GDP Stumbles Again

People hoping for a strong bounceback from the weak GDP numbers we saw in the first quarter were disappointed by the figure released by the Commerce Department this morning. The economy grew at just 1.2 percent in the second quarter.

Corporate spending on equipment, structures and intellectual property fell by 2.2 percent after a 3.4 percent drop in the first quarter. Outlays for equipment dropped for the fourth quarter in the last five. Another problem was a decrease in residential investment, which fell at a 6.1 percent pace.

The good news is, household consumption, which accounts for about 70 percent of the economy, grew at a 4.2 percent annualized rate. That's the biggest jump since the end of 2014, and added 2.8 percentage points to growth.

The Fed's Outlook Brightens

After its meeting yesterday, the Federal Reserve opted to keep interest rates unchanged. But it did open the door to further rate rises in the coming months by adding in the following line to its statement: “Near-term risks to the economic outlook have diminished.”

That line suggests the Fed has increasing confidence in the improving labor market and the ability for inflation to move toward its 2 percent annual target. The addition follows a positive string of data, including a strong June jobs report, which helped ease concerns about the labor market after a dismal May report.

All in all, the Fed expects a brighter outlook for the U.S. economy. In addition to the job gains in June, household spending has been growing at a brisk clip, the Fed said. Yet the central bank also noted that business investment remained “soft.”

The Confidence in a 401(k)

Retirement savers are getting more optimistic about how much they’ve saved, according to a just-released survey by J.P. Morgan Asset Management. It took a look at defined contribution plans like 401(k)s, as well as participants’ views on how their retirement readiness has changed since 2012.

Fewer plan participants (59 percent, down from 70 percent in 2012) think they will have to remain employed beyond their desired retirement age. A larger proportion (44 percent, up from 31 percent) are confident that their savings will last throughout their lifetimes.

On the other hand, the survey found that more than half of defined-contribution plan participants still fear that their savings may not see them through to the end of their lives. Participants are also aware that they are not saving enough: 68 percent say their 2015 contribution rates were below where they should have been.

The Yahoo! Conundrum

One upon a time, Yahoo! was the poster child for highflying Internet stocks. At its peak, in 2000, the company's market cap was more than $100 billion. Yesterday, it was sold to Verizon for $4.8 billion. What happened?

Yahoo was never really able to adapt its technology and culture to an Internet that became focused on social media and mobile devices, falling behind rivals such as Google and Facebook. But what ultimately forced the hand of Yahoo CEO Marissa Mayer was an investment that worked too well. In 2005, Yahoo invested $1 billion in China's hottest technology startup, Alibaba. By last year, Yahoo’s Alibaba shares accounted for the majority of the company’s value.

The problem was that if Yahoo sold off its stake, it would trigger a massive tax bill. So instead, Mayer was forced to sell the rest of the company. Yahoo will be folded in with AOL, another struggling internet brand that was acquired by Verizon last year. 

What Americans Don't Know About Bonds

A new study called "Financial Capability in the United States 2016" looks at what Americans know and don't know about their financial environment. And what is the one aspect that they understand the least? How the bond market works.

The worst performance for people who took the survey was on a question about how bond prices respond to rising interest rates. Only 28 percent of people in 2015 got that one right.

The correct answer is that bond prices will fall. That’s because interest rates and bond prices move in opposite directions. It’s the primary reason why bond mutual funds, on average, returned a solid 2.6 percent in the second quarter of this year: Falling interest rates drove bond prices higher.

Young America the Indebted

More than one in three young adults are worried about the amount of debt they’re carrying, according to a new report Fair Isaac Corp, which provides FICO credit scores. Thirty-seven percent of millennials aged 25 to 34 are concerned about their debt levels.

Their biggest debt burdens are mortgages, followed by student loans. Some 32 of millennials say they owe at least $20,000 on student loans. Another 45 percent said they owe at least $7,000 on auto loans.

There are mixed reports about whether student-loan debt is holding back homeownership among the young. Some 71 percent of people who don’t own homes and are paying their student loans say the debt is making it harder for them to purchase a home, according to a survey by the National Association of Realtors. But the Brookings Institution has released a report saying that student-loan debt isn’t dragging down home ownership.

Winning Streaks on Earnings

Yesterday we looked at stocks that have dropped after each of their recent earnings reports. Now let's look at the other side: stocks that have been batting 1.000 for the last couple of years. 

There’s one stock in the S&P 1500 that has traded higher in reaction to its quarterly earnings reports for the last three years.  Natus Medical, a California-based provider of medical devices for newborns, has gone up in share price following its last 12 quarterly earnings.

