Is This What Full Employment Looks Like? – Weekly Update for February 8, 2016

Image courtesy of FreeDigitalPhotos.net/mapichai

Image courtesy of FreeDigitalPhotos.net/mapichai

Markets dropped last week on mixed economic data and a big selloff in the tech sector amid weak earnings. For the week, the S&P 500 lost 3.10%, the Dow fell 1.59%, and the NASDAQ dropped 5.44%.[i]

In this week’s update, we wanted to dig deeper into a major economic indicator that drives market analysis and activity: the monthly jobs report. On Friday, investors got a look at January’s jobs report, which showed that the economy gained 151,000 jobs last month.[ii] The gains pushed the headline unemployment rate down to 4.9%, the lowest it has been since February 2008.[iii]

At 4.9% unemployment, the economy is now in the range of what economists call “full employment,” defined as a point at which the economy no longer faces demand-related job scarcity. At full employment, most (not all) job seekers can find and keep the jobs they want and employers can find the workers they need.[iv] This point should represent an ideal state for the labor market and a victory for the Federal Reserve.

While progress is great news, is the economy really at full employment?

One problem with “big picture” indicators is that they leave out a lot of detail and don’t capture the full complexity of the economy. The jobs market has been a riddle for some time; though we’ve seen consistent job creation since 2010, wage gains have been weak and the quality of jobs created is worse than that of previous post-recession periods.[v]

The jobs created after the 2001 recession were well-distributed among lower- and higher-wage industries; in contrast, the recent job recovery has been largely driven by lower-wage industries.[vi] For example, bars, restaurants, and retailers picked up 105,000 new workers last month, while white-collar jobs grew by just 9,000, the smallest gain in over two years.[vii] Another problem is that we have about 6 million people who want jobs and haven’t found them. Another 6 million are working part-time for economic reasons.[viii] Details like these matter to Americans and help explain some of the anxieties that remain about the labor market recovery.

Now – that’s not to say that the labor market hasn’t made significant progress over the last year. Wages increased by 2.5% over the last 12 months, which is consistent with growing demand for workers. Unemployment is down across the board, and job gains continue.

Bottom line: The January jobs report was basically positive, but we’re not ready to believe that the labor market is completely recovered. Though it’s clear structural issues remain, the data also doesn’t indicate that a recession is on the horizon.

This week, Fed Chair Janet Yellen’s testimony before Congress will be the highlight of the economic calendar. Analysts are expecting the House and Senate to grill her over the December rate hike and the Fed’s plans for further interest rate increases this year. Realistically, it’s not likely that Yellen will reveal much beyond the Fed’s intention to carefully weigh data, but it promises to be an interesting Q&A.[ix]

ECONOMIC CALENDAR:

 

Tuesday: JOLTS

Wednesday: Janet Yellen Speaks 10:00 AM ET, EIA Petroleum Status Report, Treasury Budget

Thursday: Jobless Claims, Janet Yellen Speaks 10:00 AM ET

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

02082016


HEADLINES:

Cold weather freezes motor vehicle sales. U.S. automakers posted modest sales numbers in January as winter weather kept car shoppers out of car lots. However, underlying trends are still positive, indicating that Americans are still spending on big-ticket items.[x]

Consumer spending fell flat in December, but savings increase. Spending by U.S. consumers remained unchanged in December. However, a three-year high in savings growth could spell higher spending in the months to come.[xi]

Construction spending rises slightly. Spending on new construction barely rose in December, though it increased significantly in 2015 – growing 10.5% versus 9.6% in 2014.[xii]

Global factory activity muted. Weak global demand is still affecting factory activity around the world as manufacturers struggle to find orders.[xiii]

[i] http://finance.yahoo.com/q/hp?s=%5EGSPC&a=01&b=1&c=2016&d=01&e=5&f=2016&g=d

http://finance.yahoo.com/q/hp?a=01&b=1&c=2016&d=01&e=5&f=2016&g=d&s=%5EDJI%2C+&ql=1

http://finance.yahoo.com/q/hp?a=01&b=1&c=2016&d=01&e=5&f=2016&g=d&s=%5EIXIC%2C+&ql=1

[ii] http://www.bls.gov/news.release/empsit.nr0.htm

[iii] http://fortune.com/2016/02/05/full-employment/

[iv] http://www.marketplace.org/2016/02/05/economy/strong-jobs-report-still-has-some-idle

[v] https://research.stlouisfed.org/fred2/series/PAYEMS

http://www.marketplace.org/2016/02/05/economy/strong-jobs-report-still-has-some-idle

[vi] http://www.nelp.org/content/uploads/2015/03/Low-Wage-Recovery-Industry-Employment-Wages-2014-Report.pdf

[vii] http://www.bls.gov/news.release/empsit.nr0.htm

http://www.marketwatch.com/story/heres-four-reasons-the-january-jobs-report-is-fishy-2016-02-05

[viii] http://www.bls.gov/news.release/empsit.t08.htm

[ix] http://www.foxbusiness.com/markets/2016/02/05/week-ahead-yellens-congressional-testimony-should-be-lively.html

[x] http://www.foxbusiness.com/markets/2016/02/02/fiat-chryslers-january-sales-rise-7.html

[xi] http://www.cnbc.com/2016/02/01/us-personal-income-dec-2015.html

[xii] http://www.reuters.com/article/usa-economy-construction-idUSL2N15D2C4

[xiii] http://www.foxbusiness.com/markets/2016/02/01/global-factories-parched-for-demand.html

