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As the bull market in US stocks gets set to celebrate its eighth birthday this week, it is stunning to consider how far we have come. On March 9, 2009, here was the closing level of the three major indexes:
2016 is in the record books and given the dreadful start of the year for US stock markets (in February, all major indexes corrected, falling more than 10 percent from the end of 2015,) the closing numbers were impressive. Total return results for 2016, which includes price appreciation and dividends showed the Dow up 16.5 percent and the S&P 500 ahead by 12 percent. The 2016 action occurred in three distinct phases:
The end of year rally was fueled by President-elect Trump’s pledges to reinvigorate the economy with a mix of fiscal policy changes, which include: A public-private infrastructure spending plan; corporate and personal tax reform; and the loosening of regulations across a number of sectors, including banking and energy.
The combination of these three potential initiatives could boost growth, as the economy enters the eighth year of the expansion. (In the first seven years, annual growth ranged from 1.6 to 2.6 percent.) Presuming that some form of each idea comes to fruition, most economists have penciled in growth of 2.5 to 3 percent for 2017, with two asterisks.
The first is that the plans could spark inflation, which could prompt the Fed to raise interest rates faster than anticipated and could snuff out some of the growth. The second asterisk is more dangerous—if Trump’s trade rhetoric were to escalate into a full-blown trade war, the economy would suffer dramatic negative effects, potentially leading to a toxic combination of a recession and inflation.
What lies ahead for the economy and markets in 2017 will be directly linked to the details of the broad themes that President-elect Trump and the Republican Congress are able to enact.
MARKETS: While stocks grabbed headlines, bond investors endured a wild ride in 2016. After starting the year at 2.273 percent, yields of the benchmark 10-year Treasury tumbled to 1.366% in early July-the lowest yield on record. Then in Q4, prices fell and yields increased by the largest amount in more than a decade. The total return from the so-called safe haven was DOWN 0.2 percent on the year.
THE WEEK AHEAD: The last employment report of the year is due this week. It is expected that the economy added 175,000 jobs in December and the unemployment rate will edge up to 4.7 percent from 4.6 percent. For 2016, job growth will likely be about 2.2 million, down from 2.7 million in 2015 and just over 3 million in 2014, the peak year for this cycle.
Mon 1/2: Markets Closed
Tues 1/3:
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing
10:00 Construction Spending
Weds 1/4:
Light vehicle sales for December
8:15 ADP Private Sector Employment
2:00 FOMC Minutes
Thurs 1/5:
10:00 ISM non-Manufacturing Index
Friday 1/6:
8:30 Employment Report
8:30 International Trade
10:00 Factory Orders
With Black Friday in the rear view window, it’s time to focus on Cyber Monday, a holiday first mentioned in a NRF press release in 2005. At that time, the organization noted that the sharp increase in web traffic after the Thanksgiving weekend occurred because “consumers may have faster or more secure Internet connections at work and choose to shop there.” Despite having faster connections eleven years later, consumers are still lured by Cyber Monday deals. Shoppers spent $3.19 billion last year on the day and that number is expected to rise this year - according to Adobe Digital Insights, it is expected to be the largest online shopping day in history.
If you are planning to click away, here are Network World’s 12 Tips for Safer Shopping:
In addition to Cyber Monday, the holiday weekend now extends to Giving Tuesday. Last year, over 700,000 people raised $116 million in over 70 countries and expectations are for even larger numbers this year, because post-election charitable giving has already spiked dramatically. Even before the election, Americans were known for their generosity. The U.S. is the world’s second most generous nation in the world (after Myanmar), according to the Charities Aid Foundation (CAF).
Americans gave $373.25 billion in 2015 and with changes to the tax code likely to occur next year, there could be a surge in giving before the end of 2016. Financial planners and tax preparers are urging clients to step up their charitable giving this year, because deductions are likely to be less valuable or potentially go away, in the coming years.
As you rush to complete your donations, you should be aware that earlier this year, IRS Commissioner John Koskinen said “Fake charities set up by scam artists to steal your money or personal information are a recurring problem.”
To help avoid a costly mistake, here is a four-step checklist for your charitable giving.
