THINGS ARE BETTER THAN THE NEWS MEDIA WOULD HAVE YOU BELIEVE. Modern media is overwhelming pessimistic. They focus on sensationalism, scandal, gossip and tragedy. Modern news and media outlets “preferentially feed us negative stories because that is what our minds pay attention to.” Apparently there is a good reason for this; our senses bring in far more data than we can possibly process, and, because survival is the most important driving factor in our evolution, this data is fed first through an ancient sliver in the temporal lobe called the amygdala. The amygdala is our early-warning detector, sorting through data to see what might harm us. It is therefore entirely explicable that we preferentially look at negative news, and almost as obvious that profit-driven media outlets would capitalize on this instinct.
How and why is the world going to become a better place? Highly respected forward thinkers have studied trends and see a bright future particularly due to exponential technological growth. These trends show how life expectancy, global connectivity, access to resources and general quality of life are all on an upwards curve.
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: This grade an A (very favorable) due to the favorable effect of lower gasoline and heating oil prices.
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: This factor’s grade is a B+ (above average).
OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in good shape ASSUMING no international crisis. We have added the risk of an EBOLA pandemic to the “powder keg” in the Middle East to the situations to be watched. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these collectively as a 2. Risks continue to lurk, and they deserve our ongoing attention.
Last week,US Stocks and Foreign Stocks increased and Bonds declined. During the last 12 months, STOCKS outperformed BONDS.
Returns through 12-26-2014
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
-.2
5.6
5.6
2.8
4.4
4.7
US Stocks-Standard & Poor’s 500
.9
15.3
15.7
20.7
15.6
7.9
Foreign Stocks- MS EAFE Developed Countries
.5
-4.1
-2.6
11.6
5.6
4.6
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, the station will run a pre-recorded show on a financial planning topic. The live broadcast will return on January 7th.
No live calls will be taken this week. This show will be broadcast at the regular time. Questions may be submitted early through www.yourfinancialchoices.com by clicking Contact Laurie. 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.
“Calculated Risk,” a well-known financial blog, offers up the following 10 economic questions for 2015:
1) Economic growth: Even with contraction in Q1, 2014 was a decent year (GDP will grow around 2.4% in 2014). Will 2015 be the best year of the recovery so far?
2) Employment: With one month to go, 2014 is already the best year for employment growth since the ’90s. Will 2015 be as strong?
3) Unemployment Rate: The unemployment rate was at 5.8% in November, down 1.2 percentage points year-over-year. What will the unemployment rate be in December 2014?
4) Inflation: The inflation rate is still running well below the Fed’s 2% target. Will too much inflation be a concern in 2015?
5) Monetary Policy: The Fed completed QE3 in 2014, and now the question is will the Fed raise rates in 2015?
6) Real Wage Growth: Will real wages increase in 2015?
7) Oil Prices: Declining oil prices and falling bond yields were two of the biggest stories of 2014. Will oil prices continue to decline in 2015?
8) Residential Investment: Residential investment (RI) picked was up solidly in 2012 and 2013 – up 13.5% and 11.9% respectively – but RI was only up 1.6% through Q3 2014. Note: RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales. How much will RI increase in 2015?
9) House Prices: It appears house prices will be up about 5% or so in 2014 (after increasing about 12% nationally in 2013). What will happen with house prices in 2015?
10) Housing Inventory: It appears housing inventory bottomed in early 2013. Will inventory increase further in 2015, and, if so, by how much?
Like a heavyweight trying to win a judge’s card in the last round, the bull market forcefully stated its case in the year’s waning days. The holiday-shortened week brought news of consumer sentiment at a seven-year high, and a revised annualized growth rate of 5% for third-quarter gross domestic product, making it the best period in 11 years.
Friday was the lowest-volume day of the year for stocks, but there was still plenty to talk about on the week. After crossing 18,000 for the first time ever, the Dow Jones Industrial Index, finished the week up 1.4%, at 18,053.71. The Nasdaq, meanwhile, edged ever closer to its all-time record, rising 0.9% on the week to 4806.86.
In another positive sign, the Commerce Department said that consumer spending was up a better-than-expected 0.6% in November from the previous month.
“The U.S. definitely still looks like the bright spot, and the information out this week is the confirmation of that,” says Jason Pride, director of investment strategy at Glenmede. “Broadly speaking, the U.S. economy is shaking out nicely to a point where the Federal Reserve backing away from stimulus is not that big of a dampening effect.”
Crude oil, the market’s recent obsession, continued its descent, falling 4.2% on the week to $54.73 a barrel.
“At this point the market has had its period of worrying about energy-related investment, and may now be stepping back and finally recognizing that lower prices on the whole may be a good thing for the economy because of the consumer impact,” Pride says.
But low oil prices, like interest rates, remain a double-edged sword, says Scott Wren, senior equity strategist for Wells Fargo Advisors. Weak prices and low rates are a troubling signal about the long-term health of the economy, he says, noting that investors seemed to brush off the strong GDP figure. “I don’t think the market believes at all that we’re in a far more accelerated economic growth environment,” Wren says. “If the market thought we’d be in a 4% to 5% GDP growth [mode], the bond market would be getting hit hard, yields would be rising, and stocks would be pulling back.”
After nearly falling to 17,000 in mid-December, the Dow has now rallied 1,000 points in the last 10 days. Hank Smith, chief investment officer at Haverford Trust, argues that those gains have probably stolen some thunder from 2015. And yet, he says, we’re probably still in the fifth inning of the bull market.
“Bull markets don’t die because of geopolitical events or exogenous events,” Smith says. “They almost always die in anticipation of the next recession. And, there are no risks of an impending recession. None of the traditional indicators are flashing any warning signs.”
Longer life expectancy and the likelihood of more years spent in retirement are realities now facing the baby boom generation, and most likely, the generations that follow. The Treasury Department and IRS realize this is a major concern for many and have recently passed new regulations.
The new regulations allow individuals to purchase a deferred income annuity which can be excluded from RMD calculations AND distributions don’t have to start until your Age 85. Of course, the annuity must be properly setup and certain conditions must be met, but Qualified Longevity Income Contracts (or QLACs) can be an important option to help plan for retirement and ensure you have a regular stream of income. Contact us for more information.
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: This grade an A (very favorable) due to the favorable effect of lower gasoline and heating oil prices.
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: This factor’s grade is a B+ (above average).
OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in good shape ASSUMING no international crisis. We have added the risk of an EBOLA pandemic to the “powder keg” in the Middle East to the situations to be watched. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these collectively as a 2. Risks continue to lurk, and they deserve our ongoing attention.
Last week,US Stocks and Foreign Stocks increased and Bonds declined. During the last 12 months, STOCKS outperformed BONDS.
Returns through 12-12-2014
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
-.3
5.8
5.7
2.6
4.2
4.7
US Stocks-Standard & Poor’s 500
3.4
14.3
16.8
22.4
15.6
7.9
Foreign Stocks- MS EAFE Developed Countries
.9
-4.6
-1.4
12.6
6.0
4.9
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.
