Consumer Complaints of the Year

The Consumer Federation of America has released its annual list of the Top Ten most common financial complaints lodged by consumers. How many of these have you been a victim of?

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.       (Tie) Retail Sales  False advertising and other deceptive practices, defective merchandise, problems with rebates, coupons, gift cards and gift certificates, failure to deliver

Utilities  Service problems or billing disputes with phone, cable, satellite, Internet, electric and gas service

5.       Services  Misrepresentations, shoddy work, failure to have required licenses, failure to perform.

6.       Landlord/Tenant  Unhealthy or unsafe conditions, failure to make repairs or provide promised amenities, deposit and rent disputes, illegal eviction tactics

7.       Home Solicitations  Misrepresentations or failure to deliver in door-to-door, telemarketing or mail solicitations, do-not-call violations

8.       (Tie) Health Products/Services  Misleading claims; unlicensed practitioners; failure to deliver

Internet Sales Misrepresentations or other deceptive practices, failure to deliver online purchases

9.       Fraud Bogus sweepstakes and lotteries, work-at-home schemes, grant offers, fake check scams, imposter scams and other common frauds

10.   Household Goods Misrepresentations, failure to deliver, faulty repairs in connection with furniture or appliances

Second Quarter GDP Report

There's good news this morning about the American economy, not just in the present but earlier in the year as well. The Commerce Department announced that our GDP grew by 2.3 percent in the second quarter, which is roughly in line with where it's been over the past year. It also revised the first quarter estimate, turning what had been a 0.2 percent loss into a 0.6 percent gain.

The longer-term revisions were a bit disappointing though. Commerce revised down estimates for 2011 to 2014, now showing that the economy expanded by 2 percent over that period, below the previous estimates of 2.3 percent.

The strongest growth factors in the second quarter were consumer spending and exports. Consumer spending increased by 2.9 percent last quarter, up from 1.8 percent growth in the first quarter. And exports rose by 5.3 percent, after dropping by 6 percent in the first quarter.

Losing Home Sweet Home

Here’s an interesting sidelight to the housing recovery: After homeownership rates dropped in the first quarter to their lowest point since 1989, they fell even further in the second quarter and are now at a 48-year low. The seasonally adjusted homeownership rate is now at 63.5 percent, according to statistics released by the Commerce Department yesterday. That is the lowest that figure has been since 1967.

But the news is not all bad. The total number of households in the United States grew to 117 million in the second quarter of 2015, up from 115 million in the second quarter of 2014.

Meanwhile, the number of renter households increased by 2 million. While that can be taken as a good sign – younger people at least have enough money to move out of their parents’ homes -  it’s also a signal that incomes aren’t keeping pace with rising home prices.

The Nasdaq's Handful of Winners

The Nasdaq stock market has been a clear outperformer this year – it has returned 7.4 percent so far in 2015, while the S&P 500 is up by about 1 percent. But there’s more to this than meets the eye. Despite that solid return, the Nasdaq has had more falling stocks than rising stocks this year.

In fact, just six stocks constitute more than half of the rise in the Nasdaq’s market capitalization this year. Those six winners are:

• Netflix, up 118 percent
• Amazon, up 71 percent
• Facebook, up 21 percent
• Google, up 19 percent
• Apple, up 11 percent
• Gilead Sciences, up 6 percent

Energy in the Spotlight

Maybe the most important financial story of the coming week will be the earnings report from several big energy companies, including Exxon Mobil and Chevron. Falling oil prices have decimated the energy industry this year, so this week will be a chance to see how bad the carnage has been.

According to FactSet, the energy sector is reporting the largest year-over-year decline in earnings and revenues of all 10 S&P 500 industry sectors. Earnings among energy companies are down a whopping 54.4 percent on a year-over-year basis, while revenue has fallen 38.2 percent.

This week's numbers could put a stake into the notion that we are in an earnings recession. With 187 S&P 500 companies having reported second-quarter results, blended earnings, which combine actual results with projected estimates, are now sitting at 2.2 percent lower.

Financials on Fire

This earnings season has been a positive one for the S&P 500’s financial sector. After struggling for most of 2015, the financials have moved up to a year-to-date gain of 3 percent now, inching ahead of the broader S&P 500 index, which has risen by 2.8 percent.

