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. Earnings appear to be average; but, keeping in mind the horrible winter, “average” is quite the achievement.
On
the positive side: last week’s economic
data indicated the jobs market continued to improve, total exports increased,
the trade deficit narrowed, and the non-manufacturing sector showed a big
improvement.
On
the negative: productivity decreased.
My
view: the economy continues to heat up
after the tough winter.
Last week, US Stocks and Bonds were little changed. Foreign Stocks declined. During the last 12 months, STOCKS outperformed BONDS.
Returns through 5-9-2014
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
0.0
3.0
.4
3.5
4.9
5.0
US Stocks-Standard & Poor’s 500
-.1
2.4
17.2
14.2
17.6
7.7
Foreign Stocks- MS EAFE Developed Countries
-.5
.8
9.3
3.7
8.8
4.2
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 Laurie will discuss: Estate planning
for every stage of your life.
Laurie will take your
calls on this topic and other inquiries this week. 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.
After playing 37 games thus far, the Pittsburgh
Pirates have been disappointing. Their standing
is next to last in their division with 5 more losses than victories. But, watching the Pirates has certainly been
exciting. The Pirates currently lead the
majors in “walk off” wins (defined as a hit or play which is Game-ending
and game-winning immediately, and allowing the players to walk
off the field). It’s no wonder
at the end of Sunday’s night game versus the St. Louis Cardinals, I was
tremendously excited. The Pirates, playing at home, had fought back from a big
deficit to pull within one run at the end of the 9th inning. Against the Cardinal’s best relief pitcher,
the Pirates loaded the bases with NO outs. My mind was active about thinking of
all the scenarios: fly ball to the
outfield ties it, an extra base hit or a home run will win it. A perfect opportunity for another “walk
off”.
And, what happened?
The next batter popped up on the first pitch –out #1. The next batter followed by hitting into a
double play to end the game. Pirates
lose 6 to 5. Disappointed again. But it certainly was exciting.
Big
was good, small was bad last week. Again. The Dow Jones Industrial Average, a
narrow band of 30 megacaps, rose 0.4% and finished at a new all-time high on
Friday. Broad stock market indexes lost some ground in an up-and-down week.
In
particular, the stock market continued its 10-week rotation away from more
speculative Internet stocks and small-caps, which fell, and toward more stable,
large-capitalization stocks, which rose.
The
Dow rose nearly 71 points to 16,583.34. The Standard & Poor’s 500 index,
however, fell three points to 1878.48. The Nasdaq Composite index lost 1.3%, or
52 points, to 4071.87. Moving down the size continuum, the Russell 2000
small-cap index fell 2% last week, to 1107.22, with the tech sector down 3.5%.
Stocks
like Groupon (ticker: GRPN) and Twitter (TWTR) fell 14% and
17%, respectively. The Global X Social Media Index ETF (SOCL) of such
stocks is down 25% since the end of February. Now that the market is into its
fifth month of 2014, it’s safe to conclude it probably won’t be like last year.
The market’s behavior and psychology has moved into a new cycle, says Michael
Yoshikami, CEO of Destination Wealth Management. When the market senses a new
opportunity, such as the social-media space last year, but doesn’t know who the
winners will be, all stocks tend to go up together in frenzied activity, he
says.
That’s
followed by a period of separating the wheat from the chaff, as results come
out quarter after quarter and the market starts to make distinctions about, for
example, who is going to monetize their social-media assets, he adds. Twitter’s
first-quarter results, for example, disappointed earlier this month. It’s going
to be a “Dow world” this year, he asserts, “as investors are now
buying companies based on valuations rather than hope.” The rotation is healthier
for the market, he adds.
Layered
over this internal stock market rotation is a U.S. economy that’s viewed as
“could be better, could be worse,” says Paul Nolte, a portfolio
manager with Kingsview Asset Management in Chicago. Part of the hesitation
derives from investors wanting to see how the U.S. economy really fares
“once the IV drip” of the Federal Reserve’s quantitative-easing
program ends later this year.
For
now, all investors have seen is market stasis, with the S&P 500 index up
just 1.6% in 2014, compared with 14% at the same time last year and 30% for all
of 2013. It’s possible that the broad market will remain flat or even rise a
bit this year while that rotation continues underneath.
Investors
didn’t have to parse much in the way of directional macroeconomic data last
week, and the first-quarter earnings season is close to winding down. With some
453 companies reporting so far, earnings per share for the S&P 50 index is
on track to be up 5.9% in the first quarter, according to RBC Capital Markets.
May
is already here, and veteran investors know that we are approaching a
traditionally weak seasonal summer period for stocks.