Step 1: Confirm that the Charity is Legitimate. One of the simplest scams perpetuated by fraudsters involves using a name that seems familiar to a nationally known organization. To help taxpayers conduct research on organizations, the IRS has established an online search tool, Exempt Organizations Select Check , which allows users to search for and select an exempt organization and check certain information about its federal tax status and filings.
Remember, there’s a big difference between “tax exempt” and “tax deductible.” Tax-exempt means the organization doesn’t have to pay taxes. Tax deductible means you can deduct your contribution on your federal income tax return. Select Check allows you to find legitimate, qualified charities to which donations may be tax-deductible. Legitimate charities will provide their Employer Identification Numbers (EIN), if requested, which can be used to verify their legitimacy through EO Select Check. The IRS notes that it “is advisable to double check using a charity's EIN.”
Step 2: Research Charity’s Financial Health. Once you have confirmed that the group is legitimate, you can also see what others say about the organization by going to the Better Business Bureau’s (BBB) Wise Giving Alliance, Charity Watch and GuideStar. You will also want to know that its finances are healthy and that it is efficient, ethical and effective. Charity Navigator provides 0 to 4-star rating system, which includes a review of each charity’s fiscal performance. The site also helps you understand what portion of your donation goes to support overhead, versus goes to the cause itself.
Step 3: Determine how you will donate to the charity. You should NEVER send cash donations or wire money to someone claiming to be a charity. And do no not provide any personal or financial information until you’ve thoroughly researched the charity. If you are making a gift of appreciated securities from a taxable investment account, you will need to get information about how to send the assets-be sure to confirm all receiving account numbers.
If you are planning to send a check, your payments must be postmarked by midnight December 31st -- just writing “December 31st” on the check does not automatically qualify you for a deduction; and pledges aren’t deductible until paid. Donations made with a credit card are deductible as of the date the account is charged, so if you are a little late in the process, you probably should stick to credit cards.
Step 4: Keep Good Records. For any cash or property valued at $250 or more, you must have a receipt (bank record, payroll deduction or written communication) identifying the organization, the date and amount of the contribution and a description of the property. For text message donations, flag the telephone bill with the name of the receiving organization, the date of the contribution, and the amount given.
MARKETS: In a holiday-shortened week, all four US stock indexes closed at new record highs and saw their third consecutive week of gains.
THE WEEK AHEAD: The Labor Department will release the final employment report before the Federal Reserve’s December 13-14 policy meeting. Barring a very strange reading (the consensus estimate for job creation in November is 170,000 and the unemployment rate should remain at 4.9 percent) or a sudden, exogenous event, a quart-point rate increase is assumed to be a done deal.
Mon 11/28:
8:30 Chicago Fed National Activity Index
Tues 11/29:
8:30 Q3 GDP-2nd Estimate
9:00 US/S&P CoreLogic Case-Shiller Indices
10:00 Consumer Confidence Index
Weds 11/30:
OPEC Meeting in Vienna
8:15 ADP Private Payrolls Report
8:30 Personal Income and Spending
9:45 Chicago PMI
10:00 Pending Home Sales
2:00 Fed Beige Book
Thurs 12/1
Motor Vehicle Sales
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing
10:00 Construction Spending
Friday 12/2
8:30 November Jobs Report
With Halloween looming, what might spook markets during the last two months of the year? Let’s start with this week’s Federal Reserve policy meeting. Investors believe that there’s about a zero chance that the central bank will increase rates this week, especially given that the two-day confab occurs less than a week before the presidential election. (The futures market implies a 75 percent chance of a December rate hike.) That said, there could be an argument that the stronger than expected 2.9 percent annualized gain in third-quarter GDP growth confirms that the economy has recovered smartly from the little over one percent rate seen in the first half of the year and could easily absorb another quart-point hike. In minutes from the September FOMC meeting, “Members generally agreed that the case for an increase in the policy rate had strengthened” and the advance reading of Q3 GDP only adds to that case. A surprise November rate hike would quell Donald Trump’s rhetoric that the fed does “political things” and that fed officials are “not doing their job” and it would also underscore Chair Janet Yellen’s assertion, “that partisan politics plays no role in our decisions about the appropriate stance of monetary policy”. While a November rate hike is unlikely, its occurrence would be a major-league negative shock to the markets.
