Thursday, July 31, 2014

GDP Comes Back Strong

The first estimate of second quarter GDP came in stronger than most economists had predicted, at 4.0 percent growth. On top of that, first quarter growth was revised upward a bit, from a loss of 2.9 percent to a loss of 2.1 percent.

The biggest factors: Spending on total goods made its highest contribution to GDP since late 2010, and spending on durable goods was also near a five-year high, led by the automobile industry. Business investment rebounded, increasing 5.5 percent in the second quarter. Housing also was a positive, after having subtracted from growth in the past two quarters.

The first quarter, one of two quarters since the recession ended in which the economy contracted, now looks like an anomaly. Over the past year, the economy has grown 2.4 percent—slightly ahead of the 2.3 percent average we'd seen in the recovery prior to the winter-wrecked first quarter of this year.

Wednesday, July 30, 2014

Consumer Confidence Soars

The consumer confidence report that came out yesterday marked an important milestone. The reading for July was a surprising 90.9, up from 86.4 in June.  It was also the highest consumer confidence figure since October 2007 – the month before the recession started.
So consumer confidence is at its highest level in almost six years. That doesn’t mean it’s high on a relative level, though. The long-term average reading for this figure is 93.4. So even after six years of recovery, we are still below historic norms in terms of consumer confidence.
Today will bring more insight into the state of the economy, as the Commerce Department releases its first estimate of second quarter GDP. This comes on the heels of the very disappointing 2.9 percent contraction of the economy we endured in the first quarter. We’ll keep you posted on that figure as well.

Tuesday, July 29, 2014

How the Future Used to Look

Even the best investing experts struggle when it comes to making predictions about where the market is headed. Case in point: At the start of the year, the investing research firm Birinyi Associates tracked 18 strategists and found that their consensus was that the S&P 500 would rise by 5.3 percent in 2014.
The S&P is already up by about 8 percent on the year, so it looks like the expert forecast has already fallen short. On the other hand, the market could also drop between now and the end of the year, bringing the overall increase down to the initially projected level (although we’re all crossing our fingers that doesn’t happen).
Birinyi went back to its strategists for a revised prediction. The new consensus is that the S&P will rise by 7.4 percent on the year – leaving it roughly flat for the remainder of 2014.

Monday, July 28, 2014

IRAs Movin' On Up

If you have an IRA, how much money are you contributing to it every year? According to research from Fidelity, the average annual contribution to an IRA topped $4,000 for the first time last year. The average of $4,150 was 5.7 percent higher than it had been a year earlier.

Not surprisingly, that average varies greatly by age. People aged 60 to 69 made the highest IRA contributions, an average of $4,990. Those in their 30s contributed just $3,540 - but that was up 6.7 percent from the year earlier.

Add it all up, and IRA balances are now at an average of $89,100. That's a good sign that America is taking its retirement planning very seriously.

Friday, July 25, 2014

The Joys of Vegetarianism

Over the past 12 months, food prices have been rising at a rate of about 2.4 percent. That's slightly higher than the overall consumer price index, which has risen by 2.1 percent over that same time span. But not all food prices are rising in lockstep.

In fact, if you're a vegetarian, you've been enjoying much less inflation than meat-eaters have had to deal with. Fresh fruit prices are up 5.8 percent in the past year, driven in large part by citrus fruits, which are up by 12.2 percent. But tomatoes, to take one example, are up just 0.6 percent.

Those increases pale in comparison to meat prices, though. Fish and seafood are up 7.3 percent in the past year; beef and veal are up 10.4 percent. Pork prices are up a whopping 12.0 percent.

Thursday, July 24, 2014

Old Tech Comes Back

We are in the middle of a bit of a high-tech boom: The S&P 500 tech sector has risen 8.5 percent this year, outperforming not only the larger S&P but the Nasdaq  and small-cap Russell 2000 as well. But this time it's not the brand-new Silicon Valley companies that are making waves.

It's the more mature, well-established tech stocks that have been leading the charge. Intel, Hewlett-Packard, Microsoft are all up by more than 20 percent on the year. Despite its mixed results yesterday, Apple has risen by 23 percent in 2014, when you adjust for its 7-for-1 split.

The best-performing of the old-tech companies this year has been Micron Technology, a Boise-based producer of semiconductors. Micron is up more than 50 percent on the year.

