Archives for November 2014

Assertive Moves By Major Players Weekly Update – November 24, 2014

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of
FreeDigitalPhotos.net/Stuart Miles

Markets rallied for the fifth week in a row on global and domestic good news, sending the Dow and S&P 500 to new record highs. For the week, the S&P 500 gained 1.15%, the Dow grew 0.99%, and the Nasdaq added 0.52%.1

Investors cheered on Friday when China’s central bank made its first interest rate cut in more than two years, stepping up its efforts to spur growth in the world’s second-largest economy. Slowing factory growth and a stalled housing market – both major factors in China’s historical growth – may have been behind the bank’s surprise move.2

The European Central Bank also jumped on the stimulus bandwagon and began purchasing asset-backed securities in an effort to encourage banks to lend money and boost Eurozone economic growth. While this measure is similar to the bond-buying programs implemented by the Federal Reserve (and pioneered by the Bank of Japan), it falls short of quantitative easing, which would require the ECB to take on the risk of buying the sovereign debt of its member countries. The news caused the euro to tumble; policymakers probably hope further weakness in the euro will lead to export and manufacturing growth.3

Why is all this good news for investors? These assertive moves by major players in the global financial scene are a hopeful sign that they are prepared to do what it takes to put the global economy back on track. While the U.S. is making big strides toward a healthy economy, Europe and China are lagging behind and their central banks may need to make further moves to boost growth.

On our side of the pond, last week’s unexpectedly low new unemployment claims report showed that the labor market continues to make gains. At this point, weekly claims for new unemployment benefits have been below 300,000 for ten straight weeks, which is a fantastic sign for the job market.4 Continuing claims also fell to the lowest level since 2000, indicating that many jobless Americans are moving off the unemployment rolls, though there could be some seasonal hiring factors at play.5

Looking ahead, the holiday-shortened week is packed with economic data and analysts will be looking closely at the next Q3 Gross Domestic Product estimate as well as some important consumer sentiment indicators. Thursday kicks off the critical holiday shopping season and investors will be watching to see if hopes for the retail sector can turn into reality.

 

ECONOMIC CALENDAR:

Monday: Dallas Fed Mfg. Survey

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

Wednesday: Durable Goods Orders, Jobless Claims, Personal Income and Outlays, Consumer Sentiment, New Home Sales, Pending Home Sales Index, EIA Petroleum Status Report

Thursday: U.S. Markets Closed For Thanksgiving Holiday

Friday: Chicago PMI

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HEADLINES:

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.

Existing home sales jump in October. Sales of previously owned homes rocketed to their highest level in more than a year, suggesting that the housing market may be on the rebound. Improvements in the labor market and lower mortgage rates may boost further sales activity.6

Oil settles higher. Actions by China’s central bank and rumors that OPEC could cut oil production sent crude oil slightly higher last week. With prices so low, any bullish sentiment could start an oil rally, though conditions remain optimal for continued low prices.7

U.S. factory production falls in October. Cutbacks at U.S. automakers caused industrial production to fall unexpectedly in October, indicating that manufacturing may have gotten off to a slow start in the fourth quarter.8

Housing starts fall in October, but building permits surge. Construction on new houses fell unexpectedly last month, continuing its oscillation of the past few months. However, permits for new construction jumped to a 6-1/2 year high, suggesting that builders are optimistic about their future prospects.9

A Slow Week Ends in New Highs Weekly Update – November 17, 2014

Image courtesy of FreeDigitalPhotos.net/Idea go

Image courtesy of
FreeDigitalPhotos.net/Idea go

Markets ended a sluggish week of trading slightly up, notching another record close for the S&P 500. For the week, the S&P 500 gained 0.39%, the Dow grew 0.35%, and the Nasdaq added 1.21%.1

Though last week’s data was sparse, several important economic reports show that investors may have something to be excited about. The latest retail sales data shows that shoppers came out in droves in October, giving sales a 0.3% boost. The rise in sales is even stronger than it appears, because lower gas station sales (caused by falling gas prices) depressed retail sales growth. Excluding volatile categories like automobiles, food, gasoline, and building materials, retail sales surged 0.5%.2

Much of the increase can be attributed to lower gas prices – in freefall since July – giving consumers more discretionary income to spend. Gas now averages $2.91 across the nation;3 if per-gallon prices stay low, we could see a very healthy holiday shopping season.

