Despite volatility around geopolitical concerns and sluggish growth in Europe, U.S. stocks had a phenomenal week, lifting the S&P 500 to a new record close, and giving the index its best August performance since 2000.1 For the week, the S&P 500 picked up 0.75%, the Dow grew 0.57%, and the Nasdaq gained 0.92%.2
The Ukrainian crisis ratcheted up to a new level of tension as reports emerged that Russian forces have actively invaded eastern Ukraine and are engaging local forces. Although Russian and Ukrainian leaders met last week, the two sides appear more fiercely opposed than ever. It’s hard to know how Russia’s ambitions in the region will affect markets, but interruptions in gas supplies will not be good for Europe’s economy.3
Investors got their second look at Q2 Gross Domestic Product (GDP) numbers and cheered at the news that the economy grew 4.2% (upgraded from 4.0% in the initial estimate). Even better, growth appears to be broad-based and spread among multiple sectors of the economy.4 This result indicates that the economic recovery is entering a sustainable cycle of growth, where improvement in one area of the economy feeds growth in another. Let’s hope so.
Looking ahead, the first week of September is packed with important data. Friday’s August jobs report is especially critical because it could shed some light on the timing of the Federal Reserve’s interest rate hikes. Investors will also have their eyes glued to Thursday’s European Central Bank meeting, seeking a response to the EU’s stalled recovery and dwindling economic hopes.
Geopolitical concerns around Ukraine, Syria, and Iraq will also likely continue to dominate headlines, and volatility is to be expected. European leaders are considering a fresh round of sanctions against Russia, which may cause volatility as investors think about how sanctions may affect global growth.
All told, new record highs and low summer trading volume may transform into additional volatility and more activity in coming weeks. Depending on how these variables play out, a short-term pullback is also possible as investors take profits off the table. This is simply the nature of the investor sentiment pendulum that swings between optimism and pessimism, driving overall buying and selling activity. While we believe that additional upside may be possible this year, we caution our clients to expect periods of volatility as major events shift investor sentiment.
Monday: U.S. Markets Closed for Labor Day Holiday
Tuesday: PMI Manufacturing Index, ISM Mfg. Index, Construction Spending
Wednesday: Motor Vehicle Sales, ADP Employment Report, Factory Orders, Beige Book
Thursday: International Trade, Jobless Claims, Productivity and Costs, ISM Non-Mfg. Index, EIA Petroleum Status Report
Friday: Personal Income and Outlays, Chicago PMI, Consumer Sentiment
Personal income rises, but household spending falls. Personal income – defined as income from wages, investments, and other taxable sources – grew in July, following an increase in June. Despite the increase, Americans pared back their spending, preferring to bank their extra cash rather than go shopping. This reluctance could indicate a lack of confidence in their prospects.5
Consumer sentiment ticks upward. An August survey of consumer sentiment grew on the back of increased optimism about jobs and increasing wealth. However, most of the positivity was in the upper income segments, indicating that lower-income Americans may still be struggling.6
New home sales drop, again. July sales of newly built homes dropped for the third month in a row. On the other hand, new home sales were 12.3% higher than in July of 2013, indicating that momentum is still up over last year, which means that a turnaround is still possible.7
Durable goods orders soar. Orders for long-lasting manufactured goods skyrocketed by 22.6% in July. Though this is good news for the manufacturing sector, the surge was largely driven by a spike in volatile aircraft orders, meaning the underlying trend may soften next month.8
Despite lingering concerns about the Ukrainian crisis, markets picked up steam last week, giving the Dow and S&P 500 their best weekly performance since April. For the week, the S&P 500 grew 1.71%, the Dow gained 2.03%, and the Nasdaq rose 1.65%.1
Last week, headlines were largely dominated by the annual economic symposium in Jackson Hole that plays host to some of the world’s most powerful financial players. Though the format of the event is casual, central bankers, academics, and economists use the meeting to discuss important economic issues from the day.2 One key session from this year’s meeting centered on labor market dynamics.
Economic research suggests that the U.S. labor market is not as flexible as it once was and that the fluidity of workers between jobs is falling. According to results presented at Jackson Hole, factors like an aging workforce that is less likely to change jobs, higher training and regulatory requirements to take many positions, and dominant firms driving others out of business, are all contributing to the problem. Why does this fluidity matter?
