Will the Fed Cause the Next Recession?

A few weeks ago, our economic and market problems were widely seen as the fault of a slowdown in China, plunging oil and a rising dollar. Now there’s a new culprit: central banks around the globe. The Wall Street Journal devoted an editorial to the topic and the NY Times featured a print edition headline “New Fear That Central Banks Are Hindering Global Growth” (they changed the HED for the online version.) The prevailing fear among investors last week was that U.S. central bankers, along with their developed economy counterparts in Europe and Japan, are pursuing or considering policies that will trigger the next recession – specifically, unlike the market’s buoyant reaction to large bond purchases (Quantitative Easing) to prompt growth, investors are less sure about the efficacy of negative interest rates.

Let’s step back and think about this: The idea of charging banks to leave money on deposit with a central bank is meant to spur more lending, borrowing and spending for weak economies which are struggling amid deflationary forces. Like QE, pushing rates into negative territory should eventually boost growth and inflation. But the problem may not be the policy itself, but with the way central banks have communicated its benefits. According to Capital Economics, “the hesitant way in which they [the policies] have been introduced has undermined confidence, raising the risk that negative rates do more harm than good.”

No policy endeavor is without unintended consequences. Negative deposit rates will hurt banks, harming their profitability and potentially their willingness to make new loans. But more importantly, the concept of negative rates is being seen as a central bank Hail Mary. The thinking is “if they’re willing to go negative, they must have really run out of options!” That may be a purely emotional (after all, the Fed could start QE again if it wanted to do so), but who said that investors were rational?

Meanwhile, back in the real economy (vs. the stock market), there continues to be little evidence of a slow down outside of the energy and manufacturing sectors. In fact, on the back of decent jobs report, the government said Retail Sales were better than expected. The “control group”, which excludes the volatile categories of autos, gasoline and building materials, rose solidly in January. Economists pay attention to the control group because it closely mirrors the consumption portion of Gross Domestic Product. According to economist Joel Naroff, the “retail sales numbers don’t point to a recession coming any time soon.”

MARKETS: You know it’s a rough week when a 2 percent move on a Friday can’t save it. Even if there were some optimists in the buying crowd at the end of the week, chances are that much of the activity derived from short sellers buying back shares to lock in profits before a long holiday weekend.

• DJIA: 15,973 down 1.4% on week, down 8.3% YTD
• S&P 500: 1864 down 0.8% on week, down 8.8% YTD
• NASDAQ: 4337 down 0.6% on week, down 13.4% YTD
• Russell 2000: 972, down 1.4% on week, down 14.4% YTD
• 10-Year Treasury yield: 1.74% (from 1.84% a week ago)
• Mar Crude: $29.44, down 4.7% on week (despite Fri’s massive 12.3% rise, the largest one-day percentage gain since January 2009)
• Apr Gold: $1,239.10, up 7.1% on week, best week since Dec, 2008)
• AAA Nat'l avg. for gallon of reg. gas: $1.70 (from $1.75 wk ago, $2.24 a year ago)

THE WEEK AHEAD: After a better than expected retail sales report, investors will focus on earnings from Wal-Mart and Nordstrom.

Mon 2/15: US Markets Closed for President’s Day

Tues 2/16:

Cheesecake Factory

8:30 Empire State Mfg Survey

10:00 Housing Market Index

Weds 2/17:

Gannett, T-Mobile, Williams Cos

8:30 Housing Starts

8:30 PPI

9:15 Industrial Production

2:00 FOMC Minutes

Thursday 2/18:

Nordstrom, Starwood, Wal-Mart

Friday 2/19:

Deere

8:30 CPI

#258 Valentine's Day with Dynamic Duo of CFPs

Sameer Somal, CFA, CFP and Marguerita ("Rita") Cheng, CFP are the future of the financial planning profession...they bring smarts and passion to the table! Thankfully, Rita is the Social Security Queen, so she helped answer a number of your most pressing SS questions.

