Friday, February 27, 2015

Deflation? Not Really

After January's figures came in, the Commerce Department reported yesterday that consumer prices had fallen on an annual basis over the previous 12 months. It was just by 0.1 percent, but still, that's the first time we've had deflation over a 12-month span since 2009.

There's one simple reason for this: energy prices. Gasoline prices fell by more than a third in the past year, and overall energy costs dropped by almost 20 percent. Aside from energy prices, consumer prices outside of energy were up 1.9 percent in January from a year earlier.

Indeed, it might seem that inflation is actually growing, because prices in many other areas are growing fairly strongly. Food prices are up by 3.2 percent from a year earlier; shelter costs rose by 2.9 percent, and costs for medical care were up by 2.3 percent for the 12 months.

Thursday, February 26, 2015

A Reasonable High for the Nasdaq

The Dow Jones Industrial Average and the S&P 500 have both notched new all-time highs this week. Meanwhile, the Nasdaq has actually outperformed the two other indexes so far this year - it's up 4.9 percent, as opposed to 2.8 percent for the S&P and 2.2 percent for the Dow.

And the Nasdaq might, finally, set a new record, 15 years after reaching its all-time high during dot-com-mania. Although the index dropped on Wednesday, ten straight days of increases prior to that put the Nasdaq within about 80 points of its all-time record close of 5,048, set on March 10, 2000.

And the good news is that the Nasdaq might set that record in a much saner era, with reasonable valuations of its stocks. When the Nasdaq hit its record in March 2000, its stocks were trading at an average of a whopping 105.9 the last 12 months’ earnings. Now, that same number is down to 20.5.

Wednesday, February 25, 2015

Why Aren't 401(k) Fees Falling?

Investment fees for most 401(k) plans dropped over the past year, according to the new edition of the 401k Averages Book. But overall plan fees, for the most part, stayed where they are. In other words, those lower investment fees weren't passed along to you.

How did that happen? For large retirement plans, those with 1,000 or more participants and at least $50 million in assets, fees to invest in large U.S. equities fell from 1.05 percent to 1.03 percent. Smaller 401(k) plans tend to incur larger fees, but those dropped as well, from 1.40 percent to 1.38 percent.

But large U.S. equities are generally the easiest, cheapest asset class to invest in. The book reports that along with increases in plan balances, there has been increasing exposure to more expensive investments. As a result, total large-plan costs remained steady for the past year, at an average of 1.03 percent. For smaller 401(k) plans, the average cost was flat at 1.44 percent.

Tuesday, February 24, 2015

Savings Are Headed in the Right Direction

Americans are starting to save a little more of their income, although most people are still behind where they ought to be. That's the upshot of the new America Saves-ASEC survey, which said that the number of Americans spending less than their income and saving the difference increased from 68 percent to 71 percent in the past year, and those saving at least 5 percent of their income grew from 47 percent to 52 percent. The number of people saying they were making good or excellent savings progress rose from 35 percent in 2014 to 40 percent in 2015.

Similarly, consumer indebtedness is inching downward. In the past year, the portion who said they had no consumer debt, or were reducing their consumer debt, rose from 76 percent to 78 percent.  And respondents who said they had “sufficient emergency savings to pay for unexpected expenses like car repairs or a doctor visit” rose from 64 percent to 66 percent.

But we still have a long way to go. Those who say they are saving automatically outside of work was just 43 percent, and the number of people who know their net worth  was just 43 percent.

Monday, February 23, 2015

Where Are P/E's Headed?

It now looks like the Federal Reserve may raise interest rates around June of this year, after having spent years at their near-zero levels, ever since the collapse of the financial industry. This may seem to be primarily of interest to borrowers and lenders, and will certainly have an impact on the bond market, but it will also affect stock investors as well.

S&P Capital IQ looked at what happens to the price-to-earnings ratios of the S&P 500 around the time the Fed has hiked interest rates, dating back to 1946. They found that P/E ratios rose from an average of 17.7 six months before the rate hike to 18.5 on the date of the hike, then dropping back to 16.7 six months afterward.

So we might expect P/E ratios to drift upward through June, before drifting back down again after the rate hike takes hold. P/E ratios are already somewhat elevated, sitting at about 18 for the S&P 500 right now, up from 15 two years ago.

Friday, February 20, 2015

A Welcome Cooling of the Markets

After a very quiet 2014, the stock market's volatility levels shot upward in January, because of a dangerous mix of falling oil prices, a rising U.S. dollar, and disappointing corporate earnings. But February has brought a welcome cooling.

The CBOE Volatility Index, or VIX, hit a high of 23 in January, after spending most of 2014 under 20. But in the first couple weeks of February, it has fallen to 15, not coincidentally as the S&P 500 has recovered its footing. The VIX is now at its lowest level in about two months, although it's still slightly elevated, about 5 percent above its 200-day norm.

One odd thing about this: The U.S. markets have been cooling off while the rest of the world has been getting more volatile. The CBOE's Oil ETF Volatility Index remains 88 percent higher than its 200-day average, and the CBOE/CME FX Euro Volatility is 44 percent higher than its 200-day average.

Thursday, February 19, 2015

What Worries You About Retirement?

It's no surprise that younger people aren't nearly as worried about paying their medical costs in retirement as folks over 65 are. A new survey from Bankrate confirms that: People 18 to 29 cited medical costs as their main retirement worry only half as much as those over the age of 65. People over 65, in fact, cited health care costs as their prime retirement concern.

But this may come as a surprise: The same survey found that the younger age group was twice as likely as those over the age of 65 to cite running out of money during retirement as their prime retirement worry. It's understandable that younger people would think that just assembling enough money to retire on would be a daunting task, while older folks are more concerned about what exactly they'll need to spend that money on.

Here's another surprise: The study also broke the answers down by income. And it found that the highest-income households, those with annual income greater than $75,000, were more concerned with health care expenses during retirement than the rest of the sample.