Hixon Zuercher January 2016 Monthly Video Update

Stocks Drive Higher Amid Uncertainty – Weekly Update for February 1, 2016

Image courtesy of FreeDigitalPhotos.net/Pansa

Image courtesy of FreeDigitalPhotos.net/Pansa

Stocks experienced another volatile week with high daily swings in value. Despite the lingering uncertainty, stocks ended the week higher on the back of better-than-expected earnings reports and higher oil prices. For the week, the S&P 500 gained 1.75%, the Dow grew 2.32%, and the NASDAQ added 0.50%.[i]

Fourth-quarter earnings season is in full swing and will continue to play a role in stock performance in future weeks. With reports in from 201 S&P 500 members, overall earnings are down 3.2% on 3.6% lower revenues from Q4 2014. The overall picture so far is one of growth challenges from a slowing global economy, a strong U.S. dollar, and weak commodity prices. However, despite the challenges, 72.5% of firms have been able to beat their earning targets, indicating that managers are doing a good job of managing expectations.[ii] On the other hand, reports show that the headwinds that dogged earnings last year will affect performance in 2016 as well.

We also got our first look at fourth-quarter economic growth, which showed that the economy grew at a lukewarm 0.7% pace in the final months of 2015. Low consumer spending weighed on growth, suggesting that Americans are pocketing gasoline savings instead of spending them.[iii] We certainly can’t fault folks for financially prudent behavior, but consumer spending accounts for 70% of economic activity. While we can attribute some of the slow economic growth to seasonal factors like an unusually warm winter, analysts will be closely watching data releases in the weeks ahead for signs of deeper weakness.

After meeting for the first time in 2016, the Federal Reserve declined to raise interest rates last week but gave no indication that it intends to abandon rate hikes later this year. Predictably, talking heads exploded on all sides. Some believe that the Fed made a mistake by not raising rates and giving markets more confidence in the economy. Others believe that the Fed is being appropriately cautious given the market turmoil and concerns about economic growth. What’s clear is that the Fed is telling investors: “We’re aware of the uncertainty and we’re keeping an eye on many indicators.”[iv]

Bottom line: In our view, market volatility will remain with us for the foreseeable future. While investors appear to be cheerful about earnings that are consistently beating expectations, sentiment could turn on a dime.  We’re keeping an eye on fundamentals and are suggesting prudent changes where we deem necessary.

Looking ahead, we expect attention to remain on earnings releases as well as a raft of economic reports that could show whether the economy is slowing or not. Traders will be especially interested in seeing if Friday’s January jobs report shows sustained strength in the labor market.

ECONOMIC CALENDAR:

 

Monday: Personal Income and Outlays, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Tuesday: Motor Vehicle Sales

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

Thursday: Jobless Claims, Productivity and Costs, Factory Orders

Friday: Employment Situation, International Trade

2016-02-01


HEADLINES:

Consumer confidence edges up. A measure of consumer optimism about the economy improved slightly in January, indicating that Americans are (so far) brushing off concerns about financial markets.[v]

Durable goods orders slump. New orders for long-lasting factory goods plummeted 5.1% in December, showing that the manufacturing sector slowed considerably last quarter.[vi]

Weekly jobless claims fall. The number of Americans filing new claims for unemployment benefits fell sharply after reaching a six-month high two weeks ago, suggesting that labor market growth remains strong.[vii]

China set growth target for 2016. For the first time, Chinese leaders set economic growth targets of 6.5-7.0% for this year as they attempt to support a transition to a more modest pace of growth.[viii]

[i] http://finance.yahoo.com/q/hp?a=00&b=25&c=2016&d=00&e=29&f=2016&g=d&s=%5EGSPC%2C+&ql=1

http://finance.yahoo.com/q/hp?a=00&b=25&c=2016&d=00&e=29&f=2016&g=d&s=%5EDJI%2C+&ql=1

http://finance.yahoo.com/q/hp?a=00&b=25&c=2016&d=00&e=29&f=2016&g=d&s=%5EIXIC%2C+&ql=1

[ii] http://www.zacks.com/commentary/69841/q4-earnings-season-all-around-growth-challenges

[iii] http://www.foxbusiness.com/markets/2016/01/29/weak-4q-gdp-temporary-dip-or-is-u-s-recession-bound.html

[iv] http://www.cnbc.com/2016/01/27/the-fed-holds-rates-unchanged.html

[v] http://www.foxbusiness.com/markets/2016/01/26/consumer-confidence-edges-up-in-january.html

[vi] http://www.cnbc.com/2016/01/28/market-reacts-to-sharp-decline-in-durable-goods-orders.html

[vii] http://www.foxbusiness.com/markets/2016/01/28/weekly-jobless-claims-fall-by-16000.html

[viii] http://www.cnbc.com/2016/01/29/china-set-to-adopt-65-7-percent-growth-target-range-for-2016-sources.html

Stocks End Choppy Week Higher – Weekly Update for January 25, 2016

Image courtesy of FreeDigitalPhotos.net/steafpong

Image courtesy of FreeDigitalPhotos.net/steafpong

After a volatile week, markets regained some steam, helped by a recovery in oil prices and some upbeat earnings reports. For the week, the S&P 500 gained 1.41%, the Dow grew 0.66%, and the NASDAQ added 2.29%.[i]

Though the headwinds that roiled markets since the beginning of the year remain, investors found their footing last week and closed out a positive week for the first time in 2016. What caused the uptick in investor sentiment?

