One Eye on the Bond Market

Is there trouble ahead in the stock markets? Some analysts have begun cautioning that a bubble is forming in credit markets. Companies have been piling on debt in recent years to take advantage of low interest rates, or more recently, to get ahead of a series of well-telegraphed interest-rate hikes.

As a result, the U.S. primary corporate bond market is at record levels. The investment-grade market saw $1.44 trillion of issuance in 2,127 deals through December 26, topping the record $1.34 billion recorded in 2016, according to data analytics company Dealogic.

The high-yield market has chalked up $266.3 billion of debt in 469 deals, making it the fourth-biggest year for issuance. The high-yield record was set in 2012, when issuers sold $321 billion of debt in 604 deals.

Reasons for Confidence

Consumer confidence fell in December, a month after hitting a 17-year high. That's the bad news. The good news is that the level of optimism among Americans for the entire year was the highest it's been since 2000.

Americans were a little less confident in their outlook for jobs and business conditions.  An index that measures future conditions dipped to slightly below average. Consumers were more cheery about conditions right now: The “present” situation index reached its highest level since 2001.

Notably, only 15.2 percent of Americans said jobs were “hard to get,” a 16-year low. The labor market is the strongest its been in years, with a 4.1 percent unemployment rate that's our lowest since December 2000.

On the Mark

Most economic forecasts are not worth the pixels it takes to read them, but 2017 was actually a pretty good year for the pundits. The Wall Street Journal recently reviewed the survey of economists it took at the beginning of this year, and in some cases, the respondents came pretty close:

Unemployment Rate
Average forecast for December 2017: 4.5 percent
Actual (as of November 2017): 4.1 percent

Real Gross Domestic Product
Average forecast for 2017 (year-over-year growth in fourth quarter): 2.4 percent
Actual (year-over-year growth in third quarter): 2.3 percent

Inflation
Average forecast for annual change in consumer-price index in December 2017: 2.3 percent
Actual annual change in CPI as of November 2017: 2.2 percent

Christmas Retail Cheer

U.S. retail sales in the holiday period rose at their best pace since 2011, according to Mastercard SpendingPulse, which tracks both online and in-store spending. Sales, excluding automobiles, rose 4.9 percent from November 1 through Christmas Eve, compared with a 3.7 percent gain in the same period last year. E-commerce continued to drive the gains, rising 18.1 percent.

Consumer credit-card debt reached its highest level since the end of 2008. It jumped 11 percent from a year earlier to $757 billion in the third quarter of 2017, according to Experian PLC, a credit-reporting agency.

This has meant Christmas cheer for retail stocks, too. Shares of Macy’s and Gap, for example, have jumped 24 percent and 18 percent, respectively, in the past month, compared with a 3 percent gain in the S&P 500. Wal-Mart has rallied 40 percent on the year and, like online nemesis Amazon.com, is trading near all-time highs.

Thoughts for Christmas Day

“He who has not Christmas in his heart will never find it under a tree.” ~ Roy L. Smith

“Christmas! The very word brings joy to our hearts. No matter how we may dread the rush, the long Christmas lists for gifts and cards to be bought and given--when Christmas Day comes there is still the same warm feeling we had as children, the same warmth that enfolds our hearts and our homes.” ~ Joan Winmill Brown

“How many observe Christ's birthday! How few, His precepts!” ~ Benjamin Franklin

What Do Corporations Pay in Taxes?

One of the primary features of the newly passed tax bill is that it lowers the corporate tax rate from the previous standard of 35 percent to just 21 percent. But most companies find enough deductions and benefits to effectively pay a lower marginal rate.

The MarketWatch website asked a good question: How much do America's largest corporations actually pay in taxes right now? It found the following effective annualized tax rates:

• Apple: 26.1 percent
• Microsoft: 23.8 percent
• Alphabet: 21.1 percent
• Amazon: 31.5 percent
• Facebook: 40.3 percent

That Daily Grind

Does it feel like your daily commute is taking longer? You're not alone. New data from the Census Bureau this month shows that in 2016, commuting times took an average of 26.1 minutes, nearly a minute more than in 2010.

Most of those commutes are spent in the car. Census data show that more than 85 percent of workers drive or carpool to their job, a figure that hasn’t changed much in recent years. Only about 5 percent took public transit, 4.6 percent worked from home, 2.8 percent walked and 0.6 percent rode a bike.

But it could be worse: East Stroudsburg, Pennsylvania, won the dubious honor of having the longest average commute of all metropolitan areas, clocking in at 38.6 minutes of travel time to work. The East Stroudsburg region sits roughly 75 miles from New York City and about 50 miles from the Pennsylvania cities of Scranton and Wilkes-Barre.

