Thursday, October 31, 2013

Scary Spending Numbers

Happy Halloween! If you're like most Americans, you've spent a lot of money on decorations, candy, and costumes this year. All told, we'll spend about $7 billion on Halloween, or $75 per person actually participating in the holiday.

We'll spend roughly $2.8 billion on candy to hand out to trick-or-treaters this year. That's actually down a bit from last year; a third of those surveyed by the National Retail Federation said they'd be buying less candy than they did in 2012. The most popular candy this year: Reese's peanut butter cups.

The other sizable expense is for costumes. Americans will spend about $2.5 billion on Halloween costumes this year. That includes about $330 million that we'll spend on costumes for our pets. Boo!

Wednesday, October 30, 2013

Looking Toward the Rest of the Year

With the S&P 500 already up by 24 percent in 2013, it may seem greedy for investors to expect much more out of the year. But according to research compiled by Bespoke Investment Group, that success so far may indicate a continued bull market through November and December.

Since 1928, there have been 35 other years in which the S&P was up by at least 10 percent through the end of October. Those years have tended to extend those gains through the end of the year. In those years, November saw an average gain of 2.6 percent, and there's been a 5 percent average increase of the final two months.

Perhaps even more notable is how consistent the increases have been. Three quarters of those Novembers saw a rise in the S&P 500, and combining November and December, there was an increase 82 percent of the time.

Tuesday, October 29, 2013

The Apple Report

Apple now longer towers over the rest of the stock market, like it did a year or two ago when it became the biggest company in the world, but it's still a very big deal. The stock is down 24 percent from its high last September, when it briefly traded at over $700 a share, but all eyes were on Apple for yesterday's post-closing earnings announcement.

And the news was mixed. Apple it earned $7.5 billion for the quarter, exceeding Wall Street's consensus estimate of $7.2 billion. But on the other hand, Apple had earned $8.2 billion in the same quarter a year earlier, so earnings are down 8.5 percent since then.

In after-hours trading, Apple stock slipped by 2.3 percent; apparently, investors were more concerned about the earnings decline than they were impressed by the earnings beat. But it's still up 23 percent from late June, when the stock bottomed out at just under $400 a share.

Monday, October 28, 2013

College Costs Inch Upward

Here's some good news for parents who have just sent children off to college: According to the College Board, the rate of increase for college tuition has finally started slowing down. It hasn't started decreasing, but at least it's growing at the smallest rate since 1975-76.

For private universities, tuition and fees rose by just 3.8 percent this year. That's an overall increase of just $700, up to an average of $23,290 for tuition, room and board, after adjusting for dropping government aid.

The news at public colleges was even better: There, tuition and fees increased by 2.9 percent for in-state students. The increase was just an average of $220, and has now reached an average of $12,620 for tuition, room and board.

Friday, October 25, 2013

The Sector Race

What’s been the top-returning sector in the S&P 500 so far this year? Up until very recently, the answer would have been health care, which is up 32 percent on the year. But yesterday, the consumer discretionary sector slipped into the lead with a return of 32.5 percent.

Those sectors have both had very strong earnings seasons so far. Among health care stocks, 18 out of 23 stocks, or 78 percent, have beaten their earnings consensus this quarter, while 23 out of 30, or 77 percent, of consumer discretionary stocks have done so. Those figures both outpace the S&P 500 as a whole, in which 74.5 percent of companies have beaten estimates.

Health care stocks have slipped a bit lately in response to the faltering implementation of ObamaCare. But consumer discretionary stocks are strongly driven by holiday sales, so there’s still plenty of time for this race to turn around again.

Thursday, October 24, 2013

Slowing Down the IRS

We generally only think about the Internal Revenue Service between January and mid-April, but the agency is busy the whole year-round. And because it was closed for a couple of weeks during the government shutdown at the beginning of this month, it won’t be ready to accept returns starting January 21, 2014, as previously announced. That date has been pushed back to either January 28 or February 4.

The people who file that early are generally those expecting big refunds. Last year, the IRS handed out $135 billion in refunds prior to March 1. That’s more than it distributed between March 2 and May 10, even though many more taxpayers filed returns in that period.

This will be the second year in a row in which the IRS has gotten a late start. At the beginning of this year, there was a delay when haggling over the fiscal cliff left everyone unsure of what the federal tax rates would be. Just like in 2013, though, one date hasn’t changed: Your taxes are still due on April 15.

Wednesday, October 23, 2013

The Remarkable Consistency of the S&P 500

Noting the consistency of the stock market’s rise over the past couple of years, the Bespoke Investment Group pointed out yesterday that the S&P 500 has now gone 515 trading sessions without a drop of 10 percent. That’s nearly three years’ worth of trading days.

