Slow and Steady Wins the Race

The past year has been positive but unspectacular for the markets, but one thing it surely has been is consistent. No matter what happens today, the S&P 500 is guaranteed to finish the year without ever being down for four consecutive trading days. That marks the first year in which that has happened since S&P began its indexes, dating back to the 1920s.

By contrast, there were 11 stretches in 2014 where the S&P increased in value for at least four consecutive days. But there were just six stretches where the index declined for three consecutive days - and each time, the fourth day was a positive.

The last time the S&P 500 fell for four straight days was in a stretch that ended on December 13, 2013. Let's hope 2015 brings us another year without any long losing streaks.

A Big Finish for Small Caps

It was a long year for owners of small-capitalization stocks, as we've discussed several times in this space. The Russell 2000, the most widely used index of small caps, collapsed in the third quarter, falling by 11 percent between early September and mid-October.

But since bottoming out two and a half months ago, small caps have rebounded strongly, gaining 16 percent in that time frame. At long last, the Russell 2000 set a new all-time high on December 26th, just four days before the end of the trading year.

And it's not done yet, reaching another record high yesterday. The Russell 2000 is now up 4.8 percent on the year - not bad for an asset class that many had left for dead two months ago.

A Strong Year for Utilities

What sector of the market performed the best in 2014? It was the usually sleepy utilities, which are generally considered a safe, defensive part of an investor's portfolio. With a couple of trading days left in the year, the utilities sector of the S&P 500 is up 28 percent in 2014.

Close behind the utilities are health care, up 25 percent, and technology, up 18 percent. All the S&P's sectors have increased in value on the year except for energy, which has been dragged down by 9.5 percent, thanks to the worldwide collapse in oil prices, which are down more than 40 percent on the year.

Those quiet utilities are now, in fact, in danger of becoming overbought. The price-to-earnings ratio for that sector is up to 18.8, which is slightly higher than the S&P 500 as a whole at 18.5

A Look Back at Third-Quarter GDP

The biggest financial news of this ordinarily quiet week was the Commerce Department's final estimate of our third quarter GDP figure at 5.0 percent (up from the second estimate of 3.9 percent), making it our nation's strongest quarter for economic growth since 2003. The upward revision reflected changes in the estimates of personal consumption expenditures, commercial real estate, and business inventory.

The biggest drivers of that growth were:

• Commercial real estate increased by 8.9 percent
• Consumer durable goods increased by 9.2 percent
• Investment in business equipment increased by 11.0 percent
• Federal government expenditures increased by 9.9 percent, including a 16.0 percent increase in defense spending

Thoughts for Christmas Day

The best of all gifts around any Christmas tree: the presence of a happy family all wrapped up in each other. ~Burton Hillis

Instead of being a time of unusual behavior, Christmas is perhaps the only time in the year when people can obey their natural impulses and express their true sentiments without feeling self-conscious and, perhaps, foolish. Christmas, in short, is about the only chance a man has to be himself. ~Francis C. Farley

Gifts of time and love are surely the basic ingredients of a truly merry Christmas. ~Peg Bracken

Not a Creature Was Stirring

Happy Christmas Eve! You probably have better things to do today than watch the movement of the stock market, and it's just as well. Not only do most of the stock traders also have more important things to do, but the market closes early today: The New York Stock Exchange will shut its doors at 1 p.m.

So as you might guess, next to nothing ever happens in the market on Christmas Eve. Over the past ten years, the S&P 500 has seen an average gain of a microscopic 0.03 percent on December 24.

Last Christmas Eve the S&P gained 0.3 percent. The biggest move in the past ten years on today's date was a 0.8 percent gain in 2007. So if you have presents to wrap or baking to do - feel free to focus on that today, and don't worry about what the market will do.

Gas Hits a Record

As we near the end of 2014, one of the biggest financial stories of the year continues to be the dropping price of oil, and with it the falling price of gasoline. National gas prices are now at their lowest average level in five and a half years.

Over the weekend, AAA noted that gas prices had now fallen for 88 consecutive days, which is a new record, at least in the ten years that such things have been tracked. The average price of a gallon of gas hasn't ticked up since September 24. The previous record was 87 days back in the summer of 2008.

Here in New Jersey, the average price of a gallon of gas fell to $2.39 yesterday, and has dropped by seven and a half cents in the past week. There are a handful of places in the state where it is already under two dollars a gallon.

The Trouble With IPOs

It's been a strong year for IPOs, with 273 issues brought to market for a public stock offering, according to figures compiled by Renaissance Capital, an increase of 23 percent over last year. Those offerings raised a total of about $55 billion, up a solid 55 percent over 2013.

But there's one sense in which the IPO market was weaker than last year. The "pop" that first-day investors received for investing in an IPO was just 13.3 percent. That's down from the 17.3 percent that IPOs gained on their first day in 2013.

In fact, a sizable of number of 2014's IPOs not only missed out a first-day pop this year, but they actually lost ground. Nearly 28 percent of all such offerings lost value on their first day - the highest percentage in three years.

Stocks Around the World Bounce Back

While the S&P 500 index has been enjoying its biggest two-day gain since 2011, there's also good news coming in from around the world. Despite the collapse of the Russian ruble this week, there was the first good news in a long time for emerging markets stocks. After plunging to its lowest point since 2009 earlier in the week, the MSCI Emerging Markets Index had its best day in over a year yesterday, rising 1.8 percent.

There were even bigger gains in Mexico, where the primary stock index was up 3.3 percent, for its biggest daily increase in four years.  The MSCI Latin American index was up 2 percent on the day.

What's causing this? Oil prices actually turned up for part of the day, after reaching five-year lows. And Fed chair Janet Yellen offered reassuring news about the state of the American economy. All that looks like it was enough to counteract the deteriorating situation in Russia.

The Jobs News Keeps Getting Better

More Americans feel good about their job situation than feel bad about it, for the first time in a long time. That's the upshot of a new survey from Pew Research, which reports that 26 percent of Americans are hearing good news about jobs, while 25 percent are hearing bad news.

That might not seem like such a strong trend, but it's a long way from where this survey used to be. In June of 2009, just 1 percent of those surveyed said the jobs news they were hearing was good; 71 percent said it was bad. This is the first time since then that even 20 percent of those surveyed said the jobs news was good.

News about the overall economy, though, is still mostly negative. Only 14 percent say they are hearing mostly good news on the economy, while 21 percent say it's mostly bad news.

The Momentum Shifts

Yesterday was one of those roller-coaster days on Wall Street: The Dow Jones Industrial Average opened the day by dropping 99 points, then gained 246 points - then dropped again, to finish the day down 112 points. There were several causes offered for this performance - the continuing drop in oil prices, the collapse of the Russian ruble - but one of the effects, as the Wall Street Journal pointed out, was a disaster for momentum stocks.

Momentum investing is the idea that you should jump on a stock that has shown an upward trend in the past, and sell a stock that has been moving downward. A simple idea, but it runs into trouble on days like Tuesday, when the market seems to be taking several left turns. And momentum issues got the worst of it.

Google, which had been having tough times lately, saw its downward slide accelerate, losing 3.6 percent of its value in a single day; it's down nearly 10 percent on the year. It's the same story for electric-car maker Tesla, which lost 3 percent yesterday and is down 22 percent in the past month. But even stocks with upward momentum got hit hard: Apple opened December up more than 40 percent on the year, but it's now down 10 percent off its recent high.

Three Positive Signs

In case you missed it, there were three pieces of good news last week regarding our economy, as we move further into the holiday season and toward 2015:

• Despite mixed reports on Black Friday sales, U.S. retail sales rose by 0.7 percent in November over the prior month. The retail numbers for last month were 4.9 percent higher than those of November 2013.
• According to the monthly University of Michigan consumer sentiment survey, Americans' consumer confidence is now at its highest level since January 2007.
• Gallup's small business survey found that small business owners are the most optimistic they've been since the first quarter of 2008. The projection for increased hiring by small businesses in 2015 is the highest it's been in seven years.

A Second Chance at Charitable IRAs

If you're in a charitable mood this holiday season, and you have plentiful assets built up in an IRA, you may want to watch Congress in the coming weeks. The provision allowing older folks to donate up to $100,000 from an IRA to a charitable institution without reporting those funds as taxable income, which expired at the end of 2013, may be coming back.

That IRA rollover tax break was enacted in 2006, and has been extended a few times since then. In the past, even if it's extended after the New Year, it has been made retroactive, so the provision could very well still be applicable to the 2014 tax year.

The rollover has always been limited to people who are 70 and a half or older, who are required to take annual minimum distributions from their IRAs. But the charitable contribution can count toward that required minimum, and you can take the charitable contribution on your taxes even if you don't otherwise itemize deductions.

Saving for the Holidays?

Did you set aside any money for your holiday spending this year? Not many Americans are doing that these days. According to the Country Financial Security Index, only 42 percent of Americans put money away for either savings or investments over the past two months. Those aged 40 to 49 seem to be the least inclined to do so, with only 32 percent saying they saved any money for holiday shopping.

Those figures are down sharply from before the recession. Back in 2007, according to this same survey, the saving rate was significantly higher, at 55 percent.

Given how the economy has rebounded since then, it seems like this is more of a change of mind-set than anything attributable to economic factors. In general, the survey found that people were fairly confident about their personal well-being. Some 45 percent of those surveyed said their financial security was "excellent" or "good."

