Archives for July 2014

Mixed Growth Expectations Stoke Volatility Weekly Update – July 28, 2014

Image courtesy of FreeDigitalPhotos.net/suphakit73

Image courtesy of FreeDigitalPhotos.net/suphakit73

Markets ended another volatile week mixed, pummeled by concerns about global growth but buoyed by better-than-expected earnings results. For the week, the S&P 500 ended flat, the Dow lost 0.82%, and the Nasdaq gained 0.39%.1

As of last Friday, just under half the S&P 500 companies had reported earnings, and the vast majority (69% and 63%, respectively) had beaten both earnings and revenue expectations.2 Though there were some high profile-earnings misses, the overall picture seems to be one of redemption and resilience. The percentage of better-than-expected results are up from the first quarter, meaning company growth likely accelerated; it’s also a good sign for future expectations, given that the economy is doing much better overall than it did earlier in the year.

That being said, some red flags about economic growth were raised last week. Mixed business spending data – a core component of Gross Domestic Product (GDP) calculations – may erode Q2 economic growth. While businesses spent more on core capital goods like computer equipment and automobiles, the value of shipments declined for the third month in a row, which led the International Monetary Fund to cut its 2014 U.S. growth forecast.3 On the other hand, durable goods inventories rose 0.4%, which is a great improvement over the slow inventory growth that contributed to the Q1 economic contraction.4 We’ll know more after this week’s official GDP report.

The week ahead may be the busiest of the summer, with over 140 S&P 500 companies releasing earnings.5 The Federal Reserve Open Market Committee meets on Tuesday and Wednesday to ponder next steps in monetary policy. Will they announce another $10 million taper to bond purchases? Probably. But, their comments will tell us a lot about how they feel about the economy.

The economic calendar is also full of major reports. Traders will get their first look at official Q2 GDP numbers on Wednesday as well as the July Employment Situation report on Friday. Given global worries about economic growth, we can expect some volatility as traders hedge their bets ahead of the data.

ECONOMIC CALENDAR:

 

Monday: Pending Home Sales Index, Dallas Fed Mfg. Survey

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

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

Thursday: Jobless Claims, Employment Cost Index, Chicago PMI

Friday: Motor Vehicle Sales, Employment Situation, Personal Income and Outlays, PMI Manufacturing Index, Consumer Sentiment, ISM Mfg. Index, Construction Spending

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HEADLINES:

Stiffer sanctions rattle Europe. The prospect of new sanctions against Russia over the crisis in Ukraine is shaking European confidence over economic growth. Europe is Russia’s biggest trading partner, and sanctions could bite deeply into European growth.6

New home sales drop sharply. Sales of new single-family homes fell 8.1% in June to the lowest level since June 2013; May numbers were also revised downward, suggesting that the housing market is still losing steam.7

Nationwide, layoffs are rarer. Improving economic prospects and confidence among employers is translating to fewer layoffs, as evidenced by the lowest levels of new unemployment applications seen since 2006. Will this be a turning point in the labor market recovery?8

Consumer inflation rises. Consumer prices, a measure of inflation, rose in June with skyrocketing gasoline prices. However, core inflation, which excludes volatile categories like food and fuel, remained consistent with a gradual increase due to healthy economic expansion.9

Markets Shake Off Global Worries Weekly Update – July 21, 2014

Image courtesy of FreeDigitalPhotos.net/Vlado

Image courtesy of FreeDigitalPhotos.net/Vlado

Despite a tumultuous week that had it all – earnings, volatility, geopolitical shock, and monetary policy news – markets were still able to chalk up a win. For the week, the S&P 500 gained 0.54%, the Dow grew 0.90%, and the Nasdaq added 0.30%.1

Federal Reserve chair Janet Yellen gave semi-annual speeches on monetary policy before the House and Senate. She confirmed that quantitative easing would end after the October Federal Open Market Committee meeting if the economic outlook continues to look good. However, she dodged a key question about the timing of interest increases, indicating that the Fed is not yet ready to commit to a formal plan. Yellen cautioned that economic signals are somewhat mixed and predictions are never certain; however, she believes that underlying economic trends are largely positive.2

