Friday, September 21, 2018

Those Soaring Corporate Profits

These are boom times for American corporations. The Commerce Department said this week that after-tax profits across the U.S. rose 16.1 percent in the quarter ended June 30 from a year earlier. That's the largest year-over-year gain in six years.

Lower taxes were a big driver of this. Because of the lower corporate tax rate signed into law last year, taxes paid by U.S. companies in the quarter were down 33 percent from a year earlier, according to the government data, or more than $100 billion at an annual rate.

Strong economic growth also played a role. The Commerce Department recently revised upward its estimate of how fast the U.S. economy grew in the second quarter, to an annual rate of 4.2 percent from an earlier estimate of 4.1 percent.

Thursday, September 20, 2018

Safety First

What's been driving the market rally in September? A flight to security. This month, the biggest gainers in the S&P 500 include firms focusing on telecommunications services, consumer staples and utilities—so-called safe sectors whose steady dividend payouts have long made them investor favorites when markets are volatile or declining.

These shares typically lag behind major indexes during rallies, in part because they are perceived to offer limited potential gains. But in September, telecom shares are up 3.1 percent, consumer staples are up 1.5 percent and utilities are up 1.5 percent, versus a 0.1 percent increase in the S&P 500.

Meanwhile, many well-known high-flyers have been tumbling. Apple, and Alphabet each has declined at least 3 percent apiece in September, partly reversing double-digit percentage gains for the year. Facebook has declined more than 8 percent this month, adding to its retreat in the second half of this year.

Wednesday, September 19, 2018

The Strength of the U.S. Market

The American economy is increasingly becoming the envy of the world. The latest evidence: According to the latest monthly survey of fund managers by Bank of America Merrill Lynch, released yesterday, global investors are favoring U.S. stocks more and more strongly.

There is currently a net allocation of 21 percent overweight to the United States equity market, the highest such level since January 2015, and the U.S. was named as the most favored equity region globally for a second straight month. The allocation to global equities fell 11 percentage points to a net overweight of 22 percent, slightly below the long-term average.

In large part, the optimism about U.S. stocks is related to the outlook for corporate profits. According to the survey, a net 69 percent of those polled said that U.S. is the most favorable region when it comes to earnings expectations, a record level in the 17-year history of the survey. Currently, the divergence between U.S. and emerging-market earnings expectations is at the widest it's been since January 2014.

Tuesday, September 18, 2018

The U.S.: Bad for Retirement?

The U.S. ranked just 16th as one of the best nations to retire in, according to the 2018 Global Retirement Index, just released by Natixis Investment Managers. The U.S. maintained its top 10 ranking for finances, chiefly because of improvements in tax pressure, fewer nonperforming bank loans and rising interest rates, which improve saving levels and income in retirement. But the U.S.’s quality of life sub-index score declined in the 2018 index, and its happiness indicator score, which evaluates the quality of retirees’ current lives, also fell.

So which countries provide a better retirement landscape than the U.S.? Here is Natixis' Top Ten:
1. Switzerland
2. Iceland
3. Norway
4. Sweden
5. New Zealand
6. Australia
7. Ireland
8. Denmark
9. Canada
10. The Netherlands

Monday, September 17, 2018

The Good News on Inflation

August's consumer-price index was a welcome slowdown on the inflation front. The CPI, which gauges what Americans pay for everything from rent to razor blades, was up 2.7 percent from a year earlier, a drop from the prior two months. Core inflation, which excludes food and energy, rose 2.2 percent, slightly slower than in July.

Worker pay gains, by contrast, are accelerating. Adjusted for inflation, hourly earnings rose 0.2 percent from a year earlier. While modest, that’s an improvement from the prior three months when there was no real wage growth.

That's significant because since the recession ended, inflation-adjusted pay is up just over 4 percent for American workers. Inflation-adjusted wages are up less than 1 percent for all workers and a scant 0.2 percent for production and nonsupervisory workers over the past two and a half years.

Friday, September 14, 2018

Lehman, Ten Years Later

Ten years ago this weekend, the U.S. government allowed a major global investment bank, Lehman Brothers, to file for bankruptcy. It remains the largest bankruptcy filing in U.S. history, with Lehman holding over $600 billion in debts.

By that point, Lehman had already announced an expected $3.9 billion loss in its third quarter, as well as a near $5.6 billion loss in write-downs of so-called "toxic" assets. In the first week of September, Lehman's stock dropped drastically, losing more than three quarters of its value. The Fed had already helped salvage Bear Stearns, but there was to be no bailout for Lehman.

The American economy was already technically in recession at that point, but the Lehman bankruptcy seemed to trigger an entire meltdown of the U.S. financial system.  By the time it was over with, an estimated 6 million jobs were lost, unemployment reached 10 percent, and the Dow Jones Industrial Average dropped an astounding 5,000 points. Let's hope we never see the likes of that again.

Thursday, September 13, 2018

The Value of a Degree

Is a college degree losing its value? The Census Bureau’s annual report on income and poverty released yesterday highlights this depressing fact: Among bachelor’s degree recipients, roughly 3.6 million or 4.8 percent were living in poverty in 2017, according to the Census Bureau. That’s up from 3.3 million and 4.5 percent in 2016. Bachelor’s degree recipients were the only educational cohort to see the number or the share of people in poverty rise among their ranks.

Even with this increase, though, among educational attainment groups, people with at least a bachelor’s degree had the lowest poverty rates in 2017. People with at least a bachelor’s degree in 2017 represented 35.0 percent of all people aged 25 and older, but just 16.5 percent of people aged 25 and older in poverty.

The 2017 poverty rate for those with a high school diploma but with no college was 12.7 percent, down from 13.3 percent in 2016. For those with some college but no degree, 8.8 percent were in poverty in 2017, a decline from 9.4 percent in 2016.