This has been a rough month for the stock market, so investors can be excused for being glad to see September come to an end. But is the worst yet to come? Bespoke Investing points out that September 30 - today - is arguably the worst trading day of the year.
Since 1945, the S&P 500 has declined an average of 0.15 percent on September 30. The index has posted positive returns just 38 percent of the time on today's date.
And it's gotten worse recently. Since this bull market started in 2009, there have been five September 30s that fell on trading days (one was a Sunday). Even though the market overall has been up strongly over that time, the S&P declined on all five of those September 30s.
Wednesday, September 30, 2015
Tuesday, September 29, 2015
The Rout's Worst Losers
It was a rough day on Wall Street yesterday, with the S&P 500 losing 2.6 percent of its value. As Marketwatch pointed out, there were an unusual number of S&P stocks posting major declines. It's rough if one of your stocks loses 9 percent over the course of a year, but these S&P members all lost that in a single day yesterday:
- Mallinckrodt, down 12.6 percent
- Williams Cos., down 12.1 percent
- Endo International, down 10.2 percent
- Qorvo Inc., down 9.3 percent
- Chesapeake Energy, down 9.2 percent
- Freeport-McMoRan, down 9.1 percent
Monday, September 28, 2015
Another Notch Up for GDP
The Commerce Department revised its second quarter GDP reading for the final time on Friday, nudging it up to 3.9 percent rate, compared with a prior estimate of 3.7 percent. After a disappointing first quarter when growth was barely positive at 0.6 percent, that figure looks pretty solid.
The new number was the result not of one big change but a handful of small upward revisions. Household consumption was revised to a 3.6 percent gain compared with an initial estimate of 3.1 percent. Business investment climbed at a 5.2 percent annualized pace, compared with a prior estimate of 4.1 percent. Investment in nonresidential structures, including office buildings and factories, rose 6.2 percent, the most in more than a year.
Also looking very strong was residential construction, which increased at a 9.3 percent rate, up from an already impressive previous estimate of 7.8 percent. That's yet another sign of the rebound of the housing market.
The new number was the result not of one big change but a handful of small upward revisions. Household consumption was revised to a 3.6 percent gain compared with an initial estimate of 3.1 percent. Business investment climbed at a 5.2 percent annualized pace, compared with a prior estimate of 4.1 percent. Investment in nonresidential structures, including office buildings and factories, rose 6.2 percent, the most in more than a year.
Also looking very strong was residential construction, which increased at a 9.3 percent rate, up from an already impressive previous estimate of 7.8 percent. That's yet another sign of the rebound of the housing market.
Friday, September 25, 2015
New Home Sales Take a Leap Forward
The American housing market is almost fully recovered from the Great Recession, at least as far as new home sales go, according to new figures from the Commerce Department. Compared to a year earlier, new home sales were up a stunning 21.6 percent last month.
With a big leap forward in August, demand for new homes was at its highest level in more than seven years. New U.S. homes sold at an annual rate of 552,000 in August, marking their highest point since February 2008. We didn’t know it at the time, but the recession was already a few months old at that point.
The Northeast region was the biggest gainer in the country, with sales up 24.1 percent over August 2014. The median sales price of new houses sold in August 2015 was $292,700; the average sales price was $353,400.
With a big leap forward in August, demand for new homes was at its highest level in more than seven years. New U.S. homes sold at an annual rate of 552,000 in August, marking their highest point since February 2008. We didn’t know it at the time, but the recession was already a few months old at that point.
The Northeast region was the biggest gainer in the country, with sales up 24.1 percent over August 2014. The median sales price of new houses sold in August 2015 was $292,700; the average sales price was $353,400.
Thursday, September 24, 2015
The Disappearing Hedge Fund
As the stock markets have seen so much turbulence over the past few months, causing distress for many mutual fund investors, you might think hedge funds would gain in popularity. But that hasn't been the case. New hedge funds this year are appearing at the slowest pace since 2010, Hedge Fund Research reported yesterday.
