Archives for April 2014

Markets Retreat Amid Volatility – Weekly Update April 28, 2014

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Despite a steady stream of better-than-expected earnings reports, markets retreated during a volatile week. Overall, the S&P 500 lost 0.08%, the Dow retreated 0.29%, and the Nasdaq fell 0.49%.1

Earnings seasons is halfway over, and thus far, among the 240 S&P 500 firms that had reported as of last Friday, total revenues are up 3.7%, and earnings results are up 2.0% from the same period last year. Overall, while growth remains weak and fewer companies are beating revenue estimates, the general sentiment is: “not bad.” Excluding the Finance sector (which is being dragged down by weak Bank of America results), revenue and earnings growth last quarter was in line with historical averages.2

Why the volatile market performance last week? Investors already knew Q1 results would be weak, and those negative expectations were mostly priced into markets. However, markets are forward-looking and traders are more concerned about growth prospects going forward. The escalating tensions in Ukraine also weighed on investors, who are nervous about the potential effects of geopolitical issues on corporate profits. If Russia makes good on its threats to cut off natural gas supplies to Ukraine and Europe, general prices would probably go up, hurting consumer demand and economic growth in Europe. This could have serious implications for firms doing business overseas.3

Economic data was a mixed bag last week. The number of Americans filing new unemployment claims rose more than expected last week, but economists think the increase is seasonal and doesn’t suggest any fundamental shifts in the labor market. We’ll have a clearer picture when the April jobs report comes out this Friday.4 Durable goods orders surged in March as businesses purchased long-lasting goods like household appliances, cars, and consumer electronics. An increase in this area generally means that retailers expect to be able to sell those products in the coming weeks and months.5 Consumer sentiment rose to a nine-month high in April as Americans became more optimistic about current and future economic prospects. Though consumer sentiment is known to be volatile, we can hope that improving job and business conditions will lead to greater consumer spending this quarter. 6

Investors will have a lot to digest in the week ahead with a Federal Open Market Committee (FOMC) policy meeting on Tuesday and Wednesday, the first Q1 Gross Domestic Product (GDP) estimate on Wednesday, and the April jobs report on Friday. Analysts don’t expect the Fed to change interest rates or its QE tapering schedule, though Fed Chairman Janet Yellen might use her official speech as an opportunity to provide further guidance about interest rate plans.

ECONOMIC CALENDAR:

 

Monday: Pending Home Sales Index, Dallas Fed Mfg Survey

Tuesday: S&P Case-Shiller HPI, Consumer Confidence

Wednesday: ADP Employment Report, GDP, Employment Cost Index, EIA Petroleum Status Report, FOMC Meeting Announcement

Thursday: Motor Vehicle Sales, Jobless Claims, Personal Income and Outlays, Janet Yellen Speaks 8:30 AM ET, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Friday: Employment Situation, Factory Orders

 

Data as of 4/25/2014

1-Week

Since 1/1/14

1-Year

5-Year

10-Year

Standard   & Poor’s 500

-0.08%

0.81%

17.55%

23.02%

6.34%

Dow

-0.29%

-1.30%

11.30%

20.52%

5.62%

NASDAQ

-0.49%

-2.42%

23.88%

28.11%

9.88%

U.S.   Corporate Bond Index

0.36%

2.68%

-2.66%

4.74%

1.00%

International

-0.19%

0.45%

10.44%

16.76%

7.75%

Data as of 4/25/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)

0.01%

0.04%

0.11%

1.72%

2.68%

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES:

Services sector slows expansion in April. The services sector, containing industries like financial services, hospitality, and healthcare, added jobs at the slowest rate in almost two years. Slow hiring could challenge the assertion that the job market is broadly improving.7

Manufacturing sector expands in April. U.S. factory output growth increased at the fastest pace in three years, driven by domestic demand. On the other hand, inventories fell, indicating that future demand for factory products may fall.8

Home sales suggest persistent weakness in housing market. New home sales dropped sharply in March, while sales of existing homes fell slightly for the third month in a row. Realtors blame rising mortgage rates and cold weather for plummeting sales, but some analysts think that housing prices have risen too high, putting ownership out of reach for many workers.9

Chinese manufacturing activity remains weak. Though manufacturing sector activity rose in April, it remains below target growth, supporting other economic indicators that show China’s economy may be stalling.10

