Confidence Continues to Rise

This week’s consumer confidence report for February was very strong, as the headline index came in at 130.8, its highest level since November 2000.  While consumer confidence had a hard time getting above its long-term average for much of the current expansion, it has now been above that level of 94.2 for 21 straight months.

One area of the economy where consumers are very confident is in employment: The percentage of consumers who consider jobs as being "plentiful" continues to be on the rise. In February’s report, it came in just under 40 percent, which was the highest level since April 2001.

The generational divide, which widened during the early part of the expansion with younger people being much more confident than older ones, is now roughly equal. Younger consumers (under 35) have seen little in the way of a confidence boost over the past year, while older consumers (over 55) have had their confidence surge.

The Secret Factor for Recessions

You might think there are rumblings in the economy before a recession hits - but in the maternity ward? A new study into fertility and birth rates found that people in the U.S. cut down on baby-making decisions well in advance of recessions — almost as though anticipating them.

The study, from the National Bureau of Economic Research, found that over the past 30 years, conceptions fell at the same time or even before other indicators whenever a recession was about to start. For example, conceptions peaked in 1998 and 2006, well in advance of recessions, and the large decline in conceptions came before the large increase in unemployment. In fact, conceptions worked as well as other economic leading indicators, such as consumer confidence or durables-goods purchases.

And now? U.S. fertility rates have reached a record low, at 62.0 births per 1,000 women of childbearing age, according to the most recent government figures reported by the Pew Research Center last month.

The Rise of HSAs

Do you have a health savings account? These pretax savings vehicles are growing in popularity: U.S. residents’ use of public and private health coverage stayed about the same between 2016 and the first three quarters of 2017, but use of HSAs climbed about 15 percent.

The number of U.S. residents under the age of 65 who had HSAs increased to 17.9 million in 2017, from 15.5 million in 2016. The number of people under 65 with high-deductible coverage and no HSA increased 5.9 percent, to about 24 million.

If you don't have one, it may be because you're only eligible for an HSA if you have a high-deductible health plan. The high-deductible cut-off is $1,350 for self-only coverage and $2,700 for family coverage.

Earnings Coming On Strong

This earnings season has been a banner one. S&P 500 companies are expected to post profit growth of 15 percent in the final three months of the year versus a year earlier, according to FactSet. That would mark the third quarter in the past four in which companies have reported profit growth of 10 percent or more.

Nearly three-quarters of reporting companies have topped analyst estimates, above the five-year average of 69 percent. And firms are expected to have grown their top-line sales numbers by a strong 8.1 percent last quarter.

So why is the S&P 500 is down about 2.4 percent since earnings season kicked off in mid-January? Most analysts seem to think that the strong earnings numbers came as no surprise to most investors. The strong numbers were already baked into stock prices - even before companies started reporting them.

Inside Housing's Decline

The housing market is beginning to show signs of weakness: U.S. home sales unexpectedly fell in January, leading to the biggest decline in more than three years. Existing home sales dropped 3.2 percent last month.

Existing home sales, which account for about 90 percent of U.S. home sales, declined 4.8 percent on a year-on-year basis in January. That was the biggest year-on-year drop since August 2014.

The weakness in home sales is largely a function of supply constraints rather than a lack of demand. While the number of previously owned homes on the market rose 4.1 percent to 1.52 million units in January, housing inventory was down 9.5 percent from a year ago.

The Woes of Walmart

U.S. stocks snapped a six-day winning streak yesterday, with the Dow and S&P 500 both dropping by about 1 percent. The biggest culprit: The world's biggest retailer, Walmart.

The retail giant's stock notched the worst dollar decline in its history, after it reported its first earnings miss in ten quarters. Walmart's adjusted per-share earnings came in at $1.33, below the $1.37 consensus of analysts polled by FactSet.

Shares of Walmart lost $10.67 on the day. The stock price lost 10.2 percent of its value. That percentage decline represented the steepest one-day drop for Walmart since January 8, 1988, when it dropped by 10.3 percent.

The Millionaire State

There's a new study out from Phoenix Marketing International, breaking down the number of millionaires by state, and New Jersey places at a lofty No. 2. Fully 7.86 percent of all the households in our state qualify as millionaire households, with more than $1 million or more in liquid wealth, The total for the state is nearly 250,000.

All told, millionaire households across the nation increased by 6 percent between 2016 and 2017. They now total about 7.2 million households in the U.S.

The only state with a higher percentage of millionaires than New Jersey? Surprisingly, it's Maryland, where 7.87 percent of all households qualify as millionaires.