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Rita notes that the best time to call Social Security is in the middle of the month, mid-week and mid-day. She also reminds those who are still eligible for SS File and Suspend that your Full Retirement Age (FRA) is when "claiming magic happens!"

Thanks to everyone who participated this week, especially Mark, the Best Producer in the World...and yes, I owe Mark a bottle of scotch for correctly selecting the Broncos as Super Bowl Champions. Here's how to contact us:

• Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

• Send an email: askjill@jillonmoney.com 

• Tweet us: @jillonmoney and @MTalercio

Investing Amid Market Volatility

It has been a rough year for investors. U..S stock indexes have plunged into correction territory (down 10 percent from the recent peak) for the second time in six months and the big swings are testing every investor’s internal fortitude. The bad start to the year is causing a bit of déjà vu all over again, especially given the dire predictions of some economists and analysts. The current situation is not like 2008, primarily because there is no financial crisis brewing. In fact corporate balance sheets (outside of the energy sector), including those of financial services companies, are in decent shape. Additionally, despite slowdown fears, the U.S. economy, while not strong, is still growing by about 2 percent annually. That means in a year like 2015, you have soft quarters like Q1 and Q4 where there is barely any growth (+0.6 percent and estimated +1 percent) and the recession calls are abundant, and stronger ones like Q2 and Q3, where the economy seems fine (+3.9 percent and +2 percent).

Still, when people hear big banks, like RBS saying “The downside is crystallizing. Watch out. Sell (mostly) everything” it’s hard not to feel butterflies. Although some investors may be tempted to sell, they do so at their own peril. Market timing requires you to make two precise decisions: when to sell and then when to buy back in, something that is nearly impossible. After all, even if you sell and manage to steer clear of the bear by staying in cash, you will not be able to reinvest dividends and fixed-income payments at the bottom and you are likely to miss the eventual market recovery.

In fact, data from Dalbar confirm that when investors react, they generally make the wrong decision, which explains why the average investor has earned half of what they would have earned by buying and holding an S&P index fund. We’ll see if the folks at RBS can beat the odds.

The best way to avoid falling into the trap of letting your emotions dictate your investment decisions is to remember that you are a long-term investor and you do not have all of your eggs in one basket. Try to adhere to a diversified portfolio strategy, based on your goals, risk tolerance and time horizon and do not be reactive to short-term market conditions, because over the long term, this strategy works. It’s not easy to do, but sometimes the best action is NO ACTION.

If you are really freaked out about the movement in your portfolio, perhaps you came into this period with too much risk. If that’s the case, you may need to trim readjust your allocation. If you do make changes, be careful NOT to jump back into those riskier holdings after markets stabilize.

If you have cash that is on the sidelines and are nervous putting it to work as a lump sum, you should take heart in research from Vanguard, which shows that two-thirds of the time, investing a windfall immediately yields better returns than putting smaller, fixed dollars to work at regular intervals.

But, if you are the kind of investor who is less concerned with the probability of earning and more worried about losing a big chunk of money immediately, you may want to stick to dollar cost averaging. Vanguard notes “risk-averse investors may be less concerned about averages than they are about worst-case scenarios, as well as the potential feelings of regret that would occur if a lump-sum investment were made immediately prior to a market decline.”

#257 Super Bowl Show with Mohamed El-Erian

It doesn't get any better than spending an hour with the great economist, Dr. Mohamed El-Erian, author of the new book, "The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse". Mohamed is Chief Economic Advisor at Allianz and chair of President Obama’s Global Development Council and if that doesn't keep him busy enough, he is a columnist for Bloomberg View, a contributing editor at the Financial Times and an influencer at LinkedIn.

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Mohamed started our conversation by explaining the role of central banks and how that role changed dramatically during the financial crisis, as bankers relied on a “Whatever it Takes” mentality to help rescue the economy. While he was supportive of those actions, Mohamed also recognizes that there have been serious consequences that have occurred.

