Consumer confidence continues to rise, with the latest report from the Conference Board showing that February's reading reached a 12-month high. That benchmark index shot up from 61.5 in January to 70.3 in February, well higher than the 63 predicted by Bloomberg News' panel of economists.
The one piece of economic data that has the greatest ability to dampen consumer confidence in the coming months is the price of oil. Over the past two months, the price of gasoline has climbed by an average of 47 cents a gallon nationwide. Here in New Jersey, the average cost of a gallon of gas is now $3.58, up from $3.35 a month ago.
But there was good news on that front yesterday. The price of oil futures dipped by 1.9 percent yesterday, and crude oil supplies are now believed to be at a five-month high. An oil shock could be devastating to this economy, but now it looks as if we might be able to avoid one.
Wednesday, February 29, 2012
Tuesday, February 28, 2012
The High-Yield Market
We spoke last week about how bond funds have strongly outpaced stock funds in their net inflows recently. So far, in 2012, more than $20 billion has flowed into bond funds of various types, while $4.8 billion has gone into stock funds.
As the Wall Street Journal reported yesterday, one of the drivers behind the growth in bond funds has been the high-yield variety, or what used to be known as junk bonds. High-yield-bond funds have actually drawn more money this year - $11.8 billion - than investment-grade bond funds, which have drawn only $9.9 billion.
The surprising thing about this is that high-yield bonds don't have the greatest track record lately. In 2011, investment-grade bonds showed a higher return than junk bonds, by a margin of 8.1 percent to just 4.98 percent for junk. This year, the return on high-yield bonds has even dropped a bit further, to 4.74 percent, while the S&P 500 is now up 8.6 percent for 2012.
As the Wall Street Journal reported yesterday, one of the drivers behind the growth in bond funds has been the high-yield variety, or what used to be known as junk bonds. High-yield-bond funds have actually drawn more money this year - $11.8 billion - than investment-grade bond funds, which have drawn only $9.9 billion.
The surprising thing about this is that high-yield bonds don't have the greatest track record lately. In 2011, investment-grade bonds showed a higher return than junk bonds, by a margin of 8.1 percent to just 4.98 percent for junk. This year, the return on high-yield bonds has even dropped a bit further, to 4.74 percent, while the S&P 500 is now up 8.6 percent for 2012.
Monday, February 27, 2012
The Meaning of Slowing Growth
As expected, the growth in corporate profits has begun to slow. According to S&P Capital IQ, an information research service, first-quarter 2012 profits are expected to be only about 1 percent above where they were in the same quarter of 2011. For the year as a whole, earnings for the S&P 500 are expected to grow about 6 percent, while they grew 16 percent in 2011.
Of course, it's harder to show growth from a higher baseline, which means a relative lack of growth in profits may not necessarily result in bad news for the stock market. The institutional research firm the Leuthold Group found that of the 16 best years for stocks going back to 1938, they were evenly split between years with growth in corporate earnings and years with declines in corporate earnings. Moreover, in the 16 worst years for stocks, corporate profits rose in 13 of those years.
The bottom line is, corporate profits are expected to be strong in 2012, even stronger than they were in 2011. But it's hard to follow explosive growth with even more explosive growth.
Of course, it's harder to show growth from a higher baseline, which means a relative lack of growth in profits may not necessarily result in bad news for the stock market. The institutional research firm the Leuthold Group found that of the 16 best years for stocks going back to 1938, they were evenly split between years with growth in corporate earnings and years with declines in corporate earnings. Moreover, in the 16 worst years for stocks, corporate profits rose in 13 of those years.
The bottom line is, corporate profits are expected to be strong in 2012, even stronger than they were in 2011. But it's hard to follow explosive growth with even more explosive growth.
Friday, February 24, 2012
A Slowdown in Stock Funds
It's been a pretty good year for the stock market so far, which means you might expect equity mutual funds to be hauling in a lot of cash. But that hasn't been the case: During the second week of February, stock funds took in a total of $1.04 billion, down sharply from the $3.64 billion of the week before. And even that total overstates the case somewhat. Foreign stock funds took in $1.01 billion, while domestic stock funds gained only $35 million.
