Finally, the Markets Drop

It was bound to happen sooner or later: The S&P 500 fell by 1.1 percent yesterday, its first decline of more than 1 percent since mid-August. There hadn't been 112-day stretch without a drop of that size since 1985.

The index has also logged back-to-back declines of more than 0.5 percent, ending a 310-day period without such an occurrence, the longest on record, according to Bespoke Investment Group. Prior to this week, the last time the index had consecutive declines like that was just before the presidential election in 2016.

The Dow’s 1.4 percent fall yesterday also shaved more than 350 points off of the index, the first point drop of that magnitude since last May. Yesterday’s declines mark the first time this year that both indexes have fallen for two consecutive days.

Sales Are Soaring

It's not just stock prices that have been rising: S&P 500 firms are beating analyst estimates for sales at a record rate. With nearly a quarter of companies reporting for the final three months of last year, 81 percent of firms are beating forecasts for revenue growth, according to FactSet.

If that rate holds through the end of earnings season, it would be the highest beat rate in records going back to 2008, the FactSet analysis shows. That rate is well above the 56 percent of companies on average that topped sales estimates over the previous 20 quarters.

In some parts of the economy, the sales numbers are universally strong. In the energy, real, estate, health care, and telecom sectors, every single company that has reported has beaten its sales forecasts so far.

Why Is the VIX Rising?

The most common measure of expected stock swings, the CBOE Volatility Index, or VIX, has moved higher even as the S&P 500 has risen in January. In an unusual occurrence, the VIX has moved in the same direction as the S&P 500 on half of trading days in January.

The VIX has risen 0.5 percent this year and closed Friday at 11.10, while the S&P has jumped 7.45 percent, according to The Wall Street Journal’s Market Data Group. The gauge, which is based on S&P 500 options prices, tends to rise when investors are jittery and stock markets are declining, which may make the recent situation unsustainable.

The VIX remains low relative to its historical average, which is close to 20. But the move higher is notable after its calmest year in history, in which there seemed to be no end in sight for placid markets.

The Fourth Quarter GDP Report

The U.S. expanded at a 2.6 percent annual pace in fourth quarter, the Commerce Department reported this morning. That's a slight slowing from earlier this year: The economy grew at a 3.2 percent pace in the third quarter, and 3.1 percent in the second quarter.

Consumer spending, the main engine of the economy, rose a strong 3.8 percent, the biggest increase in almost two years. Investment in new housing increased 11.6 percent, business spending on equipment surged 11.4 percent and outlays on structures edged up 1.4 percent, according to Commerce Department data.

The down sides: The value of inventories declined by $29.3 billion. Trade was an even bigger drag on GDP; imports jumped 13.9 percent, doubling the 6.9 percent rise in exports. 

Those Savvy Millennials

Millennials’ money management habits compare favorably with those of older peers, yet money is millennials’ top-of-mind concern, according to a new report from Bank of America. Sixty-three percent of millennials in the study said they were saving, and 57 percent had a savings goal, compared with only 42 percent of Gen Xers and baby boomers. Not only that, two-thirds of the younger cohort said they were meeting their goal.

But that doesn't mean they're relaxed about it. Seventy-three percent of millennials in the new report said they often or sometimes worried about money.

BofA said a widespread notion that millennials are poor money managers exacerbates their stress. Three out of four survey participants of all ages said millennials overspent on indulgences and had difficulty meeting long-term goals.

The Joys of Switching Jobs

People who switch jobs make more than those who stay with an employer, according to a new study. But workers who get hired via employee referrals could end up with the short end of the stick paywise.

An ADP study finds that full-time job holders — those who stay in a single job for at least a year — saw a gain in income of 4.3 percent over the previous year. But the job switchers made out better, with a gain of 4.9 percent.

Another study from Payscale, Inc., finds that some employees who are referred earn less per year than nonreferred employees in the same company. If they’re referred by a family member or close friend, the average offer declined by about $1,600. Overall, about a third of new job offers go to people who received a referral.

No Bad Days

In case you haven't noticed, it’s been a long time since the market took a tumble. The S&P 500 has gone 395 trading days without a decline of 5 percent or more from a record high, according to The Wall Street Journal’s Market Data Group.

This is now the longest stretch ever without suffering through such a decline. The old record was a 394-day streak during the stock market boom of the mid-1990s.

The last time the market had a decline of 5 percent or more was in June of 2016, just after the Brexit vote. Last year, the S&P 500 had just eight up-or-down moves of 1 percent or more, the fewest since 1965.

Effects of the Shutdown

The federal government shut down as of midnight on Friday. If the shutdown persists for any length of time, there are a couple of key financial decisions that may be affected. They include:

• Tax refunds may be slow in coming. During the shutdown in 2013, which lasted 16 days, more than 90 percent of IRS workers were furloughed, which resulted in delaying some $2.2 billion in refunds to individual taxpayers.
  
• A key report on fourth-quarter gross domestic product, scheduled for Friday, could be delayed. A shutdown causes statistic-keeping agencies to furlough most of their workers, stop collecting economic data and leave their work unfinished.

