The Rebound – Weekly Update April 21, 2014

Image Courtesy of FreeDigitalPhotos.net/jannoon028

Image Courtesy of FreeDigitalPhotos.net/jannoon028

Markets closed out the holiday-shortened week on an upbeat note, with the S&P 500 posting its best week since July. For the week, the S&P 500 gained 2.71%, the Dow grew 2.38%, and the Nasdaq rose 2.39%.1

Markets shook off the previous week’s losses and rallied on earnings data and a better-than-expected Gross Domestic Product (GDP) report from China. Though earnings season is still young, the overall picture is not as bad as investors had feared. Thomson Reuters estimates that first-quarter earnings increased 1.7% from a year ago, which is much lower than the high-flying estimates at the beginning of the year, but not too bad considering the rough winter.2

Though China’s first-quarter GDP report is not rosy – it showed that economic growth slowed to 7.4% as compared to the previous year – analysts had expected it to drop even further to around 7.0%.3 The data shows that China’s economic growth is indeed slowing, but markets still counted it as a win (for now). China is a trading partner to many countries around the world, and its economic strength is a bellwether for the health of the global economy. A slowdown in China could have knock-on effects elsewhere in the world.

On the domestic front, economic data is looking up. Retail sales surged in March, recording their largest gains in 1½ years as consumer demand came roaring back. Increasing consumer demand could indicate that economic growth is set to accelerate in the spring.4

The number of new unemployment claims filed last week rose less than expected, staying close to the 6½ year low achieved the previous week. The four week moving average, a less volatile measure, fell to the lowest level since October 2007, indicating that labor market growth is accelerating.5

Fed Chair Janet Yellen spoke last week and reiterated her opinion that the economy and labor market are still not fully recovered. She stated that future policy moves would not be based on a single indicator, but on a comprehensive analysis of the economy’s health.6

Looking ahead, earnings season will kick into high gear this week when nearly one third of S&P 500 companies report.7 If investors see strong earnings performance, markets could shake off the doldrums and resume the rally. On the other hand, weak performance could lead to significant volatility.

ECONOMIC CALENDAR:

 

Tuesday: Existing Home Sales

Wednesday: PMI Manufacturing Index Flash, New Home Sales, EIA Petroleum Status Report

Thursday: Durable Goods Orders, Jobless Claims

Friday: Consumer Sentiment

 

Data as of 4/18/2014

1-Week

Since 1/1/14

1-Year

5-Year

10-Year

Standard   & Poor’s 500

2.71%

0.89%

20.97%

22.89%

6.44%

Dow

2.38%

-1.01%

12.87%

20.36%

5.70%

NASDAQ

2.39%

-1.94%

29.34%

28.96%

10.52%

U.S.   Corporate Bond Index

-0.50%

2.32%

-3.09%

4.73%

0.89%

International

1.92%

0.64%

15.18%

17.31%

7.78%

Data as of 4/18/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)

0.02%

0.05%

0.11%

1.75%

2.73%

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:

U.S. housing starts lag in March. Builders broke ground on fewer houses in March than expected, and new building permits fell, suggesting that weakness in the housing market could persist through warming weather..8

Manufacturing output rises in March. Factory production rose for the second straight month, extending its rebound after the cold winter. Overall industrial production was up 0.8%, beating analysts’ expectations, and indicating that manufacturing is set for a positive second quarter.9

Russia threatens shutoff if gas bill not paid. Russian President Vladimir Putin warned that natural gas supplies to Europe might be disrupted if Ukraine does not pay its gas debts, which Russia claims total $2.2 billion. Both Russia and the European Union (EU) are scrambling to find other markets for natural gas in the event the Ukrainian situation continues..10

Mortgage applications rose last week. Falling interest rates caused a surge in mortgage applications as Americans rushed to lock in lower rates. Rates on fixed 30 year mortgages fell to 4.27%, the lowest they’ve been since November 2013.11

Learning From A Market Drop Weekly Update – April 14, 2014

Image courtesy of FreeDigitalPhotos.net/renjith krishnan

Image courtesy of FreeDigitalPhotos.net/renjith krishnan

Markets closed a volatile week on a bearish note as the first earnings reports trickled in. For the week, the S&P 500 lost 2.65%, the Dow fell 2.35%, and the Nasdaq dropped 3.10%.1 One bright spot: Despite the dismal stock performance, economic fundamentals are looking up. What lessons should we take away from last week? We’ll get to that in a moment. First, let’s review the factors that contributed to last week’s performance.

