Wednesday, August 31, 2016

A Sleepy August

Trading is usually quiet in August, but this month has been particularly muted, in several different ways. The month is on pace to have the fourth narrowest August trading range, just 2.1 percent from top to bottom, since at least 1928, according to FBN Securities. The August range was only smaller in 1958, 1964, and 1965.

In the 17 trading days through last Thursday, the S&P 500 moved less than 0.75 percent between its daily high and low. That is the most consecutive days with such a narrow trading range in records that go back to 1970, according to at LPL Financial. The streak was broken on Friday when the S&P 500 swung a whopping 1.28 percent, but it began anew on Monday.

Fewer shares are also changing hands. New York Stock Exchange composite trading volume fell to 2.6 billion shares on Monday, its lowest level all year. That’s also about 38 percent of the volume on June 24, the highest volume trading day this year.

Tuesday, August 30, 2016

Inside the GDP Numbers

The U.S. economy grew at a slightly slower pace in the second quarter than previously thought, the Commerce Department said last week: GDP grew at a 1.1 percent annual rate, instead of the previously reported 1.2 percent. The revised figures also shed more light on the overall state of American business.

Corporate profits after taxes, but without inventory valuation and capital consumption adjustments,  has risen for two consecutive quarters, after a sharp decline in 2015. This figure rose 4.9 percent in the second quarter on the heels of an increase of 8.9 percent in the first quarter. Profits had fallen 8.5 percent in 2015.

But the boost in corporate profits hasn’t led businesses to increase spending on big-ticket equipment. Nonresidential fixed investment, a good proxy for business spending on equipment and facilities, fell at a 0.9 percent rate in the second quarter.

Monday, August 29, 2016

Americans Have Gotten a Raise

Has your salary gone up in the past five years? Sixty-eight percent of Americans say they are making more money than they did five years ago, up from 58 percent who said so then, according to a new Gallup survey. Meanwhile, 20 percent of U.S. workers report they are making less money, down from 28 percent when Gallup last asked this question in 2013. 

Thirty-one percent of Americans say they are making "a lot more" than they did five years ago, while 13 percent who say they are making "a lot less." In 2013, a slightly higher 18 percent said they were making a lot less money.

While 22 percent of those employed at their job for less than five years say they are making less money, nearly as many who have worked in their job for more than 10 years (19 percent) also report making less money. In other words, workers who were already in their job before the recession began are just as likely as those who began working after the recession to say they are making less money.

Friday, August 26, 2016

More Losses for Hedge Funds

For hedge funds, the news is getting worse. Investors pulled an estimated $25.2 billion from hedge funds last month, the biggest monthly redemption since a net $28.2 billion was redeemed in February 2009.

The monthly withdrawals were the second straight for the beleaguered industry, which had already seen $23.5 billion pulled in June. They bring total outflows this year to $55.9 billion.

Performance appears to be the main issue:  The ten funds with the highest redemptions in July lost an average of 4.1 percent in the first seven months of this year. Industrywide, funds returned an average of 1.2 percent this year through July, according to data compiled by Bloomberg, compared with about 7.6 percent for the S&P 500 Index.

Thursday, August 25, 2016

Sales Down, Prices Up

After four straight months of strong gains, U.S. home resales finally fell in July, and by more than was expected. Existing home sales declined 3.2 percent to an annual rate of 5.39 million units last month, the National Association of Realtors said.

The NAR blamed the drop in sales on the small number of properties on the market. The upside of that: The median house price rose by 5.3 percent from a year ago.

A separate report from the Federal Housing Finance Agency showed house prices rose 1.2 percent from the first quarter to the second quarter. They were up 5.6 percent from the second quarter of 2015.

Wednesday, August 24, 2016

Beating Google

It was 12 years ago this month the Google (now known as Alphabet) had its IPO.  Since that IPO 12 years ago, Google has gained 1,781 percent, compared to a gain of 99 percent for the S&P 500.

Surprisingly enough, that's not the best stock performance over that period. In fact, there are ten current members of the S&P 500 that are up more than Google since the date of its IPO.  Leading the way higher, shares of Monster Beverage are up over 11,000 percent.  Priceline and Illumina are both up triple Google’s gain. 