Other stocks with similar winning streaks: Perry Ellis and Crane have 11 straight up days on earnings.  Ebix has been up nine quarters in a row, while TJX, Tractor Supply, and Petterson-UTI Energy have been up eight quarters in a row.  Some bigger names - Southwest Air, Aetna, salesforce.com - have been up for seven quarters.

IBM's Unenviable Record

After reporting positive earnings for the second quarter on Monday, IBM's stock price inched up yesterday. Before yesterday, IBM's share price had dropped following its last 11 quarterly earnings reports.  That’s an epic losing streak for a blue-chip company. 

One other stock in the S&P 1500 has dropped after its earnings report for 11 quarters in a row, meaning it has now taken this dubious crown from IBM. That's Arctic Cat, a Minnesota-based manufacturer of snowmobiles and ATVs.

Other long losing streaks: Qualcomm has dropped following its last nine quarterly reports, while Black Box has gapped down eight quarters in a row.  Bristow Group, Brinker International and Daktronics have all opened lower following their last seven quarterly reports.

Convention Investing

The Republicans hold their national convention in Cleveland this week, and no matter which side of the political aisle you're on, this looks like good news for investors. The market has rallied during 12 of 17 occasions when Republicans had their convention, based on data from S&P Capital IQ.

Democrats are likely to provide less of a boost during their convention in Philadelphia next week. The market has risen during only 7 out of 17 of their conventions.

The Appearance of Strong Sales

On Friday, the Commerce Department delivered a report on June retail sales that looked on the surface to be very positive. Sales rose 0.6 percent in June from May, which was far above the 0.1 percent consensus from Wall Street. Sales rose in virtually every category, even department stores. The only categories to see sales drop were clothing stores and restaurants and bars.

But there are some questions lurking underneath. For one thing, May’s initial report was revised down significantly, from a gain of 0.5 percent to only 0.2 percent. So the June number is in large part an offset of what now appears to be a mediocre May.

More importantly, look at the year-over-year number. Sales in June were up 2.7 percent over last June, while as recently as June 2013, that same number was 5.8 percent. That indicates the current monthly numbers are good - but far from great.

Going Cash-Free

Do you ever spend cash any more? Fewer Americans say they are making "all" or "most" of their purchases with cash, compared to what they say they did five years ago, according to a new survey from Gallup.

Gallup asked Americans about the extent to which they use cash for retail purchases -- and how much they used cash five years ago. While 24 percent report currently making all or most of their purchases with cash, 36 percent say they were doing this five years ago. Conversely, 53 percent say they currently make only some or none of their purchases with cash, versus 43 percent saying this five years ago.

Not surprisingly, younger people are leading this shift. Twenty-one percent of young Americans aged 23 to 34 say they make all or most of their purchases with cash, down 18 percentage points from the 39 percent who say they used cash to that extent five years ago. In contrast, those aged 35 to 54 saw just a two-point drop.

Trouble Ahead for the Banking Sector

JPMorgan Chase will kick off the second-quarter earnings season today. But investors and analysts are not optimistic, and it's expected to be a very difficult quarter for banks and other financial services firms.

Analyst estimates project JPMorgan’s second quarter earnings to drop 7 percent from a year ago. Morgan Stanley, which will report its second-quarter results next week, projects even worse, at a 26 percent decline.

All told, second-quarter earnings for banks in the S&P 500 index are set to drop by nearly 12 percent, according to FactSet. The combined net income at the six biggest banks could decline by as much as 18 percent from the year-earlier quarter, according to analysts surveyed by Bloomberg.

New Records!

The Dow Jones Industrial Average and the S&P 500 index both closed at fresh all-time highs yesterday. The Dow marked its first record high in about 14 months, since May 19, 2015. Meanwhile, the S&P 500, set a new record yesterday after closing at a record for the first time in nearly 14 months on Monday.

Over the last ten trading days, the S&P 500 has rallied by more than 7.5 percent.  Throughout the current bull market, there have only been six other periods where equities have seen this sharp of a rally in such a short period of time. We hadn't seen this scenario in over four years, since December 2011.

Meanwhile, the Nasdaq Composite Index rose by 0.7 percent. It didn't finish at an all-time high, but it's now in positive territory for the first time in 2016.

The View on the Economy

As part of its presidential polling, Pew Research last week also asked people for their views on the economy. The public continues to have mixed ratings of the nation’s economy: Currently, 44 percent say conditions are only fair while a roughly equal share views them as excellent or good (27 percent) or poor (28 percent).

But that's a big improvement over where we were at a comparable point four years ago. In June 2012, at about the same point in the previous presidential campaign, just 10 percent expressed positive views of the nation’s economy, while 42 percent described economic conditions as poor.