Wednesday, July 23, 2014

Apple's Day

For many investors, Apple is still the most exciting report of earnings season, if for no other reason than to see how the market reacts. Apple's earnings report yesterday was a mixed bag: Earnings of $1.28 a share exceeded the Wall Street consensus of $1.23 a share, but the sales figure of $37.4 billion was slightly below the $38 billion forecast, although a notch up from the $35.3 billion in the year-ago quarter.

Apple used to beat its estimates regularly, by wide margins, so those results weren't enough to excite investors. Shares didn't move much after the announcement, but it was after hours; we'll know more about the reaction today.

The better numbers were found in iPhone sales, which were up nearly 13 percent, to 35.2 million units. The biggest impact came from China, where iPhone sales were up a whopping 48 percent. Mac sales were also a positive, rising by a surprising 18 percent.

Tuesday, July 22, 2014

Gas Prices Leveling Off

Since most Americans tend to drive more in the summer, gas prices tend to go up in the summer as well. But this year has been a little different. After reaching a peak in late April, the price of a gallon of gas has actually been declining nationwide.

Nationwide, the highest that gas has been this year was $3.70 a gallon, a price that was recorded on  April 27. Since then, the national average price has dropped by just under 4 percent, to its current level of $3.57.

Gas prices reached their all-time high in July of 2008, at a national average of $4.11. After dropping off the next couple of years to less than $3.00 a gallon, the summer price has been right around where it is now each of the past four years.

Monday, July 21, 2014

Investors Moving Back to Bonds

Intermediate-term bonds have long represented a solid, relatively stable part of many investors' portfolios. Intermediates make up the largest category of bond funds by assets, with $956 billion invested in them. That's why it was a bit of a shock last year when intermediate bond funds lost, on average, 1.4 percent of their value.

But they've rebounded strongly in 2014. Those same funds have returned an average of 4.1 percent through the first half of the year. Unsurprisingly, investors are coming back to intermediate funds, putting $3.48 billion in them in June.

This is all part of a bigger move back into bond funds, which saw net outflows of $37.12 billion last year. Through the first six months of  2014, these funds have taken in flows of $70.53 billion.

Friday, July 18, 2014

Turn Down the Volume

Even as the stock market continues its upward climb, trading volume has been surprisingly low. In the second quarter, equity trading volumes fell by more than 8 percent from the first quarter, to an average of 6.03 billion shares a day, according to data from Credit Suisse. That makes it the slowest second quarter for stock trading since 2006.

We've seen that slowdown have an effect on banking revenues. On Wednesday, Bank of America reported that its second-quarter revenue from equity sales and trading fell 14 percent from a year ago. J.P. Morgan Chase reported a 10 percent drop in equity markets revenue and Citigroup's dropped 26 percent.

The low volume is one reason we've seen so little volatility in the market this year. That's the subject of the new article posted on the Echelon Wealth Strategies Web site: how that volatility is measured, and what it means for the individual investor. You can find the full article here.

Thursday, July 17, 2014

Another Problem With Jobs

The recession not only limited the number of jobs available to Americans, but there was collateral damage in that many workers were afraid to leave their jobs and move onward and upward. The number of people voluntarily leaving jobs fell  from 3.1 million in 2006 to 1.6 million in 2009, but it hasn't fully rebounded. It was at just 2.5 million in May of this year.

You can also see that workers are staying in their current jobs longer. From 2008 to 2012, the most recent year available, the median tenure of workers ages 25-34 in their current job rose by 19 percent; workers ages 35-44 saw their tenure climb by 8 percent. These things are harmful to the economy not just because they limited job growth but because many Americans who have remained employed limited their earnings growth by staying in their current jobs.

Aside from recessionary factors, Goldman Sachs has also determined that worker dynamism is also falling overall, in any type of economy. That's one more factor that might keep our economy sluggish.

Wednesday, July 16, 2014

June's Retail Sales in Perspective

There was a somewhat disappointing release from the Commerce Department yesterday, reporting that retail sales rose by a very modest 0.2 percent in June. On the heels of the news that GDP growth in the first quarter had declined by 2.9 percent, that might make it look like our economy was showing severe weakness.

That's not the case, though. The June retail number isn't the only figure the report revealed; Commerce also revised upward the retail figures for April and May, to 0.6 percent and 0.5 percent growth, respectively. Those are pretty strong numbers.

