The “Heat Map” is indicating the U.S. stock market is in good shape ASSUMING no international crisis. One potential international crisis hot spot is Iraq. The situation has grown slightly worse during the last week in some regards; however, the Iraqi government, to date, has held off the ISIS rebels from capturing Iraq’s largest refinery – a key objective. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate the Iraq situation as a 4 at this time. For more information, read “The Markets This Week” article.
Category Archives: Heads Up!
Heads Up!
The U.S. stock market has not dropped 10% or more since 2011, an unusually long time period. If the stock declines 10% or more sometime this year, I suspect it will not be the direct result of the U.S. economy. Instead, it will probably be the result of something occurring outside of the U.S. – for example, an escalation in the situation in Iraq which endangers the flow of oil, causing a spike in gasoline prices and a set back to the U.S. economic recovery.
For this reason, I will be closely monitoring the situation in Iraq. The situation in Iraq is like a giant pile of spaghetti. It is very difficult to see exactly where this is heading. Guessing or conjecturing about the outcome will lead to speculation. Instead, in future communications, I intend to report on whether the situation in Iraq is getting worse or better.
Heads Up!
Several years ago (in 2011) we were closely monitoring interest rates in Europe, especially Italian and Spanish government bonds. During 2011 their interest rates were soaring which indicated investors feared another Greece type of default
was possible. Many experts believed if Italy or Spain were to default, then France would probably default and the
future of the European Union would be jeopardized.
Things have changed in Europe. The moves by the European Central Bank sent yields on Spanish and Italian government bonds tumbling to record lows, with the former’s 10-year down to 2.642% on Friday, a massive drop from 7.75% in July 2012 when Draghi made his famous declaration to preserve the euro. Italy’s 10-year yield hit 2.743%, while Ireland’s 10-year ended at 2.464%, helped by a Standard & Poor’s upgrade to A-minus from BBB-plus. At the core of the euro zone, Germany’s 10-year yield slid to 1.35%, while France’s 10-year was down at 1.706%. In contrast, the U.S. 10-year ended the week at 2.592%, while the corresponding United Kingdom gilt was at 2.654%. Clearly, the euro zone’s bond yields reflect the likelihood that the ECB will maintain near-zero short-term interest rates for a long while and the likelihood of a default by Spain or Italy has decreased dramatically.
Heads Up!
You may have received unsolicited mail from Stansberry & Associates claiming the passage of H.R. 2847 will cause the U.S. dollar to collapse as of July 1, 2014. I believe the mailing to be a “sales pitch” attempting to entice the recipient to subscribe to their publication or purchase their book. It is a panic piece that should be ignored. For more information about this, click here.
Heads Up!
The real estate market has strengthened in 2014;
but, it is not as strong as anticipated.
One key reason: first-time home buyers.
Economists, real estate agents and many home
builders expected first-time and entry-level buyers to begin returning to the
market this year, jumpstarting the sputtering housing recovery. So far, that
hasn’t happened.
Less buying at the market’s lower end by first-time
buyers has contributed to limiting sales of existing homes so far this year to
a pace of roughly 88% of their 10-year average. It’s also a factor in stunting
sales of newly built homes to a pace of roughly 60% of their annual average
since 2000.
Some economists now predict that tight lending
standards, high prices and the sluggish economic recovery will keep
first-timers from returning in full force for several years. That likely means
a slower pace for the housing recovery, already a drag on the broader economy
in the past year.
“We likely have hit the bottom in the past six
months or so regarding the lack of participation of first-time buyers,”
said Lawrence Yun, chief economist for the National Association of Realtors.
“It may take three years to return to normal first-time-buyer
participation.” Source, in part,
The Wall Street Journal.
Heads Up!
It’s been a while since the last stock
market correction has occurred; the summer of 2011 to be exact. A
technical correction is defined as a price decline of at least 10% to a
security or market index following extensive price increases. Technical
market corrections are not necessarily bad as they help deter “bubble” like
valuations.
We regularly monitor economic
developments and still believe in the economic recovery and slow growth cycle.
We would advise not to be alarmed if a broad stock market correction were to
occur. Accordingly, we have placed great care in the construction of the asset
allocation to reduce the downside in portfolios if a correction were to
occur. The bond sleeve is designed to resist stock market volatility,
while the alternative strategies reduce your downside exposure by employing
various tools to hedge risks. Equities are selected based upon risk
factors that are lower as compared to their peers. It is our belief that,
through appropriate diversification, we can weather a correction while continuing
to achieve your long-term return goals.
Heads Up!
The staff at Valley National has been extremely busy behind the
scenes to develop a new and improved version of our eVault Client
Portal. The new eVault includes…
- Enhanced, faster analytics
to help you view your full financial profile – in a single glance –
including custom reports from your advisor. - Show this information, updated daily, to you at any time or anywhere through a safe, secure personal client portal (eVault).
- Smart system sends automated notices to your advisor when you put important documents into your eVault.
This
project enables VN to leverage knowledge to deliver truly comprehensive
financial advice under one roof. If you already have an eVault account,
you will receive notices from us about how to access the new version.
If you do not have an eVault, please contact usfor more information
about this service.
Heads Up!
Did you know Valley National helps
clients manage their 401(k) or 403(b) accounts?
And, did you know more and more employers are providing the capability
for their employees to use an investment adviser to manage their 401(k) or
403(b) account-while keeping the account with the employer plan?
Why is this important to you? Financial planning experts believe 401(k) and
403(b) accounts have never been more important to retirement minded
Americans. Income from 401(k) or 403(b)
accounts may supply 33% or more of the income need in retirement for
many Americans. Making an attractive
rate of return during an employee’s accumulation years can make a huge
difference in retirement income.
Contact me for more details how Valley
National can help.
Heads Up!
As we have discussed several times in the past,
the FED’s efforts to keep interest rates low will stimulate spending indirectly
by increasing the “wealth effect” of American consumers who account for
two-thirds of our economy. Americans
generally feel wealthier when their home value and investment portfolio
increase.
If Americans feel wealthier, they will spend more,
thus stimulating the economy. As the
economy heats up, more jobs are created, adding to household formations thus
increasing real estate values again as well as lifting stock prices higher.
Report on REAL ESTATE: Almost all areas of the US
are showing modestly higher home values.
Some areas have witnessed increases over 15% during the past year. Source:
Case Shiller Index.
Report on the US STOCK MARKET: The total stock market value now stands at
$23 Trillion (a new all-time high) up from a mere $8 Trillion in March of 2009
(which had declined from $20 Trillion in October of 2007). Source: The World Bank.
CONCLUSION: The
FED’s monetary policy of low interest rates is raising Americans’ wealth
effect. As a consequence, we can expect
moderate to high increases in consumption for the remainder of this year.
Heads Up!
Since 1990, the month of April
has been the 2nd best performing month during the year. Its average rate of return equals 1.8%. (The
best performing month – December; the worst performing month – August).
NOTE: The data above is based upon the S&P 500
Index which is a group of 500 U.S. stocks weighted as to each stocks’ market
capitalization proportionate to the other stocks within the group. Investors cannot invest in the S&P 500
Index.