Volatility Continues

September 21, 2015

Market volatility continued intra-week, with EIA inventory data boosting oil prices and the S&P500 by Wednesday’s close to a temporary weekly gain of 1.7%.  However, midweek strength was surprisingly wiped out by the Federal Reserve’s lack of action Thursday afternoon, and the S&P500 closed down -0.2% at 1961.  Smaller caps did somewhat better, with the Russell 2000 rising by 0.5% to 1157.79.

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The Fed surprised forecasters [see above], but not the Fed futures market by not raising interest rates above the 0% to 0.25% range.  This in spite of previously indicating that September was the most likely lift-off date [don’t forget that rates have been near zero for 6.7 years!].  In the past, the continued presence of the Fed’s “punch bowl” would be welcomed by the markets with at least a short-term relief rally.  Not this time as the S&P500 fell by 1.6% on Friday, resulting in the -0.2% weekly loss.

The markets’ dissatisfaction stems from the Fed’s signaling a lack of confidence in the economy.  In addition, the Fed’s mention of international economic difficulties seems to be a new excuse for postponing the inevitable.  Finally, the markets may finally be starting to recognize that zero interest rates are deleteriously impacting markets [lack of proper price discovery, lack of arrows-in-the quiver to battle the next recession].

Current government intervention … hasn’t really solved anything. They’ve just postponed [the inevitable] – Marc Faber

Interest Rates on Tap

September 14, 2015

Last week, U.S. equity markets had their largest weekly gains in almost six months as expectations for a rate increase faded due to concerns over market volatility and slowing global economic growth. Both the DJIA and the S&P 500 were up more than 2%, while the NASDAQ increased almost 3%. International markets were also positive as the MSCI EAFE was up 2.07% while the MSCI EM increased 1.88% for the week. Interest rates were higher across the board with the 10 Yr. US Treasury closing at a rate of 2.20%.

This week, look for economic reports on retail sales, industrial production, CPI and housing starts but the big news will be from the two day FOMC meeting starting Wednesday. Of the many things discussed, one thing will certainly be whether or not the Fed will raise short-term interest rates. The chances for a rate increase according to Fed fund futures, has dropped in the last month from 45% to 23%. Regardless, it is highly likely that interest rates will increase before the end of the year. The Fed has indicated that rate increases will be very gradual and data dependent.

Enjoy the week!

“Individual commitment to a group effort – that is what makes a team work, a company work, a society work, a civilization work.” – Vince Lombardi

Weekly Roundup … Another Wild and Volatile Week

September 8, 2015

Markets finished another wild and volatile week in the red as the DJIA and S&P 500 gave back the previous week’s gains, plus some. For the week, the Dow Jones Industrial Average finished at 16,102 to close down 3.25%. The broader-based S&P 500 closed at 1,921 for a loss of 3.40% for the week. The Nasdaq Composite closed the week at 4,684 as it ceded 2.99%. International markets were broadly lower as well. The 10-year Treasury closed the week at a yield of 2.12% (down from 2.18% the prior week) on a flight-to-safety among bond buyers.

Earnings and economic data released last week were generally positive: the U.S. unemployment rate fell to 5.1% … the lowest level in over seven years, the U.S. trade deficit fell to a five month low in July as exports outpaced imports, U.S. non-farm productivity rose 3.3% in the second quarter … the strongest pace since the fourth quarter of 2013, U.S. jobless claims for the week ending 8/29 increased 12,000 to 282,000 … slightly above expectations of 275,000 (although August numbers are typically revised higher), and the ISM index fell from 52.7 in July to 51.1 in August. International economic releases were mixed, but certainly news out of China and Canada were disappointing. Business activity in the Eurozone increased in August as the Markit Composite PMI grew to 54.3, its highest level since May 2011. China reported disappointing manufacturing data as its August PMI fell to 49.7, a three year low. Lastly, Canada reported a second straight month of negative GDP growth … officially signaling a recession (Canada is the U.S.’s biggest trading partner accounting for 19% of U.S. exports).

Global stock markets remain on edge. Uncertainty regarding an imminent Fed rate hike along with concerning data out of China and Canada will likely keep volatility high. The good news is that valuations around the world have come down quite a bit (the U.S. now trades at slightly less than its historical price-to-earning multiple). Last week’s retest of the August 25th bottom failed, and we suspect that markets will try to sell-off again before beginning their push higher into the end of the year.

As always, we urge investors not to get caught up in the day-to-day noise of the markets. Instead, focus on long-term goals, and enjoy the last two weeks of summer.

“A little perspective, like a little humor, goes a long way.” – Allen Klein.