International events took center stage when a civilian airplane carrying several hundred passengers was shot down over Ukraine, allegedly by pro-Russian separatists with possible military support from Russia.3  International condemnation of the shocking event was swift, but it’s hard to know what will happen next. On the one hand, international outrage over the civilian deaths may ratchet up the sanctions on Russia. On the other hand, the importance of Russian trade ties with Europe argue for a more cautious approach, given how fragile the EU’s economy is right now. In the Middle East, the Israeli Defense Force moved ground troops into Gaza in an effort to quell the rocket attacks from Hamas. Despite international diplomatic efforts, hostilities between the two sides are escalating, fueling fears about instability in the Middle East.4

These global worries caused stocks to dive on Thursday, but better-than-expected earnings boosted investor sentiment, pushing stocks higher on Friday. So far, second quarter earnings are off to a good start, though it’s too soon to draw conclusions about the whole season. Thus far, we’ve heard from 45 S&P 500 companies, mostly in the Finance sector; overall, earnings are up 5.2% from Q2 2013, on 2.8% higher revenues.5  Again, while we can’t use these data points to predict earnings results from other companies, it’s a sign that investors’ optimism about the second quarter might be rewarded.

This week, earnings data and news from Ukraine and Israel will likely dominate market headlines, potentially stoking more volatility. On the earnings calendar this week will be reports from heavyweights like AT&T (T), Microsoft (MSFT), Starbucks (SBUX), and Apple (AAPL).

 

ECONOMIC CALENDAR:

 

Tuesday: Consumer Price Index, Existing Home Sales

Wednesday: EIA Petroleum Status Report

Thursday: Jobless Claims, New Home Sales

Friday: Durable Goods Orders

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HEADLINES:

Retail sales disappoint. June retail sales ticked up just 0.2%, held back by drops in restaurant, auto, and building sales. The anemic numbers suggest that consumers are still cautious about opening their wallets, which may hold back spending this year.6

Jobless claims fall unexpectedly. The number of Americans filing new claims dropped more than expected last week, showing that the labor market continues to improve. The number of people receiving continuing unemployment support is also at a seven-year low.7

Consumer sentiment dips. A preliminary reading of July consumer sentiment showed that consumer optimism about the future is faltering. While attitudes about current conditions are stable, low expectations may curb future spending.8

Home builder optimism surges. A key measure of home builder sentiment jumped in July, indicating that the nation’s builders are feeling more confident about their prospects. Respondents think improvements in the labor market and low housing supply will boost demand.9

5 Critical Financial Issues in Remarriages

Many Americans are in their second and third marriages. In fact, statistics from a 2012 book, The Remarriage Blueprint, suggest that nearly 40 percent of new marriages include at least one previously married spouse. Remarrying later in life can produce a number of complex financial, legal, and emotional matters that should be addressed as soon as possible. If you or someone you love is part of a blended family, we urge you to think about these important issues.

Be candid about your financial situation. Couples who are remarrying frequently have significant financial baggage. Being open and honest with each other about assets, debts, and obligations from a previous marriage can help avoid problems later on.

Consider the following questions:

  • What financial obligations are you bringing to the marriage?
  • How will you split living expenses and contribute to savings?
  • Do you plan to pool your finances?
  • Where will you live and who will own the house?
  • Who is on the mortgage?
  • How will your marriage affect college financial aid for your children?
  • What will you do if you need to financially support an adult child or elderly parent?

It’s very important to be able to have these conversations early and often in your marriage. If you find that you’re not on the same page or are worried about bringing up complicated issues, ask your financial advisor to help mediate your discussion and provide a neutral perspective.

Update life insurance, medical directives, and beneficiary designations. It’s unbelievably common for couples to forget to update important documents when they remarry. If you or your spouse dies without changing beneficiaries on a retirement account or life insurance policy, a significant part of the estate could go directly to a previous spouse, with no legal recourse. If you and your spouse have living wills, healthcare powers of attorney, or medical directives (and you should), review them with your attorney to make sure that these documents reflect your current wishes. If you don’t currently have an attorney, we can introduce you to one from our professional network.

