What’s Grown At the Fastest Pace in 4 Years? Weekly Update – March 2, 2015

Image courtesy of FreeDigitalPhotos.net/hywards

Image courtesy of
FreeDigitalPhotos.net/hywards

Stocks ended the week mixed after losses related to a lower fourth-quarter Gross Domestic Product estimate. However, after a lackluster January, the major indices ended February on an upbeat note, with the S&P 500 posting a 5.5% gain.1 For the week, the S&P 500 lost 0.27%, the Dow lost edged down 0.04%, and the NASDAQ gained 0.15%.2

Though we’re two-thirds through with the first quarter of 2015, investors were thinking about fourth-quarter 2014 GDP last week. The revised estimate shows that the economy grew 2.2% in the final three months of the year, lower than the 2.6% originally reported. However, the good news is that consumer spending, one of the largest contributors to the economy, grew at the fastest pace in four years.3 A significant downward revision of business inventories, a measure of how optimistic U.S. firms are about future demand, was mostly responsible for the lower GDP report.4

Federal Reserve chair Janet Yellen gave investors some more guidance about interest rates in speeches before the House and Senate. Though she still preaches patience, she also indicated that the central bank might raise rates as early as July. Though the rate raise may give stocks the jitters, banks may respond by raising consumer rates to compete for your business. On the other hand, higher rates could drag on the housing market.5

With earnings season largely over, we can start drawing some conclusions about how U.S. companies did in the fourth quarter. Overall, Q4 earnings gave us a mixed picture. Out of 465 S&P 500 companies, earnings were up 6.5 percent over fourth quarter 2013, but revenues were up just 1.6 percent.6 These results suggest that many firms are still struggling with weak demand. Many firms also issued low guidance for the first quarter of 2015, indicating that they’re worried about their growth prospects this year – this squares with the lower business inventories data found in the Q4 GDP report.7 Hopefully, we’ll see lower energy prices push up spending and help U.S. companies beat their earnings estimates.

Looking ahead, analysts will be focusing on the February jobs report this week, which they hope will show that the labor market continues to recover. Investors will spotlight wage growth, a key figure that indicates how much more money workers have in their wallets.8 Economists anticipate that improving job prospects and low gasoline prices could support increased consumer spending this quarter.

ECONOMIC CALENDAR:

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

Tuesday: Motor Vehicle Sales, Janet Yellen Speaks 8:15 PM ET

Wednesday: ADP Employment Report, SM Non-Mfg. Index, EIA Petroleum Status Report, Beige Book

Thursday: Jobless Claims, Productivity and Costs, Factory Orders

Friday: Employment Situation, International Trade

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HEADLINES:

Pending home sales rises to highest level since 2013. A measure of houses under contract rose in January as better credit conditions and more jobs boosted housing market activity. Since we are approaching prime home buying season, analysts hope the trend will continue into the spring.9

New single-family home sales drop slightly. Sales of newly built houses edged downward in January, possibly because of cold winter weather in the Northeast. However, sales are up 5.4% since January 2014 in a hopeful sign for the sluggish housing market.10

Durable goods rise in February. Orders for long-lasting manufactured products – like cars, refrigerators, and electronics – climbed 2.8% from January, indicating that businesses expect to be able to sell big-ticket items in coming months.11

Consumer sentiment drops slightly in February. Icy weather caused a gauge of consumer sentiment to slip last month. Despite the harsh weather, American confidence in the economy remains near eight-year highs.12

Dow Sets First Record Close of 2015 Weekly Update – February 23, 2015

Image courtesy of FreeDigitalPhotos.net/cooldesign

Image courtesy of
FreeDigitalPhotos.net/cooldesign

Stocks rallied on the news that Greece reached a new deal with its creditors, sending the Dow and the S&P 500 to new record closes and bringing the Nasdaq close to its own record set in March 2000.1 For the week, the S&P 500 gained 0.63%, the Dow rose 0.67%, and the NASDAQ grew 1.27%.2

Greek leaders, who have been in talks with EU creditors for several weeks, were able to reach an 11th-hour deal on Friday to extend the Greek bailout for an extra four months. Though the agreement just kicks the can down the road until the next major deadline, it avoids (or at least postpones) a debt default and fresh economic crisis and keeps Greece in the Eurozone for now. The delay also gives leaders breathing room to negotiate further economic reforms that will likely be unpopular with Greek voters.3 Investors reacted positively to the news and sent the major indexes to record highs.