Most of last week’s market decline came as a result of investors positioning themselves for a challenging earnings season. Many analysts had predicted a market reversal in 2014 as investors paused to take the pulse of last year’s big winners, and that is precisely what we’re seeing. Most of the sectors that have been hit hard this year were high fliers in 2013.2

On the economic front, consumer sentiment reached its highest level since last July as improvements in the labor market boosted optimism about the economy.3 However, since sentiment tends to mirror equity performance, if markets don’t improve, we may see that optimism wane in coming weeks. The week’s unemployment report was also very positive as new unemployment claims fell to the lowest level since May 2007.4

The crisis in Ukraine continued to simmer last week as the Ukrainian army sought to eject pro-Russian separatists from a complex near the eastern border.5 Tensions increased as Russia raised the price of natural gas exports to Ukraine by 80% and Ukraine retaliated by halting payments, pushing the two sides closer to another “gas war.”6 If Russia makes good on its threat to shut off the gas pipeline through Ukraine, EU states that depend on supplies from Ukraine could be affected.

Recent market troubles offer a teachable moment for investors: Don’t buy the hype. Let your long-term personal and financial goals drive your investment strategy and choose solid investments that suit your needs. Market volatility will always challenge investors, but we believe that a prudent investment strategy and active risk management can ultimately lead to better long-term outcomes.

Another important lesson is the need to tune out emotion and stick to a disciplined investment plan. Plenty of investors are looking glumly at their portfolio values, not realizing that a) recent losses may provide opportunities to cherry-pick solid stocks at attractive prices, and b) that economic fundamentals point to a rosier second quarter, giving us hope that equities will rally soon. The real losers will be those who gave in to greed and bought high-performers on the upswing, and who panicked and sold near the bottom.

ECONOMIC CALENDAR:

Monday: Retail Sales, Business Inventories

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

Wednesday: Housing Starts, Industrial Production, EIA Petroleum Status Report, Beige Book

Thursday: Jobless Claims, Philadelphia Fed Survey

Friday: U.S. Markets Closed for Good Friday Holiday

 

Data as of 4/11/2014

1-Week

Since 1/1/14

1-Year

5-Year

10-Year

Standard & Poor’s 500

-2.65%

-1.77%

13.95%

22.39%

5.94%

Dow

-2.35%

-3.32%

7.81%

19.65%

5.35%

NASDAQ

-3.10%

-4.23%

21.20%

28.41%

9.48%

U.S. Corporate Bond Index

0.72%

2.84%

-2.11%

5.33%

0.84%

International

-1.63%

-1.25%

9.41%

17.21%

7.21%

Data as of 4/11/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)

0.04%

0.06%

0.09%

1.58%

2.63%

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:

 

Gold prices log weekly gain on Fed hopes. Sagging risk appetites and hopes that the Fed will hold interest rates steady until next year pushed up gold prices. However, analysts expect gold prices to head lower this year as economic fundamentals improve.7

 

IMF issues hard-landing warning for China. The International Monetary Fund warned that though the risk of a sharp decline in China’s economic growth was small, overinvestment and structural issues in the financial system pose global risks.8

 

Producer prices edge up. Companies paid more for goods and services last month as wholesale prices rose. This may squeeze company profits this quarter as slack demand makes it hard for retailers to pass those costs on to consumers.9

 

Food prices on the rise in 2014. Drought and harsh winter weather has sent food prices higher by as much as 20%, according to some estimates. While U.S. consumers may not be affected greatly, since growing costs account for only 15% of retail prices, consumers in poorer nations may be hit hard.10

April 2014 Monthly Market Update

Josh Robb, Associate Investment Advisor with Hixon Zuercher Capital Management, shares his thoughts on the current market trends. and some of the major events that moved markets in the first quarter of 2014. He’ll also be discussing what might affect markets in the days and weeks ahead. From the volatile first three months to the lackluster economic data, stocks may have lost some momentum, but several turnaround stories are shared. Click below to hear more.