Oil prices rebounded to settle at their highest close since the first week of January. While oil is likely to remain volatile, a rally helped investors settle their nerves.[ii] Markets also got some help from the European Central Bank, which hinted at further stimulus measures to boost the European economy.[iii]

We’re also in the early stages of U.S. earnings season, which is stealing attention away from China and oil prices. So far, with 73 members of the S&P 500 reporting in, earnings are already up 1.4% on 0.8% higher revenues. While those aren’t stellar results, 71.2% of reporting firms beat earnings estimates, suggesting that corporate leaders set expectations low enough to be able to beat them amid challenging conditions.[iv]

However, the overall fourth-quarter earnings picture is likely to be less rosy. U.S. companies are struggling to achieve growth goals in a shaky global business environment, and analysts expect overall Q4 earnings to come in below Q4 2014 levels.[v] What do these challenges spell for investors? Volatility. While we can’t predict the future, we think that the first few months of 2016 are likely to be rocky for equities.

Looking ahead, the Federal Reserve’s January meeting will take center stage this week, though economists expect them to hold pat on interest rates. Though it’s possible that Fed economists may vote to raise rates further, a raft of weak data and ongoing concerns about global growth are likely to trigger a wait-and-see approach.

The first look at Q4 economic growth will be released on Friday, and it’s likely to show weak growth in the last three months of the year.[vi] Earnings season will also continue, and investors will be looking forward to reports from heavy-hitters like Apple [AAPL], Facebook [FB], and Ford [F].[vii]

Will stocks be able to hold the gains and move out of the pullback? We’ll see. The news has been negative for several weeks, and it’s possible that investors are poised to jump on any positive surprises.

 

ECONOMIC CALENDAR:

Monday: Dallas Fed Mfg. Survey

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

Wednesday: New Home Sales, EIA Petroleum Status Report, FOMC Meeting Announcement

Thursday: Durable Goods Orders, Jobless Claims, Pending Home Sales Index

Friday: GDP, International Trade in Goods, Employment Cost Index, Chicago PMI, Consumer Sentiment

01-25


HEADLINES:

Housing starts drop in December. Groundbreaking on new houses fell 2.5% last month and permits fell 3.9%, adding to concerns about economic growth in the fourth quarter.[viii]

Existing home sales surge. Home resales skyrocketed in December by a record 14.7%, boosted by warmer weather and a stronger labor market that is supporting household formation.[ix]

Consumer prices fall in December. A measure of inflation fell last month as lower gasoline prices weighed on energy costs. Tepid inflation could delay further interest rate hikes by the Federal Reserve.[x]

Winter storm Jonas slams East Coast. A blizzard covered large swathes of the East Coast in historic levels of snow. The economic disruption of short-lived storms are usually minor, and Jonas may be a win for grocery stores, though it could be a loss for hourly workers.[xi]

[i] http://finance.yahoo.com/q/hp?s=%5EGSPC&a=00&b=18&c=2016&d=00&e=22&f=2016&g=d

http://finance.yahoo.com/q/hp?a=00&b=18&c=2016&d=00&e=22&f=2016&g=d&s=%5EDJI%2C+&ql=1

http://finance.yahoo.com/q/hp?a=00&b=18&c=2016&d=00&e=22&f=2016&g=d&s=%5EIXIC%2C+&ql=1

[ii] http://www.cnbc.com/2016/01/22/us-markets.html

[iii] http://www.bbc.com/news/business-35373365

[iv] http://www.zacks.com/commentary/69041/q4-earnings-season-spotlights-growth-challenges

[v] http://www.zacks.com/commentary/69041/q4-earnings-season-spotlights-growth-challenges

[vi] http://www.bloomberg.com/news/articles/2016-01-21/fed-meeting-u-s-gdp-home-data-tennis-week-ahead-jan-23-30

[vii] http://www.zacks.com/commentary/69041/q4-earnings-season-spotlights-growth-challenges

[viii] http://www.foxbusiness.com/markets/2016/01/20/u-s-housing-starts-permits-fall-in-december.html

[ix] http://www.foxbusiness.com/markets/2016/01/22/existing-home-sales-surge-record-14-7.html

[x] http://www.foxbusiness.com/markets/2016/01/20/december-consumer-prices-fall-slightly.html

[xi] http://www.forbes.com/sites/samanthasharf/2016/01/22/economics-of-a-blizzard-winter-storm-jonas-is-a-win-for-whole-foods-but-a-loss-for-hourly-workers/#63366ed5384a

Stocks End Rocky Week Down – Weekly Update for January 19, 2016

Image courtesy of FreeDigitalPhotos.net/Vlado

Image courtesy of FreeDigitalPhotos.net/Vlado

Stocks closed down again Friday ahead of the long holiday weekend after disappointing earnings, more China worries, and plunging oil prices added to fears about slowing global growth. For the week, the S&P 500 dropped 2.17%, the Dow fell 2.19%, and the NASDAQ lost 3.34%.[i]

It’s certainly been a rough start to the year with multiple weeks of losses and several indexes pushing into 10%+ correction territory. During some market declines, a single culprit is responsible and attention can quickly shift to other issues. In this pullback, multiple factors are contributing to weakness:

Persistent lows in oil prices due to the combination of a supply glut and slowing global demand for oil. After plummeting for more than a year, oil prices have now hit 12-year lows below $30/barrel.[ii] Cheap oil is a boon to consumers who pay less at the pump, but it hits oil producers and ancillary sectors hard.

A Chinese economy in transition from a manufacturing and export-led high-growth period to a more stable, mature model based on services and domestic consumption.[iii] We’ve never seen a hybrid economy quite like it – halfway between Communism and Capitalism – undergo such a shift. The issues at stake are serious: Can Chinese leaders usher in a new period of growth without sending the economy into recession? Can China’s immature financial sector keep up? Answers will come eventually, but we can expect a lot of uncertainty along the way.

