Tuesday, March 31, 2015

A Look at the First Quarter

Today marks the last trading day of the first quarter of 2015. We have had a bit of a roller coaster ride in the markets the past three months, but mostly we just ended up where we started. Here's how the major indexes did, pending today's outcome:
  • The S&P 500 peaked in early March, when it was up 2.8 percent on the year, but now shows an increase of just 1.3 percent so far in 2015.
  • Similarly, the Dow Jones Industrial Average was up 2.6 percent as of March 2, but is now up just 0.9 percent for the year.
  • The Nasdaq was briefly up more than 6 percent, as of March 20, and is now up 4.5 percent on the year.

Monday, March 30, 2015

Foreigners Love U.S. Stocks

There has been much hand-wringing over the idea that foreign investors hold a sizable amount of the debt offered by the U.S. Treasury - $6.2 trillion, according to figures released by the Federal Reserve last week. But it has largely escaped notice that foreign investors own nearly as big a chunk of U.S. stocks, amassing a total of $5.9 trillion by the end of 2014.

Foreigners pumped a total of $121.7 billion into our stock markets last year, an increase of 14 percent over the year earlier. Meanwhile, the amount they put into U.S. Treasurys increased by just 6 percent, suggesting that, at current trends, foreigners could own more stocks than T-bills before too long.

These foreign investors seem a lot less interested in our U.S. corporate bonds. Foreign investments in those instruments increased by only about 4 percent last year.

Friday, March 27, 2015

How Will Interest Rate Hikes Affect the Market?

With the Federal Reserve poised to start raising interest rates in the coming months, Bloomberg took a very interesting look at how the markets have reacted to similar Fed moves in the past. There were three earlier interest rate hikes in 1994, 1999 and 2004, which gives us three recent but distinct eras to look at.

The bad news is: It doesn't look like there's a safe bet. None of the sectors Bloomberg looked at outperformed in each of the three previous post-hike time frames. But several sectors lagged their benchmark in the wake of an interest rate hike all three times. Those underperformers include:
  • Automobiles and components
  • Banks
  • Consumer durables and apparel
  • Insurance
  • Retail

Thursday, March 26, 2015

Storms Clouds Over the First Quarter

The first fiscal quarter of 2015 ends next week, and many economists have begun filing their estimates of how the U.S. GDP has looked over the past three months. The news has not been very good: Most forecasts have been revised downward in recent weeks. Some examples:
  • JP Morgan Chase has lowered its first quarter GDP estimate from 2.0 percent to 1.5 percent, citing reduced spending by oil companies
  • Morgan Stanley lowered its estimate from 1.2 percent to 0.9 percent, citing lightened inventories and lower exports
  • The Federal Reserve Bank of Atlanta predicts a minuscule 0.2 percent growth rate, down from an earlier forecast of 0.3 percent
At least no one seems to think it will be nearly as bad as the first quarter of 2014, when GDP contracted by 2.1 percent.

Wednesday, March 25, 2015

Why Economic Confidence Is Slipping

Gallup's U.S. Economic Confidence Index broke into positive territory for the first time in seven years last December and remained positive for eight straight weeks, peaking at plus 5 in the second half of January. But it's back below par now, dipping to negative 3 for the week ending March 22.

The index had dropped below the zero line in late February but has rebounded to be in positive territory last week, before dropping down again. The index looks at Americans' views of current economic conditions, combined with their perceptions of whether the U.S. economy is getting better or getting worse.

So what's driven it back down recently? The big factor is gas prices. Gallup has found that, in recent times, economic confidence increases when gas prices have dropped in a given week, and confidence decreases when gas prices have risen. Despite everything else going on in the economy, it's still gasoline prices that most affect people.

Tuesday, March 24, 2015

An Insult to the Garden State

Bankrate has come out with its list of the ten best and ten worst states to retire in, and the news is not good in New Jersey: We're sixth from the bottom. Supposedly, the only worse places to retire are Louisiana, West Virginia, Alaska, New York and, at the very bottom of the barrel, Arkansas, with its high crime rate, low health care rating, and poor happiness scores among senior citizens.

What's wrong with New Jersey? Bankrate cites the state's high cost of living and high taxes, as well as a low score for "emotional health." Despite the state's reputation for crime, we actually received high marks for safety.

