Friday, February 28, 2020

End of a Rough Week

It was another rough day on Wall Street yesterday: The Dow Jones Industrial Average fell 4.4 percent, the S&P 500 fell 4.4 percent, while the Nasdaq Composite dropped 4.6 percent. The Dow had its worst day since February 2018 while the Nasdaq and S&P 500 posted their biggest one-day losses since August 2011.

It was also the Dow’s biggest one-day point decline in history, surpassing Monday’s 1,031-point drop. The Dow and S&P 500 are now on pace for their worst weekly performance since 2008. Through yesterday’s close, the Dow was down more than 11 percent week to date while the S&P 500 had lost 10.8 percent.

Yesterday’s losses put the Dow, S&P 500 and Nasdaq in correction territory, which is defined as down more than 10 percent from a recent high. The S&P 500 and Nasdaq set record highs just last week. It took the Dow just 10 sessions to tumble from its all-time high into a correction.

Thursday, February 27, 2020

Bonds at Record Lows

While the stock markets were having their third rough day in a row yesterday, there was also some significant news about the bond market. The 10-year U.S. Treasury bond yield fell to a record low yesterday, amid heightened fears about the fast-spreading coronavirus and its effect on the global economy.

The yield on the benchmark 10-year Treasury note, which moves in the opposite direction of its price, fell 4 basis points to 1.302 percent. That's just a notch below its last record low of 1.307 percent, reached last Tuesday.

Why is this happening? Investors sought the safety of U.S. government debt  on fears of what the  coronavirus will do to global economic growth. That moved them away from riskier assets, like stocks, and toward the safe haven of the U.S. Treasury.

Wednesday, February 26, 2020

Home Prices Growing Strong

Housing is looking strong: In the fourth quarter of 2019, home prices rose 5.1 percent on an annual basis, the Federal Housing Finance Agency reported yesterday. Between November and December, its monthly home price index increased 0.6 percent.

That's not the only good news for the housing market. The S&P CoreLogic Case-Shiller 20-city price index posted a 2.9 percent year-over-year gain in December, up from 2.5 percent the previous month. On a monthly basis, the index increased 0.4 percent between November and December.

The Case-Shiller index has shown the Southeast region, which includes Tennessee, to be leading the rest of the country in home price growth. For individual cities, Phoenix posted the largest price increase, with a 6.5 percent year-over-year gain. That was followed by Charlotte’s 5.3 percent increase and Tampa’s 5.2 percent increase.

Tuesday, February 25, 2020

What's Next After Yesterday's Market Slide

Yesterday was a bloodbath for the market, with the Dow Jones Industrial Average dropping by 1000 points for only the third time in its history. All the major indices slid more than 3 percent, but if history is any indication, today might prove to be a different story entirely.

According to Bespoke Investment Group, yesterday was the 19th time the S&P 500 has shed more than 2 percent on a Monday, going back to March 2009. In the prior instances, the index has, on average, returned 1.02 percent the next day.

Bespoke found that in 17 out of the 18 prior instances the S&P 500 also had a positive return over the subsequent week, with an average gain of 3.16 percent. Over the next month, there was an average gain of 6.08 percent.

Monday, February 24, 2020

Fears of the Virus

The forecasting firm IHS Markit said its indexes for manufacturers and service-oriented firms both declined in February, according to a “flash” or preliminary reading. Its services index turned negative for the first time since 2015.

The reason? Most people fear it's because of the coronavirus. The coronavirus scare is already hurting companies in the tourism and travel industries that generate lots of business from Chinese customers. Apple, for instance, warned that its sales might fall short of forecasts because it might not be able to produce and ship iPhones on schedule.

One bright spot: Most executives who were polled for IHS Markit said they think the current weakness is temporary. They expect business to bounce back before the end of the year.

Friday, February 21, 2020

What Small Business Is Seeing

Small business sentiment is on the rise to kick off 2020, with confidence nearing all-time highs,  according to the CNBC/SurveyMonkey Small Business Confidence Index. The survey reported a sharp turnaround from the lows seen last summer when trade turmoil weighed on Main Street’s outlook.

In the next 12 months, about one-fifth of small business owners expect a negative impact from changes in trade policy, while 26 percent expect a positive effect — more than half say the changes will have no impact. Of the small business owners that said either deal would impact their operations directly, most came from the retail sector.

Generally, business owners are feeling more positive about business, with 56 percent saying conditions are good and only 7 percent saying the opposite. Recession fears have also calmed down somewhat, with 49 percent of businesses saying a recession is likely in the next year, down from 53 percent this same quarter in 2019.

