2015 In Review

Now that 2015 is in the rear-view mirror, let’s take a look at some of the factors that influenced markets last year.  And while the S&P 500 was barely positive at 1.38%, many segments of the US market were negative in 2015 and a diversified 60/40 stock/bond investor ended up slightly negative as well at -0.98%.

See table below for performance of commonly used benchmarks. Recall benchmarks are hypothetical and have no investment fees considered.

 

 

The Federal Reserve Raised Interest Rates
 

After months of anticipation, the Fed finally pulled the trigger and raised interest rates in mid-December for the first time since 2006.² After years of near-zero rates to stimulate business spending and economic activity, the Fed is finally confident enough to raise rates to keep prices from rising too fast.

How will the Fed’s move affect bond yields? Short-term rates will likely start inching up, which we will hopefully see reflected in higher bond and CD rates, but long-term bonds are much harder to predict. Overall, bond yields should head higher if the Fed continues its stable, predictable process of raising rates.

Oil Plummeted to Historic Lows
 

2015 was another volatile year for oil prices and continued weakness highlighted concerns about global growth. At the end of December, Brent Crude closed at $37.08, down nearly 70% from a high of $115.19 in mid-June 2014.³ Weak global demand and high supply volume battered oil prices, even as the total number of oil rigs fell.

Cheap oil is a mixed bag for the market. On the one hand, it’s a win for consumers who benefit from low gasoline prices and cheaper goods; on the other hand, oil-producing countries, energy companies, and ancillary industries have been hard hit by prolonged lows in oil prices. Weak demand for oil is also seen as another sign of the global economic slowdown.

Global Jitters Contributed to Volatility & Pullbacks

As the U.S. continued to improve economically in 2015, markets were dogged by the realization that much of the rest of the world isn’t faring so well. It has become very clear that Europe, China, and many emerging markets are struggling with protracted economic weakness.

Emerging market economies like Brazil, Turkey, and South Africa benefited from years of low interest rates, during which investors flooded their markets looking for higher returns. Now that the easy money party is ending, these investors are pulling their money out. Emerging market countries are dealing with the one-two punch of higher interest rates (increasing their borrowing) and debts that are denominated in a strengthening dollar, making it harder to pay back existing loans.⁴

These global worries came to a head in August when the Chinese central bank shocked the world by devaluing the yuan.⁵ By making the Chinese currency cheaper against other currencies, central bankers hope to boost demand for Chinese goods. The move was widely viewed as an admission that the world’s second-largest economy is in trouble, and markets reacted by plummeting. Between August 10th and August 25th, the S&P 500 dropped over 11%, officially entering correction territory.⁶

 

However, markets didn’t stay there; investors quickly regained their optimism and bought the dip, sending the S&P 500 up nearly 9.5% by the end of the year.⁷ The lesson? Corrections are normal, healthy parts of the market cycle. While the sky can seem like it’s falling at times, taking a deep breath and looking at underlying fundamentals is key to avoiding emotional reactions.

The U.S. Economy Continued to Improve

Though the global economy struggled in 2015, the U.S. economy continued to do well, even after a rocky start to 2015. Though economic growth slowed, hampered by global headwinds, the economy turned out respectable second- and third-quarter growth. Though we don’t have fourth-quarter data yet, economists project that the economy grew 2.2% in the final three months of the year.⁸

The labor market also continued to make progress last year. Overall, the economy is projected to have gained 2.5 million new jobs in 2015 and trimmed the unemployment rate to 5.0%. After 2014’s 3.1 million new jobs, we can say that 2015 ends the best two-year period for the labor market since the dot-com boom days of 1998-1999. Though wage growth still isn’t spectacular, hourly earnings increased 2.3% over the year. ⁹

Comparing the jobs growth to the previous year’s total might suggest that the labor market growth slowed down in 2015. However, the rate of voluntary “quits” increased in 2015, indicating that people feel comfortable enough in their prospects to leave their jobs for greener pastures.¹⁰ All told, the labor market did a lot to boost the economy last year.