Weekly Roundup … What a Ride – Markets Touch Correction Mode

September 2, 2015

Markets finished a wild and volatile week in the green as the DJIA and S&P 500 briefly touched correction territory (defined as a 10% or more decline from a previous peak) before rallying back on mostly positive economic news. For the week, the Dow Jones Industrial Average finished at 16,643 to close up 1.11%. The broader-based S&P 500 closed at 1989 for a gain of 0.91% for the week. The Nasdaq Composite closed the week at 4,828 as it advanced 2.60%. International markets were mostly unchanged as the Dow Jones Global (ex US) Index finished flat for the week. The 10-year Treasury closed the week at a yield of 2.18% (down from 2.32% the prior week). The 10-year Treasury briefly yielded less than 2% on a flight-to-safety among bond buyers.

Earnings and economic data released last week were generally positive. On Tuesday, the U.S. Department of Commerce reported that sales of new homes in July increased 5.4% – slightly below consensus; however, the supply of new homes fell to 5.2 months due to faster sales. The housing market is clearly picking up momentum … a good sign for the economy. Wednesday saw Durable Goods Orders surge 2% for July after a revised 4.1% gain in June … another positive sign for the U.S. economy. On Thursday, the Department of Labor reported better-than-expected initial jobless claims for the week ending August 22nd. Also on Thursday, the Commerce Department revised 2nd quarter GDP to up 3.7% … well ahead of the expected 3.1% revision. Friday saw Personal Income numbers rising 0.4% and consumption increasing at 0.3% … both good signs for our economy.

Global stock markets are, no doubt, on edge. Investors are concerned about slowing growth in China (the world’s second largest economy) and an imminent Fed rate hike. Equity market corrections are normal (occurring about once a year on average), and we suspect that the recent volatility will continue. It is quite likely that we will see a retest of the recent lows in the market, but economic fundamentals appear too strong to suggest a significant pullback.

As always, we urge investors not to get caught up in the day-to-day noise of the markets. Instead, focus on long-term goals, and enjoy the last few weeks of summer.

“Our patience will achieve more than our force” – Edmund Burke

Summer Swings

August 17, 2015

US Equity Markets finished slightly higher last week as China’s devaluation of its currency caused a volatile week of trading. Major economic reports this week were the Commerce Department’s report of a m/m retail sales increase of 0.6% … more than the (-0.3%) in June; the Department of Labor’s Producer Price Index (PPI) which increased 0.2% m/m which was slightly above consensus . The market moving news from the week though was the Chinese government’s moves to devalue the Yuan. This devaluation along with an imminent Fed rate hike certainly has a negative affect on US multinationals who derive earnings from overseas.

For the week, the Dow Jones Industrial Average finished at 17,477 to close up 0.65%. The broader-based S&P 500 closed at 2092 for a gain of 0.73% for the week. The Nasdaq Composite closed the week at 5,048 as it advanced 0.12%. International markets were negative as the MSCI EAFE closed down (-1.35%) while the MSCI EM was down (-2.31%) for the week. Interest rates finished the week mostly flat during a volatile week of the trading with the 10-year Treasury closing at a yield of 2.20% (up from 2.18% the prior week).

As we continue through the “Dog Days of Summer”, expect continued volatility as the Fed considers a rate hike as soon as September and equity trading volumes remain low. Enjoy your week!

You have power over your mind – not outside events.  Realize this, and you will find strength.” – Marcus Aurelius

Rate Increase Coming?

August 10, 2015

Last week, pretty much all equity markets were negative. The S&P 500 was down (-1.18%), while the DJIA was (-1.74%) and in the midst of 7 straight negative trading sessions, the longest streak since 2011. International stocks were also down for the week with the MSCI EAFE and MSCI EM down (-.54%) and (-1.79%) respectively. The 10yr US Treasury closed at a yield of 2.18% which is slightly above where it began the year (2.17%).

The major economic news last week was the July jobs report which reported nonfarm payrolls increased by 215,000. These numbers likely meet the Fed’s threshold for an interest rate increase later this year and possibly as soon as September. Earnings announcements this quarter are almost completed with 68% of companies exceeding earnings expectations.

This week, retail sales for the month of July will be reported on Thursday. Analyst expectations are for an increase of 0.6%, which would be more evidence to support a rate increase.

Enjoy the summer!

“Good questions outrank easy answers.” – Paul Samuelson

Weekly Roundup … Slowly but Surely

August 3, 2015

Earnings and economic data released last week were generally positive. On Monday, the U.S. Department of Commerce reported that durable goods orders for June rose 3.4% … ahead of the 3.2% expectation. First quarter GDP results were revised higher to a gain of 0.6% from an earlier reported loss of 0.2%. Importantly, second quarter consumer spending expanded at a 2.9% rate following a decline of 1.8% in the first quarter. Perhaps the improving job market along with cheaper oil and gas prices are finally showing up in consumer spending. Economies around the world (Greece excluded along with a few others) seem to be improving … slowly but surely.

