Monday, July 31, 2017

Schwab Sees Confidence

A new report from Charles Schwab finds the firm’s retail clients more confident in decision making and better off financially in the first half of this year than they were in 2015 and 2016. Many think it’s a good time to invest. Twenty percent of Schwab clients said they expected to move money to individual stocks over the next three months, while 30 percent said they would hold steady.

The survey found that retail investors’ outlook for the U.S. stock market was up in the second quarter, with 42 percent feeling bullish, compared with 33 percent during the same period last year. Bearish sentiment declined from 39 percent in the 2016 second quarter to 35 percent a year later.

The average cash allocation among all Schwab clients in the first half fell to 19.8 percent from 21.1 percent at the end of 2016. Among investor types, millennials held more cash, 27 percent of their portfolios, than millionaires, with 16.6 percent, and active traders, with 18.2 percent.

Friday, July 28, 2017

Second Quarter GDP

U.S. economic growth picked up in the second quarter of the year, according to the report released by the Commerce Department this morning. Gross domestic product rose at a 2.6 percent annual rate in the April to June period. The second-quarter advance is a welcome rebound after a lackluster start to the year, when GDP grew at only 1.2 percent.

Consumer spending, the main engine of the economy, led the way with a 2.8 percent increase. Business investment in equipment rose 8.2 percent, while outlays on structures advanced 4.9 percent.

There were a couple of disappointing areas: The value of inventories fell slightly, to mark their second quarterly decline in a row. Investment in new housing also sank 6.8 percent. Exports rose 4.1 percent while imports edged up just 2.1 percent.

Thursday, July 27, 2017

The State Rates

The new state-level employment reports are out from the Bureau of Labor Statistics, and New Jersey is ahead of the pack. Our state unemployment rate for June was 4.1 percent, just under the national rate of 4.4 percent. It's also down from 5.1 percent a year earlier.

Unemployment rates were at all-time lows in six states: Arkansas, California, Colorado, North Dakota, Tennessee and Washington. At 2.3 percent, Colorado has the lowest unemployment rate in the nation. Records for state unemployment rates go back to 1976.

At the other end of the scale, Alaska had the highest jobless rate, 6.8 percent, followed by New Mexico at 6.4 percent. But no state had a statistically significant increase in its unemployment rate over the past year.

Wednesday, July 26, 2017

Investing in a Weaker Dollar

The dollar’s unexpected drop in value this year is poised to boost the earnings of some of the biggest U.S. companies. The ICE Dollar index, which measures the currency against six peers, is down about 8 percent this year, nearing its lowest level in 13 months.

That’s good for companies that sell large amounts of their goods abroad. A weaker dollar often translates into increased demand for their products, which become cheaper to foreign buyers. S&P 500 companies obtained about 43 percent of their sales abroad at the end of 2016, according to S&P Dow Jones Indices, led by the energy sector, where 59 percent of revenue came from outside the U.S.

That means that if  the dollar's value ends 2017 where it is now, the 8 percent drop for the year would boost per-share earnings in the S&P 500 by 4 percent in 2018, according to Morgan Stanley. They estimate that profits increase 1 percent for every 2 percent fall in the dollar.

Tuesday, July 25, 2017

The Death of the 20 Percent Down Payment

It used to be axiomatic that first-time home buyers would need to come up with 20 percent of a house's purchase price for a down payment. But a new study shows that the 20 percent down payment is all but dead — and has been for quite some time, especially for first-time buyers.

More than 70 percent of noncash, first-time home buyers made down payments of less than 20 percent over at least the past five years, according to the National Association of Realtors. Just over half, or 54 percent, of all buyers put down less than 20 percent.

The typical down payment for 60 percent of first-time home buyers is 6 percent or less, according to NAR’s latest data. But NAR’s research finds few adults 34 and younger (just 13 percent) realize they can buy a house with a down payment of 5 percent or less.

Monday, July 24, 2017

Wall Street's Image Problem

Americans still don't like Wall Street. Despite efforts by Wall Street banks to regain trust since the 2008 financial crisis, fewer than a third of Americans view the industry positively -- no more than did in 2009, according to the latest Bloomberg National Poll.

Just 31 percent of Americans look favorably on corporate executives and Wall Street. The poll also shows that Americans are much more likely to distrust billionaires than admire them, 53 percent to 31 percent.

The Fed, meanwhile, improved its standing as the economy strengthened in recent years. Fifty-two percent of those surveyed view the central bank favorably, its highest score since the poll began tracking it in September 2009. Fed Chair Janet Yellen continues to toil in relative obscurity. More than half of respondents said they don’t know enough about her to form an opinion, while 28 percent view her favorably and 15 percent unfavorably.

Friday, July 21, 2017

Changes in the S&P

Next week, there will be five new entries on the S&P 500. MGM Resorts will replace Reynolds American, because British American Tobacco is acquiring Reynolds American in a deal expected to be completed next week.

