Is the Fed Waking Up?

The Federal Reserve didn’t raise interest rates after its meeting concluded yesterday, but it did signal such a move is likely in the coming months. The Fed released its so-called dot plot, which shows officials’ outlooks for interest rates, and 15 of 17 said they expected to start raising them before the end of the year.

Now all eyes are on September, which is the next real opportunity for the Fed to raise interest rates. The new dot plot shows that all 17 members expect the fed funds rate for the end of 2015 to be under 1 percent, with the median member seeing rates between 0.5 percent and 0.75 percent. That would appear to signal rate hikes later this year.

The Fed also upgraded its assessment of the economy slightly from "slowed" to "expanding moderately."  The Fed noted improvements in housing, although household spending remains "moderate" and the report highlighted continued weakness in business spending and "soft" U.S. export growth.

401(k)s Go Underwater

It's a sign of the times: As baby boomers reach retirement age, withdrawals from 401(k) plans are now exceeding new contributions. Investors pulled a net $11.4 billion from tax-deferred savings plans in 2013, the most recent year for which we have full data, according to an analysis by BrightScope Inc.

As recently as 2011, there was a net inflow of more than $25 billion to the nation's 401(k) plans. In 2012, the positive inflow was about $11 billion, roughly the same amount as the deficit the following year.

Financial-services research firm Cerulli Associates projects that the outflows will persist at least until 2019, when investors will pull an estimated $51.6 billion. The number of Americans reaching retirement age this year is expected to hit 3.5 million, up from 2.7 million in 2010.

The Impact of Gas Prices

At the beginning of the year, the consensus was that oil prices had gone about as low as they possibly could, and were due to bounce back. But oil prices dropped again yesterday, to below $60 a barrel, while Baker Hughes reported that new rigs looking for oil fell for the 27th straight week.

People are noticing. According to Gallup, 57 percent of all American households say that lower gas prices are making a difference in their household finances. Just 17 percent said that lower gas prices have made no difference.

When asked what households are doing with that extra money, the most common response has been "paying down bills." That may be why these lower prices haven't had much impact on the economy; people are using their savings to pay down debt they had already incurred.

The Age of ETFs

Are you a fan of exchange-traded funds, or ETFs? Your answer may depend on your age. That's the upshot of a study from TD Ameritrade, which showed that younger investors are much more likely to include ETFs in their portfolios than older ones.

For investors aged 26 to 35 who have accounts with TD Ameritrade, 14 percent of their assets are tied up in ETFs.  Among their parents' generation - those aged 56 to 65 - those investors have just 7 percent of their assets in ETFs.

It may be as simple as the fact that the younger group is the first to have grown up with ETFs always being an investment choice. iShares, now the leader in this category, didn't even put it first product on the market until 2000.

Stuck in Neutral?

According to the latest survey by the American Association of Individual Investors, bullish sentiment among retail investors has fallen this week to a two-year low, and pessimism rose to a nine-month high. The optimism reading has tumbled by more than 30 percent from where it stood at the end of last year.

But this might be good news. The sentiment survey conducted by AAII is often viewed as a contrarian indicator. When optimism is down among retail investors, history shows equities have a tendency to rise in value. In other words, the fact that all these individual investors are negative on the market is more likely a good sign than a bad one.

What's really a good sign for the market is neurtal sentiment, and we've got a lot of that right now. Those investors saying they are impartial on stocks’ direction was 47.4 percent this week, the record 10th consecutive week that neutral bias has been above 45 percent. An unusually high level of neutral attitude ypically leads to above-average performance among stocks six to 12 months later.

Slowdown in the Garden State

New Jersey ranked near the bottom among all states in economic growth in 2014, according to a study released yesterday by the Commerce Department. Our state’s GDP grew by just 0.4 percent last year, which placed 45^th among the 50 states. The state's economy had grown by 0.8 percent in 2013.

 

Two states saw their economies contract last year: Mississippi at -1.2 percent and Alaska at -1.3 percent. In addition to those two states, New Jersey also finished ahead of Indiana, Iowa, Maine and Virginia.

 

The fastest-growing states last year were the energy producers, North Dakota at 6.3 percent and Texas at 5.2 percent, but most observers expect that to turn around in 2015 with the drop in oil prices. Rounding out the top five were West Virginia at 5.1 percent, Wyoming at 5.1 percent, and Colorado at 4.7 percent.

Another Insult for Travelers

The airlines' increasing fees for checking luggage onto planes has led many travelers to switch to carry-on bags that can be stowed overhead, which are still free on most carriers - if you can find space for yours. Now that's going to get tougher: The airlines' trade group, the International Air Transport Association, announced yesterday that it wants those carry-on bags to be smaller.

The current maximum carry-on size allowed by U.S. airlines is 22 inches by 14 inches by 9 inches. Under the new guidelines, those same bags could be no larger than be 21.5 inches tall by 13.5 inches wide by 7.5 inches deep.

That's not much smaller than the existing limits, but it does mean a lot of passengers will need to buy new bags. Or pay $25 to have those bags checked. Either way, it's another indignity for frequent travelers.