In other geopolitical news, one of NATO’s highest-ranking generals warned that alliance members should prepare for a Russian assault on an Eastern European member state. Though the current ceasefire between Russian and Ukrainian forces continues, the remarks highlight a serious decline in trust between Europe and Russia.4 How real is the threat of all-out war? It’s impossible to know at this juncture, but it’s clear that European military commanders are taking Russia’s territorial ambitions seriously.

The week ahead is filled with important economic events. Federal Reserve Chair Janet Yellen will speak before the House and Senate about monetary policy, putting future rate changes in focus. If the Fed holds to a mid-year interest hike, it would signal the bank’s confidence in the economy’s resilience; holding off might indicate concern about how the global picture might affect domestic growth.5 Investors will also get their second look at fourth quarter 2014 Gross Domestic Product, giving us a clearer look at how the economy performed in the last three months of the year.

 

ECONOMIC CALENDAR:

Monday: Existing Home Sales, Dallas Fed Mfg. Survey

Tuesday: S&P Case-Shiller HPI, Consumer Confidence, Janet Yellen Speaks 10:00 AM ET

Wednesday: New Home Sales, Janet Yellen Speaks 10:00 AM ET, EIA Petroleum Status Report

Thursday: Consumer Price Index, Durable Goods Orders, Jobless Claims

Friday: GDP, Chicago PMI, Consumer Sentiment, Pending Home Sales Index

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HEADLINES:

Weekly jobless claims fall more than forecast. After some seasonal disruptions, weekly applications for unemployment benefits fell to 283,000 in the latest sign of an improving job market. The four-week average, a less volatile measure, fell to its lowest level in 15 weeks.6

U.S. home construction falls in January. Groundbreaking on new homes dropped 2.0% last month as builders slowed down construction of new single-family homes. However, building activity is still moving faster than it did a year ago.7

U.S. loosens trade restrictions against Cuba. The federal government announced plans to allow small Cuban businesses to export goods to the U.S. Though there are restrictions on what can be imported, the move represents an important change in relations with the communist country.8

U.S. factory activity rises. The manufacturing sector, a significant contributor to economic growth, expanded in February at its fastest pace since November. This is good news after the cold-weather related slowdowns of early 2014.9

What Pushed the Major Indexes up? Weekly Update – February 17, 2015

Image courtesy of FreeDigitalPhotos.net/renjith krishnan

Image courtesy of
FreeDigitalPhotos.net/renjith krishnan

Stocks ended another positive week at record highs, sending the Dow above 18,000 and the S&P 500 to a new record close. Investors reacted positively to firming oil prices and news of a possible peace deal in Ukraine. For the week, the S&P 500 gained 2.02%, the Dow rose 1.09%, and the Nasdaq grew 3.15%.1

There were a few factors behind the week’s rally, which erased previous losses and brought the major indexes back to positive for the year. Oil prices, which have been falling steadily for months, may be bottoming out as production declines and the number of oil rigs fall. Markets have been sensitive to oil prices and a slight bounce last week was enough to send stocks higher.2

The deteriorating financial situation in Greece was also in focus. As Greece nears its deadline for a new round of loans from the EU, encouraging remarks from Greek leaders suggest that an 11th-hour deal may be possible. Greece is seeking a new debt agreement with EU lenders that would allow it to back out of the painful austerity measures that have been imposed by creditors since 2010. If no agreement is reached, Greece would probably seek loans from alternative sources (like Russia or China), potentially damaging internal financial relations within the EU.3

Investors also reacted positively to better-than-expected growth numbers from Europe, which showed that the Eurozone economy grew 0.3% in the fourth quarter of 2014. Germany’s economy outperformed, growing 0.7% on strong domestic demand. Even better, only three countries in the 18-member zone experienced economic contractions: Greece, Finland, and Cyprus.4

Oil will likely be the source of more market activity during this holiday-shortened week as analysts try and determine whether crude oil prices may be stabilizing. The effects of a Russia-Ukraine ceasefire may also ripple through oil markets, causing additional volatility, though we can hope for further market growth.