We should also keep in mind that markets have enjoyed multiple years of fairly reasonable volatility. Since volatility events tend to occur in clusters, it’s not so surprising that we’re seeing back-to-back events in financial markets.[iv]

Have stocks hit bottom? We can’t know for sure. This week, we’ll probably see more poor data out of China that could continue to rattle markets.[v] However, it’s possible that earnings season may help turn the tide. While Q4 profits are expected to be down on lower revenues, the bar may already be set so low that earnings surprises could give stocks a boost.[vi] When negativity is already baked into stock prices, even small surprises can shift investor sentiment.

Bottom line: Market corrections happen. They can be stressful and can test your resolve as an investor, but they are normal and healthy. We don’t know how long this correction will last or how low markets will go, but we are continually monitoring markets and will suggest prudent changes to investing strategies as necessary. If you have questions or concerns about your portfolio, please reach out to us, we’d love to hear from you.

 

ECONOMIC CALENDAR:

Monday: U.S. Markets Closed for Martin Luther King, Jr. Holiday

Tuesday: Housing Market Index, Treasury International Capital

Wednesday: Consumer Price Index, Housing Starts,

Thursday: Jobless Claims, EIA Petroleum Status Report, Philadelphia Fed Business Outlook Survey

Friday: PMI Manufacturing Index Flash, Existing Home Sales

1-15-16HEADLINES:

Gasoline prices drop below $1 per gallon. Residents in some parts of Michigan officially became the first Americans to buy gas for less than a dollar in over a decade. High oil supplies and low demand may lead to more cheap gas this year.[vii]

Retail sales disappoint. December retail sales slumped unexpectedly as warmer weather cut into sales of winter gear and cheap gasoline weighed on service station business. After a 0.4% rise in November, sales dipped by 0.1% in December.[viii]

Consumer sentiment ticks upward. Despite stock market pullbacks and global worries, Americans’ view of the economy and their financial prospects improved slightly in January. Hopefully, that optimism will translate into more spending this quarter.[ix]

Business inventories fall. U.S. businesses sold through their stockpiles rather than replenishing as sales slipped. The decline in inventories could weigh on economic growth in the fourth quarter.[x]

[i] http://finance.yahoo.com/q/hp?s=%5EGSPC&a=00&b=8&c=2015&d=00&e=15&f=2015&g=d

http://finance.yahoo.com/q/hp?a=00&b=8&c=2015&d=00&e=15&f=2015&g=d&s=%5EDJI%2C+&ql=1

http://finance.yahoo.com/q/hp?a=00&b=8&c=2015&d=00&e=15&f=2015&g=d&s=%5EIXIC%2C+&ql=1

[ii] http://www.cnbc.com/2016/01/17/stock-futures-fall-anew-suggesting-more-weakness-in-major-markets.html

[iii] http://blog-imfdirect.imf.org/2015/10/05/managing-chinas-economic-transition/

[iv] http://www.proba.jussieu.fr/pageperso/ramacont/papers/clustering.pdf

[v] http://www.cnbc.com/2016/01/18/china-gdp-the-elephant-in-the-market.html

[vi] http://www.zacks.com/commentary/68003/weak-earnings-backdrop-for-stocks

[vii] http://abc7.com/news/price-for-gas-hit-47-cents-in-michigan-/1163995/

[viii] http://www.foxbusiness.com/markets/2016/01/15/u-s-retail-sales-end-2015-with-whimper.html

[ix] http://www.foxbusiness.com/markets/2016/01/15/consumer-sentiment-ticks-slightly-higher-in-january.html

[x] http://www.myfoxboston.com/news/us-business-stockpiles-and-sales-fall-in-november/21455657

Markets Tumble on China Fears – Weekly Update for January 11, 2016

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of
FreeDigitalPhotos.net/Stuart Miles

U.S. equities experienced a brutal tumble last week after more bad news emerged from China. For the week, the S&P 500 lost 5.96%, the Dow dropped 6.19%, and the NASDAQ fell 7.26%.[i]

China’s ongoing economic woes are causing major turmoil in stock markets around the world. Disappointing data from China included reports that factory activity dropped for the 10th consecutive month, squashing hopes of a 2016 resurgence.[ii]

In this week’s update, we’ve compiled a list of questions and answers to help you make sense of last week’s turmoil:

What do China’s stock market problems mean for U.S. investors?

In short: not much. China’s stock market halted twice last week when emergency “circuit breakers” kicked in to limit volatility.[iii] However, most U.S. investors are not directly invested in Chinese stocks and are not affected by their markets. Chinese stocks are notoriously volatile and have experienced flash crashes in the past.

Why did U.S. markets react badly to news from China?

We live in an interconnected world where information is transmitted instantly and market overreactions are common. Thursday’s selloff came after the Chinese central bank announced yet another devaluation of the yuan, adding to investor fears about the health of the world’s second-largest economy.[iv] The move could also spark a global currency war as other countries devalue their currencies to compete with cheaper Chinese goods.[v]

The question on everyone’s minds: How will China’s slowdown affect the rest of the world? Investors see weakness in China and fear how it will affect U.S. corporations and our domestic economy. With the 2016 growth picture already modest, investors are poised to react negatively to any news that seems even slightly threatening.

Should I be worried about the U.S. economy?

Probably not. China is our third-largest export market but accounts for just 0.8% of our GDP.[vi] While a severe slowdown in China won’t be good for global growth, the U.S. economy is on track for modest growth this year. We’ll know more about how our economy fared last quarter at the end of the month.

What we do know is that the labor market continues to improve, adding 292,000 jobs in December. October and November numbers were also revised upward, indicating that growth is sustained.[vii] Since domestic consumption accounts for two-thirds of U.S. economic activity, we can hope that these improvements will translate into higher consumer spending.