Assessing the Damage

Is the market downturn over with? For the moment, at least. The Dow Jones industrial average and the S&P 500 index each logged their sixth straight advances on Friday, notching a slight gain at the close.

The Dow last had a rally of this length in November, while the S&P’s last six-day advance was in January. For the week, the Dow rose 4.3 percent, marking its biggest one-week percentage rise since November 2016. The S&P 500 also gained 4.3 percent in its best week since January 2013.

But it wasn't enough to erase the damage of the correction. The Dow remains 5.3 percent below its all-time high, hit last month. The S&P is 4.9 percent below its own record. U.S. financial markets will be closed today in observance of Presidents Day.

The Market's Moves

How much has the stock market been moving lately? The daily move in the S&P 500 has totaled nearly 17 percent during the first half of February, according to The Wall Street Journal’s Market Data Group.

That’s surpassed such moves for every full month since June 2016, when the index moved 17 percent amid market turbulence spurred by the Brexit vote. With half a month to go in February, the absolute move in the index has a good chance to surpass those levels.

Sliced another way, the average up-or-down daily move so far in February has been 1.7 percent, according to the Market Data Group. That’s the biggest such average since August of 2011, when S&P downgraded the U.S. credit rating.

A Nation of Debtors

We are increasingly becoming a nation of debtors. According to the New York Fed’s latest Quarterly Report on Household Debt and Credit, household debt rose in 2017 for the fifth consecutive year. In the fourth quarter of 2017, household debt grew 1.5 percent from the third quarter to $13.15 trillion. That’s equivalent to 68 percent of U.S. GDP.

Debt increased in all major categories: in mortgages (1.6 percent), student loans (up 1.5 percent), auto loans (up 0.7 percent) and credit cards (up 3.2 percent). On the other hand, it did fall 0.9 percent for home equity loans.

Although credit card debt led the fourth-quarter debt increase, consumers owe far less in credit card debt than in all other major categories, just $834 billion. That's compared with $8.88 trillion for mortgages, $1.38 trillion for student loans and $1.22 trillion for auto loans.

Creeping Signs of Inflation

U.S. consumer prices rose more than expected in January, the Labor Department said this morning. This could be like a further sign that inflation is firming up after a long run of softness.

The consumer-price index, which measures what Americans pay for everything from bananas to housing costs, rose 0.5 percent in January. It had risen a seasonally adjusted 0.2 percent in December.

In the 12 months leading up to January, overall prices rose 2.1 percent, matching the same annual increase as in December. Core prices, stripping out the more volatile food and energy prices, were up 1.8 percent on the year. The increase in inflation last month was largely driven by higher prices for gasoline, shelter costs, medical care, food and apparel.

Optimism at Small Businesses

Optimism among small companies in the U.S. rose sharply in January, fueled by a record number of owners who said now was a good time to expand, according to a National Federation of Independent Business survey released yesterday. Six of the 10 components that make up the small-business optimism index increased in January, producing one of the strongest readings in the 45-year history of the survey.

The figures show sustained, sturdy business sentiment since the November 2016 election. A measure of plans to boost capital spending in coming months increased by 2 points to 29 percent, consistent with other data indicating stronger future outlays for equipment.

Finding qualified workers remains problematic for small businesses, underscoring what a tight job market we have. One in five small companies said they plan to boost hiring, which was unchanged from the prior month.

Heavy Volume

It should come as no surprise that a week of volatile price action and slumping stocks saw a huge jump in trading volume. Total composite volume for the week was 54,528,267,895 shares, the highest since the week ending August 12, 2011, according to WSJ Market Data Group.

Total composite volume for Friday was more than 11.8 billion shares, making it the second-largest volume day of the year. The day with the most volume this year was last Tuesday, when stocks rebounded some after losses last Friday and Monday. More than 12.04 billion shares changed hands on Tuesday.

Stocks gained ground late Friday, with the S&P 500 index rising about 1.5 percent. But the S&P 500 and Dow Jones Industrial Average each fell by more than 5 percent over the course of the week.

The Biggest Losers

It was another rough day on Wall Street yesterday, as the S&P 500 fell by 3.8 percent and the Dow Jones industrial average fell 4.1 percent. All 30 stocks in the Dow declined on the day.

Incredibly, four of the Dow 30 have lost more than 10 percent of their value already this year. They include:

• General Electric, down 17.2 percent
• Procter & Gamble, down 12.7 percent
• American Express, down 11.0 percent
• Chevron, down 10.3 percent

But all of those look better than the biggest loser in the S&P. Chesapeake Energy has lost more than a quarter of its value - declining 28.8 percent - since the beginning of the year.

