Now that New Year’s has come and gone, as we look forward into 2014, the big question will be how the stock market performs this year, especially following an impressive advance in 2013 that was beyond my estimates.
The past year was seen as the year of the Fed-induced market rally that resulted in some strong gains across the board from blue chips to technology and growth stocks. It was one of the best years to make money on the stock market in recent history.
At this stage, the economy is looking better and will need to strengthen in order for the stock market to advance higher toward more record gains. A strong January would be positive and would suggest an up year for the stock market.
My early view is that the stock market will head higher in 2014, but not at the same rate as we saw in 2013, which was out of whack.
The key will be how fast the Federal Reserve, under Janet Yellen, decides to taper its bond buying. A slower taper is supportive for the stock market. However, the flow of money will depend on the rate of economic renewal and, more specifically, the jobs market and whether job creation continues to move along at a steady pace. If we see growth and more jobs created, the Fed will continue to cut its bond buying, though it has said that it will keep interest rates near record lows until the unemployment rate falls to 6.5% or lower, which could happen sometime in mid- to late 2014.
I see another up year for the stock … Read More
At 2:00 p.m. on Wednesday, Federal Reserve chairman Ben Bernanke said the central bank would, in the eternal quest for job creation and economic growth, continue to buy $85.0 billion a month in bonds. In other words, its third round of quantitative easing (QE III) is charging ahead unabated.
A few minutes later, The New York Times declared, “In Surprise, Fed Decides Not to Curtail Stimulus Effort.” USA Today proclaimed, “Fed delays taper, surprising markets,” while The Guardian said, “Federal Reserve maintains bond-buying stimulus in surprise move.”
Are economic analysts looking at different data than the rest of us? Back on August 29, I predicted the Federal Reserve wouldn’t begin to taper its quantitative easing until early 2014 at the earliest. That was because all of the economic indicators steering the data dependent on quantitative easing policies were nowhere close to being achieved.
For starters, the Federal Reserve said the unemployment rate “remains elevated.” For the Federal Reserve to begin tapering its QE policy, unemployment would have to fall to 6.5%. In August, the unemployment rate held stubbornly high at 7.3%.
The Federal Reserve also wants the U.S. rate of inflation to rise to two percent; after eight months, it’s stuck at one percent. For the Fed to consider tapering, the rate needs to at least double in just a few months—which isn’t going to happen, especially when you look at stagnant wages. Lastly, a new Federal Reserve chairman will be taking the helm in early 2014; Bernanke isn’t going to want to tarnish his reputation or disrupt the U.S. economy before then.
If the Federal Reserve is as good … Read More
As consumer spending in the U.S. economy improves, investors may be able to profit from exchange-traded funds (ETFs) like the Consumer Discretionary Select Sector SPDR (NYSEArca/ XLY) and consumer discretionary companies.
In the aftermath of the financial crisis, consumer spending in the U.S. economy stalled. The reasons behind it were obvious: there was a surge in foreclosures and rampant job cuts.
But consumers in the U.S. economy seem to be spending once again.
In June, retail and food services sales increased 0.4% over May to $422.8 billion. While this may sound minute, it makes the big picture clearer: consumer spending on retail and food services has increased 4.6% in the second quarter of this year compared to last year, and is up 5.7% from June of 2012. (Source: U.S. Census Bureau, July 15, 2013.)
Consumers are also buying cars again. In June, 1.4 million cars and light trucks were sold in the U.S. economy. At an annual pace of 15.96 million vehicles, June was the best month for car sales since November of 2007. Auto sales in the U.S. economy have increased nine percent from a year ago. (Source: Klayman, B. and Woodall, B., “U.S. auto industry posts best sales month since 2007,” The Globe and Mail, July 2, 2013.)
Consumer confidence is also increasing in the U.S. economy. Consider the chart below of The University of Michigan Consumer Sentiment Index. In June, consumer sentiment registered at 84.1—one of the best levels since late 2008.
Chart courtesy of www.StockCharts.com
Consumer confidence is one of the best indicators of consumer spending. Once the consumer feels confident, they think the economy is … Read More
Investors interested in making long-term investing commitments in the face of an irrational, Federal Reserve–enhanced bull market need to consider the facts. Sure, the markets are running higher, but it isn’t on sound economic policy.
U.S. unemployment remains stubbornly high, as does personal debt. U.S. wages are stagnant, and first-quarter U.S. gross domestic product (GDP) growth came in well below the expected expansion rate. Of the S&P 500 companies that have issued corporate earnings guidance for the second quarter of 2013 so far, almost 80% have issued a negative outlook.
It’s fair to say the run-up on Wall Street has more to do with the Federal Reserve’s $85.0-billion-per-month quantitative easing policies and artificially low interest rates than it does an economic rebound.
Still, there are potential investing areas that even the Federal Reserve can’t touch. Case in point: no matter what happens on Wall Street, over the next 18 years, roughly 10,000 Americans will turn 65 every single day.
And over the next 20 years, they will each spend $142,000 in medical expenses, though that estimate is an average number and does not include long-term care costs that some retirees may incur. Or at least that’s according to a recent study that examined commercial data from 2002 through 2010 and Medicare data claims from 2006 through 2010. (Source: Yamamoto, D.H., “Health Care Costs—From Birth to Death,” Health Care Cost Institute web site, May 2013.)
Not surprisingly, the study found that the amount of health care a future retiree will need varies by their current age and life expectancy. If you retire at 55, you’ll spend about $372,400 ($744,800 for a … Read More
An unexpectedly rosy jobs report on Friday helped propel the Dow Jones Industrial Average and S&P 500 to record highs. The Dow Jones crossed the 15,000 threshold, touching 15,009.59, while the S&P 500 hit 1,618.46.
The U.S. Department of Labor announced that a net 165,000 jobs were created in April, and hiring was much stronger in February and March than first estimated. Together, job creation and hiring helped bring the unemployment rate down to 7.5%, the lowest in four years. (Source: “The Employment Situation – April 2013,” Bureau of Labor Statistics web site, April 3, 2013.)
The upbeat jobs report is a reassuring sign that the U.S. jobs market is indeed improving, in spite of higher taxes and government spending cuts that took effect earlier this year—and in spite of the Federal Reserve dumping $85.0 billion into the economy each month.
Growing optimism in the world’s largest economy could be just what retail investors sitting on the sidelines have been looking for.
After years of bad news, including the U.S. housing collapse, 2008 financial crisis, high unemployment, economic troubles in the eurozone, geopolitical tensions in the Middle East, nuclear threats from Dennis Rodman’s friends in North Korea, and domestic terrorism, American investors need a little silver lining.
This could be good news for all the previously ignored economically sensitive stocks. One area that has been performing well over the last 12 months has been the entertainment industry. The perfect short-term escapes for economically and politically weary people, movie studios and concert halls have been performing well. It’s one of the few cyclical industries that’s been acting like a defensive play…. Read More