It’s not clear yet whether China is moving into a recession. Exports have largely fueled its past economic growth, and political leaders are struggling to wean the country off foreign demand.[viii]  Will leaders be successful in transitioning to a more consumer-led economy? We’ll see.

What should I do as an investor?

For now, stay calm and focused on your personal goals. Regardless of what you might be hearing on the news, last week’s drop was not panic selling. Investors are caught up in global growth worries as they have been for months.

We cannot predict when markets will return to positive growth, and it’s possible that volatility and weakness may persist in the weeks to come. What we know is that historically, markets have not usually entered bear territory (sustained drops of 20% or more) unless accompanied by a recession.[ix] Though we cannot rule out prolonged market weakness, a severe drop would be a historical anomaly.

Fourth-quarter earnings season will move into high gear in the coming weeks and investors will have plenty of other news to digest. We are closely monitoring markets and taking a hard look at fundamental factors. If we believe that changes need to be made to your portfolio, we will contact you directly. If you have experienced any life changes or shifts in your perspectives on risk, please let us know.

As always, if you have any questions about markets or concerns about your personal situation, please give us a call.

ECONOMIC CALENDAR:

Tuesday: JOLTS

Wednesday: EIA Petroleum Status Report, Beige Book, Treasury Budget

Thursday: Jobless Claims, Import and Export Prices

Friday: PPI-FD, Retail Sales, Empire State Mfg. Survey, Industrial Production, Consumer Sentiment, Business Inventories

1-11-16

HEADLINES:

Motor vehicle sales ride wave to blockbuster December. Auto manufacturers ended a record year last month, selling 17.47 million new vehicles and beating the previous record in 2000. Cheaper gas and pent-up demand contributed to improved sales.[x]

Factory orders slip in November. Orders for manufactured goods dropped 0.2% in November, pointing to continued weakness in the manufacturing sector.[xi]

Construction spending falls in November. Spending on construction projects fell for the first time in 17 months, dipping 0.4% in November. While home construction was up, non-residential categories fell.[xii]

Manufacturing activity slumps. A gauge of manufacturing activity dropped for the second month in a row in November as global weakness weighs on U.S. manufacturers.[xiii]

[i] http://finance.yahoo.com/q/hp?s=%5EGSPC&a=11&b=28&c=2015&d=11&e=31&f=2015&g=d

http://finance.yahoo.com/q/hp?a=11&b=28&c=2015&d=11&e=31&f=2015&g=d&s=%5EDJI%2C+&ql=1

http://finance.yahoo.com/q/hp?a=11&b=28&c=2015&d=11&e=31&f=2015&g=d&s=%5EIXIC%2C+&ql=1

[ii] http://www.businesstoday.in/markets/global-markets/asian-markets-on-january-4-trade-china-factory-data-slips/story/227697.html

[iii] http://www.reuters.com/article/us-china-markets-idUSKBN0UM02K20160108

[iv] http://www.reuters.com/article/us-usa-stocks-idUSKBN0UL1BD20160108

[v] http://www.cnbc.com/2016/01/09/sp-500-in-a-world-of-pain-so-sell-any-rally-technician.html

[vi] https://www.uschina.org/china-hub/exports-china-share-gdp

[vii] http://www.foxbusiness.com/economy-policy/2016/01/08/december-jobs-report/

[viii] http://blogs.wsj.com/economics/2016/01/04/imf-chief-economists-2016-warning-watch-out-for-china-and-emerging-market-volatility/

[ix] http://www.businessinsider.com/sp-500-bear-markets-and-recessions-2015-8

[x] http://www.foxbusiness.com/industries/2016/01/05/fiat-chrysler-december-vehicle-sales/\

[xi] http://www.marketwatch.com/story/factory-orders-slip-02-in-november-2016-01-06

[xii] http://www.myfoxboston.com/news/us-construction-spending-falls-04-percent-in-november/12998889

[xiii] http://www.foxbusiness.com/economy-policy/2016/01/04/us-manufacturing-falls-deeper-into-contraction-territory/

Special Update: 2015 in Review – Weekly Update for January 4, 2016

Image courtesy of FreeDigitalPhotos.net/sscreations

Image courtesy of FreeDigitalPhotos.net/sscreations

Now that 2015 is in the rear-view mirror, let’s take a look at some of the factors that influenced markets last year. Though markets closed essentially flat, it’s important to realize what a small miracle that is given the many challenges that markets faced in 2015. For the year, the S&P 500 lost 0.73%, the Dow lost 2.23%, and the NASDAQ gained 5.73%.[i]

market events

Let’s review some of the major events of last year:

The Federal Reserve Raised Interest Rates

After months of anticipation, the Fed finally pulled the trigger and raised interest rates in mid-December for the first time since 2006.[ii] After years of near-zero rates to stimulate business spending and economic activity, the Fed is finally confident enough to raise rates to keep prices from rising too fast.

How will the Fed’s move affect bond yields? Short-term rates will likely start inching up, which we will hopefully see reflected in higher bond and CD rates, but long-term bonds are much harder to predict. Overall, bond yields should head higher if the Fed continues its stable, predictable process of raising rates.

Oil Plummeted to Historic Lows

2015 was another volatile year for oil prices and continued weakness highlighted concerns about global growth. At the end of December, Brent Crude closed at $37.08, down nearly 70% from a high of $115.19 in mid-June 2014.[iii] Weak global demand and high supply volume battered oil prices, even as the total number of oil rigs fell.

Cheap oil is a mixed bag for the market.  On the one hand, it’s a win for consumers who benefit from low gasoline prices and cheaper goods; on the other hand, oil-producing countries, energy companies, and ancillary industries have been hard hit by prolonged lows in oil prices. Weak demand for oil is also seen as another sign of the global economic slowdown.

