The World's Most Competitive Economies

The United States has lost its spot as the world's most competitive economy, according to an annual ranking from the IMD World Competitiveness Center. High fuel prices and fluctuations in the dollar's value diminished the confidence in the American economy, along with the trade war with China, the center said.

So what's surpassed us? Both Singapore and Hong Kong had more competitive economies than the U.S., per the report, which evaluates 63 countries on 235 measures. The full Top Ten:

1. Singapore
2. Hong Kong
3. United States 
4. Switzerland
5. United Arab Republic
6. Netherlands
7. Ireland
8. Denmark
9. Sweden
10. Qatar

The Inverted Yield Curve

Is the bond market worried about a possible recession sometime soon? The yield curve has inverted again, with the inversion between the three-month Treasury bill and the 10-year note widened to its deepest level since the financial crisis. The three-month bill yield rose to 2.362 percent yesterday, while the 10-year note yield dropped to 2.26 percent, its lowest since September 2017.

Under normal market conditions, those that buy debt from the U.S. government for many years get better interest rates than those who loan money for a matter of months. When that inverts, as it has now, many investors and economists believe that the yield curve is sending a warning about economic growth in the United States.

The yield curve inverted once before this year, in March. But before that instance, the yield curve hadn't flipped since 2007 — just before the start of the Great Recession.

The Market's Biggest Winners

The S&P 500 has been a strong so far this year, rising by more than 12 percent. Often when this happens, the best-performing stocks tend to be the little-known ones, but 2019 has landed several big names at the top of the charts:

• Coty is up 88.6 percent through Friday; the beauty and cosmetics maker soared after the German conglomerate Jab Holding boosted its stake in the company.
• Anadarko Petroleum is up 61.8 percent, on the heels of Occidental Petroleum outbidding Chevron to buy the oil company for $38 billion. 
• Xerox  is up 58.4 percent, one of several software and chip stocks that have done well during this year’s market rally.
• Tyson Foods  is up 53.2 percent, as meat prices are expected to keep rising.
• Chipotle Mexican Grill  is up 50.5 percent year to date. 

New Jersey's Loss Is Florida's Gain

New Jersey lost about $3.4 billion in revenue from people moving out of state in 2016, according to a new study from Bloomberg. That's the third largest financial drain suffered by any state, exceeded only by New York and Connecticut.

Florida posted a net income influx of nearly 3 percent of the state’s adjusted gross income in 2016, the most recent year for which figures were available. That's no surprise, but the states that followed may be: South Carolina, Idaho and Oregon were also among the largest gainers.

Florida reeled in $17.2 billion more than it lost. The Sunshine State was the No. 1 recipient of the wealth exodus from 18 individual states — with New York, Illinois and New Jersey combining to contribute about $8 billion to Florida’s income base.

Thoughts for Memorial Day

"Patriotism is not short, frenzied outbursts of emotion, but the tranquil and steady dedication of a lifetime." ~ Adlai Stevenson

"Those who have long enjoyed such privileges as we enjoy forget in time that men have died to win them." ~ Franklin D. Roosevelt

"Some people live an entire lifetime and wonder if they have ever made a difference in the world. A veteran does not have that problem." ~ Ronald Reagan

That Lingering Fragility

Feelings of financial security among American adults are high, according to the just-out Report on the Economic Well-being of U.S. Households for 2018, a study that Fed has been conducting since 2013. Seventy-five percent of adults say they are either doing “okay” or “living comfortably,” up 12 percentage points from 2013.

But financial fragility remains high, too, especially among minorities and those lacking higher education. Forget saving for retirement: An unexpected expense of $400 can force more than one-third of American adults into a difficult financial situation.

If faced with an unexpected expense of $400, 61 percent of adults say they could cover it with cash, savings, or a credit card paid off at the next statement. But 27 percent would have to borrow or sell something to pay for the expense, and 12 percent would not be able to cover the expense at all.

Housing on Shaky Ground

A sizable drop in mortgage interest rates didn’t do much to help home sales in April, as high prices and tight supply at the low end of the market continued to sideline buyers. Sales of existing U.S. homes, which accounts for 90 percent of the housing market, fell 0.4 percent in April compared with March.

Sales were 4.4 percent lower compared with April 2018. That was the 14th straight month of annual declines. Here in the Northeast, home sales decreased by 4.5 percent. The median price in the Northeast was $277,700, up 0.9 percent from April 2018.

The inventory of existing homes for sale increased to 1.83 million, up 1.7 percent annually to a 4.2-month supply at the current sales pace. Homes sat on the market for an average of 24 days in April, down from 36 days in March and down from 26 days a year ago.

Millennials' Financial Woes

Burdened by significant student loan debt and the fact that many of them spent their first working years in the midst of an economic downturn, millennials are already way behind previous generations on a number of key financial metrics. That's according to a recent analysis by the Wall Street Journal.

In 2016, the average net worth of a household headed by those age 18 to 34 was roughly $92,000. In inflation-adjusted dollars, that was 40 percent lower than the worth of young households in 2001, and 20 percent lower than that of young households in 1989.

