Wednesday, December 31, 2014

Slow and Steady Wins the Race

The past year has been positive but unspectacular for the markets, but one thing it surely has been is consistent. No matter what happens today, the S&P 500 is guaranteed to finish the year without ever being down for four consecutive trading days. That marks the first year in which that has happened since S&P began its indexes, dating back to the 1920s.

By contrast, there were 11 stretches in 2014 where the S&P increased in value for at least four consecutive days. But there were just six stretches where the index declined for three consecutive days - and each time, the fourth day was a positive.

The last time the S&P 500 fell for four straight days was in a stretch that ended on December 13, 2013. Let's hope 2015 brings us another year without any long losing streaks.

Tuesday, December 30, 2014

A Big Finish for Small Caps

It was a long year for owners of small-capitalization stocks, as we've discussed several times in this space. The Russell 2000, the most widely used index of small caps, collapsed in the third quarter, falling by 11 percent between early September and mid-October.

But since bottoming out two and a half months ago, small caps have rebounded strongly, gaining 16 percent in that time frame. At long last, the Russell 2000 set a new all-time high on December 26th, just four days before the end of the trading year.

And it's not done yet, reaching another record high yesterday. The Russell 2000 is now up 4.8 percent on the year - not bad for an asset class that many had left for dead two months ago.

Monday, December 29, 2014

A Strong Year for Utilities

What sector of the market performed the best in 2014? It was the usually sleepy utilities, which are generally considered a safe, defensive part of an investor's portfolio. With a couple of trading days left in the year, the utilities sector of the S&P 500 is up 28 percent in 2014.

Close behind the utilities are health care, up 25 percent, and technology, up 18 percent. All the S&P's sectors have increased in value on the year except for energy, which has been dragged down by 9.5 percent, thanks to the worldwide collapse in oil prices, which are down more than 40 percent on the year.

Those quiet utilities are now, in fact, in danger of becoming overbought. The price-to-earnings ratio for that sector is up to 18.8, which is slightly higher than the S&P 500 as a whole at 18.5

Friday, December 26, 2014

A Look Back at Third-Quarter GDP

The biggest financial news of this ordinarily quiet week was the Commerce Department's final estimate of our third quarter GDP figure at 5.0 percent (up from the second estimate of 3.9 percent), making it our nation's strongest quarter for economic growth since 2003. The upward revision reflected changes in the estimates of personal consumption expenditures, commercial real estate, and business inventory.

The biggest drivers of that growth were:

  • Commercial real estate increased by 8.9 percent
  • Consumer durable goods increased by 9.2 percent
  • Investment in business equipment increased by 11.0 percent
  • Federal government expenditures increased by 9.9 percent, including a 16.0 percent increase in defense spending

Thursday, December 25, 2014

Thoughts for Christmas Day

The best of all gifts around any Christmas tree: the presence of a happy family all wrapped up in each other. ~Burton Hillis

Instead of being a time of unusual behavior, Christmas is perhaps the only time in the year when people can obey their natural impulses and express their true sentiments without feeling self-conscious and, perhaps, foolish. Christmas, in short, is about the only chance a man has to be himself. ~Francis C. Farley

Gifts of time and love are surely the basic ingredients of a truly merry Christmas. ~Peg Bracken

Wednesday, December 24, 2014

Not a Creature Was Stirring

Happy Christmas Eve! You probably have better things to do today than watch the movement of the stock market, and it's just as well. Not only do most of the stock traders also have more important things to do, but the market closes early today: The New York Stock Exchange will shut its doors at 1 p.m.

So as you might guess, next to nothing ever happens in the market on Christmas Eve. Over the past ten years, the S&P 500 has seen an average gain of a microscopic 0.03 percent on December 24.

Last Christmas Eve the S&P gained 0.3 percent. The biggest move in the past ten years on today's date was a 0.8 percent gain in 2007. So if you have presents to wrap or baking to do - feel free to focus on that today, and don't worry about what the market will do.

Tuesday, December 23, 2014

Gas Hits a Record

As we near the end of 2014, one of the biggest financial stories of the year continues to be the dropping price of oil, and with it the falling price of gasoline. National gas prices are now at their lowest average level in five and a half years.