Meanwhile, bond funds continue to be hugely popular. For that second week of February, they took in $8.2 billion - their biggest week this year. That total was split between $6.46 billion that went into taxable bond funds and $1.73 in municipal bond funds.
Interestingly enough, hybrid funds - those that invest in a combination of equities and fixed-income instruments - continue to show real strength. They added $2.66 billion in new investments over that second week of February. For both that week and for the month as a whole, those hybrid funds have taken in more than conventional stock funds have.
Meanwhile, bond funds continue to be hugely popular. For that second week of February, they took in $8.2 billion - their biggest week this year. That total was split between $6.46 billion that went into taxable bond funds and $1.73 in municipal bond funds.
Interestingly enough, hybrid funds - those that invest in a combination of equities and fixed-income instruments - continue to show real strength. They added $2.66 billion in new investments over that second week of February. For both that week and for the month as a whole, those hybrid funds have taken in more than conventional stock funds have.
Thursday, February 23, 2012
Americans' Security Grows
If there's one thing that characterized the economic downturn of 2008-2009, it was fear: fear that we'd lost our retirement savings, fear that we would lose our jobs, fear that America's economic strength was eroding and would never return. But according to a new survey from Country Financial, that fear is fading quickly. Americans' economic security has risen for three straight months, and
The biggest factors:
* 50 percent of Americans said they were able to set aside money for savings, the highest that figure has been in three years.
* 58 percent say they are confident in their ability to retire comfortably.
* 80 percent said they're confident in their ability to pay their debts, the highest such number since October 2008.
Wednesday, February 22, 2012
Dow 13,000! ... or Not
The Dow Jones Industrial Average crossed the 13,000 barrier yesterday, leading to an outburst of cheers on the floor of the New York Stock Exchange. The Dow hadn't closed above 13,000 since May 19, 2008, nearly four years ago. (And it still hasn't, since it finished yesterday by slipping back down to 12,965.)
In other words, over that period of time, the stock market has gone precisely nowhere. And that 13,000 barrier is not even particularly close to the index's peak. The Dow reached its highest-ever point on October 9, 2007, when it closed at 14,164. We're still a good way from reaching that barrier.
But there's another important barrier that we are approaching. The Dow reached bottom on March 9, 2009, when it closed at 6547. It needs to reach 13,094 to have returned 100 percent since that ignominious point. We could arrive at that milestone sometime this week.
In other words, over that period of time, the stock market has gone precisely nowhere. And that 13,000 barrier is not even particularly close to the index's peak. The Dow reached its highest-ever point on October 9, 2007, when it closed at 14,164. We're still a good way from reaching that barrier.
But there's another important barrier that we are approaching. The Dow reached bottom on March 9, 2009, when it closed at 6547. It needs to reach 13,094 to have returned 100 percent since that ignominious point. We could arrive at that milestone sometime this week.
Tuesday, February 21, 2012
Volatility's End, or Beginning?
There's no doubt that the stock market has been an exceptionally volatile place over the past few years. How volatile? From 2008 to 2011, there were 100 days in which the S&P 500 index lost 2 percent of its value or more. By contrast, in the 34 years between 1952 and 1986, there were only 83 such days.
Here's another one: There were 19 days between July 27 and December 8 of last year when the S&P had one of those 2 percent drops. That's more days of big losses in less than half a year than there were for the entire period from 1991 to 1997, or from 1975 to 1981.
Those stats were compiled by Conor Sen over at the Minyanville web site. Sen thinks the lesson is that our recently volatility is an outlier, and that we're likely to return to a normal, calm stock market over the next few decades. Of course, we may also be seeing that volatility is the new normal, and we'll never again see the orderliness that characterized the market for the second half of the 20th century. At this point, it's anyone's guess.
Here's another one: There were 19 days between July 27 and December 8 of last year when the S&P had one of those 2 percent drops. That's more days of big losses in less than half a year than there were for the entire period from 1991 to 1997, or from 1975 to 1981.
Those stats were compiled by Conor Sen over at the Minyanville web site. Sen thinks the lesson is that our recently volatility is an outlier, and that we're likely to return to a normal, calm stock market over the next few decades. Of course, we may also be seeing that volatility is the new normal, and we'll never again see the orderliness that characterized the market for the second half of the 20th century. At this point, it's anyone's guess.
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