The stock market appears anxious to move higher to new record highs.
In the past week, the Federal Reserve released its Federal Open Market Committee (FOMC) meeting minutes that suggested it wanted to see stronger, sustained growth before deciding on when to raise interest rates. This includes both economic growth and jobs creation.
On Thursday, the Bureau of Economic Analysis (BEA) will report the second reading of the second-quarter gross domestic product (GDP), which came in at a surprising annualized four percent for the advance reading.
The consensus is that the second reading will show the GDP growth holding at the same four-percent level. If it does, it would be excellent for the economy but at the same time, ironically, it would make investors and the stock market nervous about the status of interest rates.
The issue is that the Fed wants to see controlled and steady economic growth and a four-percent reading could raise red flags, pointing to inflation—which means higher interest rates. The inflation rate is benign at this time as consumers continue to hold back on spending.
The stock market will get anxious if the reading remains the same, but we would want to wait to see how the economy fares in the third and fourth quarters of the year before making any drastic moves.
Of course, the stock market is all about expectations going forward and clearly, a strong second reading of the 2Q14 GDP will send some to the exits.
The Fed also wants to see the jobs market continue to expand at its previous trend of generating an average of more than 200,000 monthly … Read More
The retail sector can return some amazing gains as we have witnessed since the recession ended—but it can also provide periods of anxiety.
How the retail sector performs is dependent on many variables, including the economy, jobs, housing, consumer confidence, interest rates, and even the weather, as we witnessed this winter.
There is no tried-and-tested rule on what areas of the retail sector do well. For instance, if you think discount and big-box stores always fare the best, while high-end luxury-brand stocks underperform during times of economic uncertainty, then you are likely off the mark.
The reality is that the past years of massive wealth creation in the stock market and a rebounding housing market have helped to create wealth, and with this comes the desire to spend. There have been some 300,000 new millionaires created in the country in 2013, and that means a propensity to want to spend specifically on higher-end goods and services.
The rationale supports why luxury stocks, such as Michael Kors Holdings Limited (NYSE/KORS) and Tiffany & Co. (NYSE/TIF), have done so well over the past few years. In the luxury retail sector space, Michael Kors continues to be one of my favorite retail sector stocks.
Chart courtesy of www.StockCharts.com
Meanwhile, the bottom end of the retail sector, which includes the discount and big-box stores, has provided mixed results; albeit, these stocks have made investors a lot of money.
One of my favorite discount stocks in the retail sector is Family Dollar Stores, Inc. (NYSE/FDO). But the company recently reported a soft fiscal second quarter, in which same-store sales fell 3.8% in the quarter; year-over-year, … Read More
We narrowly averted the first fiscal cliff on January 1, 2013—now, it’s the infrastructure fiscal cliff of 2014! Over the last number of weeks, stories and new reports have been coming out about how much it will take to fix America’s aging infrastructure.
Every four years, the American Society of Civil Engineers (ASCE) grades the country and its states on the conditions of their infrastructure—and it isn’t pretty. Using a simple A–F school report card format, America’s cumulative grade average for infrastructure came in at D+! (Source: Infrastructure Report Card web site, January 2014.)
Overall, most (not all) grades fell below a C. Inland waterways and levees received a D-. And it will take a $100-billion investment to get things in shape. Dams earned a solid D and a repair price tag of $21.0 billion.
The grade for wastewater improved slightly to a D. Over the next 20 years, costs for the country’s wastewater and stormwater systems are expected to come in around $300 billion; representing three-quarters of the total infrastructure costs.
America’s aging bridges earned a C+ and need an investment of $76.0 billion. The country’s roads got a D and need an 86% annual budgetary increase, from $91.0 billion to $170 billion, to meet long-term needs.
As for America’s public schools, they received a D. For starters, half of U.S. public schools were built to educate the baby boomer generation—the first wave of whom are now retiring. Since the start of the recession (2008), state funding for education has declined, with 35 states providing less funding now than their 2008 levels.
This isn’t a total surprise when you … Read More
The merriment, mirth, and cheer on Wall Street over the holiday season may have been a bit premature; in fact, the optimism about the U.S. economy that ushered in the New Year may have already come to a screeching halt.
In mid-December, the Federal Reserve surprised investors when it announced it was going to start tapering it’s generous $85.0-billion-per-month easy money policy in January to just $75.0 billion per month. The pullback was a surprise, because the Federal Reserve initially hinted it wouldn’t ease its monetary policy until the U.S. unemployment rate fell to 6.5% and inflation rose to 2.5%. At the time of the announcement, U.S. unemployment stood at seven percent and inflation was hovering around historic lows below one percent.
The Federal Reserve moved sooner than expected with its tapering because of a (so-called) stronger U.S. economy and jobs growth. And, going forward, it said that U.S. unemployment figures will improve faster than expected. But, a raft of new economic numbers is calling that optimistic forward guidance into question.
In December, the U.S. economy created just 74,000 jobs, the slowest pace in three years, with the majority of the jobs (55,000) coming from the retail industry. Despite the weak jobs growth, the U.S. unemployment rate managed to fall from seven percent to 6.7%—the lowest rate since October 2008. But numbers are deceiving—the big drop in the unemployment rate was primarily a result of 347,000 people dropping out of the labor force.
Throughout 2013, the U.S. economy created 2.18 million jobs; in 2012, the U.S. economy created 2.19 million jobs. Looking at this from another angle, in 2013, the … Read More