That may sound like a long time to go without a correction, but we’ve had a couple of longer periods in the recent future. From March 2003 to October 2007, the S&P 500 went 1,153 days without a 10 percent drop. And from October 1990 to October 1997, the S&P went 1,767 days without such a correction.

The fact that the market hasn’t taken a serious tumble in a few years now has led some observers to opine that we’re due for a correction. But on the other hand, if the current streak lasts as long as the 1990-97 streak did, we won’t see that 10 percent drop until October of 2018.

Tuesday, October 22, 2013

The Belated Jobs Numbers

Because of the federal government shutdown, the Bureau of Labor Statistics wasn't open to release its monthly unemployment figures at the usual scheduled time, on the first Friday of the month. So we belatedly got new jobs numbers this morning. And they weren't really worth waiting for: The economy created just 148,000 jobs in September.

That's a pretty tepid figure, down somewhat from the average of 185,000 jobs per month over the past year. On the other hand, August's figure was revised upward, from 169,000 to 193,000, and the headline unemployment figure dropped another notch, from 7.3 percent to 7.2 percent.

One result of the unexciting number of new jobs is that it makes the Federal Reserve less likely to begin tapering its asset purchases any time soon, which is good news for the stock market. The next Fed meeting is at the end of this month, and it's hard to see them considering this economy robust enough to warrant tapering.

Monday, October 21, 2013

The Economists' Take

Businesses continue to be mostly optimistic about the economy going forward. According to the latest survey of the National Association of Business Economists, most economists expect U.S. GDP to grow at a rate of 2 to 3 percent over the next year. GDP grew at 2.5 percent in the second quarter of this year.
Even more optimistic was the report on sales growth. Some 42 percent of the economists said sales were up at their companies through September. That was in increase from the 35 percent who reported the same the last time this survey was taken in July.
One trouble spot remains: unemployment. Only 27 percent reported that employment was rising at their companies, which was actually down from 29 percent who had said that in July.

Friday, October 18, 2013

Watching 401(k) Balances

There's a new report out from the Investment Company Institute showing dramatic gains in 401(k) accounts in recent years. Between the start of the financial crisis in 2008 and 2011, the most recent year for which we have figures available, the average 401(k) balance nearly doubled.

At the end of 2008, shortly after the Lehman Brothers bankruptcy and just after the onset of the recession, the average 401(k) had $49,932 in it. By the end of 2011, that same figure had vaulted up to $94,482.

On the other hand, this study also shows how you can play with statistics. In 2007 - before the financial sector melted down and the recession hit - the average 401(k) balance was up at $76,534. Obviously, the Wall Street crash drove that down in a hurry. From 2007 to 2011, that balance increased by 23 percent - a healthy figure, but a long way from doubling.

Thursday, October 17, 2013

Wall Street Likes the Deal

As it became clear throughout the day that the Congress was going to resolve both the government shutdown and the looming debt-ceiling crisis, Wall Street began feeling its oats. The S&P 500, Dow Jones industrial average and Nasdaq all rose more than 1 percent on the day.

The rally was remarkably broad-based. All ten of the SP 500's industrial sectors were up at least 0.6 percent on the day, with the financials leading the way. For the year, a whopping 443 of the S&P 500 companies have shown gains. If that holds up, it would be the highest number since that figure was first compiled 23 years ago; the highest on record so far is 1997, when 436 companies increased in share price.

And of course, the key volatility gauge, which had been spiking up earlier this week, made a sharp downward move. The VIX index dropped by 21 percent in a single day, its biggest one-day drop in more than two years.

Wednesday, October 16, 2013

Do Investors Fear Default?

The prospect of the U.S. defaulting on its debts, which could happen if Congress can't reach an agreement to lift the debt ceiling later this week, doesn't seem to have had a huge effect on the stock markets yet. The S&P 500 is up 1.7 percent for October, through yesterday's close. That's very good for half a month.

But we can see some turmoil lurking underneath. The second-most-traded ETF in the market yesterday was the iPath S&P 500 VIX Short-Term Futures ETN, which tracks the market's volatility. (The most-traded ETF, as it almost always is, was the SPDR S&P 500 ETF.) Traders are apparently hedging their bets against higher market volatility in the very near future.

After spiking early last week, the VIX volatility measure was actually dropping through the end of the week, when it looked like Congress might reach some sort of agreement on the shutdown and debt-ceiling issues. But for the first two days of this week, it jumped 17 percent.

