Where will the stock market end 2015? I do not know; but, it is likely investors in high quality stocks will be happy at the end of 5 years. This prognostication agrees with Wharton School of Finance professor Jeremy Siegel. His research finds, over the long term, there is a pronounced tendency for periods of better-than-average to follow worse-than-average (and vice versa). Accordingly, the above par performance of the past several years suggest that over the next several, performance will run somewhat below par but still in the black.
Daily Archives: January 12, 2015
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 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.
NOTE: There is no change from the prior week.
The Numbers
Last week, Bonds increased but US Stocks and Foreign Stocks declined. During the last 12 months, STOCKS outperformed BONDS.
|
Returns through 1-9-2015 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
.7 |
.7 |
6.6 |
2.9 |
4.5 |
4.8 |
|
US Stocks-Standard & Poor’s 500 |
-.6 |
-.6 |
13.5 |
19.4 |
14.7 |
7.8 |
|
Foreign Stocks- MS EAFE Developed Countries |
-1.9 |
-2.6 |
-6.2 |
10.3 |
4.3 |
4.4 |
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”
“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 and her guest, Attorney Charles Stopp of Steckel and Stopp, Attorneys at Law, will discuss:“ PA Inheritance tax and the impact on family Agribusinesses”
Laurie and Attorney Stopp will take your calls on these topics and other inquiries this week. This show will be broadcast at the regular time. 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 www.yourfinancialchoices.com and visit www.wdiy.org.
The Economy
Last week Negative economic news exceeded positive news. The Positives:
- The U.S. Economy added 252,000 jobs in December.
- Unemployment rate fell to 5.6%; Revisions to the jobs report added 50,000 jobs to each of the prior past two months.
- S. consumer confidence jumped to a seven-year high;
- Vehicle sales came in at annual sales rate of 16,800,000, slightly lower than the 16.9mm expected but still strong and above the 12-month average.
Following are the Negative economic reports:
- Average hourly earnings fell 0.2% month over month.
- Wages rose just 1.7% year over year, well below the 2.2% expected and the weakest readings since October 2012.
- Factory orders fell 0.7% in November, vs the 0.5% expected decline.
- December was the first time ever that all ten components of the Institute of Supply Management services report declined.
- Institute of Supply Management non-manufacturing PM came in at 56.2, vs the 58 expected.
- Labor Participation Rate fell to 62.7%, levels not seen since 1977.
Motivational Quote of the Week
“Cream always rises to the top…so do good leaders”
– John Paul Warren
The Markets This Week
The stock market was whipsawed last week by volatile share prices, finishing 0.7% lower by Friday’s close. Investors can’t seem to decide if the continuing plunge in oil prices is good or bad for stocks. That uncertainty was partly reflected in half-hearted activity, with volume in the downdraft low and on the rebound even lower, a not particularly encouraging technical sign.
Oil fell 8%, hitting a 52-week low of $47.93 a barrel by Tuesday, and stocks followed. But equities revived when crude edged up later in the week to $48.37. That wasn’t enough to help energy stocks, the worst-performing sector, down 3% last week.
Investors got a lift from comments by Charles Evans, president of the Chicago Federal Reserve. Late Wednesday, he said he wasn’t in favor of raising interest rates until 2016. The Fed is expected to begin hiking in mid-2015.
Last week, the Dow Jones Industrial Average gave up 96 points, or 0.5%, to 17,737.37; and the Standard & Poor’s 500 index lost 13 to 2,044.81. The Nasdaq Composite index retreated 23, or 0.5%, to 4704.07. Bond investors took Evan’s remark to heart, as the yield on the ten-year U.S. note fell below 2% to 1.975%. (Bond prices move inversely to yields.)
“The V-shaped week made it seem like we had a full year’s worth volatility in one week,” says Brian Reynolds, chief market strategist at Rosenblatt Securities. The downside and upside last week was less vigorous than October’s big drop and rebound, says Reynolds. “That tells us there is less investor conviction.” He expects more “violent” ups and downs this year.
Charles Schwab chief investment strategist Liz Ann Sonders also looks for more pullbacks this year and even perhaps a 10% correction, though she doesn’t expect that to “upend” the six-year-old bull market. For some investors at this point in the bull, the “fear of missing out” that fuelled previous snapback rebounds and kept corrections mild is giving way to “fear of losing money.” The willingness to buy on the dips is not as strong as it was, she avers.
Contributing to the rocky 2015 start is uncertainty over the Fed’s path to higher interest rates, she says. Unlike previous Fed tightening courses, this time it’s started from an artificially low level and with an inflated balance sheet.
In the background, there are some tangential factors, adds Reynolds. Worries remain that the European Central Bank will fail to produce a quantitative easing plan later this month that meets investor expectations.
And fears of Greece exiting the European Union could deepen soon. Sunday, Jan. 25, sees a parliamentary election in Greece. The leftist Syriza party, which opposes the country’s international bailout plan and austerity measures, has the lead in pre-election surveys.
(Source: Barrons Online)