Market Update: June 26, 2017

MarketUpdate_header

Last Week’s Market Activity

  • After closing once again at record levels last Monday, the Dow and the S&P 500 Index battled a wave of sector rotation for the balance of the week, finishing higher by the slightest of margins.
  • It was the 2nd consecutive weekly gain for the S&P 500, as increases in healthcare (+3.7%) and technology (+2.3%) offset weakness in the energy (-2.9%), financials (-1.8%), and utilities (-1.8%) sectors.  Positive news on drug development and potential changes to the Affordable Care Act drove healthcare higher, while continued weakness in WTI crude oil ($43.00; -4.0% for the week) pressured the energy sector.
  • The yield on the 10-year Treasury fell to 2.14%, its second lowest close of 2017, pressuring the U.S. dollar, which edged down -0.2% on Friday.

Overnight & This Morning

  • Asian stocks rose for a third day, led by technology companies.  The MSCI Asia Pacific Index rose +2.0% and equity markets in China and Hong Kong had gains approaching 1.0%. In Japan, The Nikkei managed to climb despite a report from the Bank of International Settlements warning of dollar denominated risk on bank balance sheets.
  • European stocks rebounded from three weeks of losses. German business confidence hit a record in June, but Italy had to bail out two banks totaling $19 billion.
  • Commodities – WTI crude oil rose, trimming its biggest monthly decline in one year. Gold extended its decline to the lowest level in almost six weeks.
  • U.S. stock futures are up slightly as the dollar climbed and Treasury yields jumped after several Federal Reserve officials suggested further rate increases.

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Key Insights

  • Mixed signals. The financial markets are sending mixed signals, trading within a tight range in an extended expansion. The debate now centers on if the U.S. economy can continue to exhibit growth in output and profits (signal from stocks) or it may slip into a recession (signal from Treasuries). Our view is that though the growth rate in manufacturing may have peaked, we expect Purchasing Manager Indexes (PMI) to remain in expansion territory. While auto sales may be down ~5.0% from last year, the rise in household formation suggests pent up demand remains in the housing market. Finally, with solid employment levels and improving wages, consumption is well-positioned to support growth and any clarity on regulation, infrastructure, and tax plans could provide an additional boost.
  • Brexit. Friday marked the 1st anniversary of the controversial Brexit vote, which called for the U.K. to leave the European Union (EU).  To mark the occasion, the pound sterling rose +0.2% to $1.27, paring its weekly decline, and the FTSE 100 Index fell -0.2% on Friday. While the U.K. is the largest importer of the EU countries, the FTSE 100 is largely comprised of exporters, with 2/3rds of its revenue generated overseas.  This helps explain why the approximately 15.0% drop in the pound sterling was accompanied by a rise of a similar magnitude (+17.0%) in the FTSE 100 over the past year.

Macro Notes

  • Technicals continue to look strong. One of the strongest aspects of this equity bull market has been that the technicals have and continue to support higher prices. This week we take a closer look at the global bull market and why broad participation suggests it still has legs.
  • 41 weeks and counting. The S&P 500 has now gone 41 straight weeks without closing lower by 2% or more, but that’s not even the most surprising point.

MonitoringWeek_header

Monday

  • Durable Goods Orders (May)
  • Chicago Fed National Activity Report (May)
  • Cap Goods Shipments and Orders (May)
  • Dallas Fed Mfg. Report (Jun)
  • ECB: Draghi
  • BOE: Carney
  • BOJ: Kuroda

Tuesday

  • Conference Board Consumer Confidence (Jun)
  • Richmond Fed Mfg. Report (Jun)
  • Italy: Mfg. & Consumer Confidence

Wednesday

  • Advance Report on Goods Trade Balance (May)
  • Wholesale Inventories (May)
  • Pending Home Sales (May)
  • France: Consumer Confidence (Jun)
  • Eurozone: Money Supply (May)
  • Itally: PPI & CPI (Jun)
  • Bank of Canada: Poloz
  • Japan: Retail Sales (May)