The Cost of the Oil Bust

Falling oil prices have been a real boon to anyone who drives a car, but they are starting to play havoc with the stock markets. The S&P 500 index energy sector dropped 3.1 percent yesterday, spearheading the overall index's largest one-day drop in almost two months.

The price of a barrel of Brent crude oil reached a new five-year low yesterday, and there's room for it to fall even further. OPEC issued a forecast yesterday saying that global demand for the cartel's crude oil could fall in 2015 to its lowest level in more than a decade.

All that bad news has put the S&P energy sector down 14.7 percent for 2014, the worst performing of the 10 major S&P sectors. But the recent performance is even worse than that: The sector is down 25 percent from its peak on June 23, nearly six months ago.

Execs With a Strong 2015 Outlook

Here's some good news as we head into 2015: America's business executives are optimistic that next year will show even stronger growth than we had in 2014. That's according to a survey of manufacturing and non-manufacturing supply executives released yesterday by the Institute for Supply Management, which forecast that revenues, employment and capital expenditures should all grow strongly next year.

Among manufacturers, revenues are expected to rise 5.6 percent next year. They also expect only modest growth in their costs. with prices paid for raw materials expected to increase 1.5 percent and labor and benefits costs projected to increase 3.2 percent.

Non-manufacturers are even more optimistic. They expect a 10 percent increase in revenues next year, with input prices rising 2.5 percent and labor costs rising 2.1 percent. They also project capital spending will rise by 3.8 percent and employment by 1.7 percent.

Tough Times in Japan

More bad news for global investors: The world's third-largest economy, that of Japan, has officially entered recession. The government announced yesterday that the Japanese economy contracted by 1.9 percent in the third quarter, as capital spending declined and private consumption remained weak. That marks the second consecutive quarter in which the economy shrunk, the technical definition of recession.

The third-quarter performance was worse than most economists expected. but it was much better than the country's second quarter. Japan's economy shrunk by 6.7 percent then.

Japanese Prime Minister Shinzo Abe has made the economy a cornerstone of his administration. Abe is up for re-election next week, but most observers expect him to win - recession notwithstanding.

How Will You Spend Your Retirement?

A new study in the Journal of Financial Planning looks at how retirees spend their time as opposed to people who are still working, and the results are pretty enlightening. Full-time workers spend an average of 447 minutes per day (nearly seven and a half hours) working. Where does that time go in retirement?

A full hour - exactly 60 more minutes - goes to sleeping. Television and movies pick up even more time, an additional 126 minutes, or more than two hours. In addition, household activities like cooking and gardening consume a lot of that extra time. Retirees spend an average of a half hour per day on "lawn, garden and houseplant care."

The upshot is that expenses tend not to rise very much if at all for retirees, who tend to add low-cost activities to their schedules to make up for the work hours. That's one reason retirement can be less expensive than many people expect.

A Blowout Jobs Report

November's jobs report was the biggest we've seen in nearly three years, with the Bureau of Labor Statistics reporting that the economy added 321,000 jobs. That's an increase of nearly 100,000 over the average job gain of 224,000 for the prior 12 months. The unemployment rate was unchanged at 5.8 percent.

That makes November the biggest month for employment since January 2012, when the economy added 360,000 new jobs. It also means we've seen job growth of at least 200,000 for ten straight months now, and positive job growth for 50 straight months - the longest such streak since World War II.

The biggest increase was in professional and business services, which added 86,000 jobs for the month. But the gains were very broad-based. Retail, health care, manufacturing and financial activities all added at least 20,000 jobs.

Businesses Are Getting Bigger

For all the talk we hear about small business being the bedrock of our economy, one of the quiet trends in the American economy continues to be the growing size of businesses. The Labor Department reported yesterday that as of the first quarter, businesses with 500 or more employees accounted for 46.3 percent of all U.S. private-sector workers. Ten years ago, that figure was 44.2 percent. Businesses with fewer than 50 employees saw their share of employment slip from 30.2 percent to 28.4 percent over the same time frame.

Labor's figures also show there were 213,000 new businesses created in the first quarter. That's just slightly up from the 207,000 that formed in the first quarter of 2004 - and something of a decline when you consider that there are 6.6 million more workers on private-sector payrolls now.

Economists have long struggled to understand why wages have been growing so slowly lately, by only about 2 percent annually. It could simply be that as U.S. companies are getting bigger, workers have fewer employers to choose from.

Hedge Funds Closing Up Shop

A report from Bloomberg News yesterday looked at what a tough year it has been for hedge funds. Through the first half of this year, 461 hedge funds had shut their doors. At that pace, we could have the worst such year since 2009, when 1,023 hedge funds closed down, a record number.

In 2009, we had the recession to blame. This year, we've had an economy that continues to recover and a stock market that has returned roughly 12 percent to date, as measured by the S&P 500. By contrast, the average hedge fund has returned just 2 percent this year. It's no wonder they've been shutting down.

Another result of that poor performance is that nearly all the assets are flowing to the larger, more established hedge funds. In the first half of 2014, according to the Bloomberg report, roughly a third of the $57 billion invested into hedge funds went into just 10 firms.

Oil's Black Friday

Black Friday for holiday shoppers was echoed last week by a different kind of Black Friday for the commodities market. The price of crude oil fell by more than 10 percent in a single day, but it was accompanied by other price drops as well: Silver fell 6.4 percent, natural gas fell 6.1 percent, copper fell 5.8 percent.

The trigger appears to have been an announcement by OPEC that those nations would not cut back on their oil production, despite the fact that we are in a bit of a worldwide glut right now. U.S. oil production is also at its highest rate in three decades.

Oil prices are now down 39 percent since the highs they set earlier this year. They're down 52 percent from their all-time high in 2011 - meaning that the price of oil has been cut in half in the space of four years.

Records Keep On Falling

The stock market has been doing so steadily well this year, that it's easy to lose track of the fact that the S&P 500 keeps setting record high after record high. With one month - 23 trading days - left to go in 2014, the S&P has already closed at a new record 47 different times this year.

In the past 87 years, there have been only four full years in which the S&P has set more than 47 record highs. The most recent one, and the all-time record holder, is 1995, when we saw 77 separate record highs.

Second place is 1964, with 62 records, which is probably out of reach. We have a better shot at reaching the mark set in 1928, when there were 59 record highs. And we should eclipse the fifth-highest mark of all time, 1929, which saw 48 new highs. We're only one trading day short of that.

When Black Friday Comes...

Going shopping today? Surveys showed that 95.5 million Americans planned to get a jump-start on their holiday shopping on Black Friday this year. We're expecting a big holiday retail season this year, with purchases expected to grow by 4.1 percent over 2013, according to the National Retail Federation. The ten-year average increase is 2.9 percent.

Holiday shopping has a huge impact on our economy. Sales in November and December are expected to total $616.9 billion this year. Retailers are expected to hire anywhere from 725,000 to 800,000 seasonal workers to help pitch in.

But more and more shoppers are planning to skip the stores and shop from home. Some 56 percent of us plan to do at least a little shopping online, up from 51.5 percent last year. And 44 percent of all holiday shopping will be done online. So that figure of 95.5 million shoppers, if anything, understates the Black Friday craze.

Thoughts for Thanksgiving

"Feeling gratitude and not expressing it is like wrapping a present and not giving it." ~William Arthur Ward

"We tend to forget that happiness doesn't come as a result of getting something we don't have, but rather of recognizing and appreciating what we do have." ~Frederick Keonig

"Grace isn't a little prayer you chant before receiving a meal. It's a way to live." ~Jacqueline Winspear

Thanksgiving Spending Roundup

With gas prices the lowest they've been in years, it's no wonder that more of us say we'll be traveling this year for Thanksgiving. Four out of ten Americans are going somewhere for the holiday - a whopping 92 percent of them traveling by car, with 6.6 percent saying they'll be flying. Of those driving, 80 percent said they'd be going at least 50 miles.

While the cost of traveling has been dropping, the cost of dinner itself has been rising - but just barely. According to the American Farm Bureau Federation, a Thanksgiving dinner for ten will cost an average of $49.41, which is up just 37 cents from last year.

The turkey itself will cost you an average of $1.12 to $1.16 per pound this year, according to figures compiled by the USDA. That's up from $1.05 per pound last year.

2014's Biggest Little Winners

So far this year, there have been nine stocks in the small-cap Russell 3000 that have more than tripled or, in other words, grown by 200 percent or more. That may seem like a lot, but last year at this time, there were 45 such stocks, according to research from Bespoke Investment.

The big nine for 2014:

1. RadNet, Inc., up 388.6 percent
2. Receptos Inc., up 345.7 percent
3. Avanir Pharmaceuticals, up 331.6 percent
4. Pernix Therapeutics, up 314.3 percent
5. Agios Pharmaceuticals, up 301.5 percent
6. Achillion Pharmaceuticals, up 298.0 percent
7. TG Therapeutics, up 287.1 percent
8. VASCO Data Security, up 256.1 percent
9. IGI Laboratories, Inc., up 209.3 percent

Tuition Trends

There's some good news out this week for college students - and the parents who are paying their tuition. Big banks have been reluctant to lower interest rates for student loans, but Wells Fargo just announced it would modify some existing loans, as well as extend some repayment periods starting next year. Similarly, Discover Financial Services said it would begin modifying some loans early next year.

