Things are going the right direction: the stock and bond markets are trending up, my golf handicap is trending down, and my younger daughter Jennifer Ward and her husband Nick are moving back to the Lehigh Valley soon. All good things.
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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 have graded this factor B (above average) based upon the
increase in retail sales as reported in recent economic reports.
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 rate this factor B- (slightly above average).
NOTE:
There is no change from the
last report.
The Economy
Last
weeks revised first quarter 2014 Gross Domestic Product number confirmed the
U.S. economy contracted at -1.0%, revised from an original reading of
.1%. This was the first time US GDP slipped into negative territory on a
quarterly basis since 2011. Many economists believe the stall occurred
due to the brutally harsh winter. The remainder of the year will dictate
if they were correct. Other releases included US Personal Income which
increased at .30% in April over the prior month and Services Purchasing Managers
Index increased to 58.40 in May from 55 in April. For housing data
releases, Pending Home Sales month-over-month rose .4% and the House Price
Index rose .70%.
“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®. This week Laurie will discuss: “Frequently Asked
Questions about Financial Issues”
Laurie 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
“You’ve got to get
up every morning with determination
if you’re going to go to bed with
satisfaction.”
up every morning with determination
if you’re going to go to bed with
satisfaction.”
– George Lorimer
Personal Notes
The weather this last weekend – great again. Two weekends in a row. And, the long range weather forecast for the
upcoming week is very promising. That
would make 3 consecutive beautiful weekends in a row. Are we making up for the really tough
winter? NO, not yet. But, my family and I are certainly enjoying
the great weather.
The Markets This Week
For
a few days at least, the stock market resembled its 2013 self, setting high
after high last week. Share prices rose smartly, over 1%, and the Standard
& Poor’s 500 index saw record closes in three of last week’s four trading
days, while the Dow Jones Industrial Average also had its all-time best close
Friday.
The
surge came amid thin volumes in a holiday-shortened week. Despite poor
first-quarter GDP numbers — which investors blamed on frigid weather — most of
the economic data, such as falling jobless claims, were positive.
Also
boosting stocks and spirits was a lack of geopolitical tension; an M&A
battle in the food industry; a recovery in small-cap stocks; and expectations
that the European Central Bank will do some monetary easing next week, says
Michael Matousek, head trader at U.S. Global Investors. Even the $2 billion
offer for the Los Angeles Clippers by former Microsoft chief Steve Ballmer
probably got animal spirits moving, he adds.
On
Thursday, first-quarter gross domestic product was revised down to an
annualized negative 1%, or contraction, from a positive 0.1%, weaker than
expected, though much of the revision came from lower inventories. Investors
mostly ignored GDP data, says Tom Carter, a trader with JonesTrading
Institutional Services. With little to dampen the mood, investors found it
tough to sit on the sidelines watching stocks rise day after day, and the
“pain trade was up,” he adds.
Jobless
claims for the week ending May 24 fell 27,000 to 300,000, below the consensus.
That, adds Mark Luschini, chief market strategist at Janney Montgomery Scott,
measures a more recent past than GDP and points to improving labor and housing
markets. It’s more indicative about the second-half, which should see rising
economic activity and a good climate for profit growth, says the bullish
strategist, who notes that outside the stock market, investors still face a
lack of better-yielding alternatives.
Last
week, the Dow rose 111 points, 0.7% to 16,717.17. The S&P 500 closed at
1923.57, up 23 points. The Nasdaq Composite index advanced 1.4%, or 57, to
4242.62.
This
week promises new data with “more gravity,” says Carter, and perhaps
a truer indication of market sentiment. Investors will most likely focus on two
figures from the Institute for Supply Management that could give a more
up-to-date picture of the economy than GDP did: the ISM May manufacturing
purchasing managers index on Monday, and the nonmanufacturing PMI on Wednesday (Barrons Online).
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.
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 have graded this factor B (above average) based upon the
increase in retail sales as reported in recent economic reports.
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 rate this factor B- (slightly above average).
NOTE:
There is no change from the
last report.
The Economy
As
noted in “Heads Up!” article above, Home sales numbers had been lagging in 2014
until last week. New home sales grew 6.4% month-over-month in March while
existing home sales rose 1.3%. The MBA 30-year fixed mortgage rate
dropped to 4.33% during the week ending on May 16th marking a 2014
low, which saw increased demand in mortgage applications by .9%. United
States initial jobless claims rose to 326,000 in the week ending May 17th,
putting it near its one month moving average. U.S. Manufacturing PMI
continues to report strong numbers, increasing to 56.2 in April from 55.4 in
May. This week’s data marked progress for the U.S. economy.
Important data being released this week includes: Consumer Confidence,
Gross Domestic Product 2nd quarter estimate, Pending Home Sales,
Personal Income, and Personal Spending.