Tuesday, January 31, 2012
The price/earnings ratio for the S&P 500 as a whole is now at 13.7. The historic mean for that number, figured since 1954, is 16.4, which the S&P has traded below ever since May 13, 2010, the day of the infamous "flash crash." That's 446 consecutive days in which stocks have been trading below their historic norms, the longest such stretch we've had since 1986.
There seem to be two primary explanations for this phenomenon. One: Investors haven't really processed the growth in corporate profits yet, so they haven't yet incorporated that information into stock pricing. Two: Investors don't really trust this economy or this market, at least not yet. It's probably a bit of both.
Monday, January 30, 2012
The concern over that fourth-quarter number - aside from the fact that everyone would like to see it be a little bit higher - is that much of the growth came from increases in inventories. If you subtract inventory growth from overall GDP growth, you see that the real growth in sales was just 0.8 percent in the fourth quarter.
The most positive way to look at the fourth quarter is to separate the figure into public and private sector growth. While government continues to shrink, the private sector actually grew at a robust 4.7 percent for the quarter. That's a sign of real strength for this economy.
Friday, January 27, 2012
Bespoke looked at the price moves for the SPY ETF, which tracks the S&P 500. Over the past 50 days, they found, SPY has gained about 6 percent. But during regular trading hours, that same ETF has declined, at an average loss of 0.06 percent per day. It's only in after-hours trading that the issue has gained, with an average increase of 0.20 percent per day.
That's a pretty dramatic shift. Is there any significance to it? The folks at Bespoke don't attach any greater meaning to it, so it may simply be an instance of the markets working in mysterious ways.
Thursday, January 26, 2012
That growth was enough to catapult the earnings for the entire S&P 500 into the black. Prior to Apple's earnings report, earnings for the S&P 500 as a whole were down 4.2 percent in the fourth quarter. But after Apple's report, the net for the entire S&P 500 is now up 4.4 percent.
Apple not only doubled its profits from the year earlier, it beat the analysts' estimates by a whopping $7 billion, which is also a record. For all that, Apple's share price rose 6 percent in trading yesterday, reaching a record high of $454.45.
Wednesday, January 25, 2012
The downside of all that is that we're all going to need a lot more health care. Today's 65-year-old married couple will need $230,000 to pay for medical expenses throughout retirement, not including nursing home care. Six in ten men and eight in ten women will end up needing chronic care.
There's no doubt about it: getting older is never easy. The tradeoff we make for those extra years is the extra medical costs associated with them. If you're concerned about how you're going to pay for all those additional costs over your retirement years, feel free to give me a call.
Tuesday, January 24, 2012
In somewhat of an attempt to steal the Fed's thunder, Reuters released the results of a poll of Wall Street economists on when they expect interest rates to rise. The consensus answer was that we should see an increase sometime in the first half of 2014. That's a pretty safe prediction, considering the Fed has already said it will keep interest rates right where they are until at least the middle 0f 2013.
What will be interesting will be to see if the Fed's forecast matches that of the Wall Streeters. And if they differ, whose prediction will turn out to be more accurate? We won't know that answer for a long time, but there's not much reason to think that the Fed will anticipate economic conditions any better than the top economists on the Street.
Monday, January 23, 2012
The same thing happened when S&P downgraded the United States' creditworthiness last August. At the time, the U.S. was paying 2.56 percent interest on its 10-year Treasury bonds; since then, it's dropped to around 2 percent. In the same time frame, the S&P 500 stock index has gained 9 percent.
This isn't a new phenomenon. Back in 1998, Japan was downgraded by Moody's, and Japanese stocks gained 26 percent over the following year. Canada was downgraded in 1992, and Canadian stocks then gained 30 percent over the following year. That doesn't mean credit downgrades are meaningless, but it does suggest that you shouldn't necessarily expect to see their effects in the markets.
Friday, January 20, 2012
But there might be something important happening with this week's figure, which shows the number of initial unemployment claims at 352,000. That's the lowest that number has been since April 2008, and represented a drop of 50,000 from the previous week's figure. The picture's even brighter here in New Jersey, where new filers for unemployment fell by 4,667, the fourth-largest drop of any state.
