Consumer Sentiment as measured by the University of Michigan also increased, though not nearly as much. It is at its highest level since July 2007.
New unemployment claims increased a little bit to 287,000. They’re still on a steady decline.
Personal income increased a small amount, consistent with its trend since the recovery. Consumers pending decreased 0.2%, due largely to declining gasoline prices and lower auto sales. These numbers are volatile month to month, but the trend is for slow, steady increases in both income and spending. Inflation as measured by the PCE price index still is well below the Fed’s target of 2%.
The Employment Cost Index, which is released quarterly, had a strong increased based mostly on wages and salaries. That puts the 12-month increase at 2.2%. That’s still modest and is consistent with the wage and income data. But it also continues a steady increase. That’s good for the economy but could indicate employers are going to have some profit squeeze coming up.
Overall, we see a continuation of economic growth that’s not high by historic data but is among the highest levels since the economic bottom. Inflation’s not a problem, but the potential for deflation in the U.S. is rapidly receding.
The Markets
Stocks had a strong week. The Russell 2000 U.S. Smaller Companies Index led the way with a gain of 6%. Emerging market stocks were next with a 4.3% gain. The Dow Jones Industrial Index recorded a 3.5% gain, and the All-Country World Index improved 3.2%. Lagging the stock indices was the S&P 500 with a 3% gain.
Bonds didn’t do as well. Long-term treasuries had a volatile week. They were up a little at midweek, but declined both early and late in the week. They closed with about almost a 0.6% loss. Investment-grade bonds matched that loss. Treasury Inflation-Protected Securities (TIPS) lost only 0.2%. High-yield bonds managed a marginal gain for the week.
The dollar had a strong week gaining just under 2%.
Commodities had a mixed week. Gold tumbled, losing almost 5%. Both energy-based commodities and broader-based commodities gained just under 2%.
Some Reading for You
Insider trading at Medicare? Apparently so, according to this.
Here’s interesting detail on the connection between exercise and happiness.
Medicare spending is growing slower than it used to. Here are details about why.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
October 24, 2014 04:20 p.m.
Your Retirement Finance Week in Review
Unlike the last few weeks, the U.S. stock markets this week bounced back. What’s not clear, of course, is whether this is a brief rally from a short-term undersold position or the end of a correction and return to the bull market since 2009.
Here’s some interesting data about the new rally. The S&P 500 had its best week since 2013. The stocks rebounding the most are those that declined the most through the October 15 low. The best stocks in the sell off gave returned only 2.42% since the low, according to Bespoke Investments, but the worst stocks in the decline are up an average of 8.30%.
Not all markets are participating in the rally. Most bonds and fixed-income investments aren’t participating. Also, international stock markets haven’t rallied as much as U.S. stock markets. The Nasdaq 100 and S&P Midcap indices are market leaders. Sector leaders are energy, materials, and health care.
One explanation for the rally is that investors had been worried about third quarter earnings reports, but the reports have been better than expected so far. There were a few major misses, but Bespoke says that of the 15% of companies reporting so far, about 65% beat earnings estimates. On the downside, just over 50% beat revenue estimates.
It’s too early to relax and believe a new rally is here to stay. The normal pattern after a decline is for stocks to be oversold and make a brief rally to be followed by another decline. There wasn’t any news this week to make investors more positive, which to me is another sign that this could be a classic brief rally after an oversold low. I’m recommending waiting a bit before increasing stock positions.
The Data
Probably the biggest data this week was Consumer Price Inflation. Not surprisingly, overall prices barely moved higher. The recent drop in energy and other commodity prices kept the CPI low and will do so for at least a few more months. Also, inflation can’t rise much when wages are rising only 2% or so annually. Until we see broader wage increases and more spending, there’s going to be a lid on price increases. It’s going to be a while before we have to worry about inflation causing the Fed to tighten policy.
There were several housing market reports during the week which painted a generally positive but still somewhat mixed picture.
New home sales have been the weakest part of the market for a while. Last month new home sales surged well beyond expectations. This month’s report revised last month’s sales sharply lower. This month’s sales were a modest increase over last month’s revised number but still were above expectations. Also, an average 9.7% decline in prices helped with the recent increases in sales.
Existing home sales rose 2.4% and were much higher than expected. Prices were down 4%. Over 12 months, sales are down 1.4%. According to the FHFA House Price Index, single family home prices rose slightly in the last month and are up 4.8% for the last 12 months.
