Monday, April 6, 2020

What's Going On with Oil Prices

West Texas Intermediate oil prices, the benchmark for the U.S., ended last week 31.8 percent higher, posting the largest one-week percentage rise on record. Despite that surge, crude is still down nearly 40 percent in the last month on the heels of demand destruction from the coronavirus outbreak, and the price war between Saudi Arabia and Russia.

If you still have a reason to drive, it's gotten a lot cheaper lately. Tennessee's average gasoline price currently sits at $1.77 a gallon. That's 45 cents less than one month ago and nearly 71 cents less than one year ago.

OPEC and its allies, including Russia, will convene this week in an attempt to forge a truce in the price war. Most observers argue that some sort of deal will most likely be reached, since it is in producers’ best interest to have higher oil prices.

Friday, April 3, 2020

March Jobs Report

The American economy lost 701,000 jobs in March, according to Labor Department numbers released this morning. It was the first decline in payrolls since September 2010 and came close to the May 2009 financial crisis peak of 800,000. The unemployment rate rose to 4.4 percent, up from 3.5 percent, to reach its highest level since August 2017.

As bad as these numbers are, there's good reason to think they're understated.  The Bureau of Labor Statistics used as its reference period the week ending March 12, which was when the nation began shutting down. The weekly initial jobless claims reports have shown 10 million new filings for unemployment insurance over the past two weeks.

Some two-thirds of March's drop came in the hospitality industry, particularly bars and restaurants forced to close during the economic shutdown. That sector suffered 459,000 job losses, with 417,000 coming from food and drinking establishments. The Bureau of Labor Statistics noted that the drop nearly wiped out all of the gains from the past two years.

Thursday, April 2, 2020

Americans Worried, but Holding Fast

The stock market crash has left Americans wondering whether worse is yet to come, Allianz Life found in its latest quarterly market perceptions study. Sixty-three percent of participants in the study expressed concerns about a recession, up from 43 percent in the fourth quarter, and 57 percent thought that the market had not bottomed out.

But most of them are holding fast. Notwithstanding their anxiety over market swings, 52 percent of Americans said now was a good time to stay neutral and not take any action because of market conditions.

Americans in the survey also appeared optimistic that they would eventually be able to recover their retirement savings. Seven in 10 respondents believed that they would have time to rebuild their retirement nest eggs even if the market continued to fall.

Wednesday, April 1, 2020

First Quarter Is Finally Over

Yesterday, the final day of March and of the first quarter, the Dow Jones Industrial Average fell by 1.8 percent. Overall, the index was down 23.2 percent for the first quarter, That was its biggest decline since the fourth quarter of 1987, the year that Black Monday occurred, on October 19.

The S&P 500 Index ended with a first-quarter decline of 20 percent, its biggest quarterly loss since 2008. It was also the S&P's worst first quarter ever. The Nasdaq suffered a first-quarter decline of 14.2 percent.

The only Dow stock that rose during the first quarter? Microsoft. It closed at $157.71 yesterday, up exactly one penny from its $157.70 close on December 31.

Tuesday, March 31, 2020

China on the Comeback

China  said yesterday that its official Purchasing Manager’s Index for March was 52.0, beating expectations for an economy hit hard by the coronavirus outbreak. PMI readings above 50 indicate expansion, while those below that level signal contraction.

In February, China's official PMI had hit a record low of 35.7. While there's reason to suspect the accuracy of these numbers, this is a positive sign for how quickly an economy can rebound from the pandemic.

Earlier this year, manufacturing activity slowed dramatically in China as the government instituted large-scale lockdowns and quarantines. This week, China’s Ministry of Industry and Information Technology said that as of March 28, the resumption-of-work rate for larger industrial enterprises was 98.6 percent, and the return of workers stood at 89.9 percent.

Monday, March 30, 2020

A Week of Recovery

Here's a mark you probably weren't expecting to be set: The Dow Jones Industrial Average just notched its best weekly gain since 1938, despite falling by 4.1 percent in Friday's trading. For the week, the Dow booked a gain of 12.8 percent, its strongest weekly performance in 82 years.

The S&P 500 finished down 3.4 percent on Friday, but still had a weekly gain of 10.3 percent. The Nasdaq Composite fell 3.8 percent on Friday, but on the week it’s up 9.1 percent. For both of those indexes, it was their best week since March 2009, when the markets bottomed out after the financial meltdown.

The Dow was aided by a comeback for the ages from blue-chip component Boeing, which surged 70.5 percent for the week. That was its best weekly gain ever.

Thursday, March 26, 2020

Three Million Jobless Claims

A sobering economic number is out this morning: Americans displaced by the coronavirus crisis filed unemployment claims in record numbers last week, with the Labor Department reporting a surge to 3.28 million new filers.

That number shatters the Great Recession peak of 665,000 from March 2009, as well as the all-time mark of 695,000 in October 1982. The number for the previous week, which reflected the period before the worst of the coronavirus hit, was 282,000.

But the news isn't all bad. The House is expected to pass a $2 trillion stimulus bill, already approved by the Senate, tomorrow morning, which should help ameliorate the job losses. Putting everything together, the market is happy about these moves, with stocks moving higher in early trading this morning.

Wednesday, March 25, 2020

The Market Bounces Back

Finally, we had some good news on Wall Street yesterday. The Dow Jones Industrial Average soared 11.4 percent, for its best one-day percentage performance since 1933. The S&P 500 Index was up 9.4 percent, while the Nasdaq Composite added 8.1 percent. The rally seemed to be a response to Congress nearing a conclusion on its stimulus bill.

More than 300 stocks in the S&P 500 gained at least 10 percent on the day. Five of them gained more than 35 percent, including:

  • Norwegian Cruise Line, up 42.3 percent
  • L Brands, up 39.0 percent
  • DXC Technology, up 38.2 percent
  • American Airlines, up 35.8 percent
  • Alliance Data Systems, up 35.4 percent
  • MGM Resorts International, up 33.2 percent

Tuesday, March 24, 2020

The Toll of the Virus

A majority of Americans have already seen their finances affected by the coronavirus pandemic, according to a new survey by LendingTree. Some 63 percent of the respondents said their finances had already been affected in some way by the coronavirus, with 27 percent reporting stock market losses and 21 percent saying they had spent more money on supplies than they could afford.

