Archives for May 2014

Markets Rally on Housing Data Weekly Update – May 26, 2014

Image courtesy of Miles

Image courtesy of Miles

Despite some volatility, markets rallied on better-than-expected housing numbers, putting the S&P 500 above 1900 for the first time.1  For the week, the S&P 500 gained 1.21%, the Dow gained 0.70%, and the Nasdaq grew 2.33%.2

The housing market took center stage last week on upbeat reports on new and existing home sales. Sales of new homes in the U.S. rose 6.4% in April after slumping for the previous two months.3 Existing home sales grew for the first time in 2014, creeping up a modest 1.3% in April.4 Though analysts don’t expect this “spring thaw” to rescue the housing sector, they hope that it will lead to stronger growth in the second quarter.5 High prices and rising mortgage rates have sidelined many buyers, but stronger labor market trends could strengthen home buying trends.

Initial jobless claims spiked more than expected last week, however, continuing claims dropped to their lowest level since December 2007. The four-week moving average of initial claims also dropped, indicating that unemployment trends are generally moving in the right direction.6

However, a recent poll revealed that nearly half of unemployed Americans are thinking about or have given up the job hunt. Feelings of discouragement and hopelessness are preventing many survey respondents from continuing to seek work; even when jobless benefits have run out. The survey also indicated that many long-term unemployed are not willing to relocate or pursue education that could help them land a job. Mismatches between available jobs and worker skills could be contributing to unemployment and under-employment trends.7

The Fed released meeting minutes from the April Federal Open Market Committee (FOMC) meeting, and while the report contained no surprises, investors were reassured by the meeting’s focus on an exit strategy for quantitative easing. The minutes also emphasized the desire by some Fed insiders to give the public more information on future Fed plans in order to give markets more time to digest key policy shifts.8

Looking ahead at the holiday-shortened week, investors will be taking a close look at Thursday’s Gross Domestic Product (GDP) report as well as key consumer sentiment numbers. Strong spending and consumer confidence data would support hopes that economic activity is picking up in the second quarter.


Monday: U.S. Financial Markets closed for Memorial Day holiday

Tuesday: Durable Goods Orders, S&P Case-Shiller HPI, Consumer Confidence, Dallas Fed Mfg. Survey

Thursday: GDP, Jobless Claims, Pending Home Sales Index, EIA Petroleum Status Report

Friday: Personal Income and Outlays, Chicago PMI, Consumer Sentiment



Gas prices close to three-year norm. For the third year in a row, average gas prices are within a few cents of $3.64 over the Memorial Day holiday. Steady gas prices are a result of stable crude oil prices, which have been supported by rising output from the U.S., Canada, and Brazil.9

Beef prices heading north. Long-lasting drought conditions in California and other major agricultural states are boosting the price of summer staples like beef, pork, and fruits. The USDA expects overall food inflation to increase to 3.5% in 2014.10

U.S. manufacturing growth picks up. A measure of factory activity in the U.S. hit a three-month high in May and grew at the fastest pace since early 2011. Expansion in the manufacturing sector could lead to higher GDP growth this quarter.11

Vacation rental scams on the rise. Scammers are using Craigslist and other online classifieds to lure in vacationers with low prices on rentals in hot areas. To protect yourself, rent through a reputable agency or verify owner details and always pay with a credit card for extra protection.12


Why Are Bond Yields So Low? Weekly Update – May 19, 2014

Image courtesy of

Image courtesy of

After several days of negative performance, stocks rallied in the last two days to close generally flat. For the week, the S&P 500 lost 0.03%, the Dow fell 0.55%, and the Nasdaq gained 0.46%.1

Economic data last week was generally ho-hum except for two reports. Weekly jobless claims plunged to their lowest level in seven years, giving investors hope that the labor market is moving into high gear. Keep in mind that this measure is highly volatile, and it’s wise to wait and see if the trend continues.2

Another report showed an unexpected jump in April housing starts, which could indicate the beginning of resurgence in the housing market. Groundbreaking on new houses surged 13.2% in April as warmer weather and rentals buoyed demand for multi-unit buildings.3

Investors who watch bond markets have probably noticed a puzzling downward trend in bond yields. Despite several new records for major stock indexes and an economy that might be reaching escape velocity, the yield on benchmark 10-Year Treasury bonds have been on a downward trend since the beginning of the year.



To give you a quick refresher, bond yields and bond prices are inversely related, meaning that as demand for bonds goes up, yields come down. Conversely, bond yields go up when demand falls. Typically, stronger economic performance leads to higher Treasury yields. Given recent stock market highs and better economic performance, we should see demand for Treasury bonds to go down as investors embrace risk and seek greater returns elsewhere. In fact, we’re seeing the opposite.

