Friday, March 30, 2018

Goodbye to the First Quarter

Today marks the final day of the first quarter of 2018, and most investors will be happy to see it go. Both the the S&P 500 and the Dow Jones Industrial Average will finish down for the quarter, ending a nine-quarter streak of gains for both.

In the U.S., the stock market’s decline was widespread. Of the 11 primary S&P 500 sectors, nine of them posted negative returns over the quarter. The only two positive groups—technology and consumer discretionary—saw their gains come almost entirely from the so-called group of FAANG stocks: Facebook,, Apple, Netflix and Google.

Things were even worse around the globe. The STOXX Europe 600 Index was down 4.7 percent for the quarter, while Japan's Nikkei 225 Index dropped by 7.1 percent.

Thursday, March 29, 2018

The Final Look at Fourth Quarter GDP

The growth in the economy in the fourth quarter of 2017 was boosted to 2.9 percent from 2.5 percent, the Commerce Department reported in its third and final estimate yesterday. The U.S. fell just short of 3 percent growth, after racking up gains of 3.2 percent in the 2017 third quarter and 3.1 percent in the second quarter. It would have been the first time since 2004-2005 that the economy expanded by 3 percent in three straight quarters.

The economy got a big lift from consumer spending at the end of the year and businesses also increased investment. Consumer spending was revised to show a 4 percent increase instead of 3.8 percent. That’s the largest gain since the end of 2014.

Businesses also spent a bit more than previously estimated. Investment in structures such as office buildings and drilling platforms was raised to 6.3 percent from 2.5 percent. The value of unsold goods, or inventories, was also revised up sharply to $15.6 billion.

Wednesday, March 28, 2018

Retirement Fears of Gen X

The Insured Retirement Institute recently conducted a survey of Generation X - defined as people aged 36 to 55 - about their retirement planing fears. Surprisingly, having enough money in retirement was not the top concern. Here are the fears that outweighed that:

  1. Covering their own long-term care costs: Only 63 percent of the Gen Xers said they were somewhat or very confident about having enough money to pay their long-term care bills.
  2. Meeting their parents’ LTC needs: About 53 percent of the Gen Xers said they were somewhat or very confident about being to help pay their parents’ LTC bills.
  3. Paying their children’s college bills: Only 51 percent of the Gen Xers said they were somewhat or very confident that they will have enough money to cover their children’s higher education expenses.

Tuesday, March 27, 2018

Red Flags for Audits

The IRS audited less than 1 percent of returns last year, and that number may be even lower this year, according to the personal-finance website Kiplinger. If you want to stay out of that small number of auditees, here are red flags tax experts say you should avoid:

  • One of the most common reasons for an audit is when the taxpayer is taking higher-than-average deductions in relation to his income. This can come from various types of deductions: Charitable contributions, real estate interest or student loans interest.
  • There are some scenarios where an individual is allowed to take withdrawals from a retirement account prior to 59 ½ years old. But the IRS charges a 10 percent penalty (on top of the tax paid on the withdrawal) when none of those exceptions are met. Almost 40 percent of taxpayers did not report the withdrawal when they did not qualify for the exceptions, according to Kiplinger.
  • A sudden avalanche of business expenses: In previous years, employers were allowed to deduct more than 2 percent of their adjusted gross income for unreimbursed employee expenses, but will no longer be allowed to do so in 2018. So if you suddenly have a thick wad of restaurant and Uber receipts for business trips all over the city at night, the IRS will notice. 

Monday, March 26, 2018

An Unusually Rough March

The final week of March starts today, and unless things turn around quickly, this could end up as one ugly month. March is historically fairly kind to the markets, but the Dow Jones Industrial Average and the S&P 500 are both looking grim.

The Dow Jones, down 6.0 percent so far, is on the verge of putting in its worst March since 1980, when it declined 9.0 percent, according to WSJ Market Data Group. The S&P 500 index is on pace for its worst March in 17 years, since a 6.4 percent March decline in 2001, having lost 4.6 percent so far. The Nasdaq, down 3.9 percent on the month, is staring looking at its worst March decline since 2001, when it fell 14.5 percent.