During our conversation, he outlined some big problems that the global economy faces, including how to sustain inclusive growth, how to address income and wealth inequality and the yawning gap between markets and economic fundamentals.

Mohamed says that we are coming to a "T-Junction": on one end, we are destined for a low growth economy, plagued by high unemployment, increasing income inequality and political extremism. On the other end, we see a resumption of growth and broad-based job creation, with decreasing income inequality and a drop in financial instability. While we all hope for the more positive outcome, Mohamed says that there is an  equal probability that either scenario plays out.

For more, you can snag a copy of his new book, "The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse".

Thanks to everyone who participated this week, especially Mark, the Best Producer in the World. Here's how to contact us:

• Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

• Send an email: askjill@jillonmoney.com 

• Tweet us: @jillonmoney and @MTalercio

Love and Money

Just in time for the Valentine’s celebration, CreditCards.com released a report that was sobering. 13 million Americans have committed financial infidelity by hiding a bank or credit card account from a spouse or partner. Maybe you can get away with your financial infidelity for a period of time, but just like the other kind of infidelity, chances are that the act itself is likely covering up a major issue: you and your honey have not had an honest conversation about money. Of course it’s tough to do-money discussions often bring up core issues about how we were raised or fear about the future. That’s why money can be so loaded and often leads to heated battles. According to Money Magazine, seventy percent of couples fight about money—that’s more than brawls about household chores, togetherness or sex!

Trying to have a meaningful conversation about money amid a heated argument is fruitless. Instead, to break the cycle of non-communication, set aside a specific time and place to talk about the dreaded topic. You can reduce emotions by setting ground rules: No judgments -- just open dialogue.

During this opening conversation, you should share information, like outstanding debt or any secret bank or investment accounts that may be floating around. If you have never created a balance sheet, this is a perfect time to do so. Figure out what you own and what you owe. While you are at it, you should also create the master list of documents necessary to organize your estate, so make sure to note in whose name the asset is held or whether it is jointly owned. Include your bank accounts (as well as user names and passwords for online banking), the contents of any safe deposit boxes (and where the key is located), 401(k) accounts, IRA’s, Roth IRAs, annuity contracts, brokerage account information (with the broker’s name and contact phone number) and a detailed list of savings bonds (or login information for treasurydirect.gov). Also list your house and vehicles (make sure you have deeds and titles) and any debts that are outstanding in your names.

You should also make sure that you and your partner are on the same page when it comes to financial priorities -- check in on retirement, college planning and cash flow management. Do you want to keep separate bank accounts and then both contribute to a joint account? There is no “right” answer on this one!

After you have that conversation, it’s time to divide financial responsibilities. Work toward each partner’s strength. If one is an app queen and likes to track money, perhaps she should manage the day-to-day bill paying. If the other is more inclined to manage the investments, that’s ok too…again, the main point is that you must understand the game plan together and then allocate the tasks appropriately.

If one spouse is completely uninterested in all of this stuff, especially the investments, you still need to have quarterly meetings to walk him or her through the most recent statements. Start with the overall objective, like “we have a balanced portfolio, which means that we split the risk between stocks and bonds”, and make sure that you explain the different parts of the statement itself. Often times, one person is more comfortable with risk than the other. Instead of “winning” that argument, you might benefit from working with a professional to determine what level of risk is appropriate, given your goals and objectives.

Just like most issues, communication and empathy are the go-to tools that will help you navigate the process.

Do Rotten Stock Markets Indicate Economic Trouble Ahead?

January was a rotten month for stock markets, but what is the action is telling us? Is the economy about to careen into a recession or did stocks get ahead of the broader economy and are now resetting lower, to a more reasonable level? My guess is that it's the later, but the answer will only be evident in hindsight. Here’s what we know: the economy slowed to a measly 0.7 percent annualized pace in the fourth quarter, dragged down by business investment (-1.8 percent) and net exports (-0.5 percent). Plunging energy prices was the culprit for the weak reading on business investment. Within the category, there was a 5.3 percent drop in structures investment, which was mainly due to the collapse in drilling activity. According to Capital Economics, “mining structures investment fell by 51 percent in 2015, subtracting 0.4 percentage points from overall GDP.”

