The price of oil was down more than 9.9 percent Friday afternoon after the Organization of the Petroleum Exporting Countries decided it would not cut back production significantly in the months ahead. Only 4 months ago, oil prices were 56% higher. Consumers will be the big winners from this price drop as is further explained in the “Heat Map” below. The petroleum industry takes several days to several weeks to pass through lower oil prices to the consumer. Delay filling your car’s gas tank as the gas stations take their time in passing through the $.30/gallon drop that is coming. Savvy homeowners will delay large purchases of home heating oil which will experience large declines also.
Daily Archives: December 3, 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: This grade is increased to A (very favorable) due to the favorable effect of lower gasoline and heating oil prices. Consumers will have more money in their pockets during the important holiday shopping season.
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). We are coming to the end of the third quarter earnings season.
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.
The Numbers
Last week, U.S. Stocks and Foreign Stocks and Bonds all increased. During the last 12 months, STOCKS outperformed BONDS.
|
Returns through 11-28-2014 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
.5 |
5.9 |
5.3 |
3.0 |
4.1 |
4.8 |
|
US Stocks-Standard & Poor’s 500 |
.2 |
14.0 |
16.9 |
20.9 |
16.0 |
8.1 |
|
Foreign Stocks- MS EAFE Developed Countries |
.5 |
-1.5 |
0.0 |
12.0 |
6.4 |
5.3 |
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”
“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, Join host, Laurie as she discusses: “Financial Planning – Simplified”
Laurie will take listener’s questions through the website yourfinancialchoices . No live calls will be taken this week. Questions may be submitted early through 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 yourfinancialchoices.com and visit wdiy.org.
Motivational Quote of the Week
“The power of “can’t”: The word “can’t” makes strong people weak, blinds people who can see, saddens happy people, turns brave people into cowards, robs a genius of their brilliance, causes rich people to think poorly, and limits the achievements of that great person living inside us all.”
– Robert T. Kiyosaki
Personal Notes
My wife Jo Anne makes the best turkey stuffing. She proved it once again this Thanksgiving. The recipe has been passed down for three generations and bound to be passed further along because our two daughters are asking about its specifics too. What’s the secret to great stuffing? Make lots of it. Seriously, there is never enough!
Thomas M. Riddle
President, VNFA
The Markets This Week
The stock market edged up last week, with the Dow Jones Industrial Average eking out a record high. Thanks to the continuing plunge in crude oil prices, which intensified Friday, shares of groups aided by declining fuel costs—airlines, hotels, and retail, among others — soared in a light-trading, holiday-shortened week.
On Friday alone, consumer discretionary stocks rose 1.2% while the energy index sank 6%, reflecting a wholesale exit from the sector. That weakness worsened late Friday and prevented the broad market from closing the week at an all-time high.
The outsize moves came in the aftermath of OPEC’s decision not to cut oil output, on Thursday when financial markets were closed in the U.S. for Thanksgiving Day. That sent West Texas Intermediate crude to $66.15 per barrel, down 13.5% on the week and the lowest in over five years.
Last week, the Dow Jones Industrial Average added 18 points, or 0.1%, to 17,828.24, a record close. The Standard & Poor’s 500 index rose 4 to 2067.56, off slightly from the high set Wednesday. The Nasdaq Composite index rose 79, or 1.7%, to 4791.63.
Friday’s low trading activity could have accentuated market moves and might not be a good lens on the coming week. As Paul Nolte, a money manager at Kingsview Asset Management, notes, “There were all of six people trading Friday after the holiday.”
The oil price slide is a net positive for the consumer and U.S. stocks, but it will probably weigh on S&P 500 index fourth-quarter earnings reports through weakness in energy company profits, notes Michael Mullaney, chief investment officer at Fiduciary Trust in Boston. Overseas economies, particularly emerging markets that export oil, might get hurt, too, he adds.
Emerging market stocks plunged 2% Friday, a signal of investor worry about global growth. Jack Ablin, CIO of BMO Private Bank, observes that slowing demand is “a growing part of the reason” for the oil price drop, in addition to the world’s oversupply of black gold.
The U.S. economic news last week was generally mixed but didn’t dent the idea that the U.S. economy is improving. Third-quarter U.S. gross domestic product was revised to 3.9% at an annual rate from 3.5%, well above the 3.3% consensus.
Energy prices will probably be weak at least into the first half of 2015, and the big drop so far is probably curtailing the U.S. shale revolution already. U.S. oil-field production was down 500,000 barrels per day to 9.4 million from Sept. 12 to Nov. 14, according to Yardeni Research.
The S&P 500 index, up 12% this year, has not yet recorded a drop of four consecutive days, according to Bespoke Investment Group, the longest such streak in any calendar year. The previous longest was in 1997, when trading went until Aug. 26 before hitting a string of four down days.
(Source: Barrons Online)