It's too soon to tell whether that trend will continue, or even if the number of new claims will stay that low next week. But it's worth noting that last week's drop also caused the four-week moving average to fall to its second-lowest point in the past three years.
Thursday, January 19, 2012
So why, then, has trading volume on the stock markets been so low? According to research from Raymond James Equity Research, trading so far in January is down 18 percent from the same period last year. In fact, in the past four years, the only month with a lower average daily volume than this January was December 2011. Trading this month is up 5 percent from the rate in December.
Normally, January is a strong trading month. Average daily volume jumped 21 percent last January, and 23 percent in January of 2010. That makes it even stranger that there should be so little volume now.
Wednesday, January 18, 2012
Moreover, the trend looks like it's still going up. Some 21 percent of the millionaires surveyed say they plan to increase their giving this year. And only 11 percent say they're concerned about their ability to make those contributions; almost twice as many respondents had said the same thing back in the 2008 survey.
Although their ability to give might have changed, one thing that hasn't changed is the fact that the wealthiest feel obligated to give back to their communities. Almost three fifths of the millionaires surveyed said they felt that obligation, a number that has not changed since 2008 - when the economy was in full meltdown.
Tuesday, January 17, 2012
As we move into, this marks the second and potentially final year that the estate tax exemption applies only to estates worth more than $5 million, or $10 million for couples, with a tax rate of 35 percent. Since that was a hefty increase from the old exemption of $1 million, or $2 million for couples, many people have put aside their concerns about estate tax issues for the moment. After all, $10 million seems out of reach for most people.
Tax avoidance has long been the primary reason people set up estate plans. After ranking as the Number One reason clients sought out estate planning in 2010, the tax issue dropped to Number Four last year in a survey by WealthCounsel LLC. But the current estate law expires at the end of the year, and tax avoidance could return as a major issue shortly thereafter.
Monday, January 16, 2012
As we enter the earnings reporting season for the fourth quarter of 2011, it's useful to recall that American companies have become somewhat famous for trying to lower expectations about their earnings. The Web site Thestreet.com has looked at all the companies that offered such guidance in the weeks leading up to earnings season, and found that the ratio of negative-to-positive news averaged 2.3 to 1. More than twice as many companies try to damp down expectations before reporting earnings than those who present good news.
For the current earnings period, companies are acting even more pessimistic than the historical norm. According to the institutional broker-dealer Strategas Research Partners, negative pre-announcements for the just-concluded fourth quarter are outnumbering positive ones by a whopping 3-to-1 margin.
If that sounds like bad news, it’s not. That skewed ratio makes it likely that a higher percentage of stocks will beat expectations, which usually gets a stock an earnings bump in the market. As Strategas wrote in its report on the current quarter, “The ratio of negative-to positive earnings preannouncements has been a reliable contrarian indicator of market performance during earnings season throughout the years.”
Friday, January 13, 2012
That trend may not last, though. According to the the research firm RealtyTrac, the biggest reason for the slowdown is that many banks have stopped foreclosure proceedings after the robo-signing scandal erupted. They figure that repossessions will go back up by about 25 percent in 2012, and expect to see about 400,000 more foreclosures nationwide.
We have another wrinkle here in New Jersey as well: The state supreme court is hearing a case where a foreclosure has been challenged because the foreclosing lender did not identify itself. That would be a violation of the Fair Foreclosure Act. The expectation is that once the court makes a decision in that case, foreclosures will start to rise here again.
Thursday, January 12, 2012
Since Germany is the financially healthiest of the members of the European Union, it's a little scary to think that it might be sliding into recession. With an economy strongly dependent on exports to its European trading partners, Germany is hobbled by the reduced purchasing power of struggling countries like Greece, Spain and Italy. The fear of course, is that the reduction in economic activity will eventually spread over here to the U.S.
At the same time, though, it's easy to overstate the German economic woes. The loss in GDP last quarter was very small, and the German government also announced that the nation's economy had grown by 3.0 percent in all of 2011. By contrast, the growth in America's GDP last year - scheduled to be announced on January 29 - is expected to be about one percentage point below that.