Similarly, only about a third of millennials owned homes in 2016. That's compared to half of young people in 2001 who owned homes,  and just under half of young people in 1989.

Who's Moving Into Cash?

Are the superrich getting spooked? Members of Tiger 21, a group of about 700 individuals with at least $10 million to invest, increased their cash holdings by 20 percent in the first quarter, bringing the group’s total allocation to levels not seen since the start of 2013. The move marks Tiger 21’s first cash-raising effort in three years.

The group is backing away from hedge funds, but just slightly. Real estate, still the asset of choice, has steadily fallen out of favor, dropping from a peak of 33 percent in the second quarter of 2017 to the current 26 percent level.

Group members have remained steady their bond holdings. That asset class accounts for 9 percent of their holdings, similar to the fourth quarter of 2018.

The Bank of Mom and Dad

Kids have been borrowing or receiving gifts from parents for years, but a new study by Legal & General, a U.K.-based financial services firm and global investor, has quantified the effect. If the Bank of Mom and Dad were a real lender, the total amount loaned out is estimated to be $47.3 billion, just less than U.S. Bancorp, the fifth-largest bank in the nation.

One in five U.S. homeowners received gifts or loans from family to help them buy their home. The average sum given as a gift or interest-free loan is $39,000 per loan. That helped to support the purchase of $317 billion worth of property across America in 2018.

This amount doesn’t include other loans or gifts given out by Mom and Dad, usually dealing with college. Those loans averaged roughly $41,500 apiece.

Earnings Season's Biggest Surprises

Which companies had the biggest upside surprises in terms of sales this earnings season? According to FactSet, these are the ten stocks whose sales figures outperformed the Wall Street analysts the most:

• Pioneer Natural Resources, exceeded expectations by 38 percent
• Fifth Third Bancorp, exceeded expectations by 32 percent
• HollyFrontier, exceeded expectations by 19 percent
• Alexandria Real Estate Equities , exceeded expectations by 16 percent
• Lockheed Martin, exceeded expectations by 14 percent
• Electronic Arts, exceeded expectations by 14 percent
• Principal Financial Group, exceeded expectations by 12 percent
• Anadarko Petroleum, exceeded expectations by 12 percent
• Vulcan Materials, exceeded expectations by 11 percent
• Westinghouse Air Brake Technologies, exceeded expectations by 11 percent

A Surprise in Retail Sales

U.S. retail sales unexpectedly declined in April, the Commerce Department said yesterday. The value of overall sales declined 0.2 percent after a 1.7 percent increase in March that had been the strongest gain since 2017.

Overall consumer spending, which includes spending on services such as haircuts and travel, had jumped in March by the most in nearly a decade, but April was a different story. One example of the turnaround: Sales at automobile dealers fell 1.1 percent after increasing 3.2 percent in the previous month.

Sales at clothing stores fell 0.2 percent in April, and by 1.9 percent at home and garden supply stores. Other down sectors included health and personal care, and electronics and appliances. Categories with increases included general merchandise, food and beverage stores, and restaurants and bars.

Victims of the Trade War

The trade war between the U.S. and China means hard times for the markets, especially those companies that do a lot of business with China. The Dow Jones Industrial Average and the S&P 500 Index both fell by 2.4 percent yesterday, while the Nasdaq Composite Index dropped 3.4 percent.

Apple led the Dow decliners with a loss of 5.8 percent, after reporting a 22 percent decline in sales in China for the quarter ended March 30 from a year earlier. Other Dow stocks that lost at least 3.5 percent:

• Boeing, down 4.9 percent
• Caterpillar, down 4.6 percent
• DowDuPont, down 3.9 percent
• Cisco Systems, down 3.9 percent
• United Technologies, down 3.8 percent
• Goldman Sachs, down 3.5 percent

The Bad News from Uber

Uber's hotly anticipated IPO turned into a bit of a dud on Friday. By one measure, it was the fifth weakest one-day return of a company with a value of at least $10 billion of the past 24 years, according to data from Dealogic.

Uber’s stock closed at $41.57, giving it a valuation of $69.71 billion, which is certainly a very big number. But it also finished Friday's trading down 7.6 percent from its official public debut at $45.

The first-day drop put Uber’s return better than only four other companies that were valued at $10 billion or more. ADT, the security company, raised about $1.5 billion on January of 2018 but saw a first-day slide of 11.5 percent. Genuity, one of the last gasps of the dot-com era, saw its stock slide by 14.5 percent on its first day of trading back in June 2000.

Producer Prices Ease Off

The producer price index increased just 0.2 percent last month,  the Labor Department said yesterday. That's significant because that index had jumped 0.6 percent in March, setting off a few alarm bells. In the 12 months through April, the PPI increased 2.2 percent.

Some big changes between the two months: Wholesale energy prices rose 1.8 percent in April after jumping 5.6 percent in March. Goods prices increased 0.3 percent last month after surging 1.0 percent in March.

The producer-price index is a measure of the prices businesses receive for their goods and services. It measures things such as wholesale food prices, which fell 0.2 percent in April. It can be seen as sort of a precursor to consumer inflation.

