Economic analysts have “written off” the 1st calendar quarter of 2015 as a disappointing one for the U.S. economy due to: (1) the severe winter in the Northeast and Midwest; plus, (2) the dock strike on the West Coast. As a result, many economic analysts believe “as goes the 2nd Quarter, so goes the year”. Much stock market volatility will result from the 2nd Quarter reports which will be released in May, June, and July. If one of these economic reports appears too “cold” the stock market will respond negatively because it will appear the economy has not bounced back. On the other hand, if the report appears too “hot” the stock market may respond negatively because the FED will probably raise interest rates that much faster (a negative for the stock market). In short, “goldilocks” economic reports will be best received. It’s unlikely each report will be a goldilocks report. Thus, the upcoming 3 months will most likely be a time period of higher volatility. The 3 month period may end with a positive market performance – however, we can expect higher levels of stock market fluctuations.
Daily Archives: May 4, 2015
The Economy
Last week more positive economic reports were issued than negative economic reports. Here is a list of the positives:
- Initial jobless claims plunged to 262k vs the 290k expected, the lowest reading in 15 years.
- Pending home sales rose 13.4% year over year vs expectations for a 5.1% rise.
- Consumer spending rose 1.9% in the first quarter, better than expected.
- The S&P/Case-Shiller index increased 5% year over year, vs the 4.7% expected and the biggest gain since August.
- Purchasing Managers Institute services index flash came in at 57.8, slightly lower than expected but still strong.
- Chicago Purchasing Manager Institute came in at 52.3 versus the 50 expected.
- The employment cost index rose 0.7% in Q1 vs the 0.6% expected rise.
And, the Negatives:
- Q1 Gross Domestic Product rose 0.2% vs expectations for a 1% rise.
- US homeownership rate for Q1 fell to 63.7% vs 64% in Q4 and vs 64.8% one year ago. The 50 year average is 65.3%.
- Ford, Toyota, Fiat/Chrysler and Nissan miss expectations. (GM is only one beat so far)
- Consumer Confidence came in at 95.2, below the 102.2 expected.
- Dallas Fed manufacturing survey came in at -16 vs expectations of -12.
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 reduced to a B (favorable) due to the a slowdown in spending. It may be weather related. We will find out in the next 2 months.
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 C (average). Early results of quarterly earnings are promising. Perhaps, 2015 will not be such an “average” year after all.
OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 2, the same as last week. These risks deserve our ongoing attention.
The Numbers
Last week, U.S. Stocks and Foreign Stocks and Bonds all decreased. During the last 12 months, STOCKS outperformed BONDS.
|
Returns through 5-1-2015 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
-.9 |
.9 |
3.9 |
2.5 |
4.1 |
4.7 |
|
US Stocks-Standard & Poor’s 500 |
-.4 |
3.0 |
14.2 |
16.9 |
14.6 |
8.4 |
|
Foreign Stocks- MS EAFE Developed Countries |
-.9 |
8.9 |
1.0 |
11.2 |
7.3 |
5.6 |
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”
“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: “Take aways from prior shows and what’s in store for upcoming shows”
Laurie 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 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.
Motivational Quote of the Week
“It doesn’t matter where you’ve been, only where you are going.”
― L.M. Fields
The Markets This Week
The stock market lost its mo’ last week. The major indexes fell as previously strong social-media stocks plunged and surprised investors, who hammered the rest of the market. A rally Friday took the edge off a retreat that had reached 2% at one point. Nasdaq and small-cap stocks fell 2% to 3%.
Investors also didn’t like a much worse-than-expected report out Wednesday on first-quarter U.S. gross domestic product. GDP was up 0.2% in the period, compared to a consensus projection of 1%. But the heavy damage to stocks was caused by quarterly profit reports from Twitter (ticker: TWTR) and LinkedIn (LNKD). Twitter, down 11%, missed sales expectations, while LinkedIn, off 20%, lowered guidance for the rest of 2015.
With the market hitting all-time highs the previous week on strong earnings from “old tech” stocks such as Microsoft (MSFT), investors weren’t primed for disappointment.
The Dow Jones Industrial Average lost 56 points, or 0.3%, on the week, to 18,024.26, and the Standard & Poor’s 500 index gave back 9 to 2108.29. The Nasdaq fell 1.7%, or 87, to 5005.39 while the small-cap Russell 2000 index fell 3.1% to 1228.10.
The social-media companies’ struggle to monetize traffic starkly contrasted with the previous week’s set of good earnings from traditional tech concerns, says Peter Kenny, chief market strategist at Clearpool Group. Disappointment in U.S. growth also played a part. People can blame the strong dollar or a weak energy sector, “but the first-quarter GDP was far worse than expected,” he says.
When the Federal Reserve blamed the quarter’s softness on “transitory factors,” investor hopes evaporated that the central bank might delay a rate hike, says Joe Saluzzi, co-head of trading for Themis Trading.
According to Zacks, profits are up 4.7% for the 361 companies in the S&P 500 that have reported first-quarter results so far, but revenue is down 4.1%. Saluzzi expects a continuation of the range trading seen since last November, with the S&P 500 stuck inside 2050 to 2125. “You need something to pull it out, and it won’t be earnings,” he says, because investors know some earnings-per-share growth comes from heavy corporate share buybacks.
It remains to be seen what the crumbling of high-valuation stocks means for the rest of the market. “When you see frothy names weak, it tends to spill over [in the broad market],” says Michael Yoshikami, CEO of Destination Wealth Management, who is also looking for a continuation of choppy and range-bound trading in the near-term.
Monday will see McDonald’s (MCD) announcement of a turnaround plan. Leaks have been few on the proposal. Hedgeye analyst Howard Penney says speculation about the creation of a real-estate investment trust structure or a levering up could miss the mark. Instead, the world’s biggest restaurant chain might sell off some company-owned outlets overseas and shrink the menu. Mickey D’s needs to get “hotter, fresher, and faster.”
(Source: Barrons Online)