BEWARE! Scam artists are now posing as IRS officials and calling on the telephone. The scam artist is claiming to be from the IRS Legal Investigation Division and calling about a potential tax fraud. They sound legitimate because they use a case number (fictitious), they mention the phone call is being recorded, and when questioned will transfer you to their “supervisor”. But, it is a scam. They are attempting to obtain sensitive information about you to use against you.
The IRS does not call taxpayers on matters such as this. If you ever receive a telephone call from someone representing to be from the IRS, we recommend telling the person to send something in writing to you AND HANG UP.
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). Second-quarter earnings and revenue-per-share gains of 11.7% and 6%, respectively, suggest that the corporate environment remains supportive.
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.
Last week was a busy week for economic data showing mixed results. Real estate was again mixed as new home sales dropped 2.40% in July and the S&P/Case-Shiller Home Price year over year rose 8.10%. The growth in home prices is slowing its pace as it came down from 9.30% year over year ending in June. Pending home sales of existing homes rose 3.30% in July and Mortgage Bankers Association mortgage applications increased 2.80%. The Mortgage Bankers Association 30-year rate dropped to 4.28% from 4.29% as rates begin to catch up to the drop in US Treasury Yields.
We received a wonderful headline number for US Durable Goods Orders in July as it jumped 22.30% from June. Following a closer read, durable goods excluding transportation decreased .80% in July as the numbers were propped up by strong aircraft sales.
The Conference Board Consumer Confidence index rose to 92.4 in August from 90.3 in July. It would seem the consumer confidence reading would set us up for a strong personal spending number in July, however it surprised to the downside decreasing .10%. Personal incomes rose .20% which is still very subdued and may explain a poor spending number.
The ever important Federal Reserve inflationary index, personal consumption expenditures, rose .10% in July. Inflation seems subdued and if the geopolitical overhang was not present some would argue energy prices are higher than where they should be if not for Russia, Syria, Gaza, and Iraq conflicts.
QUESTION: I heard over the weekend September is typically a bad month for the U.S. stock market? Should I get out because of this?
ANSWER: With Labor Day upon us, the market is about to enter what is historically its most treacherous month. According to Bespoke Investment Group, the S&P has averaged a decline of 1.1% in all Septembers going back to 1928, with gains in the month less than half the time. Perhaps, this one will be less scary. In years when the market was up in the first eight months, as it is now by 8%, September averaged a 0.2% gain, with positive returns half the time. Recent history: 4 of the last 5 Septembers have experienced positive performance. Thus, my recommendation is to continue to follow the guideline in the “Heat Map” above and avoid paying too much attention to the calendar.
Last week, U.S. Stocks and Bonds increased. Foreign Stocks declined. During the last 12 months, STOCKS outperformed BONDS.
Returns through 8-29-2014
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
.4
4.8
5.7
2.9
4.5
4.7
US Stocks-Standard & Poor’s 500
.8
9.9
25.3
20.6
16.9
8.4
Foreign Stocks- MS EAFE Developed Countries
-.1
2.5
16.4
11.4
8.5
6.9
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: “Jobs – statistics, uncertainty and opportunities”
Laurie 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.comand visit www.wdiy.org.
The Pittsburgh Pirates are in a pennant race trailing the first place St. Louis Cardinals by 3 games. Their goal of qualifying for the playoffs is a tough one. The Pirates possess the BEST record of any National League team at HOME. However, 17 of the 26 games in September are being played on the road.
“What, me worry?” In the face of escalating geopolitical tensions, the stock market offered the rallying cry made famous by Mad magazine’s Alfred E. Neuman. Apart from a brief slip Thursday, after Ukraine accused Russia of invasion, the market was so unfazed that the Standard & Poor’s 500 index finished the week at an all-time high.
Continued strong U.S. economic data, combined with the close of a better-than-expected second quarter earnings period, trumped the worries, even the threat of war. Trading, however, was light ahead of the Labor Day holiday Monday, and by Friday many market participants had slipped off to an early start of the weekend.
The market doesn’t discount the same thing over and over again, even violence. From a purely investment perspective, trouble in the Middle East for U.S. markets is more important than in Ukraine because of its potential effect on oil markets and energy prices, says Joseph Amato, the chief investment officer of Neuberger Berman. Market action suggests investors are paying attention to the geopolitical tensions but not expecting an energy crisis, he adds.
The current level of tensions is relatively low for the market and “dwarfed” by the potential impact on stocks of actions by the Federal Reserve and the European Central Bank, he says. Last week, the Dow Jones Industrial Average rose 97 points, or 0.6%, to 17,098.45, and the S&P 500 climbed 15 to a record 2003.37. It rose nearly 4% in August. The Nasdaq Composite index advanced about 42 points, or 0.9%, to 4580.27.
Things might get bumpy by October, as the Fed winds down its U.S. Treasury bond buying, says Benjamin Halliburton, the chief investment officer at Tradition Capital Management. As that happens, investors will be on pins and needles, and volatility could increase.