Forty percent of survey participants said their paycheck had already been hit by the coronavirus’ spread. Another 35 percent had had their hours at work reduced or eliminated, and 5 percent had lost tips or commissions.

Looking ahead, 21 percent of all Americans in the survey and 28 percent of those with children under 18 expect their finances to be severely affected by the pandemic. Another 35 percent said their finances would be somewhat affected. Seventeen percent are worried about their ability to pay bills, and 10 percent had lost money on nonrefundable travel plans.

Monday, March 23, 2020

The Fed's New Action

Saying “aggressive action” was needed to combat the coronavirus pandemic, the Federal Reserve announced this morning that it would purchase an unlimited amount of Treasury bonds and securities tied to home and business mortgages. The goal is to prop up the economy and ward off a credit crunch.

The Fed said it would buy assets “in the amounts needed” to support smooth market functioning and effective transmission of monetary policy. It had previously set a $700 billion limit for its asset purchase programs.

In addition, the Fed announced several new lending programs worth $300 billion to support all corners of the financial markets. The market apparently was very happy with these moves, as Dow futures accelerated after the announcement was made.

Friday, March 20, 2020

Are Stocks Settling Down?

We had a rare occurrence on Wall Stret yesterday: A relatively normal day for the stock market. The Dow Jones industrial average swung more than 1,200 points from its low to its high point, but in the end, it finished up just under 1 percent, or 188 points. It was the first time since March 6 that the index closed within 1,000 points from where it opened.

The S&P 500 closed up 0.5 percent, also by far its most modest finish since the start of the month. The Nasdaq Composite, which was the best performer of the day, ended up 2.3 percent.

Leading the way yesterday was the energy sector, which gained about 5 percent on the day. It was bolstered by the fact that U.S. oil prices spiked by 24 percent, marking a record one-day percentage gain.

Thursday, March 19, 2020

New Jobless Claims, Out This Morning

We're starting to see the first economic indicators since the country went on lockdown over the coronoavirus. This morning, the Labor Department's new report on unemployment claims filed last week jumped to 281,000 from 211,000 the week earlier. It was the highest number since September 2, 2017.

But more than the raw number, it's the rate of increase that's sobering. The 33 percent jump in weekly claims is the biggest ever one-week increase, aside from temporary disruptions from hurricanes and other natural disasters. It tops the one-week 14 percent jump during the 2008 financial crisis.

Companies are just starting to announce coronavirus-related layoffs, so the real damage probably won’t start showing through until next week’s count, which will entail the period through this Saturday. It's very possible that the economy has already entered recession.

Wednesday, March 18, 2020

Loosening the Tax Deadlines

A small bit of relief: In case you missed it, Treasury Secretary Steve Mnuchin announced yesterday that individuals would be allowed to defer up to $1 million in tax payments for up to 90 days. The primary federal filing deadline remains April 15.

Of course, many of us here in Tennessee have already been given some relief as far as federal taxes go. Victims of the recent tornadoes, including taxpayers in Davidson, Putnam and Williams counties, will have until July 15, 2020, to file various individual and business tax returns and make tax payments,

Among other things, this also means that affected taxpayers will have until July 15 to make 2019 IRA contributions. The new deadline also applies to quarterly estimated income tax payments due on April 15 and June 15 as well as the quarterly payroll and excise tax returns normally due on April 30.

Tuesday, March 17, 2020

Yesterday's Worst Performers

The S&P 500 Index  tumbled another 12 percent yesterday, with 491 of its stocks showing declines. It was the third-worst trading day ever for the S&P, as well as for the Dow; the Nasdaq, which lost 12.3 percent, had its worst-ever one-day decline.

These S&P stocks lost more than a quarter of their value yesterday:


  • MGM Resorts International (Casinos/Gaming), down 33.61 percent 
  • Apache Corp. (Oil & Gas), down 32.34 percent
  • Capri Holdings Ltd (Apparel/Footwear Retail), down 30.65 percent
  • Tapestry (Apparel/Footwear Retail), down 29.26 percent
  • Ventas (Real Estate Investment Trusts), down 28.59 percent
  • DXC Technology (Data Processing Services), down 28.33 percent
  • L Brands (Apparel/Footwear Retail), down 27.73 percent
  • Noble Energy (Oil & Gas Production), down 27.26 percent
  • Alliance Data Systems (Data Processing Services), down 27.06 percent
  • Discover Financial Services (Regional Banks), down 26.83 percent
  • Simon Property Group (Real Estate Investment Trusts), down 26.71 percent
  • Synchrony Financial (Finance/Rental/Leasing), down 26.02 percent
  • LyondellBasell Industries (Chemicals), down 25.49 percent


Monday, March 16, 2020

The Fed's Latest Suprise

The Federal Reserve cut interest rates to essentially zero yesterday and launched a massive $700 billion quantitative easing program to shelter the economy as it teeters on the brink of recession. The new fed funds rate will now be targeted at 0 percent to 0.25 percent, down from a target range of 1 percent to 1.25 percent.

In addition to rate cuts, the Fed also said it would purchase another $700 billion worth of Treasury bonds and mortgage-backed securities. It also struck a deal with five other foreign central banks, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank, to lower their rates on currency swaps to keep the financial markets functioning normally.

The central bank pre-empted a Federal Open Market Committee meeting scheduled for Tuesday and Wednesday, with a policy announcement that was due on Wednesday. This was less than two weeks after the Fed had already made an impromptu cut of 0.5 percent.

Friday, March 13, 2020

End of a Long Week

The S&P 500 Index dropped 9.5 percent yesterday in its worst day in more than three decades. It joined the Dow in a bear market, as it's now more than 20 percent from its recent peak.

The Dow also suffered its worst point drop ever and the biggest percentage decline since 1987.
Things got so bad that for the second time this week, a market-wide circuit breaker was triggered to prevent stocks from a free-fall. Trading was halted for 15 minutes shortly after the market opened, following an initial 7 percent drop in the S&P 500.