Markets were mostly positive last week as they rebounded from the previous week’s losses. For the week, the Dow Jones Industrial Average finished at 17,690 to close up 0.69%. The broader-based S&P 500 closed at 2,104 for a gain of 1.16% for the week. The Nasdaq Composite closed the week at 5,128 as it advanced 0.78%. International markets were generally positive as the Dow Jones Global (ex US) Index inched ahead by 0.47% for the week. The 10-year Treasury closed the week at a yield of 2.18% (down from 2.26% the prior week).

As always, we urge investors not to get caught up in the day-to-day noise of the markets. Instead, focus on long-term goals, and enjoy the gift of each day.

August is here … make sure you enjoy the summer before it’s over!

Success consists of going from failure to failure without the loss of enthusiasm.
– Winston Churchill

Cash is King (In so many ways)

July 27, 2015

You have no doubt heard the saying “cash is king” many times, usually referring to having some available when markets are weak.

In recent months and years it has also been clear that cash is quite valuable for conducting corporate activities: cash is useful for developing new products and innovative business techniques; cash is valuable when acquiring companies that fit corporate strategic expansion; cash is needed for paying dividends and buying back stock.  Cash augments corporate balance sheet strength.

A good example of a company with a large cash position is Apple (AAPL). Their cash level is mountainous with over $35B on hand at the end of the 2nd quarter.  The result: cash is now enhancing Apple’s ability to develop new products, make improvements to their current lineup of products, increase dividends (AAPL started paying dividends in 2012), make stock buybacks, borrow at attractive interest rates, and even make acquisitions.  Apple is a great example of the value of cash from both a corporate and investor perspective.

“Number one, cash is king … number two, communicate … number three, buy or bury the competition.” – Jack Welch

Dog Days of Summer

July 20, 2015

Stocks finished higher as news of a Greek debt pact, Iran nuclear agreement, and strong earnings reports headlined the week.  The German Parliament reconvened Friday to approve a mandate for negotiations with Greece on a third bailout deal.  This set the stage for Greece to receive short-term financing to help Athens make due on payments to The European Central Bank and International Monetary Fund.  After the P5+1(China, Germany, France, U.S., Russia, and the U.K.) and Iran announced a “historic” accord last week, attention promptly turned to Iran’s oil supply and other potential fallouts (geo-political concerns notwithstanding).  With the fourth largest reserves in the world, Iran has the potential to drastically increase the world’s oil supply which could put pressure on the world energy markets down the road … good news, the consumer and businesses should continue to see low oil and gas prices.

For the week, the Dow Jones Industrial Average finished at 18,086 to close up 1.88%.  The broader-based S&P 500 closed at 2,127 for a gain of 2.42% for the week.  The Nasdaq Composite closed the week at 5,210 for a 4.25% weekly gain and record close.  This was helped by strong earnings announcements from Google Inc. and Netflix Inc.  International markets also fared well as the MSCI EAFE moved ahead 2.04% for the week while the MSCI EM was up 1.15%.  The 10-year U.S. Treasury closed the week at a yield of 2.34% (down from 2.42% the prior week).

As we continue through the dog days of summer, volatility should remain high as investors sift through earnings reports and nervousness around an upcoming Fed rate hike.  Be on the lookout for our 2nd Quarter Newsletter Curb Your Enthusiasm(?).  Enjoy the Summer!

“What you do today can improve all your tomorrows.” – Ralph Marston

[Hopefully] Doing the right thing after first trying all other [bad] Alternatives

July 14, 2015

The markets ended a tumultuous week virtually unchanged: the Russell 2000 advanced 0.3% while the S&P 500 was flat and the Nasdaq fell 0.2%. Volatility, however, increased to 20.03 on the VIX, the highest level since last January.

The “no” Greek Referendum started the week on a pessimistic note, with the German DAX falling 1.5% Monday. Tuesday saw the Shanghai Comp falling 1.3% [and an additional 5.9% Wed] in spite of Chinese government emergency measures [liquidity injection, trading halts etc.], while US selling abated once the European markets closed. Markets advanced further on Thursday and Friday as Greece Europhiles supported Tsipras’ decision to stay in the Union and accept even-more stringent terms.

It is possible that Greece is on a path to solvency, but the Chinese markets are another matter. The Shenzhen Exchange [the Chinese version of our Nasdaq] still trades at 45x earnings [down from 69x in June]. So, although markets are down by a third in the past month, ordering fund managers to purchase stocks and providing more liquidity for margin purchases is not the path to a genuine stock exchange. Loose margin regulations just encourages further speculation in still-overpriced stocks, and artificial restrictions on trading effectively traps capital rather than letting it be reallocated to a higher use.

“Capitalism succeeds not because it is based on greed, but because the freedom to trade and do business with others is in harmony with our God-given nature.”Arthur Brooks