Friday, December 30, 2016

Where Did the IPOs Go?

While the larger economy continued to gain traction, this past year was a surprisingly slow one in the IPO market. Initial public offerings in 2016 were at their lowest level since 2009, and proceeds from those IPOs were at their lowest total since 2003, according to data from research firm Renaissance Capital.

Only 105 companies went public in 2016, down from 170 in 2015, and 275 in 2014. The proceeds from these deals fell to only $18.8 billion; that's the lowest for this figure since IPOs raised $15.2 billion in 2003.

One bright spot: The median deal size this year was $95 million, up slightly from $94 million last year. But that's still down from $100 million in 2014.

Sunday, December 25, 2016

Thoughts for Christmas

“Christmas is the season for kindling the fire of hospitality in the hall, the genial flame of charity in the heart.” ― Washington Irving

“I truly believe that if we keep telling the Christmas story, singing the Christmas songs, and living the Christmas spirit, we can bring joy and happiness and peace to this world.” ― Norman Vincent Peale

“My idea of Christmas, whether old-fashioned or modern, is very simple: loving others. Come to think of it, why do we have to wait for Christmas to do that?” ― Bob Hope

Friday, December 23, 2016

An Even Stronger Third Quarter

The Commerce Department now thinks that U.S. economy grew faster than previously thought in the third quarter. Buoyed by stronger consumer spending, the economy posted its best performance in two years between July and September.

The revised 3.5 percent rate of GDP growth in the third quarter was higher than the prior estimate of 3.2 percent. What changed?
  • Consumer spending rose at a 3 percent annual rate, up from the prior estimate of 2.8 percent.
  • Business investments rose at a revised 1.4 percent rate, much stronger than the previous estimate of  0.1 percent.
  • Exports rose by 10 percent, helped by a temporary boom in U.S. soybean shipments.

Thursday, December 22, 2016

The Sleepy Dow

The Dow Jones industrial average is closing in on the hallowed 20,000 milestone, but it's sleepwalking on its way there. Yesterday, the Dow marked its narrowest daily trading range in more than two years, moving less than 45 points between its highest and lowest levels of the day.

These things tend to happen around the holidays, when trading volume is low. Yesterday's move was the smallest fluctuation since November 26, 2014, the day before Thanksgiving that year.

Individual stocks showed almost no movement on the day. Nike was the Dow’s best performer but it climbed less than 1 percent. Merck & Co., the biggest laggard, fell 1.8 percent.

Wednesday, December 21, 2016

Buybacks on the Decline

S&P 500 firms repurchased $115.6 billion worth of their own stock in the third quarter of this year, down 28 percent from the same quarter a year earlier, according to FactSet. That’s the largest year-over-year decline since 2009, and follows on the heels of a sharp drop-off in the second quarter as well.

Buybacks fell across the S&P sectors that typically buy back the most shares, such as information technology and financials. Tech firms did remain the biggest buyers, accounting for $27 billion worth of buybacks, but that represents a drop of more than 40 percent. Financials came in second, purchasing $25 billion.

Why has this been happening? One theory is that companies are too nervous about the economic outlook to spend heavily on buyback programs, especially at a time when their valuations were climbing and buybacks were getting more costly.

Tuesday, December 20, 2016

The Falling Correlations

S&P 500 stock-correlation readings last week fell to their lowest levels in nearly a decade. The rolling 65-day correlation for S&P 500 stocks ended last week at 40 percent, the lowest absolute reading since 2007.

Correlation between individual stocks is a measure of their tendency to move up and down in unison regardless of their underlying fundamentals. Correlation is measured on a scale of 0 to 100 percent, where 0 means there is no relationship and 100 percent means they move together perfectly. The average correlation since 2009 is 60 percent.

When stocks are not highly correlated, that opens up opportunities for individual stock pickers to thrive. For example, just since the election, financial stocks on the S&P 500 have climbed 17 percent, while utilities are down by more than 1 percent.