Quarterly Edition: Winter Chill Causes Volatile First Quarter Weekly Update – April 07, 2014

Image courtesy of FreeDigitalPhotos.net/CuteImage

Image courtesy of FreeDigitalPhotos.net/CuteImage

Equities closed out a lackluster quarter basically flat, as investors grappled with the effects of the chilly winter and widespread volatility. Though the major indices approached new highs in March, stocks gave in to selling pressure at the end of the quarter. For the quarter, the S&P 500 gained 1.84%, the Dow lost 0.35%, and the Nasdaq fell 0.10%.1

On the economic front, the quarter was a bit of a disappointment, though economists hope that a warmer spring will cause improvement in economic indicators. The final jobs report of the quarter showed that employers added 192,000 new jobs in March, though the unemployment rate remained unchanged. The good news is that milder weather and better job prospects are drawing the unemployed back to the job search. January and February job additions were revised upward, meaning the job market was not as weak as first thought.2

Though economists had hoped for more new jobs in March, the labor market reached a milestone last month when private-sector employment passed its previous all-time high of January 2008.3 Though its taken six years to get here, total employment is finally back where it was before the financial crisis. Unfortunately, the economy still has a way to go to regain its former vitality.

Retailers saw their sales slump last quarter as icy weather caused shoppers to stay home. Excluding automobiles, retail sales have been virtually flat since October, meaning retailer earnings probably took a hit. Major chains will release their March sales data next week and analysts will be looking to see if a warmer March sent more shoppers to the mall.4

The manufacturing sector also experienced a weather-driven slowdown in January, but factories shrugged off the cold winter in February with a surge in new orders, the largest increase since September.5 A different survey showed that manufacturing growth accelerated in March.6

This January, the Fed welcomed its new chairwoman, Janet Yellen. So far, Yellen has held the party line, continuing to scale back quantitative easing and reducing monthly bond purchases to $55 billion at the March meeting. The Fed also shifted its stance on unemployment, dropping its 6.5% unemployment threshold in favor of more nuanced language.7 Investors reacted badly to hints that the Fed might raise short-term rates before the end of 2015. In a speech last week, Yellen attempted to reassure investors by stating that the economy still needs “extraordinary support” and that she has a strong commitment to maintaining support until the economic recovery is self-sustaining.8

Global events also took their toll on markets last quarter, with a burgeoning crisis between Ukraine and Russia and emerging market issues contributing to a great deal of volatility in U.S. markets. Though the threat of violence in Ukraine appears to be over, markets are still nervous about the effects of economic sanction against Russia may have on U.S. and European companies. Investors, who had sought higher returns in developing economies in previous years, fled signs of structural weakness, causing overbought emerging market equities to fall.9 Many questions remain about the ability of developing economies to survive the end of cheap credit.

Looking ahead at the second quarter of 2014, analysts will be looking for more encouraging economic data that they hope with a warmer spring will cause growth to accelerate. Though this week is light on data, investors will be looking forward to getting a closer look at the minutes from the Federal Open Market Committee (FOMC) mid-March meeting to get more details about the Fed’s thinking behind their shift in guidance. Earnings will soon start trickling in and investors will get a good look at how well firms were able to manage lackluster demand at the beginning of the year.

Though we can’t make predictions about which way markets will go, we’re still optimistic about economic growth and market performance in 2014. We believe that underlying economic fundamentals are still strong and that the seasonal effects of winter will give way to stronger performance this quarter. If you have any questions about how market events may affect your portfolio, please don’t hesitate to reach out.

ECONOMIC CALENDAR:

 

Wednesday: EIA Petroleum Status Report, FOMC Minutes

Thursday: Jobless Claims, Import and Export Prices, Treasury Budget

Friday: PPI-FD, Consumer Sentiment

 

Data as of 4/4/2014

1-Week

Since 1/1/14

1-Year

5-Year

10-Year

Standard & Poor’s 500

0.40%

0.91%

19.56%

24.28%

6.33%

Dow

0.55%

-0.99%

12.37%

20.94%

5.68%

NASDAQ

-0.67%

-1.17%

27.99%

30.90%

10.07%

U.S. Corporate Bond Index

0.23%

2.10%

-2.69%

5.15%

0.73%

International

0.75%

0.39%

14.09%

17.61%

7.43%

Data as of 4/4/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)

0.03%

0.05%

0.11%

1.71%

2.74%

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:

Gas prices heading higher, but are still below 2010 levels. Gasoline is making its annual trek higher as demand increases ahead of the spring and summer driving season. Nationally, gas prices average $3.55, though areas like California are seeing prices spike over $4.01. Despite the price creep, gas prices are still at their lowest level since 2010.10

Mortgage applications fall on low refinance demand. Applications for mortgages fell for the third time in four weeks. A measure of refinancing activity has declined to the lowest level since April 2010, as rising interest rates curb activity.11