The Rebound – Weekly Update April 21, 2014

Image Courtesy of FreeDigitalPhotos.net/jannoon028

Image Courtesy of FreeDigitalPhotos.net/jannoon028

Markets closed out the holiday-shortened week on an upbeat note, with the S&P 500 posting its best week since July. For the week, the S&P 500 gained 2.71%, the Dow grew 2.38%, and the Nasdaq rose 2.39%.1

Markets shook off the previous week’s losses and rallied on earnings data and a better-than-expected Gross Domestic Product (GDP) report from China. Though earnings season is still young, the overall picture is not as bad as investors had feared. Thomson Reuters estimates that first-quarter earnings increased 1.7% from a year ago, which is much lower than the high-flying estimates at the beginning of the year, but not too bad considering the rough winter.2

Though China’s first-quarter GDP report is not rosy – it showed that economic growth slowed to 7.4% as compared to the previous year – analysts had expected it to drop even further to around 7.0%.3 The data shows that China’s economic growth is indeed slowing, but markets still counted it as a win (for now). China is a trading partner to many countries around the world, and its economic strength is a bellwether for the health of the global economy. A slowdown in China could have knock-on effects elsewhere in the world.

On the domestic front, economic data is looking up. Retail sales surged in March, recording their largest gains in 1½ years as consumer demand came roaring back. Increasing consumer demand could indicate that economic growth is set to accelerate in the spring.4

The number of new unemployment claims filed last week rose less than expected, staying close to the 6½ year low achieved the previous week. The four week moving average, a less volatile measure, fell to the lowest level since October 2007, indicating that labor market growth is accelerating.5

Fed Chair Janet Yellen spoke last week and reiterated her opinion that the economy and labor market are still not fully recovered. She stated that future policy moves would not be based on a single indicator, but on a comprehensive analysis of the economy’s health.6

Looking ahead, earnings season will kick into high gear this week when nearly one third of S&P 500 companies report.7 If investors see strong earnings performance, markets could shake off the doldrums and resume the rally. On the other hand, weak performance could lead to significant volatility.

ECONOMIC CALENDAR:

 

Tuesday: Existing Home Sales

Wednesday: PMI Manufacturing Index Flash, New Home Sales, EIA Petroleum Status Report

Thursday: Durable Goods Orders, Jobless Claims

Friday: Consumer Sentiment

 

Data as of 4/18/2014

1-Week

Since 1/1/14

1-Year

5-Year

10-Year

Standard   & Poor’s 500

2.71%

0.89%

20.97%

22.89%

6.44%

Dow

2.38%

-1.01%

12.87%

20.36%

5.70%

NASDAQ

2.39%

-1.94%

29.34%

28.96%

10.52%

U.S.   Corporate Bond Index

-0.50%

2.32%

-3.09%

4.73%

0.89%

International

1.92%

0.64%

15.18%

17.31%

7.78%

Data as of 4/18/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)

0.02%

0.05%

0.11%

1.75%

2.73%

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES:

U.S. housing starts lag in March. Builders broke ground on fewer houses in March than expected, and new building permits fell, suggesting that weakness in the housing market could persist through warming weather..8

Manufacturing output rises in March. Factory production rose for the second straight month, extending its rebound after the cold winter. Overall industrial production was up 0.8%, beating analysts’ expectations, and indicating that manufacturing is set for a positive second quarter.9

Russia threatens shutoff if gas bill not paid. Russian President Vladimir Putin warned that natural gas supplies to Europe might be disrupted if Ukraine does not pay its gas debts, which Russia claims total $2.2 billion. Both Russia and the European Union (EU) are scrambling to find other markets for natural gas in the event the Ukrainian situation continues..10

Mortgage applications rose last week. Falling interest rates caused a surge in mortgage applications as Americans rushed to lock in lower rates. Rates on fixed 30 year mortgages fell to 4.27%, the lowest they’ve been since November 2013.11

Learning From A Market Drop Weekly Update – April 14, 2014

Image courtesy of FreeDigitalPhotos.net/renjith krishnan

Image courtesy of FreeDigitalPhotos.net/renjith krishnan

Markets closed a volatile week on a bearish note as the first earnings reports trickled in. For the week, the S&P 500 lost 2.65%, the Dow fell 2.35%, and the Nasdaq dropped 3.10%.1 One bright spot: Despite the dismal stock performance, economic fundamentals are looking up. What lessons should we take away from last week? We’ll get to that in a moment. First, let’s review the factors that contributed to last week’s performance.

