Monday, March 19, 2018

Bad Day at the Market

It was a rough day on Wall Street yesterday, headlined by Facebook's woes. Facing charges of misusing customer data, the social media giant dropped 7 percent and had its biggest one-day percentage decline since September 2012.

While the tech sector was the biggest decliner on the day, losing 2.8 percent, the day's losses were broad. All 11 of the primary S&P 500 sectors were lower on the day, as were all 30 Dow components. The Dow's decline of 1.4 percent erased its year-to-date gain and pushed the index into the negative for 2018.

Not surprisingly, the market's Volatility index also jumped on Monday. The VIX gained 38 percent to 21.82, a level that is above its long-term average of 20. The VIX is up nearly 100 percent so far in 2018.

Positive Sentiment Almost Everywhere

Most investor sentiment is pretty strong right now. The University of Michigan's consumer sentiment index hit the highest level since 2004 in March, helped by a record favorable assessment of current economic conditions. At 102, it is well above the long-term average of 86,

The good vibes haven’t just been isolated to consumers. A reading on small-business optimism hit its second-highest level ever in February, behind only to a reading from 1983 and extending a surge that started with the 2016 U.S. presidential election.

Is there anything to be nervous about? There's one thing: According to Saxo Bank’s head of commodity strategy Ole Hansen, the Geopolitical Risk Index is at its highest level since 2003, during the invasion of Iraq.

Friday, March 16, 2018

Misunderstanding HSAs

Do you understand health savings accounts? A new survey by the LIMRA Secure Retirement Institute and the Insured Retirement Institute finds that 51 percent of Americans believe they are knowledgeable about HSAs, which indicates there is much to be done to educate consumers, advisors and employers about these vehicles.

And that 51 percent probably overstates the case. According to the survey, many Americans are unaware that they can use their HSA assets — accumulated in their working years — to pay for health care and long-term care expenses in retirement.

Two in five Americans mistakenly believe that balances must be spent by the end of the year or forfeited. This may explain why 74 percent of the 294 non-retired workers participating in an HSA said they use it to pay for current health care expenses. The remaining 26 percent said they plan to save their HSA assets for future health care expenses.

Thursday, March 15, 2018

The Madness of March

Have you filled out our brackets yet? A whopping 70 million tournament brackets were completed last year, amounting to about $10.4 billion wagered in total, according to a report by WalletHub. That's about twice as much as during the Super Bowl.

But across the U.S., all that time spent on sports brackets instead of actual work has a serious impact on the bottom line. In fact, unproductive workers during March Madness amounted to an estimated $6.3 billion in corporate losses last year, WalletHub said. A separate survey by Seyfarth Shaw at Work found that March Madness ranked third among tech-related office distractions, directly behind texting and Facebook.

Although 81 percent of human resource professionals said their organizations don't have policies to police office pools, employees are happy to leave well enough alone. Ninety percent of workers agreed March Madness was good for employee morale, WalletHub says.

Wednesday, March 14, 2018

A Sleepy Inflation Report

Inflation appears to be under control, despite fears earlier this year that it might be accelerating. The last major consumer-price report before Fed officials meet next week, released yesterday, indicated that inflation is gradually picking up without a big breakout.

The Labor Department said its Consumer Price Index rose 0.2 percent last month after jumping 0.5 percent in January. In the 12 months through February, the CPI rose 2.2 percent, up just a tick from 2.1 percent in January.

Excluding the volatile food and energy components, the CPI gained 0.2 percent, down slightly from a 0.3 percent increase in January. The year-on-year rise in the so-called core CPI was unchanged at 1.8 percent in February.

Tuesday, March 13, 2018

The Pre-Meltdown Losers

As we noted yesterday, during the nine years of the current bull market, some stocks have done extremely well. But it's worth remembering that the bull run was preceded by a disastrous meltdown in the financial sector.

If you look not at the past nine years but back to July 13, 2007, when the market's previous high point was reached, there have been some terrible losers in the market. Some of the worst performers over that 10-plus-year period:

  • AIG, down 95 percent
  • Office Depot, down 92 percent
  • MBIA, down 86 percent
  • Citigroup, down 84 percent
  • ETrade, down 76 percent

Monday, March 12, 2018

The Bull's Biggest Winners

It was nine years ago that the S&P 500 turned around and began the bull run that has lasted to this very day. The S&P itself is up more than 300 percent over that time period.

Here are the biggest winners among the individual stocks in the S&P over that time frame:

  • Netflix, up 6,998.5 percent
  •, up 2,321.4 percent
  • Align Technology, up 2,316 percent
  • Regneron Pharmaceuticals, up 1,869.6 percent 
  • Booking Holdings, up 1,738.9 percent
Netflix and Amazon are familiar names. Align technology makes the Invisalign dental device; Regneron makes a variety of pharmaceuticals; and Booking Holdings owns, OPenTable, and other fare aggregators.

Friday, March 9, 2018

February's Jobs Report

The U.S. economy added a surprisingly strong 313,000 jobs in February, according to this morning’s employment report from the Bureau of Labor Statistics. The unemployment rate held steady for the fifth straight month at 4.1 percent, an 18-year low.

