Federal Reserve Chair Janet Yellen has confirmed what most already knew. The recovery in the U.S. jobs market is far from complete. Yellen noted that the unemployment rate has improved since the Federal Reserve initiated its last round of quantitative easing in late 2012, falling from 8.1% to 6.6%. Curiously, in 2013, the U.S. economy grew just two percent.
That said, against the backdrop of a so-called improving U.S. economy, the numbers of the long-term unemployed and part-time workers are far too high. In fact, 3.6 million Americans, or 35.8% of the country’s unemployed, fall under the “long-term unemployed” umbrella—that is, those who have been out of work for more than 27 weeks. The underemployment rate (which includes those who have part-time jobs but want full-time jobs and those who have given up looking for work) remains stubbornly high at 12.7%.
The improving unemployment numbers come on the heels of two straight months of weak jobs numbers. In January, economists were expecting the U.S. to add 180,000 new jobs to the U.S. economy; instead, just 113,000 new jobs were added. In December, economists were projecting 200,000 new jobs would be added—instead, the number was an anemic 74,000.
For the head of the Federal Reserve, this translates into more money being dumped into the bond market ($65.0 billion per month) and a continuation of artificially low interest rates.
Once again, bad news for Main Street is good news for Wall Street. After Yellen’s speech, the S&P 500, NYSE, and NASDAQ responded by surging higher. Again, the Federal Reserve’s ongoing bond buying program and open-ended artificially low interest rate environment is great … Read More
Jitters in the stock market—or any other market, for that matter—sometimes confuse investors and make them question its direction. They often ask where the market is headed next, or how the recent events will play out. Even worse, they may completely lose trust in the market and just let their life savings decline as inflation continuously takes its toll.
To say the very least, these are genuine concerns, because their life savings are often at stake and a significant move can wipe out their wealth. The broad market sell-off in 2008 and 2009 was a prime example of this, when investors, unsure about the direction of the market, took a major hit to their portfolio—and missed out on the stock market rally that began in March of 2009.
As a matter of fact, according to the findings of the Federal Reserve Bank of St. Louis, when adjusted for inflation, American households have only recovered 45% of the wealth they lost during the Great Recession. (Source: Derby, M.S., “Households Still Haven’t Rebuilt Lost Wealth,” Wall Street Journal, May 30, 2013.) They are still underwater, despite the key stock indices like the S&P 500 being up more than 100% since then.
The recent market action, which occurred after a few members of the Federal Open Market Committee (FOMC) showed concerns about the steps taken by the Federal Reserve and wanted it to reduce its size of asset purchases, has investors rattled once again. The noise is increasing, and bulls and bears are suggesting where the markets are headed next. Some are calling that the stock market has reached its top, while others … Read More
On May 7, the Dow Jones Industrial Average closed above the 15,000 level for the first time. This close marked an overall increase in the index of about 15% since the beginning of the year. Other key stock indices did the same, and at the very least, their performance was nothing shy of exuberant.
It may be good news for some, but this rise in the key stock indices leads to one question: if investors missed out on these gains, should they jump into the stock market and take a risk playing the catch-up game?
While this may be the very first option that comes to the mind of an investor who is planning to invest for the long term and hasn’t seen their portfolio perform similar to the key stock indices, they must ask themselves this before taking any action: is it really the most viable option? The answer to this question is very simple: no.
Instead of trying to play the catch-up game due to a significant rise in the key stock indices over a short period of time and taking higher risks, investors need to keep their long-term goals in mind. As I have been saying in these pages; long-term stable growth is far better than volatile gains in the short term.
If an investor believes the key stock indices will continue to rise, they should continue to focus on minimizing their risk. Instead of investing in small-cap, highly speculative companies, they need to look for defensive plays.
Why? As the key stock indices are rising, there is a possibility that there might a correction in prices; … Read More
Any stock market portfolio that’s being used to save for retirement or otherwise, should have some exposure to the pharmaceutical industry.
But instead of pure play corporations like a discovery biotechnology firm, there are great businesses out there that offer a combination of pharmaceutical development and consumer products.
This extra diversification provides a lot of safety and a growth opportunity, as well.
On the stock market, one of a number of blue chip corporations that are great brands and offer this combination of pharmaceutical and consumer product exposure is Johnson & Johnson (NYSE/JNJ).
Johnson & Johnson is up 20% since the beginning of the year, which is pretty spectacular. Institutional investors are buying safety, and this is what Johnson & Johnson offers.
There are actually only a handful of corporations that are large-cap, blue-chip pharmaceutical and consumer products businesses.
Another of these corporations is Abbott Laboratories (NYSE/ABT). The company just beat the Street with its latest numbers.
On the stock market, Abbott Laboratories is trading at its record high and looks to be in a fairly solid uptrend. Of course, it’s very difficult to make a case for buying any stocks in this kind of market. The company’s stock chart is below:
Stock chart courtesy of www.StockCharts.com
Abbott Laboratories reported global sales of $5.4 billion, representing an increase of 3.5% on an operational basis. The company’s nutritional products division experienced a nine-percent gain in sales, while diagnostics grew 6.4%.
