Most of the time the U.S. stock market
looks to 3 factors (call them the “pillars” that support the stock market) to
support its upward trend – let’s grade each of the pillars.
CONSUMER
SPENDING: I grade this factor a B- (slightly favorable). This was upgraded from the last Weekly
Commentary edition because of Holiday spending levels and the other factors
discussed under “The Economy” below.
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. 10 days ago, the FED finessed
the markets by carefully wording its press release announcing the taper of its
quantitative easing program – more good news!
BUSINESS
PROFITABILITY: I continue to grade this factor an A (very favorable). We are now in the early part of earnings
reporting season for the quarter ending 12/31/13. At this point, the results are mix – it is
too early to change the grade.
Recent reports on construction spending
signaled continued strength in both residential and nonresidential investment, which
are key components of GDP, although we may see a temporary set-back when the
data is released for January due to difficult weather conditions in many parts
of the U.S.
The purchasing managers’ index—strong
orders, lean inventories, and a rise in employment to a 30-month high—also indicate
a good first-quarter 2014.
Mind the tax hikes instituted last
January (2013) will not be repeated this January. The economy grew faster in 2013
despite those higher taxes; thus, the relative absence of a tax shock this January
bodes well for 2014.
Last week, U.S. Stocks and Foreign Stocks increased but Bonds decreased. During the last 12 months, STOCKS outperformed BONDS.
Returns through 1-17-2014
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
.1
.9
– .8
3.5
4.6
4.5
US Stocks-Standard & Poor’s 500
-.2
-.5
26.8
14.9
19.3
7.1
Foreign Stocks- MS EAFE Developed Countries
.5
.2
16.0
4.4
10.7
3.9
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” The show airs on WDIY
Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s
Laurie Siebert CPA, CFP®, AEP®. This
week, join Laurie her guest, Financial Advisor Matthew Petrozelli, as they
discuss: “Multi-generation
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Laurie will
take your calls on this topic and other inquiries this week. WDIY is broadcast
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I have been
writing and publishing The Weekly Commentary almost 7 years. Occasionally I look back in the early issues
to reminisce.I happened across my “Personal
Notes” from 6 years ago:
“Santa Was Good to Me – I Received the Gift
at the Top of My Christmas Wish List. It’s called a “Kindle” – a new
electronic device that will eventually replace all books. “
I recall a number
of readers questioned me back then on my seemingly outlandish remarks about the
eventual obsolescence of books since the Kindle (the first of the high quality
electronic reading devices) had just come onto the marketplace.But, that no longer appears to be so
incredible.In the not too distant
future, school children will not be learning from books.Instead students will learn from his or her
iPad, Note, Slate or whatever it will be called – but it will be electronic and
not paper.It is no longer such a
struggle to imagine that.
The stock market ended the week with a mixed return and little
change in the major indexes. Though the Standard & Poor’s 500 index hit a
new all-time high midweek, the rally had no legs, as lackluster quarterly
earnings reports from some major industrial firms released later in the week
depressed share prices. Small-cap stocks, however, rose smartly.
In particular,
quarterly earnings reports from big banks and other financials presented a
varied picture. Most showed strong profitability on an absolute level but some,
like Goldman Sachs (ticker:
GS), suffered a drop in revenue while others, like Citigroup (C), didn’t meet Wall Street expectations, even as
earnings doubled.
The Dow Jones
Industrial Average inched up 22 points, or 0.1%, to 16458.56. The broader
S&P 500 index fell four points to 1838.70. On Wednesday, it reached an
all-time high of 1848.38. The Nasdaq Composite index rose 0.6%, or 23 points,
to 4197.58.
The banks were a
drag on the market last week, says Thomas Villalta, director of investment
research at Covenant, a money manager in San Antonio, Texas. The profit picture
was hard to parse, as exemplified by Goldman and Citi. Others had mitigating or
unflattering one-time items, he adds: “But in general the results were a
bit disappointing.”
Among financial
stocks, the market is focused on revenue growth, says Cameron Hinds, a regional
chief investment officer at Wells Fargo Bank. That continues to be a challenge
for the big banks, he says.
Meanwhile, American Express (AXP)
reported that its fourth-quarter profit more than doubled to $1.3 billion, or
$1.21 per share, yet results missed expectations by one cent. Still, revenue
was higher than anticipated, and Amex shares rose 4% to $90.97.
“There were
some odd divergences” last week, adds Steven Sosnick a senior trader at
Timber Hill. There was no follow-through on market’s new high, and volatility
crept back into the market, he says. That’s going to be a different experience
for investors, who, at least in the latter half of 2013, were used to a market
going straight up.
Wells Fargo’s
Hinds expects the market to rise 10% in 2014, but notes that will require
“consistently good earnings.”
Giant
chipmaker Intel (INTC)
reported earnings and revenues that rose, but the company provided downbeat
2014 revenue guidance and the shares were among the biggest decliners in the
Dow Friday, down 2.6% to $25.85
The Commerce
Department said Friday that housing starts for December came in at a
seasonally-adjusted annual rate of 999,000, 10% lower than November’s 1.12
million.