Think about how remarriage affects your retirement planning. Some divorce settlements require retirement benefits to be split with an ex-spouse, which could reduce your income in retirement. In the event of your death, your current spouse might have to split survivor benefits with your ex-partner. Social Security benefits can also be affected. For example, if you are entitled to spousal or survivor’s Social Security benefits from a previous marriage, getting remarried might affect how much you are entitled to collect. Discuss these issues with your spouse and financial advisor to make sure that your retirement takes into consideration your change in financial circumstances.

Consider drafting a prenuptial (or postnuptial) agreement. While most Americans get married without a prenup, we believe that they are essential in a remarriage situation. In many cases, one or both spouses will have children from a previous marriage or have significant debts and assets. When developed by an experienced attorney, a financial agreement can help you protect yourselves and your heirs from the financial fallout of a divorce.

Discuss estate planning with your investment advisor and attorney. Estate planning can be emotionally and logistically complex in blended families, and it’s important to make sure that you and your spouse update your estate plans. It’s essential to discuss your estate plans if you want to make sure your children inherit rather than your current spouse or your spouse’s children.

Conclusions

Remarrying later in life is wonderful, but a new marriage can introduce many complex financial considerations. We strongly recommend discussing these issues with your spouse as early as possible to ensure that your financial health is protected and to help lay the groundwork for future conversations about money.

It’s also a good idea to speak with your investment advisor and attorney so that they can help you understand how your finances and legal situation will be affected by your marriage. If you have any questions about marital finances or any other issues surrounding blended families, please give us a call. We’re always happy to be a resource to you and those you love.

Markets Slump As Investors Wait for Earnings Weekly Update – July 14, 2014

Image courtesy of FreeDigitalPhotos.net/renjith krishnan

Image courtesy of FreeDigitalPhotos.net/renjith krishnan

Stocks checked their advance last week as investors weighed earnings reports and waited for more news. Worries at one of Portugal’s largest banks also contributed to mid-week losses. For the week, the S&P 500 lost 0.90%, the Dow fell 0.73%, and the Nasdaq dropped 1.57%.1

Markets took a dive in the middle of the week on news that one of Portugal’s largest banks may be in trouble. Investor concerns about a possible domino effect in the EU’s financial system were soothed by statements from European Central Bank officials, who claimed that only one bank was affected by financial irregularities.2 However, investors still used the opportunity to take some profits off the table.

Expectations about second quarter performance also set the tone for markets last week. While investors were willing to shrug off negative news in the first quarter because of the poor weather, their optimism has raised expectations for Q2 earnings and economic performance. So far, we haven’t seen enough data to draw any conclusions, but total Q2 earnings for S&P 500 firms are expected to be up about 3.00%.3

Economic news was scarce last week, but weekly jobless claims fell to one of the lowest levels since the last recession. While weekly numbers are always volatile, the four-week moving average also dropped to the second-lowest reading since August 2007.4 All told, it was a pretty good week for the labor market.

Earnings season kicks into high gear this week and reports will likely affect markets as investors discover whether their high hopes for second quarter performance bear out. Federal Reserve Chair Janet Yellen will also deliver her second semi-annual remarks on monetary policy before the House and Senate.5 Though we don’t expect any surprises, analysts will be digging into her comments for hints about when the Fed might raise interest rates.

ECONOMIC CALENDAR:

 

Tuesday: Retail Sales, Empire State Mfg. Survey, Import and Export Prices, Business Inventories, Janet Yellen Speaks 10:00 AM ET

Wednesday: PPI-FD, Treasury International Capital, Industrial Production, Housing Market Index, Janet Yellen Speaks 10:00 AM ET, EIA Petroleum Status Report, Beige Book

Thursday: Housing Starts, Jobless Claims, Philadelphia Fed Survey

Friday: Consumer Sentiment

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HEADLINES:

Wholesale inventories jump in May. Business inventories surged 0.50% from April as firms stocked up on autos, machinery, and lumber. Inventories are a key component of GDP calculations and gains in this area indicate that businesses could be restocking to cope with rising demand.6

Percentage of uninsured Americans drops. A recent Gallup poll shows that only 13.40% of Americans lack health insurance, a significant drop from mid-2013, when 18.00% of Americans were uninsured. This could be good news for the healthcare sector, which might see increased demand from the newly insured.7