Regeneron, Apple, and Netflix are all up over 4,000 percent in that time frame.  Overall, there are 23 current members of the S&P 500 that are up more than 1,000 percent since the Google IPO.

Tuesday, August 23, 2016

The Fallout From Rising Oil

Rising energy prices have offered good news to the shares of energy companies that have been hamstrung by plunging oil prices. In contrast, though, one sector among the S&P 500 isn’t eager to applaud the oil rally: telecommunications.

Telecom stocks have performed the worst among the S&P 500’s ten sectors since August 2, when oil prices bottomed out. According to S&P Dow Jones Indices, for every 1 percent increase in the price of oil, the telecom sector declines by two-tenths of a basis point.

The energy and materials sectors are the most obvious beneficiaries of gains in crude oil prices. More surprisingly, the technology sector also benefits: It rises an average of 21 basis points for every percentage point climb by crude.

Monday, August 22, 2016

Trouble in New Jersey

The Labor Department released its state-by-state employment figures on Friday. New Jersey is pretty much average as far as jobs are concerned: The state's unemployment rate is 5.2 percent, just a little above the the national average of 4.9 percent.

But the trend is going in the wrong direction. The Garden State's unemployment rate is up from 5.1 percent in June and has risen from 4.3 percent in February.

The state with the lowest jobless rate is South Dakota, where unemployment sits at just 2.8 percent. The highest unemployment rate in the nation can be found in Alaska, where it's 6.7 percent.

Friday, August 19, 2016

Oil Is Coming Back

With little fanfare, the price of oil reached bull-market status yesterday, completing the turnaround from a bear market dive in just three weeks. Crude is now up 22 percent since it settled for just one day below $40 a barrel on August 2.

Prices are still down by more than half from when they traded above $100 a barrel in 2014, but they are also up more than 80 percent from just six months ago. That's when they crashed to a decade low of less than $30 a barrel.

The price of light, sweet crude for September delivery has now risen for six straight trading sessions. It's up 16 percent in that span, oil's longest and biggest winning-streak by percentage since April.

Thursday, August 18, 2016

A Divided Fed?

According to the minutes released yesterday, Federal Reserve officials at their July meeting were relieved that their concerns over Brexit and the job market eased. But as for the big question on interest rates, they were divided over whether that meant they should quickly raise them again.

Fed officials voted 9 to 1 to hold rates steady at the meeting. According to the minutes, two Fed officials pushed for a rate hike at the meeting, but more officials judged it was a good idea to wait for additional information.

Fed officials in recent days have stressed that a rate hike could come at any of the three remaining meetings this year — in September, November or December. New York Fed President William Dudley said earlier this week that a rate hike in September was possible, but the minutes  said simply that Fed officials would be “open” and “flexible” about when to take another step.

Wednesday, August 17, 2016

Medical Costs for Retirees Keep Rising

A 65-year-old couple retiring this year will need an estimated $260,000 to cover health care costs in retirement, a 6 percent increase over the 2015 calculation, according to Fidelity’s new Retiree Health Care Cost Estimate. Not surprisingly, this is the highest figure since Fidelity started making these estimates in 2002.

Fidelity based its estimate on a hypothetical 65-year-old heterosexual couple retiring in 2016, with life expectancies of 87 for the woman and 85 for the man, and warns that costs could be more or less depending on actual health status, location and longevity. The estimate was net of taxes.

Fidelity also looked at costs associated with long-term care. Given that Medicare covers long-term care costs only in limited circumstances, Fidelity estimated that a 65-year-old couple would need $130,000, in addition to savings for retiree medical expenses, to insure against long-term care expenses.

Tuesday, August 16, 2016

The Latest on Inflation

Inflation may be inching up again. The consumer-price index, which measures what Americans pay for everything from shelter to sweets, increased a seasonally adjusted 0.2 percent in June from the prior month, the Labor Department said Friday. It had climbed 0.2 percent in May and 0.4 percent in April.

