The Bank of England (a similar institution to our Federal Reserve Bank) lowered its benchmark interest rate to .25%, the lowest rate in its 322 year history.
The move is designed to stimulate the British economy by encouraging increased borrowing by British corporations and consumers. However, many economic experts question the effectiveness of such a strategy.
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 is A- (very favorable). Favorable activity in the housing market continues to support growth in the level of spending.
THE FED AND ITS POLICIES: This factor is rated A (very favorable). Economic reports indicate the U.S. economy is improving. The FED met last week and repeated their earlier comments about waiting before raising interest rates.
BUSINESS PROFITABILITY: This factor’s grade is a C- (below average). So far this quarterly reporting period, quarterly profits are slightly ahead of expectations but down from the prior period. Looking ahead, comparable profits will be easier to beat, on average, because lower energy sector profits are in the base period. This factor’s grade may be increased after more data becomes available.
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 4. These risks deserve our ongoing attention.
Last week, U.S. Stocks increased. Bonds and Foreign Stocks declined. During the last 12 months, STOCKS outperformed BONDS (a change).
|
Returns through 8-5-2016 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
-.5 |
5.4 |
5.7 |
4.1 |
3.3 |
4.9 |
|
US Stocks-Standard & Poor’s 500 |
.5 |
8.2 |
6.3 |
10.9 |
15.2 |
7.8 |
|
Foreign Stocks- MS EAFE Developed Countries |
-1.4 |
-1.0 |
-8.7 |
.9 |
4.9 |
1.7 |
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.
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, due to MusikFest, the broadcast will be a prerecorded show.
Questions will not be able to be submitted this week. 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.
“Opportunity is missed by most people because it is dressed in overalls and looks like work.” – Thomas Edison
After weeks of slumber, the market sprang awake Friday, jolted by a much better than expected July employment report. The Standard & Poor’s 500 rose 0.9% on the day, and closed at a new high.
For the week, The Dow Jones Industrial Average rose 111 points, or 0.6%, to 18,543.53, while the S&P 500 index increased nine points to 2182.87. The Nasdaq Composite jumped 59 points, or 1.1%, to 5221.12, also a new record. After lagging earlier in the year, the Nasdaq has risen about twice as fast as the Dow and S&P in the past month, as technology stocks have outperformed.
U.S. employers added 255,000 jobs in July, and the government revised upward June’s tally to 292,000. None of the 89 economists surveyed by Bloomberg before the report had expected such robust growth. Even groups formerly left behind during the economic recovery—like people without high school diplomas—saw gains during the month. The unemployment rate stayed steady at 4.9% as the labor force grew by more than 400,000. Wages ticked up by 0.3 percentage points, and have risen 2.6% in the past year, the most since 2009.
The strong gains should quell some concerns about the recent muted growth of the economy. Last week, the Commerce Department estimated that GDP grew 1.2% in the second quarter, a much weaker number than expected.
“Everyone was waiting for this employment report to see if it confirmed the weakness in the GDP number,” said Keith Lerner, chief market strategist at SunTrust. “It didn’t, and people had a sense of relief.”
The Atlanta Fed releases an up-to-the-minute forecast for GDP. It predicted Friday that third-quarter GDP could rise 3.8%.
The improving jobs market makes it more likely the Fed will raise interest rates, possibly as soon as September. After the report, futures markets indicated that the chance of a September hike had risen to 26% from 18%.
Cyclical sectors led the market higher; defensive, bond-like companies generally lagged. Financials jumped 1.9% Friday; tech rose 1.2%, and consumer discretionary stocks, 1.1%. But utilities dropped 1.4%, and telecom, 0.2%. Gold futures also fell Friday, by $22.40 an ounce, or 1.6%, to $1,336.40.
For much of the year, gold has risen and utilities and telecom stocks have led the market, as they offer large dividend yields and less risk from an economic contraction. With the market shifting, new sectors are leading the indexes now. Tech and health-care companies have shown particular strength in this earnings season, with more than 80% of companies in each sector reporting better-than-expected earnings.
Investors haven’t jumped in with both feet yet, however. While the market hasn’t had a recent correction, trading has been cautious. Stocks traded in a tight range in the second half of July, a pattern Lerner thinks gave investors a healthy breather. Surveys show investors remain particularly cautious, indicating that the recent move higher isn’t a burst of irrational exuberance.
Investors have pulled $70 billion from equity funds this year so far, while pumping $137 billion into bond funds, according to the Investment Company Institute. A BofA Merrill Lynch survey last month showed investors are stockpiling more cash than they have in 15 years. “Normally at tops in the market you have excessive optimism,” Lerner said. “You’re not seeing that.”
(Source: Barrons Online)