Friday, March 27, 2015

How Will Interest Rate Hikes Affect the Market?

With the Federal Reserve poised to start raising interest rates in the coming months, Bloomberg took a very interesting look at how the markets have reacted to similar Fed moves in the past. There were three earlier interest rate hikes in 1994, 1999 and 2004, which gives us three recent but distinct eras to look at.

The bad news is: It doesn't look like there's a safe bet. None of the sectors Bloomberg looked at outperformed in each of the three previous post-hike time frames. But several sectors lagged their benchmark in the wake of an interest rate hike all three times. Those underperformers include:
  • Automobiles and components
  • Banks
  • Consumer durables and apparel
  • Insurance
  • Retail

Thursday, March 26, 2015

Storms Clouds Over the First Quarter

The first fiscal quarter of 2015 ends next week, and many economists have begun filing their estimates of how the U.S. GDP has looked over the past three months. The news has not been very good: Most forecasts have been revised downward in recent weeks. Some examples:
  • JP Morgan Chase has lowered its first quarter GDP estimate from 2.0 percent to 1.5 percent, citing reduced spending by oil companies
  • Morgan Stanley lowered its estimate from 1.2 percent to 0.9 percent, citing lightened inventories and lower exports
  • The Federal Reserve Bank of Atlanta predicts a minuscule 0.2 percent growth rate, down from an earlier forecast of 0.3 percent
At least no one seems to think it will be nearly as bad as the first quarter of 2014, when GDP contracted by 2.1 percent.

Wednesday, March 25, 2015

Why Economic Confidence Is Slipping

Gallup's U.S. Economic Confidence Index broke into positive territory for the first time in seven years last December and remained positive for eight straight weeks, peaking at plus 5 in the second half of January. But it's back below par now, dipping to negative 3 for the week ending March 22.

The index had dropped below the zero line in late February but has rebounded to be in positive territory last week, before dropping down again. The index looks at Americans' views of current economic conditions, combined with their perceptions of whether the U.S. economy is getting better or getting worse.

So what's driven it back down recently? The big factor is gas prices. Gallup has found that, in recent times, economic confidence increases when gas prices have dropped in a given week, and confidence decreases when gas prices have risen. Despite everything else going on in the economy, it's still gasoline prices that most affect people.

Tuesday, March 24, 2015

An Insult to the Garden State

Bankrate has come out with its list of the ten best and ten worst states to retire in, and the news is not good in New Jersey: We're sixth from the bottom. Supposedly, the only worse places to retire are Louisiana, West Virginia, Alaska, New York and, at the very bottom of the barrel, Arkansas, with its high crime rate, low health care rating, and poor happiness scores among senior citizens.

What's wrong with New Jersey? Bankrate cites the state's high cost of living and high taxes, as well as a low score for "emotional health." Despite the state's reputation for crime, we actually received high marks for safety.

The best states to retire in, according to Bankrate, are Virginia at No. 5, followed by Idaho, Utah, and Colorado. Coming in at No. 1 is a surprise choice: Wyoming, cited for its low taxes, low crime rate, and beautiful natural scenery.

Monday, March 23, 2015

The Retail Stock Anomaly

Stock analysts have really gotten down on a lot of major retailers lately. Wells Fargo recently looked at how 2015 consensus earnings estimates have changed over the past two years. Among the 51 retailers Wells Fargo looked at, estimates declined for 42 of them. Three companies — Shutterfly, Aeropostale, and J. C. Penney — saw declines in earnings estimates of more than 100 percent.

Even though the earnings expectation were down sharply, the retailers’ stocks did well. The average share price among the sample increased by 46 percent, and only 13 of the 51 share prices declined. So the analysts' pessimism didn't hurt shareholders in the long run.

That result seems counterintuitive, but it's not uncommon. Wells Fargo also found that consensus estimates dropped for 21 of the 30 companies in the Dow over the same period — but those stocks gained 43 percent on average.

Friday, March 20, 2015

The Cost of Staying in Coffee

Most of us are worried about a lot of different financial burdens in our retirement: medical bills, travel, leaving a legacy for our heirs. But BlackRock, the world's largest asset manager, has a new study out examining another very important retirement expense: coffee.

The number that BlackRock came up with was about $21,000 for coffee over a 30-year retirement. That figures two dollars for coffee every day, or about $700 a year. But that's not the end of the story. With our investments working for us, how much do we need to have saved to keep us in java throughout that retirement?

BlackRock used actuarial tables to figure that a 55-year-old needs $10,163 in savings right now to stay caffeinated during a retirement that starts at age 65. Whether you think that's a bargain or a lot of money probably depends on how much you need that cup of coffee every morning.

Thursday, March 19, 2015

The Fed Makes the Market Happy

The stock market sure liked what the Federal Reserve had to say yesterday - or rather what the Fed didn't say. With unemployment continuing to fall and GDP growth remaining strong, many economic pundits thought this might be the moment for the Fed to announce it was finally raising interest rates. Instead, it said following its March meeting that an April rate hike "remains unlikely."

In large part, this is because the Fed's view of the economy is not as rosy as you might think. Its current forecast, released yesterday, projects GDP growth to be 2.3 to 2.7 percent for all of 2015, down from its December projection of 2.6 to 3.0 percent. The forecast for 2016 is roughly the same.

Still, the market was more impressed by the unchanged interest rates than it was by the changed growth prediction. The S&P 500 was down by 8 points before the Fed's announcement, but promptly turned that around to a gain of 25 points.