There are a few factors that may be contributing to the demand for Treasuries:4

  • Inflation is still muted. Higher inflation generally leads to higher interest rates and higher bond yields.
  • The Fed doesn’t appear to be in a hurry to raise interest rates, putting downward pressure on yields.
  • The European Central Bank has pledged to lower interest rates to spur economic activity, driving up demand for U.S. bonds.
  • U.S. debt is attractive to investors seeking high liquidity and lower default risk.
  • Global jitters from the crisis in Ukraine are pushing investors into Treasury bonds.

What does this all mean for investors?

It’s hard to know exactly where bond yields will go, but many analysts think that demand will remain high for the foreseeable future. Lower borrowing costs may spur business activity as companies are able to lower financing costs and prospective homebuyers can find mortgages at attractive rates.While the relationship between bond markets and stock markets is complex, lower bond yields might support higher stock prices as investors seek higher returns. On the other hand, frazzled investors may see plummeting Treasury yields as a sign that the economy is not picking up and turn bearish on equities.5

Looking ahead, this week is fairly light on economic data, but the housing market will be in the spotlight as analysts determine whether home sales data supports the upward trend in housing starts. Elsewhere, several important Fed economists, including Janet Yellen, will be speaking about the economy throughout the week, and the minutes from the most recent FOMC meeting will be released.6



Wednesday: EIA Petroleum Status Report, Janet Yellen Speaks 11:30 AM ET, FOMC Minutes

Thursday: Jobless Claims, PMI Manufacturing Index Flash, Existing Home Sales

Friday: New Home Sales



HEADLINES:Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and 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.

Consumer sentiment slips in May. An important gauge of consumer sentiment dropped below expectations as gloom over stagnant wage growth clouded consumer confidence.7

Economists raise Q2 GDP estimate. Fed economists believe that the economy is growing at a faster pace in the second quarter than originally thought. Analysts see the economy growing at an annualized rate of 3.3%, up from 3.0%.8

Retail sales edge up slightly in April. After two straight months of strong gains, retail sales hit the brakes last months, rising just 0.1%. Consumers reined in spending across multiple categories, but analysts still believe consumers are on track to spend more this quarter.9

Industrial production declines in April. Manufacturing fell 0.6% in April after two straight months of gains. Analysts are taking a wait-and-see approach to see if the general upward trend in activity continues next month.10


Recent Changes to IRA Rollover Rules

Image courtesy of

Image courtesy of

The IRS recently issued new guidance about the rules governing rollovers* from Individual Retirement Accounts (IRAs).1 The new regulations state that IRA owners will only be allowed one 60-day rollover per 12-month period, regardless of how many IRAs they own. Prior to this update, the IRS had permitted taxpayers to take one rollover every year for each of their IRAs.

The new rule will go into effect on January 1, 2015, giving clients and advisors time to adapt to the change. Any rollovers that take place before the beginning of next year will be grandfathered in under the old interpretation and be unaffected by the change.

What Are the Tax Consequences of the New Rule?

Under the new rules, you’ll be allowed to treat a single cash distribution from any of your IRAs as a 60-day rollover every 12 months. For example, if you take a distribution from your Traditional IRA on January 10th next year, you will have 60 days to roll it over to another IRA. The day you take your distribution, the clock starts ticking and you won’t be eligible for another rollover for 12 months.

If you take another distribution from your IRA before the 12 months is up, it will be treated as a taxable event. You’ll have to report the distribution as income and pay taxes at your ordinary rate. If you’re under 59 ½, you may be subject to a 10 percent early withdrawal penalty. If you try to return the money to an IRA, the IRS will treat it as an excess contribution and levy a 6 percent tax on the assets as long as they remain in the IRA.

Are There Any Exceptions to the New Rollover Rule?

According to the IRS2, the once-per-year limit does not apply to:

• Roth conversions from traditional IRAs
• Trustee-to-trustee transfers between IRAs
• IRA-to-retirement plan rollovers
• Retirement plan-to-IRA rollovers
• Plan-to-plan rollovers.

In plain English, rollovers that go directly from one retirement account to another, without passing through your hands, do not count against your annual allotment. However, any checks or wires that are made out to you personally (and not the trustee of your retirement account) will be subject to the 12-month rollover limit.
While most investors will not be unduly affected by this rule change, we can learn an important lesson from the situation: the tax code is constantly being updated and investors can expect new changes in the future. As advisors, one of our most important duties is staying abreast of the shifting regulatory environment and making changes to our clients’ strategies where necessary.
If you are concerned about how your retirement strategies may be affected by the new rules regarding rollovers or have any questions about the information included in this letter, please contact us. We would be happy to be of service to you.
*Rollovers are generic layman’s terms for moving from one retirement account to another. There are different kinds of rollovers and some are actually transfers. That is why there are some exceptions to the rule.