Most of last week’s market decline came as a result of investors positioning themselves for a challenging earnings season. Many analysts had predicted a market reversal in 2014 as investors paused to take the pulse of last year’s big winners, and that is precisely what we’re seeing. Most of the sectors that have been hit hard this year were high fliers in 2013.2

On the economic front, consumer sentiment reached its highest level since last July as improvements in the labor market boosted optimism about the economy.3 However, since sentiment tends to mirror equity performance, if markets don’t improve, we may see that optimism wane in coming weeks. The week’s unemployment report was also very positive as new unemployment claims fell to the lowest level since May 2007.4

The crisis in Ukraine continued to simmer last week as the Ukrainian army sought to eject pro-Russian separatists from a complex near the eastern border.5 Tensions increased as Russia raised the price of natural gas exports to Ukraine by 80% and Ukraine retaliated by halting payments, pushing the two sides closer to another “gas war.”6 If Russia makes good on its threat to shut off the gas pipeline through Ukraine, EU states that depend on supplies from Ukraine could be affected.

Recent market troubles offer a teachable moment for investors: Don’t buy the hype. Let your long-term personal and financial goals drive your investment strategy and choose solid investments that suit your needs. Market volatility will always challenge investors, but we believe that a prudent investment strategy and active risk management can ultimately lead to better long-term outcomes.

Another important lesson is the need to tune out emotion and stick to a disciplined investment plan. Plenty of investors are looking glumly at their portfolio values, not realizing that a) recent losses may provide opportunities to cherry-pick solid stocks at attractive prices, and b) that economic fundamentals point to a rosier second quarter, giving us hope that equities will rally soon. The real losers will be those who gave in to greed and bought high-performers on the upswing, and who panicked and sold near the bottom.

ECONOMIC CALENDAR:

Monday: Retail Sales, Business Inventories

Tuesday: Consumer Price Index, Empire State Mfg. Survey, Treasury International Capital, Housing Market Index

Wednesday: Housing Starts, Industrial Production, EIA Petroleum Status Report, Beige Book

Thursday: Jobless Claims, Philadelphia Fed Survey

Friday: U.S. Markets Closed for Good Friday Holiday

 

Data as of 4/11/2014

1-Week

Since 1/1/14

1-Year

5-Year

10-Year

Standard & Poor’s 500

-2.65%

-1.77%

13.95%

22.39%

5.94%

Dow

-2.35%

-3.32%

7.81%

19.65%

5.35%

NASDAQ

-3.10%

-4.23%

21.20%

28.41%

9.48%

U.S. Corporate Bond Index

0.72%

2.84%

-2.11%

5.33%

0.84%

International

-1.63%

-1.25%

9.41%

17.21%

7.21%

Data as of 4/11/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)

0.04%

0.06%

0.09%

1.58%

2.63%

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES:

 

Gold prices log weekly gain on Fed hopes. Sagging risk appetites and hopes that the Fed will hold interest rates steady until next year pushed up gold prices. However, analysts expect gold prices to head lower this year as economic fundamentals improve.7

 

IMF issues hard-landing warning for China. The International Monetary Fund warned that though the risk of a sharp decline in China’s economic growth was small, overinvestment and structural issues in the financial system pose global risks.8

 

Producer prices edge up. Companies paid more for goods and services last month as wholesale prices rose. This may squeeze company profits this quarter as slack demand makes it hard for retailers to pass those costs on to consumers.9

 

Food prices on the rise in 2014. Drought and harsh winter weather has sent food prices higher by as much as 20%, according to some estimates. While U.S. consumers may not be affected greatly, since growing costs account for only 15% of retail prices, consumers in poorer nations may be hit hard.10

April 2014 Monthly Video Update

Josh Robb, Associate Investment Advisor with Hixon Zuercher Capital Management, shares his thoughts on the current market trends. and some of the major events that moved markets in the first quarter of 2014. He’ll also be discussing what might affect markets in the days and weeks ahead. From the volatile first three months to the lackluster economic data, stocks may have lost some momentum, but several turnaround stories are shared. Click below to hear more.