Exports and inventories were down primarily due to a strong dollar. Although growth was only 2.4 percent for all of last year, essentially matching the slower than normal pace of the previous three years, U.S. GDP is better than other developed nations, like Europe and Japan. That’s why the dollar Index is up by more than 20 percent over the past two years. A strengthening greenback is great for consumers who are purchasing French cheese or Italian olive oil, but it also makes U.S. goods costlier overseas, which has put the manufacturing sector into a deep funk.

One bright spot in the GDP was consumer spending. Although consumption slowed to 2.2 percent in the fourth quarter, from 3 percent in the third, for all of 2015, consumption grew at the fastest pace in a decade, according to Joel Naroff of Naroff Economic Advisors. He notes, “given that the warm December meant a lot lower heating bills and very little reason to buy winter-related products such as sweaters or shovels, it [the 2.2 percent reading] was actually quite good.”

Americans may be spending, but they are not going crazy. Overall after-tax income increased by 3.2 percent at an annualized inflation-adjusted basis, but instead of blowing it, more people chose to bank those extra shekels. The personal savings rate jumped to 5.4 percent, the highest level since 2012 and a far cry from the negative rate seen in mid 2005.

Fed/Jobs Watch: The drop off in US growth kept the Fed on hold in January and investors think that the current economic uncertainty will clear up by the time of the next FOMC meeting in March. Futures markets anticipate only one additional quarter-point rate hike by the end of this year. It is important to underscore the US monetary policy remains accommodative—after all, the inflation-adjusted fed funds rate is still well below zero.

To determine whether or not to raise in March, the Fed will keep a close eye on economic data and the labor market. The January employment report, which is due on Friday, is expected to show that 200,000 jobs were created and the unemployment rate will remain at 5 percent. There may even be an upside surprise, as companies have recently been reporting that they are finding those job vacancies harder to fill and households say that jobs are plentiful.

Oil, Oil Everywhere: And finally, a word about oil…an old commodities trader once told me: “Honey (it was 1987), there are only two things to analyze with commodities: supply and demand.” The 2015/early 2016 oil selloff has been attributed to weak demand, reflecting fears of a slowdown in China’s economic growth and, consequently, its demand for oil.

But Capital Economics points out that the Energy Information Administration’ short- term outlook “shows that Chinese petroleum consumption has continued to rise at roughly the same pace as before. Instead, the slump in global oil prices appears to be predominantly due to the surge in supply that began in 2014 (a lot of it due to higher US shale output) rather than weaker world demand.”

MARKETS: Negative is a Positive for markets. Persistently weak growth in Japan and the rest of the world prompted the Japanese central bank to join other central banks (ECB, Sweden, Denmark, Switzerland) to push deposit interest rates for new reserves into negative territory. That means that a Japanese commercial bank will have to pay for the privilege of sitting on cash. The government hopes that the move will encourage banks to lend more, which would in turn create more spending. Investors saw the action as evidence that both Japan and Europe would like have to resort to more stimuluative measures in the future, which pushed stocks higher on Friday. It was not enough to save the dreadful month, but it coulda’ been worse!

• DJIA: 16,466 up 2.3% on week, down 5.5% MTD/YTD
• S&P 500: 1940 up 1.8% on week, down 5.1% YTD
• NASDAQ: 4613 up 0.5% on week, down 7.9% YTD
• Russell 2000: 1035, up 1.3% on week, down 8.8% YTD
• Shanghai Composite: down 23% in Jan, the largest monthly drop since 2008. The index has fallen by nearly 50% since its peak in June 2015, but remains 33% above its level in mid-2014, before the bubble began
• 10-Year Treasury yield: 1.93% (from 2.06% a week ago)
• Mar Crude: $33.62, up 4.4% on week, down 9.2% MTD/YTD and up 27% from Jan 20 low)
• Apr Gold: $1,116.40, up 1.8% on week, +5.3% MTD/YTD
• AAA Nat'l avg. for gallon of reg. gas: $1.80 (from $1.84 wk ago, $2.05 a year ago)

