Janet Yellen, Chairperson of the Federal Reserve, indicated in the press interview following the recent Federal Reserve Committee meeting, it is “natural to have a wide range of views”. Her comments were made while discussing whether her fellow FED committee members shared her views of the current FED monetary policy. I suspect the FED committee members will indeed develop a wide range of views in the future when the FED attempts to unwind its unparalleled intrusion into the marketplace. The wide range of views could result in public arguments among the FED committee members at a crucial time in the future – very dangerous.
Monthly Archives: September 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 grade this factor to A- (very favorable
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).
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, We rate this Middle East powder keg situation as a 3 at this time. This is unchanged from last week, but still elevated. Risks continue to lurk, and they deserve our ongoing attention.
The Economy
United States Gross Domestic Product according to the final estimate from the Commerce Department grew at a seasonally adjusted annual rate of 4.6 percent in the second quarter over the previous quarter. This reflects a strong recovery from the harsh winter months. The Federal Reserve projects real Gross Domestic Product to come in between 2.8 to 3.0 percent for 2014.
New Home Sales in the US rose 18% in August to 504 thousand homes, from the prior 427 thousand in July. New home sales remain a bright spot in housing as builders are finding strong demand in higher end homes while other housing measures underperform. Existing Home Sales decreased 1.80 percent in August and the Mortgage Bankers Association Mortgage Applications dropped 4.10 percent in the week ended September 20th. The US House Price Index increased .10 percent in July as diminished demand remains a boon for real estate values.
US Manufacturing remained unchanged in September at 57.90 as manufacturing remains a strong driver for growth of US companies and households. The Services Purchasing Managers Index decreased to 58.50 in September from 59.5 in August, but remains relatively strong. According to the Thomson Reuters/University of Michigan’s US Consumer Sentiment rose to 84.6 in September from 82.5 in August. A stronger consumer should bolster earnings growth and economic activity.
The Numbers
Last week, U.S. Stocks and Foreign Stocks decreased and Bonds increased. During the last 12 months, STOCKS outperformed BONDS.
|
Returns through 9-26-2014 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
.1 |
4.0 |
4.0 |
2.4 |
4.1 |
4.6 |
|
US Stocks-Standard & Poor’s 500 |
-1.4 |
8.8 |
19.3 |
22.1 |
15.7 |
8.1 |
|
Foreign Stocks- MS EAFE Developed Countries |
-1.6 |
-.9 |
3.4 |
12.9 |
6.7 |
6.4 |
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 radio 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 be attending a company event at the PPL Center. The station will run a pre-recorded show. Questions submitted online (yourfinancialchoices.com/contact-laurie/) will be addressed on next week’s live broadcast.
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.
Motivational Quote of the Week
“The individual who says it is not possible should move out of the way of those doing it.”
–Tricia Cunningham
Personal Notes
The Pittsburgh Pirates have made the playoffs as a “wild-card” team. The Pirates will play a one game contest in Pittsburgh against the SF Giants to determine who will face the Washington Nationals.
2014 will go down as a very successful year for the Pirates. The Pittsburgh batters were outstanding in the National League: 2nd in team Batting Average, 2nd in On Base Percentage, first in pinch hitting batting average, and 3rd in home runs. Harrison and McCutchen finished with the 2nd and 3rd best batting average in the league.
However, their pitchers wobbled between periods of greatness to periods of disappointment. For the season, the Pirates pitching staff’s statistics were average.
The Pirates attendance and other revenues jumped in 2014. I suspect they can be much more competitive in retaining key players in the future. And, the farm system holds some great talent with bright prospects.
Regardless of what happens in the playoffs, the future looks bright for the Pirates.
Thomas M. Riddle
President, VNFA
The Markets This Week
Stocks closed out a rough week with a buoyant Friday, but the mini-rally wasn’t enough to make up for poor performances earlier. All the major indexes fell 1% or more. Like the previous week, large-cap stocks outperformed small caps, but this time they just fell less instead of rising.
While market observers blame the retreat on numerous factors, from mixed U.S. economic data out this week to continued concerns about Russian moves to drag Ukraine back into its sphere of influence, mostly there’s a vague unease over the state of global economic growth.
U.S. economic expansion is proceeding apace, but the rest of the developed nations are limping along. That translated into the risk-off trade, which culminated in a big downdraft and heavy volume Thursday. Otherwise trading was quiet during the Rosh Hashanah religious holidays.
Last week, the Dow Jones Industrial Average lost 167 points, or 1%, to 17,113.15, while the Standard & Poor’s 500 index gave up 28 points to 1982.85. The Nasdaq Composite index ended at 4512.19, down 1.5% or 68.
On Friday, the Commerce Department raised its previous estimate of second quarter U.S. gross domestic product growth to a 4.6% annual rate, about as expected, from the previous 4.2%. Earlier in the week, however, Germany’s IFO survey showed Teutonic business confidence in September dropped to its worst level in more than a year.
If there was one reason for the market drop, says Bill Stone, chief investment strategist at PNC Wealth Management, “It’s worries about global growth.” Investors are concerned about how much more economic pain is to come in Europe and Japan, he adds. This week’s meeting of the European Central Bank governing council Thursday could be key for stocks short term, Stone says, because many are expecting details in the ECB press conference to follow. The bank has previously promised a version of quantitative easing that includes buying covered bonds and asset-back securities. Investors want to know how much, Stone adds.
At the end of October, investors will again turn their attention to the Federal Open Market Committee meeting, says Robert Pavlik, chief market strategist at Banyan Partners. While there’s no press conference scheduled afterward on Oct. 29, investors are aware that “the next Fed move, whenever it comes, can’t be tapering. It will be raising rates.” Volatility could be introduced on rising speculation about that infamous rate hike expected in mid-2015.
Despite the losses, the market remains near all-time highs, and some bullish exhaustion shouldn’t be a surprise. Bernie McGinn, president of McGinn Investment Management, says he’s been “more aggressive” on the sell side in recent weeks, “even though I don’t feel any more negative than before. It’s just that I don’t see a whole lot of stocks that say ‘Buy Me! Buy Me!’ ” A 10% correction “would be welcome,” he adds, and allow him to start nibbling at the stocks on his buy list.
(Source: Barrons Online)
Heads Up!
Oil prices have declined 12% since the beginning of summer driving gasoline prices lower. Lower gasoline prices put more money into the pockets of consumers – just at the right time. The all-important Holiday shopping season is around the corner. I expect this Holiday season will be stronger than previously predicted. We have raised the grade on Consumer Spending (see “Heat Map” below) to reflect this expectation.
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 increased the grade on this factor to A- (very favorable) based upon the increase in retail sales as reported in recent economic reports and the decrease in gasoline prices as described in “Heads Up”
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).
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, we rate this Middle East powder keg situation as a 3 at this time. This is unchanged from last week, but still elevated. Risks continue to lurk, and they deserve our ongoing attention.