Quarterly Edition: Winter Chill Causes Volatile First Quarter Weekly Update – April 07, 2014

Image courtesy of FreeDigitalPhotos.net/CuteImage

Image courtesy of FreeDigitalPhotos.net/CuteImage

Equities closed out a lackluster quarter basically flat, as investors grappled with the effects of the chilly winter and widespread volatility. Though the major indices approached new highs in March, stocks gave in to selling pressure at the end of the quarter. For the quarter, the S&P 500 gained 1.84%, the Dow lost 0.35%, and the Nasdaq fell 0.10%.1

On the economic front, the quarter was a bit of a disappointment, though economists hope that a warmer spring will cause improvement in economic indicators. The final jobs report of the quarter showed that employers added 192,000 new jobs in March, though the unemployment rate remained unchanged. The good news is that milder weather and better job prospects are drawing the unemployed back to the job search. January and February job additions were revised upward, meaning the job market was not as weak as first thought.2

Though economists had hoped for more new jobs in March, the labor market reached a milestone last month when private-sector employment passed its previous all-time high of January 2008.3 Though its taken six years to get here, total employment is finally back where it was before the financial crisis. Unfortunately, the economy still has a way to go to regain its former vitality.

Retailers saw their sales slump last quarter as icy weather caused shoppers to stay home. Excluding automobiles, retail sales have been virtually flat since October, meaning retailer earnings probably took a hit. Major chains will release their March sales data next week and analysts will be looking to see if a warmer March sent more shoppers to the mall.4

The manufacturing sector also experienced a weather-driven slowdown in January, but factories shrugged off the cold winter in February with a surge in new orders, the largest increase since September.5 A different survey showed that manufacturing growth accelerated in March.6

This January, the Fed welcomed its new chairwoman, Janet Yellen. So far, Yellen has held the party line, continuing to scale back quantitative easing and reducing monthly bond purchases to $55 billion at the March meeting. The Fed also shifted its stance on unemployment, dropping its 6.5% unemployment threshold in favor of more nuanced language.7 Investors reacted badly to hints that the Fed might raise short-term rates before the end of 2015. In a speech last week, Yellen attempted to reassure investors by stating that the economy still needs “extraordinary support” and that she has a strong commitment to maintaining support until the economic recovery is self-sustaining.8

Global events also took their toll on markets last quarter, with a burgeoning crisis between Ukraine and Russia and emerging market issues contributing to a great deal of volatility in U.S. markets. Though the threat of violence in Ukraine appears to be over, markets are still nervous about the effects of economic sanction against Russia may have on U.S. and European companies. Investors, who had sought higher returns in developing economies in previous years, fled signs of structural weakness, causing overbought emerging market equities to fall.9 Many questions remain about the ability of developing economies to survive the end of cheap credit.

Looking ahead at the second quarter of 2014, analysts will be looking for more encouraging economic data that they hope with a warmer spring will cause growth to accelerate. Though this week is light on data, investors will be looking forward to getting a closer look at the minutes from the Federal Open Market Committee (FOMC) mid-March meeting to get more details about the Fed’s thinking behind their shift in guidance. Earnings will soon start trickling in and investors will get a good look at how well firms were able to manage lackluster demand at the beginning of the year.

Though we can’t make predictions about which way markets will go, we’re still optimistic about economic growth and market performance in 2014. We believe that underlying economic fundamentals are still strong and that the seasonal effects of winter will give way to stronger performance this quarter. If you have any questions about how market events may affect your portfolio, please don’t hesitate to reach out.

ECONOMIC CALENDAR:

 

Wednesday: EIA Petroleum Status Report, FOMC Minutes

Thursday: Jobless Claims, Import and Export Prices, Treasury Budget

Friday: PPI-FD, Consumer Sentiment

 

Data as of 4/4/2014

1-Week

Since 1/1/14

1-Year

5-Year

10-Year

Standard & Poor’s 500

0.40%

0.91%

19.56%

24.28%

6.33%

Dow

0.55%

-0.99%

12.37%

20.94%

5.68%

NASDAQ

-0.67%

-1.17%

27.99%

30.90%

10.07%

U.S. Corporate Bond Index

0.23%

2.10%

-2.69%

5.15%

0.73%

International

0.75%

0.39%

14.09%

17.61%

7.43%

Data as of 4/4/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)