There might be some relation between that decision and the news that college revenues are increasingly unable to keep up with inflation.  More than half of all public colleges said their fiscal 2015 revenue increases wouldn't be able to keep up with even a modest 2 percent inflation. All told, universities said this year would be their weakest year of revenue growth in more than a decade.

The connection between those two stories is that both lenders and colleges are starting to feel like they need to be more competitive to attract students' money. Those could be good signs for parents with kids headed for college in the near future.

Small Caps Coming to Life

The stock markets were up across the board yesterday, with the S&P 500 and Dow Jones industrial average both gaining 0.2 percent, and the Nasdaq up 0.6 percent. But the small-cap Russell 2000 index was the biggest gainer of all, rising by 1.1 percent.

The small-cap benchmark has struggled this year, but it's been showing signs of life lately. Since bottoming out a little over a month ago, on October 13, the Russell 2000 has added an impressive 10 percent. But given the troubles it had earlier in the year, it's still up less than 1 percent for 2014 as a whole.

Remember, the S&P 500 and Dow Jones, by definition, don't include any smaller stocks. For a full picture of the market, it's important to keep that Russell 2000 in mind. And it's good to see it coming around.

Banking on Honesty

Does banking make a person dishonest? That's the suggestion from a study published in the journal Nature this week. Researchers at the University of Zurich divided 128 employees at a large, international bank into two groups. One filled out a survey about their personal lives, and the other answered questions about their banking background.

They were then asked to toss a coin 10 times, without anyone watching, and report on the results. If they told researchers they guessed correctly on a toss, they collected $20 for each correct answer. The people who’d been asked about their personal lives said they won 51.6 percent of tosses, but those who talked about their banking jobs said they won 58.2 percent of the time. In the group of bankers told to think about their jobs, 8 percent reported winning all ten tosses, compared with 3 percent in the other group.

The researchers repeated the experiment was repeated with 133 employees at other companies and 222 university students. For those people, talking about money had no effect on their dishonesty.

Trouble Among the Young

Even though the unemployment rate has been dropping steadily this year, the aftereffects of the recession are still making it difficult for young workers to find stable, full-time work. The recession technically ended five years ago now, but most people aged 18 to 30 remain pessimistic or uncertain about their future employment prospects, according to a Federal Reserve survey published Tuesday.

According to the survey, 34 percent of younger workers said they were unsure of their future employment outlook, and another 21 percent said they were pessimistic. Just 45 percent said they were optimistic.

A look inside the unemployment numbers can help explain their fears. While the overall unemployment rate is at 5.8 percent, the jobless rate for Americans between the ages of 25 and 34 was 6.1 percent. And the unemployment rate for those aged 20 to 24 was all the way up at 10.1 percent.

Inflation Staying Cool?

The Federal Reserve Bank of Philadelphia released a report yesterday showing that many major economists have lowered their inflation forecasts, down even from the tepid level it's been at. The Fed's Survey of Professional Forecasters indicates that inflation will stay below the Fed's target rate of 2 percent through at least 2016.

The surveyed forecasters predict the Personal Consumption Expenditures price index will average 1.5 percent for this year, down from their 1.8 percent estimate of three months ago. The group also reduced their view of expected inflation next year from 2 percent to 1.8 percent, and from 2.0 percent in 2016 to 1.9 percent.

Annual inflation is currently running at 1.4 percent. Many economists feared that the Fed's asset-buying program might lead to higher inflation, so with that now coming to an end, it appears that our already-low inflation has nothing left to fuel a higher run.

Going Up To Eleven

We've often discussed in this space the ten sectors of the S&P 500, as a way to analyze what's going on in the market. But before long, that number will be up to eleven: At the end of August in 2016, S&P will add a sector on real estate.

To this point, real estate investment vehicles such as the mall ownership group Simon Property Group have been subsumed under the financial sector. The financial sector is the second-largest in the index at this point, with more than 16 percent of the S&P's value.

This will have some meaning for investors beyond just the way we analyze the market's moves. Many funds concentrate on one sector or another, so many instruments focusing on the financial sector will soon remove real estate from those portfolios. We shall see whether that helps or harms the financial sector a year and a half from now.

America Keeps Pumping Away

Here's another reason why gas prices keep falling: U.S. oil production is at its highest level in decades. The U.S. Energy Administration said yesterday that America produced 9.1 billion barrels a day last week. We hadn't produced more than 9 billion barrels of oil a day since 1986. By comparison, Saudi Arabia is currently churning out about 9.6 billion barrels of oil per day.

As a consequence, oil prices have dropped 30 percent since mid-June. Nationwide, a gallon of gas has dropped below three dollars a gallon on average, and now goes for about $2.92.

The Department of Energy projects that production will stay at around that 9 billion barrel a day level through next year. With that kind of output, we would see the highest annual U.S. oil production since 1972.

Earnings Winners and Losers

We are almost through the current earnings season, with more than 400 of the S&P 500 companies having already reported. Six stocks have done well enough on earnings day that their share prices have popped by 10 percent, led by Tractor Supply, a Tennessee-based retailer. The biggest one-day winners for this earnings season:

• Tractor Supply, up 15.82 percent
• Whole Foods, up 12.15 percent
• Edwards Lifesciences, up 11.00 percent
• Newfield Exploration, up 10.89 percent
• Visa, up 10.24 percent
• Devon Energy, up 10.00 percent

On the other side of the coin, four stocks fell by more than 10 percent on earnings day:

• Genworth Financial, down 38.45 percent
• Netflix, down 19.37 percent
• TripAdvisor, down 14.13 percent
• First Solar, down 10.85 percent

Fretting About Retirement

Who do you think is more worried about aging—men or women? In what may be a surprising finding, it's men, by a healthy margin. According to a new survey by Financial Engines, among American adults ages 55 and older, 40 percent of men say anxieties about getting older have sparked worries about retirement. In contrast,  just 29 percent of women report that aging is a major worry.

The pattern holds up for nearly every issue related to aging the survey asked. For example, 49 percent of men are anxious about rising health-care costs, but only 44 percent of women are. Nearly a third of men worry about losing a spouse prematurely, as opposed to just 24 percent of women, even though women tend to live longer than men. One greater concern on the part of women: 43 percent of them are worried about running out of money in retirement, while just 41 percent of men are.

Given all those additoinal worries on the part of men, it makes sense that women are more excited about retirement than men. Overall, 51 percent of women surveyed said they were excited about retirement, as opposed to 41 percent of men.

Good News on Roth IRAs

Roth IRAs have long been a great way for investors to put away money for retirement that can grow tax-free. Unlike regular IRAs - in which pretax money is put into the account, and then considered ordinary income when it's withdrawn - Roths allow savers to put away taxable income, which can then be withdrawn without being taxed.

There's been one serious drawback to these plans: Roth IRAs haven't been available to high-net-worth individuals. Taxpaying couples with adjusted gross income above $191,000 (or singles with income above $129,000) have been barred from contributing directly to an IRA.

But a recent IRS ruling has changed all that. The IRS recently announced it would allow taxpayers of any income level to shift money from a 401(k) to a Roth IRA. The ruling officially goes into effect next year, although the IRS says taxpayers can start shifting that money right now.

On the Cusp of Double Digits

The S&P 500 Index now stands with an increase of 9.9 percent for 2014, with a little less than two months to go. It seems likely that we will see a double-digit rise in the index for this year, especially since the most common down months of the midsummer are in the rearview mirror.

That's not the only reason to think we might be headed for another double-digit annual gain. Last year, the S&P 500 finished up by 26.9 percent - just the fourth time it has increased that much in the past forty years.  In each of the prior three instances, the index followed up that performance by rising by at least 10 percent the following year.

If that does happen, 2014 would mark the third straight year in which the S&P has had double-digit gains. That is a rarer occurrence than it might seem. We haven't had three straight years of double-digit gains since 1997-1999.

The October Jobs Report

October's unemployment figures, out this morning from the Bureau of Labor Statistics, are right on track with the recent history. The economy added 214,000 new jobs for the month, and the unemployment rate ticked down a tenth of a percentage point, to 5.8 percent. The average monthly job gain for the past 12 months has been 222,000.

One downside: Many of the jobs are being created in relatively low-paying areas, such as food and drinking establishments (which added 41,000 jobs) and retail (which added 27,000 jobs). Temp services added 15,000 jobs. Meanwhile, the information sector lost 4,000 jobs on the month.

The past two months' jobs figures were also revised: September went up from 248,000 to 256,000, and August's from 180,000 to 203,000. The new August figure means that we've now had nine months in a row where the economy added at least 200,000 jobs, stretching back to January.

Economic Fears Drive the Electorate

One of the reasons for the stunning reversals we saw all over the country on Election Day is that Americans still perceive this economy as weak. Despite the fact that the unemployment rate has been dropping, and the GDP numbers have been strong, the country remains very uncertain about the future of the economy.

According to the Wall Street Journal, roughly the same percentage of voters - 32 percent - see this economy getting worse as those who see it getting better (33 percent). When asked the top issue that concerned them this election, 45 percent of voters said the economy, far ahead of the second place issue, health care, at 25 percent.

