Monday, December 31, 2012

A Look Back at the Sectors

There is one trading day left in the 2012 calendar year, but we might as well start taking a look at the year behind us, and see what the market did for us over the past 12 months. Among the ten sectors in the S&P 500, the biggest winner by far was the financial sector, which was up 24.5 percent. The leading stock in that group was Bank of America, whose share price more than doubled.

The only sector among the ten to lose ground this year was utilities, which were down 4.2 percent. In the middle, here are the eight other S&P 500 sectors:

  • Consumer discretionary: up 19.5 percent
  • Health care: up 13.8 percent
  • Telecom services: up 11.2 percent
  • Information technology: up 10.8 percent
  • Industrials: up 10.4 percent
  • Materials: up 10.0 percent
  • Consumer staples: up 6.3 percent
  • Energy: up 0.2 percent

Friday, December 28, 2012

Holiday Cards

Did you get any gift cards for Christmas this year? There are an estimated $110 billion in these increasingly popular presents exchanged each year. That’s up about 10 percent from last year.

According to the National Retail Federation, some 81 percent of Americans said they were planning to buy gift cards in the 2012 holiday season. The average gift-giver bought a total of more than $150 worth of gift cards.

The bad news is that only about 50 percent of the value on them is ever used. The upshot is that the average American home holds an average of $300 in unredeemed gift cards, according to an estimate in the Journal of State Taxation. Between 2005 and 2011, a whopping $41 billion in gift cards went unused.

Thursday, December 27, 2012

Worries Over the Economy Ease Somewhat

As 2012 draws to a close, the economy remains the number one issue on the minds of Americans - but not to the extent that it was just a few months ago. According to a Gallup poll, 23 percent of us identify the economy as the most important problem facing the country. That's down from 30 percent who said so in November, and 37 percent who said so in October.

In second place is a related issue, unemployment, which is currently the top concern of 17 percent of Americans. That too is down recently: It was the prime concern of 20 percent of us in November and 26 percent in October.

Altogether, 59 percent of the respondents named some economic issue - the federal budget deficit and "lack of money" also finished high up in the poll - as their primary concern. The highest-rated non-economic concern was "dissatisfaction with government."

Wednesday, December 26, 2012

Mutual Funds Still the Choice for the Affluent

If you're wondering where millionaires park their money, the results of a recent study from the Spectrem Group may interest you. According to their research, 60 percent of all American millionaires owned mutual funds in 2012. The average amount each of those millionaires had invested in mutual funds was $253,000.

Although that percentage was the same in 2011, the figures has been dropping in recent years. Back in 2008, some 67 percent of all millionaires were invested in mutual funds, and their average stake in that year was nearly $300,000.

Although exchange-traded funds are talked about as a hot investment, they still trail mutual funds among this cohort. Only 20 percent of the millionairies surveyed said they owned ETFs.

Tuesday, December 25, 2012

Thoughts for Christmas Day

"A lovely thing about Christmas is that it’s compulsory, like a thunderstorm, and we all go through it together.”~ Garrison Keillor

"One of the most glorious messes in the world is the mess created in the living room on Christmas day. Don’t clean it up too quickly.”~ Andy Rooney 

"When we recall Christmas past, we usually find that the simplest things – not the great occasions – give off the greatest glow of happiness.”~ Bob Hope

Merry Christmas, everyone!

Monday, December 24, 2012

Leaving Home for the Holidays

Are you traveling this holiday season? Most Americans are staying close to home, but one in four are taking a road trip this year. There are a whopping 93.3 million travelers planning to journey at least 50 miles from home between last Saturday and January 1, according to the American Automobile Association.

Most of them, by far, are traveling by car, a total of 90 percent. They'll travel an average of 760 miles and spend $759, including an average of $3.42 for a gallon of gas.

And the majority of them, two thirds overall, are traveling to be with friends or family, with the rest of them going away on vacation. No matter where you'll be this season, all of us here at Echelon Wealth wish you a joyous holiday.

