Friday, January 29, 2016

Fourth Quarter GDP Reoport

Eceonomic forecasters expected fourth quarter growth to come in weakly, and according to the figures released this morning by the Commerce Department, they were right on target. GDP grew at 0.7 percent in the fourth quarter, down from 2 percent in the third quarter and 3.9 percent in the second quarter. All told, the economy expanded at a rate of 2.4 percent for 2015. That's exactly the same rate that we saw in 2014.

Commerce attributed the slowing growth to a deceleration in consumer purchasing, which dropped from 2.2 percent growth in the third quarter to 1.1 percent in the fourth. Other factors included downturns in commercial real estate, exports, and state and local government spending.

The positive factors: The decrease in private inventory investment was smaller than in the previous quarter. We also saw  a deceleration in imports, and an acceleration in federal government spending.

Thursday, January 28, 2016

The Fed Gets Nervous

Since the Federal Reserve raised interest rates last month, we've had a scary slide in the stock market that some have attributed to those higher rates. So it was no surprise that they didn't raise rates further in their announcement yesterday. The next chance for the Fed to raise interest rates comes at the end of March.

The upshot of the Fed's remarks was that labor conditions have improved while the economy has softened a bit, which is an unusual situation. "Household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further; however, net exports have been soft and inventory investment slowed," the report said. "A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources."

The Fed also noted that inflation continues to run below its 2 percent target, and it expects the figure to stay below that threshold in the short term, "but to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further."

Wednesday, January 27, 2016

More Companies Drift Into Risky Waters

There are some strange rumblings in the bond market: Moody's Investors Service, which tracks how many companies have “probability-of-default” ratings of B3 and a negative outlook, had 248 companies on that list as of the first of the year. That's the highest figure in six years, and 36 percent higher than the year earlier.

Much of the increase, unsurprisingly, came from oil and natural gas companies. Of the 174 companies that were added to the watchlist last year, more than a third were oil and gas firms. As it stands now, about 25 percent of companies on the list are oil and gas firms.

Another warning sign: A distress ratio calculated by Standard & Poor’s, which measures the amount of junk debt trading with very high yields relative to the broader market, increased to 29.6 percent as of January 15. The last time the ratio was higher was in July 2009.

Tuesday, January 26, 2016

Generous Americans

We're just leaving the season for giving, but many experts believe the coming years will see even more generosity on the part of wealthy Americans. According to a new report from Marts & Lundy, a fundraising and consulting firm, giving is expected to grow by 4.1 percent in 2016 and by 4.3 percent in 2017. Both figures would exceed the five-, 10- and 25-year annualized average rates of growth in total giving.

Foundations will experience robust growth this year and next at 5.7 percent and 6.4 percent. Bequests are expected to grow by 4.8 percent and 4.9 percent, and corporations by 4.6 percent and 4.7 percent. Giving by individuals and households, which represents nearly three-quarters of total giving in the U.S., is expected to grow by a more modest 3.7 percent and 3.8 percent.

What explains the growth in charitable giving? The report cites projected growth in the S&P 500 Index, personal income and the net worth of households and nonprofits. Trends in the current year’s S&P 500 influence giving in the next year, as higher-income households often budget their current years giving based on the previous year’s assets.

Monday, January 25, 2016

The Upside of the Storm

While the Northeast continues to dig out from the snowstorm that dropped two feet of snow on some areas, it's worth pointing out that the storm brought good news for some stocks. So-called blizzard stocks tended to do very well on Friday in anticipation of the severe winter weather.

Leading the pack was Briggs and Stratton, which makes snowblowers and generators. The company has seen its stock rise by about 17 percent since the middle of last week. Other blizzard stocks that rose last week:
  • Douglas Dynamics, which makes snowplows and salt spreaders, up 1.6 percent
  • Home Depot, up 3.5 percent 
  • Lowe's, up 2.1 percent

Friday, January 22, 2016

Beware of IRS Scams

It's the time of year when people start assembling their tax documents - and when email scammers posing as IRS agents start phishing for information via email. If you get an email asking for any sort of information related to your tax situation, like your Social Security number, don't respond: The IRS doesn't initiate contact with taxpayers by email. Any such correspondence is an attempt to collect sensitive information, or to transmit dangerous malware.

The IRS doesn't make phone calls, either. If someone calls claiming to be from the IRS, asking for payments or any other personal infromation, the IRS wants you to know you can ignore that too. Or any contact via text message or social media.

If the IRS does need anything from you, how will they contact you? They'll send you a letter via the good old U.S mail. Any other form of communication can be disregarded.

Thursday, January 21, 2016

Inflation Watching

The consumer-price index figures for December were released yesterday, and prices on the month actually fell by 0.1 percent in December. Excluding the volatile food and energy categories, core prices rose by 0.1 percent, their smallest increase since August.

Core prices ended up rising 2.1 percent on the year, driven by increases in shelter, transportation and medical care. But the price for food at home fell in 2015, for only the third time in the past 50 years.