Part of what makes a labor market strong is the ability for workers to transition between jobs and industries as needs and conditions change. Across industries, researchers found a decline of about 25% in the rate at which jobs were created and eliminated between 1990 and 2013. The implications of this decline could be particularly serious for the young or the less skilled, who may struggle to find jobs or progress in their careers.3
Federal Reserve Chair Janet Yellen seems to support this view, painting a picture of a still-fragile labor market that requires accommodative monetary policy in her speech Friday. In another big speech, European Central Bank President Mario Draghi stated that the ECB stands ready to provide further liquidity to boost the EU’s sluggish economy.4
Looking ahead, Russia and Ukraine will be in the spotlight as Russian President Vladimir Putin and Ukraine President Petro Poroshenko are scheduled to meet on Tuesday.5 The S&P 500 is also bumping up against 2,000 points, a key technical milestone. Though we don’t place a lot of faith in technical indicators, investor psychology may come into play, and markets may experience some volatility as investors consider whether further short-term upside is likely.6
Monday: New Home Sales, Dallas Fed Mfg. Survey
Tuesday: Durable Goods Orders, S&P Case-Shiller HPI, Consumer Confidence
Wednesday: EIA Petroleum Status Report
Thursday: GDP, Jobless Claims, Corporate Profits, Pending Home Sales Index
Friday: Personal Income and Outlays, Chicago PMI, Consumer Sentiment
Jobless claims fall. Weekly new unemployment claims fell more than expected, dropping below 300,000. While weekly data is volatile, there were no seasonal factors affecting the data, pointing to sustained improvement in the labor market.7
Housing starts heat up in July. A measure of homebuilding soared 15.7% last month, showing that builders may be feeling confident about their prospects in the coming months. While monthly starts are volatile, the increase could show that the housing market isn’t down for the count yet.8
Existing home sales increase for fourth straight month. July sales of previously owned homes soared , hitting the highest pace of growth in 2014. Hopefully, increased inventory levels will stabilize prices and give homebuyers an opportunity to purchase.9
Chinese factory activity slumps. China’s factory sector slumped to a three-month low, renewing concerns that the world’s second largest economy might be slowing down. Economists hope that government measures to support growth will keep economic momentum up.10
As they get older, Americans face complicated decisions about long-term care, estate strategies, and their finances, while potentially struggling with diminished capacity to manage their affairs. At some point, your parents and other loved ones may need your help handling their finances. One study found that between five and ten percent of Americans over 65 need help with financial matters1 and another reported that 68 percent of elders suffer cognitive impairment or experience difficulty with daily tasks.2
Many children and relatives find themselves suddenly thrust into caregiving and financial guardianship roles with very little notice. Some advanced preparation can smooth the process and help ensure that your elders are cared for properly.
Get your legal ducks in a row. One of the first things we recommend to our clients is to make sure that they (and their elders) have durable powers of attorney, medical directives, and other legal documents in place. Naming an agent who can pay bills, file taxes, and take over their finances, can help reduce family stress down the line. It’s important to get the advice of a qualified attorney when developing these legal documents; if you are not currently working with an attorney, we’d be happy to recommend one from our professional network. We also advise you to meet with your elder’s financial team and provide them with emergency contact information. In many cases, financial professionals are among the first to become aware of emerging problems.
Keep tabs on your elders’ ability to handle common financial tasks. Sometimes, elders need help with budgeting or managing their day-to-day financial affairs. If you notice unpaid bills, excessive late fees, or a desk that’s in disarray, it may be time to get involved and help them with bill paying and other common tasks. If possible, ensure that they have a list of bills and financial accounts, and know the location of critical documents, so that you can help them stay organized.
Stay close to help protect them from fraud. A sad reality of today’s world is that many elders become targets of financial fraud and elder abuse. One of the biggest risk factors to becoming the victim of fraud is isolation and lack of support. By staying close to your loved ones and helping them manage their financial matters, you may be able to help them avoid becoming a victim. The National Committee for the Prevention of Elder Abuse lists these warning signs as potential evidence of abuse:3
- Unpaid bills or unusual bank activity that your elder can’t or won’t explain.
- New “best friends” who suddenly appear and become involved in their finances.