Four out of five voters said they were either “very worried” or “somewhat worried” about the direction of the economy in the coming year. Roughly 70 percent said the economy was “not so good” or “poor"; just 1 percent said it was "excellent."

GDP: Not So Fast...

Last week the Commerce Department reported its first estimate of third quarter GDP growth at 3.5 percent, but there are already rumblings that that figure will be downsized in the next estimate. The big issue is exports.

At the time of the initial estimate, Commerce thought that the export deficit had narrowed over the summer, and estimated that September's trade deficit would be little changed from August's. But now they think the trade deficit widened in that month, by a sizable $3 billion. Because of the slowing economy worldwide, U.S. exports fell by 1.5 percent.

The biggest chunk of that trade gap comes from China. We imported a record $44.9 billion from the Chinese in September, up 13 percent - but exported a mere $9.3 billion to China, down 3 percent.

October Keeps the Streak Alive

October came to a close last Friday, and the S&P 500 surged on that day, rising by 23 points. That allowed the index to set a new closing high that day, at 2018. That marked the first time it had closed at a new record in the month of October.

Why is that significant? Because October was the 16th consecutive month in which the S&P 500 set a new closing high. That streak, which started in July 2013, is the longest in the history of the index. So far this year, we've had 35 separate record-high closes.

It should go without saying that this kind of thing is not very common. The S&P 500 set a closing high in October 2007, for instance - and then didn't reach that high again until March of 2013.

What Made the Economy Grow?

There was some very good news for the economy last week, when the Bureau of Economic Analysis announced that GDP had grown at 3.5 percent in the third quarter. While that's down from the 4.6 percent we had in the second quarter, it's still an above-average figure for the post-Recession economy.

Many of the indicators dropped somewhat from the strong second quarter, but most of them remained strong. Personal consumption fell from a 2.5 percent increase in the second quarter to a 1.8 percent increase in the third. Exports fell from an increase of 11.1 percent to 7.8 percent. Durable goods fell from 14.1 percent to 7.2 percent. Remember, those second quarter numbers were starting from a much lower floor after a miserable first quarter, in which the economy actually shrank.

The one area in which growth increased over the second quarter was in federal spending. After defense spending increased by just 0.9 percent in the second quarter, it jumped up by 16.0 percent in the third.

Happy Halloween!

Are you dressing up for Halloween today? According to the National Retail Federation, 67.4 percent of of us will be buying Halloween costumes this year. That's the highest percentage this survey has recorded in its 11-year history.

Even though many more kids dress up than adults, the amount spent breaks down as $1.4 billion on adult costumes and $1.1 billion on children's costumers. On top of that, Americans will also be spending $350 million on costumes for our pets.

All told, Americans are expected to spend $7.4 billion on Halloween this year, including $2.2 billion on candy alone. That breaks down to a total of $77.52 for the average person, up from $75.03 last year. Boo!

End of an Era

The Federal Reserve announced yesterday what many investors have been expecting: Its bond buying program will end this week, as October draws to a close. The third and presumably final round of quantitative easing had begun in September 2012, meaning it will have lasted for just over two years.

The end of QEIII is a signal that the Fed has confidence in this economy. Forecasters expect that third quarter GDP will grow at about 3 percent. At the same time, the end of the program is of concern to investors, since the asset purchases had been intended, in part, to prop up the stock market.

The ends to the earlier phases of the program reflected that. After the end of QEI in 2010, the S&P 500 fell 12 percent. And in 2011, three months after QEII concluded, the S&P 500 dropped 14 percent. Markets were fairly quiet yesterday, though, so it may be that this is a program whose time has come to a proper end.

Oil Keeps Dropping

One of the big financial stories of the year continues to be the drop in oil prices, with gasoline prices dropping alongside them. Oil prices have fallen 25 percent since June, and it's now trading at around $86 a barrel. It's been up above $100 a barrel for most of the last three years.

But it may be falling even further. Goldman Sachs is now predicting that oil prices will fall to $70 a barrel by the second quarter of 2015. To show how quickly things are changing, that forecast comes just three weeks after Goldman's last prediction for the price of oil.

That's why the national average for a gallon of gas is about to drop below three dollars a gallon; they currently sit at $3.03. The lowest average prices for gas comes in South Carolina, where they're paying just $2.78 a gallon. We're not far behind that here in New Jersey, where the average gallon of gas costs just $2.86.

The New High-Tech Era

Facebook recently issued some new stock to help pay for its acquisition of WhatsApp, an instant-messaging service. Facebook's share price didn't change much as a result, so the new issuance raised the social media giant's market cap to $224 billion. As the Wall Street Journal pointed out, that means that Facebook is now worth more than JP Morgan Chase. Not bad for a company that's barely ten years old.

JP Morgan isn't quite as dominant as it used to be; back in 2011, Wells Fargo passed it up as the bank with the largest market cap. In addition to Facebook, JP Morgan is now also smaller than Google and Microsoft. It may be that we are seeing the dawn of a new high-tech era, this one dominated by behemoths rather than the upstarts of the 1990s.

But all those companies are small compared to Apple. Despite some setbacks in recent months, Apple's market cap is still greater than JP Morgan and Wells Fargo - the two biggest banking stocks - combined.

Why Housing Is Coming Back

Home sales in September reached a new high-water mark for 2014, reaching an annual rate of 5.17 million homes sold, according to figures released last week by the National Association of Realtors. Median home prices are also up to $209,700, an increase of 5.6 percent from a year earlier.

Sales of previously existing homes were up 2.4 percent in September. Home sales actually peaked in the middle of 2013, at an annual rate of 5.38 million. While they haven't returned to that level, both figures are well above the recession-fueled low of 3.45 million in 2010.

One of the reasons for this year's resurgence has been the drop in mortgage rates. Last week, 30-year mortgage rates fell to 4.03 percent, down from 4.29 percent in September, and 4.63 percent at the beginning of the year. Thirty-year fixed rates are now at their lowest level since June 2013.

Mixed Signals on Earnings

Earnings season is just underway, with about 300 companies having reported their earnings thus far; that's about 15 percent of the reports we can expect this quarter. So far this season, 64.9 percent of companies have beaten the consensus analyst earnings estimates. That's a pretty strong figure, the highest we've seen since 2010.

But that's not the only way to look at things. Just 49.3 percent of companies have beaten their consensus estimates for revenue, which would be a weak figure for that metric. More than half of all reporting companies have beaten their revenue estimates in each of the past seven quarters.

Which is the more reliable measure? Investors would generally prefer to see revenue numbers come in stronger than earnings numbers, because revenue numbers - which simply measure sales rather than profits -  are more difficult for companies to fiddle with. But so far this earnings season, the opposite has occurred.

Good News for Retirees

If you're retired, you'll see a little bump in your income next year. The Social Security Administration announced Wednesday that people receiving Social Security will get a cost-of-living adjustment of 1.7 percent for 2015. That reflects the modest increase in inflation over the past year.

The 1.7 percent is consistent with the increase we've seen in the past few years. The Social Security adjustment was 1.5 percent for 2014, and 1.7 percent for 2013. But in 2010 and 2011, as the economy struggled to emerge from the recession, there was no cost-of-living adjustment at all.

On the other hand, when the economy is stronger, retirees generally get more of a bump than this. In every year from 2004 to 2009, the adjustment was higher than this year's 1.7 percent - including a high of 5.8 percent in 2009.

Tough Times for Big Names

Earnings season is underway again, and there has been some very rough news for some of America's most venerable and best-known brands. Reporting this week:

• Coca-Cola announced yesterday that its quarterly global soda sales increased by just 1 percent in the third quarter. Coke's shares lost 6 percent on the news, the stock's biggest one-day drop in six years.
• McDonald's reported that same-store sales dropped by 3.3 percent in the third quarter. Within the U.S., same-store sales fell by 4.1 percent in September alone - the worst domestic month for the Golden Arches since February 2003.
• On Monday, IBM reported that its revenues in the third quarter dropped by 4 percent, and profits dropped by almost half, to just $18 million for the quarter. It was the tenth straight quarter that Big Blue's sales were flat or declining.

Bulls Hanging In There

The volatility that the market has been experiencing lately often signals that stocks are headed for a downturn. But investors have not been reacting that way. In fact, optimism still carries the day, despite the recent losses of the S&P 500 and the Dow Jones.

The American Association of Individual Investors actually saw bullish attitudes rising last week in its weekly survey of investor sentiment. That survey had 43 percent of investors bullish, up 2.8 percentage point from the previous week and higher than the long-term average of 39 percent.

Bespoke Investments registered an even stronger figure. In its weekly sentiment survey, 61 percent said the S&P 500 would be higher a month from now - up 7 points from the previous week. So despite the rough sledding, most investors don't appear to be spooked by this market.

Different Directions for Stocks

Last week was a rough one for the major stock market indexes, with both the S&P 500 and the Dow Jones industrial average losing 1 percent of their value. The S&P is now down 6.2 percent from the high it set a month ago, on September 18; the Dow is down 5.2 percent from its September high.

But it's important to remember that those two indexes aren't the entire market. The Russell 2000 - the most widely used benchmark for small-cap stocks - had a good week, rising by 2.8 percent. In contrast, while the large-cap indexes were doing well for most of the summer, the small caps were suffering, dropping 13 percent between early July and the beginning of last week.