Thursday

  • GDP (Q1)
  • Germany: CPI (Jun)
  • Eurozone: Consumer Confidence (Jun)
  • BOJ: Harada
  • Japan: National CPI (May)
  • Japan: Industrial Production (May)
  • China: Mfg. & Non-Mfg. PMI (Jun)

Friday

  • Personal Income (May)
  • Consumer Spending (May)
  • Chicago PMI (May)
  • Core Inflation (May)
  • UK: GDP (Q1)
  • France: CPI (Jun)
  • Germany: Unemployment Change (Jun)
  • Eurozone: CPI (Jun)
  • Canada: GDP (Apr)
  • Japan: Vehicle Production (May)
  • Japan: Housing Starts (May)
  • Japan: Construction Orders (May)

 

 

 

 

Important Disclosures: Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

Market Update: March 13, 2017

MarketUpdate_header

  • Traders cautious ahead of Fed decision. The S&P 500 is modestly lower this morning after advancing Friday, led by utilities (+0.8%) and telecom (+0.7), but snapping a six-week winning streak. Energy (-0.1%) lagged, but held up well given the 1.6% drop in the price of oil. Investors are trading cautiously ahead of the Federal Open Market Committee (FOMC) meeting, which begins tomorrow; the market has priced in a 25 basis point (0.25%) rate hike. Overnight, Asian markets were led higher by the Hang Seng (+1.1%) and Shanghai Composite (+0.8%); Korea’s KOSPI (+1.0%) continued to climb after the country’s president was removed from office on Friday. European exchanges are mostly higher in afternoon trading, with the STOXX Europe 600 up 0.4%. Meanwhile, WTI crude oil ($48.30/barrel) is higher after last week’s slide, COMEX gold ($1203/oz.) is up modestly, and the yield on the 10-year Treasury note is up 0.01% to 2.59%.

MacroView_header

  • Busy week ahead in a very busy month. March is an unusually busy month for global markets. This week, the FOMC meeting, along with Bank of Japan and Bank of England meetings, are accompanied by an election in the Netherlands, a press conference by Chinese Premier Li, and a ton of key U.S. economic data (retail sales, CPI, housing starts, leading indicators). President Trump will release his fiscal year 2018 budget document, the G-20 finance ministers meet in Germany, and the U.S. will hit its debt ceiling.
  • FOMC preview. This week, we ask and answer key questions that investors may have about the Fed and monetary policy ahead of the Federal Open Market Committee (FOMC) meeting. With a 0.25% rate hike fully priced in, markets will want to gauge the pace and timing of rate hikes over the rest of 2017 and into 2018, as well as Fed Chair Yellen’s thoughts on fiscal policy and the impact on monetary policy.
  • How much does the current bull market have left in the tank? The bull market celebrated its eighth birthday last Thursday, March 9. During that eight-year period, the S&P 500 rose 250% in price and more than tripled in value (including dividends), leaving many to ask the question: How much does this bull run have left? We try to help answer that question by looking at some of our favorite leading indicators. Although valuations are rich and policy risks are high, none of our favorite leading indicators are sending signals suggesting the bull market is nearing its end.
  • The weekly win streak is over. The S&P 500 ended with a slight gain on Friday to close the week down 0.4% – just missing out on the first seven-week win streak since late 2014 and ending a six-week win streak in the process. The big move last week came in crude oil, as it sank more than 9% for the week – the largest weekly loss since right before the election. Small caps, as measured by the Russell 2000, fell 2.1% and high yield also saw a big drop. Many have noted that weakness in energy, small caps, and high yield could be a warning sign for large caps. We will continue to monitor these developments.