On top of that, those numbers also make June's figure look better. Remember, these are month-over-month changes, so an 0.2 percent increase from a strong month looks better than a 0.2 percent increase from a bad one. All together, these retail figures make it look more and more like the first quarter GDP contraction was a onetime fluke rather than a harbinger of more bad news to come.

Tuesday, July 15, 2014

It's Tough to Stay on Top

All the mutual fund ads tell you right up front: Past performance is no guarantee of future results. A study from S&P Dow Jones Indices  shows how true that is. The study looked at all funds that were in the top 25 percent of all performers in March of 2012. The next year, just 19 percent of those funds repeated in that top quartile.

The news got worse after that: Two years out, only 3.8 percent of the funds from the first group of top performers had maintained that status for the full two years. The best group for consistency was small-cap stock funds, but even those placed only 4.1 percent of their top performers for two years running.

It's not easy to stay on top. That's just one more reason you want active management for your mutual funds, like we offer here at Echelon Wealth Strategies.

Monday, July 14, 2014

A Difficult Conversation

Hopefully, you have a good handle on how much your net worth is. But do you know how your parents stand in that area? It's important information to have, because so many of us will end up taking care of our parents in their old age. But adult children tend not to know what their parents' financial situation is.

That's the result of a new study from Fidelity. Adult children, Fidelity found, tend to underestimate their parents’ net worth by $300,000, on average. As a result, more than 40 percent of adult children worry that they will end up serving as their parents’ caregivers. But only 6 percent of parents say the think their children will need to fill that role.

A lack of communication is at the root of this. The adult children surveyed by Fidelity felt it was important to have this difficult conversation relatively early in their parents’ retirements. But the parents would rather delay it as long as possible.

Friday, July 11, 2014

Payday Habits of the American Consumer

Most people get regular paychecks from their employer, and it would stand to reason that they would spend that money at regular intervals as well. Instead, economists have long known that consumer spending tends to increase shortly after the consumer receives a payment.

Why is that? It's not so much that people are eager to spend that money because the cash is burning a hole in their pockets.  In a new paper in the journal Science, researchers report that spending on treats and restaurants increases just marginally right after most people's payday.

Instead, what the researchers found is that nearly half of the increased spending that Americans make after receiving their paychecks is in the form of recurring payments such as rent or mortgage bills. It's not that we're being profligate or self-indulgent; it's that we've planned our financial lives to be in sync with when we get paid. Another bright idea on the part of the American consumer.

Thursday, July 10, 2014

The End of the Taper

The Federal Reserve’s asset-buying program has been one of the key factors in supporting our nation’s stock markets and economy over the past five years, since it started back in November 2008. So it’s a big deal that the Fed decided at its June policy meeting that the so-called quantitative easing program would end in October. That plan was revealed in minutes of the meeting released yesterday.
The Fed began winding down the program in December, but hadn’t announced a specific end date until now. Given that it has played such a strong role in supporting the markets in recent years, you might expect Wall Street to react to the news – but the markets were fairly quiet yesterday, with the Dow and the S&P both dropping by a modest 0.7 percent.

That is very different from the reaction when former Fed chair Ben Bernanke first announced the tapering of the program last June. At that point, the S&P lost nearly 5 percent of its value in less than a week.

Wednesday, July 9, 2014

The Rebounding Nasdaq

We've noted all the record highs that the S&P 500 index and Dow Jones industrial average have been notching lately. America's third major stock index, the Nasdaq, hasn't reached those heights, though. That's largely because the tech-heavy Nasdaq was so ridiculously overvauled during the dot-com bubble. It set an all-time high of 5,132 on March 10, 2000, then tumbled to a low of 1,108 on October 10, 2002 - losing nearly 80 percent of its value.

The Nasdaq is up more than 300 percent since hitting bottom back in 2002.  During the current bull market run that began in March 2009, it's up by more than 250 percent. But it's still not back to those 2000 levels.

They're finally getting within reach, though. The Nasdaq is now just 12.5 percent away from its dot-com bubble closing high. Just since April, the Nasdaq is up 13.7 percent, so we're basically one more rally away from a new record.

Tuesday, July 8, 2014

IPOs Keep Roaring

The IPO market continues to roar. According to Renaissance Capital, an IPO research firm, 83 new companies made an initial public offering for their stock in the second quarter of this year. That's up from 64 IPOs in the first quarter, and the highest quarterly figure since 2000, when we were in the middle of the dot-com boom.

