What Happened to the First Quarter GDP?

First quarter GDP came in at a disappointing 0.2 percent, the Commerce Department reported yesterday. The economy had expanded at a rate of 2.2 percent in the final quarter of 2014 and at 2.4 percent for the entire year.

One big reason: consumer spending, which accounts for more than two-thirds of economic output, grew at just 1.9 percent, down from 4.4 percent in the fourth quarter. Not coincidentally, the personal savings rate, 5.5 percent, was the highest it's been since 2012, up from 4.6 percent in the fourth quarter.

Harsh winter weather was also a factor, as it has been in a lot of first quarters lately. Since 2010, first-quarter gross domestic product growth has averaged just 0.6 percent; for all other quarters, it’s 2.9 percent.

Can You Handle Your Retirement?

There's been a strong trend brewing for some time now in which people want more control over their retirement funds. Case in point: According to the 2015 Employee Financial Wellness Survey from PwC, more than 70 percent of employees now say they should be primarily responsible for funding their retirement. Just 17 percent say their employers should do so, and only 13 percent say the government should.

The problem: They don't think it's going to work out. Only 43 percent believe they’ll be able to retire when they want to, and 35 percent say they’re going to have to use money they’d intended to fund their retirement for nonretirement purposes.

Baby boomers are the most worried about managing their retirement, with 53 percent saying they’re afraid they won’t be able to retire when they want to. Thirty-five percent fear they’ll run out of money in retirement, while 41 percent are worried about the cost of health care in retirement.

The World's Best Stocks

Once a year, Kiplinger's magazine comes up with a list of the ten best stocks in the world. These aren't necessarily the ten stocks expected to return the most in the next year, or that you should rush out and buy right now. Instead, they are "companies so full of promise that you'd want to own them for years to come."

Here's Kiplinger's list for 2015 (all are based in the U.S., except as noted):

• 3M
• Apple
• Avago Technologies
• Baidu (China)
• Lennox International
• Nexstar Broadcasting
• Novo Nordisk (Denmark)
• O'Reilly Automotive
• Ross Stores
• Sherwin-Williams
• Tata Motors (India)

The Original Apple

Apple, the largest company in the world, has been dominating the stock market for a while now. With a market capitalization of $759 billion, Apple is nearly twice the size of the next biggest publicly traded company, Microsoft, which is worth $393 billion. By itself, Apple constitutes 4.1 percent of the value of the S&P 500.

But as the New York Times pointed out yesterday, it wasn't so long ago that there was a stock that was even more dominant. In 1985, IBM's market cap was $209 billion, which was more than twice the size of Exxon, then Number Two at $89 billion. At that point, IBM made up a whopping 6.4 percent of the S&P 500.

IBM's market cap is now $167 billion - which means that Apple is now four and half times the size of the company that once dominated not just the market but the computer industry.

Finally!

Finally, fifteen years after setting its previous all-time high, the Nasdaq market closed at a new record yesterday. Thursday's finish at 5056 just barely nosed out the 5048 set on March 10, 2000, at the peak of dot-com-mania.

It's been a pretty uninspiring 15 years. Since March 10, 2000, the S&P 500 has generated an average return of 4.78 percent annually, even with the crash of 2008-09. But the Nasdaq Composite has returned less than 1 percent on an annual basis over that time frame.

Of course, many of the high-tech companies that fueled the Nasdaq's rise have gone out of business since then, but the bigger stocks have suffered too. Yahoo has lost more than half its market cap since March 2000, and Cisco’s stock has fallen by two-thirds.

A Casualty of Gas Prices

We've talked a lot about the effects that the falling price of oil has had on various aspects of the economy. It's been good for drivers filling up at the gas pump, not so good for energy stocks. But there's new evidence of one corner that's been hurt by the drop in gas prices: Electric cars.

According to car-buying site Edmunds.com, about 22 percent of the people who traded in their hybrid and electric cars so far in 2015 have bought a new SUV. That's up from 19 percent last year, and just 12 percent three years ago. Less than half of this year’s hybrid and electric trade-ins have gotten another alternative-fuel vehicle.