Looking Forward From the Rout

The stock market's dramatic drop on Monday may scare some investors away from Wall Street for a while. But if history is any guide, it shouldn’t. According to the WSJ Market Data Group, there have been 131 sessions in the history of the S&P 500 with a 4 percent drop, as occurred on Monday. A month after a 4 percent drop, historically speaking, the S&P 500 is higher 54 percent of the time, and gains an average of 0.87 percent over that period.

The odds are only slightly better on a three-month basis—the return has been positive 56 percent of the time.  But the gains are significantly higher, with an average advance of 6.11 percent, which would be enough to erase the day’s drop.

Six months after a 4 percent drop, the S&P is higher 63 percent of the time, gaining 7.31 percent over that period. Over the course of a year it is up an average of 16.48 percent, and it is positive in 62 percent of such periods.

The Labor Theory of the Market Rout

Was the rout in the stock market caused by rising wages? That's one theory. A Labor Department report of rising U.S. wages last week fed market inflation fears and may have kicked off the market's swoon. But a deeper look at that report raises questions about whether wages really are rising in such threatening ways.

Average hourly earnings for all private-sector workers increased 2.9 percent in January from a year earlier, the best gain since June 2009. But the gains aren’t very widespread. A separate gauge showed that wages for nonsupervisory workers, who account for around 80 percent of employment, rose just 2.4 percent for the year ended January, in the range that’s prevailed for several years.

This isn’t the first time managerial workers have seen a big uptick in monthly pay. Wages for this group rose 1.2 percent last February and 1 percent last July, pushing overall wages up 0.3 percent in both months, But that pace wasn’t sustained in the following months.

The Rout

Here's what's been going on in the stock market:

• The Dow ended yesterday down 1,175 points, the largest one-day point decline on record. Given the lofty levels the index is at, though, that's a little misleading. The drop was 4.6 percent, the largest such move since August of 2011.
• The rout wasn't quite as bad for the S&P 500 index. The S&P 500 fell 113 points, or 4.1 percent, its largest percentage decline since 2011. 
• Both the Dow and S&P 500 have erased their gains for the year. The Dow is down 1.5 percent and the S&P 500 is down 0.9 percent. The Nasdaq is still up 0.9 percent.
• Boeing, which has been the driving force behind the Dow’s gains over the last year, turned to its biggest drag on Monday, wiping 138 points from from the index.  
• Still, given how much the market has risen in recent months, the Dow and S&P are only at their lowest levels since December 8 and December 7, respectively.

The High Cost of the Super Bowl

Did you go to a Super Bowl party yesterday? According to surveys, 18 percent of American adults had plans to host such a party, and they probably set the hosts back a fair amount.

On average, organizing a Super Bowl party set back hosts some $207, according to a survey of 1,000 people conducted by personal finance website LendEDU. Of that, over a third (35 percent) went toward food and non-alcoholic beverages, while 28 percent was spent on alcohol. The rest of the money was used to purchase decorations, fan gear and other items. 

Even those who didn’t host a watch party were still likely to spend a lot of money yesterday. American adults watching the showdown between the Patriots and the Eagles were expected to spend $81 each on average, or $15.3 billion total, according to the National Retail Federation. That’s up 8.5 percent from last year, but down slightly from the all-time high set in 2016.

January's Jobs Report

U.S. employers added 200,000 jobs in January, starting 2018 on a slightly better pace than last year. Employers added an average of 181,000 jobs a month in 2017. Overall, the pace of hiring has gradually slowed each year since 2014, consistent with a tighter labor market in the later stages of an economic expansion.

The headline unemployment rate remained at 4.1 percent for the fourth consecutive month, matching the lowest level since late 2000. The unemployment rate hasn’t fallen below 4 percent since December 2000, when it was 3.9 percent.

Construction, manufacturing and restaurants all showed strong job growth. Government payrolls grew by 4,000 last month. Average hourly earnings rose by 2.9 percent from a year earlier, the most since June 2009.

What Does January Mean?

It's been a great first month of 2018 for the stock market. The Dow Jones Industrial Average rose by 5.8 percent in January, while the S&P 500 index registered a 5.6 percent increase. The Dow produced its best January return since 1989, and the S&P 500 notched its best January since 1997.

That is a good omen for the rest of the year as well. According to the WSJ Market Data Group, on the previous occasions that the Dow has registered a return of 5 percent or more in January, it has closed out that year with a gain 83 percent of the time, or 20 out of the past 24.

The S&P 500 shows a similar pattern. It has finished the year in positive territory 78 percent of the time, or 14 of 18 occasions, when it registers a January return of 5 percent or better.