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 including Gaza. On a scale of 1 to 10 with 10 being the highest level of crisis, I rate this Middle East powder keg situation as a 3 at this time. This is unchanged from last week even in light of the inability to find a diplomatic solution to the Israeli/Gaza conflict. 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 CONTINUE to rate this factor B- (slightly above average).Earnings results have mostly beaten expectations. With nearly half of the S&P 500 having reported, companies have eclipsed earnings expectations 76% of the time and exceeded sales expectations 67% of the time, according to FactSet. Companies are on track to grow earnings by about 6.7%, which would exceed expectations for 4.9% growth as of June 30.
The Consumer Price Index increased .30% in June over the prior month. Year over year the inflation rate remained steady at 2.10%. Two-thirds of the increase was primarily driven by the gasoline index. Since June oil and gas prices have decreased which should lower inflation expectations and keep the Federal Reserve on the same monetary policy path.
Existing Homes Sales rose 2.60% in June from May, house prices increased 0.40%, and MBA Mortgage Applications increased 2.40% in the week ended July 19th. New Home Sales did not fare as well in June, dropping 8.10% from May. Real estate has been providing mixed results and has not been the driver to growth many economists expected at this point of the economic cycle.
The job market has been producing continued strength as Initial Jobless Claims for state unemployment benefits decreased to 284,000 for the week ending July 19th from a revised 303,000 during the previous week. The Fed will hope this trend continues to reduce the slack in the labor market prior to hiking interest rates.
Last week, Foreign Stocks and Bonds increased. U.S. Stocks were little changed. During the last 12 months, STOCKS outperformed BONDS.
Returns through 7-25-2014
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
.1
4.0
45
3.4
4.7
4.8
US Stocks-Standard & Poor’s 500
0.0
8.2
19.5
16.4
17.6
8.4
Foreign Stocks- MS EAFE Developed Countries
.4
2.3
12.4
4.7
7.2
4.4
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: “Financial planning topics that come up on summer vacations.”
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.
The look of healthcare is changing. Growing rapidly is the difference in quality of healthcare between:
those people who must rely upon the government sponsored health insurance program Medicaid,
those who can afford an insurance plan like the “Blue’s” and ObamaCare
those who have sufficient wealth to obtain an insurance plan like those in 2 PLUS afford to pay “out of pocket” for drugs, medical devices, and innovations not covered by Medicaid and insurance plans. As an example, I will describe what is happening to millions of Americans suffering from Hepatitis C.
About 3.2 million Americans are infected with Hepatitis C, blood-borne disease of the liver, which kills about 80,000 people a year, or five times the death rate of AIDS. Now a Gilead Sciences drug called Sovaldi cures the virus in at least nine of 10 patients, and perhaps even 98%. Instead of celebrating this breakthrough, the world of health-care insurance companies blew an alarm whistle. Neither Medicare nor those insurance companies can afford to pay for Sovaldi’s three-month course of treatment which costs about $84,000, or about $1,000 a pill. The total cost to treat Americans who have Hepatitis C is estimated between $300 – $400 Billion. Many are already fingering Gilead as an icon of corporate greed. But the irony is Sovaldi is a medicine that eliminates a disease for a one-time cost, rather than one that must be taken for life or many years to mitigate a chronic disease. It is priced at a discount relative to inferior treatments for advanced liver disease with toxic flu-like side effects that don’t prevent relapses but do cost about $97,000. A liver transplant runs about $580,000 on average. A PwC report predicts a nationwide spending increase in the first two years but then Sovaldi lowers costs over the next half-decade as older treatments are rendered unnecessary. A solution is needed but it is unlikely any time soon due to Washington’s lack of problem solving skills.
I suspect Sovaldi is the tip of the iceberg. In the future, many high cost drugs, medical devices, and innovations will become available. In many cases, only those who have insurance PLUS wealth will be able to take advantage of them – another reason to accumulate wealth and make your money grow.
On a day when one of the most famous traders of the past 50 years passed away, investors briefly lost confidence in the market, sending the Dow Jones industrials into the red for the week and back under 17,000.
Economic news and earnings reports mostly have painted a sunny picture for the market in the past few sessions, but earnings reports from Visa (ticker: V) and Amazon.com (AMZN) put investors in a sour mood on Friday. The Dow fell 123 points, or 0.7%, on the day.
Alan “Ace” Greenberg, who rose from the literal stock room to the top of Bear Stearns, died at 86 on Friday, six years after his firm succumbed to the credit crisis and was sold to JPMorgan Chase (JPM). Greenberg was the quintessential trader—after he stepped down as CEO in 1993, he continued trading equities for the firm.
If Greenberg typified the old hustle and bustle of the trading floor, this week’s market action had all the pulse-pounding thrills of cruise-ship shuffleboard. Volume remained low, and stocks mostly traded in a tight range.
For the week, the Dow fell 140 points, or 0.8%, to 16,960.57. The Standard &Poor’s 500 index rose 0.1 points to 1978.34. The Nasdaq Composite index rose 17 points, or 0.4%, to 4449.56.
A few pieces of good news stood out last week, says Keith Lerner, chief market strategist at SunTrust Private Wealth Management.
Weekly jobless claims fell to 284,000, the lowest level since 2006.
And China’s manufacturing activity rose to an 18-month high in July, according to a gauge put out by HSBC. The good news out of China helped boost stocks there and “eased some of the angst” that China is in for a prolonged slowdown, Lerner says. The Shanghai Composite Index rose 3.3% on the week. Emerging-market stocks have been outperforming U.S. counterparts, as investors have searched for better values, he adds.
The iShares MSCI Emerging Markets (EEM) exchange-traded fund has outperformed the S&P 500 by about 10 percentage points since mid-March, and rose 1.9% last week. “People are really searching for assets that look cheap,” Lerner says. “Emerging markets are the latest beneficiary of that trend.”
On the negative side, government data on housing starts showed a 9.3% decline in June, and builder DR Horton (DHI) posted disappointing earnings, causing more consternation about the housing market.