Amid all this,  the CBOE Volatility Index was nearly 57 percent higher last week. Wall Street’s so-called fear index has more than doubled thus far in 2018.

Friday, March 23, 2018

Hard-Hit Industrial Stocks

Who's going to be hurt by the Trump Administration's proposed tariffs against the Chinese? The market seems to think it's manufacturers, who could end up spending significantly more for the metals in their products.

The S&P 500's industrial sector fell by 1.4 percent yesterday. Some of the more notable losers:

  • Lightweight metals engineering firm Arconic, down 3.1 percent 
  • Airplane giant Boeing, down 2.8 percent 
  • Heavy-machinery maker Caterpillar, down 2.7 percent
  • Farm machinery maker Deere & Co., down 2.4 percent 
  • Maker of steel products Nucor, down 2.1 percent 
  • Producer of aluminum cans Amcor, down 1.5 percent

Thursday, March 22, 2018

The Fed Moves

The first Federal Reserve meeting under the leadership of new chair Jerome Powell held few surprises yesterday. As widely expected, the Fed raised its benchmark federal-funds rate by a quarter percentage point to between 1.5 percent and 1.75 percent. That is the sixth quarter-point move since December 2015.

The Fed stuck to last December's forecast of three interest-rate hikes this year, but central bankers did push up their expected rate path in 2019 and 2020, however. The Fed now sees a total of eight quarter-point hikes in the Fed funds rate through the end of 2020: three increases this year, including Wednesday’s move, three in 2019 and two in 2020. By the end of 2020, rates would be near 3.4 percent.

In its statement, the Fed said “the economic outlook has strengthened in recent months.” It also said that household and business investment “have moderated from their strong fourth-quarter readings.”

Wednesday, March 21, 2018

Bank Rates Inching Up

Now that the Fed has begun raising interest rates, it seems that banks are, too. The average rate on a one-year certificate of deposit rose to 0.49 percent last week, according to While that’s tiny by historical standards, it is the highest that figure has been in more than seven years.

Banks over the past year have already raised the interest paid on deposits held by businesses and affluent individuals who demand it. But higher CD rates are intended to lure in average customers.

Still, banks aren’t moving en masse to raise rates. The average rate on a money-market deposit account started at 0.10 percent before the rate-raising cycle and is now still at just 0.15 percent, says.

Monday, March 19, 2018

Bad Day at the Market

It was a rough day on Wall Street yesterday, headlined by Facebook's woes. Facing charges of misusing customer data, the social media giant dropped 7 percent and had its biggest one-day percentage decline since September 2012.

While the tech sector was the biggest decliner on the day, losing 2.8 percent, the day's losses were broad. All 11 of the primary S&P 500 sectors were lower on the day, as were all 30 Dow components. The Dow's decline of 1.4 percent erased its year-to-date gain and pushed the index into the negative for 2018.

Not surprisingly, the market's Volatility index also jumped on Monday. The VIX gained 38 percent to 21.82, a level that is above its long-term average of 20. The VIX is up nearly 100 percent so far in 2018.

Positive Sentiment Almost Everywhere

Most investor sentiment is pretty strong right now. The University of Michigan's consumer sentiment index hit the highest level since 2004 in March, helped by a record favorable assessment of current economic conditions. At 102, it is well above the long-term average of 86,

The good vibes haven’t just been isolated to consumers. A reading on small-business optimism hit its second-highest level ever in February, behind only to a reading from 1983 and extending a surge that started with the 2016 U.S. presidential election.

Is there anything to be nervous about? There's one thing: According to Saxo Bank’s head of commodity strategy Ole Hansen, the Geopolitical Risk Index is at its highest level since 2003, during the invasion of Iraq.

Friday, March 16, 2018

Misunderstanding HSAs

Do you understand health savings accounts? A new survey by the LIMRA Secure Retirement Institute and the Insured Retirement Institute finds that 51 percent of Americans believe they are knowledgeable about HSAs, which indicates there is much to be done to educate consumers, advisors and employers about these vehicles.

And that 51 percent probably overstates the case. According to the survey, many Americans are unaware that they can use their HSA assets — accumulated in their working years — to pay for health care and long-term care expenses in retirement.

