Tuesday, December 31, 2013

2013's Biggest Winners and Losers

In a very good year for stocks, some stocks of course benefited more than others. According to the Wall Street Journal, these were the five top-returning large-cap stocks of 2013, through last Friday's close:

  • Tesla, up 346 percent
  • Netflix, up 296 percent
  • Best Buy, up 239 percent
  • Twitter, up 145 percent
  • Herbalife, up 138 percent

But in any year, there have to be stocks that are down sharply as well. These are the Journal's top five losers of the year:

  • Peabody, down 28 percent
  • Abercrombie & Fitch, down 30 percent
  • BlackBerry, down 39 percent
  • Newmont Mining, down 50 percent
  • JC Penney, down 54 percent

Monday, December 30, 2013

A Comfortable Market

While 2013 has been a very good year for returns in the equity market, it's also worth noting how safe it felt for stock investors. As the S&P 500 index was advancing more than 25 percent on the year, it had only three days in which it moved by more than 2 percent.

Meanwhile, the Volatility Index continues to reach now lows. As recently as 2011, the so-called fear index spent much of the year above 30, but it spent almost all of 2013 below its long-term average of 20. That suggests that investors aren't expecting a lot of dramatic moves out of this market, either up or down.

And small investors are definitely feeling more comfortable. Stock mutual funds are on track to add $60 billion in net inflows this year. That would be the first annual gain for such funds since way back in 2005.

Friday, December 27, 2013

Home for the Holidays

Many of us take time at this part of the year to gather with our families. And while it may seem as if family life has become a thing of the past for many Americans, a new Gallup survey shows that most American families - 53 percent - with children under the age of 18 sit down for dinner together six or seven times a week.

According to the survey, American families average 5.1 dinners together per week. That figure has remained unchanged since 2001, although it was slightly higher in the first such survey, from 1997.

Interestingly enough, the figures don't really change with different lifestyles. Gallup asked people about their religious habits, political beliefs, and income, and within all the groups, the number of family dinners remained right around five per week.

Thursday, December 26, 2013

A Tough Year for Bonds

This has been a terrific year for the stock market, as we've pointed out on several occasions. The S&P 500 is up by a very impressive 25 percent so far in 2013. But it has been an equally disappointing year for the bond market.

The Barclays Aggregate Capital Index functions as an S&P 500 Index for bonds. It's a broad measure covering corporate bonds, government bonds and mortgage securities. And it's down 1.8 percent for the year. This will almost certainly end up as only the third down year for the Barclays Agg since 1976.

Most bond investors, however, don't have it quite that bad. According to Morningstar, 55 percent of all bond funds have still managed to beat the index so far in 2013.

Wednesday, December 25, 2013

Thoughts for Christmas

“Christmas is a necessity. There has to be at least one day of the year to remind us that we’re here for something else besides ourselves.” ~ Eric Sevareid

"Remember, if Christmas isn't found in your heart, you won't find it under a tree." ~ Charlotte Carpenter 

 “Christmas waves a magic wand over this world, and behold, everything is softer and more beautiful.”  ~ Norman Vincent Peale

Tuesday, December 24, 2013

The Right Kind of Revisions

There was some good news about the economy released last week, when the Commerce Department's final revision for third-quarter GDP was revised upward to 4.1 percent. That was up from an initial reading of 2.8 percent, and marks the strongest growth for the economy in two years.

Just as important was the nature of the revisions. Economists don't get excited about business spending that goes toward simply replenishing inventories, since that doesn't reflect economic growth. And the revised numbers showed very little change in inventory spending.

What the revisions did show was that consumer spending was higher than first reported, going from an increase of 1.4 percent to 2.0 percent. Exports were also revised upward, from 3.7 percent to 3.9 percent. That's the kind of growth that economists like to see.

Monday, December 23, 2013

A Time to Give

Unsurprisingly, this is the most charitable time of the year: According to Charitynavigator.org, 50 percent of all donations to charity are made between Thanksgiving and the end of the year. Americans are a very charitable people. A Gallup survey indicated that 83 percent of us donated money to a charitable institution in the past year.