Another factor that could spook markets would be a significant downshift in job creation. This week’s employment report is expected to show that the economy added 175,000 new jobs in October, slightly ahead of September’s 156,000. Over the past year, there have been nearly 2.5 million jobs created and the unemployment rate has hovered around 5 percent. The reason the rate has not dropped more significantly is because of a concurrent increase in the labor force over the past 12 months. However, if the employment landscape dims in the final two reports of the year, it is likely to cause stocks to tumble and it would also increase the chatter about a looming recession.
By far, the biggest near term risk to markets is a different outcome to the presidential election than what is expected. In other words, a Trump victory may cause a significant selloff, according to recent research conducted by economists Eric Zitzewitz and Justin Wolfers. In their paper, “What do financial markets think of the 2016 election?” the authors looked at currency, stock, bond and options markets globally, and concluded “Given the magnitude of the price movements, we estimate that market participants believe that a Trump victory would reduce the value of the S&P 500, the UK, and Asian stock markets by 10-15 percent...and would significantly increase expected future stock market volatility.” To put that into perspective, the day after the surprising Brexit vote, the Dow Jones Industrials fell by over 3.4 percent, or 611 points, before recovering ground. A ten percent drop in the Dow based on Friday’s close would mean a plunge of more than 1800 points! That’s about as spooky an outcome as any investor might imagine.
Proof of the thesis was seen on Friday afternoon. After news emerged of a renewed FBI investigation into Clinton's e-mails, US stocks dropped, the Mexican peso tumbled and the safe haven of gold gained ground.
MARKETS:
THE WEEK AHEAD:
Mon 10/31:
8:30 Personal Income and Outlays
9:45 Chicago PMI
10:30 Dallas Fed Mfg Survey
Tues 11/1:
Coach, Pfizer
Motor Vehicle Sales
FOMC Meeting Begins
9:45 PMI Manufacturing Index
10:00 ISM Mfg Index
10:00 Construction Spending
Weds 11/2:
Clorox, Fitbit, Time Warner, Whole Foods
8:15 ADP Private SecotrEmployment Report
2:00 FOMC Policy Announcement
Thursday 11/3:
CBS, GoPro, Kraft Heinz, Starbucks
8:30 Productivity and Costs
9:45 PMI Services Index
10:00 Factory Orders
10:00 ISM Non-Mfg Index
Friday 11/4:
8:30 October Employment Report
8:30 International Trade
Although the calendar says 33 days to go before we ring in 2016, for investors, there are exactly two days left in 2015: Friday, December 4th and Wednesday December 16th. Oh sure, there will be navel gazing over the results of the holiday shopping weekend. FYI, as it turned out, those door busters were a bit of a bust in brick and mortar stores, but they sure were effective in the digital arena. ShopperTrak reported that in-store traffic was down, but Adobe Digital index said consumers spent 14 percent more on Black Friday than last year and Thanksgiving online spending saw a 22 percent surge.
Regardless of the total holiday sales results, which will not be available for another month, there are far more important events ahead for the economy. Back to those two days…on Friday, the government will release the November jobs report. After a better than expected reading in October, when the economy added 271,000 jobs, the unemployment rate edged down to 5 percent and average hourly earnings increased by 2.5 percent from the previous year, hopes are high for follow through in November.
Economists predict nonfarm payrolls will rise by 190,000, with a range of 160,000-220,000. The unemployment rate will likely hold steady at 5 percent and earnings growth should slow from the quicker than expected pace in October, but is expected to show continued progress. .
If the jobs report comes in even at the low end of predictions, it would probably be enough ammunition for the Federal Reserve to raise interest rates at its two-day meeting, which concludes on the last important day for investors, December 16th. Janet Yellen will have two opportunities this week to pre-sell the rate hike: a speech before the Economic Club of Washington DC and testimony before the Joint Economic Committee of Congress. Although lawmakers will try to flex their muscles and attempt to prod Yellen to elaborate on the Fed’s plans, don’t expect her to give away much more than she has already stated in public.