There were only two manufacturing reports this week. Both continue the trend of showing continuing growth but at a slower rate than during the summer. The Kansas City Fed Manufacturing Index was positive but lower than last month. Manufacturers generally were positive and reported having trouble attracting and retaining some key workers.
The PMI Manufacturing Index Flash for the first half of the month declined a little from the September reading. The greatest weakness in the report was in exports, reflecting weaker growth in Europe and China.
The Leading Economic Indicators compiled by the Conference Board had a sharp increase, though last month’s modest increase was revised down to no change. The drop in interest rates that accompanied the stock market decline was the major factor in the index’s increase.
New unemployment claims increased after a few months of sharp, unexpected drops. The new claims still are well under 300,000 and were a little better than expectations.
The Markets
Stocks had a very good week. The leader was the S&P 500 with a gain of about 3.75%. Emerging market stocks lagged the others with a gain of only 0.75% for the week. Clustered with returns just under 3% were the Dow Jones Industrial Average, All-Country World Index, and Russell 2000 Smaller U.S. Companies Index.
Long-term treasury bonds had a bad week after several stellar weeks. They lost just over 1.6%. Also losing value were Treasury Inflation-Protected Securities (TIPS) (down 0.8%) and investment-grade bonds (down 0.45%). High-yield bonds followed stocks with a gain of over 0.8%.
The dollar gained over 0.6%.
Most commodities had a good week. The exception was gold, which lost almost 1.2%. Broad-based commodities gained 0.2% and energy-based commodities gained 0.5%.
Some Reading for You
Is aging mostly a state of mind? Read this.
Here’s an interesting interview with William Sharpe about the uses of data and indicators to make investment decisions.
Here’s Marc Andreesen making the case for always being optimistic.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
October 17, 2014 05:20 p.m.
Your Retirement Finance Week in Review
Let’s start with a brief reminder that you still can register for the free and unique webinar I’m presenting with TJT Capital Group LLC, titled “Your Heirs and Your Portfolio.” It’s going to be on Tuesday, October 21, from 3:30 p.m. to 4:30 p.m. eastern time. So far, the response to the webinar has been strong, which is no surprise. To make your reservation for the webinar CLICK HERE.
Now, on to this week’s review.
Last week seemed volatile, but it turned out to be just a warm up for this week. Stocks globally declined sharply Monday through Thursday. Then, just as people were wondering when the selling would stop, there was a sharp recovery on Friday.
Despite all the headlines and moaning, The decline so far hasn’t amounted to much. From the recent record highs to the lows of this week, the Dow fell 6.7%, the S&P 500 lost 7.4%, the NASDAQ gave up 8.3%, and the Russell 2000 U.S. Smaller Companies Index fared worst with a 13% loss.
Sales were triggered recently of three funds in several of our portfolios: T. Rowe Price European Stock, GoodHaven, and Dodge & Cox Stock. The lone holding in our Invest with the Winners portfolio also went through its sell signal. Through the tumult, several of our investments earned positive returns, including DoubleLine Total Return Bond, Cohen & Steers Realty Shares, and Eaton Vance Municipal Bond II.
My conclusion after looking at the market activity and other factors is that we’re in a long overdue correction but a new bear market isn’t likely. Bear markets coincide with recessions or financial crises. We’re not in either now. It could be that events in Europe or elsewhere could cause a financial crisis or bring on a global recession, but they haven’t so far. The U.S. economy is growing, though growth has slipped a bit in the last month or so. Inflation isn’t a problem, so there isn’t a reason for the Fed to tighten policy.
I’m always on the lookout for warning signs that things could become worse. But I’m spending most of my time considering when the correction is ending and there is a good re-entry point for some investments. This could take weeks or months. I think it will take a bit of time, because the technical readings of the markets suffered a lot of damage in the last month. Things such as moving averages, stocks making new highs vs. new lows, the percentage of stocks rising, and others became decidedly negative this week.
There’s no rush, because I think the economy and bull market have a ways to go before they end. For now, the best move is to keep the investments that haven’t triggered sell signals and watch the stock indices churn for a while.
The Data
There wasn’t a lot of economic data this week, but there was enough to spot a change in trends. The data was mixed and taken with other recent data indicates that economic growth slowed a notch or two in the last month. We were growing at the highest rate since the bottom in 2009 and above long-term averages. Now we probably slowed to about average growth. The slowdowns in Europe and China caused a decline in exports. The housing market downshifted this year. These and various headlines reduced consumer optimism. Taken together, they add up to a bit slower growth. We’ll keep watching for signs that it either stabilizes or turns down again.