Headwinds and Tailwinds in 2016

While we have been largely optimistic about markets in past years, we’re shifting to a more guarded stance for 2016. Many of the headwinds that dragged on market performance last year are still with us; while the “plow horse” U.S. economy is projected to grow moderately this year, global challenges remain.¹¹

Overall, Wall Street is also cautious about stocks in 2016. A poll of top Wall Street analysts forecasted an average S&P 500 gain of 6.28% growth in 2016.¹² As always, it’s best to treat these predictions with caution as projections this early in the year are always nebulous. What we can do right now is take a look at fundamentals and think about how these factors might play out in market performance.

In the coming weeks, investors will be looking hard at fourth-quarter numbers to see how U.S. companies performed in the final months of the year. In the week ahead we’ll see the December jobs report and learn more about the Fed’s decision-making process around rates. We’ll also see whether higher interest rates affected demand for vehicle sales and other big-ticket items at the end of the year.¹³

As always, if you have any questions about markets or your personal situation, please give us a call. We are honored by the trust you place in us and look forward to serving you in 2016.

ECONOMIC CALENDAR:

Monday: PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Tuesday: Motor Vehicle Sales

Wednesday: ADP Employment Report, International Trade, Factory Orders, ISM Non-Mfg. Index, EIA Petroleum Status Report, FOMC Minutes
Thursday: Jobless Claims 

Friday: Employment Situation
 

HEADLINES:

 

Consumer confidence rebounds in December. A measure of consumer optimism rose at the end of the year, indicating that the improving labor market is giving Americans more confidence in their prospects.¹⁴

Jobless claims jump sharply. The number of Americans filing new claims for unemployment benefits jumped by 20,000, likely because of seasonal holiday factors.¹⁵

Midwestern manufacturing slips. A measure of the manufacturing industry in the Midwest indicates that December activity fell to the lowest level since mid-2009. While seasonal factors could affect the data, it could indicate sustained weakness in the factory-heavy region.¹⁶

Puerto Rico makes bond payments. The U.S. territory, which has been struggling to make debt payments, will make full bond payments on its General Obligation (GO) bonds in January. ¹⁷

Best Regards,  Kevin Kroskey

 

This article adapted with permission from Platinum Advisor Marketing Strategies, LLC

¹ http://finance.yahoo.com/q/hp?s=%5EGSPC&a=11&b=28&c=2015&d=11&e=31&f=2015&g=d
http://finance.yahoo.com/q/hp?a=11&b=28&c=2015&d=11&e=31&f=2015&g=d&s=%5EDJI%2C+&ql=1
http://finance.yahoo.com/q/hp?a=11&b=28&c=2015&d=11&e=31&f=2015&g=d&s=%5EIXIC%2C+&ql=1
² http://www.cnbc.com/2015/12/16/fed-raises-rates-for-first-time-since-2006.html
³ https://research.stlouisfed.org/fred2/series/DCOILBRENTEU#
⁴ http://www.ibtimes.com/us-fed-rate-hike-worried-investors-emerging-markets-prepare-impending-turmoil-2227581
⁵ http://fortune.com/2015/08/19/what-chinas-currency-devaluation-means-for-the-worlds-trade-deals/
⁶ Source: Yahoo Finance. S&P 500 price performance between 8/10/15 and 8/25/15.
⁷ Source: Yahoo Finance. S&P 500 price performance between 8/25/15 and 12/31/15.
⁸ http://projects.wsj.com/econforecast/#ind=gdp&r=20
⁹ https://research.stlouisfed.org/fred2/series/PAYEMS#
http://www.bls.gov/web/empsit/ceshighlights.pdf
 http://www.marketwatch.com/story/december-jobs-report-could-cap-best-2-years-since-1998-1999-2016-01-01
¹⁰ https://research.stlouisfed.org/fred2/series/JTSQUR
¹¹ http://projects.wsj.com/econforecast/#ind=gdp&r=20
¹² http://www.marketwatch.com/story/wall-streets-forecast-for-2016-worse-than-last-year-2015-12-28
 Average S&P 500 return calculation: 2,063.36 12/31/15 close to 2,193 average 2016 price target
¹³ http://www.foxbusiness.com/economy-policy/2015/12/29/week-ahead-december-jobs-report-auto-sales/?intcmp=bigtopmarketfeatures
¹⁴ http://www.foxbusiness.com/industries/2015/12/29/consumer-confidence-rebounds-more-than-expected-in-december/
¹⁵ http://www.foxbusiness.com/economy-policy/2015/12/31/weekly-jobless-claims/
¹⁶ http://www.foxbusiness.com/economy-policy/2015/12/31/midwest-manufacturing-slips-deeper-into-contraction/
¹⁷ http://latino.foxnews.com/latino/news/2016/01/01/puerto-rico-begins-to-make-payments-on-debt-due-in-early-january/