The Dow is off 18.03 percent so far this week. It wouldn't take much of a drop today to book the worst weekly decline for the index — which turns 124 years old on May 26 — if it surpasses the 18.15 percent drop in the week ended October 10, 2008, at the height of the financial crisis that ushered in the Great Recession.

Thursday, March 12, 2020

The Dow in a Bear

After another rough day for the markets, the Dow Jones Industrial Average has officially entered a bear market, defined as a drop of 20 percent from recent highs. The S&P and the Nasdaq are still hanging on, just barely out of bear territory.

The Dow is currently off 20.3 percent from its February 12 record, after falling by 5.9 percent yesterday. The S&P 500 and the Nasdaq are both down 19 percent from their February 19 peaks.

How long do we expect the markets to be down? On average, a bear market for the Dow lasts 206 trading days, according to data from Dow Jones Market Data. The average bear period for the S&P 500 is about 146 days.

Wednesday, March 11, 2020

A Bounceback Day

Following historic drops for all three major indexes on Monday, they all gained roughly half of that back yesterday. The S&P 500 and the Dow Jones Industrial Average each rose 4.9 percent, while the Nasdaq Composite was up 5 percent. In other economic news:

  • Airline shares took off: American Airlines shares closed about 15 percent higher, while Delta shares jumped 4.5 percent, and Southwest shares were up more than 4 percent.
  • After the 10-year and 30-year Treasury fell to all-time lows on Monday, the 10-year yield bounced back 30 basis points to 0.80 percent yesterday, while the 30-year yield was up 29 basis points to 1.31 percent.
  • After losing 25 percent Monday, their worst day since the 1991 Gulf War, crude oil prices rebounded, with West Texas Intermediate crude rising 10.4 percent.

Tuesday, March 10, 2020

How Likely Is a Rebound?

Yesterday was another difficult day on Wall Street, with the S&P 500 Index dropping by a whopping 7.6 percent - its worst day since the 2008 market meltdown. Pent-up anxiety over the weekend may have contributed to another Black Monday.

What does this mean for the future? Data compiled by Bespoke Investment Group strategists show that the S&P 500 has put in declines of 5 percent or worse on 10 other Mondays since 1952, with today’s drop representing the 11th time.

The good news, however, is that on average, the S&P 500 has returned 12.75 percent in the six months after the daily 5 percent drop. Gains are also higher in the following day, up 4.2 percent on average, as well the next week and month, with gains of 5.1 percent and 3.2 percent, respectively.

Monday, March 9, 2020

Oil Prices Dropping, and Dropping

One bit of collateral damage from the coronavirus and the recent drop in the stock markets: Oil prices are falling through the floor, and look to be headed even lower. U.S. oil benchmarks plummeted to multiyear lows on Friday, with West Texas Intermediate sinking more than 10 percent to $41.28, its lowest level since 2016.

Oil prices are now down 30 percent for the year, and could fall further given reports of a possible increase in production by Saudi Arabia. OPEC and non-OPEC producers are preparing for an all-out price war, in a sudden U-turn from previous attempts to support the oil market as the coronavirus hammers global demand. 

Consumers could see gasoline prices drop below $2 per gallon in upcoming days, according to some economic pundits. The decline in crude oil prices could add as much as 0.50 percent to U.S. GDP if the drop is sustained.

Friday, March 6, 2020

February's Jobs Report

February was another huge month for the jobs market, the Labor Department reported this morning: The U.S. economy added 273,000 new jobs during the month. The headline unemployment rate ticked back down to 3.5 percent, matching its lowest level in more than 50 years.

There was more good news for the jobs market: the previous two months’ estimates were revised higher by a total of 85,000. December moved up from 147,000 to 184,000, while January went from 225,000 to 273,000. Those revisions brought the three-month average up to a robust 243,000; the average monthly gain in 2019 was 178,000.

Health care and social assistance led the way in February with 57,000 new jobs. Food services and drinking places both added 53,000 while government employment grew by 45,000 due to Census hiring and state government education. Construction added 42,000 thanks to continued mild weather, while professional and technical services added 32,000 and finance added 26,000, part of a 160,000 gain over the past 12 months.

Thursday, March 5, 2020

How Investors Are Reacting to Coronavirus

Worried about what the coronavirus might be doing to your financial plans? According to a new survey from Retirement Income Certified Professional financial advisors, the response from most investors is to stay the course.

More than 65 percent of the 245 RICP advisors surveyed indicated their clients had become more likely to reach out to them due to recent market volatility. But more than 60 percent of advisors reported that none of their clients had made changes to their plans as a result of recent market performance.

Still, many clients have become more concerned about their retirement savings as a result of the coronavirus. Half of the surveyed clients indicated they were more concerned about retirement security this year than they were in 2019.

Wednesday, March 4, 2020

The Fed's Surprise

The Federal Reserve’s surprise decision to slash interest rates yesterday by half a point was the biggest one-day move since 2008, and it came on a day when the Fed wasn’t even supposed to meet. The Fed has only cut rates by a half-point or more four other times in this century:

October 8, 2008: 0.5 points
The Fed struggled to contain the market chaos that followed the implosion of Lehman Brothers a few weeks earlier.

January 22, 2008: 0.75 points
A week ahead of their regularly scheduled meeting, the Fed announced its deepest rate cut in 24 years, in an ultimately unsuccessful attempt to head off the coming recession.

September 17, 2001: 0.5 points
The Fed cut rates just before markets reopened in the wake of the September 11 terrorist attacks, in an attempt to bolster investor confidence.

April 18, 2001: 0.5 points
A year after the dot-com bubble burst, the Fed tried to hold off another coming recession, but it turned out the economy had already begun contracting.

Tuesday, March 3, 2020

Stocks Bounce Back

After the disaster of last week, yesterday all three major indexes came back strong. The Dow Jones Industrial Average rose 1,293.96 points, or 5.1 percent — its largest one-day percentage rise since March 23, 2009. The S&P 500 rose 136.01 points, or 4.6 percent, while the Nasdaq Composite rose 384.80 points, or 4.5 percent, marking the biggest one-day percentage gain for both those indexes since December 26, 2018. 