Choppy Week Ends Mixed Weekly Update – May 12, 2014


Image courtesy of miles

The major indices closed out a volatile week on a mixed note, though the Dow was able to notch another all-time closing record on Friday.1 Though stocks showed some momentum mid-week as investors bought the dip, they lost conviction on Friday as traders trimmed exposure ahead of the weekend.  For the week, the S&P 500 lost 0.14%, the Dow gained 0.43%, and the Nasdaq fell 1.26%.2

Last week was fairly quiet in terms of economic reports. The jobs market continues to show improvement. Jobless claims fell more than expected last week, snapping three weeks of increases. Though the four-week moving average rose slightly, the level is consistent with stable growth.3

Fed Chair Janet Yellen spoke before the House and Senate about the state of the economy. Her testimony was mostly upbeat and she reassured lawmakers that economic activity should pick up speed after the slow first quarter. However, she expressed concern about weakness in the housing sector and indicated that Fed economists will be watching the sector closely in the coming months. Despite housing sector worries, the Fed will continue to pare back bond purchases and still plans to wrap up current quantitative easing programs by this Fall.4

Ukraine is slipping closer to civil war as pro-Russian separatists in Eastern Ukraine move ahead with a disputed referendum on self-rule. Though Russia denies any role in the escalating conflict, Western leaders fear that Russia is funding rebels in order to absorb the Russian-speaking eastern portions of Ukraine.5 On the positive side, Russian President Vladimir Putin seems reluctant to engage in a showdown with the West by sending in troops. A destabilized Ukraine could lead to disruptions to natural gas supplies and other economic damage in Europe.

The week ahead is packed with important economic data, and analysts will be closely watching retail sales and business inventory numbers as well as the next consumer sentiment report to get a feel for how strong demand is in the second quarter. Though housing data is still expected to be weak, analysts are hopeful that warmer weather will boost activity.



Monday: Treasury Budget

Tuesday: Retail Sales, Import and Export Prices, Business Inventories

Wednesday: PPI-FD, Housing Market Index, EIA Petroleum Status Report

Thursday: Janet Yellen Speaks, Consumer Price Index, Jobless Claims, Empire State Mfg. Survey, Treasury International Capital, Industrial Production, Philadelphia Fed Survey

Friday: Housing Starts, Consumer Sentiment


Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and 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.


Strong wholesale inventories may reduce Gross Domestic Product (GDP) downgrade. Though economists may lower first quarter GDP estimates, a better-than-expected increase in wholesale inventories in March – a key component of GDP estimates – may temper the downgrade.6

China will avoid large-scale economic stimulus. Despite the signs of a slowing Chinese economy, its central bank will not employ any significant stimulus programs – similar to the U.S. Federal Reserve’s quantitative easing – to boost the economy.7

Mortgage applications rise. After weeks of lethargy, mortgage markets picked up as loan applications rose. Total mortgage volume rose on a surge of home buying activity spurred by lower interest rates and continued job market growth.8

Cash deals rule in housing market. High demand and low supply are forcing homebuyers to get competitive with all-cash offers, which accounted for 43% of total home sales in the first quarter. Strict lending standards have reduced the opportunities for many traditional homebuyers and given investors a competitive edge.9



May 2014 Monthly Video Update

Special Update: The Labor Market in 4 Charts Weekly Update – May 5, 2014

Image courtesy of krishnan

Image courtesy of krishnan

Markets ended another volatile week on an upbeat note after a wave of economic data showed that the economy is still on the right track. For the week, the S&P 500 gained 0.95%, the Dow grew 0.93%, and the Nasdaq gained 1.19%.1

One of the biggest headlines last week was the April jobs report, which showed that 288,000 new jobs were added in April, many more than economists had predicted. Even better, employment gains were widespread and represented growth in multiple sectors across the economy.2

The monthly jobs report garners a lot of attention. We wanted to use this week’s update to dig deeper into some of the data behind employment reports to show you why jobs numbers are watched so closely.

Why do labor market reports matter?

Employment reports matter to the overall economic picture because jobs growth is an important stimulus for economic growth. Job growth is highly correlated with improvements in consumer confidence, which often presage increases in spending.3 Since spending accounts for over two-thirds of economic activity, you can understand why analysts monitor the labor market closely.

Is the labor market actually improving?

If you’ve been keeping tabs on the many labor market-related headlines, you’ve probably heard pundits say that the labor market is showing signs of overall improvement. What does that mean, exactly?