0.03%

0.05%

0.11%

1.71%

2.74%

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES:

Gas prices heading higher, but are still below 2010 levels. Gasoline is making its annual trek higher as demand increases ahead of the spring and summer driving season. Nationally, gas prices average $3.55, though areas like California are seeing prices spike over $4.01. Despite the price creep, gas prices are still at their lowest level since 2010.10

Mortgage applications fall on low refinance demand. Applications for mortgages fell for the third time in four weeks. A measure of refinancing activity has declined to the lowest level since April 2010, as rising interest rates curb activity.11

China targeting job growth with stimulus measures. The Chinese premier’s version of the State of the Union Address highlighted China’s need for growth to create jobs for its 7.2 million college grads and the millions of rural Chinese flooding cities looking for work.12

European central bank mulls quantitative easing. Though the ECB has long resisted calls to undertake the unconventional type of asset purchases the Federal Reserve has made, weak inflation and persistently low growth in the EU may force its hand. Setting negative deposit rates might force banks to extend more loans to consumers and asset purchases could bolster the economy.13

10 Ways to Avoid Common Tax Filing Errors

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Tax time is here and we’re getting close to the April 15th filing deadline. Tax laws changed significantly in 2013 and taxpayers are now responsible for several new taxes as well as changes to deduction limits and exemption phaseouts.1

Last year, the IRS published a list of common tax filing errors2 that we wanted to pass along with our tips for avoiding them. You can prevent the vast majority of these mistakes with a little extra attention or the help of a professional tax advisor.

It’s in your benefit to catch errors before filing because a simple oversight could delay or cost you a refund, if you’re entitled to one. A blunder that causes you to underpay your taxes could lead to stern letters and penalties from the IRS or, worse, trigger an audit.

Here’s how you can avoid making one of these common errors:

1.         File electronically. By filing electronically, you can use computer software to catch many common mistakes. E-filing can also reduce the chances that an error in processing is made by the IRS.3

2.         Review your deductions. The IRS says many mistakes happen when taxpayers are calculating their deductions. For example, remember that if you are age 65 or older, you qualify for a larger standard deduction.4 Under time pressure, many taxpayers take the standard deduction instead of itemizing, potentially increasing the size of their tax bill. A tax professional can help you determine the best way to treat deductions.

3.         Check your charitable contributions. Missteps involving charitable deductions are quite common; it’s important to understand what the IRS allows you to deduct and how you must document it. You can consult a tax advisor or review IRS Publication 526 for more information.5 Don’t forget to claim any charitable contributions you made through payroll deductions or as qualified charitable distributions from your IRA.

4.         Share important information with your tax preparer. Working with a tax specialist can help cut down on expensive errors, but they aren’t mind readers. Don’t make the mistake of failing to share vital information with your tax preparer.

5.         Choose the right number of dependents. While this should be a simple decision, it becomes complicated during life’s transitions. For example, if your child recently got a full-time job or you are newly responsible for an elder’s care, you may want to review whether you can claim them as dependents or not.

6.         Correct the spelling of names and social security numbers. Make sure that all names and Social Security numbers match what’s on your (and your spouse’s) Social Security cards. If you’ve changed your name since the last time you filed your taxes, you’ll need to notify the Social Security Administration (SSA) so they can update their information. You can do this by filing form SS-5 at your local SSA office or by mail.6

7.         Double-check your direct deposit information. Most taxpayers give the IRS bank account information to receive their refund by direct deposit. Unfortunately, if you’ve given the IRS the wrong account information, your refund could easily go astray.

8.         Sign the return and attach all documents. The IRS won’t accept unsigned tax returns, so it’s critical that you (and your spouse if you file jointly) sign your 2013 tax return and include all necessary schedules and documents. Don’t forget to include a check for any taxes owed.

9.         Report any additional income. If you picked up a side job this year or are receiving income from your investments, be sure to report it to the IRS. If you forget to include this information on your return, there’s a good chance that you could owe additional taxes and penalties on your unreported earnings.

10.       Consult a professional. Tax laws are complex and consumer-grade tax preparation software is designed to meet the needs of the average taxpayer. If you have a complicated tax situation, a tax specialist can help you prevent mistakes and identify potential tax savings.

If you have any questions about the information we’ve presented or are concerned about your taxes, please contact us…we’d be delighted to help.