Global Jitters Contributed to Volatility & Pullbacks

As the U.S. continued to improve economically in 2015, markets were dogged by the realization that much of the rest of the world isn’t faring so well. It has become very clear that Europe, China, and many emerging markets are struggling with protracted economic weakness.

Emerging market economies like Brazil, Turkey, and South Africa benefited from years of low interest rates, during which investors flooded their markets looking for higher returns. Now that the easy money party is ending, these investors are pulling their money out. Emerging market countries are dealing with the one-two punch of higher interest rates (increasing their borrowing) and debts that are denominated in a strengthening dollar, making it harder to pay back existing loans.[iv]

These global worries came to a head in August when the Chinese central bank shocked the world by devaluing the yuan.[v] By making the Chinese currency cheaper against other currencies, central bankers hope to boost demand for Chinese goods. The move was widely viewed as an admission that the world’s second-largest economy is in trouble, and markets reacted by plummeting. Between August 10th and August 25th, the S&P 500 dropped over 11%, officially entering correction territory.[vi]

crash

However, markets didn’t stay there; investors quickly regained their optimism and bought the dip, sending the S&P 500 up nearly 9.5% by the end of the year.[vii] The lesson? Corrections are normal, healthy parts of the market cycle. While the sky can seem like it’s falling at times, taking a deep breath and looking at underlying fundamentals is key to avoiding emotional reactions.

 

The U.S. Economy Continued to Improve

Though the global economy struggled in 2015, the U.S. economy continued to do well, even after a rocky start to 2015. Though economic growth slowed, hampered by global headwinds, the economy turned out respectable second- and third-quarter growth. Though we don’t have fourth-quarter data yet, economists project that the economy grew 2.2% in the final three months of the year.[viii]

The labor market also continued to make progress last year. Overall, the economy is projected to have gained 2.5 million new jobs in 2015 and trimmed the unemployment rate to 5.0%. After 2014’s 3.1 million new jobs, we can say that 2015 ends the best two-year period for the labor market since the dot-com boom days of 1998-1999. Though wage growth still isn’t spectacular, hourly earnings increased 2.3% over the year. [ix]

Comparing the jobs growth to the previous year’s total might suggest that the labor market growth slowed down in 2015. However, the rate of voluntary “quits” increased in 2015, indicating that people feel comfortable enough in their prospects to leave their jobs for greener pastures.[x] All told, the labor market did a lot to boost the economy last year.

Headwinds and Tailwinds in 2016

While we have been largely optimistic about markets in past years, we’re shifting to a more guarded stance for 2016. Many of the headwinds that dragged on market performance last year are still with us; while the “plow horse” U.S. economy is projected to grow moderately this year, global challenges remain.[xi]

Overall, Wall Street is also cautious about stocks in 2016. A poll of top Wall Street analysts forecasted an average S&P 500 gain of 6.28% growth in 2016.[xii] As always, it’s best to treat these predictions with caution as projections this early in the year are always nebulous. What we can do right now is take a look at fundamentals and think about how these factors might play out in market performance.

In the coming weeks, investors will be looking hard at fourth-quarter numbers to see how U.S. companies performed in the final months of the year. In the week ahead we’ll see the December jobs report and learn more about the Fed’s decision-making process around rates. We’ll also see whether higher interest rates affected demand for vehicle sales and other big-ticket items at the end of the year.[xiii]

As always, if you have any questions about markets or your personal situation, please give us a call. We are honored by the trust you place in us and look forward to serving you in 2016.

 

ECONOMIC CALENDAR:

Monday: PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Tuesday: Motor Vehicle Sales

Wednesday: ADP Employment Report, International Trade, Factory Orders, ISM Non-Mfg. Index, EIA Petroleum Status Report, FOMC Minutes

Thursday: Jobless Claims

Friday: Employment Situation

010416

HEADLINES:

Consumer confidence rebounds in December. A measure of consumer optimism rose at the end of the year, indicating that the improving labor market is giving Americans more confidence in their prospects.[xiv]

Jobless claims jump sharply. The number of Americans filing new claims for unemployment benefits jumped by 20,000, likely because of seasonal holiday factors.[xv]

Midwestern manufacturing slips. A measure of the manufacturing industry in the Midwest indicates that December activity fell to the lowest level since mid-2009. While seasonal factors could affect the data, it could indicate sustained weakness in the factory-heavy region.[xvi]

Puerto Rico makes bond payments. The U.S. territory, which has been struggling to make debt payments, will make full bond payments on its General Obligation (GO) bonds in January.[xvii]

[i] http://finance.yahoo.com/q/hp?s=%5EGSPC&a=11&b=28&c=2015&d=11&e=31&f=2015&g=d

http://finance.yahoo.com/q/hp?a=11&b=28&c=2015&d=11&e=31&f=2015&g=d&s=%5EDJI%2C+&ql=1

http://finance.yahoo.com/q/hp?a=11&b=28&c=2015&d=11&e=31&f=2015&g=d&s=%5EIXIC%2C+&ql=1

[ii] http://www.cnbc.com/2015/12/16/fed-raises-rates-for-first-time-since-2006.html

[iii] https://research.stlouisfed.org/fred2/series/DCOILBRENTEU#

[iv] http://www.ibtimes.com/us-fed-rate-hike-worried-investors-emerging-markets-prepare-impending-turmoil-2227581

[v] http://fortune.com/2015/08/19/what-chinas-currency-devaluation-means-for-the-worlds-trade-deals/

[vi] Source: Yahoo Finance. S&P 500 price performance between 8/10/15 and 8/25/15.