Financial Issues Behind Divorce and Widowhood

Ending marriages is an unfortunate reality of modern American life, when some four in 10 marriages fail and about a quarter of Americans 65 and older become widowed. TD Ameritrade recently looked at the challenges of divorce and widowhood in the U.S. and uncovered some disturbing findings.

Sixty-five percent of married individuals do not have a financial plan in place in the event of a divorce or spouse's death. But 72 percent of men and 62 percent of women expressed confidence in their ability to manage their own financial situation if faced with one of those events.

But the end of a marriage usually entails some financial hardship. Married individuals in the study reported annual personal income of $61,700. That's $13,100 more than widows/widowers reported and $9,800 more than divorcees.

That Fast-Breaking Nasdaq

The Nasdaq marked its first close above 6000 fewer than eight months ago. Today, it might close at 7000. Yesterday, the index closed at 6994.76 after climbing as high as 7003.89, its first intraday trading above 7000 ever.

The Nasdaq index, which has a weighting of nearly half tech stocks, is up 30 percent this year. That's significantly higher than the 20 percent rise in the more diversified S&P 500.

The 165-day stretch since crossing 6000 puts the index on pace to achieve its third-fastest 1000-point rise on record. The only time the Nasdaq ever moved faster was during the height of the dot-com bubble.

Fears Persist for Future Retirees

The  newly released18th Annual Transamerica Retirement Survey found that workers across the generations still have major fears and concerns about ending their careers. The survey finds that more than half of workers (53 percent) expect to retire after age 65 or do not plan to retire, and 56 percent plan to continue working at least part-time in retirement. Among them, 83 percent cite financial-related reasons for doing so, while 75 percent cite healthy aging-related reasons, such as "being active," and "keeping my brain alert."

The respondents were pessimistic about their future. Almost four in five workers (79 percent) believe that their generation will have a much harder time achieving financial security in retirement compared to their parents' generation. Millennials (83 percent) and Generation X (80 percent) are more likely to feel this way than Baby Boomers (75 percent).

The survey put some hard figures on how much different generations have saved for retirement. Baby Boomers have saved an estimated $164,000 in all household retirement accounts, Generation X has saved $72,000, and Millennials have saved $37,000.

The Quiet Market

The stock market is closing in on its quietest year in more than half a century. The S&P 500′s average daily up-or-down move so far this year is just 0.3 percent, about half of the average daily move in 2016. If it finishes the year this way, it would be the smallest absolute average daily move since 1964, and the second smallest on record.

There have been just eight 1 percent moves in 2017, which, if it stays that way, would be the fewest since 1965. There have been zero 2 percent up-or-down moves, which would be the first year since 2005 that’s happened. In the S&P 500's nine decades, it’s only had ten years without a 2 percent move.

That hasn’t stopped stocks from notching significant gains in 2017. The S&P 500's 19 percent rise so far this year is on pace for its biggest annual increase since 2013.

The Much-Expected Rate Hike

As was expected, the Federal Reserve yesterday raised its benchmark federal-funds rate by a quarter percentage point to between 1.25 percent and 1.5 percent—its fourth increase in a year. Senior officials also stuck to their earlier projections of three rate increases in 2018.

The S&P 500 fell slightly, by less than 0.1 percent, putting an end to a four-day rise in the benchmark index. Financial stocks were the big losers of the day, with the sector slumping 1.3 percent. Only two of the 67 components of the Financial Select Sector SPDR ETF ended in positive territory, according to FactSet data.

Why did this happen, when the financial sector tends to outperform in periods of higher interest rates? Because the rate hike was such a non-surprise. The financial sector had already risen in anticipation of the Fed meeting, increasing by 6.7 percent over the past month.

The Stubborn Hiring Rate

The unemployment rate has fallen to a 17-year low, remaining at 4.1 percent for two consecutive months now. But for some reason, the rate at which employers are hiring new workers has yet to break out.

The hiring rate, or the share of newly filled jobs to total employment, has remained remarkably steady for three and a half years. The rate improved to 3.8 percent in October from 3.6 percent in September, the Labor Department said yesterday. That increase matched a post-recession high achieved three previous times since late 2015, but the figure has yet to match pre-recession peaks.

The hiring rate has held in the fairly narrow range between 3.5 percent and 3.8 percent since April 2014. Like the hiring rate, growth in average hourly earnings has also been stuck in neutral for about three years.

What to Expect From the Fed

Federal Reserve officials will meet today and tomorrow to update the nation's monetary policy. They'll make an announcement after the conclusion of the meeting tomorrow, and the markets see a rate hike as a done deal.

