Fourth Quarter GDP

The U.S. economy grew 2.1 percent in the fourth quarter, according to the initial estimate released yesterday by the Commerce Department. For the full year, GDP grew 2.3 percent, below the 2.9 percent increase from 2018 and the 2.4 percent gain in 2017,

Continued gains in consumer spending helped propel the economy in the year’s final quarter, though the rate of increase came in at 1.8 percent, well below the 3.2 percent pace in the third quarter. Still, personal consumption expenditures added 1.2 percentage points to the quarterly rise in GDP.

Other factors in the quarter's growth: Durable goods spending rose 1.2 percent while nondurables saw growth of 0.8 percent, the slowest pace since the first quarter of 2018. Net exports also helped, rising 1.4 percent, while imports fell 8.7 percent, owing to a drop in consumer goods and motor vehicles.

Millennials' Favorite Stocks

Apex Clearing recently unveiled its fourth-quarter Millennial 100 report, which analyzed more than 734,000 portfolios owned by U.S.-based investors with an average age of just over 31 years. So what stocks are millennials buying? Here are the top ten, in order of popularity:

1. Apple
2. Amazon
3. Tesla
4. Facebook
5. Microsoft
6. Berkshire Hathaway
7. Walt Disney
8. Netflix
9. Advanced Micro Devices
10. Alibaba

Consumer Confidence Is Back

Consumer confidence in the U.S. bounced higher in January as the outlook around the labor market improved, data released yesterday by The Conference Board showed. The Board’s consumer confidence index rose to 131.6 this month from 126.5 in December. That marked its highest level since August.

The data released showed 49 percent of consumers think U.S. jobs are “plentiful,” up from 46.5 percent. Those saying jobs are “hard to get” decreased to 11.6 percent from 13 percent.

In addition, assessments of current business and labor market conditions increased to 170.0 from 166.6 in December. Expectations for future conditions climbed to 102.5.

Apple's Year

Apple is set to report its earnings today, a long way from where the company was a year ago. The company’s stock has more than doubled over the past 12 months, and its market capitalization is now around $1.4 trillion.

At this time last year, Apple reported that sales of its iPhone were slowing, and that China was proving to be a more sluggish market than expected; it fell 7.6 percent on the day it reported earnings. That capped off three months in which the stock had dropped by more than 30 percent.

Now things are totally different. There are only two other S&P 500 index components that have doubled in the past year: Advanced Micro Devices is up 130.5 percent and Lam Research Corp. is 119.1 percent. But those semiconductor companies are much smaller than Apple - AMD’s market cap is $53.3 billion, and Lam’s market cap is $43.5 billion.

Kids Are Getting a Raise

Do you give your children a weekly allowance? It's very common: Nearly 7 in 10 American parents gave their children a regular allowance last year. And those kids are getting a raise.

Children raked in an average of $499 in allowance last year, according to RoosterMoney, an allowance tracking app. That's a 6 percent increase from what they received in 2018.

Children generally start receiving allowance around age four, with younger children often starting to get an allowance when their siblings begin to receive it. The weekly allowance rate correlated roughly to $1 per year of the child’s age: Four year-olds, for example, got an average of $4.18 per week, while 14-year-olds received an average of $13.87.

Your New Credit Score

If you're one of those people who constantly checks your credit score, you might notice a difference in it fairly soon. Fair Isaac Corp., the creator of the FICO score, announced that its new FICO 10 model is expected to cause scores to fluctuate roughly 20 points.

If you’ve been carrying credit card debt, you could see a drop in your credit score. The new credit scoring model will be calculated to incorporate consumers’ account balances for the previous 24-plus months, as opposed to just the most recent month.

FICO estimates that roughly 110 million consumers will see a change to their credit score once the new model is in effect later this summer. Approximately 40 million consumers will see a shift upward over 20 points and another 40 million will see a shift downward.

The Markets Aren't Moving

The markets barely moved at all yesterday. The S&P 500 rose by an almost imperceptible 0.03 percent, while the Dow Jones Industrial Average dropped by the same 0.03 percent.

That's the way things have been going lately: U.S. stocks have been unusually quiet for a while now. Seventy trading days have come and gone since October 8 of last year, when the S&P 500 tumbled by nearly 1.6 percent and the Dow plunged 314 points.

How unusual is that? Since 1928, the major stock market indexes have declined at least 1 percent twice a month on average, according to researchers at Piper Sandler.

Housing Pops

Here's an eye-popping stat: U.S. homebuilding surged to a 13-year high in December. Activity increased across the board, suggesting the housing market recovery was back on track despite low mortgage rates.

Housing starts jumped 16.9 percent to 1.608 million units last month, which marks the highest level since December 2006. The percentage gain was the largest since October 2016. On top of that, data for November was revised higher to show homebuilding rising to a pace of 1.375 million units, up from 1.365 million.

