The “Heat Map” is indicating the U.S. stock market is in good shape ASSUMING no international crisis. We have identified one potential international crisis hot spot:
Iraq and the “powder keg” in the Middle East. On a scale of 1 to 10 with 10 being the highest level of crisis, I rate this Iraq situation as a 3 at this time. This is a decrease of 1 from last week. Risks continue to lurk, and they deserve our ongoing attention.
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).The next few weeks of earnings from banks, tech companies, and industrials will give investors the first good window into the U.S. economy in the second quarter and whether or not the decline in first-quarter gross domestic product was a cold-weather fluke.
On the plus side, economic reports on jobs were strong. Gasoline prices dropped significantly. Mortgage applications increased.
On the negative side, small and independent business optimism declined. Student loans outstanding reached an all-time high.
Last week, U.S. Stocks and Foreign Stocks decreased. Bonds increased. During the last 12 months, STOCKS outperformed BONDS.
|
Returns through 7-11-2014 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
.6 |
3.9 |
4.5 |
3.3 |
4.6 |
3.9 |
|
US Stocks-Standard & Poor’s 500 |
-.9 |
7.6 |
19.9 |
16.8 |
20.0 |
8.1 |
|
Foreign Stocks- MS EAFE Developed Countries |
-2.4 |
1.6 |
13.5 |
5.3 |
9.2 |
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, Laurie will discuss: “Paying attention to your Social Security options.”
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.
“Persistence can change failure into extraordinary achievement.”
– Matt Biondi
It seems to me the number of conflicts and flashpoints around the world is increasing. So, I research this and, I found my suspicion to be true, at least in one regard. The number of people displaced from their homes due to conflict exceeds 50,000,000 – the most since World War II. But, The UN has demonstrated it is ineffective in restraining conflicts. And, I am worried there is no other mechanism in place to prevent a continued escalation of conflicts around the world.
Thomas M. Riddle
President, VNFA
Stocks backtracked almost 1% last week in quiet trading, mainly on profit-taking and short-lived jitters caused by reports that a relatively small European banking firm missed debt payments. For a few moments last Thursday, it looked like a Greek banking crisis redux.
Riskier small caps took the brunt of the beat-down, suggesting the return of the “risk off” trade. But the drop likely had more to do with a minor reversal—so far—of end-of-second-quarter capital flows into small-cap stocks, and profit-taking from record highs reached the previous week. Nervousness about the European banking sector reemerged briefly Thursday morning after news reports said Portuguese conglomerate Espírito Santo International—the largest shareholder in the parent of Portugal’s largest bank, Banco Espírito Santo (ticker: BKESY)—missed a debt payment. Stocks pared the losses Friday.
With the 64-month-old bull market not far from all-time highs, investors will be better served by focusing on U.S. shores in coming weeks as second-quarter earnings tumble out in bunches from the likes of JPMorgan Chase(JPM), Intel (INTC), Johnson & Johnson (JNJ), and Google(GOOGL), among others in the Standard & Poor’s 500 index.
Despite the contraction in U.S. gross domestic product in the first quarter, there’s a basic market assumption that the economy is on a growth track, if a slow one, says Richard Weeks, partner at HighTower Advisors., as many assume, he adds.
Last week, the Dow Jones Industrial Average fell 0.7% or 125 points to 16,943.81, and the S&P 500 lost 18 or 0.9%, to 1967.57. The Nasdaq Composite index dropped 1.6%, or 70, to 4415.49. The Russell 2000 index fell 4% to 1159.93.
At the Federal Reserve’s Open Market Committee meetings last week, the Fed reaffirmed that its bond-buying monetary stimulus will wind down in October.
A U.S. economic recovery is taken for granted, says Michael Shaoul, chairman of Marketfield Asset Management. U.S. companies, by dint of keeping a tight lid on labor and capital expenditures, have produced growing earnings. To the extent there are negative second-quarter profit surprises, perhaps caused by labor or capital capacity constraints, it will lead to choppy action in the market in the near term, he says. The bull “needs good corporate data.”
Eventually, this market is going to correct and it’s not likely to be the result of woes at a small bank in a small country on the edge of Europe.
(Source: Barrons Online)