[vii] Source: Yahoo Finance. S&P 500 price performance between 8/25/15 and 12/31/15.

[viii] http://projects.wsj.com/econforecast/#ind=gdp&r=20

[ix] https://research.stlouisfed.org/fred2/series/PAYEMS#

http://www.bls.gov/web/empsit/ceshighlights.pdf

http://www.marketwatch.com/story/december-jobs-report-could-cap-best-2-years-since-1998-1999-2016-01-01

[x] https://research.stlouisfed.org/fred2/series/JTSQUR

[xi] http://projects.wsj.com/econforecast/#ind=gdp&r=20

[xii] http://www.marketwatch.com/story/wall-streets-forecast-for-2016-worse-than-last-year-2015-12-28

Average S&P 500 return calculation: 2,063.36 12/31/15 close to 2,193 average 2016 price target

[xiii] http://www.foxbusiness.com/economy-policy/2015/12/29/week-ahead-december-jobs-report-auto-sales/?intcmp=bigtopmarketfeatures

[xiv] http://www.foxbusiness.com/industries/2015/12/29/consumer-confidence-rebounds-more-than-expected-in-december/

[xv] http://www.foxbusiness.com/economy-policy/2015/12/31/weekly-jobless-claims/

[xvi] http://www.foxbusiness.com/economy-policy/2015/12/31/midwest-manufacturing-slips-deeper-into-contraction/

[xvii] http://latino.foxnews.com/latino/news/2016/01/01/puerto-rico-begins-to-make-payments-on-debt-due-in-early-january/

16 Financial Resolutions for 2016

1As the end of 2015 approaches, it’s time to start thinking about how to make 2016 a success for you and your loved ones. Though there’s little consensus about their origins, we know that Americans have been making New Year’s resolutions since at least the 1770s. [i] In 2015, 31% of Americans made financial resolutions.[ii]

Here are 16 financial resolutions to help make 2016 healthy, happy, and successful:

1. Create emergency savings

Life is full of unexpected emergencies, and some extra cash can help a serious illness, home repair, or other sudden financial need from derailing your finances. Prepare for unpredictable expenses by putting aside six to eight months of expenses in an easily accessible cash-equivalent account.

  1. Make a monthly budget and stick to it

Budgets may sound like a lot of unnecessary work, especially if you’re financially comfortable, but it’s quite easy to let your spending go off the rails if you’re not tracking it in some way. Set a budget and work on sticking to it for a couple of months. Don’t aim for perfection; instead, try for incremental improvement.

  1. Save more for the future

Are you on track for retirement and other goals? Most Americans could stand to put more money away for the future. We recommend keeping separate “buckets” of savings for short-, medium-, and long-term goals and leveraging tax-advantaged accounts where possible. Let us know if you’d like help saving for specific goals so that we can help ensure you have the right strategy for your needs and timeline.

  1. Make retirement plan contributions regularly (instead of all at once)

We believe that “time in the market” is critical to long-term investing success. Instead of waiting until the last minute to make your annual contributions, give your money more time to grow by making automatic contributions to your accounts every month.

  1. Maximize your retirement plan contributions

Tax-managed retirement accounts are one the most powerful ways to save for a more comfortable retirement. Make the most of them by contributing as much as you can each tax year. We usually recommend maxing out employer-sponsored plans first to take advantage of any matching contributions your employer may offer. Give us a call if you need help understanding your retirement account options.

  1. Pay down high-interest debt

High-interest debt can make it very hard to get ahead financially. If you’re carrying a lot of debt, make paying it down a priority. Contact us for help managing expenses and getting on top of your debt.

  1. Set goals for the future and work with a professional to help you achieve them

In our experience, people who set goals for themselves and create strategies to pursue them are much more likely to see success. One study found that investors who leveraged specific financial strategies saw greater long-term financial success.[iii] Sit down with your loved ones to discuss your financial goals; when you’re ready to discuss your thoughts, call our office to schedule a no-obligation consultation.

  1. Create a powerful legacy for the world

We believe that a rich life is about more than financial success and a comfortable lifestyle. Whether you want to leave something to your loved ones, or contribute to causes close to your heart, take some time to think about the legacy you will leave for the future.

  1. Review your estate planning and legal documents

Your core legal documents should be regularly reviewed to make sure that they keep up with your life. If it’s been a few years since you took a look at your documents, dust them off and make sure that they still represent your wishes.

  1. Review the beneficiaries of your financial accounts and insurance policies

When is the last time you updated your beneficiaries? Since beneficiary provisions are independent of your will or other estate provisions, it’s critical to keep them current. Contact us for assistance with gathering account documents and making needed updates.

  1. Stay on top of your health

Healthcare is a major expense for most Americans, especially when serious illness strikes. Take steps to protect your health (and your wallet) by building a healthy lifestyle and being proactive about preventative care.

  1. Protect your credit and identity

Identity theft and financial fraud are serious threats that can compromise your financial wellbeing. Protect yourself by reviewing financial statements and bills carefully for unauthorized activity. Check your credit report for free each year at www.annualcreditreport.com.

  1. Review your tax strategies for potential savings

Recent changes to tax laws mean that your tax burden may have increased. Give us a call to discuss tax strategies that may help you reduce your tax burden.

  1. Involve your loved ones in your finances

If you (or your spouse) don’t get involved in the family finances, it’s time to start. Work together to make financial decisions and make sure that each of you understands the overall game plan for your finances. At minimum, make sure that your loved ones know how to access financial accounts and understand your wishes.