That breaks down as 55 percent who donated to a religious organization, 75 percent to another type of nonprofit, and 47 percent who donated to both. Interestingly enough, the number of people donating to religious institutions is down nine percentage points since 2005.

In addition, 65 percent of American say they have volunteered their time over the past year. That number has been rising in recent years, and is up from 59 percent in 2004.

Friday, December 20, 2013

Facebook in the S&P 500

At the end of the day today, Facebook officially becomes part of the S&P 500 index. This might seem to fall under the category of trivia for Facebook shareholders, but it actually might be kind of a big deal. Many index funds are invested in the S&P 500; the venerable Vanguard 500, which is wholly invested in the S&P, is still one of the biggest mutual funds in the world. Facebook’s entrance into the index means its stock is going to get bought up by all those funds.
Facebook is now planning to sell more stock to satisfy the needs of index funds - a new offering of a whopping $39 billion. They're not the first company to execute such a plan: Back in July, when GM re-entered the S&P 500, the company issued a similar special stock offering.

But there’s also a question of how much more of a pop Facebook’s stock can get. The share price has more than doubled already this year. We'll see if there's much more juice in it today.

Thursday, December 19, 2013

The Taper Arrives

The much anticipated taper from the Federal Reserve was finally announced yesterday, when outgoing Fed chair Ben Bernanke said he would cut back the monthly asset purchase program from $85 billion per month to $75 billion. The reduced amount will start in January.
Whether because the taper was so modest, or because it has been long expected by Wall Street anyway, the market surged on the news. Both the Dow Jones industrial average and the S&P 500 marked their best single-day gains since October 10, and both finished at all-time highs.
Bernanke also reiterated his belief that inflation was running lower than he’d like, below his target of 2.0 percent. For that and other reasons, the Fed is likely to keep interest rates near zero for some time to come – at least until unemployment, now running at 7.0 percent drops to 6.5 percent. Added together, it looks like the taper, for the moment at least, will be fairly uneventful.

Wednesday, December 18, 2013

Airfares Soaring Higher

Are you traveling this holiday season? If so, you might have noticed that plane tickets are getting increasingly expensive. The cost for a domestic round-trip ticket was about $356 last year, up 3.6 percent from the year earlier.

But that doesn’t tell the whole story for holiday travelers. Tickets for this time of the year are rising in cost even faster. Airfare for travel between December 21 and January 1 increased 7.5 percent from the year earlier.

And the rate at which airfare is rising is speeding up in the post 9/11 world. The average ticket price rose by 24 percent between 2009 and 2012, whereas it had risen by 16.4 percent between 2005 and 2008. Even adjusting for inflation, airfare increased by 10.3 percent between 2005 and 2012.

Tuesday, December 17, 2013

Banks Bounce Back

A bank in The Woodlands, Texas, was closed by the FDIC on Friday, marking the 24th such bank to be shut down by federal regulators this year. It is a sign of how much progress the banking sector has made that those 24 closed banks are less than half of what we had last year.
Bank closures were a massive problem as recently as 2010, when there were 157 financial institutions shut down by the government. If no more banks close this year, 2013 will mark the fewest shut-downs since 2007, when the FDIC shut down just three banks.

Even 24 closed banks is a lot for more normal times, though. In both 2005 and 2006, the FDIC didn’t close down any banks at all.

Monday, December 16, 2013

The Court Takes On 401(k)s

On Friday, the U.S. Supreme Court agreed to hear what could be a landmark case involving 401(k) investors. The suit was brought on behalf of employees of Fifth Third Bancorp, a bank-holding company based in Cincinnati. Like a lot of banks, Fifth Third had a terrible time during the recession, when our financial sector almost completely melted down, and its stock at one point lost 74 percent of its value.

The employees charge that they shouldn't have been allowed to continue to fund their 401(k)s with Fifth Third stock. Administrators should have known that it was too risky. The question for the court is whether the employer violated its obligation to run a prudent retirement plan.