 

ECONOMIC CALENDAR:

Monday: U.S. Markets Closed For Presidents’ Day Holiday

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

Wednesday: Housing Starts, PPI-FD, Industrial Production, FOMC Minutes

Thursday: Jobless Claims, PMI Manufacturing Index Flash, Philadelphia Fed Survey, EIA Petroleum Status Report

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HEADLINES:

Consumer spending lags in January. Retail sales, a core measure of how Americans spend, edged up barely 0.1% after dropping 0.3% in December. This report suggests that Americans are not using fuel savings to boost their spending, which could trim Q1 economic growth.5

Small business sentiment downbeat. Optimism about the economy fell last month among small business owners who worried about sales and decreasing inventory spending. However, sentiment about the labor market remains positive.6

Weekly unemployment claims rise unexpectedly. The number of Americans filing new unemployment claims rose slightly last week. Seasonal issues – including major snowstorms in Massachusetts – may have affected data collection and underlying labor trends still show strength.7

U.S. business inventories increase slightly. Inventories, a key factor of economic growth, edged up just 0.1% in December, supporting views that growth slowed in the fourth quarter.8

Prices At Pump Help Drive Savings Weekly Update – February 9, 2015

Image courtesy of FreeDigitalPhotos.net/digitalart

Image courtesy of
FreeDigitalPhotos.net/digitalart

Markets shook off losses last week and ended with strong weekly gains on the back of a positive January jobs report. For the week, the S&P 500 gained 3.03%, the Dow rose 3.84%, and the Nasdaq grew 2.36%.1

January’s monthly Employment Situation report showed that the economy gained 257,000 new jobs last month. Though the unemployment rate rose to 5.7%, it went up for the right reasons as Americans rejoined the labor force and began searching for jobs again. Best of all, average earnings grew 0.5%; since economists have been worrying about the slow pace of wage growth in the recovery, a jump in earnings is good news for the economy.2

Though wages went up, consumer spending in December dropped to its lowest level in five years as Americans cut spending and used extra gas money to boost their savings.

Higher incomes, lower prices at the pump, and falling inflation are giving American households a much-needed boost in spending power this year.3 Though the drop in consumer spending could hit Q4 economic growth numbers, the underlying factors set the stage for a strong 2015 for American consumers.

Stocks lost a little steam on Friday due to growing concern over a standoff between Greece’s new anti-austerity government and Eurozone leaders. Greek leaders are seeking to tear up the agreements signed by the previous government in favor of debt forgiveness from the EU. However, the message from EU leaders to Greece is clear: Uphold your financial commitments and stick to the plan.4

Though Greek voters are unequivocally tired of painful austerity cuts, Greece still depends on EU money, and its new leaders must tread carefully. Citing concern about how a liquidity crunch would affect Greece’s ability to repay debts, Standard and Poor’s downgraded Greek sovereign debt from B to B-.5 What will the outcome of the showdown be? Hard to know at this stage, but the conclusion will likely affect how future negotiations with Spain, France, and Italy play out.

Looking ahead, though the week ahead is light on economic reports, analysts will be closely monitoring the January retail sales report to see how Americans are spending. The Labor Department’s Job Openings and Labor Turnover Survey that comes out Tuesday will also give some more insight into the overall health of the jobs recovery.6 Positive data could renew focus on the Federal Reserve and a possible interest rate hike this year.

