Friday, February 24, 2017

World Stocks Are Hot, Too

The rally in U.S. stocks now has spilled into the global markets. The MSCI ACWI Index, which serves as a proxy for the entire global equity market, set a new record yesterday, closing at the highest level in its 23-year history.

The MSCI index, which covers approximately 85 percent of the investable equity market worldwide, has risen 5.7 percent since the beginning of this year. The ACWI — which stands for All Country World Index — comprises 2,484 large and mid-cap stocks across both developed and emerging markets.

It's those emerging markets have led the way this year. Year to date, the MSCI Emerging Markets index has risen 10.3 percent, while MSCI World index, which captures stocks in developed countries, has gone up 5.2 percent.

Thursday, February 23, 2017

The Fed's Next Move

After its January meeting, the Federal Reserve said it may raise interest rates again "fairly soon" if jobs and inflation data come in line with expectations, according to the minutes released yesterday. While the Fed chose to leave its interest rates unchanged at the meeting three weeks ago, investors widely expect two to three more rate hikes this year, perhaps as early as March.

The documents also showed that the Fed has begun discussing when to start unwinding its $4.5 trillion balance sheet of mortgage-backed and Treasury securities. Those remain on its books after the quantitative easing program, which was an effort to ease lending and stimulate the economy after the financial crisis.

Fed officials  agreed they would start discussing what kind of economic conditions could lead to unloading those securities. Those changes are also expected to boost long-term interest rates.

Wednesday, February 22, 2017

The Quiet Price of Oil

Much has been said about the drop in volatility that we’ve seen in the stock market lately, but we’ve also seen a big drop in volatility for oil prices. Over the last 50 trading days, oil has averaged an absolute daily change of  pus or minus 1.2 percent. 

That’s significantly lower than where things stood last year at this time.  During oil’s big price collapse from late 2014 through early 2016, volatility spiked significantly.  In early 2016 when prices were about to bottom, oil had averaged a daily move of nearly  plus or minus 4 percent over the prior couple of months.

While the current reading is down sharply compared to a year ago, it’s still not close to the lows seen just prior to the peak for oil prices in late 2014.  Back then oil was seeing daily moves of just over half a percent.

Tuesday, February 21, 2017

The High Cost of Traffic

Cheap gas and a surging economy are taxing the nation’s roads and contributing to congestion that cost U.S. motorists almost $300 billion last year in wasted time and fuel, according to a new report out this week. It's not surprising that New York City is among the worst - motorists spent 89 hours on average in traffic during peak periods last year.

Getting stalled on New York’s crowded streets cost drivers $2,533 each last year, according to the transportation analytics firm INRIX. Traffic problems cost the city as a whole nearly $17 billion.

But New York is far from the worst. Los Angeles had the worst traffic in the world among the 1,064 cities studied. The average driver in L.A. wasted 104 hours sitting in gridlock during the busiest commuting times last year, and lost $2,408 each in squandered fuel and productivity.

Monday, February 20, 2017

A Too-Hot Market Sign

Is this market getting overheated? One of the most commonly used price-to-earnings ratios based on future earnings has reached its highest level since 2004, according to FactSet data.

The S&P 500 index's 12-month forward price-to-earnings ratio has climbed to 17.6, based on Friday’s closing price of 2,351 and a 2017 earnings-per-share estimate of $133.49. The current forward 12-month P/E ratio is now above the 20-year average of 17.2, according to FactSet.

The last time the forward P/E was this high was on June 23, 2004, when the S&P 500 closed at 1,144.06 and analysts expected $65.14 earnings per shares over the following 12 months. Forward P/Es peaked above 27 in 2000, just around the time the bubble burst.

Friday, February 17, 2017

The Rise in Debt

Total household debt climbed to $12.58 trillion at the end of 2016, an increase of $266 billion from the third quarter, according to a report from the Federal Reserve Bank of New York. For the year, household debt rose by $460 billion -- the largest increase in almost a decade. We're just short of the record high for total consumer debt of $12.68 trillion, set in 2008.

Some of this is good news. Mortgage originations increased to their highest level since the Great Recession. Mortgage balances, which make up the bulk of household debt, ended the year at $8.48 trillion.

Non-housing debt -- which includes credit card debt and student and auto loans -- grew strongly too. Student loan debt balances rose by $31 billion in the fourth quarter, to a total of $1.31 trillion. Auto loans jumped by $22 billion; new auto loan originations climbed to a record high in 2016.

Thursday, February 16, 2017

Five Big Days

How's this for a winning streak: The Dow Jones industrial average, the S&P 500 index, and the Nasdaq all closed at record levels for a fifth session in a row yesterday. They hadn’t done that in more than a quarter of a century.

The last time all three benchmarks closed at records for five consecutive sessions was back on January 2, 1992. They went on to do it again for a sixth day in a row in a streak that ended on January 3, according to Dow Jones data.

There's a big difference, though. Back on January 3, 1992, the Dow industrials reached a then-record close of 3,201, the S&P 500 topped out at 419, and the Nasdaq reached 592. Yesterday, the Dow Jones Industrial Average finished at 20,611, the S&P 500 index finished at 2,349, and the Nasdaq closed at 5,819.