Just as people are feeling more comfortable buying gasoline, gas prices have started to tick up a bit. Nationwide, they're at $2.48 a gallon this week, up from $2.42 a gallon a month ago. On the other hand, they were at $3.67 a gallon a year ago.

A Snapshot of Earnings Season

We're far enough into this quarter's earnings season to get a pretty realistic picture of what it's going to look like. We've had 77 companies in the S&P 500 report so far, and by the end of the week, that number will be up to 146.

In one sense, it hasn't been so good. Among those 77 companies, first-quarter earnings are on track to fall by 4.2 percent from a year ago, according to data compiled by FactSet.

But in another sense, those falling earnings have already been incorporated into stock prices. Analysts had already reduced their earnings estimates on many companies - and those companies are beating them. About 79 percent of the S&P 500 companies that have reported so far have outpaced those lowered earnings estimates.

Do You Wish You Had Retired Earlier?

There aren't very many of us who get to the end of our lives without any regrets. According to a new survey of retirees from New York Life, one of the most common regrets is waiting so long to retire. On average, a currently retired person wishes he or she had retired four years earlier, according to the survey.

Not surprisingly, the older the person was when they retired, the more likely they are to wish they had retired earlier. The survey found that, overall, 46 percent of current retirees wish they had retired sooner, but among those who were 60 or older when they stopped working, it rises to more than half.

There's one caveat to all these responses, though. The retirees got to include the stipulation that they would have the same amount of money in retirement no matter when they quit working - which is not usually realistic.

Return to Commodities

When the price of oil was dropping like a stone last year, it caused an exodus from commodity investments generally. Investors pulled a net $20 billion out of commodity investments like oil and precious metals last year. That continued a trend from 2013, when commodity investments dropped by a net of $47 billion.

But things are turning around this year. In the fist quarter of 2015, investors have poured $6.6 billion into commodities. That could just be the result of bargain-hunting, though, since so many commodity prices have fallen in recent years.

On the other hand, it could be a signal that we are returning to a more normal environment, where commodities are a regular part of many portfolios. Investors pumped a net of $23 billion into commodities in 2012, and $14 billion in 2011.

CEOs Get a Healthy Raise

If you were at the top of the company ladder, you probably did pretty well last year. The annual pay for CEOs rose by 12.1 percent last year, according to an analysis by professional services firm Towers Watson & Co. of 500 Standard & Poor’s 1500 companies. That accounts for their total compensation package, including such things as bonuses and stock options.

That's the highest increase in CEO pay since 2010. In 2013, the median increase in a CEO's pay was just 1.6 percent. Interestingly enough, the biggest increase was seen by CEOs at small-cap companies, who got an average raise  of 13.7 percent. CEOs at large-cap companies got an average raise of 11.6 percent, and those at mid-caps got 10.6 percent.

Meanwhile, the workers didn't fare as well. Towers & Perrin reports that the average raise for all workers last year was just 3 percent.

China Owns a Little Less of Us

There has been a lot of talk in recent years about how China was taking charge of the American economy by buying up all our Treasury debt, but there's a new sheriff in town. In February, Japan surpassed China to become the largest foreign holder of U.S. Treasurys for the first time since 2008, according to Treasury International Capital.

Japanese holdings of Treasurys actually fell by $14.2 billion to $1.224 trillion in February. But China’s declined even more, by $15.4 billion, to end up at $1.223 trillion. On a year-over-year basis, Japan’s holdings increased $13.6 billion, while China’s declined $49.2 billion.

The third biggest holder of U.S. Treasurys may be a bit of a surprise: It's a group of countries known as the Caribbean Banking Centers. That group, which includes the Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, and Panama, collectively held  $350.6 billion of our debt in February.

Happy Tax Day!