The biggest winners for the day among individual S&P stocks:

  1. Costco, up 10.0 percent
  2. Apple, up 9.3 percent
  3. S&P Global, up 9.2 percent
  4. Crown Castle International, up 9.0 percent
  5. AES Corporation, up 8.9 percent
  6. Cincinnati Financial Corp., up 8.7 percent
  7. Gilead Sciences, up 8.7 percent
  8. Digital Realty Trust, up 8.6 percent
  9. Eversource Energy, up 8.3 percent
  10. CVS, up 8.2 percent


Monday, March 2, 2020

Watching for the Bear

U.S. stocks entered a market correction — defined as a 10 percent drop from a recent peak — last Thursday. For the S&P 500 the drop into a correction from an all-time high in just six trading days earlier was the fastest on record, according to Dow Jones Market Data.

The next step would be a bear market, which is defined as a 20 percent drop from recent highs. As of the end of last week, the S&P 500 was down 12.8 percent from its record close, while the Dow finished 14 percent below its all-time closing high. The Nasdaq ended the week 12.8 percent below its high.

It was the biggest weekly drop for all three major equity benchmarks since the depths of the financial crisis in October 2008. Even if next week isn't as bad as last week was, we might still be entering bear territory.

Friday, February 28, 2020

End of a Rough Week

It was another rough day on Wall Street yesterday: The Dow Jones Industrial Average fell 4.4 percent, the S&P 500 fell 4.4 percent, while the Nasdaq Composite dropped 4.6 percent. The Dow had its worst day since February 2018 while the Nasdaq and S&P 500 posted their biggest one-day losses since August 2011.

It was also the Dow’s biggest one-day point decline in history, surpassing Monday’s 1,031-point drop. The Dow and S&P 500 are now on pace for their worst weekly performance since 2008. Through yesterday’s close, the Dow was down more than 11 percent week to date while the S&P 500 had lost 10.8 percent.

Yesterday’s losses put the Dow, S&P 500 and Nasdaq in correction territory, which is defined as down more than 10 percent from a recent high. The S&P 500 and Nasdaq set record highs just last week. It took the Dow just 10 sessions to tumble from its all-time high into a correction.

Thursday, February 27, 2020

Bonds at Record Lows

While the stock markets were having their third rough day in a row yesterday, there was also some significant news about the bond market. The 10-year U.S. Treasury bond yield fell to a record low yesterday, amid heightened fears about the fast-spreading coronavirus and its effect on the global economy.

The yield on the benchmark 10-year Treasury note, which moves in the opposite direction of its price, fell 4 basis points to 1.302 percent. That's just a notch below its last record low of 1.307 percent, reached last Tuesday.

Why is this happening? Investors sought the safety of U.S. government debt  on fears of what the  coronavirus will do to global economic growth. That moved them away from riskier assets, like stocks, and toward the safe haven of the U.S. Treasury.

Wednesday, February 26, 2020

Home Prices Growing Strong

Housing is looking strong: In the fourth quarter of 2019, home prices rose 5.1 percent on an annual basis, the Federal Housing Finance Agency reported yesterday. Between November and December, its monthly home price index increased 0.6 percent.

That's not the only good news for the housing market. The S&P CoreLogic Case-Shiller 20-city price index posted a 2.9 percent year-over-year gain in December, up from 2.5 percent the previous month. On a monthly basis, the index increased 0.4 percent between November and December.

The Case-Shiller index has shown the Southeast region, which includes Tennessee, to be leading the rest of the country in home price growth. For individual cities, Phoenix posted the largest price increase, with a 6.5 percent year-over-year gain. That was followed by Charlotte’s 5.3 percent increase and Tampa’s 5.2 percent increase.

Tuesday, February 25, 2020

What's Next After Yesterday's Market Slide

Yesterday was a bloodbath for the market, with the Dow Jones Industrial Average dropping by 1000 points for only the third time in its history. All the major indices slid more than 3 percent, but if history is any indication, today might prove to be a different story entirely.

According to Bespoke Investment Group, yesterday was the 19th time the S&P 500 has shed more than 2 percent on a Monday, going back to March 2009. In the prior instances, the index has, on average, returned 1.02 percent the next day.

Bespoke found that in 17 out of the 18 prior instances the S&P 500 also had a positive return over the subsequent week, with an average gain of 3.16 percent. Over the next month, there was an average gain of 6.08 percent.

Monday, February 24, 2020

Fears of the Virus

The forecasting firm IHS Markit said its indexes for manufacturers and service-oriented firms both declined in February, according to a “flash” or preliminary reading. Its services index turned negative for the first time since 2015.

The reason? Most people fear it's because of the coronavirus. The coronavirus scare is already hurting companies in the tourism and travel industries that generate lots of business from Chinese customers. Apple, for instance, warned that its sales might fall short of forecasts because it might not be able to produce and ship iPhones on schedule.

One bright spot: Most executives who were polled for IHS Markit said they think the current weakness is temporary. They expect business to bounce back before the end of the year.

Friday, February 21, 2020

What Small Business Is Seeing

Small business sentiment is on the rise to kick off 2020, with confidence nearing all-time highs,  according to the CNBC/SurveyMonkey Small Business Confidence Index. The survey reported a sharp turnaround from the lows seen last summer when trade turmoil weighed on Main Street’s outlook.

In the next 12 months, about one-fifth of small business owners expect a negative impact from changes in trade policy, while 26 percent expect a positive effect — more than half say the changes will have no impact. Of the small business owners that said either deal would impact their operations directly, most came from the retail sector.

Generally, business owners are feeling more positive about business, with 56 percent saying conditions are good and only 7 percent saying the opposite. Recession fears have also calmed down somewhat, with 49 percent of businesses saying a recession is likely in the next year, down from 53 percent this same quarter in 2019.


Thursday, February 20, 2020

State of the Air

The Department of Transportation's 2019 Air Travel Consumer Report came out yesterday, reporting that 79 percent of domestic flights last year arrived within 15 minutes of the airline’s schedule — the government’s definition of being on time. That was down slightly from 79.2 percent in 2018.

