Friday, June 29, 2018

How Hot Is GDP?

The U.S. economy is roaring, at least for now. Macroeconomic Advisers, which runs one of the more sophisticated economic forecasting models, is tracking a 5.3 percent growth rate in the second quarter. That would be the fastest pace in almost 15 years.

A narrowing trade deficit, tax cuts coupled with more government spending, a resurgent consumer and decent business investment are all supporting what appears to be a strong rebound in growth. The Atlanta Fed’s GDPNow model shows a 4.5 percent growth rate, although such estimates jump around as new data arrives.

But we’ve seen economic head fakes before—gross domestic product advanced 5.2 percent in the second quarter of 2014 only to quickly revert to the mean. Overall, growth has averaged about 2 percent during the current expansion.

Thursday, June 28, 2018

Does America Have a Retirement Crisis?

Americans are reaching retirement age in worse financial shape than the prior generation, for the first time since Harry Truman was president. A new analysis by the Wall Street Journal shows that Americans verging on retirement have high average debt, are often paying off children’s educations and are dipping into savings to care for aging parents.

This cohort should be on the cusp of their golden years, but their median incomes including Social Security and retirement-fund receipts haven’t risen in years, after having increased steadily from the 1950s. Median personal income of Americans 55 through 69 leveled off after 2000—for the first time since data became available in 1950.

The percentage of families with any debt headed by people 55 or older has risen steadily for more than two decades, to 68 percent in 2016 from 54 percent in 1992, according to the Employee Benefit Research Institute. Americans aged 60 through 69 had about $2 trillion in debt in 2017, an 11 percent increase per capita from 2004.

Wednesday, June 27, 2018

Confusion over Retirement Savings

How much money will you need in retirement? A whopping 61 percent of Americans don’t know how much they’ll need to save to get them through retirement, according to a new survey from Bankrate.

Millennials are the group most in a quandary over how much they’ll need, with 69 percent admitting to such ignorance. But they’re far from the only ones: 56 percent of GenXers (ages 38 to 53), 58 percent of boomers and 59 percent of those aged 73-plus have the same problem.

Among the ones who put forth an estimate of what they'll need in retirement, the median estimate is $650,000. Those who have given estimating a shot are all over the financial map, with 7 percent saying $250,000 to $500,000, and 8 percent saying either $250,000 or less, $500,000 to $1 million or over $1 million, respectively.

Tuesday, June 26, 2018

A Disappointing End to a Dow Streak

A winning streak extending nearly two years for the Dow Jones Industrial Average ended yesterday. The Dow closed sharply lower, falling around 328 points to 24,252.80, below its 200-day moving average, which stood at 24,280.02.

The Dow hadn’t closed below its 200-day moving average for 501 consecutive trading days, going back almost two years exactly to June 27, 2016. That's the point at which the market reacted negatively to the U.K. Brexit vote.

The streak of 501 consecutive trading days above the 200-day moving average is the Dow’s third longest since 1952, when the New York Stock Exchange began its current five-day-a-week trading schedule. The only longer stretches were a 652-day run that ended in May 1956 and a 715-day stretch that ended in October 1987.

Monday, June 25, 2018

Bonus Bonanza

The share of workers’ pay going to bonuses hit the highest level on record this year, reflecting a shift in how employers woo job candidates while still trying to keep a lid on base pay. That's according to a new report out from the Department of Labor.

Private-sector bonuses that aren’t directly tied to a worker’s output reached 2.8 percent of employer pay and benefit costs in the first quarter. That’s the biggest share since the Labor Department started tracking the figure in 2008.

Anecdotally, the trend of bonuses rather than permanent wage increases continues. The most popular measure of annual wage growth has bounced around 1.5 percent to 2.5 percent in recent years, which is below prerecession levels. With a 2.7 percent gain in May, though, it has finally shown signs of picking up as the labor market tightens.

Friday, June 22, 2018

Micro Caps Are on Fire

As we noted yesterday, small-capitalization stocks have been soaring lately. But a subset of even smaller-cap equities has produced even more stellar results this year.

The Russell Microcap Index, which is a benchmark of companies with an average market value of about $730 million, has gained 14 percent so far in 2018, as of Wednesday’s close. That compares with a only slightly less impressive year-to-date gain of 11.1 percent for the Russell 2000 index, which has a roster of companies with an average market value of $2.6 billion.

Both indexes are trading in record territory, with the Russell Microcap having just put in a 24th all-time high close for 2018. That is one more record than the Russell 2000 has set.

Thursday, June 21, 2018

Big and Small Stocks, in Opposite Directions

On the big board, it was a rough day in the stock market yesterday. The Dow Jones Industrial Average closed down 0.2 percent, recording its seventh straight daily loss.

There's much better news down among the smaller stocks. The Russell 2000 Small Cap index made it four positive days in a row yesterday. In the process, it also set an all-time high.

But there are rumblings that the small-cap rally may have run its course. Investors have yanked more than $1 billion from the bellwether iShares Russell 2000 Exchange-Traded Fund since June 11, after pouring money into it for much of this year.