Let’s look at some data. One of the most important short-term indicators of labor market health is the weekly initial claims for unemployment, which captures new applications for unemployment benefits. You can see in the chart below that the 4-week moving average of initial claims (a much less volatile measure than weekly claims) has been steadily declining since the recession peak in 2009. While the data is volatile and ‘noisy,’ the long-term trend shows significant improvement.


Source: IC4WSA. BLS, Federal Reserve Economic Data. 5/2/09-4/26/14.

Another important indicator is the number of voluntary separations, which tracks workers’ willingness and ability to leave their jobs. Generally, this happens when folks find a better job, so it’s a good signal of improvements in the quality and quantity of jobs available.


Source: JTSQUL. BLS, Federal Reserve Economic Data. Feb 2009-Feb 2014.

This chart shows that the number of monthly quits has been on a general upward trend since early 2009.

However, the picture isn’t completely rosy. Much of the fall in the employment numbers released last week can be attributed to the more than 800,000 Americans who dropped out of the labor force in April.4

Realistically, declining labor force participation is probably going to stay with us as baby boomers continue to retire and young people wait longer to find employment. However, most of the recent decrease comes from discouraged workers who are dropping job searches out of frustration. This is troubling.

The Bureau of Labor Statistics (BLS) defines discouraged workers as those who want a job but are not currently looking because they don’t believe jobs are available or that they qualify for current opportunities.5 You can see that the measure of discouraged workers is extremely volatile, but the overall trend since 2011 is downward, which is where we want it to be.6 However, we’ve still got a long way to go before workers and their skills will match available jobs.


Source: LNU05026645. BLS, Federal Reserve Economic Data. Jan 2011-Apr 2014

What Does the Unemployment Rate Actually Show?

You’ve probably heard a lot about the . However, did you know that the government calculates six different measures of unemployment? The so-called headline rate is officially known as the U-3 measure and calculates total unemployed as a percent of the total civilian labor force. For a broader measure, we can look at the U-6 rate, which also captures under-employment. This calculation includes people who, while they don’t meet BLS definitions of unemployed, still suffer the effects of a weak job market.


Source: UNRATE, U6RATE. BLS, Federal Reserve Economic Data. Apr 2009-Apr 2014.

The top line shows this broader measure of unemployment. Right now, while the headline unemployment rate is 6.3%, we can tack on another 6.0%-worth of discouraged, under-employed, and forced part-time workers. Digging a bit deeper, involuntary part-time work is the largest contributor to the difference between headline unemployment and the U-6 measure, indicating that, while many Americans have jobs, they aren’t able to work as much as they might like.7

Bottom Line: The Labor Market Is Improving

Overall, medium- and long-term trends in employment data show that the labor market is largely getting better. However, in the short-term, seasonal effects, unique business events, and other factors can make the jobs picture much less clear.

This is why policy makers like the Federal Reserve look at a variety of indicators (including the data we’ve examined in this update) to develop a more nuanced view of what is happening in the economy. As financial representatives, it’s our job to monitor many different indicators, including the data we’ve shared with you in this update, to understand the current economic picture and develop strategies for our clients.

I hope you’ve enjoyed our foray into some of the numbers behind the employment headlines. We enjoy providing educational and informative content, and we welcome any comments or questions you may have.


Monday: ISM Non-Mfg. Index

Tuesday: International Trade

Wednesday: Productivity and Costs, Janet Yellen Speaks 10:00 AM ET, EIA Petroleum Status Report

Thursday: Jobless Claims, Janet Yellen Speaks 9:30 AM ET


Data as of 5/2/2014


Since 1/1/14




Standard & Poor’s 500


















U.S. Corporate Bond Index












Data as 5/2/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)






Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and 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.


First quarter GDP estimate shows weak performance. Investors got their first look at Q1 Gross Domestic Product (GDP) growth and the current estimate shows that the U.S. economy grew a sluggish 0.1%, mostly because of the lingering effects of winter8 Keep in mind that economic estimates change frequently, and revised data may show a more upbeat picture.

Federal Reserve continues taper. The Federal Open Market Committee (FOMC) met last week and voted to continue tapering, decreasing monthly bond purchases to $45 billion. The move wasn’t a surprise to analysts, but it serves to underscore the Fed’s faith in the economic recovery.9

Consumer spending soars in March. Warmer weather encouraged American shoppers to return to malls and car dealerships, boosting consumer spending by the highest amount in nearly five years.10

Ukrainian crisis turns violent. Ukrainian military forces engaged pro-Russian insurgents in eastern Ukraine, attempting to regain control over the economically important east. Russia continued to mass troops on the border and warns they will respond to attacks on Russian interests.11



[vi] N.B. The time period in this chart is different because the BLS changed its calculation method for discouraged workers in January 2011, rendering comparisons before and after the change problematic.