Friday, January 30, 2015

Shaking Up the Dow

Visa has announced a four-for-one stock split, to take effect on March 19. That's going to have a significant effect on the Dow Jones Industrial Average, which is a price-weighted index. That means a stock like Visa, which currently is trading at close to $250 per share and has the highest share price in the Dow, is going to have an outsize effect on its movement.

Visa had the biggest IPO in American history seven years ago, and it stock price has increased steadily pretty much ever since. Because its share price is so high, any of the stock's sizable percentage moves had a noticeable effect on the Dow. In the future, the financial sector in general (and of course, Visa in particular) will be less important to the Dow.

So if Visa's shares will be worth a quarter what they are now, who will become the biggest hitters on the Dow? The highest share prices other than Visa currently belong to Goldman Sachs at $176 and 3M at $166.

Thursday, January 29, 2015

Debt and the Elderly

One of the most obvious axioms of planning for retirement is that as you get older, your debts should decrease as well. It doesn't make sense to head into retirement, when your income will be dropping, with more debts to pay off. But a new study from the Employee Benefits Research Institute suggests that this is exactly what is happening.

The study reports that among households headed by people aged 55 or older, debt loads increased from 63.4 percent in 2010 to 65.4 percent in 2013. Back in 1992, that same figure was just 53.8 percent.

Certainly, way too many older folks have more debt than they should. In 2010, 8.5 percent of these older families had debt payments amounting to more than 40 percent of their income. In 2013, that had edged up to 9.2 percent, with most of the increase resulting from added housing debt. That is a dangerous situation to be in.

Wednesday, January 28, 2015

Apple's Big Blowout

Juno may have been a bit of a dud, at least in our area, but Apple's quarterly earnings report yesterday sure lived up to expectations. Apple notched a profit of $18 billion in the quarter - a new record for a company that is known for setting financial records.

There were two main sources for the blowout performance: iPhones and China. The company sold 74.5 million phones in the quarter, after the most optimistic analysts' estimate had topped out at  71.5 million.

But the China numbers were even more impressive. Apple derived $16.1 billion in revenue from greater China, which includes Taiwan and Hong Kong. That's up a whopping 70 percent from the same quarter a year earlier.

Tuesday, January 27, 2015

The Cost of Winter Storms

Juno may have wreaked a whole lot of trouble in your neighborhood, but we'll dig out of this within a few days. A more longer-lasting problem is what the storm might do to our economy. Last year's harsh winter ended up costing the region an awful lot of money.

A firm called Macroeconomic Advisers estimates that 2014's rough winter knocked about 1.4 percentage points off the nation's GDP in the first quarter, when the economy shrank by 2.1 percent. In part because of the weather, the first quarter was the weakest economically since the recession.

One of the biggest problems was that hiring hit a real slowdown while people were clearing away the snow. For the first quarter, the economy added an average of 163,000 jobs per month, as opposed to 246,000 for the rest of the year. We can only hope that Juno won't end up having a similar effect.

Monday, January 26, 2015

Why Is the Market Getting More Volatile?

Nearing the end of the first month of 2015, the S&P 500 Index has, in the larger sense, not budged very much this year; it's down just 0.3 percent so far. But anyone who watches the market on a day-by-day basis knows that we've seen a lot of big ups and downs along the way.

The S&P has moved by at least one percent on a third of all the trading days this year. That's more than twice as often as the number of high-volatility days we saw last year, which the S&P was famously smooth.

In a way, this increased volatility is to be expected. According to S&P Capital IQ, the longer a bull market runs, the more high-volatility days it sees. In year three of a bull market, there are, on average, 31 days of high volatility, increasing to 44 by year six. We are headed for year seven of this one, which tends to have an average of 55 high-volatility days. So fasten your seat belts - it could be a bumpy ride.

Friday, January 23, 2015

The Outlook for Really Small Small Businesses

We hear a lot about the concerns of small-business owners, but Gallup has taken that a step further with a new survey of microbusiness owners - defined as people who own businesses with one to five employees. And they are increasingly positive about the stability of their businesses.

At the end of 2013, some 24 percent of the microbusiness owners surveyed said they expected their income to drop in the coming year. Now that number is down to 12 percent. Meanwhile, 35 percent of them expect their personal income to increase in 2015.