The Fed’s Beige Book was released this week and painted a similar picture. The report largely was the same as the last version, finding moderate to modest growth across the country. But there were a few warnings signs, such as New York area retailers reporting a slow down in consumer spending.
Manufacturing was mixed this week after months of strong growth. The biggest disappointment was the Empire State Manufacturing Survey. It declined sharply after hitting a five-year high last month. It’s hard to pinpoint reasons for such a sudden and sharp change. The Philadelphia Fed Survey, on the other hand, was only a little below last month, indicating roughly the same level of activity as last month. Likewise, Industrial Production jumped well above last month and expectations for this month. The manufacturing component also was above expectations.
Retail sales declined this month after a sharp increase last month. Even after excluding autos, sales declined. Lower gasoline prices are part of the reason. But even after adjusting for that, sales still declined. It could be that the large surge in August sales was partly consumers going on a spending binge and pulling back in September to even out spending.
The NFIB Small Business Optimism Index declined after hitting a recovery high last month. The details of the index were mixed. Businesses reported being positive about expansion and said job openings keep rising. But they also said they don’t plan to increase employment and reduced capital spending plans.
There were two mixed housing reports. The Housing Market Index from the home builders dropped, mainly because of a decline in buyer traffic. That’s a little worrying, since mortgage rates have been declining. Housing starts rose after a disappointing decline last month. A bit part of the gain was in multifamily housing, but residential starts also increased a healthy amount.
Consumer sentiment as measured by the University of Michigan rose to the highest level since March 2007. The expectations component was at the highest level since October 2012. Low gas prices and an improving job market apparently are helping.
New unemployment claims declined sharply, registering a 14-year low.
The Markets
Here are the details about the markets.
Most stock indices globally declined and rose together this week. There wasn’t much dispersion at all. The major indices I report on were down between 3% and 3.75% late in Wednesday’s trading. But they recovered some for weekly losses between 0.5% (the All-Country World Index) and 1.2% (emerging market stocks). The outlier was the Russell 2000. Small stocks declined long before other segments of global equities and were down sharply even before the declines of other indices the last two weeks. But the Russell 2000 had a good week, rising almost 3%.
Bonds had a good week. High-yield bonds did best, gaining over 1% after being down 1% earlier in the week. Long-term treasuries gained just over 0.5% but were up almost 4% during Wednesday’s trading. Investment-grade bonds and Treasury Inflation-Protected Securities (TIPS) both broke even.
The dollar lost about 0.3%.
Commodities didn’t have a good week. Energy-related commodities fared worst, losing 1.5%, but they were down over 3% in the middle of the week. Broader-based commodities lost 0.5%. Gold gained just under 1%.
Some Reading for You
I thought this article has an interesting perspective on the water shortage in the west.
Here’s a good long-term perspective on market declines.
Here’s a summary of the new Medicare costs for 2015.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
October 10, 2014 04:20 p.m.
Your Retirement Finance Week in Review
You have a few more weeks to sign up for my next webinar with the TJT Capital Group. Demand has been strong for this unique presentation, but there still are slots left. The webinar is “Your Heirs and Your Portfolio,” presented on Tuesday, October 21, from 3:30 p.m. to 4:30 p.m. eastern time.
What’s this webinar about? Many people these days are concerned about Succession Planning for their investments. Succession Planning isn’t the same as estate planning. You want to be sure the portfolio will continue to be managed to provide for your goals and in line with your values. You also don’t want the portfolio to be a source of stress and complications for your loved ones, and certainly don’t want the investments to be managed by someone who isn’t qualified. A succession plan could be as simple as having your loved ones renew the membership in Retirement Watch, follow our recommendations, and get to know your advisor. Or it could mean finding an advisor now who will take the burden off family members who aren’t equipped to manage a portfolio and help family members earn solid returns without taking more risk than they can handle. Investment markets have changed over the years and will change again. You want your hard-earned portfolio to weather those changes. That’s why I’m looking forward to this webinar. To make your reservation for the webinar CLICK HERE. When I discuss these webinars, I do so in my role as managing members of Carlson Wealth Advisors, LLC.
In case you didn’t notice, volatility is back in the markets. Actually, volatility isn’t much different from long-term averages, but it’s very different from the extreme low levels we had most of this year and last.
The week started fairly quietly, though negatively, with headlines focusing on slower growth in Europe and the various international tensions. U.S. stock markets surged sharply higher on Wednesday after the release of the FOMC minutes. Investors seemed cheered by the language indicating that a majority of the committee members still were concerned about the fragility of the economy. Combining that with continuing low inflation, the members still inclined not to raise interest rates any time soon. That’s what we’ve expected, so we weren’t as surprised as most investors seemed to be. After release of the news, market indices rose by their highest amounts in some time.