Over the weekend, AAA noted that gas prices had now fallen for 88 consecutive days, which is a new record, at least in the ten years that such things have been tracked. The average price of a gallon of gas hasn't ticked up since September 24. The previous record was 87 days back in the summer of 2008.

Here in New Jersey, the average price of a gallon of gas fell to $2.39 yesterday, and has dropped by seven and a half cents in the past week. There are a handful of places in the state where it is already under two dollars a gallon.

Monday, December 22, 2014

The Trouble With IPOs

It's been a strong year for IPOs, with 273 issues brought to market for a public stock offering, according to figures compiled by Renaissance Capital, an increase of 23 percent over last year. Those offerings raised a total of about $55 billion, up a solid 55 percent over 2013.

But there's one sense in which the IPO market was weaker than last year. The "pop" that first-day investors received for investing in an IPO was just 13.3 percent. That's down from the 17.3 percent that IPOs gained on their first day in 2013.

In fact, a sizable of number of 2014's IPOs not only missed out a first-day pop this year, but they actually lost ground. Nearly 28 percent of all such offerings lost value on their first day - the highest percentage in three years.

Friday, December 19, 2014

Stocks Around the World Bounce Back

While the S&P 500 index has been enjoying its biggest two-day gain since 2011, there's also good news coming in from around the world. Despite the collapse of the Russian ruble this week, there was the first good news in a long time for emerging markets stocks. After plunging to its lowest point since 2009 earlier in the week, the MSCI Emerging Markets Index had its best day in over a year yesterday, rising 1.8 percent.

There were even bigger gains in Mexico, where the primary stock index was up 3.3 percent, for its biggest daily increase in four years.  The MSCI Latin American index was up 2 percent on the day.

What's causing this? Oil prices actually turned up for part of the day, after reaching five-year lows. And Fed chair Janet Yellen offered reassuring news about the state of the American economy. All that looks like it was enough to counteract the deteriorating situation in Russia.

Thursday, December 18, 2014

The Jobs News Keeps Getting Better

More Americans feel good about their job situation than feel bad about it, for the first time in a long time. That's the upshot of a new survey from Pew Research, which reports that 26 percent of Americans are hearing good news about jobs, while 25 percent are hearing bad news.

That might not seem like such a strong trend, but it's a long way from where this survey used to be. In June of 2009, just 1 percent of those surveyed said the jobs news they were hearing was good; 71 percent said it was bad. This is the first time since then that even 20 percent of those surveyed said the jobs news was good.

News about the overall economy, though, is still mostly negative. Only 14 percent say they are hearing mostly good news on the economy, while 21 percent say it's mostly bad news.

Wednesday, December 17, 2014

The Momentum Shifts

Yesterday was one of those roller-coaster days on Wall Street: The Dow Jones Industrial Average opened the day by dropping 99 points, then gained 246 points - then dropped again, to finish the day down 112 points. There were several causes offered for this performance - the continuing drop in oil prices, the collapse of the Russian ruble - but one of the effects, as the Wall Street Journal pointed out, was a disaster for momentum stocks.

Momentum investing is the idea that you should jump on a stock that has shown an upward trend in the past, and sell a stock that has been moving downward. A simple idea, but it runs into trouble on days like Tuesday, when the market seems to be taking several left turns. And momentum issues got the worst of it.

Google, which had been having tough times lately, saw its downward slide accelerate, losing 3.6 percent of its value in a single day; it's down nearly 10 percent on the year. It's the same story for electric-car maker Tesla, which lost 3 percent yesterday and is down 22 percent in the past month. But even stocks with upward momentum got hit hard: Apple opened December up more than 40 percent on the year, but it's now down 10 percent off its recent high.

Tuesday, December 16, 2014

Three Positive Signs

In case you missed it, there were three pieces of good news last week regarding our economy, as we move further into the holiday season and toward 2015:

  • Despite mixed reports on Black Friday sales, U.S. retail sales rose by 0.7 percent in November over the prior month. The retail numbers for last month were 4.9 percent higher than those of November 2013.
  • According to the monthly University of Michigan consumer sentiment survey, Americans' consumer confidence is now at its highest level since January 2007.
  • Gallup's small business survey found that small business owners are the most optimistic they've been since the first quarter of 2008. The projection for increased hiring by small businesses in 2015 is the highest it's been in seven years.

