Friday, November 21, 2014

Small Caps Coming to Life

The stock markets were up across the board yesterday, with the S&P 500 and Dow Jones industrial average both gaining 0.2 percent, and the Nasdaq up 0.6 percent. But the small-cap Russell 2000 index was the biggest gainer of all, rising by 1.1 percent.

The small-cap benchmark has struggled this year, but it's been showing signs of life lately. Since bottoming out a little over a month ago, on October 13, the Russell 2000 has added an impressive 10 percent. But given the troubles it had earlier in the year, it's still up less than 1 percent for 2014 as a whole.

Remember, the S&P 500 and Dow Jones, by definition, don't include any smaller stocks. For a full picture of the market, it's important to keep that Russell 2000 in mind. And it's good to see it coming around.

Thursday, November 20, 2014

Banking on Honesty

Does banking make a person dishonest? That's the suggestion from a study published in the journal Nature this week. Researchers at the University of Zurich divided 128 employees at a large, international bank into two groups. One filled out a survey about their personal lives, and the other answered questions about their banking background.

They were then asked to toss a coin 10 times, without anyone watching, and report on the results. If they told researchers they guessed correctly on a toss, they collected $20 for each correct answer. The people who’d been asked about their personal lives said they won 51.6 percent of tosses, but those who talked about their banking jobs said they won 58.2 percent of the time. In the group of bankers told to think about their jobs, 8 percent reported winning all ten tosses, compared with 3 percent in the other group.

The researchers repeated the experiment was repeated with 133 employees at other companies and 222 university students. For those people, talking about money had no effect on their dishonesty.

Wednesday, November 19, 2014

Trouble Among the Young

Even though the unemployment rate has been dropping steadily this year, the aftereffects of the recession are still making it difficult for young workers to find stable, full-time work. The recession technically ended five years ago now, but most people aged 18 to 30 remain pessimistic or uncertain about their future employment prospects, according to a Federal Reserve survey published Tuesday.

According to the survey, 34 percent of younger workers said they were unsure of their future employment outlook, and another 21 percent said they were pessimistic. Just 45 percent said they were optimistic.

A look inside the unemployment numbers can help explain their fears. While the overall unemployment rate is at 5.8 percent, the jobless rate for Americans between the ages of 25 and 34 was 6.1 percent. And the unemployment rate for those aged 20 to 24 was all the way up at 10.1 percent.

Tuesday, November 18, 2014

Inflation Staying Cool?

The Federal Reserve Bank of Philadelphia released a report yesterday showing that many major economists have lowered their inflation forecasts, down even from the tepid level it's been at. The Fed's Survey of Professional Forecasters indicates that inflation will stay below the Fed's target rate of 2 percent through at least 2016.

The surveyed forecasters predict the Personal Consumption Expenditures price index will average 1.5 percent for this year, down from their 1.8 percent estimate of three months ago. The group also reduced their view of expected inflation next year from 2 percent to 1.8 percent, and from 2.0 percent in 2016 to 1.9 percent.

Annual inflation is currently running at 1.4 percent. Many economists feared that the Fed's asset-buying program might lead to higher inflation, so with that now coming to an end, it appears that our already-low inflation has nothing left to fuel a higher run.

Monday, November 17, 2014

Going Up To Eleven

We've often discussed in this space the ten sectors of the S&P 500, as a way to analyze what's going on in the market. But before long, that number will be up to eleven: At the end of August in 2016, S&P will add a sector on real estate.

To this point, real estate investment vehicles such as the mall ownership group Simon Property Group have been subsumed under the financial sector. The financial sector is the second-largest in the index at this point, with more than 16 percent of the S&P's value.

This will have some meaning for investors beyond just the way we analyze the market's moves. Many funds concentrate on one sector or another, so many instruments focusing on the financial sector will soon remove real estate from those portfolios. We shall see whether that helps or harms the financial sector a year and a half from now.

Friday, November 14, 2014

America Keeps Pumping Away

Here's another reason why gas prices keep falling: U.S. oil production is at its highest level in decades. The U.S. Energy Administration said yesterday that America produced 9.1 billion barrels a day last week. We hadn't produced more than 9 billion barrels of oil a day since 1986. By comparison, Saudi Arabia is currently churning out about 9.6 billion barrels of oil per day.

As a consequence, oil prices have dropped 30 percent since mid-June. Nationwide, a gallon of gas has dropped below three dollars a gallon on average, and now goes for about $2.92.

The Department of Energy projects that production will stay at around that 9 billion barrel a day level through next year. With that kind of output, we would see the highest annual U.S. oil production since 1972.

Thursday, November 13, 2014

Earnings Winners and Losers

We are almost through the current earnings season, with more than 400 of the S&P 500 companies having already reported. Six stocks have done well enough on earnings day that their share prices have popped by 10 percent, led by Tractor Supply, a Tennessee-based retailer. The biggest one-day winners for this earnings season:

  • Tractor Supply, up 15.82 percent
  • Whole Foods, up 12.15 percent
  • Edwards Lifesciences, up 11.00 percent
  • Newfield Exploration, up 10.89 percent
  • Visa, up 10.24 percent
  • Devon Energy, up 10.00 percent

On the other side of the coin, four stocks fell by more than 10 percent on earnings day:

  • Genworth Financial, down 38.45 percent
  • Netflix, down 19.37 percent
  • TripAdvisor, down 14.13 percent
  • First Solar, down 10.85 percent