The Latest in IRAs

Here's a surprising trend: Americans now have more retirement income in IRA accounts ($7.2 trillion) than in 401(k) accounts ($5.6 trillion). A few years ago the research group EBRI started collecting information about IRA contributions, and they now have enough data to show some trends over the past few years. For starters, more people are putting money in IRAs: 14.1 percent in 2015 compared to 12.1 percent in 2010.

While the overall average balance in an IRA increased 36.1 percent from 2010 to 2015, the increase for those IRA owners who continuously owned IRAs from 2010 to 2015 was 47.1 percent. The overall average balance for consistent account owners increased from $99,603 in 2010 to $146,513 in 2015.

Curiously, there were considerable differences by IRA type in the likelihood of consistent account owners contributing to an IRA. For traditional IRA owners, 87.2 percent did not contribute to their IRA in any year, while 1.8 percent contributed in all six years. In comparison, 60.1 percent of Roth IRA owners did not contribute in any year and 9.7 percent contributed in all six years.

A Huge Holiday Season

U.S. holiday spending jumped 5.5 percent, spurred by stronger employment, rising consumer confidence and expectations of higher wages and bonuses after the recent tax bill, according to a new report from the National Retail Federation. That's the biggest one-year gain for this figure since 2005.

Sales in November and December rose to $691.9 billion, compared with $655.8 billion the previous year, excluding sales at restaurants, automobile dealers and gasoline stations. This is huge, because holiday sales can account for up to 40 percent of annual sales for some stores.

With $6.6 billion spent, Cyber Monday — the Monday after the Thanksgiving holiday — was the largest U.S. shopping day ever. Online transactions from the top 100 U.S. web retailers were 14.7 percent higher than last year's total.

How Hot Is 2018?

Yesterday was the tenth trading day of 2018, and market returns over that period have been the best in 15 years. The Dow Jones Industrial Average is up 4.3 percent over that period, while the S&P 500 is up 3.9 percent and the Nasdaq Composite Index has gained 4.6 percent.

According to the WSJ Market Data Group, that represents the best 10-day start to a year for both the Dow and the S&P since 2003, when the Dow kicked off the year by rising 4.57 percent and the S&P rose 4.36 percent. For the Nasdaq, 2018 marks the best 10-day start since 2012, when it rose 4.72 percent.

Of the 10 trading days in 2018 thus far, both the S&P 500 and the Nasdaq have risen in eight of them, while the Dow has gained in seven of the 10 days. The Dow topped 26,000 for the first time ever on Tuesday, though it subsequently retreated from that level and ended in negative territory for the day.

The Embattled IRS

Concerned about the new tax changes? Good luck getting your tax questions answered by the IRS this tax season or the next one. After the massive new tax law passed in December, the IRS has admitted it's not ready for it.

The IRS lacks the funding to “provide acceptable levels of taxpayer service,” according to the annual report from the agency’s National Taxpayer Advocate. The agency estimates it will answer only six out of 10 taxpayer calls this coming tax filing season and less than 40 percent of calls with a “live assistor” during the full 2018 fiscal year, which runs through September 30, 2018.

After the April tax filing deadline, the IRS won't be answering any tax law questions by phone or at its taxpayer assistance centers. Since fiscal 2009, the agency's employee training budgets have been cut nearly 75 percent.

The Full Employment Question

Are we at full employment? The vast majority of economists surveyed this month by The Wall Street Journal think we're just about there. Asked if the U.S. economy has reached full employment, 42 percent said yes and an additional 48 percent said no, but that it’s close.

“Full employment” doesn’t necessarily mean every American who wants a job has one. Economists use the term to describe the point where unemployment can’t go any lower without generating price and wage pressures.

The U.S. unemployment rate was 4.1 percent in December, remaining at its lowest level in 17 years. It has come down from a peak of 10 percent in the immediate aftermath of the 2007-09 recession.

The Dow's Midpoint Record

The Dow Jones Industrial Average knocked out yet another record yesterday in its rise to new heights. After knocking out a round-number milestone at 25,000, the index then posted its fasted run to a midpoint milestone. It reached 25,500 in just seven trading sessions.

The previous record for such a midpoint advance was the move to 24,500, hit after December 12 after a blistering eight sessions for the Dow. By contrast, the Dow took 17,476 days to reach its first midpoint, when it went from zero to 500, which it finally hit on March 12, 1956.

Perhaps a more fair comparison would be when the Dow took 1,423 trading sessions to go from 14,000 to 14,500. That took place after the Dow crashed at the outset of the recession; it hit 14,000 in July 2007, but didn't reach 14,500 until March of 2013.

Money Woes and Marriage

Do you and your spouse fight about money? Nearly half of Americans (48 percent) who are married or living with a partner say they argue with the person over money, according to a survey of more than 1,000 people by The Cashlorette.

Most of those fights are about spending habits, with 60 percent saying that one person spends too much or the other is too cheap. The scary part: At least two studies show that this could lead to divorce. Data released Wednesday by financial firm TD Ameritrade found that 41 percent of divorced Gen Xers and 29 percent of Boomers say they ended their marriage due to disagreements about money.