Hawaiian Airlines took home the prize for being the nation’s most punctual airline for the 16th straight year. Hawaiian scored an 87.7 percent on-time mark, followed by Delta Air Lines at 83.5 percent. After that, from best to worst, it was Alaska Airlines, Southwest, Spirit, Allegiant, American, United, JetBlue and discount carrier Frontier Airlines, last at 73.1 percent.

A total of 302 domestic flights were stuck on the ground for three hours or longer, a 50 percent increase over 2018. Cancellations rose to 1.9 percent, up from 1.7 percent in 2018. Hawaiian had the lowest cancellation rate, while the highest rates belonged to American, Southwest and United.

Wednesday, February 19, 2020

Why Do Americans Save So Much?

U.S. household wealth compared to income is near a record high. Unemployment is near a record low. So why is the personal savings rate still so high? In the fourth quarter, savings as a percent of disposable income was 7.7 percent, more or less the post-Recession average.

Goldman Sachs examined this question, and found that the top 20 percent of Americans by income save 12 percent of their disposable income. Households in the 60th to 80 percentile of income distribution — in 2018, households making between $79,542 and $130,000, according to the Census Bureau — have boosted their savings over the last three years.

The reason? Tightened credit standards led to less borrowing. The Goldman forecast is for the savings rate to fall by 2 percentage points through 2022. If the savings rate reverts back to normal, there should by definition be more spending - which is good news for the U.S. economy.

Tuesday, February 18, 2020

Trouble in Japan

Sobering news from Japan: The world's third-largest economy shrank 1.6 percent in the fourth quarter of 2019  - an annualized percentage drop of 6.3 percent  -  according to a government estimate released yesterday. The decline from the third quarter is the country's biggest contraction since 2014.

Japan absorbed a difficult sales tax hike and grappled with the aftermath of Typhoon Hagibis, a powerful storm that hit the country last fall. The spread of the coronavirus now threatens to stamp out hopes for a recovery in the first quarter.

Analysts say that tourism to Japan, particularly visitors from China, could be hard-hit if the virus is widespread there. New government figures also showed household spending deteriorating, suggesting that the economy already contracted more than first thought at the end of last year.

Friday, February 14, 2020

Record Retirement Savings

Average 401(k) and IRA balances have hit record levels, according to a new study out from Fidelity. The average 401(k) balance rose to $112,300 last year, a 7 percent increase from last quarter’s balance of $105,200. The average IRA balance was a new high of $115,400.

It’s not just because the markets are up — employees are saving more. One-third of plan participants increased the amount they were saving by an average of 3 percent. And a record 35 percent of employers automatically enrolled new workers in their 401(k) plan.

The study also found a record 441,000 IRA or 401(k) accounts Fidelity manages had balances of $1 million. Still, 401(k) and IRA millionaires are relatively rare: The number of retirement millionaires represents 1.6 percent of the 27.2 million IRA and 401(k) accounts managed by Fidelity.

Thursday, February 13, 2020

The Coronavirus and Oil Prices

One possible side effect from the coronavirus seeming to come under control: oil prices are rising. Oil prices rose over 3 percent yesterday as China reported its lowest daily number of new coronavirus cases since late January. That stoked hopes that fuel demand in the world’s second-largest oil-consuming economy may begin to recover.

Brent futures, the international benchmark, gained $1.78, to $55.79 per barrel yesterday, while U.S. West Texas Intermediate crude gained $1.23 to $51.17. Those were the highest settles for both futures since January.

The demand concerns from the outbreak had pushed Brent and WTI to their lowest level in 13 months on Monday. at that point, both benchmarks are down more than 20 percent from the highs they had reached in January.

Wednesday, February 12, 2020

The State of America's Debt

Household debt surged in 2019, marking the biggest annual increase since just before the financial crisis, the New York Federal Reserve reported yesterday. Total household debt balances rose by $601 billion last year, topping $14 trillion for the first time. The last time the growth was that large was 2007, when household debt rose by just over $1 trillion.

The growth was driven mainly by a large increase in mortgage debt balances, which rose $433 billion. That was the largest gain for that figure since 2007. Housing debt now accounts for $9.95 billion of the total balance.

Balances for auto loans and credit cards both increased by $57 billion for the year. Credit cards have surpassed student loans as the most common form of first credit among young borrowers, after several years when student loans were higher.

Tuesday, February 11, 2020

Retirees' Biggest Fears

Pre-retirees are nearly as anxious about what the future holds as they are about the present, according to a brand-new study by Charles Schwab. Sixty-five percent of study participants within five years of retirement reported feeling overwhelmed by saving enough now for retirement, and 52 percent said they were overwhelmed by how they would ultimately manage their different income sources once they were retired.

The survey found that pre-retirees felt particularly anxious about how they would manage their income and spending needs in retirement once they stopped receiving a regular salary, including:

  • 72 percent worried about running out of money
  • 64 percent were overwhelmed by not being able to maintain their current lifestyle or quality of life
  • 60 percent worried about not getting a regular paycheck
  • 57 percent were overwhelmed by determining how much they could spend




Monday, February 10, 2020

What's Disrupting Americans' Economic Lives

Education spending — largely on student loan debt — has become the chief financial disruptor among Americans, even more so than loss of employment or having to take a lower-paying job, according to a new Harris Poll for TD Ameritrade. In fact, education spending is the only financial disruptor that experienced growth in the past five years.

Here’s how financial disruption causes stacked up in the new survey:

  • Education for self and/or other dependent family members: 16 percent of respondents
  • Loss of employment/lower paid job: 15 percent
  • Supporting others financially: 13 percent
  • Poor investment/business performance: 10 percent
  • Accident/illness/disability/unable to work: 10 percent
  • Divorce/separation/widowed: 10 percent
  • Planned family: 9 percent
  • Planned home: 8 percent

Friday, February 7, 2020

January's Jobs Report

The U.S. economy added a robust 225,000 jobs in January, with warmer weather during the month helping boost hiring even in a persistently tight labor market, the Commerce Department reported this morning. The headline unemployment rate rose slightly to 3.6 percent,

The labor force participation rate rose to 63.4 percent, reaching its highest level since 2013. A higher labor force participation rate indicates a greater proportion of the working-age population is working or actively seeking employment. That was the prime reason for the rising unemployment rate.