MonitoringWeek_header

Monday

  • ECB’s Mario Draghi Speaks in Frankfut
  • China: Retail Sales (Feb)
  • China: Fixed Asset Investment (Feb)
  • China: Industrial Production (Feb)

 Tuesday

  • Small Business Optimism Index (Feb)
  • Germany: ZEW (Mar)

 Wednesday

  • Empire State Mfg. Report (Mar)
  • CPI (Mar)
  • Retail Sales (Mar)
  • FOMC Decision (Rate Hike Expected)
  • FOMC Economic Forecasts and “Dot Plots”
  • Yellen Press Conference
  • General Election in the Netherlands
  • China’s Premier Li Holds Annual Press Conference

 Thursday

  • Philadelphia Fed Mfg. Report (Mar)
  • US Debt Ceiling Reinstated
  • President Trump to Release His FY 2018 Budget
  • UK: Bank of England Meeting (No Change Expected)
  • Japan: Bank of Japan Meeting (No Change Expected)

 Friday

  • Index of Leading Indicators (Feb)
  • G20 Finance Ministers Meeting in Germany

 

 

 

 

 

Important Disclosures: Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

Market Update: December 12, 2016

MarketUpdate_header

  • Stocks search for direction as oil spikes. Global markets are mixed in Monday sessions, failing to get a lift from a 4.5% rise in WTI crude oil ($53.83/barrel). Oil’s surge comes after non-OPEC producers agreed to cut output by 585,000 barrels per day. Domestic indexes are mixed after the S&P 500 rose over 3% last week on strength in the heavily weighted technology and financials sectors. Looking ahead, investors will be watching the Federal Open Market Committee (FOMC) this week; the market is expecting a rate hike of 25 basis points (0.25%). Overseas, Chinese markets sold off as the Shanghai Composite lost 2.5% and the Hang Seng shed 1.4%; Japan’s Nikkei gained 0.8%. Weakness in China came on the heels of a ban on leveraged stock purchases by the country’s insurers. European markets are near flat with the exception of Italy’s MIB (+0.9%), continuing its rally after the failed constitutional referendum. Meanwhile, COMEX gold ($1161/oz.) is modestly lower, extending a five-week slide, and the yield on the 10-year Treasury note is up to 2.50%.

MacroView_header

  • Oil rallies on OPEC and non-OPEC news. Consistent with the Organization of Petroleum Exporting Countries (OPEC) meeting on November 30, eleven non-OPEC producers announced plans to cut OPEC production, though possibly below the 600,000 barrel per day production cut promised. In addition, Saudi Arabia suggested that it might cut production even more than it had announced on November 30. The market views compliance with new production quotas as key to maintaining prices at current levels, if not higher.
  • FOMC and much, much more. The Federal Reserve Banks’s (Fed) FOMC will hold its eighth and final meeting of 2016 on Wednesday, and it will likely raise rates by 25 basis points (0.25%), a move that is fully priced in by the fed funds futures market. In addition, the FOMC will release a new set of dot plots and economic forecasts for 2017 and beyond. But that’s not all. This week is chock full of key economic data for November and December, including reports on housing, inflation, consumer spending, and manufacturing. Overseas, the key ZEW report in Germany and the Tankan survey in Japan are due out, and China will continue releasing its data set for November. The Bank of England meets this week as well and is expected to stand pat on rates. Mexico’s central bank is likely to raise rates, as inflation is heating up south of the border.
  • FOMC FAQ. This week we’ll cover several key questions ahead of this week’s eighth and final FOMC meeting of 2016. While a rate hike later this week is fully priced in by markets, there are still plenty of questions surrounding the Fed as 2016 turns into 2017.
  • Growth starting to look cheap versus value. Based on the Russell indexes, following value’s outperformance this year, growth is now as cheap relative to value as it has been at any point since the financial crisis. We still think style balance, or a slight growth overweight, are prudent at this point in the business cycle, but note that relative valuations (growth is at a 13% premium to value, about half its 15-year average) and the magnitude of the financials-driven value rally may make it difficult for value to continue its momentum.
  • Small caps starting to get expensive. Following recent strength, small caps are starting to look expensive versus their large cap counterparts. The Russell 2000 is now trading at a 42% premium to large caps on a forward price-to-earnings basis, about ten percentage points above the 15-year average premium. We have a slight positive bias toward small caps in the first half of 2017 on prospects for corporate tax reform and less foreign trade risk, but valuations and the magnitude of the small cap rally may make it difficult for small caps to continue their momentum and we would not be surprised if cap leadership reversed later in 2017.
  • Surging bond yields have not spooked stock market investors. This week, we look at when rising interest rates might begin to hurt stock prices. It is logical to think higher rates will eventually slow the economy as borrowing costs rise and inflation erodes purchasing power. But given the still low rate environment, the market is interpreting higher interest rates as a signal of improving growth expectations, not worrisome inflation, and we do not think rising interest rates put the bull market at risk.
  • The rally continues. The S&P 500 gained 3.1% last week and closed higher every single day. You have to go back to June 2014 the last time all five days of the week were higher. It didn’t end there though, as both the Nasdaq and Dow also were green each day, and closed Friday at new all-time highs. The Dow even made a new all-time high all five days, something it hasn’t done for 17 years. The S&P 500 is up six straight days for the first time since June 2014, and it hasn’t been up seven in a row since September 2013. Lastly, momentum has been very powerful the past few years as the previous 10 times the S&P 500 was up more than 3% for the week (like it was last week), it was green the following week.
  • How long can the bull market go? With new highs being made across the board for U.S. equities, and European markets finally starting to potentially turn the corner as we noted in last week’s blog post, the big question is how long can this current bull market last? As we will lay out in our 2017 Outlook, we feel that stocks should produce mid-single-digit returns[1] and the bull market could continue through at least 2017.