The most important lesson here is that a good retirement savings plan should be well-diversified. No matter how much loyalty we feel to our employer, we owe it to ourselves to invest in far more than just our company's stock in saving for retirement. That will remain true no matter how the Supreme Court rules.

Friday, December 13, 2013

Retail Up in November, but Not Gift-Buying

The numbers for retail sales in November, which came out from the Commerce Department yesterday, looked impressively strong. Sales were up 0.7 percent over October, which was the biggest one-month gain since June.

Now, it might seem intuitive that retail sales were up in November because that marked the beginning of the holiday shopping season. But it turns out that gift-type sales - electronics stores, online retailers, clothing and department stores - were actually the weaker part of the month's reports. Those retailers were up 2.8 percent from the previous November, while total retail sales were up 4.7 percent.

The retail areas showing the most strength were things like car dealers, gas stations and restaurants. So it appears that the overall economy showed more strength than the gift-giving segment did.

Thursday, December 12, 2013

Tough News on Retirement

There's a rather disturbing new study out from the Society of Actuaries, showing that Americans have less control of the date of their retirement than we'd like to believe. While most workers target 65 as the age at which they'd like to retire, the actual current median age for retirement is just 58.

Most of those workers also have an eye toward keeping a job of some kind during retirement; according to the study, only 41 percent of pre-retirees expect to stop working entirely after they retire. But in the event, 78 percent of retirees hang it up for good.

Obviously, it's disappointing to be forced out of a job you want to continue, whether that's because of health reasons or layoffs or something else. But it's important to recognize these things can happen, and note that your retirement plan should take those possibilities into consideration.

Wednesday, December 11, 2013

MasterCard Does the Split

We've noted before that stock splits have gone largely out of fashion, but MasterCard announced a whopper yesterday: The credit card company is splitting its shares ten for one. Although MasterCard is a longtime familiar name, it just had its IPO in 2006, at a share price of $47. Since then it's risen by more than 1500 percent to its current, unwieldy level of $781 a share.

MasterCard becomes just the 12th company in the S&P 500 this year to announce a split. That makes 2013 the year with the fourth-lowest number of splits on record. In the 1990s, there were an average of more than 60 splits a year.

But there are many more stocks still ripe for the splitting. Five other stocks in the S&P 500 have share prices of more than $500, including Google at $1,084 and Priceline.com at $1,188. As recently as the end of 2011, Google was the only stock in the S&P 500 with a share price of more than $500.

Tuesday, December 10, 2013

Cash to Burn

One reason to be optimistic about the markets going forward: Corporations are still sitting on an inordinate amount of cash, and wondering what they're going to do with all that money. According to a report by the Federal Reserve, American companies held $1.93 trillion in cash or cash equivalents, up from $1.81 trillion the prior quarter. As a percentage of total assets, that's the highest that figure has been since the 1960s.

What are they going to do with all that money? There are three outlets to look for, all of which are good for investors: share buybacks, dividends, and mergers & acquisitions.

While dividends show the most immediate profits for investors, buyback programs can be just as important. In the four years after the market bottomed out in March 2009, American companies bought more than $1 trillion in their own shares. The 100 stocks in the S&P 500 with the highest buyback ratios have returned 42 percent over the past year.

Monday, December 9, 2013

Saving for the Train Just Got Harder

Tax planning has grown to encompass many different types of savings plans. Most people are familiar with health savings plans that allow them to set aside money for medical expenses, tax-free, and you may also be aware of plans for funding things like child care with tax-free dollars. There's also a plan for commuters whereby they can set aside tax-free dollars for the money it costs them to take transit systems into work.

That's obviously a very big deal for people here in New Jersey who take public transportation into New York City. Unfortunately, Congress has cut the maximum allowable for monthly transit, from $245 down to $130. That's not going to cover many monthly train passes in our part of the world.