Over the longer term, housing starts soared 40.8 percent on a year-on-year basis in December. For the entire year, an estimated 1.290 million housing units were started in 2019, up 3.2 percent compared to 2018.

The Manufacturing Rebound

Positive news from the manufacturing sector: The Federal Reserve said on Friday that manufacturing production rose 0.2 percent last month, following a 1.0 percent increase in November. A drop in motor vehicle output was offset by increases in production of other durable goods, food and beverages, and other products.

The drop in overall industrial output was driven by a 5.6 percent decline among utilities, as demand for heating fell during an unseasonably warm December. That was on top of a 4.6 percent fall in the production of motor vehicles and parts in the month.

So there must have been several areas where production increased. Manufacturing output of food, beverage and tobacco products rose 1.3 percent, nonmetallic mineral products rose 2.3 percent, primary metals output rose 1.3 percent, and computer and electronics products rose 1.4 percent.

Thoughts for Martin Luther King Day

“We must accept finite disappointment, but never lose infinite hope.” - Martin Luther King Jr.

"The man who didn't want his wife to work has been succeeded by the man who asks about her chances of getting a raise." ~ Earl Wilson

"Equal rights, fair play, justice, are all like the air: we all have it, or none of us has it." ~ Maya Angelou

The Trillion-Dollar Club

Yesterday, Alphabet Inc., the parent company of Google, became the newest member of the the $1 trillion club, capping off a rise of about 40 percent in its value just since last June. Its market capitalization of $1 trillion is exceeded only by Apple at $1.38 trillion, and Microsoft at $1.27 trillion.

Apple was the first to hit the market cap milestone in 2018, followed by Microsoft. Amazon.com surpassed $1 trillion in value in a single intraday trade in September 2018, but has never closed above the mark and thus has never officially had a $1 trillion market cap.

Facebook may well be the next member of the club, but it has a ways to go yet. It closed Thursday with an all-time high market cap of $632.4 billion.

Reliance on Social Security

A sobering report on Americans' retirement prospects: Four in 10 older Americans rely solely on Social Security income in retirement, according to anew study from the National Institute on Retirement Security. The report found that only 6.8 percent of Americans receive income from a combination of Social Security, a defined benefit pension and a defined contribution account.

The report noted that Social Security benefits replace only about 40 percent of pre-retirement income, whereas most financial planners recommend at least a 70 percent income replacement rate for retirees. If Social Security income had been 10 percent higher in 2013, some 500,000 fewer older households would have been in poverty.

Without Social Security income in 2013, the report found, the number of older households receiving public assistance would have increased by nearly 45 percent. The number of older persons receiving Medicaid would have increased by more than 40 percent.

The State of Inflation

U.S. consumer prices rose slightly in December, the Labor Department said yesterday. Its consumer price index increased 0.2 percent last month after climbing 0.3 percent in November. The monthly increase in the CPI has been slowing since jumping 0.4 percent in October.

On the other hand, the long-term trend is rising. For the entire year of 2019, the CPI accelerated 2.3 percent, the largest rise since 2011. That followed an increase of 1.9 percent in 2018.

Inflation in December was held back by declines in the costs of used cars and trucks, airline tickets and household furnishing and operations. Meanwhile, there were increases in the prices of health care, apparel, new motor vehicles, recreation, and motor vehicle insurance.

The Big Five

It’s no secret that a handful of tech giants have been dominating the stock market, but is it getting out of control? The top five U.S. companies — Apple, Microsoft, Alphabet, Amazon and Facebook — now make up 18 percent of the total market capitalization of the S&P 500, the highest percentage in history, according to Morgan Stanley.

Apple and Microsoft, which rose 86 percent and 55 percent in 2019, respectively, together accounted for nearly 15 percent of the S&P 500′s advance last year. The five biggies were the five biggest contributors to the S&P's gains last year; in sixth place was JP Morgan Chase, which accounted for just over 2 percent.

Apple, the largest of the five, now has its weighting in the S&P 500 larger than 4 percent. Going back to 1990, only five stocks — Apple, Microsoft, Generic Electric, Cisco Systems and Exxon Mobil — have claimed more than 4 percent of the S&P 500.

CFOs Look to the Future

Chief financial officers at big U.S. companies are entering 2020 on a cautious note, according to a survey released last week. The Deloitte CFO Signals Survey showed that while the corporate leaders see the economy as “good,” they anticipate that before the year is over, both economic and market conditions will slow.

As Wall Street continues to see record highs, 77 percent of the respondents said stocks are overvalued, the highest level in nearly two years. Just 4 percent said equities are undervalued, down from 10 percent in the previous reading.