THE WEEK AHEAD:

Mon 2/1:

Aetna, Alphabet (formerly known as Google)

8:30 Personal Income and Spending

9:45 PMI Manufacturing Index

10:00 ISM Manufacturing Index

10:00 Construction Spending

Tues 2/2:

Exxon Mobil, Dow Chemical, UPS, Yahoo

Motor Vehicle Sales

Weds 2/3:

GM, Merck, MetLife, Yum! Brands

8:15 ADP Private Employment Report

9:45 PMI Service Index

Thursday 2/4:

8:30 Productivity Costs

10:00 Factory Orders

Friday 2/5:

8:30 Jan Employment Report

3:00 Consumer Credit

#256 Which Candidate is Best for Your Money?

The political season finally kicks off with Monday's Iowa Caucus. But for months, all of the candidates from both parties are talking about how they would improve your bottom line. To help us figure out what's going on, we invited Money Magazine's Senior Writer Ian Salisbury to parse the rhetoric. If you want more information, check out Ian's article, "Which Candidate is Best for Your Portfolio?"

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Thanks to everyone who participated this week, especially Mark, the Best Producer in the World. Here's how to contact us:

• Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

• Send an email: askjill@jillonmoney.com 

• Tweet us: @jillonmoney and @MTalercio

Recession Fears Escalate

The recent turmoil in global markets has wiped out about $4 trillion in value this year. It has also spurred a new round of recession calls. It’s been nearly seven years since the last recession and while there is a case to be that we might be due for one, the folks at Capital Economics note “Since 1960, the average period between recessions has been eight years in the U.S…so the current expansion is not particularly long in the tooth.” It’s also worth remembering the old joke line, “Markets have predicted nine out of the past five recessions.” Economists are trying to figure how to square the divergent signals. There is no doubt that the U.S. manufacturing and energy sectors are in a recession. But whether the other parts of the economy will join is unclear. Overall employment gains have been strong, housing just completed another solid year of recovery and consumers are happily sitting atop extra savings, due to the drop in oil. (It is estimated that households saved $120 billion on energy related products last year.)

But, there is a real concern that if oil resumes its downward slide, it could spark a contagion. So far the evidence is not there, though it may appear this week, when the first estimate of fourth quarter growth is released. The consensus estimate is for GDP to slow to 0.8 to 1 percent. That would mean that 2015 GDP was likely 2 percent, in line with all of the slow growth years of this recovery:

• 2010: +2.5%
• 2011: +1.6%
• 2012: +2.3%
• 2013: +2.2%
• 2014: +2.4%
• 2015 est: 2%

Sluggish growth combined with volatile markets will likely keep the Federal Reserve on the sidelines for this week’s FOMC meeting. Most expect that the central bank statement will acknowledge greater risks to financial stability and moderation in economic activity. Traders are hopeful that the Fed also provides a hint about the March meeting—and specifically that the bankers will not raise rates if current conditions persist.

Even if there is no explicit mention, many believe that the Fed showed its true colors at last September’s meeting, which followed a similar concern about global growth and violent moves in financial markets. At that meeting, the Fed said, “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced but is monitoring developments abroad.” Sound familiar?

MARKETS: Markets ended the week on a positive note, but we are still down significantly since the start of the year. Energy markets showed signs of life in the last two trading sessions of the week, though we will only know if the bottom has been reached with the benefit of hindsight.