MonitoringWeek_header

Monday

  • China: Retail Sales (Nov.)

Tuesday

  • NFIB Small Business Optimism (Nov)
  • Germany: ZEW (Dec)
  • Japan: Tankan (Q4)

Wednesday

  • Retail Sales (Nov)
  • FOMC Statement
  • FOMC Economic Forecasts and Dot Plots
  • Yellen Press Conference
  • Japan: Nikkei Mfg. PMI (Dec)

Thursday

  • Empire State Mfg. Report (Dec)
  • Markit Mfg. PMI (Dec)
  • CPI (Nov)
  • Philadelphia Fed Mfg. Report (Dec)
  • Eurozone: Markit Mfg. PMI (Dec)
  • European Union: Leader Summit in Brussels
  • UK: Bank of England Meeting (No Change Expected)
  • Mexico: Central Bank Meeting (Rate Hike Expected)

Friday

  • Housing Starts and Building Permits (Nov)
  • Lacker (Hawk)

 

 

 

 

 

[1] We expect mid-single-digit returns for the S&P 500 in 2017 consistent with historical mid-to-late economic cycle performance. We expect S&P 500 gains to be driven by: 1) a pickup in U.S. economic growth partially due to fiscal stimulus; 2) mid- to high-single-digit earnings gains as corporate America emerges from its year-long earnings recession; 3) an expansion in bank lending; and 4) a stable price-to-earnings ratio (PE) of 18 – 19.

Important Disclosures: Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. A money market investment is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money markets have traditionally sought to preserve the value of your investment at $1 per share, it is possible to lose money by investing in such a fund. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. Technical Analysis is a methodology for evaluating securities based on statistics generated by market activity, such as past prices, volume and momentum, and is not intended to be used as the sole mechanism for trading decisions. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns and trends. Technical analysis carries inherent risk, chief amongst which is that past performance is not indicative of future results. Technical Analysis should be used in conjunction with Fundamental Analysis within the decision making process and shall include but not be limited to the following considerations: investment thesis, suitability, expected time horizon, and operational factors, such as trading costs are examples. This research material has been prepared by LPL Financial LLC.