The worst time to be doing this is early on in your relationship, watch out: That may be the No. 1 predictor of whether or not you’ll end up divorced, according to a study of more than 4,500 couples published in the journal Family Relationships.

The Worries of Gen X

Gen X investors are worried about retirement but aren't well-equipped to address their plans, according to a study released Monday by Jefferson National. The study showed that 52 percent of Gen X investors do not have an advisor, and are least likely to seek advice even though they are in their prime earning years, between the ages of 37 to 52.

Of particular note for advisors was the survey finding that 30 percent of Gen Xers said their number one reason for having an advisor was concern about saving enough for retirement. Their second main reason — feeling confident in their financial future — trailed by 10 percentage points.

In contrast, 36 percent each of baby boomers and older investors and 27 percent of millennials cited feeling confident in their financial future as the number one reason for seeking financial advice. Only 15 percent of millennials and 12 percent of boomers said retirement saving was their chief reason.

The Credit Boom

One sign of a hot economy: Consumer borrowing rose in November by the largest monthly amount in 16 years, the Federal Reserve said yesterday. Total consumer credit increased by a solid $28 billion in November to a record high of $3.83 trillion. The annual growth rate was 8.8 percent.

Credit-card borrowing powered the increase. Revolving credit, which is mostly made up of credit-card loans, expanded to an annual rate of 13.3 percent in November, the fastest pace since last December and well above the 9.9 percent gain in October.

Nonrevolving credit, which covers loans for education and cars, rose at an annual rate of 7.2 percent in November. That's the fastest pace for that figure since October 2016.

Tough Year for Carmakers

Last year was a banner year for the stock market, but not so much for automakers. The seven-year winning streak that began after the recession in 2010 fell short in 2017 with sales down 1.8 percent compared to 2016. All told, the year saw 17.2 million vehicles sold.

The full-year results for individual automakers:

• Subaru, up 5.3 percent
• Nissan, up 1.9 percent
• Honda, up 0.2 percent
• Toyota, down 0.6 percent
• Ford, down 1.1 percent
• General Motors, down 1.3 percent
• Fiat Chrysler, down 8.2 percent
• Hyundai-Kia, down 8.9 percent

December's Jobs Report

The pace of hiring slowed in December, with employers adding 148,000 jobs, the lowest number since September, the Labor Department said this morning. That brought employment gains for the year to 2.1 million. The headline unemployment rate remained at 4.1 percent.

Employers added better than 2 million jobs for the seventh straight year in 2017. It is only the second time on record—the other being in the 1990s—when the economy has produced jobs at that pace for that long.

An unexpected loss of 20,000 retail positions during the holiday season held back the December jobs number. The biggest gains came from health care (31,000), construction (30,000) and manufacturing (25,000). Bars and restaurants added 25,000, while professional and business services grew by 19,000.

Sector Scorecard for 2017

Wrapping up our scorecard for 2017, here is how each of the industry sectors performed in 2017, courtesy of Bespoke Investing:

• Technology up 34.3 percent
• Materials up 24.01 percent
• Industrials up 23.97 percent
• Consumer discretionary up 22.8 percent
• Financials up 22.0 percent
• Health care up 21.8 percent
• Consumer staples up 13.0 percent
• Utilities up 12.0 percent
• Energy down 0.9 percent
• Telecom down 11.8 percent

2017's Winners and Losers

The S&P 500 index ended 2017 up 19 percent, after closing at a fresh record high more than 60 times over the course of the year. Here are the index's biggest winners for the year:

• NRG Energy,  up 132 percent
• Align Technology, up 131 percent
• Vertex Pharmaceuticals, up 103 percent
• Wynn Resorts, up 95 percent
• Boeing, up 89 percent

And the biggest losers:

• Envision Healthcare,  down 45 percent
• Scana,  down 46 percent
• Under Armour, Class A down 50 percent, Class C down 47 percent
• Range Resources, down 50 percent
• Baker Hughes, a GE Company, down 51 percent

Scorecard for 2017

Happy new year, and a fond farewell to 2017. For most investors, 2017 was the best year for stocks since 2013. Here are the final numbers for the year:

• The Nasdaq composite was the biggest winner among the major indexes, with a gain of 28.2 percent. 
• The Dow Jones industrial average rose by 25.1 percent. 
• The large-company Standard & Poor's 500 increased 19.4 percent.
• The relative laggard was the small-cap Russell 2000. It gained 13.1 percent, which was less than its 19.5 percent return from 2016.

Thoughts for the New Year

"Hope smiles from the threshold of the year to come, whispering, 'It will be happier.'" ~ Alfred Lord Tennyson

"The object of a new year is not that we should have a new year. It is that we should have a new soul.” ~ G.K. Chesterton

"We will open the book. Its pages are blank. We are going to put words on them ourselves. The book is called Opportunity and its first chapter is New Year’s Day.” ~ Edith Lovejoy Pierce