Monday, April 30, 2018

First Quarter GDP

Gross domestic product expanded at an annual rate of 2.3 percent for the months January through March, the Commerce Department reported Friday. That marked a slight slowdown from the 3 percent growth rate registered during the final three quarters of 2017.

One key area of growth: Nonresidential fixed investment, reflecting business investment in buildings, equipment, software and more, grew at a 6.1 percent rate. That was faster than this category's average growth rate of 4.6 percent during the economic expansion.

Household spending increased at a 1.1 percent rate in the first quarter, pulling back from the fourth quarter, when it rose at a 4.0 percent rate on strong holiday spending. The saving rate rose from the fourth quarter to the first, meaning households pocketed added disposable income from tax cuts rather than spending it.

Thursday, April 26, 2018

The American Dream on the Rise

One economic trend that continues to grow: More Americans own their own homes, and fewer of them are renting. According to U.S. Census data released yesterday, the homeownership rate rose from the prior year for the fifth consecutive quarter in 2018.

The homeownership rate is now at 64.2 percent, its highest level since 2014. The share of Americans who own a home rose from 63.6 percent in the first quarter of 2017.

Last year, surprisingly enough, the homeownership rate rose for the first time in 13 years. The U.S. added 1.3 million owner households over the last year - and lost 286,000 renter households. That marked the fourth consecutive quarter in which the number of renter households declined from the same quarter a year earlier.

The Unlikely Growth in Checking Accounts

Where have you been putting your money lately? One unlikely savings vehicle that's been growing lately is the checking account. The average checking account customer today has more than $3,700 stashed away.

That's well above the recent averages: The median amount held in checking accounts since 1991 is $2,263. In 2007, when times were good just before the Great Recession, consumers had on average less than $1,000 in their account.

Since 2008, apparently due to fear of riskier investments, the checking account customer has been hoarding more money. Moebs Services, an economic-research firm, found that the average consumer checking balance has increased in 23 of the past 30 quarters.

Wednesday, April 25, 2018

The Ten-Year at 3 Percent

The big news on Wall Street yesterday was that the ten-year Treasury bill reached 3 percent, for the first tim ein more than four years. How might this affect you?

The ten-year note is the benchmark for longer-term lending. The rate on a 30-year mortgage, for example, tends to move in relation to the 10-year yield. Freddie Mac said last week that the average rate on a 30-year, fixed-rate mortgage was 4.47 percent, up from 3.99 percent at the end of last year.

The long-term effect on stocks results from the fact that higher yields mean that companies have to pay more to borrow. If rates go high enough, rising borrowing costs can weigh on stock prices because companies need to pay more to service their debt, something that can erode financial performance.

Tuesday, April 24, 2018

Young People in Need of Financial Advice

What's the hottest benefit being offered by employers to young people? It's financial wellness plans. More than a few Generation Zers just entering the workforce are stressed about making ends meet, and many would like their employers to help them better manage their finances, according to a new report from LifeWorks.

A whopping 84 percent of Gen Zers, defined as those under the age of 23, agree it’s important that employers offer financial wellness programs.  But less than half (40 percent) of respondents can’t say their employer cares about their financial wellness and helps them manage it.

Their most pressing obstacles include cost of living, 58 percent; student loan debt, 41 percent; taxes, 34 percent; poor spending habits, 33 percent; and credit card debt, 29 percent. When they face unexpected expenses, 31 percent resort to using credit cards, which suggests that Gen Zers don’t have enough to cover the cost of emergencies.

Sunday, April 22, 2018

This Week in Earnings

This will be a big week for earnings reports, with three of the market's most widely watched stocks set to report. Alphabet, Google's parent company, reports today, Facebook reports on Wednesday, and Amazon reports on Thursday.

  • On average, analysts polled by FactSet expect first-quarter earnings for Facebook of $1.35 a share. Of the 45 sell-side analysts who cover Facebook, the average price target is $216, up from Friday’s closing price of $166.
  • Those analysts expect earnings of $9.28 a share and adjusted earnings of $11.75 for Alphabet. Most people are watching to see how Alphabet's stake in Uber affects its value.
  • Expectations are also high for Amazon, which just reported in its annual shareholder letter that it has more Prime members than Costco. Analysts are looking for Amazon to report revenue growth on average of about 40 percent in its first quarter on Thursday. 

Friday, April 20, 2018

Bullish Sentiment Grows

Despite all the ups and downs in the markets the past few months, individual investors are feeling more positive these days. According to this week's AAII Sentiment Survey, 37.8 percent of investors describe themselves as bullish, meaning they expect prices will be higher six months in the future.

The reading represents an eight-week high, and a jump of 11.7 percentage points from the previous week, although it is still below the long-term average of 38.5 percent. Pessimism fell by 13.5 percentage points to 29.2 percent in the latest week, dropping below its long-term average of 30.5 percent for the first time in four weeks.

The optimism and pessimism gauges have been extremely volatile of late, seeing steep swings on a near-weekly basis. Last week, the number of bearish investors hit its highest level since March 2017.