More than half of the respondents, 60 percent, say they expect their business' sales and revenues to grow this year. Nearly half, or 44 percent, agreed with the statement, "I am confident in the future of my company." It looks like optimism is the watchword for this little corner of the economy.

Thursday, January 22, 2015

Big Trouble in the Big Banks

This week was the key one for earnings reports by big banks, and it turned out to be a bit of a rout. After Morgan Stanley fell short of expectations yesterday, the six biggest U.S. banks - including JP Morgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs - all disappointed in one way or another.

Morgan Stanley missed the analysts' earnings expectations by 0.4 percent, and its share price suffered yesterday as a result, dropping by about 4 percent. It joined J.P. Morgan, Bank of America, and Citigroup, all of whom fell short of earnings estimates. On average, banks this season have missed analysts’ earnings estimates by 6.3 percent.

Wells Fargo and Goldman Sachs at least met expectations, but they still underwhelmed investors. Wells Fargo's shares fell by 1.6 percent after its earnings report, and Goldman's income dropped by 7 percent from a year earlier. It was a tough week to be a big bank.

Wednesday, January 21, 2015

Europe Looks to QE

Just after America's bout of quantitative easing has come to an end, the European Central Bank is expected to embark on QE for Europe at its meeting tomorrow. The program appears to have been a success here, with a constantly growing stock market and inflation very much under control. Will Europe see the same result?

The recovery in Europe has remained sluggish, with the GDP for the Eurozone remaining lower than it was in 2008, before the recession, and unemployment is still in double digits in some areas. About a quarter of all government bonds issued in Europe are paying negative yields.

One problem is that our Federal Reserve was able to purchase U.S Treasury bills for our QE, while the ECB would have to buy 19 different countries' bonds. But with Europe at risk of deflation and interest rates still at zero, Europe's economic ministers may have no other choice.

Tuesday, January 20, 2015

Another Headache from the IRS

IRS season is all of a sudden upon us, with the agency beginning to accept tax returns starting today. And if you're in need of some help, it might be even more painful than usual. The IRS itself is warning that its customer service will be the worst since 2001.

According to the National Taxpayer Advocate's office, fewer than half - just 43 percent - of all people who call the IRS for help will actually get through this year. Even for those who do, their hold time is estimated to be at least 30 minutes.

It wasn't so long ago that the IRS was relatively responsive and helpful to taxpayers. In 2004, it handled 87 percent of all help calls, with a wait time of just two and a half minutes. Not bad for an agency that receives 100 million calls every taxpaying season.

Monday, January 19, 2015

Sports and Stocks

There's a new study out about how the success of sports teams affect the stock performance of local companies, which may take on some relevance now that we know that the Seahawks and Patriots will be meeting in the Super Bowl. The researchers found a strong correlation between stock prices of local companies and the performance of NFL, MLB, NBA and NHL teams.

In other words, if the local team wins, the local stocks win too. They argue that it's possible to create a portfolio based on this knowledge that would increase returns from 0.08 percent to 0.13 percent per week.

The effect appears to be caused by simple sentiment: Exuberance over the area sports team tends to spread excitement in lots of different directions. The authors say the effect washes out about three years after the success, so any effect from the Giants' victory in Super Bowl XLVI is just about done by now.

Friday, January 16, 2015

Jobs: Not an Issue

After a December employment report that capped off the biggest year for jobs since 1999, it's no surprise that Americans' confidence in the job market is soaring. In its monthly poll for January on the most important problems facing the country, Gallup found that just 7 percent of Americans say that jobs are our biggest challenge. That's the lowest that figure has been since October 2008.

American saying jobs were our top problem peaked at a whopping 39 percent in September 2011. What's replaced it? No one issue is nearly as prominent at this point; "dissatisfaction with the government" was named by 17 percent of the respondents, while 14 percent said "the economy in general."

Even those numbers are down from their recent peaks. In late 2013, dissatisfaction with the government was cited by 33 percent of the respondents. And in late 2012, the economy in general was the biggest issue for 37 percent of Americans.