The best states to retire in, according to Bankrate, are Virginia at No. 5, followed by Idaho, Utah, and Colorado. Coming in at No. 1 is a surprise choice: Wyoming, cited for its low taxes, low crime rate, and beautiful natural scenery.

Monday, March 23, 2015

The Retail Stock Anomaly

Stock analysts have really gotten down on a lot of major retailers lately. Wells Fargo recently looked at how 2015 consensus earnings estimates have changed over the past two years. Among the 51 retailers Wells Fargo looked at, estimates declined for 42 of them. Three companies — Shutterfly, Aeropostale, and J. C. Penney — saw declines in earnings estimates of more than 100 percent.

Even though the earnings expectation were down sharply, the retailers’ stocks did well. The average share price among the sample increased by 46 percent, and only 13 of the 51 share prices declined. So the analysts' pessimism didn't hurt shareholders in the long run.

That result seems counterintuitive, but it's not uncommon. Wells Fargo also found that consensus estimates dropped for 21 of the 30 companies in the Dow over the same period — but those stocks gained 43 percent on average.

Friday, March 20, 2015

The Cost of Staying in Coffee

Most of us are worried about a lot of different financial burdens in our retirement: medical bills, travel, leaving a legacy for our heirs. But BlackRock, the world's largest asset manager, has a new study out examining another very important retirement expense: coffee.

The number that BlackRock came up with was about $21,000 for coffee over a 30-year retirement. That figures two dollars for coffee every day, or about $700 a year. But that's not the end of the story. With our investments working for us, how much do we need to have saved to keep us in java throughout that retirement?

BlackRock used actuarial tables to figure that a 55-year-old needs $10,163 in savings right now to stay caffeinated during a retirement that starts at age 65. Whether you think that's a bargain or a lot of money probably depends on how much you need that cup of coffee every morning.

Thursday, March 19, 2015

The Fed Makes the Market Happy

The stock market sure liked what the Federal Reserve had to say yesterday - or rather what the Fed didn't say. With unemployment continuing to fall and GDP growth remaining strong, many economic pundits thought this might be the moment for the Fed to announce it was finally raising interest rates. Instead, it said following its March meeting that an April rate hike "remains unlikely."

In large part, this is because the Fed's view of the economy is not as rosy as you might think. Its current forecast, released yesterday, projects GDP growth to be 2.3 to 2.7 percent for all of 2015, down from its December projection of 2.6 to 3.0 percent. The forecast for 2016 is roughly the same.

Still, the market was more impressed by the unchanged interest rates than it was by the changed growth prediction. The S&P 500 was down by 8 points before the Fed's announcement, but promptly turned that around to a gain of 25 points.

Wednesday, March 18, 2015

American Airlines Takes Off

There are some changes happening in the S&P 500 at the end of this week, as Allergan - best known as the manufacturer of Botox - is being acquired by the Irish pharmaceutical giant Actavis. Allergan will be replaced in the index by the American Airlines Group.

Until Friday, the only airlines in the S&P will be Delta and Southwest. United Continental, despite representing the merger of two of the most prominent airlines in the nation, is not in the index. Neither was American, despite the fact that it was the result of the December 2013 merger of American with USAir.

The addition is a sign of how American has come roaring back after flirting with bankruptcy a few short years ago. In November 2011, the airline's stock price dropped down all the way to about 4.  By the time of the merger with USAir, two years later, it had bounced up to about 20. Now it's over 50 - an increase of more than 1000 percent.

Tuesday, March 17, 2015

It's Official: Newark Airport Is a Headache

If you've traveled at all from here in New Jersey, you've probably flown in and out of Newark Liberty Airport. And if you thought that airport was a pain in the you-know-what, you're right. According to a new study from the website FiveThirtyEight.com, among the 30 largest airports in the U.S., Newark has the worst time lags.

Newark adds an average of an extra 25 minutes to both departure and arrival target times, making it the worst in the industry. LaGuardia is just as bad, adding an average of 27 minutes to departure times and 23 minutes to arrival times. In third place? You guessed it: JFK adds 24 minutes to departures and 19 minutes to arrivals.

