Friday, February 28, 2014

Happy Friday!

TGIF! Or not, as the case may be, especially if you're an investor. The trend we saw last year of Friday being the best day for the market has not continued into 2014.

Last year the S&P 500 increased by an average of 0.26 percent on Fridays, which was by far the best performance on any single day of the week. On Fridays so far in 2014, the S&P has declined by an average of 0.16 percent. Meanwhile, Tuesday has been this year's day to watch, with an average increase of 0.55 percent.

One thing has remained consistent from last year: Mondays are the worst. In 2013, Monday was the only down day, losing an average of 0.07 percent. In 2014, it remains the worst day of the week - but the average return has dropped to a negative 0.58 percent.

Thursday, February 27, 2014

A Minor 401(k) Change?

You may have heard about the flap caused a couple of weeks ago when the head of the online service provider AOL proposed that his company change the way it contributes to employees' 401(k)s. Rather than match each employee's contribution in each paycheck, AOL proposed waiting until the end of the year to make a lump-sum contribution.

That might seem like a minor accounting change, but thanks to the power of compounding, it makes a significant difference. Vanguard ran a study supposing that a person put 10 percent of his salary into a 401(k) with a 50 percent employer match, and a 4 percent return above inflation. After a 40-year career, this employee would have $595,272 with a standard every-paycheck match, but just $547,611 with the year-end match.

That's a difference of nearly $50,000. Fortunately for 401(k) savers, very few companies have switched to the once-a-year match. According to the Plan Council Sponsor of America, only 17 percent of companies offering 401(k)s run them that way.

Wednesday, February 26, 2014

How Do You Like This Market?

How you feel about the current state of the stock market could depend heavily on your income. The February Consumer Confidence survey asked Americans about their opinion toward the stock market and found that attitudes overall are getting much more pessimistic. Just 29.7 percent said they expect stock prices to rise, while 33.1 percent expect them to fall. This is the first time since October that more people expect prices to fall.

But the opinions are strongly divided by income. Confidence among people with incomes of more than $50,000 a year was rated at 99.3, while confidence among those with incomes of $35,000 to $50,000 was just 63.4. That is the second-widest income spread in record since this particular survey started in 1987.

No matter where you are on the income scale, though, your confidence has likely been shaken. The overall market confidence level saw its biggest drop in more than a year.

Tuesday, February 25, 2014

Happy Birthday, Bull

In a couple of weeks, the current bull market will turn five years old, barring a sudden drop in the stock market. A bull market is technically defined as a market that increases in value by 20 percent or more, without an intervening drop of 20 percent.

Five years is a long time for a bull market, but it's hardly a record. There have been six bull markets in history that have lasted longer than that. The current run has a chance to eclipse the sixth-longest in history, from August 12, 1982, to August 25, 1987, in the next month; it will beat that one on March 22.

But it's got a ways to go to beat the record. The all-time longest bull market lasted from December 4, 1987, to March 24, 2000 - roughly two and a half times as long as the current bull has lasted.

Monday, February 24, 2014

Earnings Propelling Stocks Higher

Earnings season is now nearly concluded, with 80 percent of the stocks in the S&P 500 having reported their earnings for 2014's fourth quarter. And the results have been very encouraging, with earnings up 9.6 percent from the fourth quarter of 2013.

Individual stocks have benefited greatly from those kinds of reports. Bespoke Investment Research tracked the performance of companies on the day they issued their report, and found that they increased by average of 0.84 percent. That's a bigger average gain than any earnings quarter since 2009.

Those numbers help explain why the S&P 500 has bounced back so strongly in recent weeks. By the beginning of February, the S&P had dropped nearly 6 percent on the year. But it has made almost all of that ground back, and now stands down just 0.7 percent for 2014.

Friday, February 21, 2014

Tracking Service Inflation

The latest inflation report from the Bureau of Labor Statistics showed an interesting divergence in the numbers: While the price of the goods we buy has been dropping lately, the price of services has been holding up. Inflation for services was at 2.4 percent in January, while inflation for goods was barely above zero. The reading for January was just 0.1 percent.

Services inflation tends to be much more stable than goods inflation. What we pay for goods is heavily influenced by the world economy, by what we pay for commodities and finished products from around the globe. The cost of services is largely influenced by what we pay people to work for us, and that changes slowly.

But services inflation has been creeping downward in recent years. That figure peaked at 3.4 percent just before the recession, but as unemployment has remained high, the cost of services has fallen alongside it.

Thursday, February 20, 2014

Audit Triggers to Watch

We are now heading full-speed into tax-filing season, although it could have a long way to go yet, especially for people who run into an audit situation. In its latest issue, Investment News detailed the factors that are most likely to trigger an audit. Among the things to be aware of:

  • High income The $200,000 income threshold is generally considered when one reaches audit territory.
  • Tax strategies Charitable donations of stock are one common trigger.
  • Deductions The IRS looks at the level of deductions compared to earned income.
  • Charitable donations Make sure you get a receipt for everything you donate.
  • Entrepreneurs Home-based businesses always get extra scrutiny, as do small-business owners.
  • Real estate One of the most common triggers: Vacation homes that get rented out. 