At 2 p.m. tomorrow afternoon, the Fed will release a policy statement, revised economic forecasts and “dot plot” projections of future rate hikes. Fed Chairwoman Janet Yellen will hold what is likely to be her final press conference immediately afterward.

A Fed rate hike later that day appears all but certain, with Fed fund futures markets giving the move 90 percent odds. It would be the Fed’s third quarter-point bump this year, raising the Fed funds rate to a range of 1.25 percent to 1.5 percent.

The Good News from Retirement Past

Everyone is nervous about how long their retirement savings will last. But looking back at previous decades, the nest eggs of past retirees were remarkably resilient, so much so that for many in their golden years, investment returns on retirement savings outpaced drawn down rates.

According to analysis from the BlackRock Retirement Institute, retirees who began leaving the workforce in the early 1990s were able to preserve the vast majority of their savings throughout retirement. Using data from the Employee Benefits Research Institute, BlackRock’s analysis shows that the wealthiest households held 83 percent of their savings nearly two decades after retirement.

Savers in the median wealth bracket retained 77 percent of retirement savings, and those in the lowest wealth bracket retained 80 percent. However, many of these were pension plans, which are now down to 2 percent of all retirement savings plans.

November's Jobs Report

The economy was strong again in November, adding 228,000 jobs, according to the report out from the Bureau of Labor Statistics this morning. The unemployment rate was 4.1 percent, unchanged from Octoberr; it remains the lowest it's been since 2000.

This is the 86th consecutive month employers added to payrolls. Employment growth has averaged 174,000 per month thus far this year, compared with an average monthly gain of 187,000 in 2016.

One strong sign is the quality of jobs being added. Employment in professional and business services continued on an upward trend in November, with 46,000 new jobs. Over the past 12 months, the industry has added 548,000 jobs.

The Four-Day Losing Streak

The S&P 50 index declined yesterday. Sure it was just by a minuscule 0.01 percent, but it was nevertheless the fourth straight day that the index had lost ground. 

We haven't seen much of that recently: The market had gone nine months without such a streak. Four-day down streaks haven’t been particularly common in recent years – there were only three such streaks last year, and none at all in 2014.

But there's not much reason for concern yet. The index has had three streaks this year where it’s dropped four days in a row, and this one had the smallest percentage decline of the three. Even with the dropoff, the S&P 500 is just about 0.7 percent off its record high from November 30. 

What Makes a Great Boss?

What makes people get frustrated about their jobs? A new survey from Ultimate Software and The Center for Generational Kinetics, shows that managers and employees aren’t always on the same page when it comes to their relationship.

The overwhelming majority—80 percent—of employees surveyed think they could do their job without managers and deem them unnecessary. The survey found that 75 percent of employees say that approachability is the most important quality in an effective manager today, but only 5 out of 10 employees say they have an approachable manager.

But when a work relationship clicks, it really works. More than half of employees say they’d turn down a 10 percent pay increase to stay with a great boss.

Recession Still Haunting Americans

A decade after the Great Recession, Americans claim that the event had no impact on their lives. But their spending and investing behaviors tell a different story, according to a new survey from Hartford Funds.

According to the survey of 1,006 American adults, 40 percent of respondents said that the financial crisis had no impact on their lives. However, the survey also found that large numbers reported that they avoid the market (42 percent) and have altered their spending and savings habits (46 percent).

The survey also addresses millennials, whose formative years were rocked by the crisis, and finds they have the least amount of trust in the market today. According to the survey, almost half of this age group avoid the market altogether.

Waiting for Santa Claus

As we head into December, it's worth noting that, on average, it's the best month for stocks. Investors call the gains a Santa Claus rally: a late-year boost that helps the markets end on a high note. Over the past 1000 years, the Dow Jones Industrial Average has gained 74 percent of the time over the past 100 years in December for an average return of 1.6 percent.

From 1950 to 2016, the Standard & Poor's 500 index rose an average of 1.6 percent in December. And its strong performance so far this year augurs well for 2017's Santa Claus rally.

With double digit gains so far, the S&P 500 is poised for one of its best years since 2013. Since 1990, the S&P 500 has climbed 82 percent of the time in December, with an average gain of 2.5 percent, when the index has risen at least 10 percent by the end of November.

Another Streak for the S&P

The month of November came to a close yesterday, and with it the S&P 500 index set yet another record. On a total-return basis that includes dividends, the index rose 2.2 percent over the course of November, extending its string of monthly advances to a record 13.

The previous streak, according to Dow Jones data, was a 10-month rally that ended in September 1995. Over the entire 13-month period, the S&P has risen 26.3 percent on a total-return basis.

Remember, this includes dividends. On a purely price basis, the S&P 500 has risen in only 12 of the past 13 months. In March of this year, the index fell by 0.04 percent on a pure price basis.