 

Market Commentary for the Week of December 7, 2015

Jobs Report Gives Fed Green Light for December Rate Hike

Markets shrugged off a volatile week Friday to close positive, buoyed by a strong jobs report and an easing of uncertainty around the Federal Reserve’s next interest rate decision. For the week, the S&P 500 grew 0.08%, the Dow gained 0.28%, and the NASDAQ added 0.29%.¹

Stocks surged late last week after a strong November jobs report gave investors renewed confidence in the economy. Data shows that the economy gained 211,000 jobs in November, beating the forecast of 200,000. More importantly, the October report was revised upward, giving us back-to-back months of strong labor market growth.² The unemployment rate remained flat at 5.0%, while wages increased by 2.3% from a year ago.³ Digging deeper into the data, we see that jobs were created in multiple sectors of the economy, supporting broad-based growth.⁴ The upbeat report may give the Fed what it needs to go ahead with interest rate increases in the coming months.

Fed chair Janet Yellen also signaled her readiness to raise interest rates in speeches last week. She told Congress that gradual rate hikes are likely to begin in December as long as there are no major shocks that might undermine confidence in the economy. She also warned that waiting too long to raise rates might force the Fed into tightening monetary policy quickly to avoid overheating the economy.⁵

However, the news overseas is not so rosy. Markets slid on Thursday when investors here and abroad reacted badly to the European Central Bank’s new stimulus plans. Investors felt that the ECB’s plans were too little, too late, and they responded by selling.⁶ In China, economic sentiment remains cautious as additional data shows that demand is still weakening and further risks to growth exist.⁷

Bottom line: The jobs report and other domestic data may give the Fed the boost it needs to raise interest rates at the mid-December Open Market Committee meeting. Weighing on the other side are ongoing concerns about global growth; however, as long as nothing major happens between now and the December meeting, the odds seem to favor an interest rate increase.

Looking at the week ahead, investors will be poring over November retail sales data, consumer sentiment, and inflation reports ahead of the Fed’s meeting on the 15th and 16th. Positive news would likely fuel additional speculation about a December rate hike.⁸

Right now, markets appear to have a somewhat unhealthy codependence on central banks. As decoupling between the U.S. and the rest of the world continues, we can expect a seesaw of emotions to drive additional volatility. At the moment, a solid jobs report is being viewed favorably by investors because it takes away some of the uncertainty around interest rate hikes. However, sentiment could sour quickly when some other headline changes the odds. On top of the standard end-of-year shuffling of portfolios, we’re expecting the next couple of weeks to be volatile.

ECONOMIC CALENDAR:
Tuesday: JOLTS
Wednesday: EIA Petroleum Status Report
Thursday: Jobless Claims, Import and Export Prices. Treasury Budget
Friday: PPI-FD, Retail Sales, Business Inventories, Consumer Sentiment

HEADLINES:

Holiday deal-making drives auto sales. Black Friday and early holiday shopping propelled November motor vehicle sales to the biggest month in 14 years.⁹

Beige book shows economic activity expanding. A Federal Reserve report of anecdotal business activity shows that the economy expanded moderately between October and November.¹⁰

OPEC votes to maintain production. Even as rig counts are falling under the weight of cheap oil, the important Organization of the Petroleum Exporting Countries (OPEC) organization voted to keep producing high volumes of oil to maintain market share.¹¹

Manufacturing report suggests gloom. A measure of manufacturing activity in the key Chicago area shows that a strong dollar, slowing global growth, and other factors may foretell weakness in the manufacturing sector.¹²

 
Best Regards,

 