The sector has benefited from generally strong earnings reports, not just for big banks like Wells Fargo but entities like the brokerage Charles Schwab and Vornado Realty Trust, one of the nation’s biggest real estate investment trusts. The results from the quarter mean that the financials’ cumulative performance for the past five years is now stronger than that of the entire S&P. Only the health care, consumer discretionary and tech sectors can also make that claim.

Wells Fargo can now claim the mantle of the world’s largest bank by market capitalization, surpassing the former leader, the Industrial & Commercial Bank of China. Its market cap has also passed up that of J.P. Morgan, which is still the largest U.S. bank by assets and hit its own all-time share price record in late June.

Why Is Gold Sinking?

You may have noticed that this has been a rough time for gold: Yesterday, gold prices dropped for the tenth day in a row, their longest losing streak since 1996. Gold futures prices are down 7.8 percent on the year, and have fallen by nearly 35 percent since the end of 2012. Goldman Sachs is now predicting that the price of an ounce of gold will fall below $1000 for the first time in more than six years.

 

What’s causing all this? Gold is a worldwide commodity, so recent global events often have a significant impact on its price, and have been accelerating longer-term trends lately. One theory is that with Greece now looking as if it won’t exit the euro, and the Greek crisis subsiding for the moment, investors have less need for a defensive haven, which gold often is.

 

Also last week, China released data showing that its gold reserves have risen by about 60 percent since 2009. If the world’s second-biggest economy is no longer looking to buy gold, that’s going to put a damper on global prices.

The Value of a Financial Advisor

It's no surprise that most Americans handle their own financial planning: A new study from Northwestern Mutual found that 69 percent of U.S. adults took a self-directed approach to planning. But those people don't seem to be doing a great job. Only 40 percent of respondents said they had set goals for their financial future, and a mere 12 percent had written a financial plan.

Thirty percent said they were “not at all financially prepared” to live to age 75, and more than a third had no idea of how much income they might need in retirement. Nearly two-thirds of working respondents said they expected to have to delay their retirement, mainly because of insufficient savings.

The responses from those who work with a financial advisor were very different. Sixty-eight percent of them said they felt “very financially secure,” compared with 35 percent of those without an advisor. And 79 percent of working respondents with an advisor expected to be happy in retirement, while just 65 percent of those without an advisor had that expectation.

Apple Propels Tech Stocks

Apple is set to report earnings today after the market's close, and it promises to have a huge impact. If the figure is in line with consensus, it could be good enough to push the growth rate of the S&P 500 tech sector into positive territory.

According to estimates from FactSet, Apple is projected to post quarterly profits of $1.80 a share, a 41 percent increase from the same time last year. Excluding Apple, FactSet estimates the tech sector would actually post a quarterly contraction in earnings of about  6 percent. Including the tech behemoth, the sector is looking at 0.2 percent growth.

Tech stocks have outperformed the broader market this year;  the sector is up 5.2 percent in 2015, nearly two percentage points better than that of the S&P 500. That's in large part because of Apple’s 17 percent gain.

IRAs Returning to Stocks

It's no surprise that stock investments in the nation's IRAs reached a peak in 2007, before the recession and the financial sector collapse. In 2007, IRA investors between the ages of 25 and 59 had more than 75 percent of their assets in stocks.

That fell dramatically in 2008, dropping to under 65 percent of all IRA assets. It's been rising in fits and starts since then, but even as of 2012, that figure was only up to 68.3 percent, according to the Investment Company Institute.

But now, IRA investors have 72.6 percent of their assets in stocks, the highest that figure has been since 2007. It looks like investors' confidence is almost all the way back to where it was before the meltdown.

Can't Beat That Personal Touch

We've heard a lot lately about robo-advisors, but most people who've actually worked with a financial advisor say they would prefer to stick with what they have. According to the Wells Fargo Affluent Investor survey, half of affluent and high net worth investors say they would never be comfortable working with a robo-advisor and 75 percent say a robo-advisor would never replace their financial advisor.

The survey found that 61 percent of affluent investors, defined as having between $250,000 and $1 million in investable assets, have a financial advisor, while 67 percent of high net worth investors — those with more than $1 million assets  — do. Among those investors who do have an advisor, 7 in 10 feel his or her advisor is as important to them as their doctor and almost all are satisfied with the quality of service they’re getting.

One reason these investors opt for the personal touch is because they want more than just transactions. Close to 90 percent say they want their advisor to do more than just invest their money - they want their advisor to be partner in financial planning.