Wednesday, February 19, 2014

More and More Credit Cards

It looks as if banks are starting to loosen their credit standards enough to make a bit of a difference in Americans' wallets. In the fourth quarter of 2013, the number of new credit accounts opened rose by 2.8 percent, according to the Federal Reserve - despite the fact that consumers' creditworthiness didn't increase at all.

That puts the number of credit card accounts hold by Americans at a staggering 399 million. That's the most credit cards we've collectively held since the third quarter of 2009.

Even though we have more charging power in our wallets, Americans aren't running up significantly more debt. The upshot of all these new credit cards: Our outstanding balances increased by just 1.6 percent in that fourth quarter. But the fact that we have the ability to spend more is a good sign for the economy.

Tuesday, February 18, 2014

Upheavals of the Machine Age

There's a new book out, The Second Machine Age, that takes a penetrating look at how technology has affected modern American life. Although American wealth has generally increased over the course of our nation's history, so far, the peak year for inflation-adjusted American household income was 1999. The median household income that year reached $54,932.

By 2011, though, that figure had fallen to $50,054 per household, a drop of nearly 10 percent. Over that same time frame, though, GDP and productivity were increasing. The increasingly automated economy has hit the middle class particularly hard.

The other side of this is the top of the economic pyramid is getting wealthier. In 2012, the top 10 percent of Americans earned more than half the nation's income. That's the first time that had happened since before the Great Depression.

Monday, February 17, 2014

Europe Bounces Back

There was some important good news out of Europe on Friday, when the eurozone reported its GDP figures for the fourth quarter of 2013. Many euro-watchers were worried that Europe might be slipping back into recession, but the numbers were quite good.

The eurozone as a whole expanded by 0.3 percent, which isn't great but is in positive territory, and higher than most economists expected. France and Austria both reported 0.3 percent growth, while Germany was at 0.4 percent and the Netherlands 0.7 percent. Portugal, which many economists feared might be the next nation to collapse a couple of years ago, had solid 0.5 percent growth.

The one European nation whose economy is still contracting is Greece. But Italy, which hadn't seen expansion since early 2011, reported growth of 0.1 percent. It looks as if Europe may finally be in the clear.

Friday, February 14, 2014

The High Cost of Love

If you bought that special someone roses for Valentine’s Day this year, you might have noticed that they were more expensive than usual. Or maybe you didn’t: Florists expect that many of their customers buy roses only for Valentine’s Day, and at no other time of the year.
So it's very easy for them to hike their prices. According to a florists’ clearinghouse called BloomNation, a wholesale rose costs a florist in New York City about $1.50 per stem during most of the year. In the middle of February, that rises to about $2.50 per stem. The retail flower shops, not surprisingly, pass that increase along to their customers – and then some. A rose that costs $5 the rest of the year costs more like $8 on Valentine’s Day.
That’s not the only way flowers get more expensive this week. Most delivery services raise their delivery price by four or five dollars for Valentine’s Day too. No one ever said true love would be easy.

Thursday, February 13, 2014

Another Way of Paying for College

Here’s one sign of a resurgent economy: Donations to U.S. colleges and universities  for the year that ended last June set a new record at $33.8 billion. That number, up 9 percent from the previous year, topped the old mark of $31.6 billion that was reported back in 2009.
The leader among schools was Stanford, which has been the leading money-raiser for a decade now. The California university raised $931.6 million in donations - which was actually down from 2012, when it collected more than $1 billion. Stanford has topped this list for a decade now. Harvard finished second by raising $792.3 million, but it’s already the world’s wealthiest school with a $32.7 billion endowment.
Alumni giving increased 17 percent to $9 billion last year, up from $7.7 billion the year before. But there are fewer people giving: The percentage of alumni making gifts fell to 8.7 percent from 9.2 percent a year earlier.

Wednesday, February 12, 2014

Are Bonds Back?

Along with the erratic nature of the stock market in the early part of 2014, there has been an unsurprising movement of investor money into bond funds. In 2013, bond funds suffered their first net outflows in nine years, with some $177 billion coming out of those funds. But in in the first two weeks of this year, bond funds saw their first net inflows since September of 2013.
That could be a bit deceptive, though, because bond funds always do well in January. Last year, the biggest month for bond funds was January, when some $32 billion flowed into them.

And equity funds are still doing quite well. After $20 billion flowed into them in 2013 – the first positive year for those funds in eight years- there has been another $8 billion come into them so far in 2014. It looks as if fund investors still believe in this market.