Kevin Kroskey

 

This article adapted with permission from Platinum Advisor Marketing Strategies, LLC
[1] http://finance.yahoo.com/q/hp?s=%5EGSPC&a=10&b=30&c=2015&d=11&e=4&f=2015&g=d
http://finance.yahoo.com/q/hp?a=10&b=30&c=2015&d=11&e=4&f=2015&g=d&s=%5EDJI%2C+&ql=1
http://finance.yahoo.com/q/hp?a=10&b=30&c=2015&d=11&e=4&f=2015&g=d&s=%5EIXIC%2C+&ql=1
http://finance.yahoo.com/q/hp?a=10&b=23&c=2015&d=10&e=27&f=2015&g=d&s=%5EDJI%2C+&ql=1
http://finance.yahoo.com/q/hp?a=10&b=23&c=2015&d=10&e=27&f=2015&g=d&s=%5EIXIC%2C+&ql=1
[2] http://www.ft.com/fastft/436001/us-october-jobs-tally-revised-up-298000
[3] http://blogs.barrons.com/stockstowatchtoday/2015/12/04/good-enough-stocks-pop-as-payrolls-suggest-imminent-rate-hike/
[4] http://www.bls.gov/news.release/empsit.nr0.htm
[5] http://www.bloomberg.com/news/articles/2015-12-02/yellen-signals-confidence-in-economy-ahead-of-fed-rate-decision
[6] http://www.usatoday.com/story/money/markets/2015/12/03/stocks-set-rebound-ecb-rate-decision-looms/76711922/
[7] http://www.cnbc.com/2015/12/03/asian-stocks-expected-to-open-lower-as-ecb-decision-fed-comments-disappoint-investors.html
[8] http://www.foxbusiness.com/economy-policy/2015/12/04/week-ahead-inflation-retail-sales-and-consumer-sentiment/
[9] http://www.foxbusiness.com/industries/2015/12/01/fiat-chrysler-november-sales-rose-xx/
[10] http://www.foxbusiness.com/economy-policy/2015/12/02/federal-reserve-beige-book/
[11] http://www.cnbc.com/2015/12/03/us-crude-climbs-on-weaker-dollar-ahead-of-opec-meeting.html
[12] http://www.marketwatch.com/story/chicago-pmi-suggests-us-manufacturing-is-still-gloomy-2015-11-30

Market Commentary for the Week of November 2, 2015

After a sharp downturn beginning in April and most acutely experienced in August, markets rebounded sharply in October with the best month for the S&P 500 since 2011.

Our first look at third-quarter economic growth showed that Gross Domestic Product grew a paltry 1.5%. This is just a preliminary report, and economists will revise the data several more times; however, we can see that weak business spending affected growth last quarter.
 

ECONOMIC CALENDAR:
Monday: PMI Manufacturing Index, ISM Mfg. Index, Construction Spending
Tuesday: Factory Orders
Wednesday: ADP Employment Report, International Trade, Janet Yellen Speaks 10:00AM, ISM Non-Mfg. Index, EIA Petroleum Status Report
Thursday: Jobless Claims, Productivity and Costs
Friday: Employment Situation

HEADLINES:

Consumer spending misses in September. Personal spending data showed that Americans increased their spending at the slowest rate since January, indicating they may be cautious about economic turmoil.⁵

Consumer confidence rebounds in October. After a weak September reading, consumer confidence jumped in October as lower-income households grew more optimistic. Wealthier households were less confident due to concerns about financial markets.⁶

 

Pending home sales drop in September. The number of contracts on previously owned homes fell unexpectedly in September in a potential warning sign about the housing market.⁷

 

Best Regards,

 

Kevin Kroskey

 

This article adapted with permission from Platinum Advisor Marketing Strategies, LLC 

1 http://www.cnn.com/2015/10/30/politics/senate-budget-agreement-rand-paul/index.html?iid=EL

2 http://www.investmentnews.com/article/20151030/FREE/151039996/advisers-rethink-retirement-plans-amid-social-security-changes

3 http://www.bloomberg.com/news/articles/2015-10-28/are-you-about-to-lose-50-000-in-future-social-security-benefits-