ECONOMIC CALENDAR:

Tuesday: JOLTS

Wednesday: EIA Petroleum Status Report, Treasury Budget

Thursday: Jobless Claims, Retail Sales, Business Inventories

Friday: Import and Export Prices, Consumer Sentiment

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HEADLINES:

Q4 earnings reports show revenue weakness. Though overall earnings are positive, U.S. firms are still struggling with weak demand. Including reports from 274 S&P 500 companies, overall earnings are up an optimistic 6.7% from Q4 2013; however, revenues are up just 0.2%.7

U.S. motor vehicle sales catch fire in January. U.S. automakers reported the strongest January car and truck sales in seven years. Ford and GM had strong months, showing that sales increased 15% and 18%, respectively, over last year.8

U.S. productivity falls in Q4 2014. Hourly output per worker, a measure of the productivity of the U.S. economy, fell 1.8% in the final three months of 2014. This could mean that employers have eked out every drop of labor from their workers (and may be forced to raise wages).9

Brent crude has best gains in 17 years. Oil rallied again and showed the best two-week performance since 1998, gaining 19%. Price volatility was stoked by falling oil production and violence in Libya.10

Hixon Zuercher February 2015 Monthly Video Update

Are Your Estate Documents In Order?

As wealth managers, it’s part of our commitment to you to help you guide your financial affairs. One area that is particularly critical to get right is estate preparation and the protection of your loved ones from the unexpected. Proper estate preparation is an act of love and responsibility to those you care about.

Estate Preparation Questions You Should Consider

  • Have you discussed your wishes with your spouse and loved ones?
  • Do you have an updated Will?
  • Have you executed a Living Will and healthcare proxy to protect your wishes in the event of incapacity?
  • Have you named guardians for your children?
  • Have you created a Trust and titled your assets in the name of the Trust?
  • Were your estate plans constructed to minimize tax consequences?
  • Have you reviewed your primary and secondary beneficiaries to make sure they reflect your priorities?

These questions are not exhaustive and are only designed to act as a starting point for your preparations. If you’re not sure about any of these issues, it may be time to request a legal and financial review.

Why is estate preparation so critical?

  • It documents your wishes and helps ensure that they are carried out when you are no longer able to look after your affairs.
  • It helps protect the financial stability of your loved ones and support your life priorities.
  • It helps minimize the taxes, expenses, and legal hassle involved with transferring assets to heirs.

Do I really need estate preparation if I have beneficiaries on my accounts?

Beneficiary provisions are a valuable tool for reducing the expense and time associated with transferring wealth; however, they do not replace proper estate preparation. We believe that the process of preparing your estate is critical to protecting your family and future financial affairs. We have also found that estate preparations offer an opportunity to explore your life priorities and discuss your thoughts with your loved ones.

Many Americans put off estate preparation because they view it as morbid or depressing. We prefer to treat it as preparing for life and protecting your family from the unexpected. Though you cannot control the future, these preparations help you focus on what you can control and empower you to care for your loved ones long after you’re gone.

If you have worked with an attorney to develop your estate plans, it’s still a good idea to regularly review your documents to make sure that they still reflect your wishes. Letting your documents go out of date can create legal problems or expensive tax bills for your heirs. To help ensure that our clients have professional recommendations for their circumstances, we partner with legal professionals who specialize in helping clients create a personalized estate blueprint. Please let us know if we can provide an introduction.

We’ve asked some questions that we hope will help you think about your priorities and prompt a discussion with your loved ones. Please feel free to share this information with your friends and family; everyone deserves the benefit of professional recommendations and the confidence of knowing that their future wishes are protected. If you would like to review your current estate provisions or need help finding an attorney, please call our office at 419-425-2400.

What Clues Did the First Month of the Year Leave Us? Weekly Update – February 2, 2015

Image courtesy of FreeDigitalPhotos.net/Cooldesign

Image courtesy of
FreeDigitalPhotos.net/Cooldesign

Markets were driven lower in another volatile week of trading, ending the first month of 2015 in the red. For the week, the S&P 500 lost 2.77%, the Dow fell 2.87%, and the Nasdaq dropped 2.58%.[1]

One of the major contributors to the week’s losses was an unexpected miss in fourth quarter economic growth. The first estimate of Gross Domestic Product (GDP) showed that the economy grew an underwhelming 2.6% in the last three months of 2014. This is a significant drop from the 5.0% growth the economy saw in the third quarter and below economists’ expectations of 2.8%-3.0% growth. However, consumer spending was higher than expected, showing that Americans are still buying. Also, keep in mind that this is just the first estimate of GDP growth. [2] A lot of economic data has yet to be analyzed, and we can hope for upward revisions in the months to come.