According to HFR, 252 new hedge funds rolled out in the second quarter, down slightly from the 264 in the previous quarter. Altogether, total first-half launches of hedge funds were the smallest in five years.
But they haven't been going away, either. Through the end of the first half, 417 hedge funds had been liquidated. That may sound like a lot, but it puts 2015 on track to record the lowest annual number of hedge fund liquidations since 2011.
Wednesday, September 23, 2015
Do You Know How Much Debt You Have?
Do you know how much household debt you're carrying around? Your lenders might have a much more accurate picture of that than you do. That's the upshot of a new study released this week by the New York Fed, which looked at consumer credit scores in relation to what consumers actually owe.
In most cases, people had a pretty good handle on their debts. Consumers know how much they owe on their mortgages, the home equity lines of credit, and their car loans. But there were two categories where their assumptions were very wrong: credit card debt and student debt.
The study found that consumers self-reported their student debt as roughly 25 percent lower than what it actually was. Credit cards were even worse: In that category, consumers undershot their debt loads by an average of 37 percent.
In most cases, people had a pretty good handle on their debts. Consumers know how much they owe on their mortgages, the home equity lines of credit, and their car loans. But there were two categories where their assumptions were very wrong: credit card debt and student debt.
The study found that consumers self-reported their student debt as roughly 25 percent lower than what it actually was. Credit cards were even worse: In that category, consumers undershot their debt loads by an average of 37 percent.
Tuesday, September 22, 2015
The Big Sell-Off
One under-reported trend on Wall Street this year: Companies are increasingly trying to raise capital by selling more of their own stock. Aside from IPOs, companies have raised $160.34 billion by selling stock as of September 21, which is the highest of any similar period on record. This year’s figure is 19 percent higher than last year’s pace.
Many companies have been selling shares to finance mergers. For example, Actavis raised $4.2 billion in February to help fund its purchase of Botox-maker Allergan. American Tower raised $2.5 billion by selling stock to help pay for its purchase of cell phone towers from Verizon Communications Inc. Endo International raised $2.3 billion to help fund its acquisition of Par Pharmaceutical.
But sometimes it's a desperation move. Copper mining giant Freeport-McMoran announced last Friday that it had raised $1 billion after selling 96.7 million shares of common stock, and may raise another $1 billion in the coming months. But in the global commodity slowdown, the company’s stock is down 68 percent over the past year, and fell 3 percent on Friday after the sale was announced.
Many companies have been selling shares to finance mergers. For example, Actavis raised $4.2 billion in February to help fund its purchase of Botox-maker Allergan. American Tower raised $2.5 billion by selling stock to help pay for its purchase of cell phone towers from Verizon Communications Inc. Endo International raised $2.3 billion to help fund its acquisition of Par Pharmaceutical.
But sometimes it's a desperation move. Copper mining giant Freeport-McMoran announced last Friday that it had raised $1 billion after selling 96.7 million shares of common stock, and may raise another $1 billion in the coming months. But in the global commodity slowdown, the company’s stock is down 68 percent over the past year, and fell 3 percent on Friday after the sale was announced.
Monday, September 21, 2015
The Rise of 529s
As many of us are recovering from making that first college tuition payment of the new school year, it's worth taking a look at one vehicle that has made such things a little less painful: the 529 plan. These plans continue to grow in popularity and volume: According to the College Savings Plan Network, there is now $258.2 billion being held in 529s, an increase of 5.6 percent over last year.
Most of that growth has come from new plans rather than people putting more money into existing ones. There were about 500,000 new 529s opened over the past year, but the average account in each of them rose by just 1.3 percent, to an average level of $20,934.
That might be an issue for some people, because tuition is growing faster than that. The growth of tuition for private nonprofit four-year colleges grew at 3.7 percent during the 2014-15 academic year.
Most of that growth has come from new plans rather than people putting more money into existing ones. There were about 500,000 new 529s opened over the past year, but the average account in each of them rose by just 1.3 percent, to an average level of $20,934.
That might be an issue for some people, because tuition is growing faster than that. The growth of tuition for private nonprofit four-year colleges grew at 3.7 percent during the 2014-15 academic year.
