“All our dreams can come true if we have the courage to pursue them.”
– Walt Disney
Author Archives: The Weekly Commentary
Personal Notes
It’s a tough time of
the year for sports. Olympics are
over. It’s too early for golf. Baseball starts 5 weeks from now. March Madness is around the corner yet. I can’t get into the NBA. And, hockey is on break. There is too much snow on the ground to do
anything outside. Oh well, let’s get
back to those tax returns!
The Markets This Week
The big question for investors on the sidelines over
the past two years has been: Am I late to the party?
Fret not. This party never seems to end.
The S&P 500 hit another new closing high on
Friday, and the Dow finished just 1.5% off its all-time peak. Importantly, the
S&P closed on Thursday above 1850, a technical level that investors have
been talking about for weeks.
Asked why everyone’s so bullish, several strategists
pointed to strong consumer confidence data and evidence of sales growth for
durable goods—major manufactured products like electronics and defense
equipment. Federal Reserve Chair Janet Yellen also helped lift markets in
testimony before Congress when she remarked that economic data had been
surprisingly weak for the past six weeks, opening the door to a pause in the
taper.
Results from retailers also indicated that Americans
are feeling confident. Macy’s(ticker:
M) reported better than expected earnings results and held the line on holiday
season discounts, even as its peers gave away the store.
But data and Fed-speak just added extra oomph to the
Street’s already-bullish sentiment. “I don’t think there was a
particularly strong positive catalyst,” said Paul LaFleche, who oversees a
$13 billion portfolio for insurer FM Global. “Maybe it’s the absence of
negatives. People continue to have a lot of cash and want to come back to
stocks.” La-Fleche says FM Global’s portfolio tends to hold 45% to 50% in
equities, but the firm has increased its equity weighting to more than 50%.
Sunday March 9 will mark the five-year anniversary
of the S&P 500’s closing low of 676.53. Including dividends, stock returns
have more than tripled since then. LaFleche says the growth has mostly been
driven by multiple expansion—investors willing to pay more for the same
earnings. He agrees with most strategists that stocks will rise by high single
digits this year, driven almost entirely by earnings growth.
For the week, the Dow Jones Industrial Average rose
1.4%, or 218 points, to 16,321.71. The Standard & Poor’s 500 index rose 23
points, to 1859.45. The Nasdaq Composite index climbed 1%, or 45 points, to
4308.12.
The Dow rose 4% in February, and the S&P 500 was
up 4.3%, its best February reading since 1998. Several stocks have considerably
outpaced the benchmark. In fact, 77 stocks have risen at least 10%, while only
30 have fallen that much. “Maybe it’s a stockpicker’s market,”
commented Howard Silverblatt, an analyst at the S&P Dow Jones Indices. (Source: Barrons Online).
Heads Up!
The IRS is at it again. The IRS changed the format for 1099’s (investment
account transactions) and many 1099 providers discovered the change too late to
make the January 31st deadline for mailing the 1099’s. Many providers received an extension of time
to provide them until February 15. You
should be receiving these “late” 1099’s this week.
Additionally, the IRS was late to release the final
version of several forms needed by tax prep software companies and tax
preparers. And, the IRS was late in
opening its doors to permit taxpayers to actually file their income tax
returns.
Additionally, many investors have added Master Limited
Partnerships (MLP’s) to their portfolio.
The investment returns for these MLP’s are NOT reported on the 1099’s. Instead MLP earnings are reported on Schedule
K-1 which is issued in early March (normally).
We recommend NOT waiting for your
K-1’s before giving your income tax information to us to prepare your income
tax return. We prefer to get started
as soon as possible and we will download your K-1 information for you, as soon
as it is available.
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: I grade this factor a C- (below average). This is a downgrade from the last report. See more information under “The Economy”
below.
THE FED AND ITS POLICIES: I 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: I continue to grade this factor an A (very favorable). With almost 90%
of the companies in the S&P 500 index having reported, the aggregate profit
growth in the fourth quarter was 9.3%, according to RBC Capital markets. This performance continues to support a grade
of A.
The Economy
Economic
data indicates a slowdown of activity. Especially hard hit: retail sales activity including Auto sales. Leaders within many other industries are
indicating the same. Part of the slowdown
is weather related-the exact amount is unknown.
But,
I believe we have to go beyond the numbers.
There is some underlying strength in the US economy. Manufacturing and employment data has held up
well in light of the above. And, here is
an update on the very important housing
sector based upon data released last week: Inventory
is still very low, and with the low level of inventory, there is still upward
pressure on prices. If inventory doesn’t
increase prior to the spring busy season, prices will probably increase a
little faster than expected (a key reason to watch inventory right now).
The Numbers
Last week, US Stocks and Foreign Stocks increased. Meanwhile Bonds decreased. During the last 12 months, STOCKS outperformed BONDS.
|
Returns through 2-14-2014 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
-.2 |
1.4 |
0.0 |
4.0 |
4.9 |
4.5 |
|
US Stocks-Standard & Poor’s 500 |
2.4 |
-.3 |
23.4 |
13.8 |
19.9 |
7.0 |
|
Foreign Stocks- MS EAFE Developed Countries |
2.4 |
-1.0 |
13.4 |
3.2 |
11.4 |
3.5 |
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®. Please join Laurie and her guest Attorney
Kirby Upright of King, Spry, Herman, Freund & Faul LLC when they discuss: “Legal
considerations for same sex couples”
Laurie and Kirby will take your calls on this topic
and other inquiries this week. 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
“There
are two primary choices in life: to accept conditions as they exist, or accept
the responsibility for changing them.”
– Denis Waitley
Personal Notes
It’s true – I am an optimist. And, I have been optimistic on stocks for a
while so why wouldn’t I continue to be optimistic given earnings growth, and
the accommodative Fed. I’m looking beyond
the grueling winter weather. The basic supports to the economy remain the same.
Eventually, even this snow will melt.