The others are dropping off because their market caps have dropped them down to the S&P MidCap 400 The departing stocks:
  • Mallinckrodt 
  • Murphy Oil 
  • Bed Bath & Beyond 
  • Transocean 
Moving up from the S&P MidCap 400 to replace them:
  • ResMed 
  • Packaging Corporation of America
  • A.O. Smith Corp. 
  • Duke Realty Corp.

Wednesday, July 19, 2017

High Tech

Tech stocks broke a nearly two-decade-old record yesterday. The S&P 500’s information-technology sector ended the day at 992, closing above its previous all-time high of 988 set in March 2000 at the peak of the dot-com bubble. Tech stocks are by far the best-performing among the index’s 11 sectors this year, up 23 percent after posting their ninth consecutive day of gains on Wednesday.

Apple, the largest publicly traded company in the U.S., has posted its longest streak of consecutive gains since August 2014. Shares of other tech titans, such as Facebook and Microsoft, have also closed at all-time highs.

The tech-heavy Nasdaq Composite has been setting fresh highs all year, but the S&P tech sector has been slower to reclaim record levels than the Nasdaq, in part because it is missing some of the Nasdaq’s biggest gainers. Netflix and, though they are often associated with tech stocks and included in the Nasdaq, are classified by S&P as consumer-discretionary companies.

How to Pay for College

According to the latest annual "How America Pays for College" report, from Sallie Mae, here’s how a typical family financed a college education in 2016-2017:
  • Scholarships & grants:                    35%
  • Parent income & savings:                23%
  • Student loans:                                19%        
  • Student income & savings: loans:    11%                         
  • Parent loans:                                   8%
  • Relatives & friends:                          4%
There was little change in these breakdowns from last year – just a 1 percentage point difference up or down in all categories except for parent income and savings, which fell by six percentage points, and student loans, which rose by six percentage points.

Forty-two percent of families surveyed borrowed money to help pay for college this year, according to the report. The typical loan amount was just over $9,600 for students and almost $3,900 for parents.

Tuesday, July 18, 2017

Employers Kicking In More

Some good new for employees: The average company contribution to 401(k)s rose to an estimated 4.7 percent of employee salaries in 2016, up from 3.9 percent in 2015, according to workplace retirement savings plans run by fund giant Vanguard Group. It was the highest percentage and biggest year-to-year jump since at least 2007.

Here’s why this is happening: Some companies in certain industries say they need to spend more to retain the best employees and motivate staff. In 2009, when unemployment was sky-high, the average company contribution was just 3.0 percent.

But many U.S. workers still aren’t saving enough on their own. The average percentage they set aside among Vanguard-run retirement accounts has dropped since 2007. largely because new 401(k) savers were enrolled at lower initial savings rates. The average total employee and company contributions to workplace savings plans among workers who participate hasn’t moved above 11 percent of salaries for at least a decade.

Monday, July 17, 2017

Making Bank

Here's an unlikely indicator: Deposits are growing at banks, credit unions and so-called thrifts, a term for savings and loans associations. At those financial institutions, deposits reached their highest levels since 2006 in the first quarter of 2017, according to a new report from Moebs Services, an economic research firm.

In the first quarter of 2017, deposits reached a level of 77.6 percent, when measured as a percentage of the institutions’ total assets. Deposits are up 10.2 percent at all banks since 2006, and up 17 percent at thrifts.

At the same time, those institutions are lending less money to customers. The ratio of loans to assets at those same three financial institutions fell to 54.9 percent in the first quarter of 2017, a decline of 9.7 percent since 2006. Bank loans have fallen 5 percent since 2006.

Friday, July 14, 2017

Neither Bulls Nor Bears

It's now been 132 weeks it has been since bullish sentiment in the weekly AAII sentiment survey has been above 50 percent, and this week it wasn’t even close. Bullish sentiment declined from its already depressed level of 29.58 percent down to 28.24 percent, its lowest point since the start of June.

But there was really no boost to bearish sentiment either. In this week’s survey, the percentage of bearish respondents declined from 29.86 percent down to 29.63 percent, the sixth straight week where bearish sentiment has been below 30 percent. That’s the longest streak since last August.

That means there are a lot of investors who just can’t make up their minds. The percentage of neutral investors came in at 42.13, the second highest weekly reading in neutral sentiment this year.

Thursday, July 13, 2017

The Steady Dow

Yesterday the Dow Jones industrial average rose 123 points to finish at  a new all-time closing high. It was the 31st 100-point move for the Dow industrials this year (either up or down), which is oddly enough the fewest number of 100-point moves through July 12 since 2012, according to the Journal’s Market Data Group.

It’s all the more interesting given that 100-point moves for the Dow mean far less than they used to. A 100-point move today would mark a gain or loss of less than 0.5 percent for the day. During the depths of the financial crisis just eight years ago, 100 points meant a move of more than 1 percent.

On a more positive note, the Dow Jones has had only ten days with 100-point declines in 2017. That's the fewest through July 12th for any year since 1998.

Wednesday, July 12, 2017

Millennials' Favorite Stocks

A new study from TD Ameritrade looks at the investing habits of the millennial generation. Not surprisingly, nearly half of the firm’s millennial clients trade on their mobile devices, twice as much as the overall customer base.

