Friday, October 17, 2014

Europe's Woes Continue

The Eurozone had another rough day yesterday, with its benchmark index, the Stoxx Europe 600, dropping to a ten-month low. Most of that damage has happened recently, with the index down by more than 10 percent since the middle of September.

One of the biggest concerns now is that Europe is risking deflation, which would be very dangerous for stock prices. September's inflation rate in the Eurozone was just 0.3 percent, far below the target of 2.0 percent.

The fear among American investors is that problems in Europe will once again have a bearing on stocks here at home. In the globalized economy, that's almost inevitable. The main part of our Web site has a new article, "The Global Village," describing how and why the two markets are connected, and how investors can protect themselves. I encourage you to give it a read.

Thursday, October 16, 2014

The Return of Volatility

The five-year bull run of the stock market has been notable for its relatively low volatility, but it appears as if we're getting back to a rough ride. The S&P 500 index has already moved by 1 percent or more on seven trading days in October. That follows just one such trading day in each of August and September. And there were so much days in either May or June.

The more sophisticated metrics are showing the same effect. The CBOE Volatility Index, commonly known as the VIX, rose by 25 percent on Wednesday to 28.53. That's its highest close since December 2011.

The long-run average for the VIX is 20, which means this market is now well above average on volatility. If it appears even more volatile than normal, that might be because it's been so low in recent months. In July, the VIX got down near 10, a multiyear low-water mark.

Wednesday, October 15, 2014

The Daddy Bonus

Everyone's heard of the mommy penalty, wherein women with children tend to make less money in their careers. But according to a study by a researcher at CUNY, the opposite may be true for men. In 2010, male workers with children tended to earn 40 percent more than childless men.

Part of that may result from the fact that fathers tend to be older than men without children, and thus more established and more senior in their jobs. But the data also showed that even among similarly aged men, the difference persisted. In the 35-49 cohort, men with children earned a median of $54,500 in 2010, while those without children earned a median of just $35,970.

That's an even starker difference than the mommy penalty. In that same year and age range, women with children earned a median of $30,520, while those without earned a median of $32,700.

Tuesday, October 14, 2014

Trust Growing in Advisors

The annual Main Street Investor study came out last week, and it appears that American investors are feeling increasingly confident about their financial advisors. When asked how effective various entities were at protecting investor interest, 70 percent expressed confidence in their advisors, up from 66 percent in 2012. When asked whom they would trust as for advice about investing in a public company, 72 percent of investors said they would use their advisor, more than those who would turn to SEC filings, financial reports, family and friends, or social media.

Confidence in advisors is highest in the wealthiest group surveyed: Among those with more than $100,000 in investable assets, 71 percent said they were confident, compared with 67 percent of those with fewer than $50,000 in assets. At all asset levels, women trusted their advisors more than men did.

Why do investors trust their advisors? The survey found two answers tied at the top of the list: "Personal relationship/Honest/Trustworthy" and "Track record/experience" were both cited by 29 percent of the respondents.

Monday, October 13, 2014

The Global Village

The American stock markets had a rough week last week; the Dow Jones industrial average lost 2.7 percent of its value, and is now down overall for 2014, with a loss of 0.2 percent. One of the reasons given for last week's performance was the poor economic news coming out of Europe, and especially Germany, which is the Eurozone's acknowledged financial leader.

It may seem odd that Europe's problems would have such an effect on U.S. stocks, but we are truly living in a global economic village these days. According to S&P Dow Jones indices, the S&P 500 companies garner nearly half - 46 percent - of their sales outside the U.S. About 7 percent of that comes directly from Europe.

The rising value of the dollar has exacerbated the overseas woes of American companies. The dollar is up 9 percent versus the euro over the past six months, which reduces the profits earned by American goods sold in Europe. That's just another global factor to watch in monitoring the American market.

Friday, October 10, 2014

Washington's Woes

Does the constant bickering out of Washington sap your confidence about how your investments will perform going forward? If so, you're not the only one. A new poll from Gallup asked investors whether various political factors were hurting the investment climate in the U.S., and the number one response was "political discord in Washington," cited by 88 percent of the respondents.

The only other factor cited by more than 80 percent of those surveyed was "Events in the Middle East." Some other top factors: "The widening gap between wealthy and middle-class Americans," cited by 78 percent; "U.S. immigration policy," 70 percent, and "Financial conditions in Europe," 65 percent.

At the bottom of the list was the current level of interest rates. Some 40 percent of the respondents said those were harming the investment environment - but another 40 percent said those same interest rates were helping.

Thursday, October 9, 2014

A Violent Couple of Days

Watching the market's moves on individual days can be a bit of a fool's errand. For long-term investors, what matters is the larger pattern, not the day-to-day movement. The last two days have been an illustration of that. Tuesday looked like a disaster, with the S&P 500 losing 1.5 percent of its value. But there wasn't much time to panic: The index made all that ground back and more yesterday, rising by 1.75 percent.

It may feel like the markets whipsaw investors around like that fairly frequently, but according to research from Bespoke Investments, it hasn't happened that much lately. In the bull market that started in 2009, there have been only six other times when the S&P has lost, then gained at least 1.5 percent on consecutive trading days.

This week's gyrations are nothing compared to what we saw in August of 2011. The S&P 500 lost 4.4 percent of its value one day, only to gain back 4.6 percent the next day, in the midst of the European debt crisis and S&P's downgrade of the United States' credit rating. Now that's market turbulence.