Earnings season marches onward and the news is mixed. While the reports we have seen from 228 S&P 500 companies show that earnings are up 5.5% over the same period in 2013, revenues are up just 1.7%.[3] Overall, U.S. companies appear to be struggling with three factors:

  • Falling oil prices, which are seriously affecting energy companies and interrelated businesses.
  • The strength of the U.S. dollar, which is hitting companies that depend on foreign demand hard. A strong dollar makes it more expensive to buy U.S. products.
  • Weak global economic growth. This factor is also pressing down forward guidance from companies, many of which are expecting a tough business environment in 2015.[4]

Even if overall earnings numbers may not look inspiring, there are a lot of individual success stories in each sector. Though volatility is stressful, it can provide opportunities for investors who can be flexible. Part of what we do for our clients is look for those opportunities for growth in every market environment.

Oil prices continued to slide though some analysts believe we may be approaching an oil price floor. One industry insider believes that oil prices could double by the end of 2015 as oil companies respond to the supply glut by slowing down production.[5]

Looking forward, the week ahead is filled with more economic reports, including the January Employment Situation Report, which will hopefully show continual improvement in the labor market. Markets are likely to remain volatile in the days and weeks ahead, but we can hope that positive data might encourage investors to “buy the dip.”

ECONOMIC CALENDAR:

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

Tuesday: Motor Vehicle Sales, Factory Orders

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

Thursday: International Trade, Jobless Claims, Productivity and Costs

Friday: Employment Situation

Data as of 1/30/2015 1-Week Since 1/1/15 1-Year 5-Year 10-Year
Standard & Poor’s 500 -2.77% -3.10% 11.19% 17.16% 7.03%
DOW -2.87% -3.69% 8.31% 14.10% 6.46%
NASDAQ -2.58% -2.13% 12.42% 23.17% 12.77%
U.S. Corporate Bond Index 1.59% 2.71% 5.68% 2.71% 1.18%
International -0.28% 0.44% -2.99% 3.37% 1.83%
Data as 1/30/2015 1 mo. 6 mo. 1 yr. 5 yr. 10 yr.
Treasury Yields (CMT) 0.01% 0.07% 0.18% 1.18% 1.68%

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

HEADLINES:

Durable goods fall sharply in December. Orders for long lasting U.S. manufactured goods dropped 3.4% in December after falling 2.1% in November, raising questions about the health of one of the economy’s most important sectors. Though demand for automobiles grew, a core indicator of business investment fell for the fourth straight month.[6]

Consumer sentiment brightens in January. Optimism about better job and wage prospects sent a measure of U.S. consumer sentiment to its highest level since 2004. Hopefully, increased confidence in the economic expansion will translate into higher consumer spending this quarter.[7]

Chinese factory growth slides. China’s manufacturing sector unexpectedly shrank in January to the lowest level since 2012. Since factories often experience a bump just before an important spring holiday, the drop could presage further gloom for China’s economy.[8]

Jobless claims fall to 14-year low. The number of Americans filing new claims for unemployment benefits fell to the lowest level since 2000. Claims had been trending higher in previous reports, so the sudden drop is an indicator that the labor market is returning to its positive trend.[9]

[1] http://goo.gl/RPwDsE

[2] http://www.cnbc.com/id/102383485

[3] http://www.zacks.com/commentary/37601/3-factors-define-q4-earnings-season

[4] http://www.zacks.com/commentary/37601/3-factors-define-q4-earnings-season

[5] http://www.cnbc.com/id/102381893

[6] http://www.usatoday.com/story/money/business/2015/01/27/durable-goods-orders-december/22370639/

[7] http://www.reuters.com/article/2015/01/30/us-usa-economy-sentiment-idUSKBN0L31QI20150130

