Daily Archives: August 20, 2014

The Economy

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The big economic release of the week was US Gross Domestic Product rebounding to 4 percent growth in the second quarter, from a revised 2.1 percent contraction during the 1st quarter.  The increase reflected positive contributions from personal consumption expenditures, private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment.  Initial Jobless Claims continued the run of good data as benefits came in at 302,000 in the week ending July 26th.  Despite the decline in initial jobless claims, the US Unemployment Rate rose to 6.2 percent in July from 6.1 percent in June.  This confirms more folks are coming back into the jobs market attempting to obtain employment, which have previously been long term unemployed or underemployed.  Personal incomes rose .39 percent in June over the prior month thus extending consumer confidence.  This is a slew of positive economic releases which is supporting a snap back in economic activity from the first quarter.

The data released over the prior week in relation to Federal Reserve policy supports low rates for an extended period of time.  Inflation, tracked by the personal consumption expenditures price index, came in at 1.6 percent year over year and .2 percent month over month.  When weighing subdued inflationary pressures with an improving jobs market, the Fed believes they can keep rates low until they confirm greater labor participation and inflation.

The Numbers

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

Returns through 8-15-2014

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap Aggregate Index

 .4

 4.5

  5.6

  2.9

  4.6

4.8

US Stocks-Standard & Poor’s 500

1.3

 7.1

20.1

20.1

16.7

8.5

Foreign Stocks- MS EAFE Developed Countries

 1.6

-.8

 8.2

 7.6

  5.4

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”

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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, Laurie is joined by Rod Young CPA, CFP® of Valley National. They will discuss: “Real Life financial planning stories and experiences”

Laurie and Rod 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. 

The Markets This Week

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Strong economic news and mostly positive earnings reports couldn’t offset fears last week that the Federal Reserve finally has started to pull away the punch bowl, albeit very slowly. Stocks had their worst one-week drop since January, and the Dow Jones Industry Average toppled into negative territory for the year.

The Federal Reserve delivered a modestly more upbeat assessment of inflation, jobs, and the economy after its two-day meeting last week. Its assessment, combined with last week’s stronger-than-expected report on gross domestic product and news of 209,000 job gains in July, cemented the belief that the central bank will conclude its Treasury purchases in October and start raising rates in 2015 if the economy continues to improve.

“This is the beginning of a little taper tantrum,” says Diana Joseph, chief investment officer at Barrington Strategic Wealth Management. As the Fed’s easy money-policies reverse, people are forced to focus more on what they’re paying for investments. If last week is any indication, investors didn’t like what they saw in their portfolios.

The Dow fell 467.20 points this week, or 2.75%, to 16,493.37. The Standard & Poor’s 500 index dropped 53.19 points to 1925.15. The Nasdaq Composite index fell 96.92 points, or 2.18%, to 4352.64.

The S&P is down 3.16% from this year’s high of 1987.98 and the selloff could have more room to run. “My incoming calls from financial advisors are running 10-to-1 with most asking what they should buy, and that’s not good,” says Jeffrey Saut, chief investment strategist at Raymond James.

The calls indicate advisors are still optimistic and willing to buy the dips. “It feels to me like we’ve started a 10% to 12% correction,” says Saut, who has 25% of his portfolio in cash. But he’ll be more certain when he sees the market’s action next week.

Among the bigger losers in the Dow last week were shares of Exxon Mobil (XOM) and Chevron (CVX). Both fell by just over 4% despite strong earnings reports, as they disclosed they had experienced declines in production in the latest quarter. The price of crude fell during the week to $98 a barrel.

(Source: Barrons Online)