On the other hand, if you drive to work, your savings plan is getting marginally bigger. The monthly tax-free savings plans for driving has been increased from $245 to $250. For more information on any of these transit savings plans, contact your employer.

Friday, December 6, 2013

Unemployment Drops to 7.0 Percent

This morning's jobs report from the Bureau of Labor Statistics wasn't much more positive than the ones we've seen recently, but it had enough going for it to get some excitement going. The economy added 203,000 jobs in November, crossing that semi-magic 200,000 line. That's up a tick from the 195,000 jobs we've averaged over the prior 12 months.

More importantly, the unemployment rate dropped to 7.0 percent, down from the previous month's figure of 7.3 percent. Outgoing Fed chair Ben Bernanke had noted that he wouldn't begin to taper off the Fed's monthly asset purchasing program until the unemployment rate was down to 7.0 percent, a signal that the economy was strong enough to stand on it own without Fed intervention.

Bernanke will almost surely leave that decision for his likely successor, Janet Yellen, who is slated to take over as Fed chair when Bernanke's term expires on January 31. That's now the date to watch to see if the taper will take effect - and to see how the markets react.

Thursday, December 5, 2013

Holiday Shopping Tips

If you're heading out to do some Christmas shopping, you probably know it can be very easy to end up spending more than you intended. Martin Lindstrom, the author of a book called Brainwashed: Tricks Companies Use to Manipulate Our Minds and Persuade Us to Buy, offers up the following hints to stay within your budget:

  • Don't take your kids with you. Studies show that shoppers with children in tow end up spending 29 percent more than they had budgeted.
  • Don't take your spouse, either. They'll make you spend 19 percent more than you expected to.
  • Carry your purchases rather than loading them into a shopping cart. A shopping cart leads to an 8 percent increase in expenditures.
  • Pay with hundreds. The bigger the bills you have, the less willing you'll be to break them.

Wednesday, December 4, 2013

Slow and Steady Wins the Race

One of the remarkable things about this year in the stock market has been how little volatility we've experienced in a time of such strong growth. A lot of bull markets are characterized by exceedingly bumpy rides, as stocks lurch backward and forward along their upward path.

We saw a lot of that in the early days of this bull market. Between 2007 and 2012, the median number of days per year in which the Dow Jones industrial average moved by more by 2 percent was 42. This year, there have been only four such days. There have been just 24 days when the Dow has moved by even 1 percent or more, which is the fewest since 2006. In 2011, there were 89 such days.

Perhaps most thankfully, we haven't had one of those really terrible days in a long while. The markets haven't seen a 10 percent drop since the summer of 2011.

Tuesday, December 3, 2013

Happy December!

Simply put, December is the best month of the year for the stock market. Over the past 30 years, the S&P 500 has gained an average of 1.9 percent in December; simple math tells you that if we saw that kind of performance every month, the market would return more than 20 percent every year. The S&P has been positive in December 80 percent of the time.

The Dow Jones industrial average shows a similar effect. Looking back even further, we can see that over the past 100 years, it has averaged a 1.42 percent gain, and it's been positive in 73 percent of those Decembers.

The best may be yet to come. Some research shows that the real gains for December come in the last five trading days of the year, as well as in the first two trading days of the new year. That late-December uptick has become known as the so-called "Santa Claus Rally."

Monday, December 2, 2013

The New Nasdaq

The Nasdaq stock index crossed the 4000 barrier last week, reaching that height for the first time since 2000. But unlike the S&P 500 and the Dow Jones industrial average, it's not anywhere close to setting new all-time highs. On March 10, 2000, in the midst of the dot-com craziness, the Nasdaq peaked at more than 5000.

It's a very different index now. The tech companies that fueled the Nasdaq back then have become less of a component since those heady days. In 1999, traditional technology stocks constituted 66 percent of the Nasdaq, whereas they've dropped to less than half now, at just 45 percent.

What's been replacing those tech stocks? Since 1999, health-care stocks have jumped from 6 percent of the Nasdaq to 14 percent now, while consumer stocks have jumped from 5 percent to 17 percent.