• DJIA: 16,093 up 0.7% on week, down 7.7% YTD
• S&P 500: 1907 up 1.4% on week, down 6.7% YTD
• NASDAQ: 4591 up 2.3% on week, down 8.3% YTD
• Russell 2000: 1020, up 1.3% on week, down 10.1% YTD
• 10-Year Treasury yield: 2.06% (from 2.04% a week ago)
• Mar Crude: $32.19, up 9.4% on week
• Feb Gold: $1,096.30, up 0.5% on week
• AAA Nat'l avg. for gallon of reg. gas: $1.84 (from $1.91 wk ago, $2.04 a year ago)

THE WEEK AHEAD:

Mon 1/25:

Halliburton, Kimberly Clark, McDonald’s

10:30 Dallas Fed Manufacturing Survey

Tues 1/26:

DuPont, P&G, Apple

FOMC Policy Meeting begins

9:00 S&P Case Shiller Home Price Index

10:00 Consumer Confidence

Weds 1/27:

Boeing, J&J

10:00 New Home Sales

2:00 FOMC Meeting Announcement

Thursday 1/28:

Caterpillar, Ford, Amazon.com, Visa

8:30 Durable Goods Orders

10:00 Pending Home Sales

Friday 1/29:

American Airlines, Abbvie, Honeywell, Chevron, MasterCard Colgate-Palmolive

8:30 Q4 GDP-first estimate (Q3=2%)

8:30 Employment Cost Index

9:45 Chicago PMI

#255 Personal Finance Doesn't Have to be Complicated

Special guest Helaine Olen, co-author of "The Index Card: Why Personal Finance Doesn't Have to Be Complicated" returns to the show to discuss her new book and what ten steps you can take to simplify your life. Helaine's previous book, "Pound Foolish" is a must-read for anyone who wants to know about the dark side of the personal finance personal finance industry:

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Helaine tells us how she and future co-author University of Chicago professor Harold Pollack stumbled onto a fantastic idea for a new book by accident.

When Pollack interviewed Olen about Pound Foolish, he made an off­hand suggestion: everything you need to know about managing your money could fit on an index card. To prove his point, he grabbed a 4″ x 6″ card, scribbled down a list of rules, and posted a picture of the card online. The post went viral.

I love the simplicity and elegance of the book and the advice offered...and of course, Helaine is a terrific guest!

Thanks to everyone who participated this week, especially Mark, the Best Producer in the World. Here's how to contact us:

• Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

• Send an email: askjill@jillonmoney.com 

• Tweet us: @jillonmoney and @MTalercio

Will Stock Correction Lead to Bear Market?

The first two weeks of the year have been the worst ever for US stock indexes. Indexes are now in correction territory for the second time in six months and the big swings are testing every investor’s internal fortitude and begging the question: will the correction lead to the first bear market in nearly seven years? Understandably, this period may cause a bit of déjà vu all over again, but the current situation is not like 2008 for many reasons. The first of which is that there is no financial crisis brewing and the second is that US economy, while not strong, is still growing by about 2-2.5 percent annually. Although some investors may be tempted to sell, they do so at their own peril. Market timing requires you to make two precise decisions, when to sell and then when to buy back in, something that is nearly impossible. The data show that when investors react, they generally make the wrong decision, which explains why the average investor has earned half of what they would have earned by buying and holding an S&P index fund.

The best way to avoid falling into the trap of letting your emotions dictate your investment decisions is to remember that you’re a long-term investor, who doesn’t have all of your eggs in one basket. Try to adhere to a diversified portfolio strategy, based on your goals, risk tolerance and time horizon -- one that is not reactive to short-term market conditions, because over the long term, it works. It’s not easy to do, but sometimes the best action is NO ACTION.

Where the markets will go throughout the rest of 2016 depends on the answer to the following six questions:

1) Will Chinese growth accelerate? The cause of the early part of the New Year's sell-off was anxiety over a slowdown in China (sometimes referred to as a “hard landing”), which sent stocks there into a bear market, down 20 percent since the December high. This is not a new fear—investors have believed that a downshift in growth in the world’s second largest economy would inflict pain on the rest of the world, especially as China shifts from an economy that relies on government investment in building and infrastructure as well as manufacturing to one that is more consumer-based.