- Absence of important legal documents or documents outlining arrangements the elder is unable or unwilling to explain.
- Caregivers or relatives who express too much interest in the elder’s estate or their share of an inheritance.
If you notice any of these warning signs, reach out to other family members or outside professionals about your concerns. If you suspect that your loved one is being neglected or targeted for fraud, call the national Eldercare hotline at 1-800-677-1116 for information about resources in your area.
Broach financial subjects gently. Talking to elders about their finances can be challenging, but failing to bring up these concerns could leave you all in a difficult situation if problems arise. Many elders are reluctant to discuss financial topics because they fear losing independence or worry children and relatives only care about getting their inheritance. We recommend approaching the subject delicately and using current events or articles in the news to highlight issues like healthcare and estates. It’s also wise to focus on how their decisions will affect the family and to help them understand that preparing in advance is best for everyone.
We also want to offer ourselves as a resource to you and your family. We have a great deal of experience helping elders with financial matters and we may be able to provide insight and a valuable outside opinion on issues around aging. If we can be of service to your loved ones, please contact us. We’re always happy to listen.
Despite a late-week selloff due to renewed concerns about the situation in Ukraine, the major indices ended the week on a positive note. For the week, the S&P 500 gained 1.22%, the Dow grew 0.66%, and the Nasdaq added 2.15%.1
Geopolitical tensions in Europe ratcheted up when Ukrainian forces engaged an armored Russian column that crossed the border. Russia denies that any military vehicles entered Ukraine and that the mission was humanitarian. Although the full picture has yet to emerge, investors are worried that the engagement may cause further escalation of tensions.2
Retail sales slumped in July as consumers took a break from buying automobiles. However, with employment growth on a steady upward trend, economists think that sales will likely rebound later in the quarter.3 The weak retail data begs the question: How are U.S. retailers doing? Not so well, it turns out. Overall, many retailers are suffering from low consumer demand and low margins in an intensely competitive promotional environment. Online retailers like Amazon have forced competitors to lower prices and offer special discounts, eroding margins and hurting earnings.4
Low-cost retailers like Wal-Mart (WMT) and Family Dollar are also struggling, mirroring the economic struggles of their largely working-class customers. Many low-income consumers have yet to fully recover from the financial crisis and stagnant wage growth is limiting their buying power. Though its overall Q2 earnings were respectable, Wal-Mart slashed its forward guidance, indicating that the giant is mired in a nationwide slowdown.5
This week, investors will be focusing on the release of the Federal Reserve Open Market Committee meeting minutes on Wednesday, as well as a major gathering of central bank leaders in Jackson Hole, Wyoming. Fed chair Janet Yellen and embattled European Central Bank President Mario Draghi will both speak at the meeting.6 Given Europe’s weak Q2 economic results, investors will be waiting to see whether Draghi has the stomach to step in with stronger quantitative easing strategies.
Monday: Housing Market Index
Tuesday: Consumer Price Index, Housing Starts
Wednesday: EIA Petroleum Status Report, FOMC Minutes
Thursday: Jobless Claims, PMI Manufacturing Index Flash, Philadelphia Fed Survey, Existing Home Sales
Jobless claims tick upward to six-week high. Applications for unemployment benefits climbed slightly last week, interrupting the positive trend we’ve seen the last few weeks, though most economists still think employment trends are moving in the right direction. Weekly data is often noisy, and economists prefer to look at longer-term trends.7
EU economic growth fades. Economic activity in the Eurozone slowed in the second quarter as Germany’s economy slid into reverse and France stagnated. Economists’ worry that sanctions against Russia will damage the fragile EU recovery, putting more pressure on Europe’s economic recovery.8
Low doc loans return. So-called “stated income” mortgages are returning as lenders chase applications that they can no longer afford to ignore. These mortgages, which allow applicants to show bank statements instead of pay stubs or tax returns may help expand the pool of mortgage applicants as lending volume falls.9
Consumer sentiment falls, but the news isn’t all bad. Sentiment among U.S. consumers fell to its lowest level since last November, but a gauge of current economic conditions remains positive. While lowered sentiment could threaten demand, economists believe consumer spending could still grow this year.10
Markets regained steam and ended the first full week of August on a strong note. Solid jobs data and hopes that Russia may be de-escalating the Ukrainian conflict contributed to the gains. For the week, the S&P 500 gained 0.33%, the Dow grew 0.37%, and the Nasdaq added 0.42%.1
The labor market continues to gain ground and weekly unemployment claims tumbled. The four-week moving average, a less-volatile measure of unemployment, fell to the lowest level since 2006. Even better, measures of long-term unemployment are also improving as steady hiring improves conditions for jobseekers.2
Global security worries continued to dog investors when President Obama announced strikes in Iraq against Islamic State militants. While it’s too soon to know whether U.S. intervention will escalate or reduce tensions, markets reacted nervously to fears that the U.S. may be dragged back into Iraq. On the other hand, Russia announced an end to military operations on the Ukrainian border, giving us hope that Russia may be interested in turning down the heat on the conflict.3 Overall, the geopolitical situation hasn’t changed drastically, and we can expect continued volatility as markets weigh risks.