You're a little better off going down to Philadelphia, which adds 18 minutes to departures and 15 minutes to arrivals. The most efficient major airport, according to this study, is in Honolulu, where they're actually ahead of schedule on both ends, with departures coming in 7 minutes ahead of time and arrivals at 6 minutes.

Monday, March 16, 2015

What's Hurting the Market?

There's no way to get around it: The markets had a miserable week last week. With their third straight weeks posting declines, both the S&P 500 and the Dow Jones Industrial Average are now down overall for the year. What's happening?

One problem continues to be the dropping price of crude oil. Even though gasoline prices have started to turn upward, the price of crude fell by 4 percent on Friday amid warnings that the U.S. still has huge stockpiles of oil built up.  That's been hammering energy stocks.

The rising dollar/falling euro also continues to bedevil American companies that sell their goods abroad. Finally, wholesale producer prices have fallen for four straight months, reducing the amount companies can get for their goods and bringing about the specter of deflation. It's an odd situation where all these things that might be good for American consumers have had detrimental effects on stocks.

Friday, March 13, 2015

Gas Turns Back

Well, it was fun while it lasted. But the U.S. Energy Information Administration announced yesterday that gasoline prices turned upward in February, reversing a decline that had continued unabated since last summer. The national average for a gallon of regular gasoline was $2.22 last month, up from $2.12 in January. Here in New Jersey, the average price of a gallon of gas is at $2.25.

With prices going up, Americans spent more at gas stations in February for the first time since May 2014. Purchases at gas stations rose by 1.5 percent last month, the largest monthly gain since December 2013.

Still, we're in much better shape than we were not so long ago. The Commerce Department also reported that gas station sales in February were still down by 23 percent from a year earlier.

Thursday, March 12, 2015

America Leads the Real Estate Market

America's real estate market is not quite back to its pre-recession peak yet, but for the first time since 2009, the U.S. was the top destination for capital going into real estate markets last year. Total investment in real estate in America was up 12 percent in 2014, reaching $410 billion and pushing us ahead of China for the first time in five years, according to a new report from Cushman and Wakefield.

Investment in the entire global real estate market fell by 6.4 percent last year, driven in part by dropping land values in China. China is still the second most valuable real estate market in the world, though, followed by the U.K., Germany, and Japan.

New York City, unsurprisingly, was the top city worldwide for real estate investment, with more than $66 billion invested there. It's followed among global cities by London, Tokyo, L.A., and San Francisco. Here in the U.S., New York is followed by L.A., San Francisco, Washington, D.C., Chicago, and Boston, in that order.

Wednesday, March 11, 2015

Millionaires Everywhere!

For the first time in American history, there are more than 10 million millionaires in our country. The Spectrem Market Insights 2015 report found that the number of households with a net worth of $1 million or more grew by almost 500,000 households in 2014, reaching an all-time high of 10.1 million.

The percentage of millionaires among the population has reached 8.3 percent, which is even higher than it was before the recession. In the year 2007, when the recession officially started, the percentage of millionaire households was 8.2 percent, before falling to 5.9 percent in 2008. 

The number of households at higher wealth levels has also been growing. Households with a net worth of between $1 million and $5 million increased by 400,000, to 8.79 million. Those between $5 million and $25 million grew by 60,000, to 1.168 million, and those with more than $25 million grew by 10,000, to reach 142,000.

Tuesday, March 10, 2015

Why Do We Worry So Much?

Americans sure do worry about their finances. According to a new survey from the mutual fund firm Legg Mason, investors say they devote an hour and 20 minutes to their financial worries every single day. That's a total of 475 hours a year.

That's just the average. Legg Mason also found a hardcore group, about 10 percent of all investors, who spend two to three hours each day thinking or worrying about money. That's close to a thousand hours a year, or 125 eight-hour workdays, all spent fretting over finances.

What are all these people worrying about? Six out of 10 said they were not confident or only “somewhat confident” about their ability to retire “at the age I want to.” It sounds like they should spend less time worrying and more time taking control of their retirement plans.

Monday, March 9, 2015

Happy Anniversary, Bull!

It was on March 9, 2009 - exactly six years ago today - that the stock markets bottomed out following the financial crisis, and the bull market began. That remarkable run continues to this very day.