Do you ever wonder why April 15 became the day we file our income tax returns? There's a story going around that back in 1913, when the income tax was enacted, the theory was that only the very wealthy would have to pay income tax. It was decided that April 15 would be a god day to collect taxes from the super-rich before they left town for the summer.

That's a cute story, but it's not true. When the 16th Amendment was adopted on February 3, 1913, Congress chose March 1 as tax day, which was moved forward to March 15 in 1918. In 1955, it was moved to the current date of April 15, officially to "spread out the peak workload." But the real reason may have been to allow the government to keep the money from the refunds longer.

The latter explanation is probably more in force today. In recent years, the IRS reports about 20 percent of returns have been filed in the last week before the deadline.

What Are You Doing With Your Refund?

Income tax returns are due tomorrow, but many filers have gotten their refunds already. John Hancock, as part of its 2015 Investor Sentiment Survey, asked 1000 people with incomes over $100,000 how they were going to spend their tax refunds this year. Some of the responses:

• Half expect to receive a refund
• 52 percent of those expecting a refund plan to put it in a savings account 
• 25 percent plan to pay down debt
• 2 percent said they would put it in an employer-sponsored retirement plan

Of those planning to spend the cash:

• 38 percent said the money would go toward a vacation
• 20 percent expected to spend it on “basic household needs”
• Only 5 percent said they would treat themselves to a “luxury item” 

Hedge Funds Sneak In a Win

While the markets, and consequently most mutual funds, had a pretty quiet first quarter of 2015, there was one surprise winner: hedge funds. For the first time since 2012, we had a quarter in which hedge funds, returning an average of 2.4 percent, outperformed the S&P 500, which returned about 1 percent.

That's a turnaround from 2014. According to Hedge Fund Research, the aggregate hedge fund returned just 3.3 percent last year, when the S&P 500 was up 12 percent. The 2.4 percent hedge funds brought back in the past quarter was actually their best single quarter since 2013.

Compounding that problem is the fact that hedge funds also charge higher fees than mutual funds. The average hedge fund charges a management fee of 1.5 percent of assets, plus 17.8 percent of all gains. That's a lot of money for not so much return.

The New Neutral

The American Association of Individual Investors conducts a weekly survey of its members, asking if they are bullish, bearish or neutral about the stock market. This week’s results are a bit of a surprise: The percentage of bulls declined from 35.4 percent down to 28.7 percent, bringing it down near the lowest levels we have seen in a year.

But bearish sentiment also declined sharply, from 32.0 percent down to 24.1 percent. If there are fewer investors who are optimistic about the market, and fewer who are pessimistic about it, what does that leave? That’s right: Everyone is neutral. In a single week, neutral sentiment shot up from 32.7 percent up to 47.2 percent.

So according to this one measure, nearly half of all investors are neutral on this market, expecting neither good news nor bad news. This is the highest level of neutrality we've seen since February 2003.

Why Are Earnings Dropping?

Are we in an earnings recession? That's the name given by analysts at Bank of America Merrill Lynch to the state of corporate earnings in America. They figure that S&P 500 earnings are set to fall on a year-over-year basis in 2015. If that happens, it would be the first year of negative earnings growth since 2009.

The Thomson Reuters–tracked consensus currently expects a 2.8 percent year-over-year decline in S&P 500 earnings for first quarter 2015, compared with the 7 percent earnings gain in the fourth quarter of 2014. B of A has trimmed its earnings per share expectations for the S&P 500 to $117.50 from $119.50.

Why are earnings dropping? The two culprits are the 50 percent drop in crude oil prices and the 20 percent rise in the value of the dollar since last June. Aside from those two factors, B of A estimates that earnings growth would be around 10 percent this year.

Less Credit Card Debt, More Long-Term Debt

Some fascinating figures released by the Federal Reserve yesterday show that Americans are investing more via long-term debt, but they're getting more frugal about short-term debt.  Credit-card balances for the month of February posted their largest percentage decline since April 2011, dropping at a rate of nearly 5 percent. That marked the third decline for the measure in the past four months.