4 http://www.cnbc.com/2015/10/29/us-q3-gross-domestic-product-oct-29.html

5 http://www.foxbusiness.com/economy-policy/2015/10/30/personal-spending-income-miss-expectations/

6 http://www.foxbusiness.com/economy-policy/2015/10/30/consumer-sentiment-unexpectedly-declines-in-october/

7 http://www.foxbusiness.com/economy-policy/2015/10/29/pending-home-sales-unexpectedly-decline-in-september/

 

2015 Third Quarter Report

Many investors will be glad to finally see the end of the third quarter of 2015, and most of them will feel like their portfolios are worse off than they actually are. That sound you hear is not just air being let out of the markets; it’s also an end to that optimistic feeling that many people had been cautiously building during the long 6-year bull market that followed the Great Recession.

The past three months turned yearly gains into yearly losses almost completely across the board of the investment opportunity set. The Wilshire 5000--the broadest measure of U.S. stocks—fell 6.91% in the third quarter of 2015, posting a total return of -5.79% in the first half of the year. The comparable Russell 3000 index is down 5.45% so far this year, while the widely-quoted S&P 500 index of large company stocks posted a loss of 6.94% in the third quarter, and is now down 6.75% for the year.

Meanwhile, in the global markets, the broad-based EAFE index of companies in developed foreign economies lost 10.75% in dollar terms in the third quarter of the year, for a negative 7.35% return so far this year. In aggregate, European stocks lost 9.07%, and are down 7.33% for the year. Emerging markets stocks of less developed countries, as represented by the EAFE EM index, were down a whopping 18.53% for the quarter, and are down 17.18% for the year.

Looking over the other investment categories, real estate investments, as measured by the Wilshire U.S. REIT index, gained 2.88% for the third quarter, but is still standing at a 3.01% loss for the year. Commodities, as measured by the S&P GSCI index, lost 19.3% in the third quarter, largely due to a fall in oil prices that may be nearing its end. They are down 19.46% this year.

There were many contributors to the loss of confidence in the stock market, and they appear to have been mainly psychological. Analysts blame the Federal Reserve Board for not having raised rates as the so-called “smart money” seems to have expected in September. Why are low rates a bad thing? Because Fed economists seem to believe that the economy has not recovered sufficiently to warrant stopping the central bank’s long-running stimulus program. Who are we investors to argue with the Fed economists?

Except… The explanation for not raising rates had little to do with actual economic activity, which is finally moving ahead, as of the second quarter, at an annualized 3.9% growth rate for U.S. GDP. This is higher than the 3.7% estimate from the Bureau of Economic Analysis, and much higher than the 2% rate that the U.S. economy has experienced since 2009. At the same time, consumer income, wages and salaries, and spending are all increasing modestly, existing home sales are growing at a 6.2% rate over last year, and the unemployment rate, once higher than 10%, has finally dropped down to the 5% range.

The Fed explained that it was delaying its rate rise because the core inflation rate—currently 1.83%, is below the 2% target rate the Fed set back in June 2012. Some people believe low inflation is a GOOD thing, and speculate that the real reason

—and another reason why many investors are nervous about the markets—could be the slower growth of the Chinese economy, coupled with the recent unnerving drop in its stock market. Unfortunately, the Chinese government controls the economic statistics that come out of the world’s second largest economy, which makes it hard to know exactly how fast China is or isn’t growing. But it’s worth noting that stock prices, even after the drop, are still up 31.6% from where they were a year ago.

For the time being, investors will have to continue to accept interest rates at historically low levels. The Bloomberg U.S. Corporate Bond Index now has an effective yield of 3.42%. 30-year Treasuries are yielding 2.87%, down from 3.13% a quarter ago, and 10-year Treasuries currently yield 2.06%, down from 2.36% in June.

When you look at the decline year-to-date, you see relatively small losses. But many investors are remembering that they were 10-15% wealthier just a couple of months ago, measuring their pain from the high point of the various indices. It’s tough to watch your portfolio go down, but it’s also worth remembering that people have been predicting a significant downturn—erroneously—for the better part of six years. Now that the downturn has finally arrived, it hasn’t been terribly painful, mostly giving back gains that were posted in the first two quarters.