In keeping with recent trends, most of January’s payroll gains came from the private service-providing sector, with education and health services adding 72,000 new jobs for the month. Leisure and hospitality industries also posted strong job gains, adding 36,000 jobs in January.

Thursday, February 6, 2020

The Service Sector Grows Again

Some good economic news: U.S. services sector activity picked up in January, with industries reporting increases in new orders. The Institute for Supply Management said yesterday its non-manufacturing activity index increased to a reading of 55.5 last month, the highest level since August. A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of U.S. economic activity.

The report came on the heels of a survey from the ISM on Monday showing manufacturing rebounded in January after contracting for five straight months. Manufacturing now accounts for about 11 percent of the economy.

One down number: The survey’s index for services industry employment slipped to a reading of 53.1 last month, down from 54.8 in December. This is in line with slowing job growth, both as workers become more scarce and demand for labor cools.

Wednesday, February 5, 2020

The High Cost of Renting

If you rent your home, you might be paying a lot more than you used to. A new report from the Joint Center for Housing Studies of Harvard University calculates that 10.9 million renters spent more than 50 percent of their income on housing in 2018. That equates to one in four renters.

This has become more of an issue in recent years. A renter is defined as cost-burdened if they spend more than 30 percent of their income on housing costs. According to the study, there were 6 million more cost-burdened renters in 2018 than in 2001.

And it's not just lower-income folks who are feeling the pinch. In recent years, there’s been a surge in demand for rental units among higher-income Americans. Households with incomes of at least $75,000 accounted for more than three-quarters of the growth in renters (3.2 million) from 2010 to 2018.

Tuesday, February 4, 2020

The Amazing Tesla Run-Up

The big story in the stock market this week has been Tesla, which has added $60 billion in market cap over the past week, which by itself is higher than the value of companies like Target and John Deere. In fact, Tesla now has a higher market cap than General Motors, Ford, and Fiat Chrysler combined.

Is this rational? Consider that the revenue for GM, Ford and Fiat Chrysler totals $620 billion over past year. Meanwhile, Tesla has had revenue of $25 billion over that same time frame.

One more comparison: Tesla's market cap is now larger than that of McDonald's. McDonald's had more than $6 billion in net income last year, while Tesla had a net loss of $862 million.

Monday, February 3, 2020

February: The Cruelest Month?

Stocks are limping into February: The S&P 500 fell 1.8 percent Friday, its worst day since October. It was down 2.1 percent for the week, and ended the month of January with a 0.2 percent loss, its first negative month in the last five.

What makes that even more concerning is that February is historically a weak month for the market. February is the third worst month of the year, with an average negative decline of 0.1 percent. It’s been up only 53 percent of the time since World War II, as opposed to an average gain for all months of 0.7 percent.

That makes this month the worst-performing of the non-summer months. September and August are the worst and second weakest months for the S&P 500, going back to World War II.

Friday, January 31, 2020

Fourth Quarter GDP

The U.S. economy grew 2.1 percent in the fourth quarter, according to the initial estimate released yesterday by the Commerce Department. For the full year, GDP grew 2.3 percent, below the 2.9 percent increase from 2018 and the 2.4 percent gain in 2017,

Continued gains in consumer spending helped propel the economy in the year’s final quarter, though the rate of increase came in at 1.8 percent, well below the 3.2 percent pace in the third quarter. Still, personal consumption expenditures added 1.2 percentage points to the quarterly rise in GDP.

Other factors in the quarter's growth: Durable goods spending rose 1.2 percent while nondurables saw growth of 0.8 percent, the slowest pace since the first quarter of 2018. Net exports also helped, rising 1.4 percent, while imports fell 8.7 percent, owing to a drop in consumer goods and motor vehicles.

Thursday, January 30, 2020

Millennials' Favorite Stocks

Apex Clearing recently unveiled its fourth-quarter Millennial 100 report, which analyzed more than 734,000 portfolios owned by U.S.-based investors with an average age of just over 31 years. So what stocks are millennials buying? Here are the top ten, in order of popularity:

  1. Apple
  2. Amazon
  3. Tesla
  4. Facebook
  5. Microsoft
  6. Berkshire Hathaway
  7. Walt Disney
  8. Netflix
  9. Advanced Micro Devices
  10. Alibaba

Wednesday, January 29, 2020

Consumer Confidence Is Back

Consumer confidence in the U.S. bounced higher in January as the outlook around the labor market improved, data released yesterday by The Conference Board showed. The Board’s consumer confidence index rose to 131.6 this month from 126.5 in December. That marked its highest level since August.

The data released showed 49 percent of consumers think U.S. jobs are “plentiful,” up from 46.5 percent. Those saying jobs are “hard to get” decreased to 11.6 percent from 13 percent.

In addition, assessments of current business and labor market conditions increased to 170.0 from 166.6 in December. Expectations for future conditions climbed to 102.5.

Tuesday, January 28, 2020

Apple's Year

Apple is set to report its earnings today, a long way from where the company was a year ago. The company’s stock has more than doubled over the past 12 months, and its market capitalization is now around $1.4 trillion.

At this time last year, Apple reported that sales of its iPhone were slowing, and that China was proving to be a more sluggish market than expected; it fell 7.6 percent on the day it reported earnings. That capped off three months in which the stock had dropped by more than 30 percent.

Now things are totally different. There are only two other S&P 500 index components that have doubled in the past year: Advanced Micro Devices is up 130.5 percent and Lam Research Corp. is 119.1 percent. But those semiconductor companies are much smaller than Apple - AMD’s market cap is $53.3 billion, and Lam’s market cap is $43.5 billion.

Monday, January 27, 2020

Kids Are Getting a Raise

Do you give your children a weekly allowance? It's very common: Nearly 7 in 10 American parents gave their children a regular allowance last year. And those kids are getting a raise.

