Friday, April 29, 2016

Behind the GDP Figure

Why was economic growth so slow in the first quarter? Here are three answers:

Business investment posted its worst performance since the tail end of the last recession. Fixed nonresidential investment - mostly commercial real estate - declined at a 5.9 percent pace in the first quarter, the sharpest drop since the second quarter of 2009. Spending on equipment dropped 8.6 percent and spending on structures fell 10.7 percent.

Consumer spending continued to decelerate in the first three months of 2016, rising at a 1.9 percent pace compared with 2.4 percent in the fourth quarter. Spending on goods stalled, rising just 0.1 percent.

Foreign trade continued to be a headwind: Net exports subtracted 0.34 percentage point from the first quarter’s growth rate, the seventh time in the past nine quarters that trade was a drag on overall GDP growth. The trade gap widened as exports dropped 2.6 percent from the fourth quarter.

Thursday, April 28, 2016

Slow Growth for the First Quarter

Disappointing news from the Commerce Department this morning: The U.S. gross domestic product advanced at a seasonally adjusted annualized rate of just 0.5 percent in the first quarter. That was the worst quarterly performance for our economy in two years.

The economy had expanded 1.4 percent in the fourth quarter of 2015, and at 2.0 percent in the third quarter. For all of 2015, GDP advanced 2.4 percent, the same rate as in 2014.

These slow starts to the year are nothing new. GDP shrank in the opening quarter of 2014 and grew by just 0.6 percent in the first quarter of 2015. Both years, growth bounced back to more typicsal numbers over the balance of the year.

Wednesday, April 27, 2016

Protecting Yourself from Elder Debt

Recent research from the New York Federal Reserve has shed some light on a persistent but little-discussed problem: The heavy debts owed by many of American’s retired population. This is an issue that has skyrocketed in recent years. Debt held by borrowers between the ages of 50 and 80 increased by roughly 60 percent from 2003 to 2015.

The amount of student debt held by Americans age 65 and older reached $18.2 billion in 2014, up from just $2.8 billion in 2005, according to the Government Accountability Office. Roughly 150,000 Americans had a portion of their Social Security garnished last year to pay down their student loans. On top of that, the median mortgage held by Americans 65 and older more than doubled between 2001 and 2013, to $88,000 from $43,400.

There ware ways to protect yourself from ending up with too much debt as you reach retirement. We invite you to read the new article on our Web site, "The Stealthy Problem of Elder Debt," to learn more.

Tuesday, April 26, 2016

Investors Fleeing from Hedge Funds

Investors withdrew a net of $4.6 billion from hedge funds in March, according to eVestment, marking the fifth month out of the past six where redemptions exceeded allocations. The March figures brought the first-quarter outflow to a total of $14.35 billion.

One exception to the exodus: hedge funds that invest in commodities. Those funds netted more investor cash in the first quarter than any other type of hedge fund, and their $4 billion of inflows was that category’s largest for any quarter in more than six years.

Despite the outflows, hedge-fund performance hasn't been half bad lately. In March, an all-strategies benchmark of hedge funds delivered returns of 2.82 percent, according to Preqin, which tracks hedge fund performance, making it the best month for hedge funds since January 2012. But that still fell short of the 4.3 percent return produced by a more traditional mix of stocks and bonds.

Monday, April 25, 2016

Big Money in Home Sales

Has the American housing market completely recovered from the hosing bubble and the Great Recession? U.S. home sellers in March on average sold for $30,500 more than those homes were purchased for. That means a 17 percent average gain in price.

That's the highest average price gain for home sellers in any month since December 2007 at the onset of the Great Recession, according to RealtyTrac, a housing data source.

The median sales price of single family homes and condos in March was $210,000, up 9 percent from the previous month and up 11 percent from a year ago. March was the 49th consecutive month with a year-over-year increase in the U.S. median home price, which is still 8 percent below its previous peak of $228,000 in July 2005.

Friday, April 22, 2016

Earnings Batter Stock Prices

It looks like a tough earnings season: According to a report in the Wall Street Journal, the S&P 500 companies are on track to see profits shrink by 8.9 percent in the first quarter. Even the big boys are struggling: Microsoft and Alphabet (the parent of Google) both reported disappointing numbers and outlooks after the bell on Thursday, and fell in trading today.

The financial sector seems to have had the worst of it. Bank of America’s earnings dropped 18 percent. Goldman Sachs’ earnings fell by an incredible 60 percent. 

Still, the markets are more or less surviving. The S&P 500 is still up on the year, albeit by just 2.3 percent.

Monday, April 18, 2016

The Curious Case of Retailer Buybacks

Investors often look at share repurchases as signs of management confidence, but a new study shows that may not hold for retailers. Citigroup analysts looked at buybacks for the 50 retail and apparel companies they cover since 2011. It focused on instances of companies repurchasing 5 percent or more of their outstanding shares within a year.

Out of 71 such instances, on average, the stocks underperformed the S&P Retail Index by more than 10 percentage points in the year following the repurchase, Citigroup found. The companies’ stocks underperformed the index in the year following the repurchases in 44 of 71 instances, outperforming only 27 times.

Why does that happen? One hypothesis suggests that retailers may be buying back stock not because the stock is valuable, but to cushion earnings per share the following year.