Although these two days will be pivotal, that is not to say that there will not be volatile trading days in the month of December. As asset managers reposition their portfolios for the year-end, there is always the possibility for a low volume swing in either direction. There is also likely to be continued chatter about the narrowness of leadership in stocks. The FANG stocks (Facebook, Amazon, Netflix and Google) are said to account for gains of about 60 percent this year, while the S&P 500 and NASDAQ Composite are up 1.5 and 8.3 percent respectively.
MARKETS: While you were surfing the web on Black Friday, you may have missed a 5.5 percent drop in the Chinese stock market. The plunge was attributed to a government investigation into brokerage firms, which is part of a broader legal, regulatory and anti corruption crackdown, following a year of market swoons. Even with the late-week sell-off, the Shanghai Composite is 21 percent above its calendar year nadir on August 26th, though still remains 34 percent below its seven-year high on June 12th.
THE WEEK AHEAD:
Mon 11/30:
Cyber Monday
9:45 Chicago PMI
10:00 Pending Home Sales
10:30 Dallas Fed Manufacturing
Tues 12/1:
Giving Tuesday
Motor Vehicle Sales
9:45 PMI Manufacturing
10:00 ISM Manufacturing Index
10:00 Construction Spending
Weds 12/2:
8:15 ADP Private Employment Report
8:30 Productivity
2:00 Fed Beige Book
Fed Chair Janet Yellen speaks at the Economic Club of Washington DC
Thursday 12/3:
10:00 Factory Orders
10:00 ISM Non-Manufacturing Index
10:00 Fed Chair Janet Yellen testifies before Joint Economic Committee of Congress
Friday 12/4
8:30 November Employment Report
8:30 International Trade
Greek Fatigue: Condition affecting investors and news junkies, caused by five years of reporting on the exact same topic. Symptoms include weariness, eyes glazing over and sleepwalking through broadcasts/columns/blogs predicting doom and gloom. (See: “US Debt Ceiling” and “The Boy Who Cried Wolf”.) I know you don’t want to hear about Greece again, but we’re getting down to it. Euro group leaders (the European Central Bank (ECB), the European Commission (EC) and the International Monetary Fund (IMF)) were banking on weekend progress to restructure outstanding loans to Greece, which would unlock €7.2B of the total €15.3 billion in rescue funds. Without that money, Greece will not be able to make a €1.54 billion ($1.73B) payment due to the IMF on Tuesday. In order to get the lifeline from the Euro group, Greece must agree to more taxes and an increase in employee pension contributions.
THEN, in a twist worthy of a Broadway “11 o'clock number” (“Rose's Turn” from Gypsy being hands-down the best, ever!), in the wee hours of Saturday morning, Greece’s Prime Minister Alexis Tsipras went on television and called for a surprise referendum for July 5th, where Greek citizens will have the opportunity to vote on the euro group’s demands. Tsipras called on Greeks to vote “no to the ultimatum” and at the same time, sent his Finance Minister Yanis Varoufakis into the Euro group meeting to ask for a one-month extension on the talks to allow time for the vote. European officials quickly rejected the request, saying there was “no support for that.”
Over the weekend, Greek Prime Minister Alexis Tsipiris stunned the world with an announcement of a surprise referendum next weekend, where citizens will have the opportunity to vote on the euro group’s demands for an increase in taxes and pension contributions. Concurrently, Greece asked the euro group for a one-month extension to the negotiations, which officials quickly dismissed.
Then the European Central Bank announced that it would not increase short term funding which has allowed Greek banks to meet withdrawal demands. Without the lifeline, Greece had no choice but to announce that banks would be closed for a week and to impose capital controls, which limit how much money citizens can withdraw from the banks (€60/day, though no limit if drawing from a non Greek bank card, so foreign tourists are not affected) and transfer out of the country.
Barring a last minute-effort, Greece is now likely to fall into technical default on the IMF loans, though not necessarily on other debts. That puts the country in a dubious club that includes Cuba, Zimbabwe and Somalia, but it would not immediately lead to cascading problems. That is, unless Greek bank depositors make a more fervent dash out of the banks and investors get antsy, during the week leading up to the vote.