[8] http://www.reuters.com/article/2015/02/01/us-china-economy-pmi-idUSKBN0L50ZX20150201

[9] http://www.marketwatch.com/story/jobless-claims-drop-to-14-year-low-2015-01-29

What Are These Central Banks Doing? Weekly Update – January 26, 2015

Image courtesy of FreeDigitalPhotos.net/suphakit73

Image courtesy of
FreeDigitalPhotos.net/suphakit73

Markets ended the week in the black for the first time in 2015 on the back of major moves by multiple central banks. For the week, the S&P 500 gained 1.60%, the Dow grew 0.92%, and the Nasdaq added 2.66%.1

Central banks ruled market headlines last week with the European Central Bank, Bank of Canada, People’s Bank of China, and Bank of Japan all making key announcements. The ECB led the pack by announcing its first round of quantitative easing, promising EUR 60 billion in monthly asset purchases. The move is designed to boost the Eurozone economy and fight deflationary pressures, though some experts are dubious about the potential for success.2 In an effort to stem outflows of cash from the Chinese economy, the Chinese central bank used short-term monetary tools to inject more liquidity into the financial system ahead of the Lunar New Year Holiday.3 The Bank of Canada joined the party by announcing a surprise interest rate cut to spur growth in the face of falling oil prices.4

Markets reacted positively to the news that central banks are making an effort to boost the global economy, helping the major indexes post gains for the first time this year. However, the news last week wasn’t all good.

The Eurozone faces another major challenge in Greece; voters went to the polls Sunday and elected the radical left Syriza party, which wants to end austerity measures and refuse European debt inspections. Though it’s unclear if the party has enough parliament seats to form a government, the election result highlights Greek voters’ frustration with austerity and increases the risk of a so-called “Grexit,” a Greek exit from the Eurozone.5

 

The U.S. is also facing new foreign policy challenges. The death of Saudi Arabia’s King Abdullah bin Abdulaziz Al Saud may change America’s relationship with its largest ally in the Middle East and affect global oil markets.6 Yemen, a major Saudi supporter and U.S. ally, also experienced leadership turmoil with the resignation of its president after being besieged by rebel fighters.7 If the political vacuum causes Yemen to splinter along ethnic and religious lines, it could spark civil war, also threatening U.S. policies in the Middle East.

 

Looking ahead, we see a lot of uncertainty this week. Though the U.S. continues to do well, we see markets driven by energy prices, worries about Europe, and concern that new central bank policies may not be enough to stoke economic activity in the rest of the world. Next week’s Federal Reserve Open Market Committee meeting will be key in setting the tone for the year’s monetary policies. Although the Fed has indicated that it may raise rates this year, the increased stimulus measures from its counterparts overseas may make it harder for the Fed to move ahead with rate hikes. Even if global economic policy isn’t part of the Fed’s mandate, the interconnectedness of the world’s economy and the importance of the U.S. dollar in global trade mean our central bankers must take into account global risks when making policy decisions.8 The week ahead is also filled with important earnings reports, which could make or break the Q4 earnings season. Thus far, earnings have been uninspiring, though overall earnings growth is expected to be positive.9

 

When markets turn volatile, it’s important to remain disciplined by sticking to your own financial strategies while staying flexible enough to take advantage of opportunities as they arise. We’re keeping a close eye on market events as they develop and will keep you updated.

ECONOMIC CALENDAR:

Monday: Dallas Fed Mfg. Survey

Tuesday: Durable Goods Orders, S&P Case-Shiller HPI, New Home Sales, Consumer Confidence

Wednesday: EIA Petroleum Status Report, FOMC Meeting Announcement

Thursday: Jobless Claims, Pending Home Sales Index

Friday: GDP, Employment Cost Index, Chicago PMI, Consumer Sentiment

 

Capture
HEADLINES:

Jobless claims fall from 7-month high. Weekly claims for new unemployment benefits dropped last week, erasing the previous week’s increase, which pushed weekly claims to the highest level seen since June. Seasonal factors around holiday hiring are likely to blame for the volatility10