Children raked in an average of $499 in allowance last year, according to RoosterMoney, an allowance tracking app. That's a 6 percent increase from what they received in 2018.

Children generally start receiving allowance around age four, with younger children often starting to get an allowance when their siblings begin to receive it. The weekly allowance rate correlated roughly to $1 per year of the child’s age: Four year-olds, for example, got an average of $4.18 per week, while 14-year-olds received an average of $13.87.

Friday, January 24, 2020

Your New Credit Score

If you're one of those people who constantly checks your credit score, you might notice a difference in it fairly soon. Fair Isaac Corp., the creator of the FICO score, announced that its new FICO 10 model is expected to cause scores to fluctuate roughly 20 points.

If you’ve been carrying credit card debt, you could see a drop in your credit score. The new credit scoring model will be calculated to incorporate consumers’ account balances for the previous 24-plus months, as opposed to just the most recent month.

FICO estimates that roughly 110 million consumers will see a change to their credit score once the new model is in effect later this summer. Approximately 40 million consumers will see a shift upward over 20 points and another 40 million will see a shift downward.

Thursday, January 23, 2020

The Markets Aren't Moving

The markets barely moved at all yesterday. The S&P 500 rose by an almost imperceptible 0.03 percent, while the Dow Jones Industrial Average dropped by the same 0.03 percent.

That's the way things have been going lately: U.S. stocks have been unusually quiet for a while now. Seventy trading days have come and gone since October 8 of last year, when the S&P 500 tumbled by nearly 1.6 percent and the Dow plunged 314 points.

How unusual is that? Since 1928, the major stock market indexes have declined at least 1 percent twice a month on average, according to researchers at Piper Sandler.


Tuesday, January 21, 2020

Housing Pops

Here's an eye-popping stat: U.S. homebuilding surged to a 13-year high in December. Activity increased across the board, suggesting the housing market recovery was back on track despite low mortgage rates.

Housing starts jumped 16.9 percent to 1.608 million units last month, which marks the highest level since December 2006. The percentage gain was the largest since October 2016. On top of that, data for November was revised higher to show homebuilding rising to a pace of 1.375 million units, up from 1.365 million.

Over the longer term, housing starts soared 40.8 percent on a year-on-year basis in December. For the entire year, an estimated 1.290 million housing units were started in 2019, up 3.2 percent compared to 2018.

The Manufacturing Rebound

Positive news from the manufacturing sector: The Federal Reserve said on Friday that manufacturing production rose 0.2 percent last month, following a 1.0 percent increase in November. A drop in motor vehicle output was offset by increases in production of other durable goods, food and beverages, and other products.

The drop in overall industrial output was driven by a 5.6 percent decline among utilities, as demand for heating fell during an unseasonably warm December. That was on top of a 4.6 percent fall in the production of motor vehicles and parts in the month.

So there must have been several areas where production increased. Manufacturing output of food, beverage and tobacco products rose 1.3 percent, nonmetallic mineral products rose 2.3 percent, primary metals output rose 1.3 percent, and computer and electronics products rose 1.4 percent.

Monday, January 20, 2020

Thoughts for Martin Luther King Day

“We must accept finite disappointment, but never lose infinite hope.” - Martin Luther King Jr.

"The man who didn't want his wife to work has been succeeded by the man who asks about her chances of getting a raise." ~ Earl Wilson

"Equal rights, fair play, justice, are all like the air: we all have it, or none of us has it." ~ Maya Angelou

Friday, January 17, 2020

The Trillion-Dollar Club

Yesterday, Alphabet Inc., the parent company of Google, became the newest member of the the $1 trillion club, capping off a rise of about 40 percent in its value just since last June. Its market capitalization of $1 trillion is exceeded only by Apple at $1.38 trillion, and Microsoft at $1.27 trillion.

Apple was the first to hit the market cap milestone in 2018, followed by Microsoft. Amazon.com surpassed $1 trillion in value in a single intraday trade in September 2018, but has never closed above the mark and thus has never officially had a $1 trillion market cap.

Facebook may well be the next member of the club, but it has a ways to go yet. It closed Thursday with an all-time high market cap of $632.4 billion.

Thursday, January 16, 2020

Reliance on Social Security

A sobering report on Americans' retirement prospects: Four in 10 older Americans rely solely on Social Security income in retirement, according to anew study from the National Institute on Retirement Security. The report found that only 6.8 percent of Americans receive income from a combination of Social Security, a defined benefit pension and a defined contribution account.

The report noted that Social Security benefits replace only about 40 percent of pre-retirement income, whereas most financial planners recommend at least a 70 percent income replacement rate for retirees. If Social Security income had been 10 percent higher in 2013, some 500,000 fewer older households would have been in poverty.

Without Social Security income in 2013, the report found, the number of older households receiving public assistance would have increased by nearly 45 percent. The number of older persons receiving Medicaid would have increased by more than 40 percent.

Wednesday, January 15, 2020

The State of Inflation

U.S. consumer prices rose slightly in December, the Labor Department said yesterday. Its consumer price index increased 0.2 percent last month after climbing 0.3 percent in November. The monthly increase in the CPI has been slowing since jumping 0.4 percent in October.

On the other hand, the long-term trend is rising. For the entire year of 2019, the CPI accelerated 2.3 percent, the largest rise since 2011. That followed an increase of 1.9 percent in 2018.

Inflation in December was held back by declines in the costs of used cars and trucks, airline tickets and household furnishing and operations. Meanwhile, there were increases in the prices of health care, apparel, new motor vehicles, recreation, and motor vehicle insurance.

Tuesday, January 14, 2020

The Big Five

It’s no secret that a handful of tech giants have been dominating the stock market, but is it getting out of control? The top five U.S. companies — Apple, Microsoft, Alphabet, Amazon and Facebook — now make up 18 percent of the total market capitalization of the S&P 500, the highest percentage in history, according to Morgan Stanley.