Wednesday, June 20, 2018

The Coming Corporate Bond Wave

The bill is coming due on trillions of dollars in companies’ bonds. As much much as $1.7 trillion of non-financial corporate bonds matures globally this year, and $2 trillion or more could mature in each of the next four years, according to research out this week from McKinsey & Co.

Record amounts of debt are maturing just as interest rates are rising, forcing companies to pay up if they want to refinance their maturing bonds. Credit quality has also been declining as top-rated companies have taken on more debt. Roughly 40 percent of nonfinancial corporate bonds now have triple-B credit ratings, the lowest that’s considered investment grade. That’s up from 22 percent in 1990,

Stock investors are starting to take notice. Shares in companies with strong balance sheets have outperformed those with weak balance sheets by 6.3 percentage points this year. For much of the economic cycle, weak balance sheet companies were the outperformers, as companies were rewarded for adding leverage.

Tuesday, June 19, 2018

Volatility Has Settled Down

After spiking to levels not seen in a couple of years back in March and April, U.S. equity market volatility has really settled back down. Over the last 50 trading days, the S&P 500 has averaged a daily move of just plus or minus 0.56 percent. 

That’s half the daily move we were seeing at peak levels of volatility earlier this year. It’s also 0.14 percent below the bull market’s average daily move of plus or minus 0.70 percent

While volatility has settled down, we’re going to need to see a continued slowdown to get back to the historically low level that investors got used to in 2017.  Back in November 2017, there was a 50-trading day period where the S&P experienced an average daily change of just plus or minus 0.22 percent.

Monday, June 18, 2018

Where MBAs Are Going

If you have a family member graduating from an MBA program this spring, they might be considering going to work for a bank - or they might not. More MBA graduates are choosing jobs in technology and consulting even as banks have been raising starting salaries.

The share of full-time MBA graduates from the top 10 business schools accepting jobs at financial-services firms dropped between 2012 and 2017 from 36 percent to 26 percent. The share accepting jobs in technology rose from 13 percent to 20 percent in the same period. Consulting edged out financial services as the top draw in 2017, as the choice of 29 percent of grads, up from 27 percent in 2012.

Banks are trying to do more to attract the top MBAs. For graduates of MIT Sloan School of Management, median starting salaries paid by financial-services firms jumped 25 percent between 2012 and 2017 to $125,000. Tech- and consulting-firm median salaries rose just 9 percent—to $125,000 and $147,000, respectively—over the same period.

Friday, June 15, 2018

Burning a Hole in Our Collective Pockets

Americans are spending a lot of money. Retail sales rose 0.8 percent in May, the government reported yesterday — much better than expected. Spending was up 5.9 percent from a year ago.

And the gains were broad: Spending surged at clothing stores, at restaurants and at home-improvement stores such as Home Depot and Lowe's. In fact, the jump in spending at physical stores in May outpaced what the government calls nonstore retailers, a category that includes Amazon and other online retailers.

With all that spending, the savings rate dipped to 2.8 percent in April, as the rate of consumer spending outpaced the increase in personal income. The savings rate has only been below 3 percent three times since the 2008 financial crisis. It was also lower than 3 percent last November and December, but it rebounded after the holiday shopping season.

Thursday, June 14, 2018

The Fed Hikes Rates

As expected, the Federal Reserve lifted its benchmark federal funds rate by a quarter-percentage point, yesterday, to a range of 1.75 percent to 2 percent. But he biggest news is what it might do over the rest of the year.

By a narrow margin, the Fed projected a total of four rate increases in 2018, instead of three as previously planned. Fed leadership remains closely divided: Eight Fed officials said they expected interest rates to rise at least four times, while seven forecast three rate hikes.

The Fed’s preferred inflation barometer, the PCE index, has already hit the bank’s long-run 2 percent target. Yet the Fed predicts inflation will end up around 2.1 percent by year end, suggesting that they think prices will ease later this year.

Tuesday, June 12, 2018

The Revolving World of Credit Card Debt

Americans repaid $40.3 billion in credit card debt during the first quarter of 2018, according to a new analysis of data from the personal-finance website WalletHub. That’s the second-highest amount paid off in one quarter since the first quarter of 2009, when consumers paid off more than $44 billion.

Now, the bad news: Their debts are not getting that much smaller. Americans ended 2017 with $91.6 billion in new credit-card debt, the largest annual amount since 2007 and 104 percent above the post-recession average. Outstanding credit card debt is at the second-highest point since the end of 2008.

In 2017, Americans hit a record high of $1.021 trillion in outstanding revolving debt (often categorized as credit-card debt). As of April 2018, they still had more $1.030 trillion to pay off, according to the Federal Reserve.

Selling a House Is Easy

In yet another sign of the ultra-competitive housing market buyers now face, the time homes spend on the market has never been shorter since the recession began. The median list-to-sale time, which is the period of time between when a listing is officially posted and when the home is officially sold, is now just 64 days, down from 77 a year ago, according to real-estate website Trulia.

Premium homes take longer to sell, with a median list-to-sale period of 72 days. Starter homes (59 days) and trade-up homes (57 days), on the other hand, sell faster than the average.