Excluding the often-volatile categories of food and energy, consumer prices also rose 0.2 percent in June. Measuring from a year earlier, prices excluding food and energy climbed 2.3 percent in June, matching the highest level since May 2012.

While energy prices remain well below their levels from last June, costs for shelter, medical care, transportation services and clothing all have risen sharply. Shelter costs, which account for about one-third of CPI, are up 3.5 percent from a year earlier, the strongest rise since September 2007.

Monday, August 15, 2016

Hedge Funds Keep Shrinking

The number of hedge funds is on track to shrink this year as disappointing returns have forced an increasing number to shut down, Barclays said in a report last week. The industry is expected to contract for the first time since the 2008 financial crisis as fewer funds are likely to be launched and more managers shut down operations.

Research firm Hedge Fund Research counted a total of 10,007 hedge funds worldwide in July. Barclays estimated 2016 would end with 340 fewer hedge funds worldwide, down about 4 percent from last year.

The last time the number shrank was in 2009, when it also fell by 4 percent. That followed an 11 percent contraction at the height of the financial crisis.

Friday, August 12, 2016

Prices, Retail Slow Down

The Labor Department said on Friday its producer price index dropped 0.4 percent last month, the first decline since March and the largest monthly drop since September 2015. That followed an increase of 0.5 percent in June.

The biggest driver was energy. Last month, energy prices fell 1.0 percent after jumping 4.1 percent in June. Prices for services fell 0.3 percent, with apparel, jewelry, footwear and accessories retailing accounting for nearly 60 percent of the drop.

The Commerce Department also reported that U.S. retail sales were virtually unchanged in July, down from a gain of 0.8 percent in June, Auto sales rose 1.1 percent in July, their strongest growth since April. But excluding autos, retail-sales growth slumped 0.3 percent last month—the weakest reading since January.

Thursday, August 11, 2016

Dow 20,000?

Are we 12 months away from Dow 20,000? We're headed there exactly a year from now, according to the company-level prediction  submitted by Wall Street analysts for the Dow Jones Industrial Average’s 30 components.

Lumping together their average price targets for these companies and then weighting them appropriately, S&P Dow Jones Indices says the “consensus 1-year target price” for the Dow industrials  just reached 20,004 late Tuesday. That means that on next August 9, the consensus expectation is for the Dow to reach that price.

The Dow’s consensus one-year price target previously reached that big round number back on July 28, 2015. But that target didn’t pan out, as the Dow actually closed at 18,456 on July 28 of this year.

Wednesday, August 10, 2016

The Worrying News on Productivity

Nonfarm business productivity—the goods and services produced each hour by American workers—decreased at a 0.5 percent seasonally adjusted annual rate, the Labor Department said Tuesday. It was the third consecutive quarter of falling productivity, the longest such streak since 1979.

That was a further step down from already tepid average annual productivity growth of 1.3 percent in 2007 through 2015, which itself was just half the pace seen in 2000 through 2007. Moreover, the year-over-year rate fell 0.4 percent last quarter, it first annual decline in three years. It’s no coincidence that GDP has running at a roughly 1 percent pace for the past three quarters.

Productivity growth has averaged just 1.3 percent since 2007, half of the 2.6 percent that rate was at from 2000 to 2007. It’s even further away from the 3 percent rate seen in the boom years of the 1990s. 

Tuesday, August 9, 2016

Earnings Beats by Sector

More than 2,000 companies have reported earnings since the second quarter reporting period began on July 11th.  Of these reports, 65 percent posted earnings numbers that were stronger than consensus analyst expectations. 

That's a strong number, but some sectors beat that pretty handily. A whopping 74 percent of tech stocks have beaten consensus analyst earnings estimates so far this quarter.  The industrials sector beat rate is at 67 percent, while it’s 66 percent for health care.

Even the worst sector is beating the analysts more than half the time. The utilities sector has the lowest beat rate for the quarter, but it's still at 51 percent.

Monday, August 8, 2016

Good News for the Financials

One outcome from Friday's strong jobs report: The 1.9 percent gain in the financial sector on Friday, making it the best performing sector for the day. The S&P 500 as a whole climbed 0.9 percent.