Thursday, April 19, 2018

Taxes in New Jersey

Now that you've made it through Tax Day, here's a sobering fact to keep in mind: Residents of New Jersey pay the fifth-most federal taxes among the 50 states. The average American adult pays $6,151 per year in federal taxes, but filers here in New Jersey pay $8,835.

The average income per capita in the Garden State is $53,534, which means that the average adult has a tax liability of 16.5 percent. It's slightly worse in New York, where the average adult pays $8,850, for an average tax liability of 17.4 percent.

But that's not the worst in the nation. That distinction belongs to the state of Connecticut, with an average payment of $10,861 and an average tax liability of 18 percent.

Wednesday, April 18, 2018

Companies and Their Cash

American companies are awash in cash: S&P 500 companies, excluding financials, had $2.39 trillion in cash and investments in 2017, according to JPMorgan Chase & Co. researchers. That’s up from $2.2 trillion in 2016 and $1.75 trillion in 2010.

What are they going to do with all that cash? A lot of it could go towards stock buybacks, as companies figure out what to do with their fatter profits and bring back overseas money as a result of the recent tax-code overhaul. That would be good news for a market that has struggled to break even this year.

Based on the amount of buybacks already announced this year by S&P 500 companies, JPMorgan analysts project roughly $800 billion in total buybacks in 2018. That would be up significantly from $530 billion last year.

Tuesday, April 17, 2018

Retail Bounces Back Strong in March

U.S. retail sales rebounded in March after three straight monthly declines as households boosted purchases of motor vehicles and other big-ticket items, suggesting consumer spending was heading into the second quarter with some momentum. The Commerce Department said yesterday that retail sales increased 0.6 percent last month after an 0.1 percent dip in February.

The biggest winners: Auto dealers posted their best month since last September, with sales rising 2 percent. Sales fell 0.3 percent at gas stations, but they were up 9.7 percent from March 2017.

Sales also rose at grocery stores, restaurants and bars, and drug stores. They fell at home and garden stores, clothing shops and sporting goods stores.

Monday, April 16, 2018

Tax Day Facts

Some numbers to keep in mind on this Tax Day:

  • $1.72 trillion: The amount the IRS expects to collect this year
  • $406 billion: The gap between what the IRS estimates people owe and what they collect
  • 155 million: The number of returns Americans are expected to file
  • 70 percent: The number of filers who get a refund
  • $2,925: The average amount of that refund
  • 8.1 billion hours: The amount of time Americans spend working on taxes
  • 1.1 million: Number of tax returns audited by the IRS each year
  • 0.6 percent: The chances that you personally will be audited

Friday, April 13, 2018

Hints of Inflation

At their meeting last month, Federal Reserve policy makers said they’re increasingly confident inflation will rise to their 2 percent target. That's according to the minutes from the March 20-21 meeting that came out this week, which highlight just how much Fed officials’ outlook has changed since last fall, when surprisingly slow inflation raised questions about the need for continued rate increases.

In some senses, we're already there. During the first quarter of this year, consumer prices rose at an annual rate of 2.5 percent, while core prices (which exclude volatile food and energy) climbed at a rate of 2.9 percent.

The Fed’s preferred inflation gauge, the personal consumption expenditure price index, tends to run a little cooler than CPI; it was at 1.8 percent at its least reading in February. But the trend is clear: Underlying inflation is picking up.

Thursday, April 12, 2018

Cash Is on Top - for Now

A new study out from Pension Partners LLC points out that the best place for investors to be in the first quarter of this year was cash. Both bonds and stocks declined over the first three months, which means  that three-month Treasury bills outperformed both U.S. equities and long-dated Treasury bonds, returning 0.3 percent.

The fear among investors is that this trend will continue, but historically, it is relatively rare for cash to outperform both bonds and stocks. Pension Partners analyzed annual returns of the S&P 500, 10-year Treasury notes and three-month Treasury bill going back to 1928. Over that stretch, there were only 12 calendar years in which cash was the top performer.

And in longer time frames than a year, there are basically no scenarios in which cash is the optimal investment choice. Pension Partners notes that as investors increased their holding period from 1 year to 30 years, the odds of cash being king declines from 13 percent to 0 percent.

Wednesday, April 11, 2018

Small Business Sentiment Pulls Back

After hitting multi-decade highs in February, optimism on the part of small businesses pulled back a fair amount in March.  The month-over-month decline of 2.9 points was the largest drop since 2015.

That's the bad news. The good news is that, even with this month’s decline, sentiment on the part of small businesses remains positive and is well above the historical average reading of 96.6. 

Small business owners do report having an increasingly difficult time filling jobs. “Owners complain at record rates of labor quality issues,” the National Federation of Independent Businesses said, “with 89 percent of those hiring or trying to hire reporting few or no qualified applicants for their open positions.” Meanwhile, the number of respondents saying they are increasing worker compensation rose to its highest level since 2000.

