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
Grexit?
July 6, 2015
Last week, equity markets declined as uncertainty over Greece and a mixed U.S. jobs report rattled markets. For the week, the S&P 500 declined -1.16%, small caps were off -2.67%, international stocks as measured by the MSCI EAFE index were down -2.76% while bonds were flat. However, for the first half of 2015, the S&P 500 rose 1.23% while international equities fared better. In fixed income, the US Barclays Aggregate is slightly negative year-to-date as interest rates have risen since the first of the year. The difference in returns so far this year reminds us again of the importance of diversification.
Last Thursday’s jobs report continued the recent string of strong increases in job growth while it was somewhat disappointing that wage growth was stagnant and labor participation declined. This continued underlying weakness in wage growth could keep the Federal Reserve to only one small interest-rate increase later this year.
The “no” vote in Greece this weekend only adds to the uncertainty of whether or not Greece will remain in the Eurozone. We expect continued volatility in markets for the near term as investors evaluate the ramifications of a possible Greek exit. Despite the short-term noise, we are still constructive on global equities moving forward. Enjoy the summer!
“Blessed are those who give without remembering and take without forgetting.” – Elizabeth Bibesco
The Greek Story Continues
June 29, 2015
US equity markets declined last week while international equity markets were slightly positive. The National Association of Realtors reported on Monday that existing home sales increased 5.1% in May (from April). The seasonally adjusted annual rate is now at 5.35 million, the strongest pace since 2009. First-time home buyers are finally participating in the housing recovery as they represented 32% of all sales. On Wednesday, the U.S. Department of Commerce released its third reading of 1st Quarter GDP, which showed that the economy contracted only (0.2%), much better than the previous reading of (0.7%) last month. Despite the 1st Quarter contraction, GDP is broadly expected to pick up in the second quarter. On Thursday, The Commerce Department reported personal income in May increased 0.5%, what was positive out of the report was personal spending which increased 0.9%, the highest reading since August 2009.
For the week, the broader-based S&P 500 closed at 2101 to finish down (0.37%). The Dow Jones Industrial Average finished at 17947 which was down (0.34%) for the week. International markets finished slightly ahead as the MSCI EAFE was up 0.91% for the week, while the MSCI EM was up 0.85%. Yields continued to move upward in advance of fed rate hikes as the 10YR US Treasury closed at a yield of 2.49%.
Investors should continue to expect volatility as the Greek debt issue continues to make headline news. Without an agreement that would trigger more bailout funds, Greece is almost certain to default on its 1.55 billion in loans it owes on Tuesday to the International Monetary Fund (IMF). Despite the noise, we see the global economic expansion continuing.
“Weakness of attitude becomes weakness of character.” – Albert Einstein
GOLDILOCKS AND THE FED
June 22, 2015
A common theme since the 2009 stock market bottom has been our “Goldilocks economy” – it’s not too hot and not too cold. This specifically refers to investors’ sense of the U.S. economy and interest rate levels. Translation: GDP growth is mediocre, thus the Fed is reluctant to raise interest rates. We still have not seen the long-promised first rate increase. Moreover, even when it does occur, subsequent rate increases will be gradual. U.S. and foreign stock markets like this scenario.
Currently, the S&P 500 index is up about 3% YTD, which is a reflection of the uncertainty about where the economy and interest rates are heading. Economic growth is emerging from its winter slumber and corporate earnings should pick up for the balance of the year. Job growth is improving gradually, and the number of initial unemployment claims has fallen quite nicely. Meanwhile current inflation numbers are still relatively benign – result: the “Goldilocks economy”.
The strongest markets this year have been international, with the MSCI EAFE up 8.13%. In the US, the NASDAQ is up 8.63%, sparked by health care and select tech names. With uncertainty still extant, the markets seem comfortable with the current overall picture.
“The only place success comes before work is in the dictionary.” – Vince Lombardi
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