The next day, market indices declined even further. Investors apparently were concerned about more bad economic news from Europe. But they probably were also concerned by public exchanges between European Central Bank President Mario Draghi and a couple of German officials prior to an annual International Monetary Fund meeting. The Germans are opposed to additional fiscal and monetary stimulus, believing austerity is key to solving Europe’s problems. Draghi favors programs closer to what the U.S. and U.K. did.
The stagnation in Europe clearly worries investors, and rightly so. Europe is holding back global growth, and the real risk of a new downturn there could drag down other economies. If Germany doesn’t change its opposition to policies other than austerity, it’s likely that over time either it will leave the union or other countries will.
But there are other reasons for stocks to enter a correction. It’s been a long time since there’s been a correction of 10% or more in U.S. stock indices, and the Fed is withdrawing its stimulus. There are market indicators that point to a correction. Small stocks are below their 200-day moving average, and the large stock indices are below their 150-day moving averages. A higher percentage of stocks are well below their long-term moving averages and also have lost more than 20% from their highs.
A correction doesn’t mean a bear market. Bear markets don’t begin unless there is a recession or financial crisis. The U.S. clearly isn’t in a recession or near one. But the problems in Europe and elsewhere could leave to either a financial crisis or recession. While it’s not time to panic, it is a good time to ensure your portfolio is diversified and to watch markets more closely than you might have earlier in the year.
The Data
There was very little new economic data released in the U.S. this week, which might be why investors were reacting to other news. As mentioned above, the major economic report issued in the U.S. was the release of the minute of the latest Fed FOMC meeting. The other major economic news was from overseas, especially news of Germany’s economic slowing down another notch.
In the U.S., there was almost no change in the number of new unemployment claims filed and last week’s claims were revised up by only 1,000. That keeps the four-week moving average well below 300,000 and indicates the labor market’s steady recovery continues.
Consumer credit increased less than expected, though it does continue to steadily increase. The increases, of course, aren’t as much as during the boom years before 2008. That will continue to be the case for some time, because mortgage borrowing won’t return to previous levels for a number of reasons. But the trend of higher borrowing shows continuing improvement in consumer balance sheets and in their optimism. We’ll keep watching to see if this month’s below-expectations number is a change in trend or normal volatility in the monthly numbers.
The JOLTS (Job Openings and Labor Turnover Survey) was mixed. It had the highest number of new job openings since January 2001, and the number was substantially higher than in recent months. Yet, the number of new hires declined more than 3% from last month. The separation rate was about the same, and the number of people voluntarily leaving a job also was unchanged.
The Markets
It was a bad week for stock indices across the globe, and they followed each other closely for the week. Small stocks, as measured by the Russell 2000 U.S. Smaller Companies Index fared worst, declining 4.5% for the week. Emerging market stocks were next, losing slightly more than 3.5%, while the All-Country World Index lost 3.5%. The S&P 500 and the Dow 30 both lost just under 3%.
Bonds had a good week, except high-yield bonds. They usually follow stocks more than bonds and lost almost 2%. Long-term treasuries rose over 2%. Treasury Inflation-Protected Securities (TIPS) rose about 1.25%. Investment-grade bonds rose 0.5%.
The dollar gave up some of its recent gains, losing more than 0.5%.
Commodities had a mixed week. Energy-related commodities continued their recent decline, losing another 2.6%. Broader-based commodities lost 0.5%. But gold did well, gaining almost 2.5%.
Some Reading for You
Europe is nearing an economic and policy turning point. Here’s an overview.
Here’s a good, comprehensive look at the issues and alternatives for people asking the question, “Will I outlive my money?”
Multitasking isn’t good for your brain or the things you’re trying to do. Read about the research.
I comment and link to these and other items on my public blog at http://www.bobcarlson.net.
October 3, 2014 05:20 p.m.
Your Retirement Finance Week in Review
In a few weeks I’m participating in a unique webinar with TJT Capital Group LLC, titled “Your Heirs and Your Portfolio.” It’s going to be on Tuesday, October 21, from 3:30 p.m. to 4:30 p.m. eastern time. So far, the response to the webinar has been strong, which is no surprise.
Many people these days are concerned about Succession Planning for their investments. Succession Planning isn’t the same as estate planning. You want to be sure the portfolio will continue to be managed to provide for your goals and in line with your values. You also don’t want the portfolio to be a source of stress and complications for your loved ones, and certainly don’t want the