Thursday, February 20, 2020

State of the Air

The Department of Transportation's 2019 Air Travel Consumer Report came out yesterday, reporting that 79 percent of domestic flights last year arrived within 15 minutes of the airline’s schedule — the government’s definition of being on time. That was down slightly from 79.2 percent in 2018.

Hawaiian Airlines took home the prize for being the nation’s most punctual airline for the 16th straight year. Hawaiian scored an 87.7 percent on-time mark, followed by Delta Air Lines at 83.5 percent. After that, from best to worst, it was Alaska Airlines, Southwest, Spirit, Allegiant, American, United, JetBlue and discount carrier Frontier Airlines, last at 73.1 percent.

A total of 302 domestic flights were stuck on the ground for three hours or longer, a 50 percent increase over 2018. Cancellations rose to 1.9 percent, up from 1.7 percent in 2018. Hawaiian had the lowest cancellation rate, while the highest rates belonged to American, Southwest and United.

Wednesday, February 19, 2020

Why Do Americans Save So Much?

U.S. household wealth compared to income is near a record high. Unemployment is near a record low. So why is the personal savings rate still so high? In the fourth quarter, savings as a percent of disposable income was 7.7 percent, more or less the post-Recession average.

Goldman Sachs examined this question, and found that the top 20 percent of Americans by income save 12 percent of their disposable income. Households in the 60th to 80 percentile of income distribution — in 2018, households making between $79,542 and $130,000, according to the Census Bureau — have boosted their savings over the last three years.

The reason? Tightened credit standards led to less borrowing. The Goldman forecast is for the savings rate to fall by 2 percentage points through 2022. If the savings rate reverts back to normal, there should by definition be more spending - which is good news for the U.S. economy.

Tuesday, February 18, 2020

Trouble in Japan

Sobering news from Japan: The world's third-largest economy shrank 1.6 percent in the fourth quarter of 2019  - an annualized percentage drop of 6.3 percent  -  according to a government estimate released yesterday. The decline from the third quarter is the country's biggest contraction since 2014.

Japan absorbed a difficult sales tax hike and grappled with the aftermath of Typhoon Hagibis, a powerful storm that hit the country last fall. The spread of the coronavirus now threatens to stamp out hopes for a recovery in the first quarter.

Analysts say that tourism to Japan, particularly visitors from China, could be hard-hit if the virus is widespread there. New government figures also showed household spending deteriorating, suggesting that the economy already contracted more than first thought at the end of last year.

Friday, February 14, 2020

Record Retirement Savings

Average 401(k) and IRA balances have hit record levels, according to a new study out from Fidelity. The average 401(k) balance rose to $112,300 last year, a 7 percent increase from last quarter’s balance of $105,200. The average IRA balance was a new high of $115,400.

It’s not just because the markets are up — employees are saving more. One-third of plan participants increased the amount they were saving by an average of 3 percent. And a record 35 percent of employers automatically enrolled new workers in their 401(k) plan.

The study also found a record 441,000 IRA or 401(k) accounts Fidelity manages had balances of $1 million. Still, 401(k) and IRA millionaires are relatively rare: The number of retirement millionaires represents 1.6 percent of the 27.2 million IRA and 401(k) accounts managed by Fidelity.

Thursday, February 13, 2020

The Coronavirus and Oil Prices

One possible side effect from the coronavirus seeming to come under control: oil prices are rising. Oil prices rose over 3 percent yesterday as China reported its lowest daily number of new coronavirus cases since late January. That stoked hopes that fuel demand in the world’s second-largest oil-consuming economy may begin to recover.

Brent futures, the international benchmark, gained $1.78, to $55.79 per barrel yesterday, while U.S. West Texas Intermediate crude gained $1.23 to $51.17. Those were the highest settles for both futures since January.

The demand concerns from the outbreak had pushed Brent and WTI to their lowest level in 13 months on Monday. at that point, both benchmarks are down more than 20 percent from the highs they had reached in January.

Wednesday, February 12, 2020

The State of America's Debt

Household debt surged in 2019, marking the biggest annual increase since just before the financial crisis, the New York Federal Reserve reported yesterday. Total household debt balances rose by $601 billion last year, topping $14 trillion for the first time. The last time the growth was that large was 2007, when household debt rose by just over $1 trillion.

The growth was driven mainly by a large increase in mortgage debt balances, which rose $433 billion. That was the largest gain for that figure since 2007. Housing debt now accounts for $9.95 billion of the total balance.

Balances for auto loans and credit cards both increased by $57 billion for the year. Credit cards have surpassed student loans as the most common form of first credit among young borrowers, after several years when student loans were higher.

Tuesday, February 11, 2020

Retirees' Biggest Fears

Pre-retirees are nearly as anxious about what the future holds as they are about the present, according to a brand-new study by Charles Schwab. Sixty-five percent of study participants within five years of retirement reported feeling overwhelmed by saving enough now for retirement, and 52 percent said they were overwhelmed by how they would ultimately manage their different income sources once they were retired.