Friday, December 21, 2012

The Disappearing ETF

Here's a somewhat surprising trend from 2012: Exchange-traded funds, seen by some as the wave of the future in investing vehicles, have been closing down at a surprising pace. Over the course of the year, 95 ETFs or exchange-traded notes have shut down. That's more than the number of ETFs that closed in 2010 and 2011 combined. It's the most ETFs that have shut down in a single year for the entire 19-year history of ETFs.

And it's not the case that the market had been flooded with new issues this year. Through the end of November, 145 new ETFs had gone on sale this year, the fewest since 2009. Altogether, there are still more than 1400 ETFs available to investors.

It may just be that the industry is reaching maturity, and ETFs are now forced to sink or swim on their own, rather than drawing in assets just because they're hot. From here on out, ETFs will have to prove their worth.

Thursday, December 20, 2012

Financials Come Back Strong

One of the real success stories in this year’s stock market has been the financial sector. Financials in the Standard & Poor’s 500 stock index have risen by more than 25 percent in 2012, far outpacing the total index’s 15 percent gains. That’s the first time that the financials have beaten the wider index since 2006.

Last year, for example, the financial sector declined 18 percent while the S&P 500 itself was flat. The biggest winner in the financials this year has been Bank of America, which is up 104 percent. That’s right, the share price has more than doubled.

One of the key factors in the financials’ performance has been their cost-cutting. According to Bloomberg News, the nine largest investment banks have eliminated, altogether, 30,000 jobs through the first nine months of this year. Overall, total pay for the members of the banking sector is now half of what it was in 2007.

Wednesday, December 19, 2012

Where's the Market Going?

It's getting to be that season when financial institutions issue predictions for the coming year. Most of these prognostications fall right in line with a typical good year for the markets, such as:

* Goldman Sachs predicts that the S&P 500 will end 2013 at 1575, or a 12.5 percent increase from where we are now.

* Merrill Lynch is predicting the S&P will finish 2013 at 1600, about a 14 percent increase.

* Citigroup puts the S&P at 1615 for year-end 2013, a rise of about 15 percent.

* One notable negative: Wells Fargo predicts that the S&P will drop about 2 percent during 2013, ending the year at around 1390.

Are any of these predictions worth taking seriously? Probably not. The Web site MarketWatch notes that Bloomberg asked seven leading money managers for predictions heading into 2008, and all seven forecast that the S&P would rise by at least 13 percent. It ended up dropping by 38 percent.

Tuesday, December 18, 2012

A Savings Plan Goes Unused

While we're thinking about our families this holiday season, it appears that Americans have been slow to make use of on vehicle that can help provide for the next generation: the 529 plan. Even though college tuition costs have been spiraling ever higher, at an annual rate of 6 percent between 2005 and 2011, only 15 percent of American households with school-age children have invested in a 529 plan.

The people who are using these vehicles tend to be the affluent. According to a study conducted by the U.S. Government Accountability Office, families that do have 529 plans have assets that add up to 25 times the median for families without the college savings plans.

The average amount in a 529 plan is $16,000. That doesn't sound like much - for many schools, it's not even a year's tuition -  but the total amount of money in these plans now is $167 billion, which is an all-time high.

Monday, December 17, 2012

Scaling Back Bank Insurance

One of the regulations enacted back during the financial-sector meltdown of 2008-2009 was an extension of the amount of money the government was willing to insure in bank deposits. People had become leery of putting their assets into any sort of financial institution, so in order to shore up confidence in the nation's banks, the FDIC lifted the limit on its insurance. Rather than covering $250,000 in personal deposits, the FDIC announced it would cover any amount of a personal bank deposit.

That changed rather quietly last week. The Senate considered a two-year extension of what is officially called the Transaction Account Guarantee, and decided the program should come to an end.

Obviously, most people don't have a quarter million dollars in a bank account, so the end of this rule shouldn't affect you. But it does signal that the government believes other types of investments are relatively safe. And it might urge some more investor money into the markets.

Friday, December 14, 2012

Small Business Loses Confidence

We've seen some encouraging signs from consumer confidence in recent months, but that hasn't spread to the people who sell them their goods and services. According to a new Gallup survey, America's small business owners now expect to spend less money on their businesses over the next 12 months. The net spending index is at -14, down from -1 in July.