It looks like this trend is going to keep going for a while. There were another 117 companies that made the initial filings for an IPO last quarter. That's the highest that number has been since 2004.

One thing helping along this surge is the growth of IPOs from China; there were ten of those last quarter alone.  The most-anticipated Chinese IPO is still to come: Alibaba, the largest e-commerce site in China, is expected to raise $20 billion in its stock offering, scheduled to take place in early August.

Sunday, July 6, 2014

Another Dow Milestone Falls

The Dow Jones industrial average closed above 17,000 points for the first time ever at the end of last week. It had taken about seven and a half months to get there, after crossing 16,000 for the first time on November 21 last year. And it was just six months prior to that that the Dow first reached 15,000.

If it seems like these milestones are falling faster than they used to, it's because they have become, in one sense, easier to reach. As the Dow gets higher, 1,000 points becomes a smaller and smaller percentage of its value. Remember, the index needed a 6.3 percent increase to get to 17,000, but a 6.7 percent increase to get to 16,000. And the further back you go, the more that percentage increased.

But the milestones have been falling faster recently. Although it took about 14 months to get from 15,000 to 17,000, getting to 15,000 itself was much more of an ordeal. After crossing 14,000 in July 2007, it took nearly six years for the Dow to reach that next 1,000-point barrier.

Friday, July 4, 2014

Thoughts for Independence Day

"I always consider the settlement of America with reverence and wonder, as the opening of a grand scene and design in providence, for the illumination of the ignorant and the emancipation of the slavish part of mankind all over the earth." ~ John Adams

"The whole world loves American movies, blue jeans, jazz and rock and roll. It is probably a better way to get to know our country than by what politicians or airline commercials represent." ~ Billy Joel

"There are those who will say that the liberation of humanity, the freedom of man and mind is nothing but a dream. They are right. It is the American Dream." ~ Archibald MacLeish

Thursday, July 3, 2014

Unemployment Fireworks

We had another big month for employment in June, as the Bureau of Labor Statistics reported this morning. The economy added 288,000 jobs for the month, and the headline unemployment rate dropped from 6.3 percent to 6.1 percent, the lowest it's been since September of 2008.

June would have been the biggest month for new jobs since January of 2012, when we added 360,000 - except that this morning the BLS also revised April's number upward from 282,000 to 304,000. June marked the fifth straight month that the economy has added more than 200,000 jobs, and we haven't seen that since the year 2000.

The recent strong employment figures stand in stark contrast to GDP growth, which slipped by an alarming 2.9 percent in the first quarter of this year. Most economists expect that number to rebound strongly in the second quarter, and today's jobs number bolsters that optimism. The Commerce Department's first estimate for second quarter GDP growth will be out at the end of this month, on July 30.

Wednesday, July 2, 2014

Those Surprising Utilities

As we noted the other day, for the first half of 2014, the best-performing industry sector among the ten sectors in the S&P 500 was the utilities. Utility stocks have risen by nearly 16 percent so far this year.

One of the more interesting things about that rise is that it caught a lot of analysts by surprise. According to the research firm FactSet, analysts who cover utilities recommended their clients buy stocks at the beginning of the year just 34 percent of the time. That's the lowest percentage of recommendations for any of the industry sectors.

Why have the utilities performed so well? One reason is because the yield on the ten-year Treasury note has fallen, and investors have looked elsewhere for a stream of income, which is what utilities provide. Utilities companies in the S&P 500 index pay an aggregate annual dividend of 3.6 percent.

Tuesday, July 1, 2014

The First Half's Big Winners

With the first half of 2014 in the books, here are the stocks in the S&P 500 that returned the most over the past six months:

  1. Newfield Exploration, an oil & gas company, up 79.46 percent    
  2. Nabors Industries, an oil & gas company, up 72.87 percent    
  3. Keurig Green Mountain, a coffee company, up 64.96 percent    
  4. Forest Laboratories, a pharmaceutical company, up 64.92 percent    
  5. Electronic Arts, a video game manufacturer, up 56.36 percent    
  6. Allergan, a pharmaceutical company, up 52.34 percent    
  7. Micron Technology, a chipmaker, up 51.49 percent    
  8. Williams Companies, an oil & gas company, up 50.92 percent    
  9. Sandisk, a flash memory manufacturer,  up 48.04 percent    
  10. Potomac Electric Power Company, a Washington, D.C.-based utility, up 43.65 percent