Here's what has happened in the past six years:
  • The S&P 500 has risen by 205 percent - more than tripling in value
  • The Dow Jones Industrial Average has risen by 174 percent
  • The Nasdaq is up an astonishing 288 percent
  • Citigroup, which had one of the biggest collapses during the financial meltdown, has seen its stock rise by 405 percent
  • Apple stock is up an incredible 966 percent

Friday, March 6, 2015

February's Jobs Report

We've had a strong of very strong months in the labor market, but somehow the news just keeps getting better. February's employment figures, released by the Bureau of Labor Statistics this morning, show that the economy added 295,000 jobs on the month. The headline unemployment rate dropped to 5.5 percent - the lowest it's been since May 2008. That's despite the fact that our terrible weather in February was expected by many to put the brakes on the hiring process.

We've had a a full year now with increases of at least 200,000 jobs per month. That hadn't happened since the go-go Nineties boom, in 1994-95. Over the past 12 months, we've seen an average monthly gain of 266,000 jobs. 

The stats on the quality of employment in February were mixed. The biggest single category adding jobs in February was food services and drinking places, with 59,000, and those are generally low-wage jobs. But the next-most was professional and business services at 51,000, and those are usually higher-paying, higher-prestige positions.

Thursday, March 5, 2015

The Impact of Buybacks

According to data compiled by Birinyi Associates, stock buyback authorizations set a new record in February, at a total of $118.32 billion. That’s the most since TrimTabs Investment Research began tracking that data in 1995, and almost twice the $55 billion bought in February of 2014.

Stock buybacks have been growing ever since the bull market started back in 2009: Companies bought back $2.1 trillion of their own stock between 2009 and the third quarter of 2014. In the first three quarters of 2014 alone, corporate buybacks rose by 27 percent, to $567.2 billion, and Apple alone bought $17 billion of its own stock.

These buybacks have had a significant impact on the movements of the market. According to a study from Bloomberg, there has recently been roughly $5 billion in buybacks each trading day - accounting for fully 2 percent of the total trading volume.

Wednesday, March 4, 2015

The IRS Holds Its Fire

Most of us are in the middle of tax-filing season, but there might be a little less pressure on taxpayers this year. The chances of an audit are declining quickly: The IRS said last week that it audited 0.86 percent of individual taxpayers in fiscal year 2014, the lowest rate since 2004.

It's even better if you're a small business owner. The IRS audited 0.57 percent of businesses in 2014, their lowest rate of business audits since 2005. The agency conducted 57,211 business audits in the fiscal year that ended September 30, down from 61,020 a year earlier.

The IRS focuses most of its firepower on bigger companies, but even in that area, the audits are being reeled back. In 2014, the IRS audited 26 percent of corporations with assets exceeding $250 million, down from 34 percent a year earlier.

Tuesday, March 3, 2015

The Nasdaq Scales the Heights

The Nasdaq stock index reached 5000 yesterday, for only the third time in its history. The first time was on March 9, 2000, in the midst of the high-tech boom; the second time was the very next day, when it closed at an all-time high of 5048. Yesterday, finally, it reached 5000 for a third time, nearly 15 years later.

The S&P 500 and the Dow Jones average both created all-time highs in early 2000 as well, but they have beaten those records several times since. Both of those indexes were back to new records in 2007, before the Great Recession took hold.

The Nasdaq never made it that high again, not for 15 long years. That's not quite a record span between highs for a stock index; the Dow and S&P each took 25 years to regain the heights of the 1929 boom that ended on Black Friday on October of that year. But 15 years is still a long time.

Monday, March 2, 2015

Why Revenues Are Weakening

Despite signs of a generally humming economy, there is one weakness we're seeing: corporate revenue growth. Among the companies in the S&P 500, revenue growth dropped from 3.6 percent in the third quarter of 2014 to 3.1 percent in the fourth quarter. S&P Capital IQ forecasts that revenue growth falling to negative 0.6 percent in the first quarter of this year, and negative 0.9 percent in the second quarter.

Why are profits dropping? There are two basic factors behind this:
  • This is the downside of the slide in energy prices that has made so many of us happy at the gas pump. Revenue for energy companies have been dropping as well. The energy sector has seen its earnings drop by 22 percent in the past year.
  • The stronger dollar has driven down profits that companies derive from overseas. Nearly half the total revenue for the S&P 500 comes from outside the United States.