Friday, September 18, 2015
The Fed's Forecast
The Federal Reserve kept short-term interest rates pinned near zero Thursday, but they also hinted once again at when exactly they might be raised. The answer to that question is: More slowly than many economists had previously anticipated.
Along with the Fed's economic projections, they also released a dot plot that shows the median and average projection of rates among Fed participants. Each dot represents an individual Fed official’s view, with 17 dots in total plotted for each year, so we can see what the aggregate forecast is.
The average level that Fed officials see rates ending 2015, 2016 and 2017 at are 0.4 percent, 1.5 percent and 2.6 percent, respectively. In June, when they released a similar graph, those figures were slightly higher, at 0.6 percent, 1.8 percent and 3 percent. Even into 2018, the average target was just 3.3 percent.
Along with the Fed's economic projections, they also released a dot plot that shows the median and average projection of rates among Fed participants. Each dot represents an individual Fed official’s view, with 17 dots in total plotted for each year, so we can see what the aggregate forecast is.
The average level that Fed officials see rates ending 2015, 2016 and 2017 at are 0.4 percent, 1.5 percent and 2.6 percent, respectively. In June, when they released a similar graph, those figures were slightly higher, at 0.6 percent, 1.8 percent and 3 percent. Even into 2018, the average target was just 3.3 percent.
Thursday, September 17, 2015
The Interest Rate Dilemma
Will she or won't she? The entire financial community is watching today to see if Federal Reserve chair Janet Yellen will raise interest rates. If she does, it's likely to be an unpopular choice: According to a new Gallup poll, more U.S. investors say today's low interest rates do good for consumers by helping borrowers (68 percent) than say low rates do harm by hurting savers (24 percent).
Many of the poll's respondents have taken advantage of low interest rates to refinance or take out various types of new loans. Overall, 58 percent said they have taken advantage of low rates in the past two years by doing at least one of the following: buying a car (30 percent), refinancing a mortgage or home loan (17 percent), purchasing a home (16 percent), taking out a student loan (9 percent) or taking out another type of loan (10 percent).
Furthermore, twice as many investors say today's low rates are helping their own finances (29 percent) than say the low rates are hurting them (15 percent). Low rates especially aid nonretired investors, with 34 percent saying the rates are helping them financially, whereas 12 percent say they are hurting them. Only 15 percent of retired investors, on the other hand, say the low rates are helping them, while 28 percent say they are hurting.
Many of the poll's respondents have taken advantage of low interest rates to refinance or take out various types of new loans. Overall, 58 percent said they have taken advantage of low rates in the past two years by doing at least one of the following: buying a car (30 percent), refinancing a mortgage or home loan (17 percent), purchasing a home (16 percent), taking out a student loan (9 percent) or taking out another type of loan (10 percent).
Furthermore, twice as many investors say today's low rates are helping their own finances (29 percent) than say the low rates are hurting them (15 percent). Low rates especially aid nonretired investors, with 34 percent saying the rates are helping them financially, whereas 12 percent say they are hurting them. Only 15 percent of retired investors, on the other hand, say the low rates are helping them, while 28 percent say they are hurting.
Wednesday, September 16, 2015
The Widening Race for the Top
In January of 2009, ExxonMobil posted an annual profit of $45.22 billion, the largest in U.S. history, and became the most valuable company in America. It's been tough sledding for the oil business since then. Exxon has long been passed as the largest stock by Apple and this past February, Apple became twice as valuable as Exxon, which was still the next-biggest publicly held U.S. company.
And now, with the continuing struggles of the oil industry, the Wall Street Journal points out a further indignity: Apple’s market cap on Monday surpassed the combined total of Exxon, Chevron and Wal-Mart. As of Monday’s close, Apple was valued at $657.6 billion, versus $650.8 billion combined for Exxon ($302.2 billion), Wal-Mart ($206.1 billion) and Chevron ($142.5 billion).
Combined, the latter trio have lost nearly $200 billion in market value since early May. Exxon now ranks fifth in market cap among U.S.-listed firms, Wal-Mart is 12th and Chevron is roughly 25th. The current runner-up to Apple? Google.
