Daily Archives: July 9, 2013

Heads Up!

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You may have seen recent newspaper headlines, “Interest Rates Are Rising!”  You may have wondered how that could be the case since the FED has held interest rates steady for a total of 4 ½ years.  The explanation is the FED controls short term interest rates that affect the interest rates on short term Treasury Bills, bank Savings Account rates, bank CD rates and money market account rates – these rates have not moved.  



The newspaper headline, “Interest Rates Are Rising!”  is describing longer term maturities like the U.S. Treasury Bond with a 10 year maturity, home mortgage interest rates,  and commercial mortgages.  The FED usually has only a small influence on the direction of these long term rates; but, the FED has been actively buying these long term maturity securities in the marketplace using an unconventional and questionable system that experts call “Quantitative Easing”.   The FED continues to buy these longer term maturities at the same pace.  Recently bond market speculators have been trying to jump in front of the FED tapering of Quantitative Easing to sell their present bond holdings.  When more sellers exist in a marketplace than buyers, prices go down – in this case bond prices. 



To understand bond prices and interest rates, click here:


http://news.morningstar.com/classroom2/course.asp?docId=5375&page=2

The “Heat Map”

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Most of the time, the U.S. stock market looks to 3 factors to support its upward trend – let’s grade each of the factors:



CONSUMER SPENDING:  I grade this factor a C (neutral).




THE FED AND ITS POLICIES:  I continue to grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices. 




BUSINESS PROFITABILITY:  I graded this factor an A (very favorable).   Many companies will be reporting their profits to the public shareholders in the next 5 weeks.  We will monitor this very closely.

The Economy

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The big news last week was the report on jobs here in the U.S.  The good news: This was the best first half for private employment gains since 1999.  Also hourly and weekly wages increased 0.4% in June, and hourly wages are now up 2.2% over the last year (weekly wages are up 2.5% year-over-year).

Some bad news: a lower percentage of the 25 to 54 year old group (prime working age) were employed and the number of part time workers (for economic reasons) increased.  (Source:  Calculated Risk).

The Numbers

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Last week, U.S. Stocks and Foreign Stocks increased.  Bonds decreased.  During the last 12 months, STOCKS outperformed BONDS.  

LAST WEEK -Here is a look the cause of the volatility created this week by hedge funds, institutions, and those we call “traders”.




































Returns through 5-17-2013

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years


Bonds- BarCap Aggregate Index

-1.0

-3.4

-2.0

  3.2

 5.0

4.5


US Stocks-Standard & Poor’s 500

 1.6

15.7

22.0

19.4

 7.6

7.3


Foreign Stocks- MS EAFE Developed Countries

  .6

  2.7

15.3

  7.1

-2.8

4.7


Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends.

“Your Financial Choices”

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“Your Financial Choices”  The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP.  This week, Laurie will discuss:


 “Catching up – catching up on our retirement savings, catching up with our credit cards, catching up with our family members and other related issues.”  Laurie will take your calls on this topic and other inquiries this week.  This show will be broadcast at the regular time. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton/Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville/Macungie area – or listen to it online from anywhere on the internet.  For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org. 


 

Personal Notes

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Valley National and I are pleased to announce the addition of two new employees – Douglas Marcincin and Laura Morganelli as entry-level professionals.  Both Doug and Laura have their roots in the Lehigh Valley having attended both high school and college in the Valley.  Doug is a Lehigh grad and Laura is a DeSales grad-both in the Class of 2013.  In addition to learning how to get things done at Valley National and studying for the myriad of exams required in the financial services industry, both Doug and Laura will be very busy helping to convert Valley National’s comprehensive data base program to a new, more powerful data base – a big project.  I am especially pleased in announcing their employment as part of Valley National’s effort to attract the best and the brightest college grads so as to keep that talent in the Valley.

The Markets This Week

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It’s the middle of the armpit-soaking summer, a time when investors usually lather their portfolios with SPF 50 and let them relax until fall. But traders remained active last week, even as a strong jobs report made it more likely that the Federal Reserve will slow its asset purchases.


The second half of the year has begun, and so far it’s a lot like the first half.


For the week the Dow rose 226.24 points, or 1.52%, to 15,135.84. The Standard & Poor’s 500 added 25.61 points to close at 1631.89, and the Nasdaq Composite gained 76.13 points, or 2.24%, to close at 3479.38.


Bond yields and Treasury notes are still on the rise, with the 10-year yield climbing 0.23 percentage point on the week to 2.72%.


The Labor Department said Friday that the economy added 195,000 jobs in June, and it revised its May and April employment estimates upward by a total of 70,000 jobs. Nonfarm payrolls have now risen by an average of 202,000 jobs per month this year. The market initially hesitated on the news. Job growth appears to be consistent and relatively robust, which means the Fed has another excuse to slow down its asset-buying program. But after that initial hiccup, stocks rose in the afternoon, and the Dow ended the day 147 points higher.


Strategists and investors we talked to this week, however, remained uneasy. As the Fed takes the economy’s training wheels off, there may be considerable wobbles ahead.


“The economy is pretty clearly creating enough jobs for the Fed to begin to taper,” said John Canally, an investment strategist at a major financial services firm. “I’m not so clear that will lead to a stronger economy. The job market might just be playing catch-up. You might get a situation where the Fed is tapering, but GDP growth is still below their forecast” ( Source:  Barrons Online).