  1. Identify your goals for 2016

What do you want to accomplish in 2016? Whether you want to get a raise, go on a wonderful vacation, or spend more time with your family, take a moment now to write them down.

  1. Keep your resolutions!

One study found that people keep just 8% of the New Year’s resolutions they make.[iv] Improve the chances that you will keep your resolutions by making your goals simple, concrete, and actionable. Instead of saying: “I will save more for the future in 2016,” say: “I will contribute $4,500 to my retirement accounts by December 31, 2016” or “I will pay off $2,000 of credit card debt by April 15.”

As 2015 draws to a close, we would like to extend our thanks for the trust and confidence you’ve placed in our firm. You’ve made this year one to remember, and we are sincerely grateful for the privilege and opportunity to serve. We look forward to serving you and yours for many years to come.

If you have questions about your future or would like some support in keeping your financial resolutions, please give us a call. Together, let’s make 2016 a success.


 

[i] http://articles.courant.com/2013-11-19/community/hcrs-82240-wethersfield-20131115_1_christmas-open-house-christmas-traditions-santa-claus

[ii] https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/2015-new-year-resolutions-fact-sheet.pdf

[iii] http://corporate.morningstar.com/ib/documents/PublishedResearch/AlphaBetaandNowGamma.pdf

[iv] http://www.forbes.com/sites/dandiamond/2013/01/01/just-8-of-people-achieve-their-new-years-resolutions-heres-how-they-did-it/

Qualified Charitable Distributions From IRAs Have Been Permanently Extended

The Consolidated Appropriations Act, signed into law on December 18, 2015, includes a provision, effective immediately, that permanently extends the ability of individuals at least age 70½ to take qualified charitable distributions (QCDs) from Traditional, Rollover, or Roth IRAs for payment directly to a qualifying charitable organization.

The following restrictions apply to QCDs:

  • A qualifying charitable organization is a public charity as described in IRC 170(b)(1)(A), but does not include donor-advised funds, supporting organizations, or private foundations.
  • Only outright gifts are eligible; contributions to charitable gift annuities, charitable remainder trusts, pooled income funds, or other split-interest entities do not qualify.
  • The amount of the distribution can be excluded from income up to a maximum amount of $100,000 per year.
  • The entire amount must otherwise be includable in income.
  • The entire amount must otherwise be tax deductible as a charitable contribution.
  • The amount of the distribution cannot also be taken as a charitable deduction.
  • The amount distributed to the charity counts toward meeting the required minimum distribution for the year distributed.

For more information about the Consolidated Appropriations Act, 2016, refer to https://www.gpo.gov/fdsys/pkg/BILLS-114hr2029enr/pdf/BILLS-114hr2029enr.pdf

Stocks End Holiday Week Positive – Weekly Update for December 28, 2015

Markets ended the holiday week on an upbeat note, giving stocks their best week since late November. For the week, the S&P 500 gained 2.76%, the Dow grew 2.47%, and the NASDAQ rose 2.55%.

On the economic front, final data on third-quarter economic growth showed that Gross Domestic Product (GDP) grew 2.0%, down from the previous estimate of 2.1%. The report showed that a slew of global issues cut into demand for U.S. goods abroad; on the positive side, what growth we had was driven by domestic demand.

As the holiday shopping season fades, data shows that retailers are struggling to meet even modest sales goals. The last Saturday before Christmas can often make or break the season with last-minute shoppers flooding stores. However, this year’s sales were tepid, and forecasts predict holiday sales to grow 3.1% over last year, down from 4.1% growth in 2014.

The data also shows that shopping trends are shifting away from brick and mortar stores toward online retailers. Sales at physical stores dropped 5.8% over last year while traffic fell 8.0% between early November and mid-December. In contrast, online sales rose 11.8% between late November and late December. The increased online volume strained supply chains, causing some popular retailers, like Eddie Bauer [EBHI] to miss Christmas shipping deadlines.

The week ahead, sandwiched between two trading holidays, has historically been slow, though surprises are always possible. On the calendar are reports about housing and consumer confidence, which investors are hoping will show that rising fortunes in the labor market continue to translate into spending.

As we enter the final week of 2015, we’re confronted by the fact that markets may close out the year flat. While that’s frustrating for investors who were hoping to see the continued recovery translate into strong stock returns, it’s important to consider the many headwinds markets had to contend with this year: global economic weakness, historic highs, terrorism, and declining commodity prices. Stay tuned for next week’s update where we review 2015 and discuss expectations for the year to come.

Thank you for making 2015 an amazing year for us. We are honored and humbled by the trust you have placed in us as clients, and we look forward to serving you and your loved ones in 2016.

ECONOMIC CALENDAR:

Monday: Dallas Fed Mfg. Survey
Tuesday: International Trade in Goods, S&P Case-Shiller HPI, Consumer Confidence
Wednesday: Pending Home Sales Index, EIA Petroleum Status Report
Thursday: Jobless Claims, Chicago PMI
Friday: U.S. Markets Closed for New Year’s Day

2015-12-25 Market Performance Chart

HEADLINES:

Consumer sentiment rises to five-month high. Consumers regained their optimism about the U.S. economy at the end of December, pushing a measure of sentiment to the highest level since July.

Durable goods orders flat in November. Orders for long-lasting manufactured goods were flat in November and a measure of business investment fell, indicating that demand remains weak.

Weekly jobless claims close to four-decade low. The number of Americans filing new applications for unemployment benefits fell to a near-42-year low. Though seasonal factors may be affecting the data, the drop is another sign indicating that the labor market continues to improve.

Personal income rises for eighth straight month. Solid wage gains pushed up income in November for the eighth month in a row, raising hopes that consumer spending and economic growth should increase next year.