“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: “Budgeting: It is like dieting – people don’t want to do it, talk about it or stick to it.”
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.
“Get going. Move forward. Aim High. Plan a takeoff. Don’t just sit on the runway and hope someone will come along and push the airplane. It simply won’t happen. Change your attitude and gain some altitude. Believe me, you’ll love it up here.”
This is my favorite time of the year. During this time of the year, I can watch the Pirates play baseball, catch some Friday-night high school football, play golf, watch or attend Lafayette or Lehigh football, play golf (duplicated on purpose!), organize my Fantasy team, watch several NFL games, visit PPL center in downtown Allentown to experience hockey with the Phantoms Hockey, and enjoy the change of season, color in the leaves, and visiting with my wife Jo Anne and our two daughters Erika and Jennifer and their husbands who live in the Valley.
When not tweeting tributes to Joan Rivers or getting in line to buy the Apple iPhone 6 for their back-to-schoolers, investors’ attentions last week were fixed squarely across the pond.
Economies throughout the euro zone, including mighty Germany, reported weakening growth in August as sanctions on Russia began to reverberate. Even the U.K., previously unaffected by the fragile financial state of the European Union, saw its manufacturing Purchasing Managers Index decline. The prospect of a full-blown slowdown led the European Central Bank to cut already-low interest rates from 0.15% to 0.05% and announce plans for additional stimulus to try to keep its recovery on track. A slowdown in Europe is seen as the biggest risk to growth here, especially since the euro zone accounts for 20% of world gross domestic product, and multinational earnings are connected strongly to its economic activity.
“We have to be on alert for the slowdown in the euro zone to come home and hit the U.S.,” warns Nancy Lazar, founder and chief economist of Cornerstone Macro, an independent provider of economic research and investment strategies.
U.S. markets seemed to shrug off concerns, rising slightly in the Labor Day-shortened week. The Dow Jones Industrials Average ended Friday up 38.91 points to close at 17,137.36, the second highest close in history. The S&P 500 rose 4.34 points on the week to end at a record close of 2007.71 and the Nasdaq Composite Index advanced 2.63 points to close at 4582.90.
Conditions remain strongly supportive of continued growth domestically, Lazar notes, and the U.S., for now, remains decoupled from the troubles abroad and is driving what global growth there is. Reflecting that strength, and notwithstanding a weaker-than-expected payroll report, her firm raised its estimate for third-quarter gross domestic product growth in the U.S. to 4% from 3.5% based on strong auto and heavy-truck sales, improving housing starts, increasing exports, and stronger capital spending by businesses. Indeed, Lazar expects the economic expansion in the U.S. to last three to five more years.
She’s not alone. Morgan Stanley strategist Adam Parker and economist Ellen Zentner believe the probability of a cycle peak remains low and predict the S&P 500 could reach 3000, should the expansion continue for five years or more. Their estimate is based on earnings per share growth of 6% a year and a price-to-earnings ratio of 17 times. The duo define the bull market of the past five years as the deleveraging and “repair phase” following the financial crisis. Only now, they say, is the U.S. economy entering “the very early stages of expansion.”
Another sign of confidence: Initial public offerings are at levels not seen since 2007, and total proceeds in 2014 could reach $80 billion, the most since 2000 and up by almost 50% from last year, according to Renaissance Capital. Already 188 companies have come public and there could be as many as 100 more by year end, with the most notable China’s e-commerce giant Alibaba set to raise as much as $24 billion.
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.
