Monthly Archives: February 2016

Heads Up!

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Is the U.S. ECONOMY pausing before a growth spurt? Or, is the U.S. ECONOMY pausing before a recession?  The answer is debated each day in the U.S. stock market. Hence, the volatility.

Here is the argument for the first scenario (a pause before a growth spurt): Employment gains and the tight labor market are already driving up wages and salaries. That, along with savings from the lower gasoline prices, is boosting consumer spending, which is encouraging capital investment, which is causing businesses to hire, which, in turn, is driving employment gains. The cycle has also begun to include the housing sector. Employment gains make it possible for more people to form households, which spurs demand for apartment buildings and detached homes, which, in turn, leads to greater gains in employment. With faster top-line growth, corporate profits can also rise.

IF RECESSION IS AROUND the corner, it will result in a first in U.S. modern economic history. Each of the past six recessions has been preceded by a spike in crude prices, often called an “oil shock.” The logic is straightforward: Businesses and consumers suffer financial shock when this essential commodity suddenly becomes more costly. No modern economic recession was preceded by an oil price crash.

More likely than not, the U.S. Economy is pausing before a growth spurt. Using history as a guide this growth spurt will become more apparent in July, August, and September. Investors are advised stay the course to permit the market to work through this period of uncertainty.

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.  These trends put more money in the pockets of Americans in 2016.

THE FED AND ITS POLICIES:  This factor is rated B (favorable). The U.S. economy can handle higher rates as long as the pace of future interest rate increases is slow. Fed Chair Janet Yellen made clear in her press conference after the December meeting that the path higher would be “gradual”.

The Fed’s plan to gradually raise rates in the coming years won’t derail the economy and brings some certainty to the market, says Morningstar’s Bob Johnson. The market consensus on the 2016 pace of increase is somewhere around two to possibly three rate increase of .25% each.

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 7 due to Saudi Arabia severing diplomatic ties with Iran and the potential for social/political upheaval in China.  These risks deserve our ongoing attention.

The Numbers

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

Returns through 2-19-2016

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap Aggregate Index

.1

1.9

1.9

2.3

3.7

4.7

US Stocks-Standard & Poor’s 500

2.9

-5.8

-6.6

10.1

9.7

6.3

Foreign Stocks- MS EAFE Developed Countries

4.4

-9.1

-14.3

0.1

0.4

1.6

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”

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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 will discuss:

“Art, antiques, collectibles and estate administration”

Laurie will take your calls on these topics and other inquiries this week.  Questions may be submitted early through www.yourfinancialchoices.com by clicking Contact Laurie.  This show will be broadcast at the regular time. 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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Stocks staged a sharp rally last week, with the major indexes rising nearly 3% in a holiday-shortened week. The market has rebounded almost 5% from the previous Thursday, when it hit 2016 lows, inspiring hope that at least a near-term bottom is within sight.

While investors welcomed the bullish turn, it was more style than substance. Given that buying was concentrated in the worst-performing stocks, last week’s rally seems more of a knee-jerk reaction to an oversold condition. Crude prices rose last week, and the lack of bad news from that sector was good news for stocks. In general, U.S. economic data was mixed but leaned positive, a badly needed boost to morale.

The Dow Jones Industrial Average tacked on 418 points or 2.6%, to 16,391.99 last week, while the Standard & Poor’s 500 index rose 53 to 1917.78. The Nasdaq finished with a 4% gain to 4504.43.

It was a “happy,” nearly 100-point jump in the S&P 500 over the past five trading days, says Jonathan Corpina, senior managing partner at Meridian Equity Partners. Nevertheless, “all the fear factors haven’t gone away,” and short covering helped. “It’s not as if the economic data or earnings-reports releases were particularly better last week.”

Bernie McGinn, CEO of McGinn Investment Management, concurs, adding that the rally had “more to do with bottom fishing than any major change in direction.” For months, the story’s been “energy, energy, energy, so when oil hangs around $30, as it did last week, that’s at least healthy.” Crude rose 0.7% to settle at $29.64 per barrel, snapping a two-week losing streak.

For the stock market to regain its equipoise, energy and financial stocks need to show strength, McGinn adds. Both sectors are down 14% over the past three months, the two worst sectors in the market. “Oil doesn’t need to get back to $75 per barrel, but even stabilization in the $30s” would take the edge off bearish attitudes, he says.

Meridian’s Corpina says Monday might be a good indicator for the action the rest of this week, as there’s little in the way of important economic indicators or earnings news to influence prices. The market will be on its own, he notes.

Looking ahead a few months, there are three factors that would help stocks the most, says Kevin Mahn, chief investment officer at Hennion & Walsh Asset Management. The market needs economic data to be good, but not so strong as to force the Federal Reserve to raise rates in March. The European Central Bank must continue to ease monetary policy, and a real deal on cutting the world’s supply of oil is necessary, he says. If things go the opposite way, however, then pressure on stocks will renew, Mahn adds.

(Source: Barrons Online)

Heads Up!

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Liz Ann Sonders, Charles Schwab & Co’s Senior Vice President and Chief Investment Strategist (meaning: she is the “big cheese” for giving investment and economic analyis) recently wrote an enlightening article which contradicts the doom and gloom, follow the herd mentality we hear from the new media.  Her important points are, in summary:

  • Recent U.S. employment data has renewed the possibility of further Federal Reserve short-term interest rate increases (not decreases as the media would have you believe).
  • The stock market appears reasonably valued, and higher valuations are unlikely without a return to positive earnings growth.
  • Some market participants have said low oil prices are sending a recessionary signal, but recessions historically have been preceded by oil price spikes, not crashes(as the media would have you believe).

Click here for the full article.

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.  These trends put more money in the pockets of Americans in 2016.

THE FED AND ITS POLICIES:  This factor is rated B (favorable). The U.S. economy can handle higher rates as long as the pace of future interest rate increases is slow. Fed Chair Janet Yellen made clear in her press conference after the December meeting that the path higher would be “gradual”.

The Fed’s plan to gradually raise rates in the coming years won’t derail the economy and brings some certainty to the market, says Morningstar’s Bob Johnson. The market consensus on the 2016 pace of increase is somewhere around two to possibly three rate increase of .25% each.

BUSINESS PROFITABILITY: This factor’s grade is a C (average). To date, the earnings reports for the quarter ending 12/31/2015 are mixed because net profits reports show more favorable surprises than disappointments while revenue reports are just the opposite. The bottom line is the data does not support either raising or lowering this factor’s grade at this time.

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 7 due to Saudi Arabia severing diplomatic ties with Iran and the potential for social/political upheaval in China.  These risks deserve our ongoing attention.

The Numbers

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

Returns through 2-12-2016

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap Aggregate Index

.2

1.8

1.4

2.3

3.8

4.7

US Stocks-Standard & Poor’s 500

-.7

-8.5

-8.8

9.4

9.3

6.2

Foreign Stocks- MS EAFE Developed Countries

-4.7

-12.9

-16.0

-1.3

0.0

1.2

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 will discuss:

“Retirement account reporting – contributions, deductions and distributions”

Laurie will take your calls on these topics and other inquiries this week.  Questions may be submitted early through www.yourfinancialchoices.com by clicking Contact Laurie.  This show will be broadcast at the regular time. 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.