Monday, December 19, 2016

The Force Is Strong

How much can the rollout of a single product affect a company's stock price? If the company in question is Disney, and the product in question is the new Star Wars movie Rogue One, the answer is "a lot."

Rogue One opened at theaters on Friday, and pulled in $155 million at the box office over the weekend in the United States - a mark that's second only to that recorded by The Force Awakens, last year's Star Wars movie. Globally, the new movie earned an astonishing $290 million.

When the markets opened this morning, Disney stock jumped by 2 percent at the opening bell. That means Disney's market capitalization expanded by more than a billion and a half dollars in a single weekend.

Friday, December 16, 2016

Regrets, We've Had a Few

Regrets are widespread: According to a new study from Transamerica, 76 percent of retirees wish that they would have saved more on a consistent basis. One factor behind this is that 53 percent say that they would have liked more information and advice from their employers on how to achieve retirement goals.

In fact, nearly all retirees indicate their employer offered little in the way of retirement transition assistance. Fewer than 10 percent say their most recent employer offered flexible work arrangements, retirement seminars, or financial counseling.

The study also found that among the 60 percent who retired sooner than planned, two-thirds retired for employment-related reasons. The key factors: organizational changes at their place of work, job loss, being unhappy with their job or career, or receiving a retirement incentive or buyout.

Thursday, December 15, 2016

The Fed and Inflation

As expected, the Federal Reserve raised its benchmark interest rate 25 basis points yesterday – only the second hike in a decade – and indicated it might put in three more 25-basis-point hikes in 2017. The Fed signaled confidence in the economy’s growth prospects, although its long-term outlook is still for GDP growth around 1.8 percent over the next several years.

The Fed also said it does not expect inflation to reach its 2 percent target until 2018. Numbers released this morning supported that; the Labor Department said its Consumer Price Index rose 0.2 percent last month, after rising 0.4 percent in October.

In the 12 months through November, the CPI increased 1.7 percent. The so-called core CPI, which strips out food and energy costs, rose 0.2 percent last month after edging up 0.1 percent in October.

Wednesday, December 14, 2016

New Highs Ahead of the Fed

U.S. stocks set fresh records on Tuesday with the Dow Jones Industrial Average closing at a high for the seventh session in a row, as it moved within 100 points of the 20,000 milestone. Both the S&P 500 index and the Nasdaq also ended at record levels.

All this has happened before the Federal Reserve delivers its rate announcement today. The bank is widely expected to raise its benchmark interest rate by 25 basis points.

Will that have much of an effect on the markets? Most observers think it won't. The Fed's decision is considered almost a foregone conclusion, so it has already been baked in to stock prices.

Tuesday, December 13, 2016

What Small Business Owners Like

In the wake of one of the most surprising elections in history, small business optimism surged in November, posting its largest month-over-month gain in more than three years.  The overall index of small business optimism as measured by the NFIB rose from 94.9 up to 98.4, which was the highest monthly reading since December 2014. 

Even after this month’s increase in optimism, though, sentiment among small businesses is still below its cycle peak of 100.3. But it has made up a lot of the ground it lost during 2015 and early 2016.

While taxes and government red tape are still the issues that pose the biggest problems for small businesses, both were cited by less than 20 percent of owners.  The last time both of these issues were below 20 percent was five years ago, in November 2011.

Monday, December 12, 2016

Where's Inflation Headed?

Are inflation expectations running high, or running low? It depends on how you look at it. Preliminary responses to the University of Michigan’s monthly survey showed that people expect inflation of 2.3 percent over the next year. That is higher than the Labor Department’s most recent annual reading of 1.6 percent.

If you adjust for the fact that people always overestimate expected inflation, though, it is historically low. Indeed, the last time year-ahead inflation expectations were so cool was in September 2010.

To judge from their online habits, however, people’s confidence in low inflation might be starting to melt.  Google Trends shows that searches on inflation have picked up steadily this fall and are now at their highest monthly level since October 2008, when inflation was running 3.7 percent.

