From time to time
I am asked about my retirement plans. I
am happy to say I have no plans to retire because I enjoy what I do for clients
and working with Valley National’s team members. I happened across a quote attributed to
Warren Buffett which fits him as well as me:
“I can certainly define happiness, because
happy is what I am. I get to do what I
like. I get to do it with people I
like. I tap dance to work.” – Warren
Buffett
Stocks ended little changed on Friday, falling from
the record highs hit on Tuesday. Small-caps fell. The backtracking was caused
partly by a Federal Reserve announcement on Wednesday interpreted by investors
as inching up the small risk that the central bank will taper its bond-buying
stimulus next month.
Adding to such fears was economic data released on
Thursday (such as the Chicago Purchasing Managers index) that were stronger
than expected.
“Sometimes
in the market, good news is bad news,” says Andrew Ahrens, CEO of Ahrens
Investment Partners. A stronger economy should be good news for companies, but
the Fed’s easy-money policy has benefitted stocks enormously, and investors
fear the removal of the punch bowl. Ahrens believes that a December tapering
“isn’t in the cards, but if there is one, it would be an insignificant
amount.”
On the week, the Dow industrials rose 0.3%, or 45
points, to 15,615.55, but below the 15,680.35 record. The S&P 500 edged two
points, to 1761.64, down from a high of 1771.95. The NASDAQ fell 21 points or
0.5% to 3922.04.
While October was a good month for equities, what
might be worrisome, near term, is that small-caps, which have led this long
rally, underperformed significantly. The S&P 500’s total return last month
of 4.6% topped the 2.5% monthly return from the Russell 2000, which fell 2%
last week.
That’s not a particularly good sign for the short
term, says Leuthold Group CIO Douglas Ramsey. Market volatility and sentiment
measures, like put/call ratios, suggest a sharp jump in volatility and a
downward lurch in stock prices this month, adds the CIO, who’s shorting
the iShares Russell 2000 exchange-traded
fund (ticker: IWM).
Perhaps the only thing that dents our conviction in
a near-term downdraft is that everyone seems to think that the market is due
for a drop. Momentum is stronger than sentiment—until it’s not (Source: Barrons Online).
Here come the cabdrivers.
That’s perhaps an exaggeration, and we like cabdrivers as much as the next guy, but the individual investor is beginning to make him- and herself felt. Some might take that as a toppy indication, but such capital movements can go on for a long while.
The stock market finished a third straight week of gains Friday, taking the Standard & Poor’s 500 index to yet another record close, 1759.77. At one point the index had jumped 100 points, or 6%, in just ten days from Oct. 9.
That kind of move on not much new in the way of fundamental support has traders feeling happy, cautious and confused, all at the same time. The market rise hasn’t come on economic data or corporate earnings—decent considering the poor sales growth—but apparently on confidence-fueled momentum.
Institutional money managers aren’t selling stocks, and the newfound animal spirits of the individual investor can be seen in “big, frothy inflows” to equities, as a recent report from Bank of America Merrill Lynch put it. Equity funds saw inflows of $21.4 billion for the week ended Oct. 23, with $6 billion into long-only funds, the largest in nine months.
On the week, the Dow Jones Industrial Average rose 1%, or 171 points, to 15,570.28. The Nasdaq Composite index picked up 29 points, or 0.7%, to 3943.36.
The Federal Reserve continues its easy-money policy and “won’t take away the punch bowl any time soon,” says Michael Marrale, head of Research, Sales and Trading at Investment Technology Group. He’s seen good flows recently from U.S. sources into European equities. The BofA Merrill Lynch report says $5 billion went into European equities last week, the largest weekly inflow on record.
That kind of inertia is a tide the bears might find tough to reverse. Through year end, fund managers won’t be selling and hedge funds will be chasing performance (Source: Barrons Online).
Jobless rate in U.S. drops to lowest level since November 2008. August Non-Farm Payroll report revised upwards to 193k from 169k (this important report is very good news), subject to revisions, of course. Durable goods orders rose 3.7% in September. All were positive reports.
On the negative side, Consumer confidence fell to 73.2 versus expectations of 75 – this is not surprising, given the turmoil in Washington including the Government shutdown and threats of debt default. I believe this set back in consumer confidence is temporary.
In summary, it was another good week for economic reports.
A word about the Affordable Care Act, aka ObamaCare. According to CNN’s numbers, about 7 million
Americans must sign up under Heathcare.gov including 2.7 million young
Americans for the program to be successful from an actuarial perspective. As the first month of the sign up period
comes to an end (the first of six), no government reports are available for the
number of sign-ups yet. However,
according to a CNN report, government sources have committed to publishing the
first such report in Mid November. We
will monitor this carefully since many are directly impacted by this program
which affects one-sixth of the U.S. economy.
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 (neutral).
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. And, the FED announced on
9/18/2013 it intends to continue the highly accommodative policy to stimulate
the economy.
BUSINESS
PROFITABILITY: I graded this factor an A (very favorable). NOTE: 3rd
Quarter profit reporting season continues this upcoming week. So far this quarter, the results are mixed.
NOTE:
the above grades are unchanged from last week.
Last week, U.S. Stocks and Foreign Stocks and Bonds all increased. During the last 12 months, STOCKS outperformed BONDS.
LAST WEEK -Here is a look the cause of the volatility created this week by hedge funds, institutions, and those we call “traders.”
|
Returns through 10-18-2013 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
0.4 |
-1.0 |
-.9 |
3.0 |
5.9 |
4.8 |
|
US Stocks-Standard & Poor’s 500 |
1.0 |
25.7 |
27.6 |
16.7 |
15.9 |
7.5 |
|
Foreign Stocks- MS EAFE Developed Countries |
.4 |
17.9 |
24.3 |
5.4 |
11.2 |
4.9 |
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” 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 and her guest, Attorney Jim Ruggiero, AEP ®, will discuss:
“Life Care Planning – What it is and how to get started.”
Laurie and her guest will take your calls on this topic and other inquiries 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; 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.
Think about all
the choices TV watchers possess at their fingertips with that thing we call
“the remote” – a new term created since my childhood. Speaking of TV in my childhood, I grew up in
a remote section of Western PA where I had the choice of TWO TV stations – one
was CBS and the other was NBC. Now, I have
access to hundreds and hundreds of stations at the flip of my trusty
“remote.” What are some of the
implications to society? Well, one that I have noted is that each TV viewer can
chose the slant on news they wish to hear – the conservative-minded “right”
turns to Fox and the liberal-minded “left” turns to MSNBC. Over time, these TV viewers receive only a
slanted version of the news; and thus,
become more and more polarized in thinking.
I reckon this is one reason why Americans seem to be increasingly
divided.