It’s the latest sign of a housing market that may be reaching its peak. Median home values increased 8.7 percent on average nationwide from April 2017 to $215,600. That represents the fastest pace of acceleration since June 2006 — right before the start of the housing crisis that triggered the Great Recession — when they rose 9 percent annually.

Monday, June 11, 2018

Those Hot Tech Funds

Where are people investing these days? Technology funds just closed out one of their biggest weeks ever in inflows. According to Bank of America Merrill Lynch, tech funds saw $2.3 billion inflows this week, its second-highest weekly inflows ever.

Tech funds have taken in $17.3 billion so far this year, according to Bank of America analysts. That puts the sector on track for a record year in inflows. 

The other hot investing option? Money market funds, which pulled in nearly $34.9 billion during the seven days through June 6, according to Lipper. One big reason for that: Money fund yields averaged 1.41 percent at the end of May, up from just 0.49 percent a year ago.

Friday, June 8, 2018

Don't Sell in May?

One old maxim for stock market investors has been "Sell in May, then go away." The idea is that the market tends to spend the summer in the doldrums, and then picks back up in the fall.

But that hasn't been true this year. Though the stretch between May and October is typically thought to be weak for the stock market, equities have started off that period on a strong note. The S&P 500 has climbed 4.7 percent since the end of April, the best performance for that stretch since 2009.

The maxim does have some validity. Over the last two decades, the S&P 500 has climbed 0.3 percent on average between May and October, versus 6.5 percent between November and April. But over the last five years, the S&P 500 has actually performed better between between May and October than between November and April.

Thursday, June 7, 2018

The Hot, Hot Job Market

How hot is this economy? The U.S. had more job openings than unemployed Americans this spring. That’s the first time that’s happened since such record-keeping began in 2000.

U.S. job openings rose to a seasonally adjusted 6.7 million at the end of April, a record high. That's also more than the 6.3 million Americans who were unemployed during the month.

The largest number of April openings, 1.3 million, were in the broad business-services sector, which includes everything from accountants and software developers to temporary staffers and clerical workers. There were also ample job openings in lower-paying fields, with 844,000 accommodation and food-service jobs open in April and 735,000 unfilled retail positions.

Wednesday, June 6, 2018

The Wood Surge

One little-discussed trend affecting our economy: Wood prices are up 67 percent over the past year, adding thousands of dollars to the cost of each new house. Meritage Homes Corp. CEO Steven Hilton said recently that higher lumber prices have this year added about $3,000 on average to the cost of each house it builds.

The historic run-up in lumber prices is attributable to a trade dispute with Canada, wildfires and limited rail capacity. This comes as U.S. home builders are already struggling to meet demand amid shortages in buildable lots and labor.

But it's good news for timber companies. Shares of CatchMark Timber Trust, Rayonier and PotlachDeltic have each risen more than 11 percent over the past year. Shares of Weyerhaeuser, the largest private owner of timberland in North America, closed on Tuesday at the highest price in its 118-year history.

Tuesday, June 5, 2018

A Social Security Hike?

Are you on Social Security? If so, you could be in for a sizable raise. The annual Social Security cost-of-living adjustment for 2019 could top 3 percent in 2019, which would be the largest increase in seven years, according to a new estimate released by the Senior Citizens League.

A 3 percent cost-of-living adjustment, or COLA, in 2019 would be the biggest annual hike since 2012, when Social Security benefits grew by 3.6 percent. This year the COLA was 2 percent, following a meager 0.3 percent increase in 2017 and no increase at all in 2016.

The Senior Citizens League's COLA estimate for 2019 is based on consumer price index data through April. Social Security COLAs are based on the increase in the index that measures price inflation for urban workers, from the third quarter of the prior year to the corresponding third quarter of the current year.

Monday, June 4, 2018

Retirement and the Gig Economy

We hear a lot about the gig economy, but for many people, it's just a way to ensure their retirement plan. According to a new survey from the investment firm Betterment, 81 percent of gig economy workers say they are afraid of being to afford to save for retirement.

In fact, a third of those people with side jobs have that second job specifically to save money for retirement. And 49 percent of people aged 55 or older who have a second job are saving for retirement with their side gig.

Many of them plan to continue these side jobs into retirement. The survey found that 12 percent of second-job holders intend to hang on to a side-gig job as their main source of income after retiring from their traditional career, and 20 percent of those with a full-time job plan to take on incremental gigs to provide their main source of income once they’ve “retired.”

Friday, June 1, 2018

May's Jobs Report

More good news for the economy in May, as the economy added 223,000 jobs, and the unemployment rate edged down to 3.8 percent. Since 1969, the only other time unemployment has been this low was in April 2000, in the middle of the dot-com bubble.

The economy has now added an average of 191,000 jobs over the past 12 months. In May, retail trade added 31,000 jobs, and employment in health care rose by 29,000.  Employment in construction added 25,000 jobs and has risen by 286,000 over the past 12 months.

The beleaguered mining sector added 6,000 jobs in May. Since a recent low point in October 2016, employment in mining has grown by 91,000, with support activities for mining accounting for nearly all of the increase.