U.S. factory activity slows. The manufacturing sector continued to grow in January, but the pace of activity slowed as new orders weakened. Though some seasonal factors may be affecting data, job creation in the sector remains steady, indicating underlying demand may not have dropped.11

Single-family housing starts to reach multi-year high. Groundbreaking on new single-family homes reached the highest level in 6-1/2 years in December. Though housing activity has lagged in the last year, the new construction trend could indicate greater demand for housing as the economy improves.12

Mortgage applications surge. The volume of mortgage applications increased dramatically last week, pushing total volume 41% higher than the same period last week, in another hopeful sign for the housing sector. Economists cite low mortgage rates and a reduction in Federal Housing Administration mortgage insurance premiums as factors.13

Friday’s “Relief Rally” Weekly Update – January 20, 2015

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of
FreeDigitalPhotos.net/Stuart Miles

Stocks experienced another rollercoaster week, pummeled by a dismal global growth forecast and missed earnings reports. However, markets ended a four-day losing streak on Friday with a “relief rally” as energy prices rebounded slightly.1 For the week, the S&P 500 lost 1.26%, the Dow fell 1.27%, and the Nasdaq dropped 1.48%.2

The World Bank underscored investors’ concerns about the global economy by slashing its global growth forecast for 2015 and 2016. Citing disappointing growth in Europe and concerns about some emerging markets, the development organization cut its predicted global economic growth rate to 3.0% from 3.4% in June.3 Though U.S. growth remains strong, slowing demand overseas may hurt U.S. firms.

December holiday sales reports arrived, and the news wasn’t very jolly, showing that overall retail sales dropped 0.9%. Cheaper gas, earlier shopping, and significant discounts all contributed to the drop, and retailers have chosen to call the season a win. The National Retail Federation says that overall holiday spending rose 4.0%, making it the best season since 2011. Investors were less enthusiastic about the data, which could indicate weakness in consumer spending.4

Earnings season shifted into high gear last week, bringing total S&P 500 company reports to 37. So far, the news isn’t great. Financial companies are the first large group to report in, and although there are some individual success stories, the Major Banks sector (which includes companies like JP Morgan, Wells Fargo, and Citigroup) dragging, with earnings down 13.7% since the same time last year. However, outside the Finance sector, the picture is brighter, with total earnings up 17.4% so far on higher revenues.5 Though it’s still early in the season, S&P Capital IQ predicts that overall earnings for the S&P 500 increased 6.5% in the fourth quarter.6 Though the U.S. demand picture appears to be strengthening, external factors like oil prices and the dollar’s strength relative to other currencies is likely to significantly affect company performance this year.

Does January’s rocky start bode ill for the rest of 2015? Probably not. Right now, Wall Street is preoccupied with the murkiness of recent data. Macro issues like oil prices, the dollar’s strength, central bank moves, and global growth forecasts are overriding individual company data, which makes it hard to pick winners and losers. Fundamental trends within the U.S. economy haven’t changed: U.S. firms are hiring, Americans are more confident about their prospects, and many sectors of the economy are showing improvement. Markets are closed on Monday, but the week ahead is filled with more earnings reports as well as Tuesday’s State of the Union address by President Obama.

ECONOMIC CALENDAR:

Tuesday: Housing Market Index

Wednesday: Housing Starts

Thursday: Jobless Claims, PMI Manufacturing Index Flash, EIA Petroleum Status Report

Friday: Existing Home Sales

Capture
NY Post Twitter feed hacked, traders respond.
Investors were shocked when the New York post tweeted Friday that the Federal Reserve was holding an emergency meeting to set interest rates. Though the paper quickly regained control of the Twitter account and deleted offending tweets, some traders may have responded to the news. Lessons? Don’t believe everything you read.7HEADLINES:

Swiss franc soars after 1.20 euro peg dropped. The central bank of Switzerland abandoned a 3-year-old currency agreement by dropping the floor on the Swiss franc Thursday, allowing it to float freely against the euro. Traders responded by rushing for the euro exits, buying Swiss francs and pushing the currency 30% higher against the euro.8