China targeting job growth with stimulus measures. The Chinese premier’s version of the State of the Union Address highlighted China’s need for growth to create jobs for its 7.2 million college grads and the millions of rural Chinese flooding cities looking for work.12

European central bank mulls quantitative easing. Though the ECB has long resisted calls to undertake the unconventional type of asset purchases the Federal Reserve has made, weak inflation and persistently low growth in the EU may force its hand. Setting negative deposit rates might force banks to extend more loans to consumers and asset purchases could bolster the economy.13

10 Ways to Avoid Common Tax Filing Errors

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Tax time is here and we’re getting close to the April 15th filing deadline. Tax laws changed significantly in 2013 and taxpayers are now responsible for several new taxes as well as changes to deduction limits and exemption phaseouts.1

Last year, the IRS published a list of common tax filing errors2 that we wanted to pass along with our tips for avoiding them. You can prevent the vast majority of these mistakes with a little extra attention or the help of a professional tax advisor.

It’s in your benefit to catch errors before filing because a simple oversight could delay or cost you a refund, if you’re entitled to one. A blunder that causes you to underpay your taxes could lead to stern letters and penalties from the IRS or, worse, trigger an audit.

Here’s how you can avoid making one of these common errors:

1.         File electronically. By filing electronically, you can use computer software to catch many common mistakes. E-filing can also reduce the chances that an error in processing is made by the IRS.3

2.         Review your deductions. The IRS says many mistakes happen when taxpayers are calculating their deductions. For example, remember that if you are age 65 or older, you qualify for a larger standard deduction.4 Under time pressure, many taxpayers take the standard deduction instead of itemizing, potentially increasing the size of their tax bill. A tax professional can help you determine the best way to treat deductions.

3.         Check your charitable contributions. Missteps involving charitable deductions are quite common; it’s important to understand what the IRS allows you to deduct and how you must document it. You can consult a tax advisor or review IRS Publication 526 for more information.5 Don’t forget to claim any charitable contributions you made through payroll deductions or as qualified charitable distributions from your IRA.

4.         Share important information with your tax preparer. Working with a tax specialist can help cut down on expensive errors, but they aren’t mind readers. Don’t make the mistake of failing to share vital information with your tax preparer.

5.         Choose the right number of dependents. While this should be a simple decision, it becomes complicated during life’s transitions. For example, if your child recently got a full-time job or you are newly responsible for an elder’s care, you may want to review whether you can claim them as dependents or not.

6.         Correct the spelling of names and social security numbers. Make sure that all names and Social Security numbers match what’s on your (and your spouse’s) Social Security cards. If you’ve changed your name since the last time you filed your taxes, you’ll need to notify the Social Security Administration (SSA) so they can update their information. You can do this by filing form SS-5 at your local SSA office or by mail.6

7.         Double-check your direct deposit information. Most taxpayers give the IRS bank account information to receive their refund by direct deposit. Unfortunately, if you’ve given the IRS the wrong account information, your refund could easily go astray.

8.         Sign the return and attach all documents. The IRS won’t accept unsigned tax returns, so it’s critical that you (and your spouse if you file jointly) sign your 2013 tax return and include all necessary schedules and documents. Don’t forget to include a check for any taxes owed.

9.         Report any additional income. If you picked up a side job this year or are receiving income from your investments, be sure to report it to the IRS. If you forget to include this information on your return, there’s a good chance that you could owe additional taxes and penalties on your unreported earnings.

10.       Consult a professional. Tax laws are complex and consumer-grade tax preparation software is designed to meet the needs of the average taxpayer. If you have a complicated tax situation, a tax specialist can help you prevent mistakes and identify potential tax savings.

If you have any questions about the information we’ve presented or are concerned about your taxes, please contact us…we’d be delighted to help.

Stocks Fizzle Before Quarter’s End Weekly Update – March 31, 2014

Image courtesy of FreeDigitalPhotos.net/Ambro

Image courtesy of FreeDigitalPhotos.net/Ambro

Despite some positive economic news, the major indices ended the week mixed as investors prepared for the end of the quarter and continued to worry about Russia. For the week, the S&P 500 lost 0.48%, the Dow gained 0.12%, and the Nasdaq fell 2.83%, dragged down by a selloff in the tech sector.1

The most recent estimate of Q4 Gross Domestic Product (GDP) growth found that the economy grew more than was previously thought, clocking in at an annualized rate of 2.6% instead of 2.4%. The revised data shows that consumers spent more last quarter than economists had thought.2

Investors were treated to other positive data: The last weekly unemployment report of the month showed that new claims fell to a level not seen in nearly four months, indicating that the job market may be strengthening.3 Consumer spending grew in February as U.S. household incomes increased for the second straight month.4 This hopefully means that Americans will be more willing to open their pocketbooks in the weeks and months to come.