Thursday, January 15, 2015

Inside the Retail Slide

Retail sales fell an alarming 0.9 percent in December, according to figures released by the Commerce Department yesterday. But there are mitigating factors to that little bit of bad news. Most of the drop in retail sales is a result of the drop in gas prices: Americans spent nearly $6 billion less at the pump in December than they had in December 2013.

Without the loss of gas sales, retail spending would have slipped 0.4 percent from November to December, which is still a disappointment in what has been a season of fairly good economic news. But December's retail figures - excluding gas sales - were an increase of 5.3 percent over December of 2013.

Although it seems like a huge part of our expenditures, gas station spending accounted for just 9 percent of retail spending in December. That's below autos and car parts, at 20.6 percent, food and beverage stores, at 12.8 percent, and general merchandise stores, at 12.5 percent.

Wednesday, January 14, 2015

Growing Dividends

Dividend payments have become a hallmark of most larger American stocks. More than 80 percent of the stocks in the large-cap S&P 500 index now pay a dividend. But they're rapidly becoming more popular among smaller issues as well.

As of the end of the year, a full 68 percent of the companies in the mid-cap S&P 400 offered dividends. Not only that, but more than half of the small-cap companies - 53 percent - in the S&P 600 Index provided dividends.

The drop in oil prices has provided another bit of good news for dividend owners. Nine of the top ten S&P 500 dividend payers are energy or telecommunications stocks, as companies try to reassure their shareholders with regular payouts. The highest dividend on the S&P 500 now belongs to the deepwater driller Transocean, which is paying out a whopping 19.57 percent - but whose share price has dropped almost 50 percent in the past three months.

Tuesday, January 13, 2015

2014's Big Fund Winners

We talked about the stocks that had performed the best in 2014 - what about the top mutual funds? The numbers are in now, and these are the year's biggest winners:

  1. Catalyst Dynamic Alpha A, up 21.9 percent
  2. Nuveen Concentrated Core, up 21.2 percent
  3. Glenmede Large Cap Growth, up 20.0 percent
  4. PNC Large Cap Growth I, up 19.5 percent
  5. Vanguard PrimeCap Core, up 19.3 percent
  6. Shelton Nasdaq 100 Index Direct, up 19.0 percent
  7. Vanguard Capital Opportunity, up 19.0 percent
  8. Lazard U.S. Equity Concentrated Institutional, up 18.9 percent
  9. USAA Nasdaq 100 Index, up 18.8 percent
  10. Valic Company I Nasdaq 100 Index, up 18.7 percent

Monday, January 12, 2015

The Year in Jobs

The figures released by the Bureau of Labor Statistics on Friday were what we had gotten accustomed to in 2014: The economy added 252,000 jobs in December, meaning we added at least 140,000 jobs in every month of the year. All told, we added nearly 3 million jobs last year - the highest such figure since 1999.

We started 2014 with an unemployment rate of 6.7 percent. After the December report, it now stands at 5.6 percent. The rate peaked at 10.0 percent in October 2009; it hasn't been this low since June 2008.

The industry that added the most jobs in 2014 was what the BLS calls professional services, which includes such things as accounting and engineering. That category added 732,000 jobs last year. Hotels, restaurants and entertainment added 421,000 jobs. Construction added 290,000 jobs, and retail added 250,000 jobs.

Friday, January 9, 2015

All That for Nothing

This week has provided a good lesson in why it's foolish to follow the stock market's ups and downs too closely, unless you want to give yourself a good bout of nausea. The week started off looking disastrous: As of noon on Tuesday, the S&P 500 index was down more than 4 percent from where it had ended 2014, in less than three trading days. It was the worst start to a year since the disastrous 2008.

But then things turned around. The S&P stabilized on Tuesday afternoon, and Wednesday was a strong day, with the index up 2.2 percent. That trend continued yesterday, when the S&P gained back a further 1.8 percent.

After all that turmoil, the S&P finished Thursday - concluding the first trading week of 2015 - up an almost imperceptible 0.16 percent for the year. All that nausea from the roller coast ride of earlier this week was for virtually nothing.

Thursday, January 8, 2015

Could You Deal With a Financial Emergency?

How prepared are you to deal with a financial emergency? Most American's aren't very well equipped to do so, according to a new survey from Bankrate. More than 60 percent of all Americans say they wouldn’t even have enough money in their savings accounts to pay for an unexpected car repair or medical emergency.