The bulk of earnings season is behind us, and we’re comfortable saying that Q2 was very positive for businesses. Growth rates are up, companies are beating their estimates, and demand is coming back. As of Friday morning, total earnings for the 453 S&P 500 companies that reported in are up 8.7% from second quarter 2013 on revenue growth of 4.6%.4
Forward guidance about the third quarter is also cautiously optimistic, with some firms talking up their business outlook. While low guidance is still the norm – firms prefer to set a low bar and then try to exceed it – the number of firms reducing their earnings guidance is down from last year. All told, it sounds like business leaders are feeling much better about their chances.5
Looking ahead at this week, investors will be looking carefully at retail sales and consumer sentiment data to gauge how strong economic activity is likely to be in the third quarter. The back-to-school season is upon us and will be a major test for retailers battling low store traffic and bargain-hunting shoppers. The back-to-school season is second only to the holiday shopping season in importance and is also a key indicator of consumer spending.6
Tuesday: Treasury Budget
Wednesday: Retail Sales, Business Inventories, EIA Petroleum Status Report
Thursday: Jobless Claims, Import and Export Prices
Friday: PPI-FD, Empire State Mfg. Survey, Treasury International Capital, Industrial Production, Consumer Sentiment
U.S. trade deficit narrows on oil production boom. The gap between imports and exports narrowed as increased domestic oil production has reduced America’s reliance on foreign oil imports. These better-than-expected numbers could lead to a higher estimate of Q2 Gross Domestic Product.7
U.S. services sector is booming. The pace of economic activity in the services sector – comprising businesses like restaurants, retailers, entertainment, and financial firms – grew at a rapid rate in July. Growth blew past economists’ expectations and reached its highest level in over eight years.8
Mortgage volume still low. Mortgage applications are still sliding, as fewer Americans refinance or buy new houses. Refinances are down 39% and purchase applications are down 14% from a year ago.9
ECB says EU economy threatened by Ukraine. The European Central Bank continued to keep interest rates artificially low, citing the economic threat from Ukrainian instability and economic sanctions against Russia. ECB leadership verbally committed to additional quantitative easing measures if the EU’s recovery weakens further.10
Caution was the name of the game last week as equities tumbled, marking the worst weekly loss for the S&P 500 in two years. Though the week was packed with market moving events, most of the week’s losses can be attributed to worries that the Federal Reserve may raise interest rates sooner than expected. For the week, the S&P 500 lost 2.69%, the Dow fell 2.75%, and the Nasdaq slid 2.18%.1
Friday’s July jobs report showed 209,000 new jobs created during the month, well under the hoped-for 233,000 jobs. The headline unemployment rate also ticked upward to 6.2% from 6.1% in June.2 On the other hand, the low numbers came with some good news: Most of the new jobs were full-time, which is great news for workers trapped in low-paying or part-time jobs. It’s also potentially good news for future consumer spending.3
Investors also got their first look at second quarter Gross Domestic Product, which clocked in at a blistering 4.0% annualized growth, completely shattering even the most optimistic estimates.4 Let’s keep in mind that economic growth estimates are frequently updated as fresh data comes in, and we are likely to see that number change in future updates. Underpinning the surge in economic activity is a significant increase in consumer spending in Q2, which accounts for approximately 70% of economic activity in the U.S. With the labor market on the move, we can hope for greater consumer spending in the third and fourth quarters.5
The Federal Reserve’s Open Market Committee voted to continue tapering quantitative easing, noting that the economy is on a much firmer footing. Markets reacted negatively to the news, fearing an end to easy money. If you recall, investors were also spooked last year at the prospect of an end to the Fed’s lavish quantitative easing policies. Now that the end is nigh, markets are grappling with the reality that the Fed’s low rates are moving into the rearview mirror. Many analysts are calling it another case of “good news is getting to be bad news,” rather than signs of impending doom.6
Looking ahead, we can expect more volatility as earnings season continues and investors digest piles of economic data. It’s very possible that stocks will rebound from last week’s loss as investors “buy the dip,” but markets could also experience further losses. Let’s keep in mind that there are very few negative fundamentals underpinning last week’s decline: The economy is doing very well, the labor market is making great strides, and corporate earnings are up. Psychologically, market expectations have been pushed so high for so long that a pullback is natural. While we can’t predict market movements, we think that there is still plenty of possible upside this year.