The sector tends to outperform after strong jobs reports, rising an average of 0.6 percent after positive surprises over the last two years, according to Bespoke Investment Group. It’s now up 0.5 percent for the year, marking the first time in 2016 that all 10 S&P 500 sectors are in positive territory.

At the same time, the rally highlights divisions between the firms in the category, which may be an ominous sign for the sector later in the year. S&P Dow Jones Indices plans to split real-estate investment trusts from the financial sector in September, creating a new 11th sector for those 28 stocks. Without REITs, which make up about 20 percent of the sector, financials would still be down on the year, according S&P.

Friday, August 5, 2016

July Jobs Report

Another good month for jobs, as total nonfarm payroll employment rose by 255,000 in July, and the unemployment rate was unchanged at 4.9 percent, the U.S. Bureau of Labor Statistics reported this morning. The leading sector was a strong one: Professional and business services added 70,000 jobs in July and has added 550,000 jobs over the past 12 months.

On the heels of June's increase of 292,000 jobs, it's looking more and more like May's disappointing number of 24,000 new jobs was an anomaly. Taken together, June and July mark the best two-month stretch of job growth since late last year.

Another good sign was the increase in wages. Average hourly earnings were up 8 cents on the month, to $25.69, and are now up 2.6 percent from a year ago.

Thursday, August 4, 2016

The Trouble With Endowments

If you think the S&P 500 hasn't performed up to your expectations lately, it could be worse: It could be a college endowment fund. Endowment funds lost a median 0.74 percent in the fiscal year through June 30, according to results published Tuesday by Wilshire Trust Universe Comparison Service.

After double-digit gains in fiscal 2014, endowment performance trailed off in fiscal 2015 to 2.8 percent. In the past 10 years, the worst year for returns was 2009, the year of the market crash, with a loss of 21.8 percent for the richest schools.

The largest endowments are no longer mostly invested in U.S. equities. Endowments follow a model designed by Yale University, which now invests more than 50 percent of its fund in private equity and other illiquid assets. For endowments with more than $1 billion, only 13 percent of assets in fiscal 2015 were allocated to domestic equities.

Wednesday, August 3, 2016

A C-Note a Day

We're emptying our pockets on a daily basis these days. Americans' daily self-reports of spending averaged $100 in July, a $12 increase from June, according to a new survey from Gallup. This measure of consumer spending has not been at this level since July 2008, though it reached $99 in December.

After dropping dramatically in 2008 and early 2009 amid the global financial crisis, Americans' reported spending levels gradually held at low levels -- mostly in the $60 to $70 range -- through late 2012. At that point, they began to increase and have typically been in the $80 to $90 range since.

July typically ranks among the highest spending months, but large increases between June and July, such as those this year, are not common. The average June-to-July increase had been $2 before this year.

Tuesday, August 2, 2016

An All-Tech Top Five

Earnings reports have been shuffling the list of America's largest companies the past few days. Amazon has now climbed three spots from seventh place in the two sessions since it reported second-quarter results, passing Berkshire Hathaway  and Facebook on Friday, then pushing past Exxon Mobil Corp. Monday to become the fourth-largest U.S. company.

Exxon Mobil also fell behind Facebook into sixth place, to make it an all-technology top five. As of right now, these are the five biggest companies in America:
  1. Apple
  2. Alphabet (Google's parent)
  3. Microsoft
  4. Amazon
  5. Facebook

Monday, August 1, 2016

The Weak Recovery

To follow up on Friday's disappointing GDP number: The economy has now grown at a 2.1 percent annual rate since the U.S. recovery began in mid-2009. In terms of average annual growth, that makes this expansion by far the weakest of any since 1949.

The prior expansion, from 2001 through 2007, was the only other business cycle of the past 11 when the economy didn’t grow at least 3 percent a year, on average.

Despite the current expansion’s lack of intensity, this recovery now stands as one of the longest. There have only been three longer expansions in the past seven decades. Total growth this expansion ranks 8th of the past 11 cycles. with the economy being 15.5 percent larger than it was when the recession ended in 2009.