The “Heat Map” is indicating the U.S. stock market is in good shape ASSUMING no international crisis. One potential international crisis hot spot is Iraq. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate the Iraq situation as a 4 at this time. This is unchanged from last week. Risks continue to lurk, and they deserve our ongoing attention.
Daily Archives: July 2, 2014
The “Heat Map”
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: We have graded this factor B (above average) based upon the increase in retail sales as reported in recent economic reports.
THE FED AND ITS POLICIES: We 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: We rate this factor B- (slightly above average).
NOTE: There is no change from the last report.
The Economy
The Personal Consumption Expenditures index (PCE) advanced 1.8% in May from a year earlier, the Commerce Department reported. PCE measures the prices paid by consumers for goods and services to reveal underlying inflation trends. Excluding volatile food and energy costs, prices rose 1.5% in May. Shelter costs such as higher rents pushed prices higher and medical costs are showing signs of a pick-up. PCE is an important indicator as the Feds policy has been using this as an indicator for its interest rate policy. For now the gauge remains below the Feds 2.0% threshold, but it remains an important data point worth watching.
Personal incomes increased .40% in May over the prior month and over the last 12 months the gauge has increased 3.43%. This is a good sign as growing incomes normally translate to increased consumer confidence as you will see below, and additional consumer spending. This is important for our economy as consumer spending makes up roughly two thirds of US Gross Domestic Product.
In other economic news new home sales increased to 504k in May, marking a big jump from Aprils 425k. Existing home sales rose in May and is now on a two month upward trend. Consumers remain confident as the Conference Board Consumer Confidence index read 85.2 in June, higher than the prior months reading of 82.2.
The Numbers
Last week, U.S. Stocks and Foreign Stocks declined. Bonds were unchanged. During the last 12 months, STOCKS outperformed BONDS.
|
Returns through 6-27-2014 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
.4 |
3.8 |
4.4 |
3.4 |
4.8 |
4.9 |
|
US Stocks-Standard & Poor’s 500 |
-.1 |
7.2 |
24.1 |
17.8 |
18.8 |
7.8 |
|
Foreign Stocks- MS EAFE Developed Countries |
-.9 |
2.6 |
20.1 |
6.4 |
8.5 |
4.0 |
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”
“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:
“Independence Day – getting out of debt and building a cash management program.”
Laurie will take your calls on this topics 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.comand visit www.wdiy.org.
Personal Notes
My wife Jo Anne and I just returned from a 4 day vacation with some friends in Manchester Vermont. Manchester is located in rustic southern end of the state amid the Green Mountains – an impressive array of tree covered peaks absent microwave or cell towers. And, it’s home to rustic towns with friendly locals. Several challenging golf courses invite the player to take in the gorgeous views between striking golf balls. The shopping is worth the trip too: the Vermont Country Store as well as Orvis outlet store are for real. Art galleries and woodworking shops are bountiful. Oh, don’t forget the numerous Ben & Jerry ice cream stores – I think their new “turtle cheese cake” ice cream is the best ever. Since we can drive Vermont in about 4 ½ hours, I think Jo Anne and I will be back.
Thomas M. Riddle
President, VNFA
Motivational Quote of the Week
“He who does not move his feet will not stumble, but he won’t get ahead either.”
– Gonzo Arzuaga
The Markets This Week
The past week saw the stock-market debut of a company called GoPro, which makes video cameras you can strap to your head. If investors strapped cameras to their heads to film the highs and lows of finance last week, no one would watch.
Trading remains subdued, and stocks mostly treaded water. The Dow Jones Industrials and Standard & Poor’s 500 fell slightly on the week, in reaction to more hawkish banter by Federal Reserve officials. The talk suggests the central bank might raise interest rates as soon as the first quarter of 2015, slightly earlier than investors have been expecting.
After closing at a new record high the previous Friday, the Dow finished the week down 0.6%, or 95 points, to 16,851.84. The S&P 500 index fell 1.9 points, to 1960.97. The Nasdaq Composite added 30 points, or 0.7%, to close at 4397.93.
Not even a miserable first-quarter reading on gross domestic product shook the market out of the doldrums. “It was horrific, worse than anyone expected,” Yousef Abbasi, global market strategist at JonesTrading Institutional Services, said of the 2.9% decline in first-quarter economic output. “But we were very quickly willing to excuse it.”
Abbasi focused instead on statements by Fed officials such as James Bullard, who indicated the Fed might raise interest rates in the first quarter of 2015. Bullard, president of the St. Louis Fed, doesn’t vote on the Federal Open Market Committee, the Fed’s policy-making arm, but he and other Fed officials appear to be more worried about an uptick in inflation than Fed Chair Janet Yellen, who dismissed the data as “noisy” the previous week.
Other data buoyed the Street. New-home sales spiked 18.6% in May, the largest gain in more than 20 years. Consumer-sentiment data released Friday was rosier than expected.
Investors await second-quarter results for more guidance. Quarterly results from S&P 500 companies such as General Mills (ticker: GIS) and Oracle (ORCL) have mostly proven uninspiring, says Zacks Investment Research. “These initial reports don’t inspire much confidence and appear to be pointing toward another underwhelming reporting season ahead,” wrote research director Sheraz Milan, while noting that it may be “premature to draw any firm conclusions.”
Nike (NKE), bucked the tide, however, by posting better-than-expected earnings late Thursday, seeing particular growth in its soccer division, where revenue rose 18%. It was a fitting end to a week when the U.S. men’s soccer team shocked most of the world by advancing in the World Cup.
Trading is likely to remain slow in the coming holiday-shortened week.
“The big players are all on vacation,” said Brad McMillan, chief investment officer for the Commonwealth Financial Network. “Keep an eye on any news that companies release on July 3. It will probably be something they want to bury.”
(Source: Barrons Online)