Two in five Americans mistakenly believe that balances must be spent by the end of the year or forfeited. This may explain why 74 percent of the 294 non-retired workers participating in an HSA said they use it to pay for current health care expenses. The remaining 26 percent said they plan to save their HSA assets for future health care expenses.

Thursday, March 15, 2018

The Madness of March

Have you filled out our brackets yet? A whopping 70 million tournament brackets were completed last year, amounting to about $10.4 billion wagered in total, according to a report by WalletHub. That's about twice as much as during the Super Bowl.

But across the U.S., all that time spent on sports brackets instead of actual work has a serious impact on the bottom line. In fact, unproductive workers during March Madness amounted to an estimated $6.3 billion in corporate losses last year, WalletHub said. A separate survey by Seyfarth Shaw at Work found that March Madness ranked third among tech-related office distractions, directly behind texting and Facebook.

Although 81 percent of human resource professionals said their organizations don't have policies to police office pools, employees are happy to leave well enough alone. Ninety percent of workers agreed March Madness was good for employee morale, WalletHub says.

Wednesday, March 14, 2018

A Sleepy Inflation Report

Inflation appears to be under control, despite fears earlier this year that it might be accelerating. The last major consumer-price report before Fed officials meet next week, released yesterday, indicated that inflation is gradually picking up without a big breakout.

The Labor Department said its Consumer Price Index rose 0.2 percent last month after jumping 0.5 percent in January. In the 12 months through February, the CPI rose 2.2 percent, up just a tick from 2.1 percent in January.

Excluding the volatile food and energy components, the CPI gained 0.2 percent, down slightly from a 0.3 percent increase in January. The year-on-year rise in the so-called core CPI was unchanged at 1.8 percent in February.

Tuesday, March 13, 2018

The Pre-Meltdown Losers

As we noted yesterday, during the nine years of the current bull market, some stocks have done extremely well. But it's worth remembering that the bull run was preceded by a disastrous meltdown in the financial sector.

If you look not at the past nine years but back to July 13, 2007, when the market's previous high point was reached, there have been some terrible losers in the market. Some of the worst performers over that 10-plus-year period:

  • AIG, down 95 percent
  • Office Depot, down 92 percent
  • MBIA, down 86 percent
  • Citigroup, down 84 percent
  • ETrade, down 76 percent

Monday, March 12, 2018

The Bull's Biggest Winners

It was nine years ago that the S&P 500 turned around and began the bull run that has lasted to this very day. The S&P itself is up more than 300 percent over that time period.

Here are the biggest winners among the individual stocks in the S&P over that time frame:

  • Netflix, up 6,998.5 percent
  •, up 2,321.4 percent
  • Align Technology, up 2,316 percent
  • Regneron Pharmaceuticals, up 1,869.6 percent 
  • Booking Holdings, up 1,738.9 percent
Netflix and Amazon are familiar names. Align technology makes the Invisalign dental device; Regneron makes a variety of pharmaceuticals; and Booking Holdings owns, OPenTable, and other fare aggregators.

Friday, March 9, 2018

February's Jobs Report

The U.S. economy added a surprisingly strong 313,000 jobs in February, according to this morning’s employment report from the Bureau of Labor Statistics. The unemployment rate held steady for the fifth straight month at 4.1 percent, an 18-year low.

Construction, retail, manufacturing and health care drove most of the growth in February. Specialty trade contractors saw employment gains of 38,000, while building assembly jobs jumped by 16,000. Retail trade expanded by a whopping 50,000 jobs. Manufacturing maintained a course of steady growth in February, increasing by 31,000 jobs, with most of them sprouting in transportation equipment (8,000) and fabricated metal products (6,000).

Wage growth came in less than expected, rising 0.1 percent for the month and 2.6 percent on an annual basis. That's helping to dampen fears that inflation may be on the rise again.

Thursday, March 8, 2018

Latest From the Beige Book

Employers across the U.S. said wage growth picked up since the beginning of the year, according to a Federal Reserve's new Beige Book. Employment grew at a moderate pace compared with recent months, a sign the economy may have more labor market slack to pick up. Still, companies across the country reported continued worker shortages, particularly in the construction, information technology and manufacturing sectors.

