The Markets This Week

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Stocks backpedaled last week, pressured on one side by a strengthening U.S. dollar and on the other by falling energy prices. Shares of large-cap firms in particular—thanks to foreign exposure—suffered most from the downward pressure, while more domestic revenue-oriented small caps bucked the trend and rose sharply.

Some investors lightened up on equities in anxious anticipation of the Federal Open Market Committee meeting this week. No rate hike is expected just yet, but investors fear wording changes in the FOMC’s press release Wednesday that could spook the market.

Oil prices again lost ground, after a few weeks of stability, reigniting worries about energy stocks, which fell 3%, and deflation anxieties. Oil fell 10% to $44.84 per barrel. U.S. economic data ran the gamut from weak, like February retail sales, to good, like weekly jobless claims, but played a background role.

Last week, the Dow Jones Industrial Average lost 108, or 0.6%, to 17,749.31, while the Standard & Poor’s 500 index fell 18 points to 2053.40. The Nasdaq Composite dropped 56, or 1.1%, to 4871.76. The small cap Russell 2000 index gained 1.2% to 1232.13.

A strong dollar is better for Corporate America long term, adds Halliburton, but “in the current world, investors are at most interested in the next 12 months.” The dollar index is on course for a 13.8% gain in the first quarter, the largest quarterly jump since the 1992 European monetary crisis, according to Bank of America Merrill Lynch.

Headlines bemoan the dollar, but the U.S. is a net importer, so the average Joe and Jane see greater purchasing power and lower inflation. U.S. companies have to get leaner and meaner. While U.S. exports cost foreigners more and the translation hurts earnings comparisons in the short term, U.S. firms have more buying power overseas. A stronger dollar makes U.S. assets more attractive to foreigners. The February producer price index released Friday declined 0.5%, weaker than anticipated.

Though the market expects a Fed hike around June, Scott Colyer, CEO of Advisors Asset Management, demurs. The PPI shows no sign of inflation. “The downside to the Fed of doing nothing is pretty minimal, while a hike could threaten the recovery,” says Colyer, who believes the Fed won’t raise interest rates until 2016.

Whether it’s June or January, it’s hard to see the market moving sustainably higher until the Fed drops the veil.

(Source: Barrons Online)

Heads Up!

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We hear a lot these days about the Internet of Things (referred to as “IoT”). IoT generally means everyday appliances connected to the Internet.

But there’s another side to the IoT — using smart devices in the business environment — and rarely do we get a solid look at how big a business it is and how fast it’s growing. That changed last week with the release from Verizon of a fairly comprehensive report that outlines the size of the business use of IoT and how fast it’s growing. For starters, Verizon (with help from ABI Research) estimates that as of 2014 there were 1.2 billion different devices connected to the Internet, and that the number will rise to 5.4 billion by 2020 for an annual growth rate of 28 percent.

On its most recent earnings conference call, Verizon said IoT business brought in $585 million in revenue in 2014 — a tiny drop in a very big wireless bucket worth almost $88 billion, though it grew at a respectable 45 percent year-on-year.

In an interview with Re/code, Mark Bartolomeo, a Verizon VP who runs its IoT business, said the carrier had about 15 million devices running wireless machine-to-machine connections last year. Compare that with the 108 million human subscribers using phones and tablets. “We’ve seen the early adoptions, but now we’re getting to a new phase where we’re seeing fast followers in this business,” he said. They run the gamut from automotive companies working on connected cars to electrical utilities deploying smart meters, or manufacturers.

In fact, it was the manufacturing sector that saw the fastest growth in adopting IoT products last year, up more than triple since 2013, according to the report. Companies started small, using connected cameras and sensors to monitor security in factories and keeping a close eye on the flow of production and shipments. Now companies that make and service large-scale factory equipment are adding IoT smarts to watch for signs of costly breakdowns and to help save on the cost of regular in-person inspections.