Are Americans Overconfident About Retirement?

According to the 2019 Retirement Confidence Survey of Americans 25 and older, just out from the Employee Benefit Research Institute, 82 percent of retirees are confident they will have enough money to live comfortably throughout retirement. That’s a sharp rise from 75 percent a year ago and comparable to the highs in 2005 and 2017.

The outlook among those still in the workforce is slightly less rosy. In that group, 67 percent of workers are confident they will have enough money to live comfortably throughout retirement, up from 64 percent a year ago and 60 percent in 2017. That figure is near the peaks of 1999 and 2004.

But should they be so optimistic? The EBRI survey also found that 40 percent of workers said they have less than $25,000 in savings and investments, not counting their home and any traditional pension plans. Another 9 percent had $25,000 to $49,999 and another 9 percent had $50,000 to $99,000. That’s 58 percent who have less than $100,000 saved.

The Long-Term Care Stats

How do you feel about your long-term care? Only around 52 percent of workers said they're at least somewhat confident they'll be able to afford long-term care in retirement, according to a new report from EBRI. Just 15 percent considered themselves "very confident" about their ability to cover this particular expense.

These costs add up fast. Roughly 70 percent of today's retirees will need long-term care at some point in their life, according to the U.S. Department of Health and Human Services, and of those who need it, 20 percent will need it for at least five years. The average cost for a semi-private room in a nursing home is nearly $7,000 per month, according to the U.S. Department of Health and Human Services, and hiring a health aide to come to your home and help with household tasks can run you around $20 per hour.

The key is to address this issue early. For a 55-year-old couple, the average cost for long-term care insurance is around $2,500 per year, according to the American Association for Long-Term Care Insurance. Meanwhile, the average 60-year-old couple can expect to pay around $3,400 per year in premiums.

A Day of Sound and Fury

Stock prices opened sharply lower yesterday after President Trump tweeted a vow Sunday to raise tariffs from 10 percent to 25 percent on $200 billion worth of imported Chinese goods. The stocks of companies that trade heavily with China were especially hard hit.

Boeing, the single largest U.S. exporter to China, fell 1.3 percent. Apple, which has also been sensitive to signs of weakness in China, declined 1.5 percent. The Philadelphia chip index slid 1.7 percent, since silicon chipmakers get a sizable portion of their revenue from China.

But before the day was over, the markets came bouncing back. The Dow Jones industrial index was down as much as 471 points, while the S&P 500 traded down 1.2 percent at its lows. The Dow came back to finish the day down just 67 points, while the S&P lost just 0.4 percent.

The Uber IPO

The big business news this week is Uber's IPO, expected to take place on Friday. The ride-hailing giant has indicated an expected price range of $44 to $50 a share, meaning the company could raise up to $9 billion at the high end of that range.

That's slightly less than some of the biggest tech IPOs in recent years. Facebook raised $16 billion through its 2012 offering, while Visa Inc. raised almost $18 billion in 2008. China's Alibaba Group raked in roughly $25 billion in 2014.

Still, that's not too bad for a company that's bleeding red ink.  Uber reported $1 billion in net income last year thanks to the sale of some operations in Russia and Asia, but it posted an operating loss of $3 billion.

April's Unemployment Report

Another strong month for job creation has dropped the unemployment rate to its lowest point in almost 50 years, the Bureau of Labor Statistics reported this morning. April saw a robust 263,000 new hires while the unemployment rate fell to 3.6 percent, the lowest it's been since December 1969.

One reason the headline unemployment figure dropped again was because the number of people counted as being in the labor force dropped.  A sharp decline in the labor force of 490,000 in April brought the labor force participation rate down to 62.8 percent.

Professional and business services led job creation for the month with 76,000 new positions. Construction added 33,000, bringing to 256,000 the total new jobs created in the field over the past year. Health care rose by 27,000 in April, while financial positions increased by 12,000.

Inflation and the Fed

As expected, the Federal Reserve kept its benchmark interest rate in a range of 2.25 percent to 2.5 percent in a statement yesterday after its two-day meeting. The biggest reason the Fed is staying the course? Low inflation.

Their post-meeting policy statement noted: “On a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 2 percent,” On Monday, data was released showing that core inflation, as measured by the personal consumption expenditure price index, fell to 1.6 percent in March, a 19-month low.

Fed chair Jerome Powell indicated after the meeting that rates are likely to stay right where they are for the foreseeable future. “We do think our policy stance is appropriate right now,” he said. “We don’t see a strong case for moving in either direction.”

The Change in May

“Sell in May and go away” is a widely followed stock market saying with some basis in truth. The six months from May to the end of October, as compared against returns in the November-to-April stretch — have on average underperformed. But that record may be changing.

Stocks over the six-month span ending in October have posted comparatively weaker returns in only three of the past five years. Two years ago, in 2017, that stretch offered a gain of more than 8 percent gain, compared with only a 2.8 percent gain from November of 2017 to end of April of 2018.

If this summer outperforms the previous six months, we’re in for some good times. The period from the end of last October through the last day of April produced a return of roughly 8.2 percent, according to FactSet data.