We expect small-cap stocks to be more volatile than large caps, and the Russell 2000 is still down nearly 6 percent on the year. But we may be seeing that particular asset class finally start to turn the corner.

Europe's Woes Continue

The Eurozone had another rough day yesterday, with its benchmark index, the Stoxx Europe 600, dropping to a ten-month low. Most of that damage has happened recently, with the index down by more than 10 percent since the middle of September.

One of the biggest concerns now is that Europe is risking deflation, which would be very dangerous for stock prices. September's inflation rate in the Eurozone was just 0.3 percent, far below the target of 2.0 percent.

The fear among American investors is that problems in Europe will once again have a bearing on stocks here at home. In the globalized economy, that's almost inevitable. The main part of our Web site has a new article, "The Global Village," describing how and why the two markets are connected, and how investors can protect themselves. I encourage you to give it a read.

The Return of Volatility

The five-year bull run of the stock market has been notable for its relatively low volatility, but it appears as if we're getting back to a rough ride. The S&P 500 index has already moved by 1 percent or more on seven trading days in October. That follows just one such trading day in each of August and September. And there were so much days in either May or June.

The more sophisticated metrics are showing the same effect. The CBOE Volatility Index, commonly known as the VIX, rose by 25 percent on Wednesday to 28.53. That's its highest close since December 2011.

The long-run average for the VIX is 20, which means this market is now well above average on volatility. If it appears even more volatile than normal, that might be because it's been so low in recent months. In July, the VIX got down near 10, a multiyear low-water mark.

The Daddy Bonus

Everyone's heard of the mommy penalty, wherein women with children tend to make less money in their careers. But according to a study by a researcher at CUNY, the opposite may be true for men. In 2010, male workers with children tended to earn 40 percent more than childless men.

Part of that may result from the fact that fathers tend to be older than men without children, and thus more established and more senior in their jobs. But the data also showed that even among similarly aged men, the difference persisted. In the 35-49 cohort, men with children earned a median of $54,500 in 2010, while those without children earned a median of just $35,970.

That's an even starker difference than the mommy penalty. In that same year and age range, women with children earned a median of $30,520, while those without earned a median of $32,700.

Trust Growing in Advisors

The annual Main Street Investor study came out last week, and it appears that American investors are feeling increasingly confident about their financial advisors. When asked how effective various entities were at protecting investor interest, 70 percent expressed confidence in their advisors, up from 66 percent in 2012. When asked whom they would trust as for advice about investing in a public company, 72 percent of investors said they would use their advisor, more than those who would turn to SEC filings, financial reports, family and friends, or social media.

Confidence in advisors is highest in the wealthiest group surveyed: Among those with more than $100,000 in investable assets, 71 percent said they were confident, compared with 67 percent of those with fewer than $50,000 in assets. At all asset levels, women trusted their advisors more than men did.

Why do investors trust their advisors? The survey found two answers tied at the top of the list: "Personal relationship/Honest/Trustworthy" and "Track record/experience" were both cited by 29 percent of the respondents.

The Global Village

The American stock markets had a rough week last week; the Dow Jones industrial average lost 2.7 percent of its value, and is now down overall for 2014, with a loss of 0.2 percent. One of the reasons given for last week's performance was the poor economic news coming out of Europe, and especially Germany, which is the Eurozone's acknowledged financial leader.

It may seem odd that Europe's problems would have such an effect on U.S. stocks, but we are truly living in a global economic village these days. According to S&P Dow Jones indices, the S&P 500 companies garner nearly half - 46 percent - of their sales outside the U.S. About 7 percent of that comes directly from Europe.

The rising value of the dollar has exacerbated the overseas woes of American companies. The dollar is up 9 percent versus the euro over the past six months, which reduces the profits earned by American goods sold in Europe. That's just another global factor to watch in monitoring the American market.

Washington's Woes

Does the constant bickering out of Washington sap your confidence about how your investments will perform going forward? If so, you're not the only one. A new poll from Gallup asked investors whether various political factors were hurting the investment climate in the U.S., and the number one response was "political discord in Washington," cited by 88 percent of the respondents.

The only other factor cited by more than 80 percent of those surveyed was "Events in the Middle East." Some other top factors: "The widening gap between wealthy and middle-class Americans," cited by 78 percent; "U.S. immigration policy," 70 percent, and "Financial conditions in Europe," 65 percent.

At the bottom of the list was the current level of interest rates. Some 40 percent of the respondents said those were harming the investment environment - but another 40 percent said those same interest rates were helping.

A Violent Couple of Days

Watching the market's moves on individual days can be a bit of a fool's errand. For long-term investors, what matters is the larger pattern, not the day-to-day movement. The last two days have been an illustration of that. Tuesday looked like a disaster, with the S&P 500 losing 1.5 percent of its value. But there wasn't much time to panic: The index made all that ground back and more yesterday, rising by 1.75 percent.

It may feel like the markets whipsaw investors around like that fairly frequently, but according to research from Bespoke Investments, it hasn't happened that much lately. In the bull market that started in 2009, there have been only six other times when the S&P has lost, then gained at least 1.5 percent on consecutive trading days.

This week's gyrations are nothing compared to what we saw in August of 2011. The S&P 500 lost 4.4 percent of its value one day, only to gain back 4.6 percent the next day, in the midst of the European debt crisis and S&P's downgrade of the United States' credit rating. Now that's market turbulence.

Europe's Woes Continue

Five years into the recovery, the American economy continues to look OK, but not great. We finally dropped below 6.0 percent unemployment in September, after it had peaked in 2010 at 10.0 percent. Consequently, unemployment has fallen 41 percent from its peak.

Our unemployment situation isn't where we want it to be, but things could be worse. Take a look at the rest of the world.  The Eurozone unemployment rate currently stands at 11.5 percent, down just a smidgen from its peak at 11.9 percent during the last recession.  The unemployment rate in Europe has fallen only 3 percent from its peak.

Not surprisingly, European stocks continue to suffer as well. We noted that the Russell 1000 small-cap index had dipped into correction territory last week, losing 10 percent of its value off its recent peak. The MSCI EMU index of European stocks has been even worse lately - it has dropped more than 15 percent since peaking in June.

Giving Money Back to Shareholders

There are two primary ways companies can put their money into their investors' hands. They can pay dividends, or they can buy back their own shares, which reduces the number of shares on the market, increasing the price of each one. And they've been doing a lot of both lately: According to Bloomberg, companies in the S&P 500 are expected to spend $914 billion on share buybacks and dividends this year. That's about 95 percent of all their earnings.

S&P 500 companies will spend $565 billion on repurchases this year, according to estimates from S&P. They will spend $349 billion on dividends, raising them by 12 percent. It's no surprise that money returned to stock owners in these ways exceeded overall profits in the first quarter and may do so again in the third.

It's not just current profits that are funding all these buybacks and dividend payouts. Companies in the S&P 500 are sitting on $3.59 trillion in cash and marketable securities, and want to put that money to good use.

Rough Times for Small Caps

While large-cap stocks continue to have a solid if unspectacular year, small caps officially entered correction territory last week. What that means is that the Russell 2000 index - the leading benchmark for small-cap stocks - has lost 10 percent of its value since peaking last March.

Of course, we expect small-cap stocks to be riskier than large caps. According to research from Birinyi Associates, the Russell 2000 is 4.5 times more volatile than the S&P 500. There have been nine corrections in the Russell 2000 since the market bottomed out in March 2009. So a correction in that asset class is almost to be expected.

What should we expect from small caps now? Birinyi's research suggests that the average small-cap correction ends up resulting in a 14.8 percent drop in value. Small caps may have a but further to fall.

An Unemployment Milestone

The September jobs report was out this morning from the Bureau of Labor Statistics, and it marked a milestone. The headline unemployment number has dropped to 5.9 percent, the first time we have been below 6 percent since July 2008, when it was at 5.8 percent.

The Fed has long since set its target at 6 percent unemployment to consider raising interest rates. Most Fed-watchers didn't expect us to get there till the end of this year. It will be interesting to see the reaction to this morning's news.

Overall, the economy added 248,000 jobs in September, marking the seventh time in the past eight months that the number has been over 200,000. August's figure was revised upward from 142,000 to 180,000, which is a step in the right direction but still short of that 200K plateau. Overall, the economy has averaged 213,000 new jobs per month over the past year.

Invest Like a Billionaire

Do you want to invest like a billionaire? The new UBS Billionaire Census breaks down where the world's ultra-wealthy have been putting their money. They're not buying as many stocks as you might think: 47 percent, or $3.4 trillion, of the wealth of billionaires is privately held, one and a half times more than the 29 percent of their assets that is publicly held.

They've also been putting more of their money into cash. Billionaires increased their liquidity holdings this year to an average of $600 million per individual,  which is up by $60 million per individual since last year.

A further 5 percent of billionaires’ net worth, equivalent to $160 million per individual, is held in real estate and luxury assets. The typical billionaire owns four properties, each worth, on average, $23.5 million. You'd think one of those would suffice.

The Fourth Quarter Track Record

Today marks the first day of the fourth quarter, which is generally a good period for investors. According to research from the Bespoke Investment Group, the S&P 500 has averaged a 2.6 percent gain in the final three months of the year since 1928 – which is more than 10 percent on an annualized basis. In that time frame, the fourth quarter has posted a positive performance 72 percent of the time.