The Beige Book on New York

The Federal Reserve's Beige Book, its periodic anecdotal look at economic conditions around the country, was released yesterday. One of the brightest aspects of it was all the reports of a strengthening jobs market: Most of the Fed’s 12 districts reported stronger wage growth for qualified or higher-skilled workers in industries such as construction, information technology and trucking.

Several districts noted rising pressure on employers to raise wages to compete for workers. The New York Fed office, which also covers northern New Jersey, reported “increased demand for human resource professionals to recruit new employees—particularly in the finance and legal sectors.”

But there's one area of New York that isn't looking so strong: Broadway. "Tourism activity has shown further signs of slowing — particularly in New York City," the Beige Book reported, "where both hotels and Broadway theaters report slowing business and declining revenues, and a major retailer attributes recent weakness to reduced tourism."

Investors Wary of the Global Situation

Given the shock waves seen around the world in recent weeks, investors' confidence in the global economy has fallen sharply. According to a monthly survey of fund managers conducted by Bank of America Merrill Lynch, just 42 percent of survey participants expect the global economy to strengthen over the next year, down from 55 percent just a month ago. China was viewed as the biggest risk to growth, with 62 percent expecting its economy to weaken over the same period.

Surprisingly, though, the same investors also increased their exposure to global equities to 42 percent of their portfolios, up from 38 percent last month. But many also hedged their short-term exposure, with the percentage of investors buying protection against a decline in equities over the next three months at its highest level since February 2008.

Fund managers also reported that they are now holding about 5.5 percent of their portfolios in cash. That's the highest level for that figure since December 2008.

Watch Out for Falling Dividends

The total amount of dividends paid out by companies continues to grow, but that masks a trend that might be a litle disqueting to investors. Companies are increasingly cutting the size of their dividends they're giving out to shareholders.

According to S&P Dow Jones indices, 85 companies reduced their dividend payouts in the second quarter of this year. That compares to 57 in the second quarter a year ago. This year was the biggest second quarter for falling dividends since the recession year of 2009, when nearly 250 companies cut their payouts.

The biggest reason for all the cuts is the decline of the energy sector, which is still reeling from the falling price of oil. Nearly half of the stocks cutting their dividends last quarter were energy companies.

IPOs Come Back Strong

The IPO market looked a little sluggish earlier in the year, but it perked up in the second quarter, according to a report released by PricewaterhouseCoopers last week. A total of 75 IPOs were completed in the second quarter, raising some $13 billion.

This was a dramatic change from the 41 IPOs and proceeds of $6.2 billion in the first quarter. So the number of deals done increased by 83 percent in the second quarter, and the proceeds raised grew by 111 percent.

The IPO market really kicked into gear in June; there were 36 IPOs in the final month of the quarter alone. This represented the most June IPOs since the technology IPO boom in 1999, according to PwC data.

Big Debt for the Young

One thing that characterizes younger generations these days is the debt they've built up early on in their adult lives. According to a new study from Allianz Life Insurance, Gen Xers reported carrying about 60 percent more mortgage debt than their boomer counterparts (an average of $144,000 versus $90,000 for boomers), and 140 percent more student loan debt (an average of $12,000 versus $5,000 for boomers)

Those are structural issues, but the Gen Xers have also run up 33 percent more credit card debt (an average of $8,000 versus $6,000 for boomers). In part that's because they got started early: According to the study, 76 percent of Gen Xers got their first credit card between the ages of 18 and 24, versus 68 percent of baby boomers.

But there's a shift in attitude as well. One in five Gen Xers surveyed said that going into debt to handle day-to-day purchases is “just a fact of life,” versus only 14 percent of boomers. And nearly half of Gen Xers only pay a portion of their credit card balances each month, compared with 32 percent of boomers.

The NYSE Shuts Down

What happened to the New York Stock Exchange yesterday? The market shut down at 11:30 yesterday morning, and stayed down for nearly four hours, because of what the exchange called "a technical glitch." Officials were quick to reassure investors that there was no terrorism or sabotage involved.

But the market, in the larger sense never closed. The glitch halted trading on the floor of the exchange, but the various electronic networks that are available for stock trading never shut down. Only 20 percent of the NYSE's volume actually take place on the floor, so the majority of the trades still went through.