The survey found that just 20 percent of small business owners expect to increase capital spending over the next year. Meanwhile, 34 percent of small business owners think they'll reduce their capital expenditures over the same time frame. That's the highest that figure has been in more than two years.

Looking backward, the picture looks the same. The same survey asked those small business owners about their expenditures over the past 12 months. Over that time frame, 40 percent of those owners decreased expenditures, and only 18 percent increased them.

Thursday, December 13, 2012

The Fed's Switch

So what exactly does the Federal Reserve's "surprise" move of yesterday amount to? In the past, the Fed has pegged its moves to specific dates. For instance, the last we heard, it planned to keep interest rates at near-zero levels until at least 2015. That has been the way the Fed has scheduled its policies for pretty much its entire history.

But now its policies will change based on well-defined macroeconomic targets. The Fed plans to keep its loose monetary policies in place until unemployment looks like it has dropped below 6.5 percent or inflation appears to be exceeding 2.5 percent. That last is a switch for the Fed, which had earlier set 2 percent inflation as a target.

Will it have any practical effect on the economy? It's too early to say, but it certainly make sense for the Fed to tie its policies to the actual economic conditions of the country, as opposed to an arbitrary date on the calendar.

Wednesday, December 12, 2012

Waiting on the AMT

While the president and Congress dither over what to do about the Fiscal Cliff, there’s another issue facing that needs to be addressed before the end of the year: an adjustment to the alternative minimum tax rules. For the 2011 tax year, the first $74,450 of income for married taxpayers was exempt under the AMT, but if Congress fails to act, this exemptions will fall to $45,000, making a lot more families subject to that tax. The result is that 28 million more taxpayers would be hit by the AMT.
The lowering of the exemption means that married couples with adjusted gross income between $200,000 and $500,000 would pay an average of almost $11,000 in AMT. That’s in addition to their regular tax liability. But they’re not the only ones who would pay more: About 88 percent of taxpayers with incomes between $100,000 and $200,000 would pay an average AMT of over $3,100. Even those making just $50,000 could end up paying $1,000 more.
In the past, Congress has routinely adjusted the AMT exemption upward to adjust for inflation. There’s still time for them to do it prior to the 2012 filing season as well. Let’s hope they act before all of us are faced with bigger tax bills.

Tuesday, December 11, 2012

The New Wave for 401(k)s?

IBM recently announced a change to the way it operates its 401(k): Rather than contributing to the employees’ retirement plans with every pay period, Big Blue will do so just once a year, on December 31st.  It may at first blush look like solely an actuarial change, but it could have a serious effect on the way IBM employees save for retirement. And it could be the wave of the future.

The contributions will be made at the end of each year, which deprives workers of earnings and interest that could be compounding in the accounts over the course of the year. And if an IBM employee leaves the company before December 15th, he or she gets nothing in their 401(k) for that calendar year.

To date only 9 percent of all companies operate their 401(k)s under the IBM annual model, while 84 percent continue to do it the traditional way, contributing a portion of every paycheck. But as more and better-known companies become aware of the savings – IBM may save millions with a once-a-year plan – it could be increasingly commonplace.

Monday, December 10, 2012

Two Paths for Confidence

Consumer confidence has been running pretty strongly lately: In November, the benchmark consumer confidence index as measured by the Conference Board reached a nearly five-year high. Consumers haven't felt this good about the economy since February 2008, or just three months into the recession.

Oddly enough, though, these feelings aren't shared by the nation's CEOs. In the latest survey of the nation's chief executives conducted by the Business Roundtable, their confidence has sunk to its lowest in three years.

What explains the discrepancy? Most people think that business owners fear the onset of the Fiscal Cliff, which would saddle the nation with higher tax rates and drastic spending cuts come the first of the year. The CEOs fear this could send the economy back into recession; general consumers either disagree about the outcome, or aren't aware of what the consequences might be.