In another sign of a solid retail season, Wal-Mart (WMT), America’s biggest retailer, beat earnings estimates. Same-store sales, often considered a better indicator of organic growth, rose 0.5%, indicating that shoppers are coming back. Many of Wal-Mart’s customers are low-income Americans; positive earnings results could show that many of these consumers are no longer feeling the economic pinch.4

Americans are also generally feeling much better about their prospects. Consumer sentiment rose in November to more than a seven-year high. Falling unemployment and lower gas prices boosted confidence, though many Americans are still worried about income gains.5

The week ahead is heavy with economic data on manufacturing, housing, and inflation, which could cause some volatility as investors digest reports. Analysts are also already thinking about Black Friday and the official start of the year’s biggest shopping season. With October’s better-than-expected retail sales data, low gas prices, and optimistic consumers, some are forecasting a great season for U.S. retailers. Are these tailwinds baked into stock prices yet? We’ll see.

 

ECONOMIC CALENDAR:

 

Monday: Empire State Mfg. Survey, Industrial Production

Tuesday: PPI-FD, Housing Market Index, Treasury International Capital

Wednesday: Housing Starts, EIA Petroleum Status Report, FOMC Minutes

Thursday: Consumer Price Index, Jobless Claims, PMI Manufacturing Index Flash, Philadelphia Fed Survey, Existing Home Sales

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HEADLINES:

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.

Great news: Americans are quitting their jobs. The latest Job Openings and Labor Turnover survey shows that workers are quitting their jobs at the fastest rate since 2008. This trend is another indicator of labor market strength because workers tend to quit jobs when they feel confident in finding better work.6

Business inventories rise 0.3% in September. Though sales remained weak, U.S. businesses added to their inventory stockpiles at a faster rate than in August. The modest rise indicates that businesses are optimistic about their ability to sell through inventory in the coming months.7

Eurozone growth rates edges upward. The latest economic figures from Europe show that the overall Eurozone grew 0.2% in the third quarter. While Germany and France (Europe’s biggest economies) posted anemic growth, Greece roared back from recession, posting 0.7% growth.8

Strong dollar and weak oil are helping Americans buy from abroad. While American companies worry about the effect a strong dollar will have on their foreign sales, Americans are benefiting from cheap oil and the strength of the currency to buy overseas goods. September import prices fell by the most in two years, led by a large drop in the cost of imported fuels.9

November 2014 Monthly Video Update

Why Do We Care About Vehicle Sales Weekly Update – November 10, 2014

Image courtesy of FreeDigitalPhotos.net/Danilo Rizzuti

Image courtesy of
FreeDigitalPhotos.net/Danilo Rizzuti

Investors doubled down on the market rally, sending the Dow and S&P 500 to new highs after Friday’s October employment situation report showed that the unemployment rate dropped again.1 For the week, the S&P 500 gained 0.69%, the Dow leapt 1.05%, and the Nasdaq added 0.05%.2

The October jobs report buoyed hopes about the labor market by showing that job growth increased at a steady rate last month, adding 214,000 new jobs to the economy. The unemployment rate fell to a fresh six-year low, edging down to 5.8%. In terms of overall gains, the labor market has added over 200,000 new jobs a month for the last nine, the longest span of such gains since 1995.3

However, many Americans are still feeling anxious about the economic recovery and their prospects. Exit polls from Tuesday’s elections showed that nearly 60% of voters felt that the economy was stuck in neutral or even going in reverse.4 Why? Some economists (including Federal Reserve Chair Janet Yellen) point to stagnant wage growth.5

Taking a look at the chart below, we see that while hiring has increased since the bottom of the recession, real compensation (adjusted for inflation) has remained fairly flat. While the economy is undoubtedly doing better, many Americans haven’t seen those gains reflected in their paychecks or career prospects.

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Most of the job gains in October came from the retail and food service sectors, which are not the well-paying jobs that we want to see.6 Much of that can be attributed to a pre-holiday staffing surge from restaurants and retailers who expect a solid holiday shopping season.

Are good jobs coming back? Yes, albeit slowly. One economist estimates that 34% of jobs gained in the third quarter of 2014 were in mid-paying industries as compared with just 21% a year ago. On the other end of the spectrum, low-paying jobs made up 39% of new jobs, as compared to 66% last year.7

October’s auto sales report also came out last week and showed investors a couple of important things: Auto sales are booming, up significantly since last year; average sale price is also up, gaining nearly 3% since October 2013; even better, price gains are outstripping incentives, meaning that car makers are able to offer fewer incentives to buyers, which is great news for firm profit margins.8 Why do we care about vehicle sales? We can treat big-ticket sales like autos as a broad proxy for overall consumer spending; generally speaking, when Americans feel well off enough to buy a new car, they are probably spending well in other areas.

Next week’s calendar is light on economic data and earnings season is largely over. With markets at new historical highs, it’ll take some pretty good news to keep buying pressure up. With a slow week ahead, it wouldn’t be surprising for investors to want to take some profits off the table and wait for more economic indicators. Analysts will be looking for Friday’s retail sales report to contextualize the surge in retail hiring. If strong shopping trends support the job growth, it may show that retailers are on track for a solid holiday season. If not, investors may worry that retailers will be hurt by high costs.

