Splits Are Back

Three stocks have announced that they're splitting their shares: General Mills, Express Scripts, and Danaher Corporations are all splitting 2-for-1 this week. In ordinary times, there would be nothing remarkable about that news, except that these are the first three stock splits of this year among companies in the S&P 500. In fact, they're the first three stock splits in the S&P 500 since AmerisourceBergen did so last June 15, almost a calendar year ago.

Stock splits, of course, are a way for companies to reduce their stock price without reducing value, keeping trading more convenient since it's easier to execute sales in smaller amounts. In normal years, this happens all the time. There were 100 stock splits of S&P 500 companies back in 1997, and the number of splits was in the 30s every year from 2004 to 2006. But when valuations aren't rising, there's very little incentive for companies to split their stock.

So maybe it's a good sign that we're seeing companies split once again. On the other hand, three splits in a year is still a ridiculously low number. We need a lot more of this for it to be a real positive.

Assessing Health Care Costs

There's a statistic going around based on a poll from the well-known consulting firm McKinsey & Company that supposedly shows how willing Americans are to pay for their own health care. As quoted by the Harvard Business Review, McKinsey found that "more than 74 percent of insured patients responding to a survey can and would pay expenses of $1,000 a year."

But there's a major problem here: As we noted a couple of weeks ago, health care insurance for most families costs a lot more than $1,000 a year. The average cost for a family health care plan is $13,4000, not $1,000. Sure, most of us would be willing to pay $1,000 a year to cover our health-care costs, but you can't even get bare-bones health insurance for that amount.

For most people, health-care insurance is literally a hidden cost - we don't see how much it costs our employer to provide that to us. The McKinsey people certainly would know how much health care costs, which makes this survey question all the more frustrating. One more reminder about the dangers of taking fun little news items like this at face value.

Flight From Money-Market Funds

When the stock market has been as shaky as it's been over recent weeks, many investors seek a flight to safety, putting their assets in such things as money-market funds, which are guaranteed to do no worse than return your money to you. But money-market funds have been beaten down as well lately, and they're doing hardly anything more than that - the seven-day and 30-day yields are both at a barely visible 0.03 percent. The annual percentage yield is 0.22 percent.

Not surprisingly, assets in money-market funds have been dwindling alongside those paltry returns. Earlier this year, the amount of money in these funds fell below $3 trillion for the first time since October 2007. They lost nearly $10 billion in the last week alone, dropping the total amount invested in them to $2.84 trillion.

That's an awful lot of money coming to the sidelines. One potential bright side to the weak returns offered by money-market funds is that it might force investors to be a little more risky with their choices. And goodness knows, the stock market could use a little extra money right now.

The Wells Fargo Judgment

In Minnesota yesterday, a jury found that Wells Fargo was guilty of violating its fiduciary duty to several of its institutional clients as a result of selling them several highly risky securities that Wells Fargo had claimed were safe. The court also ruled that Wells Fargo was guilty of consumer fraud. Given the way so many supposedly safe securities lost their value over the past couple of years, we could see a lot more cases like this.

The suit was brought by four nonprofits participating in an investment program whereby Wells Fargo held their assets for them and supposedly loaned them out in secure ways. Wells Fargo then invested these assets in securities known as structured investment vehicles, or SIVs, which are basically short-term debt issued to fund the purchases of even more debt, such as corporate bonds or mortgage-backed securities, as well as some other high-risk vehicles. When the crash started happening in 2007, these proved to be awful investments. The nonprofits said they were expecting these investments to be more akin to money market funds.

The jury gave the plaintiffs a total of $30 million in damages, and there could be more to come in punitive damages. Wells Fargo, though, is claiming a victory of sorts, since the plaintiffs had asked for more than $400 million. It remains to be seen how much of a precedent this sets, but at least institutions are now on notice that if they push an investment as safe, it had better be reasonably safe.

Construction Comes Up Strong

The housing market continues puttering along - in various news reports on Wednesday, we learned that pending home sales were up 6 percent in April, which is good, but mortgage applications have fallen to their lowest level since April 1997. It seems that for every good sign, there's a concurrent bad one.

But there was a very good report from the construction sector: April brought the biggest rise in construction spending in almost ten years. The construction industry was up 2.7 percent in total spending for the month. Nonresidential construction was up 1.7 percent, which doesn't sound like much but was the first monthly gain in that area in over a year.

The biggest reason we look for a rebound in the housing market is to get the construction industry moving again. Selling existing homes is great, but it's the creation of new homes that really fosters economic activity. The fact that construction is moving ahead even in an environment where the overall housing market is still very mixed - that's pretty good news.

The Market in May

So now that we're into the month of June, we can look back at the stock market's performance in May and ask: What happened? The S&P 500 lost more than 9 percent of its value, as did the Dow. Are we heading into another bear market, or was this a simple correction? The real answer is "No one knows," but there is no shortage of opinion on the matter.

One pundit who might be worth paying attention to is Alan Brochstein, a veteran technical stock picker who writes for the Web site Seeking Alpha. The reason Brochstein's opinion might carry more weight is because he expected this to happen: He thought back in February that the S&P would peak between 1200 and 1230 (it actually peaked at 1220) before correcting by at least 10 percent.

So how does Brochstein read the market now?

* It's fundamentally and technically sound.

* None of the market's individual sectors indicate a return to a bear market.

* Earnings are improving.

* The market's long-term moving averages are still going higher.

Add it all up, and despite some frightening signals from Wall Street, Brochstein thinks we're likely to see more upward movement through the year. For more, see his analysis here.

Inside the Mind of the Wealthy

Has the economic crisis of the past few years caused you to take more control of your finances? If so, you're not alone, according to a new survey from Barclays Wealth Americas. A third of all high-net-worth individuals around the globe have reacted to the financial downturn by taking a more active role in their money decisions, and nearly half have begun reviewing their portfolios more often. Sixty percent are now more focused on wealth preservation, and roughly half are avoiding high-risk investments more now.

Half of the American respondents are so pessimistic that they think things might get worse before they get better. Sixty-six percent said the government handled the crisis poorly, and sixty percent have less confidence in government as a consequence.

Interestingly enough, wealthy women may not be part of that group taking more interest in their money. The survey found that wealthy American women consider themselves less knowledgeable about money and investing than men, and not surprisingly, are less interested in it. Of course, if you find yourself in one of these groups, there's any easy way to make yourself better informed on your investment decisions: Give me a call.