And now, with the continuing struggles of the oil industry, the Wall Street Journal points out a further indignity: Apple’s market cap on Monday surpassed the combined total of Exxon, Chevron and Wal-Mart. As of Monday’s close, Apple was valued at $657.6 billion, versus $650.8 billion combined for Exxon ($302.2 billion), Wal-Mart ($206.1 billion) and Chevron ($142.5 billion).
Combined, the latter trio have lost nearly $200 billion in market value since early May. Exxon now ranks fifth in market cap among U.S.-listed firms, Wal-Mart is 12th and Chevron is roughly 25th. The current runner-up to Apple? Google.
Tuesday, September 15, 2015
How Quickly Will the S&P Snap Back?
The S&P underwent a correction last month, falling by more than 10 percent. How quickly is it likely to rebound? An analyst for MKM Partners looked at the historical record of the S&P's performance following such corrections, and concluded that it's not likely to set a new high any time this year.
Since 1960, there have been 24 times when the S&P 500 suffered at least a 10 percent correction for the first time in at least three months. On average, it took nearly 12 months for the index to reach its next 52-week high.
The quickest of these recoveries came after the correction of late October 1997; the S&P snapped back to a new 52-week high in just 29 trading days. The longest was after the correction of April 2000, at the crash of the dot-com era. Following that 10 percent plunge, it took 848 days - almost five years - for the S&P to notch a new 52-week high.
Monday, September 14, 2015
A Bad State of Retirement
If you're nearing retirement and thinking about where you want to spend those golden years, you might do well to get out of the tri-state area. That's the upshot of a new report from WalletHub, which analyzed the 150 most populated cities in the United States to determine where retirees were better off spending the winter of their lives.
The absolute worst of those 150 cities? Newark, which came in 150th and last on the key criteria of quality of life and health care. New Jersey's largest city was also very low on the categories of affordability and activities.
Second from the bottom was Jersey City, which finished even lower than Newark in affordability and activities. And New York City ranked fifth from the bottom. WalletHub's best city for retirement? Tampa, Florida.
The absolute worst of those 150 cities? Newark, which came in 150th and last on the key criteria of quality of life and health care. New Jersey's largest city was also very low on the categories of affordability and activities.
Second from the bottom was Jersey City, which finished even lower than Newark in affordability and activities. And New York City ranked fifth from the bottom. WalletHub's best city for retirement? Tampa, Florida.
Friday, September 11, 2015
The Disappearing High-Tech IPO
The stock market boom of the late 1990s was fueled by dot-com companies going public, but there's a very different high-tech landscape now. The percentage of IPOs held by tech companies is at a seven-year low, and those IPOS have generally been disappointing.
Only 11 percent of U.S. IPOs so far in 2015 were held by tech companies, the lowest level since the midst of the financial crisis in 2008, when 10 percent of all IPOs were in tech. With just 15 tech IPOs through August, this year could see the fewest such offerings since 2009. Shares of those 15 tech companies on average have fallen 4 percent from the IPO price, and 20 percent after the first day’s close.
What the strongest high-tech startups are doing now is staying private. There are now at least 117 private companies valued by venture firms at $1 billion or more, nearly double the amount from one year ago.
Only 11 percent of U.S. IPOs so far in 2015 were held by tech companies, the lowest level since the midst of the financial crisis in 2008, when 10 percent of all IPOs were in tech. With just 15 tech IPOs through August, this year could see the fewest such offerings since 2009. Shares of those 15 tech companies on average have fallen 4 percent from the IPO price, and 20 percent after the first day’s close.
What the strongest high-tech startups are doing now is staying private. There are now at least 117 private companies valued by venture firms at $1 billion or more, nearly double the amount from one year ago.
Thursday, September 10, 2015
Another Blow to Confidence
The gyrations in the market seem to have had an effect on American's confidence. Although Gallup's Economic Confidence Index began the year in positive territory for the first time since the recession, it averaged just -14 for the week ending September 6.