The total outstanding amount extended to Greece is nearly $270B, of which the European Central Bank’s exposure stands at about $170 billion. About 80 percent of the ECB’s money is keeping the Greek banking system afloat and the rest is in the form of longer-term Greek bonds, which require a $3.9B installment on July 20th and the remainder must be paid by the end of August.
I know that it’s easy to paint Greece as the screw up, prodigal son in this story, but Irish economist Karl Whelan wants to set the record straight. Whelan cited the EC’s report on Greece from last year, which found that total public sector employment declined over 25 percent from 2009 to 2014. During the same time, Greece reduced its fiscal deficit from 15.6 percent of GDP to 2.5 percent, according to the OECD.
Perhaps because Euro group members are not willing to discuss the progress that Greece has made or the pain that ordinary Greeks have endured, Tsipiras and many within Greece’s ruling Syriza party are balking at even more austerity, which the party had promised to bring to an end when it successfully won seats in parliament in January.
The defiant Greek posture only inflames emotions more, leading many in Europe to posit that a default and exit from the euro zone, combined with a new (and much devalued) currency and structural reforms, would be best for Greece in the long run. The Financial Times Martin Wolf is not so sure: “Far more likely is a period of chaos and, at worst, emergence of a failed state…Neither side should underestimate the risks.”
While a deal between Greece and its creditors may finally emerge, “it still looks unlikely to include the substantial debt relief needed to end the crisis and eliminate the risk of Grexit”, according to Capital Economics. That’s a shame, because the answer seems so clear: European financiers pushed the ultimate drug into Greece—cash. Now that the addicted country is coming off the stuff, it would be foolhardy to go cold turkey.
US Jobs Report in a holiday-shortened week: Here in the US, there continues to be evidence of economic improvement. New and existing home sales reached 6 to 7 hear highs; personal income and spending jumped in May; and sentiment came in at a 5-month high. The better than expected results overall is prompting some economists to increase their projections for the June employment report from 215,000 to closer to 250,000. And there may be even more progress on wages: “Adjusting for inflation, disposable income for the first five months of the year is up a strong 3.6 percent compared to the same period last year,” according to Joel Naroff. Just a reminder, the report will be released on THURSDAY at 8:30ET, due to the Friday observance of Independence Day.
MARKETS:
THE WEEK AHEAD:
Mon 6/29:
10:00 Pending Home Sales
10:30 Dallas Fed
Tues 6/30:
GREECE PAYMENT DUE TO IMF
9:00 S&P Case Shiller Home Price Index
9:45 Chicago PMI
10:00 Consumer Confidence
Weds 7/1:
Motor Vehicle Sales
8:15 ADP Private Sector Jobs Report
9:45 PMI Manufacturing
10:00 ISM Manufacturing
10:00 Construction Spending
Thurs 7/2:
8:30 June Employment Report
Fri 7/3: MARKETS CLOSED IN OBSERVANCE OF INDEPENDENCE DAY
We have now entered the third stage of the psychological condition known as “Investor Angst”. As a reminder, stage one began nearly two years ago, with the "Taper Tantrum". On May 22, 2013, the Federal Reserve announced that it would begin tapering its bond and mortgage backed securities program. The news freaked out investors and they sold just about everything that was considered risky. The second stage was "Patience Panic", which began this year, as investors perseverated over whether or not the Fed would remove the word “patient” from its monetary policy statement. When the news finally emerged that the central bankers were no longer "patient" as to when they would consider hiking rates, reality sank in and investors entered stage three of the affliction, "Rate Rage".
The more rational among us might think, “Wait, isn’t it a good thing that the Fed is finally going to normalize its policy? Doesn’t that mean that the economy is officially out of the woods and we can put the financial crisis, the Great Recession and the stinky recovery behind us? And after all, who cares whether the Fed starts increasing interest rates at the June or the September meeting—does ninety days really matter to my long term game plan?”
All of those are great questions, but they matter little to institutional investors, who have been enjoying this period of ZIRP (Zero Interest Rate Policy) and are riding high on the big gains in their portfolios. The “pros” are among the most likely to suffer from Rate Rage, because once interest rates start to rise, the period of easy money is over and they must return to the mundane world where old school financial analysis is necessary to score big investment returns.
