Monday, June 25, 2018

Bonus Bonanza

The share of workers’ pay going to bonuses hit the highest level on record this year, reflecting a shift in how employers woo job candidates while still trying to keep a lid on base pay. That's according to a new report out from the Department of Labor.

Private-sector bonuses that aren’t directly tied to a worker’s output reached 2.8 percent of employer pay and benefit costs in the first quarter. That’s the biggest share since the Labor Department started tracking the figure in 2008.

Anecdotally, the trend of bonuses rather than permanent wage increases continues. The most popular measure of annual wage growth has bounced around 1.5 percent to 2.5 percent in recent years, which is below prerecession levels. With a 2.7 percent gain in May, though, it has finally shown signs of picking up as the labor market tightens.

Friday, June 22, 2018

Micro Caps Are on Fire

As we noted yesterday, small-capitalization stocks have been soaring lately. But a subset of even smaller-cap equities has produced even more stellar results this year.

The Russell Microcap Index, which is a benchmark of companies with an average market value of about $730 million, has gained 14 percent so far in 2018, as of Wednesday’s close. That compares with a only slightly less impressive year-to-date gain of 11.1 percent for the Russell 2000 index, which has a roster of companies with an average market value of $2.6 billion.

Both indexes are trading in record territory, with the Russell Microcap having just put in a 24th all-time high close for 2018. That is one more record than the Russell 2000 has set.

Thursday, June 21, 2018

Big and Small Stocks, in Opposite Directions

On the big board, it was a rough day in the stock market yesterday. The Dow Jones Industrial Average closed down 0.2 percent, recording its seventh straight daily loss.

There's much better news down among the smaller stocks. The Russell 2000 Small Cap index made it four positive days in a row yesterday. In the process, it also set an all-time high.

But there are rumblings that the small-cap rally may have run its course. Investors have yanked more than $1 billion from the bellwether iShares Russell 2000 Exchange-Traded Fund since June 11, after pouring money into it for much of this year.

Wednesday, June 20, 2018

The Coming Corporate Bond Wave

The bill is coming due on trillions of dollars in companies’ bonds. As much much as $1.7 trillion of non-financial corporate bonds matures globally this year, and $2 trillion or more could mature in each of the next four years, according to research out this week from McKinsey & Co.

Record amounts of debt are maturing just as interest rates are rising, forcing companies to pay up if they want to refinance their maturing bonds. Credit quality has also been declining as top-rated companies have taken on more debt. Roughly 40 percent of nonfinancial corporate bonds now have triple-B credit ratings, the lowest that’s considered investment grade. That’s up from 22 percent in 1990,

Stock investors are starting to take notice. Shares in companies with strong balance sheets have outperformed those with weak balance sheets by 6.3 percentage points this year. For much of the economic cycle, weak balance sheet companies were the outperformers, as companies were rewarded for adding leverage.

Tuesday, June 19, 2018

Volatility Has Settled Down

After spiking to levels not seen in a couple of years back in March and April, U.S. equity market volatility has really settled back down. Over the last 50 trading days, the S&P 500 has averaged a daily move of just plus or minus 0.56 percent. 

That’s half the daily move we were seeing at peak levels of volatility earlier this year. It’s also 0.14 percent below the bull market’s average daily move of plus or minus 0.70 percent

While volatility has settled down, we’re going to need to see a continued slowdown to get back to the historically low level that investors got used to in 2017.  Back in November 2017, there was a 50-trading day period where the S&P experienced an average daily change of just plus or minus 0.22 percent.

Monday, June 18, 2018

Where MBAs Are Going

If you have a family member graduating from an MBA program this spring, they might be considering going to work for a bank - or they might not. More MBA graduates are choosing jobs in technology and consulting even as banks have been raising starting salaries.

The share of full-time MBA graduates from the top 10 business schools accepting jobs at financial-services firms dropped between 2012 and 2017 from 36 percent to 26 percent. The share accepting jobs in technology rose from 13 percent to 20 percent in the same period. Consulting edged out financial services as the top draw in 2017, as the choice of 29 percent of grads, up from 27 percent in 2012.

Banks are trying to do more to attract the top MBAs. For graduates of MIT Sloan School of Management, median starting salaries paid by financial-services firms jumped 25 percent between 2012 and 2017 to $125,000. Tech- and consulting-firm median salaries rose just 9 percent—to $125,000 and $147,000, respectively—over the same period.

Friday, June 15, 2018

Burning a Hole in Our Collective Pockets

Americans are spending a lot of money. Retail sales rose 0.8 percent in May, the government reported yesterday — much better than expected. Spending was up 5.9 percent from a year ago.

And the gains were broad: Spending surged at clothing stores, at restaurants and at home-improvement stores such as Home Depot and Lowe's. In fact, the jump in spending at physical stores in May outpaced what the government calls nonstore retailers, a category that includes Amazon and other online retailers.

With all that spending, the savings rate dipped to 2.8 percent in April, as the rate of consumer spending outpaced the increase in personal income. The savings rate has only been below 3 percent three times since the 2008 financial crisis. It was also lower than 3 percent last November and December, but it rebounded after the holiday shopping season.