Tuesday, February 11, 2014

The Layman's View of Inflation

Where do you think inflation is headed? The New York branch of the Federal Reserve recently decided to ask normal individuals, rather than trained economists, that question. It turns out that regular investors see inflation as a problem, but not a major one. The consensus was that inflation would peak next year at about 3 percent.

That’s not high enough to be a problem, although it is higher than inflation has been running recently. The personal consumption expenditures price index, which is the preferred measure of the Fed, was measured at just over 1 percent in December. The Fed’s target for inflation is 2 percent.

Those same respondents expected their personal earnings to grow by 2.4 percent over the coming year - outpacing the real inflation we've been experiencing, but not their projected inflation. They also think that finding a new job is getting easier, with 49 percent saying they’d be able to find a new job within three months, up from 46 percent who said that last December.

Monday, February 10, 2014

Not So Scary

The churning in the stock market this year may have led to increased fear on the part of many investors. But according to the VIX index - the market's so-called fear index, which measures how much volatility investors are expecting - the outlook is still relatively calm.

Last Monday, after the S&P 500 had dropped more than 2 percent on the previous Friday, the VIX jumped up to 21.44. That's the highest it had been since December of 2012. But it has settled back since then, and is now back below its ten-year average of 20.15.

Even that 21.44 is not so alarming once you put it in perspective. During the financial meltdown in 2008, the VIX touched 60, and even in 2011, when Europe was in crisis, it went over 40. Compared to those times, this year's turmoil has not been so bad.

Friday, February 7, 2014

Another Weak Jobs Report

This morning's jobs report showed the employment situation bouncing back a little bit in January, although not to any great extent. Following on the heels of December's disappointing 74,000 new jobs added, the economy added 113,000 more in January. The headline unemployment figure ticked down 0.1 percentage points to 6.6 percent.

To show how comparatively weak these numbers are, last November's figure was revised in this morning's report. It went from 241,000 jobs up to 275,000 in the latest reporting. December's figure was revised upward as well, but only by 1,000.

If there is any silver lining to this morning's report, it's that private sector payrolls were a bit stronger than the report might indicate. Private businesses added 142,000 jobs in January, while government at all levels was paring back by 29,000 jobs.

Thursday, February 6, 2014

Time for a Correction?

The stock market’s recent troubles have many investors wondering if we are in for a correction, if not for something worse. A correction is defined as a drop of 10 percent, and since World War II, we have seen 27 of those. Since the stock market hit bottom in March of 2009, there have been three corrections. The most recent of these took place from April to September in 2011, when the Dow dropped by about 16%. 

If it gets down to a loss of 20 percent, that’s when it officially becomes a bear market. There have been 12 of those since 1945, and three of them since 2000. 

The average time between corrections since 1945 has been about 20 months. Market-watchers warn that it’s been closer to two and a half years since we last had one. The S&P is down about 7% since reaching its all-time high early this year. 

Wednesday, February 5, 2014

2013's Big Winners

Last year was a great one for the stock market, and the people who were best positioned to take advantage of it may have been the corporate titans who own huge blocks of their company's high-flying stock. As the Wall Street Journal pointed out yesterday, many of 2013's biggest winners were the well-known faces behind America's hottest stocks. Some of those winners:

  • Warren Buffett, of Berkshire Hathaway, made $12.7 billion in 2013 alone
  • Jeff Bezos, of, made $12.0 billion
  • Mark Zuckerberg, of Facebook, made $11.9 billion
  • Larry Page, of Google, made $9.0 billion
  • Sergey Brin, of Google, made $8.8 billion
  • Larry Ellison, of Oracle, made $5.5 billion

Tuesday, February 4, 2014

Lending Picking Up

One of the driving factors that made the recession so deep and the recovery so slow was that the credit markets basically froze up. After making so many bad loans, especially subprime mortgages, banks were reluctant to extend new loans in a bad economy. And that made business expansion a difficult proposition.

That's why its important to see loan activity increasing if the economic recovery is to gain steam. The Fed's latest survey of loan officers shows that demand has been growing, and that banks have been lending more to meet that demand. Commercial and industrial loans are currently at $1.62 trillion, which is up 7.5 percent from a year earlier.

The quality of the loans appears to be improving as well. The survey found that 40 percent of the banks expect mortgage delinquencies to decline this year, and 20 to 40 percent expect business delinquencies to decline as well.

Monday, February 3, 2014

A Good Year for Dividends

Even with the stock market's recent problems, there are figures emerging that should remind us that there's more to investing than just stock prices. General Motors recently announced it was paying a 30-cents-per-share dividend in March, its first dividend since 2008.

That brings the total number of dividend-paying stocks in the S&P 500 to 420 - the highest that figure has been since 1998, when there were 423 dividend payers. As recently as 2004, there were only 377 S&P stocks paying dividends.

Given that the market has been down recently, it's important for investors to remember that dividends aren't accounted for when share prices are reported. And the number of dividend payers might still grow even further, with companies reporting record-high quarterly earnings.