It certainly wasn't a good thing, though. The Dow Jones industrial average was already down 200 points when the trading floor was closed. It stumbled around for the rest of the day, although the decline wasn't as steep, finishing down 269 points, or 1.5 percent of its value.

Americans Love Small Business

Americans are more than three times as likely to express confidence in small business as they are in big business, according to a new survey from Gallup. Sixty-seven percent of U.S. adults report having "a great deal" or "quite a lot" of confidence in small business, up from 62 percent last year, while just 21 percent are similarly confident in big business.

Small business is the only major institution aside from the military that is polling above its historical average. Confidence in big business, meanwhile, peaked at just 34 percent in 1975 - and has been slowly decreasing over the next few decades.

Confidence in big business bottomed out at 16 percent in 2009, and has since improved only slightly since then, to its current 21 percent. Big business regularly ranks near the bottom in confidence among major U.S. institutions, and has finished last or tied for last in nine separate Gallup surveys.

Reading the Earnings Tea Leaves

As we mentioned yesterday, Alcoa kicks off the second-quarter reporting period tomorrow, and it's not expected to be a pretty sight. Analysts are expecting a 4.5 percent profit decline from a year earlier for S&P 500 companies, according to FactSet.

But that's not as bad as it might seem. In most quarters of late, actual earnings have come in between where expectations start a quarter and where they ended. As of March 31, the prediction for the second quarter was that earnings would decline by just 2.2 percent.

And recent history suggests that the analysts have been even more wrong lately. Coming into first-quarter earnings season three months ago, analysts expected the S&P 500 to report a 4.6 percent decline in profits. But in the end, earnings grew slightly.

Optimism for July

Summer is widely considered the doldrums for the stock market, but July, for some reason, is often an exception to that. Since 1985, the S&P 500 has risen by an average of 0.8 percent in July. By contrast, it has fallen by 0.1 percent in June, by 0.4 percent in August, and 0.7 percent in September.

One theory for July's relative success is that there's usually an earnings-report season that happens during it. Alcoa, the traditional opener of earnings season, announces on Wednesday of this week, followed by Pepsi and Walgreens on Thursday.

In addition to being the historically worst-performing time for the market, summer is also the time of the market's lowest volume. The reasoning behind the stronger July is that having a little bit of news going on draws interest when traders might otherwise be on summer vacation - coming back to trade off good earnings news. We'll see if that's the case this July.

First Half Scorecard: The Dow

The other day we mentioned that the S&P 500 was virtually flat in the first half of 2015, rising just 0.2 percent. But the record for the Dow Jones Industrial Average was even worse. The Dow fell 1.4 percent through the first six months of 2015.

That's the first losing first half for the Dow since 2010. But that year, when the index lost 6.3 percent in that first half, it came back to gain 18 percent in the second half and finished the year up 11 percent overall.

That's unusual, though not unheard of. In the Dow's 117-year history, it has lost ground in the first half in 45 years (38 percent of the time). Of those 45 years, the index has climbed into positive territory by the end of the year only 31 percent of the time.

The June Jobs Report

June was another solid month for hiring in America, as the first quarter economic doldrums continue to recede into the past. The economy added 223,000 jobs in June, right in line with what we've seen over the past three months, and the headline unemployment rate dropped to 5.3 percent, according to figures released this morning by the Bureau of Labor Statistics.

Job growth in June was concentrated in services. Retailers added 33,000 jobs to payrolls, the health-care sector added 40,000 and leisure and hospitality increased by 22,000. Manufacturing jobs grew by just 4,000, and the public sector added a net of zero jobs.

One sign of caution: The labor participation rate continues to drop, falling another 0.3 percent in June to just 62.6 percent. That's the lowest that figure has been since 1977.

First Half Scorecard

The first half of 2015 is now in the books, and the news is pretty uninspiring. After a fair number of ups and downs, the S&P 500 has risen an almost imperceptible 0.20 percent on the year. The index actually declined by 0.2 percent in the second quarter of the year.

The malaise has been broad-based. The biggest winners among sectors have been health care stocks, up 8.4 percent, and banking stocks, up 7.7 percent. Usually, the best performing-sectors do much better than that over the course of six months.

Meanwhile, several sectors slumped during the first half. Utilities fell by 12.0 percent, transportation stocks dropped by 11.7 percent, and energy stocks, which many expected to rebound after the collapse in oil prices last year, fell by another 5.7 percent.