Monday, December 15, 2014

A Second Chance at Charitable IRAs

If you're in a charitable mood this holiday season, and you have plentiful assets built up in an IRA, you may want to watch Congress in the coming weeks. The provision allowing older folks to donate up to $100,000 from an IRA to a charitable institution without reporting those funds as taxable income, which expired at the end of 2013, may be coming back.

That IRA rollover tax break was enacted in 2006, and has been extended a few times since then. In the past, even if it's extended after the New Year, it has been made retroactive, so the provision could very well still be applicable to the 2014 tax year.

The rollover has always been limited to people who are 70 and a half or older, who are required to take annual minimum distributions from their IRAs. But the charitable contribution can count toward that required minimum, and you can take the charitable contribution on your taxes even if you don't otherwise itemize deductions.

Friday, December 12, 2014

Saving for the Holidays?

Did you set aside any money for your holiday spending this year? Not many Americans are doing that these days. According to the Country Financial Security Index, only 42 percent of Americans put money away for either savings or investments over the past two months. Those aged 40 to 49 seem to be the least inclined to do so, with only 32 percent saying they saved any money for holiday shopping.

Those figures are down sharply from before the recession. Back in 2007, according to this same survey, the saving rate was significantly higher, at 55 percent.

Given how the economy has rebounded since then, it seems like this is more of a change of mind-set than anything attributable to economic factors. In general, the survey found that people were fairly confident about their personal well-being. Some 45 percent of those surveyed said their financial security was "excellent" or "good."

Thursday, December 11, 2014

The Cost of the Oil Bust

Falling oil prices have been a real boon to anyone who drives a car, but they are starting to play havoc with the stock markets. The S&P 500 index energy sector dropped 3.1 percent yesterday, spearheading the overall index's largest one-day drop in almost two months.

The price of a barrel of Brent crude oil reached a new five-year low yesterday, and there's room for it to fall even further. OPEC issued a forecast yesterday saying that global demand for the cartel's crude oil could fall in 2015 to its lowest level in more than a decade.

All that bad news has put the S&P energy sector down 14.7 percent for 2014, the worst performing of the 10 major S&P sectors. But the recent performance is even worse than that: The sector is down 25 percent from its peak on June 23, nearly six months ago.

Wednesday, December 10, 2014

Execs With a Strong 2015 Outlook

Here's some good news as we head into 2015: America's business executives are optimistic that next year will show even stronger growth than we had in 2014. That's according to a survey of manufacturing and non-manufacturing supply executives released yesterday by the Institute for Supply Management, which forecast that revenues, employment and capital expenditures should all grow strongly next year.

Among manufacturers, revenues are expected to rise 5.6 percent next year. They also expect only modest growth in their costs. with prices paid for raw materials expected to increase 1.5 percent and labor and benefits costs projected to increase 3.2 percent.

Non-manufacturers are even more optimistic. They expect a 10 percent increase in revenues next year, with input prices rising 2.5 percent and labor costs rising 2.1 percent. They also project capital spending will rise by 3.8 percent and employment by 1.7 percent.

Tuesday, December 9, 2014

Tough Times in Japan

More bad news for global investors: The world's third-largest economy, that of Japan, has officially entered recession. The government announced yesterday that the Japanese economy contracted by 1.9 percent in the third quarter, as capital spending declined and private consumption remained weak. That marks the second consecutive quarter in which the economy shrunk, the technical definition of recession.

The third-quarter performance was worse than most economists expected. but it was much better than the country's second quarter. Japan's economy shrunk by 6.7 percent then.

Japanese Prime Minister Shinzo Abe has made the economy a cornerstone of his administration. Abe is up for re-election next week, but most observers expect him to win - recession notwithstanding.

Monday, December 8, 2014

How Will You Spend Your Retirement?

A new study in the Journal of Financial Planning looks at how retirees spend their time as opposed to people who are still working, and the results are pretty enlightening. Full-time workers spend an average of 447 minutes per day (nearly seven and a half hours) working. Where does that time go in retirement?