Not all of the news was good last week. Consumer sentiment dipped in March as Americans faced the strong possibility that economic growth may have faded this quarter.5 Factors like harsh weather, slow inventory acquisition by businesses, and cuts to public benefits are likely to depress GDP growth.6

The Ukrainian crisis continued to simmer as Russian leaders called for more referendums in Ukrainian provinces on joining the Russian Federation. Western leaders threatened more severe sanctions if Russia doesn’t scale back the pressure.7  Though Russia has repeatedly affirmed its peaceful intentions, troop movements near the Ukrainian border and war games are keeping tensions high.

This week, investors can look forward to hearing Janet Yellen give a speech where she may comment on the timing of future interest rate changes. Investors will also be closely monitoring the March jobs report, which comes out on Friday, to see whether there’s any sign of a spring thaw. Positive news could reassure investors that the economy is still accelerating. On the other hand, if economic indicators don’t show improvement as the weather warms, markets could lose some steam. Despite the volatility, many analysts continue to predict continued market growth in 2014.8


ECONOMIC CALENDAR:

 

Monday: Chicago PMI, Janet Yellen Speaks 9:55 AM ET, Dallas Fed Mfg. Survey

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

Wednesday: ADP Employment Report, Factory Orders, EIA Petroleum Status Report

Thursday: International Trade, Jobless Claims, ISM Non-Mfg. Index

Friday: Employment Situation

 

Data as of 3/28/2014

1-Week

Since 1/1/14

1-Year

5-Year

10-Year

Standard & Poor’s 500

-0.48%

0.50%

18.38%

25.53%

6.76%

Dow

0.12%

-1.53%

11.97%

21.98%

5.98%

NASDAQ

-2.83%

-0.50%

27.18%

33.79%

11.20%

U.S. Corporate Bond Index

0.39%

1.87%

-2.17%

5.13%

0.51%

International

2.61%

-0.36%

13.36%

19.74%

8.01%

Data as of 3/28/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)

0.03%

0.06%

0.13%

1.74%

2.73%

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 orders jumped in February. Orders for long-lasting factory goods rebounded more than expected last month, rising 2.2% over January. The increase came as a result of broad-based growth in demand and ended two straight months of declines.9

Pending home sales drop for eighth straight month. Homebuyers signed 0.8% fewer contracts in February than in January, putting home sales 10.5% below where they were a year ago. Realtors blame the unusually harsh winter and suggest that conditions may be improving. However, some analysts believe that high prices and interest rates may be causing a structural slowdown in the housing sector.10

Gas prices due to drop before summer. Gasoline prices have averaged a 7.0% increase over the past six weeks, but analysts think that the hike is temporary. Gas prices should drop over the coming weeks and stay low over the summer. However, supply disruptions from weather could still send prices higher.11

Chinese leaders commit to supporting economic growth. China’s premier sought to reassure investors by stating that Beijing had the tools and political commitment to support the cooling economy. Targeted measures may include infrastructure investments, lowered financing costs for businesses, and an easing of trade requirements12

Markets Shake Off Global Gloom Weekly Update – March 24, 2014

Image courtesy of FreeDigitalPhotos.net/CuteImage

Image courtesy of FreeDigitalPhotos.net/CuteImage

Stocks shook off their global worries and advanced on some upbeat data that suggests the economy may be picking up steam as the weather warms. Despite losing some ground on Friday in pre-weekend jitters, the major averages all closed out the week on a positive note. For the week, the S&P 500 gained 1.38%, the Dow grew 1.48%, and the Nasdaq advanced 0.74%.1

The cold winter may be losing its hold on the economy. New unemployment claims rose less than expected, and the four-week moving average fell to a four-month low, giving analysts hope that the job market is gaining momentum after a slow winter.2 Industrial production also appears to be emerging from its winter blues; U.S. manufacturing output rebounded in February and notched its highest growth in six months.3

The Federal Reserve’s Open Market Committee (FOMC) met last week and voted to continue tapering, reducing its monthly bond purchases by another $10 billion. The Fed also clarified its forward guidance, stating that it had dropped its 6.5% unemployment rate target in favor of “ongoing improvement in labor market conditions” and stable long-term inflation.4