Other segments deploying IoT devices at a fast-growing rate included finance and insurance companies (up 128 percent year-on-year), media and entertainment firms (up 120 percent) and the home security and monitoring businesses (up 89 percent).

And the opportunity for growth is sizable, Bartolomeo says, in part because relatively few firms across all industries — only about 10 percent worldwide — have yet adopted any IoT technology. Many are deploying early-stage pilot programs or waiting to see results from other companies.

Source: Re/Code Daily.

The Economy

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Last week the positive economic reports exceeded the negative. Following are the positives:

  1. Durable goods orders increased 2.8% vs 1.6% expected
  2. Case-Shiller home prices rose 0.87% month over month and 4.46% year over year, both above estimates.
  3. Core consumer prices rose 0.2% month over month vs +0.1% expected.
  4. Pending home sales grew 1.7%, less than the 2% expected gain but still hit 18-month highs.
  5. Revised Q4 Gross Domestic Product came in at +2.2%, down from the 2.6% initially estimated but better than the 2% expected revision.
  6. University of Michigan consumer confidence came in at 95.4, higher than expected.

Negatives:

  1. Chicago Purchasing Mangers Index fell to 45.8 vs expectations of 59.4, lowest since July 2009.
  2. Existing home sales fell 4.9% month over month vs expectations of a 1.8% decline
  3. US initial jobless claims rose 31k to 313k last week vs 290k expected.
  4. Dallas fed manufacturing index fell to -11.2, down from -4.4 in January and below the expected reading of -4
  5. S. oil rigs decline for the 12th straight week.

The “Heat Map”

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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: This grade is an A (very favorable) due to the favorable effect of lower gasoline and heating oil prices.

THE FED AND ITS POLICIES: We 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: This factor’s grade is a B- (slightly above average).

OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in good shape ASSUMING no international crisis. The Greek government and the European officials have extended the loans with which Greece is saddled for 4 months which delays the hard choices which must be made. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these collectively as a 2, a decrease from 3 last week. These risks deserve our ongoing attention.

The Numbers

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Last week, Foreign Stocks and Bonds increased but U.S. Stocks declined. During the last 12 months, STOCKS outperformed BONDS.

Returns through 2-27-2015

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap Aggregate Index

.5

1.0

 5.0

 2.7

 4.3

4.7

US Stocks-Standard & Poor’s 500

-.3

2.6

16.2

18.3

16.2

8.0

Foreign Stocks- MS EAFE Developed Countries

1.0

6.5

.5

 9.4

7.4

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”

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“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 Rodman Young CPA, CFP®, of Valley National Financial Advisors will discuss: “Tax Deductions and Tax Credits”

Laurie and Rod will take your calls on these topics and other inquiries this week. This show will be broadcast at the regular time. Questions may be submitted early through www.yourfinancialchoices.com by clicking Contact Laurie. 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.

The Markets This Week

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U.S. stocks treaded water last week in quiet trading, sans the volatility that has characterized 2015 so far. The rest of the world’s equities, however, rocked ahead.

Though U.S. major indexes finished little changed, there was enough action to make yet another new high in the Standard & Poor’s 500 index Tuesday. Prices eventually fell back and trading was light.

Friday saw a revision of the U.S. fourth quarter gross domestic product growth rate down to 2.2% from 2.6%. Other economic reports released during the week were similarly mixed, notes Chris Gaffney, president of EverBank World Markets. The data wasn’t enough to push the indexes out of their recent range, he adds.

Last week, the Dow Jones Industrial Average lost seven points to 18,132.70, while the S&P 500 index fell six to 2104.50, after hitting a high of 2115.48 Tuesday. Both rose over 5% last month. The Nasdaq Composite gained eight points, or 0.2%, to 4963.53, and was up 7% in February.

As March begins, investors will have lots of data to parse, especially the February unemployment report Friday, adds Gaffney. After Federal Reserve chair Janet Yellen spoke to Congress last week, the market appears to be moving its expectation of the first rate hike to later in the summer from the beginning.