While CFOs see a downturn, they’re hardly foreseeing a worst-case scenario. In fact, expectations for an outright recession fell to 3 percent in the fourth-quarter survey, down from 15 percent in the first-quarter 2019 survey. However, 97 percent say a slowdown already has begun or will start sometime in 2020.

December Jobs Report

The U.S. economy capped off 2019 with 145,000 new jobs added in December, the Department of Labor said this morning, a tick down from recent months. The headline unemployment rate held at a five-decade low of 3.5 percent.

But the decades-low unemployment rate has translated to just meager wage gains. December’s year on year average hourly wage gain of 2.9 percent marked the first time this measure has dipped below 3 percent since July 2018.

For the entire year of 2019, the American economy added 2.1 million jobs, an average of 176,000 a month. That makes last year the slowest year for job creation since 2011 — three years after the start of the financial crisis. That figure is also down a bit from the 2.7 million positions added in 2018.

Service Up, Manufacturing Down

While the service economy roars on, the manufacturing economy continues to sputter. The Institute for Supply Management's gauge of the U.S. services sector this week produced a reading solidly in expansionary territory and above expectations, while the manufacturing index hit its weakest level since June 2009 last week.

The gap between the two indexes in December was the largest since November 2015 and the third largest differential in a decade. The manufacturing industry is typically thought of as a leading economic indicator, and a sustained downturn has historically presaged turmoil and even recession. Fortunately, that does not look to be the case right now.

For one thing, manufacturing represents just about 11 percent of the U.S. economy, while the services sector has become the dominant means of employment for Americans. In addition, the U.S. manufacturing industry has been hurt by the strong dollar and weakening global consumer demand, while the service sector is more resistant to those factors.

The Trade Deficit Narrows

Some good economic news: The U.S. trade deficit fell more than expected in November as the simmering tariff battle between the us and China cooled off some. The shortfall in goods and services declined to $43.09 billion for the month, which represented the U.S.'s lowest trade deficit since October 2016.

Overall for the U.S., exports rose $1.4 billion to $208.6 billion, while imports fell $2.5 billion to $251.7 billion. On a year-to-date basis, the total deficit of goods and services has now fallen $3.9 billion, or 0.7 percent, from the same period in 2018. That's due almost entirely to a decline in imports.

For China in particular, our trade deficit China decreased $2.2 billion in November to $25.6 billion. That was the result of a $1.4 billion increase in exports and an $800 million decline in imports.

What Drove Last Year's Rally?

The S&P 500 index rose nearly 29 percent last year, its best performance since 2013. But it might be somewhat concerning that market’s historic run in 2019 was driven almost entirely by a vigorous rise in price rather than steady earnings growth, according to researchers at Goldman Sachs.

That rally in stock prices is a phenomenon known among equity analysts as multiple expansion, referring to price-to-earnings, or P/E ratios. When shares of a company gain more than their underlying earnings, an asset can sometimes be referred to as richly priced. That's what fueled much of last year's rally.

In fact, earnings growth explains just 8 percent of the S&P 500 return last year, Goldman’s researchers wrote. Since 2009, by contrast, earnings growth has been the primary driver of equities, accounting for 67 percent of S&P 500 returns.

Market Scorecard for 2019

The S&P 500 finished 2019 up nearly 30 percent on the year, the strongest performance for that index in six years. The tech-heavy Nasdaq did even better, posting a gain of 35 percent, while the Dow Jones Industrial Average was up 22 percent.

But the gains were a bit wind-aided: One of the keys to the 2019 success was starting from a low base. The S&P 500 ended 2018 with a loss of more than 6 percent, closing the year at 2,486. It finished 2019 trading at 3,220.

Still, the S&P is closing 2019 about 10 percent above 2018′s high of roughly 2,900. Even measuring from that high point, the market in 2019 was close to the average return for the S&P 500 of 9.8 percent.

The Worst Stocks of 2019

In a strong year for the market, no stock in the S&P 500 index lost more than half its value last year. Here are the ten worst-performing stocks in the S&P for the year 2019:

1. Abiomed: down 48 percent
2. Macy's: down 40 percent
3. DuPont: down 39 percent
4. Occidental Petroleum: down 30 percent
5. DXC Technology: down 30 percent
6. Mylan: down 28 percent
7. The Gap: down 27 percent
8. The Mosaic Company: down 27 percent
9. L Brands: down 25 percent
10. Alliance Data Systems: down 25 percent

Thoughts for the New Year

"I hope that in this year to come, you make mistakes. Because if you are making mistakes, then you are making new things, trying new things, learning, living, pushing yourself, changing yourself, changing your world. You're doing things you've never done before, and more importantly, you're doing something." ~ Neil Gaiman

"The new year stands before us, like a chapter in a book, waiting to be written. We can help write that story by setting goals." ~ Melody Beattie

“Any new beginning is forged from the shards of the past, not from the abandonment of the past.” ~ Craig D. Lounsbrough