That’s why as you were gearing up for a big weekend of NCAA basketball, the “Rate Ragers” were focused on a speech that Fed Chair Janet Yellen delivered on Friday. Here’s what you need to know about the 18-page (more than 4,000 words) treatise that she delivered: the central bank will raise short term interest rates later this year; and once it does actually happen, the pace of increases will be gradual and will depend on economic conditions. In other words, Yellen told us what we already knew.
For those suffering from Rate Rage, perhaps the only solace is to remember that the rationale behind rising rates is that things are getting better. And because the process is likely to be a slow one, the U.S. economy should still be able to expand to its historic, post World War II pace of 3 to 3.5 percent. That doesn’t mean that stock prices will shoot up, but frankly, after a six-year bull market, what did you expect?
As companies’ increase wages (a good thing!), their profits will be curtailed. I’m guessing that most workers would gladly trade a bump in pay for an extra couple of percentage points of gains in their retirement accounts this year. To put into perspective how much ground needs to be covered in wages, the analysts at Capital Economics note that labor’s share of corporate profits after tax has fallen to 57.7 percent, down dramatically from the peak of 66.3 percent in Q1 2001. While the drop partly reflects “the structural forces of globalization and technological progress…it has also been a cyclical response to the deepest recession in recent memory.”
To determine when those much-needed and anticipated pay raises are coming, the focus will be on the government’s monthly employment report, which is due on Friday. It’s expected that the economy added 250,000 new jobs and the unemployment rate remained at 5.5 percent.
MARKETS:
THE WEEK AHEAD:
Mon 3/30
8:30 Personal Income and Spending
10:00 Pending Home Sales
10:30 Dallas Fed Survey
Tues 3/31:
9:00 Case- Schiller Home Price Indexes
9:45 Chicago PMI
10:00 Consumer Confidence
Weds 4/1:
Motor Vehicle Sales
8:15 ADP Private Jobs Report
9:45 PMI Manufacturing
10:00 ISM Manufacturing
10:00 Construction Spending
Thurs 4/2:
8:30 International Trade
10:00 Factory Orders
Fri 4/3: Good Friday: Markets Closed, Banks Open
8:30 March Employment Report
After a slight delay, the Labor Department reported that the economy added 295,000 jobs in February, ahead of estimates for 230,000 and better than the average monthly gain of 266,000 over the past year. January’s result was revised down by 18,000 but December’s strong 329,000 was unchanged. Even with the downward revision, payrolls are still rising at a three-month average of 288,000 a month. There is no doubt that job creation has kicked into a higher gear over the past year. A total of 3.3 million jobs were added, the highest year-over-year gain since the end of the 1990s. Meanwhile, the unemployment rate slid to 5.5 percent from 5.7 percent, due to a 178,000 decline in the labor force. The BLS noted that the labor force participation rate, at 62.8 percent, “has remained within a narrow range of 62.7 to 62.9 percent since April 2014.” Economists have attributed at least half of the more than three percent decline in the participation from pre-recession levels to the demographic trend of the retiring baby-boom generation. The rest of the drop reflects a deep jobs recession, which prompts disgruntled workers to give up their search. In her recent Congressional testimony Fed Chair Janet Yellen said that the low participation rate continues to suggest, “some cyclical weakness persists.”
The problem for Yellen is that the unemployment rate is now at the top end of the Fed’s 5.2 to 5.5 percent estimate of the natural rate. As a matter of policy, when the rate falls into the “natural” range, the central bank would start to increase short-term interest rates. But Yellen has also noted that wage growth would be a factor in the Fed’s decision on lift-off of rates.
Despite healthy job creation, average hourly earnings advanced by just 2 percent in February from a year earlier, stubbornly slow progress. Wages grew at a better than 3 percent rate annually during the prior recovery that ended in 2007. Economist Joel Naroff believes that wage growth is a lagging indicator “and with major employers announcing pay increases, it is only a matter of time before wages, however we measure them, increase faster.”
The long-awaited jump in wages could be coming sooner rather than later, according to the Financial Times. The fact that younger employees are seeing better growth; and lower wage earners are seeing a moderate improvement in incomes, “could be a harbinger of stronger earnings across the economy.” Analysts at Capital Economics say if the Fed waits until wage growth rises at a more normal pace, it risks being “well behind the curve.”