According to this measure, confidence began increasing in late 2014, following the decline in gas prices. As gas prices began to rise in late February, Americans' confidence in the economy started to fall.
But the index remained above -10 until July. It has stayed below that level since - including a -17 score for the week ending August 30, when doubts about China's economy made the U.S. stock market fall sharply. This week, 38 percent of Americans say the economy is getting better while 58 percent say it is getting worse.
According to this measure, confidence began increasing in late 2014, following the decline in gas prices. As gas prices began to rise in late February, Americans' confidence in the economy started to fall.
But the index remained above -10 until July. It has stayed below that level since - including a -17 score for the week ending August 30, when doubts about China's economy made the U.S. stock market fall sharply. This week, 38 percent of Americans say the economy is getting better while 58 percent say it is getting worse.
Wednesday, September 9, 2015
Rocky Waters in Emerging Markets
The U.S. stock market has been decidedly blah this year, but the realm of emerging markets has been a whole other story. The slowdown in the Chinese economy and equity market - and remember, China is still considered an emerging market rather than a developed one - has played havoc with that asset class. The MSCI Emerging Markets index fund, considered a benchmark, has lost 25 percent of its value over the past year.
Investors have noticed this, and responded. They've pulled out a whopping $40 billion from emerging markets stocks this year. That's after investing a net of $104 billion in those stocks over the five years through 2013.
Emerging markets stocks have fallen so much that they now look like bargains. It now costs half as much to buy a dollar's worth of earnings from emerging markets companies than to buy a dollar's worth of earnings from an American stock.
Investors have noticed this, and responded. They've pulled out a whopping $40 billion from emerging markets stocks this year. That's after investing a net of $104 billion in those stocks over the five years through 2013.
Emerging markets stocks have fallen so much that they now look like bargains. It now costs half as much to buy a dollar's worth of earnings from emerging markets companies than to buy a dollar's worth of earnings from an American stock.
Tuesday, September 8, 2015
The End of Vacation
Labor Day marks the unofficial end of summer and the unofficial end of vacation season for most Americans. Did you take a vacation this season? Somewhat surprisingly, most Americans haven't had a vacation - defined as a trip away from home of at least 100 miles - in the past year.
According to the Allianz Travel Insurance Vacation Confidence Index, more than 135 million Americans, or 56 percent, say that they haven’t taken a vacation within the past 12 months. That's an increase of almost 10 million from the 126 million Americans who reported no vacation in 2014.
Allianz projects that Americans will end up spending $85.5 billion on summer vacations in 2015, down 13.5 percent from the $98.8 billion we spent in 2014. The decline is being led by young Americans aged between 18 and 34; almost 40 percent of millennials plan to spend less than $400 on summer travel, double all other age groups combined.
According to the Allianz Travel Insurance Vacation Confidence Index, more than 135 million Americans, or 56 percent, say that they haven’t taken a vacation within the past 12 months. That's an increase of almost 10 million from the 126 million Americans who reported no vacation in 2014.
Allianz projects that Americans will end up spending $85.5 billion on summer vacations in 2015, down 13.5 percent from the $98.8 billion we spent in 2014. The decline is being led by young Americans aged between 18 and 34; almost 40 percent of millennials plan to spend less than $400 on summer travel, double all other age groups combined.
Monday, September 7, 2015
Thoughts for Labor Day
Hard work spotlights the character of people: some turn up their sleeves, some turn up their noses, and some don't turn up at all. ~ Sam Ewing
Perseverance is the hard work you do after you get tired of doing the hard work you already did. ~ Newt Gingrich
Winners embrace hard work. They love the discipline of it, the trade-off they're making to win. Losers, on the other hand, see it as punishment. And that's the difference. ~ Lou Holtz
Perseverance is the hard work you do after you get tired of doing the hard work you already did. ~ Newt Gingrich
Winners embrace hard work. They love the discipline of it, the trade-off they're making to win. Losers, on the other hand, see it as punishment. And that's the difference. ~ Lou Holtz
Friday, September 4, 2015
August's Employment Report
The American economy hit a little bit of a speed bump in August, according to the monthly jobs report released this morning. According to the Bureau of Labor Statistics, we created just 173,000 jobs in August, the smallest number since March. But the overall unemployment rate fell from 5.3 percent to 5.1 percent, the lowest it's been since April 2008.