Of course, the biggest drop in prices continues to be those for energy. Energy prices fell 2.4 percent in December. For the year as a whole, the price index for gasoline fell by 19.7 percent.

Wednesday, January 20, 2016

America's Millionaires

America gained millionaires at a strong clip in 2015, according to a study released yesterday by Phoenix Marketing International. The country as a whole added 6.5 million millionaire households from the middle of 2014 to the middle of 2015, a growth rate of about 4 percent - the fastest pace since 2011.

The metro area with the most millionaires, naturally, was New York, which added more than 10,000 over the 12-month period, to bring the area's total to almost 480,000 households. Among states, North Dakota recorded the fastest growth in millionaires, increasing by more than 10 percent.

The top end is growing too. For the first time in 2015, more than one million U.S. households had a net worth of more than $5 million, an increase of 5 percent.

Tuesday, January 19, 2016

China's Slowdown

The Chinese economy is the second-largest in the world - still significantly behind that of the U.S. - and its growth is seen as a bellwether for the global economy. Yesterday, Chinese authorities reported that the country’s economy, currently around $10 trillion, grew at 6.9 percent in 2015, down slightly from 7.3 percent in 2014.

The figure is in line with most economists' expectations, and continues a gradual drawdown of China's economic growth since it peaked at  14 percent back in 2007. So in that sense, the official 2015 figure shouldn't be of too much concern.

On the other hand, this was the lowest annual GDP growth for China in 25 years, which is alarming. The official Chinese data also showed that the economy expanded by an annualized 6.8 percent during the fourth quarter alone, so even within 2015, the economy was slowing.

Monday, January 18, 2016

The Auto Industry's Problems

The U.S. auto industry is in the midst of a serious good news/bad news phase. The good news is that 2015 turned out to be the biggest year of automotive sales in American history. There were 17.5 million vehicles sold last year, edging the previous record of 17.4 million, set back in 2000.

But that hasn't prevented U.S. automakers from feeling the effects of the new year's slump in the stock markets. Ford is down 8.8 percent so far this year, and GM down 11 percent. AutoNation, the largest car retailer in the U.S., is down 20 percent.

Why is that? Many observers think the auto industry is a victim of its own success. After the strong records the industry set in 2015, many insiders don't see any more room from vehicle sales to grow.

Friday, January 15, 2016

Facing the Bear

The rough week in the stock market has, by some measures turned into a full-fledged bear. The average stock in the S&P 500 is down more than 20 percent from its 52-week high, according to Bespoke Investment Group. In all, 262 of the S&P 500 companies are off 20 percent or more from their 52-week high.

Not surprisingly, investor confidence is at new lows, too, according to the latest survey by the American Association of Individual Investors. Bearish sentiment, measured by the number of respondents who believe the market will fall in the next six months, jumped to 45.5 percent last week, the highest since April 2013. That compares with just 23.6 percent in the last week of 2015.

The good side to all this? Bearish investor sentiment tends to be a contrarian indicator - when individual investors start running for the exits, the smart money moves in.

Thursday, January 14, 2016

What Ails New York?

The Fed’s periodic Beige Book economic survey, based on reports from late November to early January by regional Fed banks, showed mostly "modest" or "moderate" growth in each of the 12 Fed districts surveyed. One of the exceptions was the New York City district, which along with Kansas City reported “essentially flat” economic activity.

One problem in New York was that retailers reported a sluggish holiday season, with spending flat to down moderately from 2014 levels. New York was also one of two districts that reported upward wage pressures.

But the particular weakness in New York City was attributed to weak tourism spending. Tourism activity, which had been fairly sluggish in the prior report, weakened even further. Revenue at New York hotels and Broadway theaters were down noticeably from a year earlier, particularly over the holiday season.

Wednesday, January 13, 2016

Ready to Rebound?

The stock market is off to a rough start in 2016, but there might be something to save it: quarterly earnings season, which kicks off this week. The S&P 500 index has risen an average 2.7 percent during the past four earnings seasons, according to Bespoke Investment Group.

On the other hand, the S&P index has fallen in each of the periods leading up to those earnings, dropping an average of 2 percent between reporting periods. Since 2001, when the large-cap S&P index has been down between earnings seasons, the index has rallied an average 0.9 percent during the ensuing reporting period, according to Bespoke. When the S&P 500 has been up between earnings seasons, the index has risen by an average of just 0.5 percent during the following reporting period.

Heading into this reporting season, the S&P 500 was down 6.3 percent since the third-quarter reporting season finished. So we may be in for some good news - for more reasons than one.

Tuesday, January 12, 2016

Dividends March Ahead

Dividends continue to rise on a year-over-year basis, although the pace of that growth is slowing a bit. According to S&P Dow Jones Indices, the average dividend increase for stocks in the S&P 500 was 13.1 percent, down from 17.5 percent in 2014. All told, companies in the S&P paid out 10 percent more in dividends last year than they had in 2014.