Friday, December 9, 2016

Investors Not Feeling This Market

The stock market has been pretty strong over the past month. Since the election, the S&P 500 index is up 3.8 percent, while the Dow is up 5.5 percent and the Nasdaq up 3.2 percent. But individual investors don't seem to quite believe in it. 

While sentiment on the part of individual investors definitely has seen an uptick since the election, in the last two weeks, that positive momentum has stalled. In AAII's sentiment survey, optimism is  down over six percentage points from where it was two weeks ago even as equities have been rallying to record highs. In this week’s sentiment survey, individual investor bullish sentiment slipped to 43.1 percent. 

That means despite the strong showing, less than half of all investors feel optimistic about this market. In fact, the last time more than half of individual investors were bullish was 101 weeks ago at the start of 2015.

Thursday, December 8, 2016

Time to Eat at Home

Here's an interesting snapshot of our current economy: Traffic at U.S. fast-food restaurant fell 1 percent in the third quarter, the sector’s first traffic decline in five years, according to the industry tracker NPD Group. Total restaurant visits were also down 1 percent.

One reason for this is that eating out has become more expensive even as the cost of at-home dining has fallen. The average restaurant bill has climbed 21 percent in the past decade.

Meanwhile, the cost of food purchased for home use — that is, groceries — has fallen 2.4 percent in the past year, according to the October consumer price index. That’s the biggest decline over a 12-month period since the end of the Great Recession in 2009. The NPD has estimated than 82 percent of all meals are now consumed at home.

Wednesday, December 7, 2016

The End of the Oil Glut?

Is the oil glut over? Oil future prices ended the day on Monday at a more than one-year high. West Texas Intermediate crude oil for January delivery rose 11 cents to $51.79 a barrel, marking the highest finish for oil since July 2015.

The primary cause: OPEC's agreement to curb member production to no more than 32.5 million barrels a day is set to begin January 1. Key oil producers who aren’t members of OPEC also agreed to cut back their output by 600,000 barrels a day, with Russia taking on half that reduction.

OPEC's output set another record high in November, rising to 34.19 million barrels per day from 33.82 million in October. Russia reported average oil production in November of 11.21 million barrels per day, its highest in nearly 30 years.

Monday, December 5, 2016

Holiday Shopping by State

The holiday shopping season is off to a pretty good start here in the Garden State. According to Adobe Digital Insights, shoppers spent $539 million in New Jersey over the long weekend between Thanksgiving and Cyber Monday.

That ranks seventh in the nation. The top ten states for holiday spending in that time frame:
  1. California, $1.7 billion
  2. New York, $1.1 billion
  3. Texas, $788 million
  4. Florida, $680 million
  5. Illinois, $645 million
  6. Pennsylvania, $599 million
  7. New Jersey, $539 million
  8. Ohio, $440 million
  9. Georgia, $387 million
  10. North Carolina, $383 million

Friday, December 2, 2016

November Jobs Report

The economy added 178,000 jobs in November, and the headline unemployment rate declined by three ticks to 4.6 percent, the U.S. Bureau of Labor Statistics reported this morning. That's right in line with recent trends: Over the past three months, job gains have averaged 176,000 per month.

The strongest sector continues to be employment in professional and business services, which rose by 63,000 in November and has risen by 571,000 over the year. Over the month, accounting and bookkeeping services added 18,000 jobs.

Health care employment rose by 28,000 in November; over the past 12 months, health care has added 407,000 jobs. Employment in construction continued on its recent upward trend in November,  adding 19,000 jobs. Over the past three months, construction has added 59,000 jobs, largely in residential construction.

Thursday, December 1, 2016

A Strong November

November turned out to be a very solid month all across the markets. For the month, the Dow gained 5.4 percent, which was its best monthly performance since March. The S&P 500 Index rose 3.4 percent and the Nasdaq rose 2.6 percent, representing the best month for both those indexes since July.

Both the Dow and the S&P 500 also hit new intraday records in yesterday's trading session. But they both fell back from those levels before the day was over.

The biggest winner for the month was the Russell 2000. The small-cap index rose by a whopping 11 percent in November, marking its best month since October 2011.