The third quarter could be a temporary drawdown that sets the market up for a push back into positive territory by the end of the year, which would give us a record seven years of positive market performance. Or we could see the year end in negative territory, perhaps even giving us the first true bear market (defined as a drop of 20% from the peak) since the Great Recession. We don’t know how the psychology of millions of investors will turn in the next few months, and neither do the smart money analysts who thought that interest rates would be nudged upward by our central bank last month.

We do, however, have confidence that the next bear market will be followed by yet another bullish period that will eventually take us back into record territory, and we’re pretty sure that the markets will punish anyone who tries to outguess their unpredictable behavior in the short term. If you know what the next quarter will bring, please tell us now. Meanwhile, perhaps we should celebrate the fact that we can buy many kinds of investments at cheaper prices than we could just three short months ago. It’s not much, but it’s something to feel good about.

Best Regards,

Kevin Kroskey, CFP®, MBA

This article adapted with permission from Bob Veres. 

Sources: 

Wilshire index data: http://www.wilshire.com/Indexes/calculator/

Russell index data: http://www.russell.com/indexes/data/daily_total_returns_us.asp

S&P index data: http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf--p-us-l--

http://www.tradingeconomics.com/united-states/unemployment-rate

Nasdaq index data: http://quicktake.morningstar.com/Index/IndexCharts.aspx?Symbol=COMP

International indices: http://www.mscibarra.com/products/indices/international_equity_indices/performance.html

Commodities index data: http://us.spindices.com/index-family/commodities/sp-gsci

Treasury market rates: http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/

Aggregate corporate bond rates: https://indices.barcap.com/show?url=Benchmark_Indices/Aggregate/Bond_Indices

Aggregate corporate bond rates: http://www.bloomberg.com/markets/rates-bonds/corporate-bonds/

Muni rates:  https://indices.barcap.com/show?url=Benchmark_Indices/Aggregate/Bond_Indices

http://www.bloomberg.com/news/articles/2015-07-01/global-equity-axis-tilts-east-even-as-china-takes-gloss-off-gain

http://money.cnn.com/2015/06/29/investing/china-stocks-bear-market/index.html

http://www.reuters.com/article/2015/10/01/us-usa-economy-idUSKCN0RV4I120151001

http://www.theguardian.com/business/2015/sep/28/us-stock-markets-fall-concerns-china-economy

http://www.usnews.com/news/business/articles/2015/10/01/asia-stocks-higher-china-manufacturing-index-ticks-higher

http://www.usnews.com/news/articles/2015/09/29/will-russias-move-ruin-erdogans-plan-for-syria?int=af8409

http://www.usnews.com/news/articles/2015/10/01/federal-reserve-stands-pat-on-interest-rates-as-an-anxious-world-waits?int=a6f909

Market Commentary for the Week of September 8, 2015

Stocks slid after another turbulent week, buffeted by more worries about China. Investors chose to remain cautious ahead of the long Labor Day weekend and a raft of fresh data out of China. For the week, the S&P 500 lost 3.40%, the Dow fell 3.25%, and the NASDAQ dropped 2.99%.¹ Despite the emerging market turmoil, emerging market stocks have outperformed the S&P 500 since mid August.

 

 

Markets stayed pessimistic last week as traders decided to stay cautious during a four-day Chinese holiday and ahead of the U.S. Labor Day market holiday. This week is packed with more economic data out of China that may shed more light on the current situation. China’s central bank governor hinted at possible stimulus measures designed to help boost economic activity, suggesting that Chinese leaders are ready to get aggressive about their economic woes.²

On the domestic side, the August jobs report showed that the economy added 173,000 new jobs last month, pushing the unemployment rate to 5.1%. While the job creation number is lower than expected, the silver lining is that wage growth is increasing. After posting tepid gains earlier this year, wages increased by 2.4% in August, suggesting that employers are nudging paychecks higher to attract workers. If the trend persists, it could indicate that the labor market recovery is on track.³

Next week’s Federal Reserve Open Market Committee meeting could kick the market out of its volatile pattern. The big question everyone is asking is: Will the Fed make a move on interest rates when markets are so uncertain? Even with all the recent volatility, a recent survey of economists shows that the vast majority think the Fed will hike rates at next week’s meeting. Last week’s jobs report could give the Fed the ammunition it needs to raise interest rates. On the other hand, Fed officials could wait longer to give markets more time. If a rate move happens, it will signal that the Fed believes the U.S. economy is on the right path, regardless of what may be happening overseas.