Earnings from continuing operations in the first quarter of 2013 were $544 million, or $0.34 per share, compared with earnings from continuing operations of $351 million, or $0.22 per share, in … Read More
Hope for the best and prepare for the worst may be one of the best strategies an investor can employ, especially if they are in the world of investing for the long haul and want to preserve their capital. As I always say in these pages, fluctuations are part of the market—the market will move and react to different news, but you have to make sure that your assets are protected.
Investors can use asset allocation, diversification, and risk management to preserve what they have. But if you add the following types of orders to your investing arsenal, your returns can increase, and you can save a significant amount of money over time.
Limit Orders vs. Market Orders
Consider this: if you are trading a thinly traded or volatile stock and the spread between the selling price and the buying price is significant, what would you do? If you go ahead and buy with a market order, you will certainly get the stock, but the price you get may not be the price you wanted in the first place.
In situations like these, limit orders become very useful. Through this order type, investors provide instructions to the broker to buy or sell a stock at a certain price (or cheaper), rather than getting whatever price is available.
For example, Apple Inc (NASDAQ/AAPL) shares are trading at $425.10. If an investor places an order to buy 100 shares at market price, then they might not get the $425.10—the price could be higher or lower at the time of purchase. In contrast, if an investor places a limit order with a price … Read More
No matter what the market conditions are, investors have one question in mind: how do I build a portfolio that provides me with the least amount of risk? There is a simple one-word answer to their question: diversification. With this said, investors might get the impression that if they buy a bunch of different stocks for their portfolio, their portfolio is adequately “diversified.”
This logic is false, and it may force you to take on unwanted risk in hindsight. Companies in the same industry usually react in a similar manner. Consider miners, for example; if the price of the commodity that a company mines for goes down, no matter how well the company’s financial position may be, it usually follows suit.
To build a well-diversified portfolio, investors can make use of a statistical measure called “correlation.” The term may give shivers to some, but at the very basic level, correlation provides investors with an idea of how a stock or any other financial instrument reacts to another.
Correlation ranges from positive one to negative one. If two securities have a correlation of positive one, then it is said that they move very closely to each other. In contrast, if both investment instruments have a correlation of negative one, then it is said they move in opposite directions of each other. A correlation of zero means that two securities don’t react the same way.
Chart courtesy of www.StockCharts.com
This chart depicts the price of gold bullion and Market Vectors Gold Miners (NYSEArca/GDX) exchange-traded fund (ETF). Looking closely, you will notice that they react very similarly. As a matter of fact, the … Read More
Smartphones and personal gadgets have gained some extra attention these days. With that said, many investors only focus on the makers of these phones, and not on the other things associated with them—such as accessories.
A report by ABI Research, a market intelligence firm, indicated that the market for mobile device accessories will grow at a 10.5% compounded annual growth rate from 2012 through 2017, due to the growth in smartphone sales. (Source: “Aftermarket Mobile Accessory Revenues to Reach $62 Billion by 2017 as Market Value Moves to Smart Accessories,” ABI Research web site, November 14, 2012, last accessed February 28, 2013.) The firm expects revenues for mobile device accessories to reach $62.0 billion by 2017.
The report also indicated that products like protective cases and stereo-wired headsets are predicted to show the highest growth rates of 18.2% and 15.6%, respectively. ABI Research tracks 13 accessory product segments.
As I have been saying in these pages, when there is a gold rush, a person selling the shovel can make the most money.
In that case, look at companies like ZAGG Inc. (NASDAQ/ZAGG). Please note: this is not a specific buy recommendation; rather the following information is meant to serve as an example of the type of opportunity you should look for.
ZAGG designs, manufactures, and distributes protective coverings and other products for electronic devices. Its flagship product, “invisibleSHIELD,” is a thin, scratch-resistant covering that’s custom-cut to fit invisibly on the screens and displays of Apple “iPhones” and other smartphones, laptops, GPS devices, and so on. The company also offers additional accessories, including headphones for “iPods” and MP3 players, and decorative … Read More
When you are building a portfolio and saving for retirement, a financial planner usually suggests that you diversify as much as you can—to protect your capital and reduce your risk. The last thing investors want when they are saving for retirement is to lose what they have.
When you diversify, your risk decreases. Even if you are investing in the same industry, investing in different companies reduces your risk significantly.
One way to do this is to look for companies that are operating in multiple regions and industries. Why? This is simple: if one country is witnessing economic slowdown, the other country might be performing well. The same goes for industries—some industries might excel at times of economic growth, and others might suffer.
STMicroelectronics N.V. (NYSE/STM) is a perfect example of this kind of company—well diversified in different regions around the world and in multiple industries. This company is based in Switzerland, and it has research and development centers in 10 countries, 12 manufacturing sites, and global exposure with sales offices around the world. (Source: STMicroelectronics N.V. web site, last accessed February 25, 2013.)
STMicroelectronics N.V. (STM) is one of the largest semiconductor companies and has products for different industries. The company is a leader in serving integrated device manufacturers (IDM) with products, including microcontrollers, smartcard products, standard commodity components, micro-electro-mechanical systems and advanced analog products, application-specific integrated circuits, and application-specific standard products for analog, digital, and mixed-signal applications. STM also offers subsystems and modules for the telecommunications, automotive, and industrial markets, comprising mobile phone accessories, battery chargers, ISDN power supplies, and in-vehicle equipment for electronic toll payment. (Source: Yahoo! … Read More