The situation in Ukraine continued to occupy headlines last week as Crimeans voted to secede from Ukraine to join the Russian Federation, and Moscow moved to formally annex its newest member. The U.S. and Europe responded by denouncing the validity of the vote and instituting sanctions against major Russian oligarchs. Although these sanctions may prove uncomfortable for Russian leaders, they aren’t the harsh sanctions investors feared might interfere with economic growth in Europe.5

Although the threat of a regional military conflagration seems to have passed, investors are still worried about how a standoff between Russia on one side and Ukraine, Europe, and the U.S. on the other side might play out. Geopolitically, Ukraine is important because of its capacity for food production, position as a transit route for Russian natural gas into Europe, and possession of strategic Black Sea ports (some of which are now in Russian hands). In the broadest terms, Russia wants Ukraine in order to extend its influence westward. Western nations want to keep Ukraine out of Russia’s hands and keep it from disintegrating into squabbling factions. However things work out, the resolution of the Ukrainian crisis could set the stage for East-West relations for years to come.6

Looking at the week ahead: With the last FOMC meeting behind us, investors will be turning their attention to a raft of new economic data due to be released this week. Analysts are particularly interested in manufacturing data and consumer spending and will be looking for hints that cold-weather-related slowdowns are in the past.

ECONOMIC CALENDAR:

 

Monday: PMI Manufacturing Index Flash

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

Wednesday: Durable Goods Orders, EIA Petroleum Status Report

Thursday: GDP, Jobless Claims, Pending Home Sales Index

Friday: Personal Income and Outlays, Consumer Sentiment

 

Data as of 3/21/2014

1-Week

Since 1/1/14

1-Year

5-Year

10-Year

Standard & Poor’s 500

1.38%

0.98%

20.75%

28.57%

6.82%

Dow

1.48%

-1.65%

13.04%

24.80%

6.00%

NASDAQ

0.74%

2.40%

32.71%

38.70%

12.04%

U.S. Corporate Bond Index

-0.27%

1.47%

-2.61%

5.00%

0.43%

International

0.06%

-2.89%

10.72%

20.05%

7.63%

Data as of 3/21/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)

0.05%

0.08%

0.14%

1.73%

2.75%

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:

House Republicans want balanced budget vote in April. Republicans in the House of Representatives plan to vote on a budget plan that retains 2015 spending levels but reaches balanced spending levels in 10 years. An early memo suggests the plan would include deep cuts to social programs while retaining defense spending.7

Fitch Removes Negative Ratings Watch on U.S. Fitch Ratings took the U.S. off its negative ratings watch list and reaffirmed the country’s AAA credit rating. The agency cited improved economic and demographic trends in its decision.8

Stress tests show 29 of 30 banks could withstand major recession. The Federal Reserve’s annual bank stress tests found that most U.S. banks could withstand a deep economic slump and still meet all of their financial commitments. The Fed runs an annual two-part test to ensure that banks don’t fall prey to the mismanagement that led to the need for bailouts in 2008.9

Housing starts fall in February. Groundbreaking on new houses fell for the third month in a row in the latest sign that the harsh winter may be undermining the housing recovery. However, housing permit applications grew 7.7% in February, indicating that homebuilders may be optimistic about spring demand.10

Global Concerns Weigh on Markets Weekly Update – March 17, 2014

Image courtesy of FreeDigitalPhotos.net/Rajcreationzs

Image courtesy of FreeDigitalPhotos.net/Rajcreationzs

Equities experienced a rocky week as worries mounted about China’s economic state and tensions escalated in Ukraine. While investors were not panicking, the pessimistic mood contributed to the Nasdaq posting its first drop in six weeks. For the week, the S&P 500 lost 2.0%, the Dow lost 2.4%, and the Nasdaq lost 2.1%.1

Tensions in Ukraine ratcheted up last week as Western leaders, including U.S. Secretary of State John Kerry and German Chancellor Angela Merkel warned Russia against annexing Crimea. Despite the threat of sanctions, Russia launched military exercises near its border with Ukraine and has moved thousands of troops into Crimea and neighboring areas.