U.S. import prices post record drop in December. The cost of U.S. imports fell by the largest amount since 2008 as petroleum costs continued to plunge. Import prices fell by 2.5% in December, dropping 5.5% for all of 2014. Weak import inflation may help stave off Fed rate hikes.9

U.S. foreclosures down 64% from 2010 peak. The number of foreclosed U.S. homes fell again in November, bringing monthly foreclosures down 64% since the peak in September 2010. Though foreclosure activity is falling, analysts believe it won’t reach normal levels for at least two years as distressed loans continue to move through the system.10

How Should I Start Saving for My Kids Education

Image courtesy of FreeDigitalPhotos.net/hywards

Image courtesy of
FreeDigitalPhotos.net/hywards

The other day, I (Tony) got an email from a long lost friend of mine that I hadn’t chatted with in years.  He knows I’m in the industry and he reached out to me with an email question that I thought our blog readers might find of interest.  Turns out, he and his wife had a daughter about a year ago and they were thinking through what type of account would be the best way for them to save for her college education.  Below is my abridged reply.

“It’s great to hear your desire of being a good steward of your family and finances.  Unfortunately, your question isn’t as easy as one might think.  We typically look at a variety of ‘first steps’ that we believe should be in place before beginning to fund a college goal.  First, do you have a Will in place?  A Will should be developed that would name an Executor of your Estate and your desired caretaker of your kids in the unfortunate event of you and your wife’s death.  It would be a travesty to allow the courts to decide who would care for your daughter.  You should have a Will fully executed before beginning to fund your college goal.  These aren’t outrageously expensive, but they aren’t cheap either.  You’ll need to seek and find a qualified attorney to draft a Will for you and your wife.

Next, you should have adequate life insurance in place.  In the unfortunate circumstance of your death, you’ll want to leave your wife and daughter adequate income to survive.  Future college costs can be worked in to the equation of adequate life insurance amount.  Further, if you and your wife should both die at the same time, your chosen care-takers of your daughter will be grateful that money is available to help raise your daughter over the long term.

Third, you should establish and fully fund an Emergency Fund.  We recommend 3-6 months of your living expenses to be set aside in this account to be used for emergencies.  While saving for your daughter’s college is a noble cause, if you lose your job or some catastrophic event causes you to have a large outlay of cash, you’ll want to make sure your family’s needs are met first for the here and now…in which an Emergency Fund could be used.  Once money is in a college savings type account, you will be unable to take the funds back out of it without penalty.

Fourth, it is to your advantage as well to ensure that you and your wife’s retirement is a primary consideration above college contributions.  The main reason is that you may put your own retirement at risk by not funding it fully, only to find out your daughter receives a hefty scholarship or perhaps doesn’t even go to college for various reasons.  I’ve dealt with too many clients who have put their own retirement in jeopardy to send their kids to college and are now living with regret and having to work for longer than they had ever anticipated.

Next, it is to your advantage to make sure you’ve dealt with any consumer debt that is outstanding.  High interest rate student loans, auto loans or credit cards will kill you financially over time.  It is recommended that you extinguish most, if not all, consumer debt (not mortgage) before considering funding a child’s college education.

Last, but not leastJ, if these other financial considerations are in order, you could consider college contributions.  We typically steer clients to CollegeAmerica which is Virginia’s 529 Plan managed by American Funds.  This Plan is only available through advisors.  American Funds has a robust line-up of target date offerings and has had stellar performance.

For those living in Ohio and not working with an advisor, consider Ohio’s 529 Plan.  www.collegeadvantage.com  Choose the Do-It Yourself Direct Plan.  You can sign up everything online and do your contributions via EFT from your bank account.  Choose an age-based option that will vary in risk as the child gets older.  The closer they get to college, the less risk the model will take.  Also, Ohio’s plan allows for a small tax credit that many find helpful in tax planning considerations.

For more information of which I pretty much agree with, visit www.daveramsey.com  He lays out many of the principles I’ve written above in book form.  Also, a lot of times there are live classes in the area in which you can attend.  You can search for those and you and your wife can learn more.”