These trends have held up in recent years.  Since 2009, the S&P 500 has risen in four out of five fourth quarters, all except for 2012. The S&P 500 has risen by at least 10 percent in three of the past four fourth quarters.

 

This is also a midterm election year, and for whatever reason, stocks have performed even better during fourth quarters of those years. The S&P 500 has averaged a 6.5 percent gain in the final three months of the 21 midterm election years since 1928, and has been positive in 18 of those 21 years.

A Strong Third Quarter

The third quarter comes to a conclusion today, and it appears to have been a remarkably broad-based success. According to S&P Capital IQ, all ten sectors in the S&P 500 are expected to record earnings growth for the third quarter. That would be the first time we've seen all ten sectors show earnings growth in three years.

We came close to that mark in the second quarter, when every sector recorded positive earnings growth except for the financials. Nineteen out of twenty possible sectors showing growth over the past six months would still be a signal of a pretty healthy economy.

Which sectors have been the strongest during the third quarter? S&P Capital IQ forecasts that the telecommunications sector will have the highest earnings growth, at 14.8 percent. It's followed be the raw materials sector at 11.6 percent, and health care at 11.1 percent.

Even Better for GDP

The Commerce Department's second estimate of GDP growth for the second quarter was very good, at 4.2 percent. On Friday, it got even better, as the third and final estimate ratcheted that number up to 4.6 percent.

That matches the third quarter of 2011 as the best quarter we've seen for growth since the end of the recession. In fact, we haven't had a better quarter for growth since the first quarter of 2006, when the economy grew at 4.9 percent.

What caused the upward revision? The biggest factor was commercial real estate, which increased by 9.7 percent in the second quarter after rising by just 1.6 percent in the first quarter. In addition, profits recorded by financial corporations rose by $33.3 billion in the second quarter; they had dropped by $86.2 billion in the first quarter.

The Dollar and Inflation

The U.S. dollar has been on a tear lately. Yesterday it reached a four-year high against a basket of global currencies. For the third quarter as a whole, the value of the dollar has risen by more than 6 percent, its best quarterly performance in more than four years.

One benefit of a strong dollar is that it makes imported goods less expensive. Sure enough, in August, the Consumer Price Index dropped by 0.2 percent, after rising at an annual rate of around 1.6 percent each month from April through July. Is the strong dollar the reason?

New research from the Cleveland Fed reports that the relation between the two is not as strong as it might seem. Since 1990, a stronger dollar has indeed made imports less expensive but has had minimal import overall on prices of core goods. So it seems that there are stronger forces on inflation than the strength of the dollar.

Car Sales Beyond the Recession

We suffered through a subprime crisis in mortgage lending a decade ago, leading to an eventual collapse in housing prices. Now some people are worried that we're undergoing a similar crisis in subprime lending to auto buyers. According to the New York Fed, 23 percent of all car loans are now being made to people with credit scores under 620. Car loans to people whose credit is that poor has roughly doubled since 2010.

But that's mostly an artifact of the tightened lending standards implemented during the recession. If you extend the window back even further, subprime auto lending is still below where it was back in 2006 and 2007, before the recession hit.

Car buying has reached an all-time high, moving at an annual pace of 17.2 million sold in August. That's another artifact of the recession, when people put off buying new cars. The average age of a car on an American road is 11.4 years, up from 9.8 years in 2005.

Housing's Long-Term Health

We've been seeing a lot of numbers lately indicating that the economy has returned to pre-recession levels. But for the housing industry, the more relevant time frame is the start of the subprime mortgage crisis, which began around the time housing prices peaked in 2006.

And the sentiment reading from the home building industry that came out last week clearly beat that mark. The NAHB/Wells Fargo Housing Market index reached 59 in September for its fourth consecutive monthly increase - and its highest level since November 2005.

Just about all the indicators were good, according to the National Association of Home Builders. The single home family sales indicator and the single-family sales expectations for the next six months both rose to their highest level in more than a year. Prospective buyer traffic, meanwhile, is at its highest since October 2005.

Large vs. Small

It's been in many ways a good year for the stock market. The Dow Jones industrial average is up about 4.5 percent on the year, and the S&P 500 index is up nearly 9 percent. Since those are the two most widely watched indexes, the general outlook for the market has been good in 2014.

But both those indexes focus on large-company stocks. The Russell 2000 index, the prime benchmark for small-cap stocks, is down by 1.4 percent on the year. That means smaller stocks lag their bigger brethren by roughly 10 percentage points.

The last six months have been especially rough for small-cap stocks. The S&P 500 posted its 34th record high of the year last Thursday. But after posting its last record high on March 4, the Russell 2000 has lost 5.1 percent of its value.

Don't Get Left Behind in Retirement

Americans do a pretty good job of saving for retirement overall, but some people are certainly being left behind. According to a new report from the Census Bureau, about 15 percent of all people over the age of 65 are living below the poverty line. The next generation is facing similar troubles. Among so-called pre-retirees - those workers who are over 55 - 24 percent of them have saved less than $1,000 for retirement.

Not surprisingly, many people get into retirement only to find that they're not able to have the lifestyle they had hoped for. According to a survey conducted by the Harvard School of Public Health, 59 percent of older workers plan to travel more after they're retired - but only 31 percent end up actually doing so.

Don't fall into one of these disappointing categories. If you're concerned that you're not prepared to have your retirement be all you expected, feel free to give me a call.

Need Any Advice?

Do you look for professional advice when you are making a big financial decision? According to a new Gallup poll, 63 percent of all investors sought out advice when creating a personal financial plan, with three quarters of them saying they had sought out professional advice.

For most other things, though, people don't get help from professionals. Aside from creating a financial plan, the only other item in the survey that most people sought out professional advice for was buying a house, although 48 percent used professional help for creating a college savings plan. Just 23 percent asked for professional advice in planning a vacation, and 19 percent in buying a car.

But most people do turn to other for help in such things. According to Gallup, fully 81 percent of us got informal personal advice when shopping for a car.

The Magic of Alibaba

The biggest talk on Wall Street this week has been tomorrow's IPO from the Chinese Internet giant Alibaba. The offering could raise as much as $25 billion, which would make it the biggest IPO in history. Facebook's IPO two years ago, which was probably the most talked-about public offering before this one, raised a mere $16 billion.

The Facebook IPO was not the largest American offering, though. Visa's IPO, shortly before the financial meltdown of 2008, raised $17.9 billion, which is also the worldwide record - at least until tomorrow. 

Will Alibaba really be worth more than that? It's often compared to Google, but as primarily an e-commerce site, it's actually closer to Amazon.com or eBay. It actually handles more transactions than Amazon.com and eBay combined, and is now China's largest retailer of any kind. That's a monster.

Tough to Gain Ground

The Census Bureau released some disappointing figures yesterday about the state of incomes in America. Income for the median American household in 2013 was $51,900, which was essentially unchanged from the year before. Median income is still down 8 percent from 2007, prior to the start of the recession.

What's even more distressing is that we really haven't made any real progress in this area in decades. Median household income isn't any higher now, adjusted for inflation, than it was in 1989. And we are still 8.7 percent below the inflation-adjusted peak income of $56,895, reached back in 1999.

One demographic did gain some ground last year: America's senior citizens. Households headed by people aged 65 and older saw their incomes increase by 3.7 percent last year, from a median income of $34,340 to $35,611.

Debt and the Young

Two long-term trends are evident in a new study out from a researcher at Dartmouth: More and more kids are attending college, and college is getting more expensive. Ergo, more and more young people are in debt starting from their twenties.

The study found that 35 percent of Americans aged 24 to 28 have debts that exceed their assets, which is double the number that we saw in the late 1980s. A total of 75 percent of all younger Americans have some sort of debt, and 22.4 percent of them have education debt, as opposed to just 5.1 percent of late baby boomers.

Not surprisingly, today's younger adults are having trouble spending on other things. Just 19.8 percent of them have home-related debt. That number was at 29.9 percent in the late 1980s, and as high as 43.1 percent in the mid-1970s.

Paying Less at the Pump

There were some interesting figures on consumer spending released by the Commerce Department on Friday. Americans' spending was up by a moderate 0.6 percent in August - but that number would have been stronger if not for the fact that we're spending less on gasoline. Without accounting for gas, consumer spending rose by 0.7 percent last month.

Spending at gas stations dropped by 0.8 percent in August. There are several reasons for this, but maybe the most prominent is that the price of a gallon of gas reached an average of $3.42 nationwide, down 3.8 percent from a year earlier.

Gas prices could be dropping even further, too. The price of fuel imports fell by 4.6 percent in August, their biggest monthly drop in two years, suggesting that the retail price may come down more as well.

Priced to Sell

One sign of the health of the real estate market is that it's taking less and less time to sell a house. According to a study from Realtor.com, the national median age of real estate listings has dropped to 82 days, down from 85 in July 2013.

Not surprisingly, the quickest sales come from the least expensive homes. The median age of listings for homes listed at less than $1 million is just 80 days. Those homes were taking more like 100 days to sell as of July 2012.

More surprisingly, homes at the top end of the market are moving more quickly than less expensive ones. Homes that list for just under $30 million tend to be listed for 180 days. But for those listed above $30 million, the median time on the market drops to 139 days.