Meanwhile, investors threw a little tantrum on Friday, after the stronger than expected jobs report got some thinking that the Fed would be forced to raise rates at the June meeting. Stock indexes were down 1 - 1.5 percent and bond prices slumped. At some point, these knee-jerk reactions will stop and everyone will realize that more normal interest rate policy would indicate a healthier economy.
We'll hear more about the potential timing of rate increases at the next Federal Reserve policy meeting on March 17 and 18. One clue that the central bankers might increase rates as soon as June would be the removal a key phrase in the accompanying statement. If the Fed is no longer "patient" as to when it will consider hiking rates, we could see a June lift-off. BUCKLE UP!
MARKETS: Last week there was little fanfare over the NASDAQ reclaiming 5000 after 15 long years. Perhaps investors might feel a bit better when they reflect on the 6-year anniversary of the bear market lows, which occurred on March 9, 2009 (see stats below).
THE WEEK AHEAD:
Mon 3/9: 6th Anniversary of Bear Market Lows
Here’s where we stood 6 years ago--since then, the broad S&P 500 has gained 150 percent, on an inflation-adjusted basis (dividends not included).
Tues 3/10:
9:00 NFIB Small Business Optimism
10:00 Job Openings and Labor Turnover Survey (JOLTS)
Weds 3/11:
Thurs 3/12:
8:30 Retail Sales
8:30 Import/Export Prices
10:00 Business Inventories
Fri 3/13:
8:30 PPI
10:00 Consumer Sentiment
The U.S. labor market continued to improve in August, though not as much as analysts’ had predicted. Employers created 142,000 positions and the unemployment rate edged down to 6.1 percent, because a bunch of people left the labor force. Before you start worrying the recovery is falling apart, consider this: But for a lousy January (when severe weather pervaded much of the country) and this jobs report, which may have been impacted by unusual events in auto manufacturing and retailing, this year has actually been a very good one for job creation. There have been 1.732 million jobs added in 2014, or an average of 215,375 per month. In the last 15 years, the U.S. has seen average monthly job gains of at least 200,000 in just one year (2005), so let’s not throw in the towel just yet. And taking a longer view, private-sector payrolls have grown by more than 10 million since the jobs recovery began in March 2010. According to the WSJ, “employers outside the government have added jobs for 54 straight months—the longest such streak on records back to 1939”.
Still, there are many problems that persist in the labor market, like 3 million people out of work for more than six months and a historically low participation rate, to name a couple. But perhaps the most vexing for the economy is that wage growth remains stuck at around two percent from a year ago. As a frame of reference, Americans usually see pay increases of about 3 percent during expansions, so the recent recovery, which officially began in June 2009, has been sub-par for growth as well as for wages.
Last week, the Federal Reserve has released its Survey of Consumer Finances for the year 2013. The central bank conducts these surveys every three years, so this is the first comprehensive update we have seen since the recovery has taken hold. There’s lots of fascinating information in the report about income distribution, but let’s cut the chase on the topic at hand: the median American family earned 5 per cent less in 2013 than in 2010 after inflation. (Don’t be distracted by the average, because the results of the top ten percent sway the results.)
And if you want to get really depressed, consider this: median income has declined about 12.4 per cent since the peak in 2004. One of the contributing factors to the consumer credit binge of 2004-2007 was that as incomes slowed, Americans borrowed more to cover the difference. And the housing and credit collapse that helped trigger the financial crisis has taken a big bite out of how much Americans are worth. Median net worth is still 40 per cent below peak. Or put another way by Matthew C. Klein of the Financial Times, “Adjusted for inflation, the typical American is no better off than she would have been in the early 1990s.”
If you are among the top 3 percent who has seen gains in income and net worth, these trends are bad for you too. The reason is simple: there are not enough high earners to carry the economy. We need a broader swath to enjoy growth so that they will spend more freely. The pokey wage growth explains why consumers have become thriftier during the recovery, resulting in GDP growth of about two percent annually, more than a full percentage point below the post-World War II average.
