Daily Archives: April 22, 2014

Heads Up!

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As we have discussed several times in the past,
the FED’s efforts to keep interest rates low will stimulate spending indirectly
by increasing the “wealth effect” of American consumers who account for
two-thirds of our economy.  Americans
generally feel wealthier when their home value and investment portfolio
increase.

If Americans feel wealthier, they will spend more,
thus stimulating the economy.  As the
economy heats up, more jobs are created, adding to household formations thus
increasing real estate values again as well as lifting stock prices higher.



Report on REAL ESTATE: Almost all areas of the US
are showing modestly higher home values. 
Some areas have witnessed increases over 15% during the past year.  Source: 
Case Shiller Index.



Report on the US STOCK MARKET:  The total stock market value now stands at
$23 Trillion (a new all-time high) up from a mere $8 Trillion in March of 2009
(which had declined from $20 Trillion in October of 2007). Source:  The World Bank.



CONCLUSION: The
FED’s monetary policy of low interest rates is raising Americans’ wealth
effect.  As a consequence, we can expect
moderate to high increases in consumption for the remainder of this year.


The “Heat Map”

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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 have
upgraded this factor to B (above
average) based upon the increase in retail sales as reported in recent economic
reports.

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 rate this factor B- (slightly above average). U.S.
corporations are in the midst of the first quarter’s earnings reporting season.  About 90 of the S&P 500 companies have
reported their earnings.  66% have
exceeded expectations but this is slightly below average.  We will continue to follow this closely.


The Economy

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Economic
data last week indicated a significant increase in retail sales – a month over
month rise of 1.14%.   Other reports
indicated an improving jobs market and tame inflation.  Manufacturing activity is on the rise.

On
the negative report side, home sales were lower than expected (still weather
related?).

The Numbers

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

Returns through 4-18-2014

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap Aggregate Index

 -.4

 2.2

  -.6

  4.4

 4.8

4.7

US Stocks-Standard & Poor’s 500

 1.7

 1.5

22.7

14.7

19.0

7.3

Foreign Stocks- MS EAFE Developed Countries

 1.1

   .1

14.9

  4.4

10.6

3.7

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®, AEP®. 

This week’s special edition takes
a look back at some of the best recent segments hosted by Laurie Seibert, CPA, CFP®, AEP®. Since the show will not be live, any listener
questions submitted
online will be answered on the April 30th broadcast.


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 and Phillipsburg area; and, it is broadcast on FM 93.7 in the
Fogelsville and 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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My income tax return
preparation business is 37 years old (since 1977).  I recall the chatter surrounding the 1986 Tax
Reform Act which overhauled and simplified the tax code.  Experts predicted more people would prepare
their own taxes and there would be a significant drop in the need for tax
professionals.  Well, that never
occurred.  Instead, Congress and state lawmakers
added more twists and turns to the tax code to either clarify existing law or
to create more law – mostly to satisfy special interest groups.  Each new president promises tax
simplification. Proposals fly for a flat tax, a consumption tax, a fair tax—and
they’ve all died sad little deaths in Congress. 
And, to top it off the states have joined in to create a second layer of
complexity involving multi-state returns. 
In Pennsylvania, the local returns sometimes cause even more
complications.  Oh, don’t forget about
the complexity of the Affordable Care Act (aka ObamaCare).  Talk about job security!

The Markets This Week

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“Mo” stumbled again. The once-popular momentum stocks continued their reversal last week, pressuring the broad market, which fell more than 2% in volatile trading.

As they have since late February, investors shed highly valued shares of mostly small and mid-sized biotech and social media companies, market leaders in 2013. Last week weakness spread to big “old” technology stocks considered safe havens such as Microsoft (ticker: MSFT), which fell 1.7%, to $39.21.

While first-quarter earnings released Friday from banking bellwether JPMorgan (JPM) were weaker than expected, and its stock fell 7.5%, there appears to be no discernible reason for the downdraft other than high valuations of stocks leading the retreat.

“There’s been a core of momentum stocks like Tesla Motors (TSLA) and others that nobody could find [satisfactory] valuation methods for,” says Scott Colyer, CEO of Advisors Asset Management. Without traditional value measures for these stocks, some investors began to balk, then it snowballed.

The Dow Jones Industrial Average fell 386 points, or 2.3%, to 16,026.75, and the Standard & Poor’s 500 index lost almost 50 points to 1815.69. The technology-heavy Nasdaq Composite index, plunged 3.1%, 128 points, to 3999.73. The small-cap Russell 2000 fell the most, down 3.6% to 1111.45.

It’s been 18 months since investors have experienced this kind of volatility, and many view the pain as a healthy corrective after a huge run-up. “I hope it gets ugly, but not too ugly,” adds Colyer, who thinks the market might test its 200-day moving average, down to about 1760 on the S&P 500.

Speaking of technical moves, one divergence that bears watching is the weekly number of individual stocks making new highs, which peaked at 925 on May 10, 2013, according to Ned Davis Research. Adds Frank Gretz, a technical analyst for Wellington Shields, that number dropped to 700 late last year and more recently close to 500, even as the broad stock market indexes continued to make new highs.

“It’s a bad sign,” Gretz notes, considering that in bull market history, the peak in the number of stocks making new highs comes roughly a year before the bull itself peaks. But there’s a divergence from the divergence: The stocks leading the bull market are usually the last ones to hang on. (Barrons Online).

Weekly Barometer

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Jobs numbers continue to improve and as long as this trend continues it should translate into increased consumer confidence and real economic growth.

United States Initial Jobless Claims

Initial Jobless Claims in the United States increased to 304 Thousand in the week ending April 12th, 2014 from 302 Thousand in the week ending April 5th, 2014. Initial Jobless Claims in the United States is reported by the U.S. Department of Labor.


 

United States Continuing Jobless Claims

Continuing Jobless Claims in the United States decreased to 2739 Thousand in the week ending April 5th, 2014 from 2750 Thousand in the previous week. Continuing Jobless Claims in the United States is reported by the U.S. Department of Labor.