Another Look at the IPO Market

Most people pay attention to the IPO market only when companies are actually making their initial public offering - after that, it just becomes another stock. But Bloomberg maintains an IPO index that tracks companies that have gone public over the past 12 months. After being flat most of the summer, that index is now up 5.5 percent on the year.

What's propelled that growth? Camera maker GoPro is the biggest success story, up 185 percent since its IPO in June. TrueCar Inc., an automotive pricing and information website, is up 145 percent since its IPO. ZS Pharma, a Texas-based pharmaceutical firm, is up 120 percent.

On the other hand, the biggest loser is a stock called Violin Memory, a data storage company that went public at 9 a share back in September 2013. It has since dropped to $4.80 - a loss of 47 percent.

Americans Spending Less

After Americans' spending climbed by a robust 3.5 percent in 2012, it declined last year, according to a new study out from the Department of Labor. Spending dropped by 0.7 percent in 2013, led by a 7.6 percent drop in spending on apparel and a 4.7 percent drop in spending on entertainment.

A couple of categories did see increases in spending last year. We spent 2.1 percent more on health care in 2013 than we had in 2012 - but that followed a 7.3 percent increase in health care spending the prior year. Spending on housing increased by 1.5 percent in 2013, the only category that saw more of a rise last year than in 2012.

The average American spent $1,429 on housing per month in 2013, easily the largest of any category. We also spent $750 on transportation per month, $303 on health care, and $207 on entertainment.

Banking Gets Its Name Back

The banking industry took a beating during the financial crisis of 2008-09, both in terms of dollars lost and in terms of its reputation. According to Gallup surveys, the public's view of the banking industry was at a net positive of 32 as late as the middle of 2007. But it dropped to -1 in 2008 and to -23 in 2009.

That reputation remained in negative territory through last year, but it has finally rebounded to positive 8 in Gallup's latest survey. That figure is still well below where the industry's reputation had been before the financial crisis, since Gallup started asking this question back in 2001.

The real estate industry has had a similar rebound. During the subprime crisis, the reputation of that business dropped to -40, even lower than the banking business ever got. But it too has bounced back to positive territory in Gallup's latest survey, for the first time since 2006.

Too Many Directors?

Savvy investors try to get their hands on every available statistic they can before making their decisions. But one number that hardly anyone ever looks at is the size of a company's board of directors. A new study from the governance-research organization GMI Ratings suggests that maybe they should.

The study found that corporations with small boards - about nine or ten directors - tended to outperform their peers on shareholder return by 8.5 percentage points. Meanwhile, those firms with large boards - 13 or 14 directors - tended to underperform by 10.85 percentage points. The study looked solely at large-cap firms - those with a market cap of at least $10 billion.

What's the reason for the disparity? Maybe smaller boards are more nimble and decisive. Or maybe larger boards are indicative of a corporate culture that has grown out of control.

The August Jobs Report

August broke the string of months in which the economy added at least 200,000 jobs at six, according to the report out this morning from the Bureau of Labor Statistics. We gained 142,000 jobs in August, which makes it the weakest month of the year so far, just behind January's 144,000.

Even with the relatively soft number of jobs, headline unemployment ticked down, from 6.2 percent to 6.1 percent. The 12-month average for job growth is still at 207,000, which is a very solid figure. This year has seen the fastest pace for hiring in over a decade.

The slowing growth number was attributed to softer employment conditions in auto making and retail. Vehicle manufacturers, which have been a steady source of jobs in the recovery, lost about 5,000 jobs in August, while food and beverage stores shed 17,000 jobs.

Gold Takes a Tumble

It was three years ago this Saturday that the price of gold reached its all-time high price of $1,923.70 per ounce. Since then, it's lost more than a third of its value, with the price dropping by nearly $700 an ounce.

But the current price of just over $1,260 an ounce isn't a new low since it set that high mark. Last December, the price of gold dropped to $1,187.10. So gold has done OK in 2014, even though it's been dropping recently, falling this week to its lowest level since mid-June.

What has caused gold's price to drop? At her confirmation hearings last year, Fed chair Janet Yellen famously said, "I don’t think anybody has a very good model of what makes gold prices go up or down.” But some pundits think the Fed itself has caused the drop in gold prices, as investors are bracing for a rise in interest rates.

Turning the Corner into September

The market had a pretty good August, with the S&P 500 posting a gain of 3.8 percent. That was not only the strongest month for the market since February - it was the best August the S&P has had since the year 2000.

And we may need it, since historically September is the S&P 500's worst month, according to S&P Dow Jones Indices. The index has averaged just over a 1 percent decline in September and has been positive less than half the time.

Last year, the S&P dropped by 3.1 percent in August, then had an atypically strong September, gaining 3.0 percent. It may well be that the two months are likely to move in opposite directions, and that the rise in August this year may make it more likely that we'll suffer a decline in September.

Hedge Fund Woes

It continues to be a tough year for hedge funds. Goldman Sachs tracks the performance of the nation's largest hedge funds, and found that through the middle of August, they had returned just 1 percent. Over that same time frame, the S&P 500 had returned about 7 percent on the year.

What's gone wrong with the hedge funds? Goldman Sachs' analysis found that they had heavily invested in consumer discretionary stocks, including retailers. The consumer discretionary sector has been the worst-performing of the S&P's ten sectors this year; through the end of August, it was up a little less than 3 percent in 2014.

Among the stocks the hedge funds are most invested in, one of the most popular is General Motors. Hedge funds own roughly 7 percent of all GM shares. General Motors stock has lost 15 percent of its value this year.

Thoughts for Labor Day

“Be steady and well-ordered in your life so that you can be fierce and original in your work.” ~ Gustave Flaubert

“Labor Day is a glorious holiday because your child will be going back to school the next day. It would have been called Independence Day, but that name was already taken.” ~ Bill Dodds

“If people knew how hard I had to work to gain my mastery, it would not seem so wonderful at all.”
~ Michelangelo

A Small Piece of the Pie

With the S&P 500 hitting new record highs, many investors are benefiting from the stock market's growth. More than half of all Americans - about 52 percent - own at least some stock, primarily within their 401(k)s.

But most of those people own very small amounts of stock, at least compared to wealthier investors. As the Washington Post pointed out yesterday, just 10 percent of Americans own about 80 percent of all stock assets in the United States.

The most recent available study on stock wealth was from 2010. A that point, the top 10 percent held about $500,000 in stock, while the middle fifth held an average of about $9,000. So while many people are benefiting from the market's run, some are benefiting much more than others.

Dividends From Around the World

Dividend-paying stocks are often seen as a safe haven, while investing in foreign stocks is seen as a bit risky. But investors these days are able to combine those two strategies into one. A study from Henderson Global Investors shows that global dividends increased by 12 percent in the second quarter over the year-earlier period.

European companies paid out $153.4 billion in dividends last quarter, as compared with $98.5 billion for North American companies. European stocks averaged a 3.3 percent dividend yield at that point, as opposed to 2.0 percent in the U.S.

And those numbers have been growing recently. Worldwide dividends were $780 billion in 2010, but they have topped $1 trillion in 2012 and 2013.

The S&P's New Record

The S&P 500 Index closed above 2,000 for the first time ever yesterday. It had cleared 2,000 on Monday as well, but fell back below the mark before the end of the day. In the five years since the S&P bottomed out in 2009, the index has nearly tripled - it's up 195 percent over that time.

The Nasdaq is also closing in on a record. It's within 10 percent of the high it set back in March 2000. That has some pundits comparing the current market to the dot-com mania of the late 1990s.

But there's an important difference between the two eras. When the dot-com bubble peaked, the S&P 500 was trading at close to 30 times the annual earnings of its companies. Although valuations have been rising, they are still only about 19 times earnings right now.

The Housing Market Settling Down

We had a hiccup in the housing market last year: After home sales peaked in July 2013, they began to slow down as mortgage rates began to rise. But now we seem to be past that: July sales were up 2.4 percent from the June rate, meaning they were the highest in 10 months.

One positive side note on that growth is that there are fewer distressed and foreclosed homes making up the market. Distressed sales made up just 9 percent of all home sales in July, the lowest that figure has been since the National Association of Realtors began compiling those numbers back in October 2008.

Interestingly enough, home sizes seem to have peaked as well. In the third quarter of 2013, the median new home in the U.S. was 2,491 square feet, the highest on record. But in each of the last two quarters, median home size has been exactly the same, at 2,478 square feet.

Job Security

Americans are not nearly as worried about losing their jobs as they were during the recession, according to a new Gallup survey. In fact job security is the highest it's ever been in the history of this survey, which dates back to 1993.

The survey shows that 58 percent of Americans are completely satisfied with their job security. That number had been around 50 percent for the duration of the recession, and was at just 51 percent as recently as 2013. But even before the recession, American workers didn't feel this secure. The previous high for this particular question was 56 percent, recorded in 2007.

There was only one question on the job-satisfaction survey that came back worse this year than in 2013. Slightly fewer people reported that they were satisfied with the flexibility of hours their employer offered.

The Strong Side of Private

Publicly traded companies have been doing pretty well lately, but according to a new study from Sageworks, private companies are doing even better. For the 12 months ended on August 14, revenue growth at public companies averaged 2.6 percent. But revenue at private companies averaged a whopping 10.7 percent.