A full hour - exactly 60 more minutes - goes to sleeping. Television and movies pick up even more time, an additional 126 minutes, or more than two hours. In addition, household activities like cooking and gardening consume a lot of that extra time. Retirees spend an average of a half hour per day on "lawn, garden and houseplant care."

The upshot is that expenses tend not to rise very much if at all for retirees, who tend to add low-cost activities to their schedules to make up for the work hours. That's one reason retirement can be less expensive than many people expect.

Friday, December 5, 2014

A Blowout Jobs Report

November's jobs report was the biggest we've seen in nearly three years, with the Bureau of Labor Statistics reporting that the economy added 321,000 jobs. That's an increase of nearly 100,000 over the average job gain of 224,000 for the prior 12 months. The unemployment rate was unchanged at 5.8 percent.

That makes November the biggest month for employment since January 2012, when the economy added 360,000 new jobs. It also means we've seen job growth of at least 200,000 for ten straight months now, and positive job growth for 50 straight months - the longest such streak since World War II.

The biggest increase was in professional and business services, which added 86,000 jobs for the month. But the gains were very broad-based. Retail, health care, manufacturing and financial activities all added at least 20,000 jobs.

Thursday, December 4, 2014

Businesses Are Getting Bigger

For all the talk we hear about small business being the bedrock of our economy, one of the quiet trends in the American economy continues to be the growing size of businesses. The Labor Department reported yesterday that as of the first quarter, businesses with 500 or more employees accounted for 46.3 percent of all U.S. private-sector workers. Ten years ago, that figure was 44.2 percent. Businesses with fewer than 50 employees saw their share of employment slip from 30.2 percent to 28.4 percent over the same time frame.

Labor's figures also show there were 213,000 new businesses created in the first quarter. That's just slightly up from the 207,000 that formed in the first quarter of 2004 - and something of a decline when you consider that there are 6.6 million more workers on private-sector payrolls now.

Economists have long struggled to understand why wages have been growing so slowly lately, by only about 2 percent annually. It could simply be that as U.S. companies are getting bigger, workers have fewer employers to choose from.

Wednesday, December 3, 2014

Hedge Funds Closing Up Shop

A report from Bloomberg News yesterday looked at what a tough year it has been for hedge funds. Through the first half of this year, 461 hedge funds had shut their doors. At that pace, we could have the worst such year since 2009, when 1,023 hedge funds closed down, a record number.

In 2009, we had the recession to blame. This year, we've had an economy that continues to recover and a stock market that has returned roughly 12 percent to date, as measured by the S&P 500. By contrast, the average hedge fund has returned just 2 percent this year. It's no wonder they've been shutting down.

Another result of that poor performance is that nearly all the assets are flowing to the larger, more established hedge funds. In the first half of 2014, according to the Bloomberg report, roughly a third of the $57 billion invested into hedge funds went into just 10 firms.

Tuesday, December 2, 2014

Oil's Black Friday

Black Friday for holiday shoppers was echoed last week by a different kind of Black Friday for the commodities market. The price of crude oil fell by more than 10 percent in a single day, but it was accompanied by other price drops as well: Silver fell 6.4 percent, natural gas fell 6.1 percent, copper fell 5.8 percent.

The trigger appears to have been an announcement by OPEC that those nations would not cut back on their oil production, despite the fact that we are in a bit of a worldwide glut right now. U.S. oil production is also at its highest rate in three decades.

Oil prices are now down 39 percent since the highs they set earlier this year. They're down 52 percent from their all-time high in 2011 - meaning that the price of oil has been cut in half in the space of four years.

Monday, December 1, 2014

Records Keep On Falling

The stock market has been doing so steadily well this year, that it's easy to lose track of the fact that the S&P 500 keeps setting record high after record high. With one month - 23 trading days - left to go in 2014, the S&P has already closed at a new record 47 different times this year.

In the past 87 years, there have been only four full years in which the S&P has set more than 47 record highs. The most recent one, and the all-time record holder, is 1995, when we saw 77 separate record highs.

Second place is 1964, with 62 records, which is probably out of reach. We have a better shot at reaching the mark set in 1928, when there were 59 record highs. And we should eclipse the fifth-highest mark of all time, 1929, which saw 48 new highs. We're only one trading day short of that.