Retail sector in a funk? Several retail chains have blamed weak earnings on sluggish demand, indicating that lower- and middle-income consumers may not be reaping the benefits of a growing economy.8

U.S. refineries struggle to keep up with oil production boom. Rapid increases in oil extraction means America is in the upper strata of global oil producers. However, limited refinery capacity is keeping domestic gas prices high.9

July 2014 Monthly Video Update

Special Quarterly Edition: Markets End Quarter on High Note Quarterly Update – July 7, 2014

Image courtesy of FreeDigitalPhotos.net/jscreationzs

Image courtesy of
FreeDigitalPhotos.net/jscreationzs

After a slow start to the year, the second quarter of 2014 may be a redemption story. Multiple indices reached new records and the S&P 500 logged its longest quarterly rally since 1998.1 For the quarter, the S&P 500 gained 4.66%, the Dow grew 2.56%, and the Nasdaq gained 4.46%.2

What are some of the factors that contributed to strong market performance in Q2?

Economic fundamentals were solid. Despite some gloomy first quarter Gross Domestic Product (GDP) results showing the economy contracted 2.9%, it appears that underlying fundamentals are returning to trend following the chilly winter. Retail and vehicle sales grew as consumers unlimbered their wallets.3 Manufacturing also picked up significantly after the winter slowdown, supporting the belief that the sector, which contributes 12.5% to GDP, is rebounding strongly.4

The employment picture is much brighter. The labor market hit an important psychological milestone by regaining all of the 8.7 million jobs lost in the recession.5 While demographic shifts and labor market growth mean that we haven’t yet hit full employment, job growth could be picking up speed. The June employment situation report showed the economy created 288,000 new jobs and the unemployment rate dropped to 6.1%.6 All told, roughly 800,000 new jobs were created last quarter, which is great news.7

The Federal Reserve has continued to express optimism about the economic recovery and is committed to wrapping up quantitative easing programs by this Fall.8 Much of the bull market we’ve seen for the last couple of years can be attributed to the Fed’s easy money policies and its commitment to supporting economic growth. Now that the country is finally on better footing, investors are taking comfort from the Fed’s readiness to take the training wheels off the economy and return to normal monetary policy.

What could act as headwinds in the weeks and months to come?

Geopolitical issues are on the radar as the security situation continues to deteriorate in Iraq and the crisis in Ukraine still simmers. Ukraine and Iraq play key roles in the natural gas and oil industries, respectively, and supply disruptions – or even just the threat of disruptions – could drive up prices and make investors skittish.

Rising food and energy prices may start to be felt in consumer spending.9 If Americans are taking hits to their pocketbooks, they may be less willing to spend, which could drag on the economy and financial markets.

Investor optimism is also very high, which can sometimes presage a market pullback as investors take profits and wait for better news. After flirting with the top for days, the Dow finally broke 17,000 last week for the first time in its 118-year history.10 Though we don’t put a lot of faith in technical indicators, 17,000 is a big psychological number and investors may become more cautious on the other side.

What does this mean for future market performance? Hard to say. Economic fundamentals going into the third quarter are strong, and if the earnings picture is bright, stocks could see some further upside. However, we can expect more volatility and possibly even a correction in the months to come. As always, it’s important to stay focused on long-term goals instead of short-term market performance.

ECONOMIC CALENDAR:

 

Wednesday: EIA Petroleum Status Report, FOMC Minutes

Thursday: Jobless Claims

Friday: Treasury Budget

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HEADLINES:

Vehicle sales accelerate in June. Sales of automobiles spiked unexpectedly last month, reaching an annualized rate of 16.98 million units. This is good news for the economy because it indicates that consumers are willing to purchase big-ticket items.11

June manufacturing jumps. June was a very strong month for manufacturing as domestic demand caused new orders to spike. Foreign demand for U.S. goods barely changed, indicating that global demand is still suffering.12

ECB unlikely to buy bonds. While the European Central Bank has committed to quantitative easing to boost stagnant growth in Europe, the organization will likely stop short of taking on the Federal Reserve-style bond purchases.13

IMF hints at global forecast cut. The International Monetary Fund may cut its global economic growth forecast, citing weak public and private sector demand. Weak global growth could spell trouble for U.S. firms who rely on exports for revenue.14