Construction, retail, manufacturing and health care drove most of the growth in February. Specialty trade contractors saw employment gains of 38,000, while building assembly jobs jumped by 16,000. Retail trade expanded by a whopping 50,000 jobs. Manufacturing maintained a course of steady growth in February, increasing by 31,000 jobs, with most of them sprouting in transportation equipment (8,000) and fabricated metal products (6,000).

Wage growth came in less than expected, rising 0.1 percent for the month and 2.6 percent on an annual basis. That's helping to dampen fears that inflation may be on the rise again.

Thursday, March 8, 2018

Latest From the Beige Book

Employers across the U.S. said wage growth picked up since the beginning of the year, according to a Federal Reserve's new Beige Book. Employment grew at a moderate pace compared with recent months, a sign the economy may have more labor market slack to pick up. Still, companies across the country reported continued worker shortages, particularly in the construction, information technology and manufacturing sectors.

But there were few reports that the price increases were being passed to consumers, at least not yet. For instance, in the New York region, which covers northern New Jersey, most businesses said they have raised their selling prices “only modestly” but said “they planned to hike prices in coming months.”

Businesses in the Philadelphia region, covering southern New Jersey, complained about keeping new employees on the job. “Workers appear to have less loyalty to the job, and more job-hopping is showing up on resumes,” the Philadelphia Fed reported.

Wednesday, March 7, 2018

A Month of Losses

February was a topsy-turvy time in the markets, and investors reacted accordingly. According to the TrimTabs Investment Research, $41.1 billion was pulled from U.S. stock funds in February, the third-highest monthly outflows on record (including both exchange-traded funds and mutual funds).

Most of the month’s outflows were concentrated in the first week of the month, when more than $37 billion was pulled from equity products. According to global fund tracker EPFR, this represented the largest one-week outflow in history.

The month’s redemptions, while historic, represented less than 0.5 percent of the $10 trillion in total assets currently held in domestic stock funds. In July 2002, the last month with similar outflows in terms of the dollar amount, the redemptions were much larger by this metric, accounting for what was at the time 1.7 percent of assets.

Tuesday, March 6, 2018

America to Lead the World in Oil

Is America's energy independence day approaching? According to the International Energy Agency, the U.S. will overtake Russia to become the world’s largest oil producer by 2023.

U.S. crude production is expected to reach a record of 12.1 million barrels a day in 2023, up about 2 million barrels a day from this year. American oil output will surge past Russia, currently the world’s largest crude producer at about 11 million barrels a day.

Of the 6.4 million new barrels of oil that will be pumped every day between now and 2023, almost 60 percent will come from the U.S., the IEA said. American influence on global oil markets is also expected to rise, with U.S. oil exports more than doubling to 4.9 million barrels a day by 2023. Until 2015, the U.S. didn’t export any crude oil by law, but in five years it is expected to be among the world’s biggest exporters.

Monday, March 5, 2018

A Record Year for Buybacks

S&P 500 companies will buy back a record $800 billion of their own shares in 2018, funded by savings on tax, strong earnings and the repatriation of cash held overseas, according to a new study by J.P. Morgan. That will far exceed the $530 billion in share buybacks that was recorded in 2017.

Companies have already announced $151 billion of buybacks in the year to date. There were $113.4 billion of buyback announcements in February alone, a three-year high, according to Trim Tabs Investment Research.

It's worth noting that stocks with higher buyback yields and new announcements tend to outperform their peers, especially during corrections and recessions. Since 2000, those stocks have outperformed peers by 150 basis points during corrections and 200 basis points during recessions, J.P. Morgan analysts said.

Friday, March 2, 2018

Retirement Is Easier Than Ever

Retirement planning is getting easier and easier. A Willis Towers Watson survey finds that plan sponsors continue to add enhancements to their retirement plans, including automatic features. In fact, 73 percent now automatically enroll new participants—a percentage that’s been rising steadily, from 52 percent in 2009 and 68 percent in 2014.

Still, 47 percent of those companies who haven’t added auto-enrollment cite cost as the chief reason not to do so. They also hesitate to add re-enrollment, with 80 percent only making the effort to auto-enroll at the time the employee is hired.

But just a quarter of employers have increased their plan contributions over the past five years. Among those doing so, 60 percent raised the employer match to do it; 51 percent did so by encouraging employee savings and employee engagement; and 44 percent offset benefit changes in their defined benefit program.

Thursday, March 1, 2018

The Monthly Streak Ends

A historic streak came to an end with the close of trading yesterday, on the final trading day for the month of February. On a total-return basis, the S&P 500 fell 2.6 percent over the course of the month, representing the index’s first such decline since October 2016.

That means that an uninterrupted 15-month rally has just come to a close. This was by far the longest such streak in the history of the S&P; the previous record was a 10-month rally that ended in September 1995.

The Dow Jones Industrial Average had a 4.3 percent decline for February, coming off 10 straight positive months. The Nasdaq Composite Index fell 1.9 percent for February, ending a seven-month rally.