Tuesday, January 21, 2020

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