This is Why Apple iPhone Sales are Tanking in China

Apple is performing terribly in China, but it’s not because of the economy
Provided by MarketWatch

It was early morning eight months ago when Tim Cook shot an email to TV personality Jim Cramer telling him the company was doing fine in China. The global markets roiled amid broader macroeconomic concerns, yet Apple’s shares quickly recovered on Cook’s optimism.

Two quarters later, things are far from rosy.

Sales in the Greater China region plunged 26% in its fiscal second quarter, marking the biggest percentage decline of any of Apple’s geographic regions. Total sales fell for the first time since 2003, while the iPhone suffered its first-ever quarterly decline.

“Whereas China accounted for half or more of the company’s revenue growth for several quarters, it’s now accounting for half its year-on-year shrinkage,” said Jan Dawson, founder of tech consulting company Jackdaw Research.

Apple   blamed the slowdown on macroeconomic issues and tough year-over-year comparisons, with the iPhone 6S flailing next to the huge success of the iPhone 6 and iPhone 6 Plus. Cook also blamed Hong Kong, which accounted for the vast majority of declines in Greater China, because its dollar is pegged to the U.S. dollar, which has strengthened significantly over the past two years, thus making it more expensive for international shopping and tourism in the country.

But there are reasons to believe the quarter’s troubles aren’t just cyclical and isolated. People in China are buying more phones from local manufacturers, such as Huawei Technology Co. and Xiaomi. And the Chinese governmentrecently banned certain media services from Apple, as it clamps down on distributed content, a move that could weigh heavily on Apple’s next big revenue driver: services. When excluding Hong Kong, mainland China sales still fell a whopping 11% during the quarter.

“Only super rich, really high-paid professionals buy iPhones in China — you’re not talking about lots and lots of people,” said John Zhang, faculty director of the Penn Wharton China Center, and a professor of marketing. “That means at some point, you’re not going to be able to grow unless you put out new innovative products to keep your people engaged, which is not the case with Apple.”

While the company released the Apple Watch last summer, those sales still pale in comparison with Apple’s more traditional products. The four-inch iPhone SE was released last month in part to target China’s sprawling middle class, yet the phone’s starting retail price of $399 is still expensive compared with the Xiaomi’s sub-$200 phones, and analysts have said it doesn’t appear to be growing in-line with expectations.

“It’s almost like a fashion designer who runs out of ideas and is making clothes tighter and looser and there’s no new design,” said Zhang. “When you set the phone downward, you’re reaching out to people who don’t want to pay the higher price, but then you get into the territory that many other Chinese manufacturers feel very comfortable with, such as Xiaomi.”

Competition in China is increasing across the board, with lesser-known Chinese manufacturers OPPO and Vivo making IDC’s list of the world’s top five smartphone manufacturers for the first time in the first quarter, ousting Lenovo and Xiaomi, which slipped to the sixth and seventh spots.

Those companies offering mid-tier phones in China priced below $250 are growing in line with the improving wages of the middle class. However the majority of those wages are still far below the premium market that Apple’s phones target in China.

“Lenovo benefited with ASPs below US$150 in 2013, and Xiaomi picked up the mantle with ASPs below US$200 in 2014 and 2015. Now Huawei, OPPO, and Vivo, which play mainly in the sub-US$250 range, are positioned for a strong 2016,” said Melissa Chau, senior research manager with IDC’s Worldwide Quarterly Mobile Phone Tracker team.

The China slowdown can’t be dismissed, especially since other U.S. companies, including McDonald’s and Caterpillar , have recently reported improving conditions in the region.

Shares of Apple plunged 6.2% to $97.87 in afternoon trade, pushing the stock down more than 26% on the year. The stock was on track for its eighth decline over the last nine trading days.

But there are analysts who believe things will start to recover once the economy starts to improve and wealthier Chinese customers get ready to upgrade their phones, potentially starting with the iPhone 7 in September.