The survey found that pre-retirees felt particularly anxious about how they would manage their income and spending needs in retirement once they stopped receiving a regular salary, including:

  • 72 percent worried about running out of money
  • 64 percent were overwhelmed by not being able to maintain their current lifestyle or quality of life
  • 60 percent worried about not getting a regular paycheck
  • 57 percent were overwhelmed by determining how much they could spend

Monday, February 10, 2020

What's Disrupting Americans' Economic Lives

Education spending — largely on student loan debt — has become the chief financial disruptor among Americans, even more so than loss of employment or having to take a lower-paying job, according to a new Harris Poll for TD Ameritrade. In fact, education spending is the only financial disruptor that experienced growth in the past five years.

Here’s how financial disruption causes stacked up in the new survey:

  • Education for self and/or other dependent family members: 16 percent of respondents
  • Loss of employment/lower paid job: 15 percent
  • Supporting others financially: 13 percent
  • Poor investment/business performance: 10 percent
  • Accident/illness/disability/unable to work: 10 percent
  • Divorce/separation/widowed: 10 percent
  • Planned family: 9 percent
  • Planned home: 8 percent

Friday, February 7, 2020

January's Jobs Report

The U.S. economy added a robust 225,000 jobs in January, with warmer weather during the month helping boost hiring even in a persistently tight labor market, the Commerce Department reported this morning. The headline unemployment rate rose slightly to 3.6 percent,

The labor force participation rate rose to 63.4 percent, reaching its highest level since 2013. A higher labor force participation rate indicates a greater proportion of the working-age population is working or actively seeking employment. That was the prime reason for the rising unemployment rate.

In keeping with recent trends, most of January’s payroll gains came from the private service-providing sector, with education and health services adding 72,000 new jobs for the month. Leisure and hospitality industries also posted strong job gains, adding 36,000 jobs in January.

Thursday, February 6, 2020

The Service Sector Grows Again

Some good economic news: U.S. services sector activity picked up in January, with industries reporting increases in new orders. The Institute for Supply Management said yesterday its non-manufacturing activity index increased to a reading of 55.5 last month, the highest level since August. A reading above 50 indicates expansion in the services sector, which accounts for more than two-thirds of U.S. economic activity.

The report came on the heels of a survey from the ISM on Monday showing manufacturing rebounded in January after contracting for five straight months. Manufacturing now accounts for about 11 percent of the economy.

One down number: The survey’s index for services industry employment slipped to a reading of 53.1 last month, down from 54.8 in December. This is in line with slowing job growth, both as workers become more scarce and demand for labor cools.

Wednesday, February 5, 2020

The High Cost of Renting

If you rent your home, you might be paying a lot more than you used to. A new report from the Joint Center for Housing Studies of Harvard University calculates that 10.9 million renters spent more than 50 percent of their income on housing in 2018. That equates to one in four renters.

This has become more of an issue in recent years. A renter is defined as cost-burdened if they spend more than 30 percent of their income on housing costs. According to the study, there were 6 million more cost-burdened renters in 2018 than in 2001.

And it's not just lower-income folks who are feeling the pinch. In recent years, there’s been a surge in demand for rental units among higher-income Americans. Households with incomes of at least $75,000 accounted for more than three-quarters of the growth in renters (3.2 million) from 2010 to 2018.

Tuesday, February 4, 2020

The Amazing Tesla Run-Up

The big story in the stock market this week has been Tesla, which has added $60 billion in market cap over the past week, which by itself is higher than the value of companies like Target and John Deere. In fact, Tesla now has a higher market cap than General Motors, Ford, and Fiat Chrysler combined.

Is this rational? Consider that the revenue for GM, Ford and Fiat Chrysler totals $620 billion over past year. Meanwhile, Tesla has had revenue of $25 billion over that same time frame.

One more comparison: Tesla's market cap is now larger than that of McDonald's. McDonald's had more than $6 billion in net income last year, while Tesla had a net loss of $862 million.

Monday, February 3, 2020

February: The Cruelest Month?

Stocks are limping into February: The S&P 500 fell 1.8 percent Friday, its worst day since October. It was down 2.1 percent for the week, and ended the month of January with a 0.2 percent loss, its first negative month in the last five.

What makes that even more concerning is that February is historically a weak month for the market. February is the third worst month of the year, with an average negative decline of 0.1 percent. It’s been up only 53 percent of the time since World War II, as opposed to an average gain for all months of 0.7 percent.

That makes this month the worst-performing of the non-summer months. September and August are the worst and second weakest months for the S&P 500, going back to World War II.