The disappointing August numbers should be taken with a grain of salt. August's employment numbers have ended up getting revised upward in 17 of the last 20 years. Since 2009, the Labor Department's initial August report has later been revised to add a total of 440,000 new jobs.
For this August, health care was the sector that added the most jobs, with 56,000. Financial activities added 19,000, including 8,000 for real estate and 5,000 for securities, commodity contracts and investments. The biggest loser among the sectors was manufacturing, which decreased by 17,000.
The disappointing August numbers should be taken with a grain of salt. August's employment numbers have ended up getting revised upward in 17 of the last 20 years. Since 2009, the Labor Department's initial August report has later been revised to add a total of 440,000 new jobs.
For this August, health care was the sector that added the most jobs, with 56,000. Financial activities added 19,000, including 8,000 for real estate and 5,000 for securities, commodity contracts and investments. The biggest loser among the sectors was manufacturing, which decreased by 17,000.
Thursday, September 3, 2015
The Return of Job Confidence
How far have we come as a nation in terms of our economic confidence? Gallup's latest survey suggests that Americans are significantly more secure in their jobs than they were just four years ago.Among the findings of Americans' employment fears in 2011 versus 2015:
- Benefits will be reduced: 44 percent vs. 34 percent
- I’ll be laid off: 30 percent vs. 22 percent
- My wages will be reduced: 33 percent vs. 20 percent
- Hours will be reduced: 30 percent vs. 19 percent
- Jobs will be sent offshore: 13 percent vs. 9 percent
Wednesday, September 2, 2015
Currency Issues
Despite the gyrations of the stock market recently, American corporations are still flush with cash, according to S&P Dow Jones Indices. Cash holdings reached a record high last quarter at more than $1.33 trillion, edging past the mark set in the fourth quarter of 2014.
But one thing they're not doing with all that money is paying out dividends. Globally speaking, companies paid out $404.9 billion in dividends last quarter, which was down 7 percent from the previous quarter.
This two trends might seem to be at odds, but there's a logical explanation. With the dollar so strong, international companies paying out the same dividends in their local currency have seen the value of those dividends decline in dollar terms. According to Henderson Global Investors, if currency values had stayed flat last quarter, overall dividends would have risen to $451.7 billion.
But one thing they're not doing with all that money is paying out dividends. Globally speaking, companies paid out $404.9 billion in dividends last quarter, which was down 7 percent from the previous quarter.
This two trends might seem to be at odds, but there's a logical explanation. With the dollar so strong, international companies paying out the same dividends in their local currency have seen the value of those dividends decline in dollar terms. According to Henderson Global Investors, if currency values had stayed flat last quarter, overall dividends would have risen to $451.7 billion.
Tuesday, September 1, 2015
Surveying the Wreckage of August
A pretty brutal August is now in the books, and although things didn’t turn out quite as bad as they looked at this time last week, the markets still ended up suffering. The Dow Jones Industrial Average finished the month down 6.6 percent, ending August with its steepest monthly loss since May 2010.
The other major indexes had it about as bad. The S&P 500 index was off by 6.3 percent, and the Nasdaq Composite was down by 6.9 percent. For both those indexes, it was their largest monthly decline since May 2012.
And it’s possible the carnage is not over. According to S&P Capital IQ, there have been 11 other times that the S&P 500 fell by more than 5 percent in August since 1945. The index went on to decline in September as well 80 percent of those times.
The other major indexes had it about as bad. The S&P 500 index was off by 6.3 percent, and the Nasdaq Composite was down by 6.9 percent. For both those indexes, it was their largest monthly decline since May 2012.
And it’s possible the carnage is not over. According to S&P Capital IQ, there have been 11 other times that the S&P 500 fell by more than 5 percent in August since 1945. The index went on to decline in September as well 80 percent of those times.
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