“The [high-end] segment they are playing in is still growing much faster than the market,” said IDC analyst Ryan Reith. “In 2015 we saw China smartphone growth slow to 2.5%, yet the premium segment (>$400) grew close to 50%, and this was largely dominated by Apple.”

When it comes down to it, said Pacific Crest analyst Andy Hargreaves in a note to clients on Wednesday, iPhone customers “remain extremely loyal.”

That’s an obvious benefit for Apple, especially as it tries to roll out increased pay-for services such as music and payments. The data suggest Apple is “likely to continue growing iPhone unit sales over several years, albeit modestly,” he said.

Written by Jenniger Booton of MarketWatch

(Source: MSN)

We’re Going Broke Chasing the American Dream

Provided by MarketWatch

The parlous financial state of many Americans is well-known: My MarketWatch colleagues Quentin Fottrell and Catey Hill had good pieces about it recently.

I’ve written that many Americans take Social Security early or don’t invest in stocks because they just don’t have the money.

But it often takes a personal story to bring it all home, and that’s what writer and critic Neal Gabler did in the May issue of the Atlantic, where he revealed that he’s one of the 47% of Americans who couldn’t come up with $400 in an emergency.

With honesty and courage, Gabler describes how he — who according to Wikipedia turns 66 this year — got into such desperate straits after a writing career he modestly calls “passably good,” but is surely far better.

Gabler has written acclaimed biographies of Walt Disney and Walter Winchell (the model for the smarmy gossip columnist played by Burt Lancaster in the classic movie, “Sweet Smell of Success”). “An Empire of Their Own,” about the pioneering producers of Hollywood, is in my opinion one of the best books ever written about the American Jewish experience.

Unfortunately, Gabler was, as he freely admits, “a financial illiterate, or worse — an ignoramus.”

“I don’t ask for or expect any sympathy,” he writes. “I am responsible for my quagmire — no one else.”

His situation is the product of some bad luck and many poor choices. For the details, you should read the article yourself, or better yet buy the magazine on the newsstand (consider it a non-tax-deductible contribution to good journalism). But in brief, here they are:

1. He chose to be a writer, not the most stable profession.

2. He chose to write books, which don’t produce income for years.

3. He chose to live in high-cost New York City.

4. He chose to have two children, whom he sent to private school early on and then to Stanford and Emory for college.

5. His wife quit her job as a film executive to spend more time with the kids when they moved to eastern Long Island.

By making this public, Gabler opens himself up to scrutiny and criticism, and he didn’t respond to my request for an interview. But how many of us can say we haven’t, with the best of intentions, made big financial mistakes?

Gabler touches on what may be one of our biggest problems, yet one that’s almost taboo to mention: Too many of us are chasing the American Dream without having anywhere near the means to pay for it.

“In retrospect, of course, my problem was simple: too little income, too many expenses,” Gabler writes, speaking for many baby boomers and the shrinking professional middle class.

Convinced their lives would be better than their parents’ (who, in the case of early boomers like Gabler, lived through the Depression and World War II) and that their children’s lives would be better than their own, people did whatever it took to maintain at least the appearance of success, if not affluence.

It wasn’t only “keeping up with the Joneses,” as Gabler points out. “People want to feel, need to feel, that they are advancing in the world. It’s what sustains them,” he writes.

Ambition and aiming high are good things. But the American Dream is much more expensive than it used to be. In 2014, I estimated it costs a family of four$130,000 a year to live it, while incomes are stagnating because ofglobalization, technology, trade, immigration, what have you. That’s putting the Dream out of reach of more and more people.

Too many have filled that gap with easy credit card debt, cash-out refinancings and home equity lines of credit (which exceeded $1 trillion from 2002 to 2005 alone), or by emptying their 401(k) accounts. It may have felt good, but it bankrupted their future. What an apt metaphor for a country that’s living way beyond its means!

It’s really, really hard to tell your daughter you can’t afford to send her to Stanford and instead she’ll have to go to Stony Brook (an excellent state university in eastern Long Island, where Gabler now teaches). It’s hard to say “no” to so many things and still think you’re living the Dream.

