Daily Archives: November 11, 2015

The “Heat Map”

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Most of the time, the U.S. stock market looks to 3 factors (call them the “pillars” which support the stock market) to support its upward trend – let’s grade each of the pillars.

CONSUMER SPENDING: This grade equals B+ (very favorable). Gasoline prices continue to drop. Imports have become cheaper due to the strength of the U.S. dollar. Low interest rates will help real estate, an important component for the consumers’ wealth effect. These trends put more money in the pockets of Americans coming into the all-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. The market assessment of the probability of a rate hike has increased markedly since the last FOMC meeting on Oct. 27-28, notes J.J. Kinahan, chief strategist at TD Ameritrade. Back then, fed-funds futures predicted about a one-in-three chance of a December hike. By Friday, that had grown to a 70% chance. He will take that as a definite for the hike. Over the past two years, the fed-funds futures market has been one of the most accurate predictors of the FOMC’s rate-related statements. More than once the FOMC’s more aggressive rate forecasts have had to move toward the lower rates the futures markets were indicating.

The next big milestone is the Fed (Open Market Committee) meeting which will occur December 16 – 17.

BUSINESS PROFITABILITY: This factor’s grade is a C (average).

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 5. These risks deserve our ongoing attention.

The Numbers

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Last week, U.S. Stocks increased. Foreign Stocks and Bonds declined. During the last 12 months, STOCKS outperformed BONDS.

Returns through 11-6-2015

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap Aggregate Index

-.8

.3

1.3

1.5

2.8

4.7

US Stocks-Standard & Poor’s 500

1.0

3.8

5.5

16.1

13.8

7.9

Foreign Stocks- MS EAFE Developed Countries

-.1.5

 .6

-.9

7.3

3.8

3.8

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”

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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 is traveling to the Schwab IMPACT conference. The guest host is Valley National’s Senior Vice President Rodman Young CPA/PFS, CFP® who will discuss: “Year-end financial and tax review – before it’s too late!

Rod 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– 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 Markets This Week

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The stock market rose last week in mostly humdrum trading, but closed off mid-week highs, restrained by the growing likelihood that the Federal Reserve will raise interest rates in a matter of weeks.

A nearly 2% rise by Wednesday began to fade after Fed Chair Janet Yellen said that a hike was a “live possibility” for the Dec. 15-16 Federal Open Market Committee meeting. The FOMC decides the key benchmark federal-funds rate, the overnight rate depository institutions use to lend to each other on Fed balances.

Strong jobs data Friday, which should help push the Fed to hike, dampened spirits some more, but stocks still managed a healthy 1% rise for the week. Financials rallied 2.7% on the rate sentiment, while the high-dividend-paying utility and telecom sectors fell 3.6% and 1.6%, respectively.

The Dow Jones Industrial Average rose 1.4% or 247 points last week to 17,910.33, while the Standard & Poor’s 500 index added 20 to 2099.20. The Nasdaq Composite gained 1.9% last week to 5147.12.

The jobs data was a “game changer” in terms of increasing the probability of a Fed rate hike next month, says Michael Sheldon, chief market strategist at RDM Financial Group. “It was solid across the board,” he adds. Friday, the Labor Department said October payrolls grew by 271,000, above expectations of 185,000, and that the unemployment rate fell to 5% from 5.1%. Average and weekly earnings were up nicely, too.

Below the headline jobs data, there were changes that point to some winning sectors in the near term, Kinahan says. Jobs grew in the retail and financial sectors, so retail, restaurants and bank stocks could be winners, he says.

Meanwhile, “bond proxies,” such as utilities, telecom, and some high-dividend, low-growth staples stocks will face some head winds. “You could see pressure on them building up,” he says.

“We are likely at the beginning of a rate- cycle tightening,” says RDM’s Shelton. The market will soon be considering what happens after the first hike. Is it one-and-done for a while, or will the Fed raise rates faster than the market expects? Sheldon sees markets choppy in the near term.

(Source: Barrons Online)