 

Right now, markets are in turmoil because of uncertainty. Investors hate uncertainty and tend to react by selling first and asking questions later. Hopefully, once the dust around China settles, investors will see that the U.S. economy has legs and will start making decisions that are based on logic and not fear. While we can hope that a decision by the Fed will give investors the certainty they seek, it’s possible that markets could be in for more turbulence. As always, we’ll be keeping a very close watch on market movements.
 

ECONOMIC CALENDAR:
Monday: U.S. Markets Closed for Labor Day Holiday
Wednesday: JOLTS
Thursday: Jobless Claims, Import and Export Prices, EIA Petroleum Status Report
Friday: PPI-FD, Consumer Sentiment, Treasury Budget

HEADLINES:

Motor vehicle sales surge in August. Despite a late Labor Day (cutting into August sales numbers), U.S. automakers posted big gains, achieving the strongest results since July 2005.⁴

Construction spending booms in July. Spending on construction activity reached a seven-year high in July, increasing by 13.7% as compared to July 2014.⁵

Factory orders increase in July. New orders for U.S. manufactured goods rose for a second straight month in July, indicating that demand remains strong despite a higher dollar and soft global demand.⁶

Mortgage applications soar on rate dip. The broad selloff in the stock market briefly pushed interest rates lower, sparking a surge in mortgage applications. Application volume surged 11.3% as compared to the week prior, putting applications up by 30% as compared to the same time last year.⁷

Best Regards,

 

Kevin Kroskey

This article adapted with permission from Platinum Advisor Marketing Strategies, LLC

[1] http://finance.yahoo.com/q/hp?s=%5EGSPC&a=07&b=28&c=2015&d=08&e=4&f=2015&g=d

http://finance.yahoo.com/q/hp?s=%5EDJI&a=07&b=28&c=2015&d=08&e=4&f=2015&g=d
http://finance.yahoo.com/q/hp?a=07&b=28&c=2015&d=08&e=4&f=2015&g=d&s=%5EIXIC%2C+&ql=1
[2] http://www.cnbc.com/2015/09/06/futures-point-to-weak-start-in-asia-stocks-after-offshore-losses.html
[3] http://www.cnbc.com/2015/09/04/after-a-long-slumber-us-wages-begin-to-perk-up.html
[4] http://www.foxbusiness.com/industries/2015/09/01/fiat-chrysler-august-sales-jump-2-top-views/
[5] http://www.investing.com/analysis/us-construction-spending-hits-a-7-year-high-due,-in-part,-to-low-prices-264135
[6] http://www.foxbusiness.com/economy-policy/2015/09/02/july-factory-orders-boosted-by-strong-autos/
[7] http://www.cnbc.com/2015/09/02/mortgage-applications-soar-113-on-brief-rate-dip.html

 

Market Commentary for the Week of August 3, 2015

Stocks snapped their losing streak and regained steam last week despite some soft data, posting weekly and monthly gains. For the week, the S&P 500 gained 1.16%, the Dow rose 0.69%, and the NASDAQ grew 0.78%.¹
 

July was a volatile month, with a tug-of-war between overseas and domestic data and concerns about a Greek exit from the Eurozone. Despite all the downward pressure, stocks managed to record a respectable gain for the week.

Earnings season continued, and we have results from over 350 S&P 500 companies. So far, overall earnings were down 2.5% year-over-year on 4.4% lower revenues. The Energy sector is dragging on overall earnings growth because of low oil prices. Taking Energy companies out, analysts expect overall S&P 500 earnings to be up 5.4% year-over-year on 1.4% higher revenues.²

Now that the overall earnings picture is firming up, analysts are turning their attention to third-quarter expectations. Unfortunately, it looks like U.S. companies are even more cautious about the rest of the year and earnings estimates for Q3 and Q4 are coming down across the board. The chart below shows that overall earnings growth is expected to be negative in the third and fourth quarters before picking up early next year.³

Will these estimates hold? It’s hard to say. Many corporate managers prefer to “under-promise and over-deliver” on estimates, artificially lowering them so as to be able to beat their own expectations. We’ll know more as the quarter progresses.