So maybe we need to redefine the American Dream beyond the purely material goals of the postwar years, when our growth seemed unstoppable. Maybe it should be more about the freedom to succeed or fail on our own terms. It could also encompass pride in achievement, family and friends, community service and leaving a legacy of which we can be proud.

Because we’re chasing a dream that’s becoming more and more unattainable for more and more people, and too many of us, like Neal Gabler, wind up with nothing to show for it.

Written by Howard Gold of MarketWatch 

(Source: MarketWatch)

As Carly Simon Used to Sing, “We Can Never Know About the Days to Come…”

Medicare
Shutterstock

However, that doesn’t stop anyone from making educated guesses about the future of companies, financial markets, and economies. As we enter the second quarter, investment and business professionals have been offering their insights:

  • McKinsey & Company’s March Economic Conditions Snapshot indicated 80 percent of surveyed executives “…expect demand for their companies’ products and services will grow or stay the same in the coming months, and a majority believe (as they have in every survey since 2011) their companies’ profits will increase.” However, they are not as optimistic about the global economy as they were in December. About one-half of executives in developed and emerging markets said economic conditions globally are worse than they were six months ago.
  • The Wall Street Journal’s April 2016 Economic Forecasting Survey, which queries 60 economists, reported three-of-four survey participants expect a Fed rate hike in June. Few expect a recession during the next 12 months, putting the odds at 19 percent. Almost one-half stated global risks were the greatest threat to the U.S. economy, followed by financial conditions, a slowdown in consumer spending, falling corporate profits, and U.S. politics.
  • PIMCO’s Cyclical Outlook predicts China’s gross domestic product (GDP) growth may be in the 5.5 to 6.5 percent range. The target is 6.5 percent. In addition, a gradual devaluation of the yuan is possible, although China’s currency policy often produces unexpected twists and turns.
  • BlackRock Investment Institute’s second quarter outlook centered on three themes. First, returns are likely to remain muted in the future. Second, monetary policies appear to be less divergent, which could be a positive for some markets. Third, volatility may persist as the Federal Reserve normalizes monetary policy. Diversity and careful asset selection are likely to be critical in this environment.

While it’s interesting to read experts’ predictions and expectations for coming months and years, it’s important to remember forecasts are not always accurate. An organization that tracked forecasting results through 2012 found forecasts were correct about 47 percent of the time.

How Americans’ Perceptions of the Economy Have Changed in Just Three Months

  
Brian Snyder/Reuters

In the broadest strokes, the U.S. economy looks a lot like it did in December. After all, three months isn’t much time to change the outlines of an $18 trillion global powerhouse.

But in December, the Fed raised its interest-rate target. In this week’s meeting, it’s unlikely to raise it again.

So what’s different? How people feel about it.

The economy hasn’t changed significantly, but perception of it certainly has.

Every month, the Conference Board asks consumers about the state of the economy, as well as their outlook, for its much-watched measure of consumer confidence. It also releases the findings as detailed polls providing a snapshot of the American consumer.

The biggest shift came in views about how the stock market will perform next year. (This question always attracts a large share of strong opinions and tends to experience big swings.)

Alongside those worries about stocks was an even more troubling drop in the number of folks who expect their income to rise or at least stay steady in the next year. The share of Americans who expect their income to drop is as high as it has been in more than a year.

And consumers are more worried about the job situation than they were in December, despite continued payroll growth and a falling unemployment rate.

At the same time, their outlook for the job market, which generally tends to be more optimistic, took a small hit despite steady hiring.

And while consumer faith in current business conditions has fallen since the Fed raised rates…

…the more troubling move may be that more believe business conditions are going to worsen in coming months, a shift toward pessimism that echoes consumer worries about stocks, incomes and employment.

Written by Andrew Van Dam of The Wall Street Journal

(Source: The Wall Street Journal)

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