Wednesday, January 11, 2012
Revolving debt, which is primarily credit-card borrowing, climbed by $5.6 billion in the month. That was the single biggest jump in that figure since March 2008. But non-revolving debt - loans for cars, student loans, etc. - made an even bigger leap. That figure jumped by $14.8 billion, the most it's gone up in a single month since February 2005.
One of the leading factors in all that increased borrowing is car loans. Car sales in November were at their highest rate since August 2009. Overall, in 2011, the American car industry had its best year since 2008.
Tuesday, January 10, 2012
That wasn't the only category to lose assets on the quarter. International stock funds, which gained a less-robust 4.3 percent for the fourth quarter on the way to an overall loss of 13.4 percent on the year, saw an outflow of $15.6 billion over the same time period.
Where was all that money going? Bond funds. Fixed-income funds took in $52.5 billion in new cash over the final three months of 2011. That breaks down as $41.2 billion into taxable-bond funds, and $11.3 billion into municipal-bond funds.
Monday, January 9, 2012
What's remarkable is how consistent that pattern was across so many mutual fund sectors:
* Industrials gained 14.0 percent in the fourth quarter, but still lost 4.1 percent on the year.
* Energy stocks gained 13.2 percent in the fourth quarter, but still lost 4.6 percent on the year.
* Natural resources gained 12.7 percent in the fourth quarter, but still lost a whopping 14.5 percent on the year.
A couple of areas did buck the trend. Utilities gained 8.8 percent in the fourth quarter, which actually underperformed their yearlong return of 10.8 percent. Precious-metals stocks, on the other hand, lost ground in the fourth quarter to the tune of 6.1 percent, contributing to an overall 2011 loss of 20.6 percent.
Friday, January 6, 2012
The private-sector news continues to be strong. In December, private-sector employment increased by 212,000 jobs, meaning that private businesses added a total of 1.9 million jobs over the course of 2011. Public-sector employment dropped by 12,000 jobs in December, and by 280,000 jobs in 2011.
One of the biggest gainers among industry sectors is what the government calls the "couriers and messengers" industry, which added 42,000 jobs in December. Other strong areas in December include retail (up 28,000), food service and drinking places (up 24,000), and health care (up 23,000).
Thursday, January 5, 2012
No one was foolish enough to fall for Fields' schemes, but the SEC has charged him with offering to sell more than $500 million in securities via various social media sites. According to the SEC, Fields also had no books or records to back up his deals, and held himself out as a broker-dealer when he was no such thing.
The SEC has also said that they've detected more such fraud cases involving social media, that this might just be the tip of the iceberg. It should go without saying that your financial future is not something that should be decided on a whim, as a result of something you came across on the Internet. It's fortunate that no one fell for Fields' LinkedIn spiel; let's hope that investors are too savvy to ever do so.
Wednesday, January 4, 2012
Will that matter? The Wall Street Journal contends that if businesses know when interest rates are likely to rise, it provides greater incentives for them to make investments now, before money becomes more expensive. And the Fed could be giving the bond market a blueprint by which it could set future yield curves.
In the near term, though, the whole issue might not make much difference. The Fed has already signaled that it won't raise the Fed Funds rate until at least mid-2013. And the Journal points out that there's a Fed Funds market that doesn't see any increase in the rate until at least 2014.
Tuesday, January 3, 2012
That would, of course, be a substantial improvement over last year, which as we've seen, was virtually flat. But it's also the smallest predicted gain from these surveys since 2005. Every year since then, economists have expected 7 percent rise in the markets or better - and of course, they've often been very, very wrong.
For example, the Bloomberg survey last year forecast a gain in the S&P of just over 8 percent. To be fair, that was the biggest miss by the Bloomberg survey since 2008, when it had its worst year ever, predicting a 7 percent gain in a year when the index ended up with a loss of 38 percent.
Monday, January 2, 2012
How minuscule was the change? The index closed on December 31, 2010, at 1257.64. Last Friday, December 30, 2011, the S&P closed at 1257.60. That's a total drop on the year of 0.04 points.
That's close enough to call it unchanged over the course of the year. The Nasdaq registered a slightly more noticeable loss for 2011, finishing down 1.8 percent. The Dow Jones Industrial Average, made up of 30 of the biggest stocks in the nation, finished the year up 5.5 percent.