Only 38 percent said they could cover a $500 repair bill or a $1,000 emergency room visit with funds from their bank accounts. Such an unexpected bill would cause 26 percent of Americans to reduce spending elsewhere, 16 percent say they'd have to borrow from family or friends, and 12 percent would put the expense on a credit card.

Interestingly enough, the same survey found that 82 percent of all Americans keep a household budget. The most popular budgeting tool is a simple pencil and paper, used by 36 percent of those surveyed. The same percentage use a computer budgeting program as keep all the numbers in their heads - 18 percent in both cases.

Wednesday, January 7, 2015

A Good Year for 401(k)s

According to research just published by the Employee Benefit Research Institute, 2014 was a very good year for most of our 401(k) plans. Those nearing retirement got a big boost to their plans: Participants aged 55 to 65 who had been with their current employer for more than 20 years gained an increase in plan balances of more than 14 percent over the course of 2014.

Younger workers, who are starting from a lower base than older workers, saw the highest percentage increases in their 401(k)s. Workers aged 25 to 34 who had been with their current employers just one to four years saw their balances jump by an average of 47.9 percent.

You see that trend throughout the numbers, where newer workers make much more impressive percentage gains than older ones. Workers with between 10 and 19 years of service with their employers saw their balances rise on average by 16.7 percent, while those with 5 to 9 years of service did even better at 20.9 percent, and those with  just 1 to 4 years of service saw their balances gain 25.7 percent. With those trends in mind, 14 percent gains for older workers look pretty good.

Tuesday, January 6, 2015

Biggest Losers of 2014

Yesterday, we looked at the S&P's strongest stocks for 2014. Here are the ten stocks in the index that did the worst last year; notice that many of them are energy stocks, which suffered when the price of oil fell:

  • Transocean Ltd., down 62.9 percent
  • Noble Corp., down 55.8 percent
  • Denbury Resources, down 50.5 percent
  • ENSCO Plc, down 47.6 percent
  • Avon Products, down 45.5 percent
  • Genworth Financial, down 45.3 percent
  • Freeport McMoRan Copper & Gold, down 38.1 percent
  • Range Resources, down 36.6 percent
  • Diamond Offshore Drilling, down 35.5 percent
  • Mattel, down 35.0 percent

Monday, January 5, 2015

Biggest Winners of 2014

So 2014 is in our collective rear-view mirror now, with the S&P 500 ending the year up a solid 11.4 percent. Here are the S&P's biggest winners for 2014:

  • Southwest Airlines, up 124.6 percent
  • Electronic Arts, up 104.9 percent
  • Edwards Lifesciences, up 93.7 percent
  • Allergan, Inc., up 91.4 percent
  • Avago Technologies, Inc., up 90.2 percent
  • Mallinckrodt, up 89.5 percent
  • Delta Air Lines, up 79.1 percent
  • Keurig Green Mountain, up 75.3 percent
  • Royal Caribbean Cruises, up 73.8 percent
  • Kroger, up 62.4 percent

Friday, January 2, 2015

The January Barometer

Today is the first trading day of 2015, and it's also the beginning of the January trading period. There is a stock-market adage that says the whole year will go as January goes. If this month is an up month, the whole year should be up.

That's held up pretty well in the past. Since 1950, January has served as an accurate barometer for the remainder of the year 77 percent of the time. But be warned: One of those anomalies happened just last year. The S&P 500 dropped by about 3 percent in January, on its way to a 7 percent gain for the year.

Even more accurate as a barometer for the rest of the year are the first five days of January. The first five trading days of the year have predicted the direction of the market for the year as a whole a whopping 85 percent of the time.

Thursday, January 1, 2015

Thoughts for New Year's Day

“For last year's words belong to last year's language/
And next year's words await another voice.”
~ T.S. Eliot

“Any new beginning is forged from the shards of the past, not from the abandonment of the past.”  ~ Craig D. Lounsbrough

“Each New Year, we have before us a brand new book containing 365 blank pages. Let us fill them with all the forgotten things from last year—the words we forgot to say, the love we forgot to show, and the charity we forgot to offer.” ~ Peggy Toney Horton