The crisis in Ukraine matters to an international audience because a diplomatic and military showdown between Russia and the West could have long-term consequences in Europe. Europeans fear a return to Soviet-era invasions of Eastern Europe as Putin’s interventionist foreign policy dreams become clear.2. Any sanctions against Russia could be very costly for Europe (less so for the U.S.). Europe relies on Russia for approximately 30% of its natural gas; Russia is also its largest trading partner, a relationship that is worth nearly $461 billion in imports and exports every year.3 Investors worry that a deterioration of the relationship between Russia and the rest of the world could affect the business environment.

Concerns about China also weighed on markets. A February report showed that exports fell 18.1% from the previous year; this is problematic because exports are a major driver of the Chinese economy.4 Worries about the Chinese economy were intensified by weaker-than-expected retail and industrial data, which showed that China might be slowing down.5 The recent first-ever debt default by a Chinese company also created new reservations about the health of China’s financial system.6 Investors fear that slowing economic activity in China may spread around the globe and cut into corporate profits.

One way to term investor reactions to these global concerns is a “flight to quality,” where investors are fleeing emerging market securities in search of quality investments in the developed world. Realistically, it’s unlikely that these concerns will go away quickly, meaning we can expect additional uncertainty and market volatility.

On a more positive note, new unemployment claims unexpectedly fell to a three-month low last week, raising hopes that the winter doldrums may be past. Even better, the four-week moving average, a less volatile measure, fell to the lowest level since early Decembe.7 Analysts will be looking closely at next week’s unemployment claims for hints about the monthly job numbers.

The Fed will take center stage this week as the Federal Open Market Committee (FOMC) meets to determine its next monetary moves. There is little doubt on Wall Street that the Fed will stay the course on tapering and announce another $10 billion cut to its quantitative easing programs, bringing monthly bond purchases down to $65 billion. Analysts will be watching especially close as this will be new Fed chair Janet Yellen’s first turn in the hot seat.8

ECONOMIC CALENDAR:

 

Monday: Empire State Mfg. Survey, Treasury International Capital, Industrial Production, Housing Market Index

Tuesday: Consumer Price Index, Housing Starts

Wednesday: EIA Petroleum Status Report, FOMC Meeting Announcement, Fed Chair Press Conference

Thursday: Jobless Claims, Philadelphia Fed Survey, Existing Home Sales

 

Data as of 3/14/2014

1-Week

Since 1/1/14

1-Year

5-Year

10-Year

Standard & Poor’s 500

 -1.97%

 -0.39%

 17.78%

 28.67%

 6.43%

Dow

 -2.35%

 -3.08%

 10.50%

 24.48%

 5.69%

NASDAQ

 -2.09%

 1.65%

 30.27%

 39.31%

 11.39%

U.S. Corporate Bond Index

 0.59%

 1.75%

 -2.02%

 5.29%

 0.45%

International

 -3.75%

 -2.95%

 8.99%

 22.09%

 7.61%

Data as of 3/14/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)

0.05%

0.08%

0.12%

1.55%

2.65%

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:

Consumer sentiment slips. A measure of consumer confidence fell in early March. However, most of the slip was attributed to cold weather, which gives analysts hope that confidence will improve once the weather warms.9

Record drop in bond holdings points to Russia. A surprising decline in foreign holdings of U.S. Treasuries has led some experts to speculate that Russia is cutting its dollar reserves ahead of potential sanctions from the West. Foreign central banks sold $104.5 billion in Treasuries last week – more than three times the previous record amount.10

Retail sales rise slightly in February. Higher than expected retail sales show that Americans shopped more in February. Data shows that retail receipts rose 0.3% in February, ending two straight months of declines.11

Business inventories climb in January. U.S. business inventories rose at the beginning of the year as businesses restocked after the holiday shopping season. However, a drop in sales means that inventories are piling up in warehouses, forcing businesses to buy less in the first quarter.12

 

March 2014 Monthly Market Update

Tony Hixon of Hixon Zuercher Capital Management leads our March 2014 video update. This month he will be talking about some of the major events that moved markets in February as well as what might affect us in the days and weeks ahead.

Don’t forget to register for our 2014 Tax Strategies Webinar, March 21 at 12pm EST.

Register here.