It's been like that for a few years now. Over the prior three 12-month periods, public company revenue growth rates were 4.5 percent, 3.4 percent,  and 2.7 percent. But those at private companies were 16.2 percent, 17.7 percent, and 10.6 percent.

But don't make the mistake of thinking that's the natural course of things, the private companies always out-earn public ones. During the recession, it was the opposite. For the 12 months ended August 14, 2010, public companies showed sales growth of 1.2 percent - while private companies' sales were dropping by 0.6 percent.

The High Cost of Car Maintenance

It may seem like it’s horrifically expensive to keep your car in New Jersey, especially given our sky-high insurance rates. But rest assured, there are states that have it worse.  In a new survey from Bankrate, New Jersey came in as just the fourth most-expensive place to keep a car.

 

Considering insurance, repairs and gasoline, the average car owner in New Jersey spends $2,421 on his or her vehicle each year. But four states actually spend more: Wyoming, Louisiana, Florida and Mississippi. Only Louisiana and Washington D.C., charge higher auto insurance rates than our state’s average of $1,244.  But our average annual repair bill - $393 – is the highest in the nation.

 

The cheapest state in which to keep a car? Iowa, whose residents spend just $1,942 per year on each vehicle.

Better Than Google

Google's IPO, one of the most celebrated and successful initial public offerings in the history of the American stock market, took place ten years ago yesterday. Over those ten years, Google's stock has increased by 1,294 percent. If you had invested $10,000 in Google's IPO, you'd have about $140,000 today.

Incredibly, as the Wall Street Journal points out, there are ten stocks that have performed better than Google over those ten years. They are:

• Keurig Green Mountain, up 7,729 percent
• Monster Beverage, up 6,569 percent
• Priceline, up 6,277 percent
• Apple, up 4,419 percent
• Alexion Pharmaceuticals, up 4,265 percent
• Regneron Pharmaceuticals, up 4,167 percent
• Netflix, up 2,840 percent
• Intuitive Surgical, up 1,796 percent
• Salesforce.com, up 1,687 percent
• Western Digital, up 1,306 percent

A Reason for the Struggle of Small Businesses

One of the factors that has helped keep the economic recovery slow is that small businesses are still showing little growth. At the end of the first quarter of this year, banks held $585 billion in loans to small businesses - down from a peak of $711 billion in 2008, according to the Federal Deposit Insurance Corp.

Loans to businesses for smaller amounts are also on the decline. The number of loans for $1 million or less held by banks is still down about 14 percent since 2008.

Fortunately, loans to bigger businesses are showing more strength. Loans to businesses of all sizes grew to $2.48 trillion as of the end of the first quarter, which is up 9 percent since 2008. All told, loans and leases grew in the second quarter at the highest quarterly rate since the end of the financial crisis.

Kids Get Back to Work

As summer begins to draw to a close, we're seeing some fascinating statistics about the state of the labor market. For one thing, younger people were able to get summer jobs this year at the highest pace in years. The Labor Department reported last week that there were more than 20 million people aged 16 to 24 with jobs this summer - the highest that number has been since 2008.

The percentage of youth working is climbing very slowly. The fraction of people in that age cohort with summer jobs was 51.9 percent this year, up from 50.7 percent a year earlier. But that's down from 59 percent back in 2004 and a whopping 69 percent in 1989.

Back in 1989, it was actually more common for young people to have a job during the summer than adults. At that point, just 64 percent of those over the age of 24 had jobs.

Americans Keep Working

One of the reason that the face of retirement has changed so much in recent decades is that more and more people are working past the age of 55. For a long time, after the introduction of Social Security and the end of World War II, the percentage of older people who remained in the work force steadily declined.

By 1993, only 29 percent of people older than 55 were in the labor force. But from that point forward, the trend reversed itself. As of 2012 more than 41 percent of those over 55 were still in the labor force, the highest that number had been since the early 1960s.

A survey from the Federal Reserve last week signaled that this might continue to be the case for a while. More than 20 percent of people the Fed surveyed said their plan for retirement is “to work as long as possible” - and the number of people saying this gets higher as the respondents get older.

Cash on the Barrelhead

Should you be worried about this stock market? Fund managers are getting a little nervous. According to a new survey by Bank of America Merrill Lynch, funds’ cash holdings have reached their highest level since June 2012.

The fund managers' cash holdings jumped sharply in August, from 4.5 percent in July to 5.1 percent as of now. The survey talked to 224 different managers, who manage a total of $675 billion.

But this isn't just protection against a drop in equities; the managers also want to own dollars right now. Some 61 percent said the dollar is undervalued right now, and 84 percent of them expect the dollar to rally - a record high for this survey.

More Help Wanted Signs

Here’s another sign of strength in the economy and in the employment market: U.S. job openings increased to their highest level in more than 13 years in June. They rose to a seasonally adjusted 4.67 million, according to figures released by the Labor Department on Tuesday. That was the highest number for that figure since February 2001.

The Labor Department notes that the number of job openings has trended strongly upward in recent months. From June 2013 to January 2014, the number of job openings barely moved, dropping by 97,000. But from January 2014 through June 2014, the number of job openings increased by 797,000 openings – an average of 159,000 new job openings per month.

Hiring levels are also picking up. The Labor Department also said yesterday that hiring has now risen to its highest level since February 2008.

Paying for the Three R's

If you've got kids headed back to school this month, you know one of the most painful activities parents have to go through: back-to-school shopping. And it's gotten a bit more painful this year, as the cost of equipping our children for school keeps going up.

According to the National Retail Federation, parents expect to spend an average of $669 getting their kids ready for school this year, including new clothes, school supplies, and electronics. That's up 22 percent from five years ago.

The bulk of that money goes to clothing, accessories and shoes. The average shopper will spend $231 on back-to-school clothes this year, and another $125 on shoes. That person will spend roughly as much - $212 - on electronics items as they spend on clothes.

Health Care Stocks Get Well

Among the industry sectors, the biggest winner for the current earnings season is shaping up to be health care. Health care stocks in the S&P 500 have reported a 12.3 percent increase in revenue from a year earlier so far in the second quarter, nearly twice as much as the next strongest growth sector. Johnson & Johnson, the country's largest health-care company, reported earnings growth of 9.1 percent.

The sector showing the next highest growth for the quarter is consumer discretionary, which has posted revenue growth of 6.4 percent. That's followed by technology stocks, which have reported revenue growth of 6.0 percent.

Overall, stocks in the S&P have reported revenue growth of 4.9 percent this quarter. That's up a bit from the Wall Street expectation of 3.0 percent to 3.5 percent growth before the reports started coming in.

Buffett's Bad Year

It has turned into a pretty middling year for the stock market, with the S&P 500 index up by just under 5 percent on the year so far. But it’s been surprisingly poor for one famously successful investor: Warren Buffett.

 

Berkshire Hathaway, Buffett’s investment vehicle, has returned just 1.7 percent so far this year. Looking back over the past 12 months, Buffett’s record gets even worse: He is up by just under 7 percent, wile the S&P is up by more than 13 percent.

 

What has dragged down Buffett’s performance? Coca-Cola is down by more than 5 percent on the year, while Wal-Mart is down by 7 percent. But his biggest loser is General Motors, which has lost 17 percent of its value in 2014.

The Market Wakes Up

As we headed into the halfway point of the year, we noted how remarkably stable the stock market had been this year. From April through the middle of July, the S&P 500 went 62 straight trading days without a 1 percent daily move in either direction. That was the longest such stretch since 1995.

 

But the market is starting to stir now. In the past 14 trading sessions, the S&P 500 has already had three different days in which it moved by at least 1 percent.

 

That doesn’t mean this market is unusually choppy, though. Before the 1 percent streak was broken, the Volatility Index, or VIX, was at 11, which is a historically low number. It has since risen to near 17 – much higher than it has been, but still will below the historic average of 20.

Top Consumer Complaints of the Year

Last week, the Consumer Federation of America released the results of its annual survey on Americans' Top Ten consumer complaints. These are in the order of the frequency in which consumers report them. How many of these have you faced?

1. Auto: Misrepresentations in advertising or sales of new and used cars, lemons, faulty repairs, leasing and towing disputes
2. Home Improvement/Construction: Shoddy work, failure to start or complete the job
3. Credit/Debt: Billing and fee disputes, mortgage modifications and mortgage-related fraud, credit repair, debt relief services, predatory lending, illegal or abusive debt collection tactics
4. Retail Sales: False advertising and other deceptive practices, defective merchandise, problems with rebates, coupons, gift cards and gift certificates, failure to deliver
5. Services: Misrepresentations, shoddy work, failure to have required licenses, failure to perform
6. Utilities: Service problems or billing disputes with phone, cable, satellite, Internet, electric and gas service
7. Landlord/Tenant: Unhealthy or unsafe conditions, failure to make repairs or provide promised amenities, deposit and rent disputes, illegal eviction tactics
8. (tie) Home Solicitations: Misrepresentations or failure to deliver in door-to-door, telemarketing or mail solicitations, do-not-call violations

8. (tie) Internet Sales: misrepresentations or other deceptive practices, failure to deliver online purchases  
9. Health Products/Services: Misleading claims, unlicensed practitioners, failure to deliver
10. Fraud: Bogus sweepstakes and lotteries, work-at-home schemes, grant offers, fake check scams, imposter scams and other common frauds