2) How many Fed Rate increases? The central bank pledged to raise rates gradually—according to its own projections, there are likely to be four quarter-point increases in 2016. But the bond market thinks that there will only be two, due to slower growth. If the Fed is correct, it would mean that US growth continues to accelerate and that inflation will rise towards the target 2 percent; if the bond market is correct, growth and inflation will likely stall in 2016.

3) Will crude oil steady/fall further/rise? Oil’s shaky start (down about 20 percent in the first two weeks of the year), comes after last year’s 30 percent drop and 2014’s 46 percent plunge. Crude is now down over 70 percent over the past 18 months. With Chinese demand cooling and supply remaining high -- the world is producing 1 million barrels of oil more than it’s consuming, which is pushing prices down. That’s good news for consumers, who will either save or spend the savings at the pumps, but bad news for energy companies, whose earnings are going to get shellacked.

4) Will US Economic Growth Accelerate? GDP growth last year is likely to come in around 2.25 percent, matching the results of the previous three years. Analysts are expecting growth of 2.5 percent in 2016, with some thinking that a recession is imminent. Part of the answer to this question may also be found in the movement of the US dollar, which in trade-weighted terms, is close to a ten-year high. With anxiety in China and emerging markets pushing capital to the US, the dollar could continue to rise, which would be bad news for US manufacturers and likely keep inflation too low in the eyes of the Federal Reserve.

5) Will Wages Finally Rise? The economy added 2.65 million jobs in 2015, the second best year for job creation in the past 15 years. (The best was 2014). While there was progress on job creation and the unemployment rate (5 percent), wage growth has lagged. With a tightening labor market, employers may have to dig deep and pay up to attract and retain qualified talent. That would be good news for workers, but not so hot for corporate America.

6) Will the Bear Emerge? The current bull market in US stocks turns seven years old in March, making it the third longest in history (1987-2000 is the winner, followed by 1949-1956). Just because the bull is aging, does not mean that it is doomed. However, it does mean that the pressure is mounting for companies to deliver earnings growth in a year when their compensation expenses are likely to rise, but they are unable to pass on those additional costs to customers.

By the way, since the end of World War II (1945), there have been 12 full-blown bear markets (with losses of 20% +). Statistically they occur about 1 out of every 3.5 years, and last an average of 367 days.

MARKETS: All three indices are in correction territory and the Russell 2000 index of small stocks, as well as certain other indexes like the Dow transports, is already in a bear market, defined as a 20 percent decline from the highs. For the Dow, which would be 14,681; for the S&P 500, it would be 1,708; and the NASDAQ would be in bear market territory if it hit 4,185.

• DJIA: 15,988 down 2.2% on week, down 8.2% YTD (8/24/15 low: 15,370)
• S&P 500: 1880 down 2.2% on week, down 8% YTD (8/24/15 low: 1867)
• NASDAQ: 4643 down 3.3% on week, down 10.4% YTD (8/24/15 low: 4292)
• Russell 2000: 1007, down 3.7% on week, down 11.3% YTD, down 23% from 6/15 high)
• 10-Year Treasury yield: 2.04% (from 2.12% a week ago)
• Feb Crude: $29.42, down 10.5% on week, lowest settle since Nov 2003
• Feb Gold: $1,091.50, down 0.7% on week
• AAA Nat'l avg. for gallon of reg. gas: $1.91 (from $1.98 wk ago, $2.08 a year ago)

THE WEEK AHEAD:

Mon 1/18: US Markets closed for MLK Day

Tues 1/19:

Morgan Stanley, Bank of America, IBM, Netflix

China Economic Data: Q4 GDP, industrial production, retail sales

10:00 Housing Market Index

Weds 1/20:

Goldman Sachs

8:30 CPI

8:30 Housing Starts

Thursday 1/21:

Starbucks, Schlumberger

Friday 1/22:

General Electric

10:00 Existing Home Sales