If you have any questions about how recent events may be affecting your investments, please give us a call.
Tuesday: Factory Orders, ISM Non-Mfg. Index
Wednesday: International Trade, EIA Petroleum Status Report
Thursday: Jobless Claims
Friday: Productivity and Costs
U.S., EU back more sanctions against Russia. In a bid to halt Russia’s arming of Ukrainian separatists (and in response to the downing of flight MH17), western nations unveiled a third round of more severe sanctions targeting Russian finance, weapons, and energy industries.7
Argentina defaults on bond payments. Credit rating agency Standard & Poor’s declared Argentina in default after the government missed a $539 million payment to bondholders. Though long-term consequences of the default are unknown, they will likely result in higher interest rates on Argentinean debt and reduced access to international credit markets.8
Islamic State seizes fifth Iraqi oil field. Insurgents continued their offensive, seizing another oil field and Iraq’s largest dam. The Sunni militant group represents a serious threat to Iraq’s stability; however, since Iraq’s oilfields are concentrated far from the fighting, crude oil production remains largely unaffected.910
Consumer spending dips in July. Consumers felt less optimistic about jobs and income growth, pushing a measure of consumer expectations down for the third straight month. Despite recent improvements in the labor market, consumers are still concerned about their economic prospects.11
Markets ended another volatile week mixed, pummeled by concerns about global growth but buoyed by better-than-expected earnings results. For the week, the S&P 500 ended flat, the Dow lost 0.82%, and the Nasdaq gained 0.39%.1
As of last Friday, just under half the S&P 500 companies had reported earnings, and the vast majority (69% and 63%, respectively) had beaten both earnings and revenue expectations.2 Though there were some high profile-earnings misses, the overall picture seems to be one of redemption and resilience. The percentage of better-than-expected results are up from the first quarter, meaning company growth likely accelerated; it’s also a good sign for future expectations, given that the economy is doing much better overall than it did earlier in the year.
That being said, some red flags about economic growth were raised last week. Mixed business spending data – a core component of Gross Domestic Product (GDP) calculations – may erode Q2 economic growth. While businesses spent more on core capital goods like computer equipment and automobiles, the value of shipments declined for the third month in a row, which led the International Monetary Fund to cut its 2014 U.S. growth forecast.3 On the other hand, durable goods inventories rose 0.4%, which is a great improvement over the slow inventory growth that contributed to the Q1 economic contraction.4 We’ll know more after this week’s official GDP report.
The week ahead may be the busiest of the summer, with over 140 S&P 500 companies releasing earnings.5 The Federal Reserve Open Market Committee meets on Tuesday and Wednesday to ponder next steps in monetary policy. Will they announce another $10 million taper to bond purchases? Probably. But, their comments will tell us a lot about how they feel about the economy.
The economic calendar is also full of major reports. Traders will get their first look at official Q2 GDP numbers on Wednesday as well as the July Employment Situation report on Friday. Given global worries about economic growth, we can expect some volatility as traders hedge their bets ahead of the data.