Looking ahead, a majority of Americans (54 percent) say conditions next year will be about the same as they are now. About three in ten (29 percent) say things will improve over the course of the next year, and 13 percent believe they will get worse.

Mixed Signals on Jobs

The economy added a robust 287,000 jobs in June, the biggest month for new employment since October 2015, according to figures released by the Bureau of Labor Statistics on Friday. But at the same time, the headline unemployment rate rose from 4.7 percent to 4.9 percent. How did that happen?

For one thing, May's already disappointing figure was revised down even further, from 38,000 new jobs added to a paltry 11,000 jobs. More importantly, the work force has expanded, with more people looking for jobs.

That's a sign that the economy may still be heating up. Another positive: Wages also grew at one of the fastest paces since this cycle of economic expansion began in 2009, rising 2.6 percent in June from the previous year.

Brexit and the Investor Mentality

Despite all the immediate concern, the British exit from the European Union doesn't seem to be having much effect on investors. Investor sentiment from the American Association of Individual Investors was released yesterday and showed that bullish sentiment increased for the second straight week to 31.1 percent.  That’s the highest that reading has been since late April. 

It is still fairly low, though. There is still a ways to go before this measure even gets back to average levels, as bullish sentiment has been below 40 percent for 36 straight weeks. 

While bullish sentiment increased, bearish sentiment saw an even larger decline in magnitude.  From last week’s level of 33.4 percent, bearish sentiment declined to 26.7 percent, making this the largest weekly decline since February.

The Optimistic Generation

A new survey has found that millennials are more positive about the future than their parents when it comes to investments. The survey by Securian Financial Group found that more than 70 percent of millennials said they expected a bull market for stocks in the next one to three years, while boomers were split 50-50 between bull and bear. 

More young people think they’ve got investing pretty much figured out. About 42 percent said they are “very knowledgeable about investments,” compared with 17 percent of boomers.

The two groups were also very different in their willingness to ride out a crisis. Almost three out of five boomers said they’d make no change to their portfolios, while only 37 percent of millennials said the same. And young people were far more likely to say they’d sell into a falling market: About 16 percent of millennials said they’d sell when the market fell, compared with only 1.6 percent of boomers.

The First Half's Big Winners

We'll wrap up our look back at the first half of 2016 with the top ten gainers in the S&P 500 over the past six months. As with the sector analysis, energy bounced back big here too:

1. Newmont Mining Corp.        (Precious Metals)   up  118%
2. Oneok Inc.        (Oil and Gas Pipelines)    101%
3. Southwestern Energy Co.        (Oil and Gas Production)    77%
4. Range Resources Corp.        (Oil and Gas Production)    75%
5. Freeport-McMo-Ran Inc.        (Precious Metals)    65%    
6. Spectra Energy Corp.        (Oil and Gas Pipelines)    57%
7. Iron Mountain Inc.        (Real Estate Investment Trusts)    52%
8. EQT Corp.        (Oil and Gas Production)    49%
9. Digital Realty Trust Inc.    (Real Estate Investment Trusts)    47%
10. Murphy Oil Corp.    (Oil and Gas Production)    46%

First Half Sector Performance

The biggest story in the sector performance for the first half of 2016 has been in energy. After dropping by 21 percent in 2015, the S&P 500's energy sector has bounced back with a strong gain of 16 percent so far this year.

Here's the performance of all ten sector for the first half of 2016:   

• Telecommunications     up 25%
• Utilities    up 23%   
• Energy    up 16%   
• Consumer Staples    up 10%
• Materials    up 7%   
• Industrials    up 6%   
• Consumer Discretionary    up 1%   
• Health Care    0%
• Information Technology    0%   
• Financials     down 3%   

Thoughts for Independence Day

"Many a revolution started with the actions of a few. Only 56 men signed the Declaration of Independence. A few hanging together can lead a nation to change." ~ Wynton Marsalis

"Independence is a heady draught, and if you drink it in your youth, it can have the same effect on the brain as young wine does. It does not matter that its taste is not always appealing. It is addictive and with each drink you want more." ~ Maya Angelou

"America was born out of a desire for self-determination, a longing for the human dignity that only independence can bring." ~ Maurice Saatchi

First Half Scorecard

With a surge in the past few days, most of the major stock indexes ended the first half of 2016 in positive territory. Rebounding from the Brexit fears, the S&P 500 index posted its best three-day gain since February to finish the first half at a positive  2.7 percent.

Other indexes:

• The Dow Jones is slightly better, up 2.9 percent for the first half
• Gains on Thursday pushed the Russell 2000 into positive territory, up 1.4 percent for the year
• But the Nasdaq remained negative, down 3.3 percent for the first half of the year