The Federal Reserve met again in July, and though no interest rate changes were announced, the central bank reiterated its intentions to raise rates this year – possibly as soon as September.⁴ Are higher rates already baked into stock and bond prices? We don’t know for certain, but the Fed has been telegraphing its rates play for months now, so we hope that markets won’t overreact when rates finally start to go up. Though we don’t know how quickly the Fed will start hiking up rates, we expect the process to be slow and gradual, giving the economy time to adapt.

We also got our first look at second quarter Gross Domestic Product, which showed that the economy grew at 2.3% in the second quarter. While economists had predicted higher growth, it’s still a vast improvement on the 0.6% growth the economy saw in the wintery first quarter.⁵

The week ahead is packed with economic data, including motor vehicle sales, factory orders, and the July employment situation report. Analysts will be highlighting Friday’s July jobs report to see whether it supports or detracts from the Fed’s case for raising rates. If hiring remains strong and wage growth improves, the Fed may still be on target for a September rate hike. If wage growth is soft, it could push the timeline out.⁶

ECONOMIC CALENDAR:
Monday: Motor Vehicle Sales, Personal Income and Outlays, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending
Tuesday: Factory Orders
Wednesday: ADP Employment Report, International Trade, ISM Non-Mfg. Index, EIA Petroleum Status Report
Thursday: Jobless Claims
Friday: Employment Situation

HEADLINES:

Consumer sentiment drops in July. Two measures of how American consumers feel about their economic prospects dropped in July, partly because of concerns about economic growth as well as worries about Greece and China.⁷

 

Big cities drive rental prices high. U.S. home rental prices rose much faster than incomes in June. Unsurprisingly, major cities like San Jose, San Francisco, and Denver experienced double-digit year-over-year increases as demand pushed rental prices higher.⁸

Weekly jobless claims rise slightly. Though weekly claims for new unemployment benefits edged higher last week, the four-week average dipped lower, indicating that the labor market continues to improve.⁹

Oil prices drop as producers keep pumping. Crude oil experienced its biggest monthly drop since 2008 on signs that Middle East producers were continuing to pump at record levels despite concerns about a supply glut.¹⁰

 

Best Regards,

 

Kevin Kroskey

 

This article adapted with permission from Platinum Advisor Marketing Strategies, LLC

 

1 https://finance.yahoo.com/q/hp?s=%5EGSPC&a=06&b=1&c=2015&d=07&e=2&f=2015&g=d

http://finance.yahoo.com/q/hp?s=%5EDJI&a=06&b=1&c=2015&d=07&e=2&f=2015&g=d

https://finance.yahoo.com/q/hp?a=06&b=1&c=2015&d=07&e=2&f=2015&g=d&s=%5EIXIC%2C+&ql=1

2 http://www.zacks.com/commentary/52427/what39s-clouding-the-earnings-picture

3 http://www.zacks.com/commentary/52427/what39s-clouding-the-earnings-picture

4 http://www.reuters.com/article/2015/07/29/us-usa-fed-idUSKCN0Q30B420150729

5 http://www.cnbc.com/2015/07/30/first-reading-on-q2-us-gdp.html

6 http://www.foxbusiness.com/economy-policy/2015/07/31/week-ahead-july-jobs-report/?intcmp=bigtopmarketfeatures

7 http://www.foxbusiness.com/economy-policy/2015/07/31/consumer-sentiment-gauge-ticks-lower-in-july/

8 http://www.cnbc.com/2015/07/30/us-home-rental-prices-climb-again-in-june.html

9 http://www.foxbusiness.com/economy-policy/2015/07/30/weekly-jobless-claims-rise-less-than-views/

10 http://www.cnbc.com/2015/07/30/us-crude-slips-on-mixed-economic-data.html