Tuesday, October 15, 2013

Optimism for the Fourth Quarter

We are now two weeks into the fourth quarter of the 2013 investing year, and we could be headed for good days ahead. Certainly, the history of the stock markets shows that, in the long run, the fourth quarter is the best time of the year.

Consider that the S&P 500 index, since 1945, has returned an average of 0.7 percent per month. But in just the fourth quarter, the months of October, November and December, it has returned an average of 1.3 percent per month, nearly double the normal rate.

This phenomenon isn't confined to the United States. The MSCI EAFE index, which tracks the world's developed markets, shows exactly the same figures: an 0.7 percent average return in all months, but 1.3 percent in the fourth quarter. The MSCI Emerging Markets index is even stronger, with a 1.0 percent monthly return overall, but 1.9 percent in the fourth quarter.

Monday, October 14, 2013

A Return to the '90s?

The IPO market has been hot recently, with the number of new companies going public on pace to produce their highest yearly total since 2007. But that's not the only way the current landscape resembles the go-go late '90s, when all those dotcoms launched one high-flying IPO after another. According to a new study, the majority of tech IPOs this year have been by companies that are losing money.

Of the 28 tech IPOs that have taken place so far in 2013, 19 of them, or 68 percent, have been companies that reported a loss over the previous 12 months. The most prominent one, Twitter, promises to keep up this trend: It lost $79 million in 2012. In 1999 and 2000, a stunning 86 percent of tech IPOs were from money-losing companies.

Many of these companies will eventually turn it around, of course, but research shows that it's a significant headwind. From 1990 to 2011, money-losing tech companies that went public returned 21.5 percent in their first three years, but those that were already profitable before going public returned 55.2 percent.

Friday, October 11, 2013

Wall Street Breathes a Sigh of Relief

How big a day was it yesterday on Wall Street? Just the hint of a thawing in the debt-limit standoff sent stocks soaring. The Dow Jones industrial average climbed 323 points, its highest single-day point gain since December 2011. The S&P 500 gained 2.2 percent, enough to reclaim all the losses it has posted since the government shut down on October 1.

The rally was also remarkably broad-based. All 30 of the stocks in the Dow average showed gains, and all ten of the sectors that make up the S&P 500 also increased.

At the same time, the VIX index, the market's measure of upcoming volatility, spiked downward in its biggest one-day drop since April. That would indicate that traders think the long-term fears over the possibility of default have turned lower permanently.

Thursday, October 10, 2013

The Next Fed Chair

Yesterday, President Obama announced that Janet Yellen was his choice to replace Ben Bernanke as chair of the Federal Reserve, once his term ends in January 2014. The question most investors are wondering about is how her policies would differ from Bernanke's, especially since much of the investment community is anxious about the effect that tapering the Fed's asset purchases will have on the stock market.

But Bernanke's term extends past the end of the year, and most observers think the taper will come at some point around the end of 2013. Yellen has been a deputy under Bernanke for years, and is considered one of the architects of the quantitative easing program. A Wall Street Journal poll of economists found that 60 percent of them think Yellen's policies on QE will be no different from Bernanke's.

One potential area of difference: inflation. Yellen has signaled that she think it's worth running inflation of 2.5 percent in order to drive down unemployment, while Bernanke's inflation target has always been 2 percent. That could be something to watch in the years to come.

Wednesday, October 9, 2013

Signs of Default

The markets have been weathering the federal government shutdown without horrific losses, with the S&P 500 index losing just 1.1 percent of its value since October 1. The debt-ceiling showdown, though, may be a different story. We don't have any precedents to look at in this area, but there are some signals that investors are getting very nervous.

Consider the one-month Treasury bill, which is generally about the safest and lowest-yielding investment you can own. For almost the entire year, those bills have been paying less than 0.10 percent in yield, as befits a very short-term instrument. But yesterday, the yield popped up to about 0.34 percent, or three times where it normally sits.

By comparison, the two-year Treasury bill pays 0.38 percent. The investing community is roughly as confident of the U.S. government's ability to pay its bills over the next two years as it is over the next month. Clearly, investors think default is a real possibility.

Tuesday, October 8, 2013

The Bear Market in Bond Funds

One of the strongest trends in investing over the past few months has been the outflow of assets from bond funds. Over the three months that made up the third quarter, investors pulled a whopping $61.5 billion from bond funds. That's a record for any quarter since this record started being kept back in 2004.