Apple and Microsoft, which rose 86 percent and 55 percent in 2019, respectively, together accounted for nearly 15 percent of the S&P 500′s advance last year. The five biggies were the five biggest contributors to the S&P's gains last year; in sixth place was JP Morgan Chase, which accounted for just over 2 percent.

Apple, the largest of the five, now has its weighting in the S&P 500 larger than 4 percent. Going back to 1990, only five stocks — Apple, Microsoft, Generic Electric, Cisco Systems and Exxon Mobil — have claimed more than 4 percent of the S&P 500.

Monday, January 13, 2020

CFOs Look to the Future

Chief financial officers at big U.S. companies are entering 2020 on a cautious note, according to a survey released last week. The Deloitte CFO Signals Survey showed that while the corporate leaders see the economy as “good,” they anticipate that before the year is over, both economic and market conditions will slow.

As Wall Street continues to see record highs, 77 percent of the respondents said stocks are overvalued, the highest level in nearly two years. Just 4 percent said equities are undervalued, down from 10 percent in the previous reading.

While CFOs see a downturn, they’re hardly foreseeing a worst-case scenario. In fact, expectations for an outright recession fell to 3 percent in the fourth-quarter survey, down from 15 percent in the first-quarter 2019 survey. However, 97 percent say a slowdown already has begun or will start sometime in 2020.




Friday, January 10, 2020

December Jobs Report

The U.S. economy capped off 2019 with 145,000 new jobs added in December, the Department of Labor said this morning, a tick down from recent months. The headline unemployment rate held at a five-decade low of 3.5 percent.

But the decades-low unemployment rate has translated to just meager wage gains. December’s year on year average hourly wage gain of 2.9 percent marked the first time this measure has dipped below 3 percent since July 2018.

For the entire year of 2019, the American economy added 2.1 million jobs, an average of 176,000 a month. That makes last year the slowest year for job creation since 2011 — three years after the start of the financial crisis. That figure is also down a bit from the 2.7 million positions added in 2018.

Thursday, January 9, 2020

Service Up, Manufacturing Down

While the service economy roars on, the manufacturing economy continues to sputter. The Institute for Supply Management's gauge of the U.S. services sector this week produced a reading solidly in expansionary territory and above expectations, while the manufacturing index hit its weakest level since June 2009 last week.

The gap between the two indexes in December was the largest since November 2015 and the third largest differential in a decade. The manufacturing industry is typically thought of as a leading economic indicator, and a sustained downturn has historically presaged turmoil and even recession. Fortunately, that does not look to be the case right now.

For one thing, manufacturing represents just about 11 percent of the U.S. economy, while the services sector has become the dominant means of employment for Americans. In addition, the U.S. manufacturing industry has been hurt by the strong dollar and weakening global consumer demand, while the service sector is more resistant to those factors.

Wednesday, January 8, 2020

The Trade Deficit Narrows

Some good economic news: The U.S. trade deficit fell more than expected in November as the simmering tariff battle between the us and China cooled off some. The shortfall in goods and services declined to $43.09 billion for the month, which represented the U.S.'s lowest trade deficit since October 2016.

Overall for the U.S., exports rose $1.4 billion to $208.6 billion, while imports fell $2.5 billion to $251.7 billion. On a year-to-date basis, the total deficit of goods and services has now fallen $3.9 billion, or 0.7 percent, from the same period in 2018. That's due almost entirely to a decline in imports.

For China in particular, our trade deficit China decreased $2.2 billion in November to $25.6 billion. That was the result of a $1.4 billion increase in exports and an $800 million decline in imports.

Tuesday, January 7, 2020

What Drove Last Year's Rally?

The S&P 500 index rose nearly 29 percent last year, its best performance since 2013. But it might be somewhat concerning that market’s historic run in 2019 was driven almost entirely by a vigorous rise in price rather than steady earnings growth, according to researchers at Goldman Sachs.

That rally in stock prices is a phenomenon known among equity analysts as multiple expansion, referring to price-to-earnings, or P/E ratios. When shares of a company gain more than their underlying earnings, an asset can sometimes be referred to as richly priced. That's what fueled much of last year's rally.

In fact, earnings growth explains just 8 percent of the S&P 500 return last year, Goldman’s researchers wrote. Since 2009, by contrast, earnings growth has been the primary driver of equities, accounting for 67 percent of S&P 500 returns.

Friday, January 3, 2020

Market Scorecard for 2019

The S&P 500 finished 2019 up nearly 30 percent on the year, the strongest performance for that index in six years. The tech-heavy Nasdaq did even better, posting a gain of 35 percent, while the Dow Jones Industrial Average was up 22 percent.

But the gains were a bit wind-aided: One of the keys to the 2019 success was starting from a low base. The S&P 500 ended 2018 with a loss of more than 6 percent, closing the year at 2,486. It finished 2019 trading at 3,220.

Still, the S&P is closing 2019 about 10 percent above 2018′s high of roughly 2,900. Even measuring from that high point, the market in 2019 was close to the average return for the S&P 500 of 9.8 percent.

Thursday, January 2, 2020

The Worst Stocks of 2019

In a strong year for the market, no stock in the S&P 500 index lost more than half its value last year. Here are the ten worst-performing stocks in the S&P for the year 2019:

  1. Abiomed: down 48 percent
  2. Macy's: down 40 percent
  3. DuPont: down 39 percent
  4. Occidental Petroleum: down 30 percent
  5. DXC Technology: down 30 percent
  6. Mylan: down 28 percent
  7. The Gap: down 27 percent
  8. The Mosaic Company: down 27 percent
  9. L Brands: down 25 percent
  10. Alliance Data Systems: down 25 percent


Wednesday, January 1, 2020

Thoughts for the New Year

"I hope that in this year to come, you make mistakes. Because if you are making mistakes, then you are making new things, trying new things, learning, living, pushing yourself, changing yourself, changing your world. You're doing things you've never done before, and more importantly, you're doing something." ~ Neil Gaiman

"The new year stands before us, like a chapter in a book, waiting to be written. We can help write that story by setting goals." ~ Melody Beattie

“Any new beginning is forged from the shards of the past, not from the abandonment of the past.” ~ Craig D. Lounsbrough