Meanwhile, the total of outstanding consumer credit, which means Americans’ total debt aside from mortgages, grew in February, Total debt balances increased by a seasonally adjusted $15.52 billion to $3.34 trillion in February. That's an annualized gain of 5.6 percent.

But the gain in outstanding credit was almost entirely due to car loans and education debt. Nonrevolving credit, which is mostly those two categories, grew at a 9.44 percent annualized rate in February - the largest monthly increase in two years.

The Strange Ways of the Young Millionaire

Young millionaires are very different from their older compatriots, according to a new survey released Wednesday from BMO Private Bank. BMO asked 483 Americans with at least $1 million in investable assets about the age at which they plan to retire from their primary line of work. Of the 56 respondents aged 18 to 39, more than half - 58 percent - said they had already left a field of work. And another 15 percent of them expected  to do so by age 40.

The older generation, on the other hand, was very different. Less than 1 percent of the millionaires over 40 had left their primary career behind by the age of 40.

But leaving a career didn't necessarily mean stopping work entirely. Some 21 percent of the millionaires said they would continue to work part time after they retired, and another 21 percent said they planned to start a new career.

The IPO Slowdown

We've already seen that the first quarter of 2015 was pretty uninspiring as far as the overall stock market goes, but new figures from Renaissance Capital indicate that it was a weak quarter for the IPO market as well. There were just 34 companies making their initial stock offering in the first three months of the year, down from more than 60 in the fourth quarter of 2014.

We haven't had a quarter with so few IPOs since the first quarter of 2013. Maybe more importantly, the companies making those stock offerings raised just $5.4 billion - the lowest quarterly total since 2011.

The unexciting stock market is only part of the story, though. There is still a strong market for venture capital, which has left hot new companies like AirBNB, Pinterest and Uber with plenty of capital - without having to take their companies public.

The March Employment Report

March's unemployment report, out this morning from the Bureau of Labor Statistics, broke the recent string of outstanding jobs numbers. The economy added 126,000 jobs last month, the first time in more than a year that the figure came in under 200,000. It was the worst month for jobs since December 2013, although the headline unemployment figure was unchanged at 5.5 percent.

With the figures now in for the entire first quarter, the economy added an average of 197,000 jobs in the first three months of 2015, which is down sharply from the fourth quarter of 2014, when the average was 324,000 jobs a month. For the 12 months prior to March, the U.S. added an average 269,000 jobs a month.

On the other hand, the first quarter of 2015 looks a lot like the first quarter of 2014, when job growth averaged 193,000. It's possible that another harsh, snowy winter has caused another temporary slowdown in the economy.

The Big Winner: Health Care

Amid a generally uneventful quarter for the stock market, the biggest winners were health care stocks. The S&P 500 Health Care Index rose 6.2 percent during the first quarter of 2014, easily the top performer among the S&P's ten sectors. The S&P itself was up just 0.4 percent.

This marked the third straight quarter that health-care stocks have done better than the overall S&P 500, as well as 11 out of the last 16 quarters. They've even been outperforming over the long haul: While the S&P as a whole has gained 206 percent since bottoming out in March 2009,  the health-care sector is up 233 percent.

There's a simple reason for this outperformance: profits. Since 2012, profits among S&P 500 health-care stocks have more than doubled those of the broader index, 27 percent to 13 percent.

Housing Hanging In There

The U.S. housing market shows signs of cooling down, although it's still growing. Home prices increased 4.5 percent in the 12 months that ended in January, according to the Standard & Poor’s/Case-Shiller Home Price report out this week. That same rate was at 10.5 percent in January 2014, and hasn't been this low since late 2012.

But the signals are still moving in the right direction. In February, sales of newly built single-family homes were up 7.8 percent from the month earlier and have reached their highest level since February 2008.

Another positive sign: The National Association of Realtors' pending home sales index increased 3.1 percent in February. That figure was up 12 percent from a year earlier. Even if price growth is slowing, sales are still steaming ahead.