U.S bond funds alone accounted for $41 billion of the total withdrawals for the quarter. Another $17.4 billion came out of emerging-market debt funds. TIPS funds - those that invest in Treasury Inflation-Protected Securities - have seen outflows for 25 straight weeks now.

Where is all that money going? The biggest beneficiary was stock funds, which took in $73 billion in the third quarter, according to EPFR Global. Another strong performer was funds invested in bank loans; they took in $21 billion in new assets.

Monday, October 7, 2013

Unprepared for Retirement

If you've made contributions to an employer-sponsored retirement plan, such as a 401(k), you're among the majority of Americans - but just barely. That's one result from a recent Harris poll on the retirement-savings habits of Americans aged 40 to 75, which found that just 51 percent of us are investing in an employee-sponsored plan.

The survey found that 48 percent contributed to their own retirement vehicle, such as an IRA, annuities, or a stock portfolio. But that doesn't mean you can add the two figures together, and estimate that 99 percent have set up a retirement savings plan. More likely, the people who are responsible enough to maintain a 401(k) are also making other retirement investments as well.

And certainly, not a lot of people have moved beyond those steps. Only 23 percent said they have consulted with a financial advisor, and just 11 percent have developed a written financial plan for retirement. Meanwhile, 28 percent say they haven't thought much about the whole thing.

Friday, October 4, 2013

The Growth in Emerging Markets

Where are the next world-shaking companies going to come from? A new report from the McKinsey Global Institute predicts that by 2025, most of the companies that achieve a market cap of $1 billion or more will be from emerging markets. Currently, 73 percent of such companies are based in the world's developed markets.

For a long time, the number of large companies in the emerging world remained dauntingly small. That percentage was tracked at just 5 percent in 1980, 1990 and 2000. By 2010, it was up to 17 percent, and McKinsey forecasts it will reach 46 percent by 2025.

The biggest driver of all of this is China, which dominates the emerging-markets landscape along with Brazil, India and Russia. As recently as 1990, only one of the world's 500 largest companies was based in China. The McKinsey report forecasts that by 2025, that number will be up to a whopping 120.

Thursday, October 3, 2013

Hottest Stocks of 2013

With the third quarter now in the books, it's been a banner year for the U.S. stock market. The S&P 500 index is up nearly 18 percent on the year, but within the index, many individual stocks have delivered spectacular results. Six S&P stocks have already doubled in share price this year.

Here's the full top ten:

  1. Netflix (NFLX), up 257.2 percent
  2. Best Buy (BBY), up 217.8 percent
  3. Micron Technology (MU), up 178.6 percent
  4. Boston Scientific (BSX), up 105.1 percent
  5. Delta Air Lines (DAL), up 104.3 percent
  6. GameStop (GME), up 100.6 percent
  7. Celgene (CELG), up 98.7 percent
  8. Trip Advisor (TRIP), up 90.0 percent
  9. E*Trade (ETFC), up 86.4 percent
  10. Pioneer Natural Resources (PDX), up 83.4 percent

Wednesday, October 2, 2013

A Different Look at Unemployment

The monthly ADP unemployment report is out this morning, indicating the economy added 166,000 jobs in September. With the federal government shut down, the monthly figures from the Bureau of Labor Statistics won't be coming out as scheduled on Friday, so this may be the only jobs indicator we have for a while.

Automatic Data Processing, a private firm, measures only the jobs added in the private sector, which is one reason its figures tend to differ from the BLS numbers. The public sector has been shedding jobs in recent months; factoring that in, September looks like a fairly normal month for job growth, although at the lower end of what we've seen recently as "normal." ADP doesn't release an overall unemployment rate, so for the moment, we can assume that stays at 7.3 percent.

The BLS, with many of its workers furloughed, has already announced it would not be releasing its customary economic reports during the shutdown. It's not clear if and when we'll ever get an "official" report on September's employment figures. For now, the markets will clearly be paying more attention to the ADP report.

Tuesday, October 1, 2013

Now for Some Brighter News

With our elected officials squabbling over the potential shutdown of the federal government, how about some good news instead? In addition to being the last day in which our government was funded, Monday was also the final day of the third quarter of 2013. Even though the markets took a hit yesterday, it's been a profitable year. Here's how the major indexes look:

  • S&P 500 Up 4.7 percent in the third quarter, up 17.9 percent for the year
  • Dow Jones Up 1.5 percent in the third quarter, up 15.5 percent for the year
  • Nasdaq Up 11 percent in the third quarter, up 24.9 percent for the year

Those are strong figures. And they've played a big role in another number released by the Federal Reserve last week: America's collective household wealth is now up to $74.82 trillion, the highest mark ever.