On this Veteran’s Day, let’s take a moment to honor those who serve. For your courage, hard work, and dedication to our country, we thank you. We also remember all those who have made the ultimate sacrifice for liberty – you will never be forgotten. Let’s also take a moment for our military families who have supported their loved ones from far away.

 

ECONOMIC CALENDAR:

Thursday: Jobless Claims, JOLTS, EIA Petroleum Status Report, Treasury Budget

Friday: Retail Sales, Import and Export Prices, Consumer Sentiment, Business Inventories

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HEADLINES:

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.

Oil price slump could affect shale oil industry. While plummeting oil prices puts money in consumers’ wallets, it could also undermine the production of domestic shale oil, which is only economically feasible with oil prices above $80/barrel.9

Factory goods orders slide in September. New orders for U.S. factory goods fell for the second month in a row in September, underscoring worries about global growth. On the other hand, unfilled orders rose, indicating that October could be a better month.10

Trade deficit widens in September. The difference between U.S. imports and exports increased as exports fell, highlighting concerns that slow global growth and a strong dollar could undermine U.S. trade.11

Construction spending falls in September. Construction outlays fell unexpectedly as private construction fell to its lowest level since October 2013. While construction numbers can be volatile, slower building could indicate a lack of business confidence in the economy.12

Upside After A Turbulent Month Weekly Update – November 3, 2014

Image courtesy of FreeDigitalPhotos.net/cooldesign

Image courtesy of
FreeDigitalPhotos.net/cooldesign

Investors took advantage of a data-heavy week and rallied strongly, raising the Dow and the S&P 500 to new records. Upbeat economic reports and fresh hope for the global economy contributed to the market’s optimism. For the week, the S&P 500 gained 2.72%, the Dow gained 3.48%, and the Nasdaq gained 3.28%.1

Market surged Friday after Japan’s central bank announced an unexpected expansion of its enormous quantitative easing program. The move came after economic reports indicated inflation (and demand) was weakening in Japan. Economists hope that pumping trillions more into the aging country’s economy will be enough to stoke economic activity.2

On the domestic side, investors got a first look at Q3 economic growth and found that gross domestic product (GDP) grew a whopping 3.5% for the quarter.3. Though GDP growth decelerated from its 4.6% pace in the second quarter, it was the fourth quarter out of the last five that the economy has grown more than 3.5%.4 Keep in mind that this is only the first GDP growth estimate, and it will definitely see revisions as more reports come in.

The Federal Reserve’s Open Market Committee met last week and announced the end of its quantitative easing programs, meaning that after October, the Fed will no longer purchase new bonds to prop up the economy.5 Though the news was widely expected, analysts are reading a bit of a hawkish tone to the Fed’s announcement. Because the Fed feels optimistic about the country’s economic outlook, some analysts think that rate hikes might come as early as Spring 2015.6 Either way, we’re confident that the Fed will look closely at all the data available before making any big decisions.

Looking ahead, analysts will be watching the European Central Bank’s meeting to see whether Europe will follow where Japan is leading. Although demand is also weakening in Europe, it’s unlikely that the ECB will take on significant asset purchases. Investors will also be watching to see whether the October jobs report supports opinions that the labor market is improving rapidly.7

Overall, investors’ fears that led to the selloff in mid-month turned out to be unfounded. Is there more room for upside after a turbulent month? If October has taught us anything, it’s that markets can turn on a dime. Though investors are feeling better about the global economic picture, fresh worries could lead to further turbulence going forward. As always, we’re continuously monitoring markets and making prudent changes where warranted.

ECONOMIC CALENDAR:

 

Monday: Motor Vehicle Sales, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Tuesday: International Trade, Factory Orders

Wednesday: ADP Employment Report, ISM Non-Mfg. Index, EIA Petroleum Status Report

Thursday: Jobless Claims, Productivity and Costs

Friday: Employment Situation

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HEADLINES:

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.

Jobless claims rise, but remain close to 14-year lows. New claims for unemployment benefits rose slightly, but remained very close to the levels last seen in 2000. In context, these levels are 20% lower than they were last October, indicating that fewer workers are being laid off.8

Durable goods orders falter in September. Orders for long-lasting manufactured goods fell for the second month in a row, indicating that companies are reluctant to spend in the face of slowing global growth.9

U.S. wages gain most since 2008. A measure of labor costs showed that the wages paid American workers gained significantly in the third quarter, a sign that a pickup in income growth is coming.10

Gas prices drop below $3/gallon. Nationwide, average gasoline prices have dropped below $3/gallon for the first time since December 2010, driven by a glut of oil on international markets. This is a boon to American consumers, who are spending much less on transportation.11