This was the fifth straight year that dividend payments have grown by double digits. Dividends payouts have now set new records for four straight years.

But that growth isn't quite as robust as it once was. Back in 2011, the average dividend for a dividend-payer in the S&P rose by a whopping 26.5 percent - more than twice the rate of increase for last year.

Monday, January 11, 2016

Jobs in 2015

The December jobs report that came out Friday closed the books on the employment figures for 2015 and overall, it was a very strong year. The economy added 292,000 jobs in December, bringing 2015’s average monthly jobs gains to about 221,000.

That’s a very solid figure, although it's below 2014’s monthly average of around 260,000. For all of 2015, 2.7 million jobs were added, compared with 3.1 million jobs in 2014. There have now been 63 straight months of job gains.

The headline unemployment figure was unchanged in December, remaining at 5.0 percent. That figure didn't move all that much during the year; it finished last December at 5.6 percent.

Friday, January 8, 2016

2016's Early Carnage

The first week of 2016 is almost in the books, and it hasn't been pretty for the stock market. It's been so bad that both the S&P 500 and the Dow Jones industrial average have posted the worst first four days to start a year in their histories.

The S&P 500 has lost 4.9 percent of its value in the first four trading sessions of the year, losing $864 billion of its value. The Dow has lost 5.2 percent of its value; it's now down more than 10 percent from its recent high back in May.

The triggering event appears to be a selloff in the Chinese stock market. Yesterday, China's market closed after 30 minutes of trading, allegedly due to a problem with circuit breakers. But that wasn't enough to stanch the losses on Wall Street

Thursday, January 7, 2016

The Secret to Happiness

They say money can't buy happiness, but according to a new study, having access to a little cash can make life a lot more satisfying. Being able to get cash in a pinch is a strong predictor of life satisfaction, according to a two researchers at Stockholm University.

Theresearchers found that Swedes who said they could not come up with a moderate sum of money — a little over $1,000 — within a week, from either from savings, family, friends, or a bank, reported lower measures of life satisfaction than those who said they could. They study participants said that reversing the decrease in “satisfaction with life circumstances” that is associated with being unable to get cash would take more than a fivefold increase in income.

Not being able to attain money even had a greater association with life satisfaction than cohabitation or marriage. This suggests that it's not so much wealth as a sense of economic security that matters for someone’s well-being.

Wednesday, January 6, 2016

Weakening Investor Sentiment

Given the way the stock market tumbled to a close at the end of the year, it should be no surprise that John Hancock’s investor sentiment index fell to plus-22 in the fourth quarter, matching a low last reached in the third quarter of 2013. The quarterly poll measures the percentage of affluent investors who say they believe it is a “good” or “very good” time to invest, minus those who feel the opposite.

Confidence in investing in stocks was 60 percent the year before, in the fourth quarter of 2014, but fell to 49 percent at the end of last year. It wasn't just stocks: Even optimism toward investing in balanced mutual funds, which incorporate both stocks and bonds, fell to 52 percent from 58 percent a year ago.

What do people still feel good about? Two thirds of investors were still positive about investing in their own homes, and 56 percent were positive about real estate investments in general. And investors continue to stay the course with retirement savings, with nearly eight in ten of them saying now is a good time to contribute to 401(k) plans and IRAs.

Tuesday, January 5, 2016

Trillion-Dollar Housing

The housing market seems to be just about recovered to pre-recession levels, and here's another indicator of that: The total value of the nation's housing stock is almost where it was at its peak in 2006, according to Zillow, a real estate data tracker.

The nation's collective homes are now worth $28.5 trillion. The previous peak for the market came in October 2006, when the nation's housing stock was valued at $29.2 trillion. We're about $782 billion away from that, which may sound like a lot - but we're at 98 percent of the previous mark.

The value of the housing market bottomed out in December 2011, at around $23 trillion. Since that low point, our homes have added an astonishing total value of $5.3 trillion.

Monday, January 4, 2016

A Blah 2015

The S&P 500 almost literally went nowhere in 2016. As late as December 30th, the index was posting a minuscule gain on the year, but losses on the last day of the year dragged it down to an annual decline of 0.7 percent.

It could have been worse. The Dow Jones industrial average finished down 2.2 percent on the year, and the Russell 2000, a small-cap benchmark, lost more than 5 percent. The Nasdaq, on the other hand, was much more successful, rising nearly 6 percent on the year.

At least the American markets weren't as much of a stomach-turner as Chinese stocks. The Shanghai Composite index finished 2016 up by 9.4 percent, but over the course of about two and a half months between June and August, it crashed to the tune of losing 43 percent of its value.

Friday, January 1, 2016

Thoughts for New Year's Day

"Every man regards his own life as the New Year's Eve of time." ~ Jean Paul Richter

"Good resolutions are simply checks that men draw on a bank where they have no account." ~ Oscar Wilde

"Approach the New Year with resolve to find the opportunities hidden in each new day." ~ Michael Josephson