And what are they buying? It's mostly the same stocks they see on those smartphones. According to TD Ameritrade, the top five holdings for millennials are:
  1. Apple
  2. Facebook
  3. Amazon
  4. Tesla
  5. Netflix

Monday, July 10, 2017

High Expectations for Earnings

This could be a banner earnings season for the S&P 500, according to data from S&P Capital IQ. The company forecasts second-quarter earnings will grow at least 6.2 percent on a year-over-year basis. The increase would boost S&P 500 operating earnings per share for the trailing 12 months to an all-time high of $123.61 a share.

The most favorable sector? Wall Street consensus is that technology firms in the S&P 500 will report a 10.5 percent increase in earnings from the same period a year earlier. That’s the second-largest earnings growth of the 11 sectors, trailing only the volatile, beaten-down energy sector, where earnings are projected to grow nearly 400 percent.

The expectations for the tech sector are even more remarkable when you consider what it's already done in 2017. Tech is already the best-performing sector in the S&P index this year, up 18 percent.

The Dow and the S&P Diverge

The Dow Jones Industrial Average and the S&P 500 index, the most popular stock-market gauges, usually move in lockstep. After all, they're both baskets of some of America's largest stocks, even though the Dow has just 30 and the S&P has 500 of them.

But in recent trading days, they have seen the lowest level of correlation since 2003, according to data from WSJ Market Data Group. A 15-year average of the Dow and the S&P 500 shows that the relationship is nearly perfect, at a correlation of 0.9557 on a scale from 0 to 1. However, the rolling 20-day period shows  a reading of 0.4655. That's the lowest level of correlation between the S&P and the Dow industrials since August 4, 2003.

What's behind it? The recent tech slump has hit the S&P harder than the Dow, for one thing. And the financials, which are a huge part of the Dow, have been overperforming at the same time.

Friday, July 7, 2017

June's Jobs Report

The employment situation bounced back strongly in June with 222,000 jobs being created over the month, the Bureau of Labor Statistics reported this morning. Revisions added 47,000 more jobs to April and May than previously reported, so that over the past three months, job gains have averaged 194,000 a month.

The unemployment rate rose a tenth of a percentage point to 4.4 percent, edging up from its lowest level since May 2001. The increase in the unemployment rate reflects more Americans entering the labor force in June, although not all of them found jobs. The labor force participation rate is at 62.8 percent.

The strongest sectors: Health care added 37,000 jobs, and social assistance - family services and child care - added 23,000. Professional and business services, a broad category that includes everything from architects to temps, added 35,000 jobs. Financial services added 17,000 jobs, and mining added 8,000 jobs.

Thursday, July 6, 2017

The World's Most Valuable Brands

The latest ranking from WPP’s Kantar Millward Brown shows that the most valuable brands in the world are mostly tech companies, and overwhelmingly American. For the second year in a row, Google is the most valuable brand valued at a whopping $245.6 billion, followed by Apple at $234.7 billion.

There's one brand in the Top Ten you may not recognize: The Chinese internet service company Tencent, which is the first non-U.S. brand on this list since 2013. The full Top Ten:
  1. Google
  2. Apple
  3. Microsoft
  4. Amazon
  5. Facebook
  6. AT&T
  7. Visa
  8. Tencent
  9. IBM
  10. McDonald's

Wednesday, July 5, 2017

The First Half's Biggest Winners

In a generally positive first half of the year, the biggest winner so far among S&P 500 stocks was Vertex Pharmaceuticals, up a whopping 74.9 percent. Its shares jumped 21 percent in a single day back in March when the company revealed two of its cystic fibrosis drug trials yielded positive results, helping it become the top-performing stock in the entire S&P 500 in the first half of the year.

The rest of the top five:
2. Activision Blizzard, up 59.4 percent
3. Align Technology, up 56.1 percent
4. Wynn Resorts, up 55.0 percent
5. CSX Corporation, up 51.8 percent

Tuesday, July 4, 2017

Thoughts for Independence Day

“Those who deny freedom to others, deserve it not for themselves.” ~ Abraham Lincoln

"It does not take a majority to prevail, but rather an irate, tireless minority, keen on setting brushfires of freedom in the minds of men." ~ Samuel Adams

“We must be free not because we claim freedom, but because we practice it.” ~ William Faulkner

Monday, July 3, 2017

A Memorable First Half

The first half of 2017 is in the books, and the S&P 500 index and Nasdaq Composite each ended their first half of the year with the largest gains in several years. All told, the Dow was up 8 percent, the S&P 500 is up 8.2 percent, and the Nasdaq has risen by more than 14 percent.

The Nasdaq was the star performer of the first half, posting its largest first-half gains since 2009. That's nearly double the index's 7.5 percent increase for all of 2016.

And there may be even better times ahead. Since 1988 there have been 12 other times when the S&P 500 has seen a first-half gain of at least 6 percent. After each of those instances, the index has extended its increase through the second half — closing the year at a higher level than where it was at the end of June.