Stock markets outside the U.S. were ebullient, and “pretty much every other market is beating the U.S.,” notes Michael Shaoul, chairman of Marketfield Asset Management. The MSCI World Index excluding the U.S. rose almost 1% last week. Year to date, that index has doubled the S&P 500’s 2.5% rise, even in dollar terms.

(Source: Barrons Online)

Heads Up!

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About 800,000 HealthCare.gov customers got the wrong tax information from the government, the Obama administration said Friday, and officials are asking those affected to delay filing their 2014 returns.

The tax mistake is a self-inflicted injury that comes on the heels of what President Barack Obama had touted as a successful enrollment season, with about 11.4 million people signed up. The errors mean that nearly 1 million people may have to wait longer to get their income tax refunds this year. And they could also affect the size of those refunds.

The tax error highlights the complicated links between Obama’s health care law and taxes, connections that consumers will experience for the first time this year. The law subsidizes private health insurance for people who don’t have access to job-based coverage. By delivering those subsidies through the income tax system, the White House and the law’s supporters were able to tout the health care overhaul as a tax cut. But it also introduced new wrinkles to an already-complicated tax system.

The errors disclosed Friday are in new forms that HealthCare.gov sent to millions of consumers receiving coverage through the federal insurance market that serves most states. Those forms, called 1095-As, are like a W-2 for health care. They provided a month-by-month accounting of the subsidies consumers received to help pay their premiums. That information is then used to make sure everybody got the right amount, not too much, or too little.

The administration started notifying the affected consumers Friday.

Valley National recommends taxpayers who purchased insurance through HealthCare.gov follow one of the two courses of action:

a. Wait to file their Federal 1040 until 3/15/2015.

b. Access the marketplace website now at the following address to determine if they are affected by this error:

The Last Time The Nasdaq Crossed 5000… (15 Years Ago)

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The last time the Nasdaq composite stock index crossed 5000 – in March 2000 – it was powered by big companies that make software and hardware for PCs, and red-hot Internet companies with no earnings.

What might push the Nasdaq over 5000 this time? Greece. And red-hot Internet companies with earnings. News of a pending settlement between Greece and its creditors sent all stocks soaring Friday, taking the tech-laden Nasdaq with it. But real companies with solid earnings have made much of the dot-com dream real – 15 years after the bubble burst.

Consider Apple. The company’s iPods popularized legal music delivery via the Internet. Its iPhone pioneered mobile Internet. In 2000, Apple wasn’t among the 10 largest Nasdaq stocks. Today, it’s the largest stock by market value in the U.S., worth $754 billion, paying dividends just like stodgy industrial stocks. In fact, technology stocks now pay out more in dividends than any other stock sector.

Google, the third-largest stock on the Nasdaq, wasn’t traded in 2000. Neither was Facebook, now the fourth-largest Nasdaq stock. Or Amazon, now in fifth place in the index. All have risen because of the power of the Internet – something the dot-com bubble investors foresaw, but paid far too much for.

The Nasdaq has risen at a much more stately pace than it did in the 12 months leading up to the dot-com crash. The index has gained 15% the past 12 months, vs 110% in the blistering 12 months before the bubble burst in March 2000.

Cisco Systems was the biggest stock in the Nasdaq in the dot-com era. It had ripped to a 161% gain in 12 months before the tech wreck began. But the real stars were the Internet stocks. E-commerce software and Web developer BroadVision blasted up 592% the second half of 1999. InfoSpace (now Blucora) leaped 355%. Pets.com, an online pet-supply company, raised $82.5 million in February 2000. It filed for bankruptcy protection in November 2000.

And it all came tumbling down as the nation entered a recession and, suddenly, no one wanted companies with no earnings. By the time the tech wreckage settled, the Nasdaq composite was down 78%, dozens of unprofitable companies had vanished – and the stage was set for a protracted and (somewhat) more sober march back to Nasdaq 5000.

Fifteen years later with the Nasdaq composite opening the week at 4956 following an eight session winning streak, 5000 is just one decent rally away.