Friday, December 7, 2012

Jobs Survive Sandy

Despite concerns that Superstorm Sandy, which struck right at the end of October, would hold down employment gains for November, the new jobless figures for that month, released this morning, were actually fairly good. The economy added 146,000 jobs in November, which is pretty much par for the course at this point, despite an economists' consensus that the number would be about 85,000. The headline unemployment figure edged down from 7.9 percent to 7.7 percent.

Unsurprisingly, the economic sector showing the biggest gains was retail, where 53,000 new jobs were added. That might be a result of the unusually early Thanksgiving, which meant that the last full week of November was part of the holiday shopping season.

The Bureau of Labor Statistics reported that Sandy had little effect on the overall jobs numbers. But we'll know more about that on December 21st, when the BLS releases state-by-state employment figures for November. It could be that the employment figures here in New Jersey were much worse than for the overall nation.

Thursday, December 6, 2012

Apple Ups and Downs

It's been a rough time lately for what might be considered America's flagship stock, Apple. The biggest stock in the world has lost more than 17 percent of its value since it peaked - briefly and barely - over $700 back on September 19. The news was even worse than that at one point: Between September 19 and November 15, the stock had fallen by nearly 25 percent.

That means, of course, it's up nearly 10 percent since then. And we can expect to see a bit more whipsawing on the part of this stock in the near future, if the volatility indicators are to be believed. Options traders bought heavily into Apple on Wednesday, according to the Wall Street Journal, signaling there could be more heavy swings ahead.

Yesterday morning alone, the implied volatility for Apple shares jumped by 15 percent. That's not necessarily bad news - volatility can consist of upward swings as much as downward movement. But it does indicate that Apple investors can expect some more choppy waters to come.

Wednesday, December 5, 2012

Banking on Strength

It's been a boom time for the nation's banks recently: The FDIC reported yesterday that America's banking business recorded its biggest quarterly profit in six years during the third quarter of this year. The total profits of $37.6 billion were up 6.6 percent from the same quarter a year earlier.

The biggest driver of that growth was auto loans, which were up 2.4 percent from the previous quarter. Business loans were up 2.2 percent, and home loans were up 0.8 percent. On the other side of the ledger, banks have become less and less hampered by having to deal with bad loans; provisions for loan losses fell by more than 20 percent in the third quarter.

And while bank failures used to be a massive problem for the industry, their numbers have shrunk radically in recent years. Only 12 banks failed in the third quarter, the lowest figure since the fourth quarter of 2008.

Tuesday, December 4, 2012

Parties Are Back

Here's an indicator showing that the economy may be getting stronger: The holiday party is coming back this year. Last year, just 74 percent of all companies had a holiday party, which was the lowest figure that the executive search firm Battalia Winston had seen in 24 years. But among the companies surveyed, 91 percent say they will have a holiday party this year.

The news is not as good for smaller companies, though. The staffing company Robert Half asked more than a thousand senior managers with companies that had as few as 20 workers if they had plans for a holiday party  this year. More than half said no.

But maybe it's just as well. The same survey asked both managers and office workers if they actually enjoyed their companies' holiday parties. And 79 percent of the managers - as well as 75 percent of the employees - said they'd just as soon go home.

Monday, December 3, 2012

Holiday Shopping in Full Swing

The figures are now in for Black Friday, and it looks like this shopping season is off to a strong if not blazing start. Total spending for the four days starting on Thanksgiving - which we might want to start calling the Black Long Weekend -  totaled $59.1 billion, which is up 13 percent from the same period a year earlier, according to a survey by the National Retail Federation.

On the other hand, the increase was more modest in a report that came out at the end of last week, looking at sales at 16 of the nation's biggest retail stores. Among large chains like Macy's, Nordstrom and Target, same-store sales were up by a mere 1.6 percent in November, as opposed to November of 2011.

One point in favor of this year's holiday shopping season: It will be unusually long. Thanksgiving falls on the fourth Thursday of November, which this year was as early as it could possibly be, on November 22. That gives shoppers 32 shopping days before Christmas, the maximum number possible. Let's hope they make good use of them.