The weakness in consumer spending or the somewhat disappointing August Employment report does not mean that the economy has veered off track. In fact, there is evidence that housing, business spending, exports and government activity are all accelerating. But only when the broad consumer base, which accounts for about two-thirds of overall activity, more fully participates in the recovery, will the country return to trend growth.
MARKETS:
THE WEEK AHEAD: More clues about consumer spending will be revealed with the release of the August retail sales report. Economists expect a jump in sales, boosted by cars and an increase in back-to-school shopping. Because how we feel about the economy can be related to how we spend, economists will also be eager to see the preliminary results of the University of Michigan September Consumer Sentiment survey.
Mon 9/8:
3:00 Consumer Credit
Tues 9/9:
Apple event: iPhone 6 and iWatch expected to be unveiled
7:30 NFIB Small Business Confidence
10:00 Job Opening and Labor Turnover Survey (JOLTS)
Weds 9/10:
Thurs 9/11:
8:30 Weekly Jobless Claims
Fri 9/12:
8:30 August Retail Sales
8:30 Import/Export Prices
9:55 Consumer Sentiment
10:00 Business Inventories
Just like clockwork, the Labor Department will release its monthly report on the nation’s job situation this week. Employers likely added 225,000 jobs in August and the unemployment rate should remain at 6.2 percent. Despite a slow start to the year, the economy has produced an average of 230,000 jobs per month this year, which puts it on track to be the best year since 1999 for job creation. Adding to the good news, weekly jobless claims are hovering at eight-year lows; and small businesses are feeling more confident in the overall economy, the future of their own businesses and have made important steps forward in hiring. As a result, now may be a great time for disgruntled workers to tune up their resumes and to restart their job searches!
Fortunately, I recently reconnected with an old pal, Sheila Curran of The Curran Consulting Group (CCG). I knew Sheila when she ran career services at Brown University, but she has gone on to bigger and better things, starting her own company, which provides holistic and cost-effective administrative strategies to higher education.
When I asked Sheila about how job applicants can stand out, she provided great advice. “Examine yourself: identify what you like, what you hate and what you’re good at. Then, think like an employer…when talking about your experience, focus on the requirements of the job, and put your relevant qualifications front and center on your resume. Your cover letter should make it easy for an employer to visualize you in the job…Your goal is make the application materials shout out ‘I have the qualifications, the experience, and the enthusiasm you need. I can add value.’
Obviously, you need to stress these attributes both in your resume and during the all-important interview. About that interview…there are concrete ways to improve your interviewing skills. You will find that the more you do it, the better you will get, but here are some tips to make the process a smoother one:
Research before you interview: learn everything you can about the company, the competition and the industry. You should not only review the company’s website, but you should also utilize your (and your parents’ and friends’) network(s) to identify people you know at the company who can provide additional information.
Check out the company’s LinkedIn and Facebook pages, review their latest advertising campaigns and establish Google alerts as soon as you learn of an interview so you can start to get updates. If you know the name of the interviewer, do a quick check on him or her (again, social media can be helpful here) and try to find common ground (school, interests).
Practice interviewing: Stand in front of mirror, or better yet, have a friend conduct a mock interview. (If you are a recent grad, it may be helpful to ask a friend of your parents to conduct the interview.) You are not trying to memorize a script, but attempting to get comfortable telling stories about yourself that can bring to light why the company should hire you. Don’t forget to make eye contact and also try to perfect a firm, but not painful, handshake.
Prepare Smart Questions: When the interview is over and you are asked, “So, do you have any questions for me?”, DO NOT SAY NO! Prepare at least three questions that show that you are interested in the position and in the person conducting the interview. Remember that people really like to talk about themselves and while the interview is a chance for the company’s rep to get to know you, it also a chance for you to learn more about the person, the job and the company.
Here are a few options:
Finish strong and follow up. Conclude the interview with enthusiasm and interest in the position. Before you leave, ask the interviewer what the next steps and timeline are. Email a thank you note less than 24 hours after the interview and try to make the note specific to the conversation you had. Remind the interviewer why you are excellent candidate and how much you would like to continue the conversation. This may be a little old school, but I also recommend sending a neatly hand-written thank you note soon after the interview…to people of a certain generation (like me!), a note via snail mail is a wonderful touch.