SPECIAL UPDATE: 5 Years Later… Weekly Update – March 10, 2014

Image Courtesy of FreeDigitalPhotos.net/StuartMiles

Image Courtesy of FreeDigitalPhotos.net/StuartMiles

March 9, 2014 marked the five-year anniversary of the lowest point of the S&P 500 after the financial crisis, and we are taking this opportunity to highlight just how far markets have come since those dark days. As of Friday’s close, the S&P 500 has gained just over 177.0% since the market bottom on 3/9/09.1

Source: Yahoo Finance

The stock market growth we’ve experienced over the past five years has also been accompanied by some important gains in the economy. Today, the U.S. economy is worlds away from where it was in 2009, when we faced Gross Domestic Product (GDP) growth of a dismal -3.0%.2 The latest data we have shows that the economy accelerated by 4.1% and 2.4%, respectively, in the third and fourth quarters of 2013.3 The unemployment rate has also dropped from 8.7% in March 2009, to a five-year low of 6.6% in January 2014.4

Considering the strength of the gains stocks have made over the last five years, the big question on many investors’ minds is: How much longer can the bull market continue?

Though it’s possible that we’re approaching the end of the bull market, historically, this bull run isn’t necessarily that old. The chart below shows the number of calendar days between the beginning and end of recent bull markets in the S&P 500 – broadly defined as a period in which the S&P 500 gains at least 20% without a 20% decline in between. You can see that the current one hasn’t even cracked the top five.

Source: CNN Money, Bespoke Investment Group

While we can’t be certain that this bull market will continue, we can look at current economic fundamentals and market trends and make educated guesses about what may come. A lot of cash poured out of markets between 2008 and 2012, and not all of it is back in play. Though many investors have put their money back into stocks, there are still significant amounts of cash on the sidelines, suggesting that equities may still have growth ahead of them.5

Economically, the U.S. is chugging along steadily. Gross Domestic Product (GDP) growth is modest but fairly robust. The Federal Reserve is confident enough about economic performance that it’s taking steps to remove monetary props. Job growth is slowly gaining steam. U.S. companies are doing reasonably well, and have been able to carve out earnings growth despite tough business conditions. And finally, market growth has been fairly broad-based, meaning recent gains haven’t been shackled to the performance of a few high-flying sectors.6

Looking ahead, here are some factors that have the potential to promote further growth this year:

  • U.S. GDP growth needs to pick up steam and reach 3.0% by the end of 2014.
  • Housing, manufacturing, and auto sales need to maintain their gains.
  • Congress must work toward meaningful, long-term tax reform to encourage business spending and the return of foreign earnings sitting abroad.
  • Stock valuations and price-to-earnings ratios need to remain stable and supportive of stock market gains.7

While we can’t be certain about which way markets will move, we can be fairly certain that volatility will be sticking around for a while. There is a lot of uncertainty in global markets right now and uncertainty frequently translates into volatility. While volatility can be stressful, it’s important to keep it in perspective, and to try and think long-term.

Overall, we’re very pleased with how far markets have come in the past five years and we look forward to supporting you for the next five years and beyond.
ECONOMIC CALENDAR:

Wednesday: EIA Petroleum Status Report, Treasury Budget

Thursday: Jobless Claims, Retail Sales, Import and Export Prices, Business Inventories

Friday: PPI-FD, Consumer Sentiment

 

Data as of 3/7/2014

1-Week

Since 1/1/14

1-Year

5-Year

10-Year

Standard & Poor’s 500

1.00%

1.61%

21.61%

34.96%

6.23%

Dow

0.80%

-0.75%

14.82%

29.65%

5.53%

NASDAQ

0.65%

3.82%

34.16%

47.03%

11.18%

U.S. Corporate Bond Index

-1.02%

1.15%

-2.71%

4.86%

0.40%

International

0.22%

0.83%

14.19%

27.02%

7.63%

Data as of 3/7/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)

0.06%

0.09%

0.13%

1.65%

2.80%

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:

China’s exports plummet on global uncertainty. Exports from the world’s second-largest economy tumbled 18.1% in February, stoking fears about China’s economic recovery. Analysts hope that seasonal variations around the Lunar New Year Holiday are responsible for the unexpected decline.8

U.S. household wealth jumps. The total net worth of U.S. households rose to a new high at the end of 2013, reaching $80.66 trillion as stock market and housing gains boosted wealth. Increases in housing value make it easier for Americans to borrow against equity, hopefully foreshadowing increases in consumer spending.9

Planned layoffs drop in February. The number of American companies planning to lay off employees fell last month, in a positive sign for the labor market. The number of planned job cuts fell by 24.0% as compared to February 2013.10

Utility bill scams on the rise. Higher winter energy bills are contributing to an increase in email scams. Fake billing notices from utility companies are arriving in inboxes across the country; clicking on links within the email could download malicious software or reveal sensitive personal information.11