But there were few reports that the price increases were being passed to consumers, at least not yet. For instance, in the New York region, which covers northern New Jersey, most businesses said they have raised their selling prices “only modestly” but said “they planned to hike prices in coming months.”

Businesses in the Philadelphia region, covering southern New Jersey, complained about keeping new employees on the job. “Workers appear to have less loyalty to the job, and more job-hopping is showing up on resumes,” the Philadelphia Fed reported.

Wednesday, March 7, 2018

A Month of Losses

February was a topsy-turvy time in the markets, and investors reacted accordingly. According to the TrimTabs Investment Research, $41.1 billion was pulled from U.S. stock funds in February, the third-highest monthly outflows on record (including both exchange-traded funds and mutual funds).

Most of the month’s outflows were concentrated in the first week of the month, when more than $37 billion was pulled from equity products. According to global fund tracker EPFR, this represented the largest one-week outflow in history.

The month’s redemptions, while historic, represented less than 0.5 percent of the $10 trillion in total assets currently held in domestic stock funds. In July 2002, the last month with similar outflows in terms of the dollar amount, the redemptions were much larger by this metric, accounting for what was at the time 1.7 percent of assets.

Tuesday, March 6, 2018

America to Lead the World in Oil

Is America's energy independence day approaching? According to the International Energy Agency, the U.S. will overtake Russia to become the world’s largest oil producer by 2023.

U.S. crude production is expected to reach a record of 12.1 million barrels a day in 2023, up about 2 million barrels a day from this year. American oil output will surge past Russia, currently the world’s largest crude producer at about 11 million barrels a day.

Of the 6.4 million new barrels of oil that will be pumped every day between now and 2023, almost 60 percent will come from the U.S., the IEA said. American influence on global oil markets is also expected to rise, with U.S. oil exports more than doubling to 4.9 million barrels a day by 2023. Until 2015, the U.S. didn’t export any crude oil by law, but in five years it is expected to be among the world’s biggest exporters.

Monday, March 5, 2018

A Record Year for Buybacks

S&P 500 companies will buy back a record $800 billion of their own shares in 2018, funded by savings on tax, strong earnings and the repatriation of cash held overseas, according to a new study by J.P. Morgan. That will far exceed the $530 billion in share buybacks that was recorded in 2017.

Companies have already announced $151 billion of buybacks in the year to date. There were $113.4 billion of buyback announcements in February alone, a three-year high, according to Trim Tabs Investment Research.

It's worth noting that stocks with higher buyback yields and new announcements tend to outperform their peers, especially during corrections and recessions. Since 2000, those stocks have outperformed peers by 150 basis points during corrections and 200 basis points during recessions, J.P. Morgan analysts said.

Friday, March 2, 2018

Retirement Is Easier Than Ever

Retirement planning is getting easier and easier. A Willis Towers Watson survey finds that plan sponsors continue to add enhancements to their retirement plans, including automatic features. In fact, 73 percent now automatically enroll new participants—a percentage that’s been rising steadily, from 52 percent in 2009 and 68 percent in 2014.

Still, 47 percent of those companies who haven’t added auto-enrollment cite cost as the chief reason not to do so. They also hesitate to add re-enrollment, with 80 percent only making the effort to auto-enroll at the time the employee is hired.

But just a quarter of employers have increased their plan contributions over the past five years. Among those doing so, 60 percent raised the employer match to do it; 51 percent did so by encouraging employee savings and employee engagement; and 44 percent offset benefit changes in their defined benefit program.

Thursday, March 1, 2018

The Monthly Streak Ends

A historic streak came to an end with the close of trading yesterday, on the final trading day for the month of February. On a total-return basis, the S&P 500 fell 2.6 percent over the course of the month, representing the index’s first such decline since October 2016.

That means that an uninterrupted 15-month rally has just come to a close. This was by far the longest such streak in the history of the S&P; the previous record was a 10-month rally that ended in September 1995.

The Dow Jones Industrial Average had a 4.3 percent decline for February, coming off 10 straight positive months. The Nasdaq Composite Index fell 1.9 percent for February, ending a seven-month rally.