Monday: Pending Home Sales Index, Dallas Fed Mfg. Survey
Tuesday: S&P Case-Shiller HPI, Consumer Confidence
Wednesday: ADP Employment Report, GDP, EIA Petroleum Status Report, FOMC Meeting Announcement
Thursday: Jobless Claims, Employment Cost Index, Chicago PMI
Friday: Motor Vehicle Sales, Employment Situation, Personal Income and Outlays, PMI Manufacturing Index, Consumer Sentiment, ISM Mfg. Index, Construction Spending
Stiffer sanctions rattle Europe. The prospect of new sanctions against Russia over the crisis in Ukraine is shaking European confidence over economic growth. Europe is Russia’s biggest trading partner, and sanctions could bite deeply into European growth.6
New home sales drop sharply. Sales of new single-family homes fell 8.1% in June to the lowest level since June 2013; May numbers were also revised downward, suggesting that the housing market is still losing steam.7
Nationwide, layoffs are rarer. Improving economic prospects and confidence among employers is translating to fewer layoffs, as evidenced by the lowest levels of new unemployment applications seen since 2006. Will this be a turning point in the labor market recovery?8
Consumer inflation rises. Consumer prices, a measure of inflation, rose in June with skyrocketing gasoline prices. However, core inflation, which excludes volatile categories like food and fuel, remained consistent with a gradual increase due to healthy economic expansion.9
Despite a tumultuous week that had it all – earnings, volatility, geopolitical shock, and monetary policy news – markets were still able to chalk up a win. For the week, the S&P 500 gained 0.54%, the Dow grew 0.90%, and the Nasdaq added 0.30%.1
Federal Reserve chair Janet Yellen gave semi-annual speeches on monetary policy before the House and Senate. She confirmed that quantitative easing would end after the October Federal Open Market Committee meeting if the economic outlook continues to look good. However, she dodged a key question about the timing of interest increases, indicating that the Fed is not yet ready to commit to a formal plan. Yellen cautioned that economic signals are somewhat mixed and predictions are never certain; however, she believes that underlying economic trends are largely positive.2
International events took center stage when a civilian airplane carrying several hundred passengers was shot down over Ukraine, allegedly by pro-Russian separatists with possible military support from Russia.3 International condemnation of the shocking event was swift, but it’s hard to know what will happen next. On the one hand, international outrage over the civilian deaths may ratchet up the sanctions on Russia. On the other hand, the importance of Russian trade ties with Europe argue for a more cautious approach, given how fragile the EU’s economy is right now. In the Middle East, the Israeli Defense Force moved ground troops into Gaza in an effort to quell the rocket attacks from Hamas. Despite international diplomatic efforts, hostilities between the two sides are escalating, fueling fears about instability in the Middle East.4
These global worries caused stocks to dive on Thursday, but better-than-expected earnings boosted investor sentiment, pushing stocks higher on Friday. So far, second quarter earnings are off to a good start, though it’s too soon to draw conclusions about the whole season. Thus far, we’ve heard from 45 S&P 500 companies, mostly in the Finance sector; overall, earnings are up 5.2% from Q2 2013, on 2.8% higher revenues.5 Again, while we can’t use these data points to predict earnings results from other companies, it’s a sign that investors’ optimism about the second quarter might be rewarded.
This week, earnings data and news from Ukraine and Israel will likely dominate market headlines, potentially stoking more volatility. On the earnings calendar this week will be reports from heavyweights like AT&T (T), Microsoft (MSFT), Starbucks (SBUX), and Apple (AAPL).
Tuesday: Consumer Price Index, Existing Home Sales
Wednesday: EIA Petroleum Status Report
Thursday: Jobless Claims, New Home Sales
Friday: Durable Goods Orders
Retail sales disappoint. June retail sales ticked up just 0.2%, held back by drops in restaurant, auto, and building sales. The anemic numbers suggest that consumers are still cautious about opening their wallets, which may hold back spending this year.6
Jobless claims fall unexpectedly. The number of Americans filing new claims dropped more than expected last week, showing that the labor market continues to improve. The number of people receiving continuing unemployment support is also at a seven-year low.7
Consumer sentiment dips. A preliminary reading of July consumer sentiment showed that consumer optimism about the future is faltering. While attitudes about current conditions are stable, low expectations may curb future spending.8
Home builder optimism surges. A key measure of home builder sentiment jumped in July, indicating that the nation’s builders are feeling more confident about their prospects. Respondents think improvements in the labor market and low housing supply will boost demand.9