Tuesday, April 10, 2018

Preserving Your Retirement Assets

Is there too much risk in your retirement plan? A new MassMutual Retirement Savings Risk Study claims that a lack of understanding about risk has led some retirees and workers within 15 years of retirement to focus more on growing, rather than preserving, their assets.

For instance, 59 percent of preretirees and 32 percent of retirees describe their primary investment strategy as focused on either “aggressive growth” or “moderate growth.” In addition, 32 percent of preretirees and 49 percent of retirees characterized their investment mix as a balance between growing and preserving their savings.

But preretirees say they plan to become substantially more conservative when they retire, with 43 percent of them saying they expect to be primarily focused on asset preservation when they retire. The problem: In the event, just 23 percent of retirees said they were focused on asset preservation at that time.

Monday, April 9, 2018

Why Did Jobs Slow Down?

After Friday’s jobs report showed weaker-than-expected job growth in March, economists have been scrambling to find an explanation. U.S. nonfarm payrolls rose by 103,000 in March, a sharp slowdown from the prior month’s gain of 326,000, the Labor Department said Friday.

Some economists pointed to March’s inclement weather, citing pullback in industries that are easily affected by snowstorms and freezing temperatures. Employment in construction rose robustly by 65,000 in February, but fell by 15,000 in March. Similarly, the retail trade industry lost more than 4,000 jobs after gaining a solid 47,000 in February.

But other analysts said the weaker number in March was bound to happen simply because of February’s strong jobs growth figure. After the unusually and unsustainably robust February gains, the March weakness may just represent an unavoidable hangover.

Friday, April 6, 2018

March Jobs Report

The U.S. economy added just a somewhat disappointing 103,000 jobs in March, the lowest number in six months, the Bureau of Labor Statistics reported this morning. The headline unemployment rate was unchanged at 4.1 percent.

The figures for the first two months of the year were also revised downward. The new numbers show employers added 326,000 jobs in February and 176,000 in January, a net downward revision of 50,000. Still, through the first three months of the year, employers have added an average of 202,000 workers to payrolls, ahead of 2017’s average monthly growth of 182,000.

Wage growth ticked upward, but was still below expectations. Average hourly earnings for all private-sector workers increased 8 cents last month to $26.82. Wages rose 2.7 percent from a year earlier in March. Wages haven’t increased at better than a 3 percent rate from a year earlier since the recession ended in 2009.

Thursday, April 5, 2018

The Growing Rental Market

One thing that may be slowing the recovery of the housing market: A growing share of apartment renters aren’t interested in buying a home. They’re just too expensive.

In all, 20 percent of renters said they have no interest in owning a home, up from 17 percent in August and 13 percent in 2016, according to results of a semiannual survey of renters by mortgage company Freddie Mac. Two-thirds of renters who plan to continue renting said they are doing so for financial reasons.

The growing preference for renting comes even as the economy has strengthened and credit has loosened. Renters generally report being better off financially, with some 39 percent saying they have money to take them beyond the next payday, up from 34 percent in August, according to Freddie.

Tuesday, April 3, 2018

An Outlook for Brighter Days

After a rough patch for the markets, there's a reason for optimism ahead. S&P 500 firms are forecast to report profit growth of 17 percent in the first quarter of 2018 from a year earlier, according to reported results and analysts’ forecasts compiled by FactSet.

Those estimates reflect an upward revision of 5.4 percent throughout last quarter. That would be a record move higher, as analysts lifted their earnings targets due partly to the effects of a drop in the corporate tax rate.

Some sectors where share prices have lagged recently are expected to have some of the most robust profit growth. Energy companies are forecast to have 79 percent earnings growth. S&P 500 tech companies are expected to have grown profits by 22 percent, with Facebook, Apple, and Netflix  showing an even bigger rise.

Tech Troubles

It was a rough day yesterday for the broader market, but maybe the most significant declines happened on the tech-heavy Nasdaq index. The Nasdaq Composite Index was down 2.7 percent on the day, erasing all its gains for the year. It is now down 0.5 percent for 2018.

All 100 components in the Nasdaq-100 Index, which contains 100 of the largest stocks in the broader index, declined on the day. That index is also now in negative territory for the year. was the most notable loser of the day, dropping more than 5 percent.

The Nasdaq is nearing correction territory, defined as a drop of at least 10 percent from a peak. The Nasdaq hasn’t had a correction in more than two years, since February 2016.

Monday, April 2, 2018

Welcome, April

The U.S. stock market is coming off a rough March. The S&P 500 and Dow Jones industrial average both declined, and  it was the worst month for the Nasdaq in more than two years.

But things might be getting better. April has historically been a strong months for stocks, with the Dow Jones Industrial Average gaining an average of 1.9 percent going back to 1950. That stands as the single best month of the year for the Dow, based on average monthly performance.

It is the third-best month of the year for both the S&P 500 and the Russell 2000 index of small-cap stocks. The S&P has historically gained an average of 1.5 percent over the month, as has the Russell. For the Nasdaq, April stands as the fourth-best month, with an average gain of 1.4 percent.