Weekly Advisor Analysis: April 6, 2016

Domestic equity markets were pushed higher last week by dovish comments from the Federal Reserve and cooperative economic data that didn’t change expectations for future rate hikes. The Dow Jones Industrial average rose 1.6 percent while the S&P 500 climbed 1.8 percent. The NASDAQ gained 3 percent. This closed out a first quarter where the S&P 500 appreciated 0.8 percent – a small miracle given its collapse during the first several weeks of 2016.

Goldilocks Gets a Job

The Labor Department released March jobs figures on Friday. This is the last report before the Federal Reserve’s next meeting in late April. According to the figures, U.S. employers added 215,000 jobs in March, slightly above consensus expectations and roughly in line with the average monthly gain for the past year. The unemployment rate ticked up slightly to 5 percent, but this is largely the result of more Americans looking for jobs. For the month, the participation rate rose to 63 percent, a good sign as an improving economy and slightly rising wages encourage out-of-work Americans to begin looking for jobs again. The average hourly earnings rate rose 2.3 percent year-over-year to $25.43.

IPO Market Dries Up

The volatility in the equity markets during 2016 has taken a toll on initial public offerings. So far this year, only nine companies have gone public raising just $1.2 billion. This is the lowest number of deals since the depths of the financial crisis when two firms raised $830 million in the first quarter of 2009. Interestingly, while nine deals were completed, more than twice as many companies shelved plans at the last minute due to the market turbulence. This marks only the 15th quarter since 1995 where the number of withdrawn public filings exceeds the number of completed listings. This is extremely unusual given markets are hovering near all-time highs.

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Gold Shines During First Quarter

Gold surprised several investors during the start of 2016 with a 16.5 percent rally during the first three months of the year. This marks the largest quarterly gain in three decades. Most of the rise was recorded during the first few weeks of the year, which is not unusual given the slump in stocks. However, the precious metal added to its gains even as stocks rallied in the back half of the quarter. Is this a sign the recent stock rally isn’t sustainable? A precursor to pending uncertainty given the U.S. election trajectory? Or, simply a response to the continued dovish stance by most central banks? Only time will tell. The rise in the commodity has also pushed gold mining equities higher. Some of the largest players have witnessed stock appreciation of around 50 percent so far in 2016.

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Fun Story of the Week

Have you ever wanted to change your name? Perhaps you are tired of it, your parents saddled you with something you just don’t like, or the combination of your newly married name sounds silly. Some people have a very different reason for wanting to do so: their name breaks the internet. Jennifer Null has this problem. Whenever she fills out an online form to buy books or a plane ticket, she is greeted with a message to fill in her last name and try again. Most programmers know that “null” is the default database entry when a field is left blank, so her last name is fooling the computer and won’t let her proceed with her transaction. She must call and complete the transaction by phone. These types of problems are called “edge cases” by programmers; the one in a millionth example that doesn’t work. But, as the world becomes more global, they are occurring more frequently. For these people, however, there is hope as serious discussions among programmers to improve support for “edge case” names have occurred.

Weekly Advisor Analysis: February 23, 2016

Last week’s positive performance across global markets gave investors a chance to catch their breath and retest the waters. U.S. stocks were up with the S&P 500 notching a 2.85 percent gain and the Dow Jones Industrial Average up 2.61 percent. The tech-heavy NASDAQ Composite Index was up just over 3.87 percent. European stocks were also up, posting a positive 1.87 percent as measured by the Stoxx Euro 600 Index. Japanese equities gained 6.8 percent after the Nikkei 225 Index rebounded from heavy selling the week before.

Domestic Equities

U.S. equities posted their first three-day rally of the year and the biggest three-day gain last week since August 2015. While all sectors were up, the energy and financial sectors are still down year-to-date as oil and stubbornly low interest rates continue to weigh on those areas of the market. In fact, the energy and financial sectors are down 6.21 percent and 10.65 percent for 2016, respectively. As the chart below highlights, only the utilities and consumer staples sectors are holding onto positive territory with consumer staples only just so. Will 2016 be another year where a small group of stocks or sectors drive the market’s performance? No one knows for sure but we continue to believe that active management, with a focus on being selective while leveraging secular trends, is still the most prudent way to manage an equity portfolio.

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Federal Reserve Minutes

The Federal Reserve released the minutes from its most recent meeting last Wednesday allowing investors a glimpse into how one of the world’s most powerful central banks views the economy and global markets. While investors already knew the outcome of the meeting, being able to see details on how the Federal Reserve came to the decision not to raise rates is what markets were focused on last week. More specifically, the Federal Reserve minutes showed officials were struggling to agree on their outlook for inflation and how risks to the economy may materialize. What appeared to drive markets upward was the fact the Federal Reserve gave few clues as to when they will raise rates again indicating rates will likely remain lower for longer. The next meeting for the Fed is March 15-16 and, given their comments from the January meeting, an interest rate increase at that meeting seems more unlikely than ever. As we said in our 2016 outlook, we continue to believe the Federal Reserve’s initial target of 1.25-1.50 percent by year-end would be difficult to achieve.

Oil

Oil prices were whipsawed this past week as news of a potential production cut pushed prices higher while larger inventory stockpiles weighed on the commodity. Russia, Saudi Arabia, Qatar, and Venezuela met earlier last week and indicated they will cap their output if Iran and Iraq did so as well. While both Iran and Iraq have not confirmed whether they will participate, it is newsworthy that Russia has joined the chorus of those countries seeking to limit production. Russia had previously refused to consider such action. It’s no wonder oil-rich countries are beginning to take these measures. While energy companies must delay investment and lay off workers, countries that largely depend on oil revenue are reeling from the low prices. In fact, Saudi Arabia had a record deficit of almost $98 billion in 2015 and Standard & Poor’s just reduced the country’s credit rating from A+ to A-, citing the long-lasting impact of low oil prices on the economy. In all likelihood, oil volatility will remain elevated as investors await the impact of the agreement on future inventory levels as well as any changes in global demand.

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Fun Story of the Week

It’s easy to think we know almost everything about our planet. Other than the deepest oceans, humans have explored nearly every square mile of every continent and, with the use of satellite photography, this becomes all the easier. Despite this, we still discover amazing natural wonders not previously known to science. In many cases, these are the subject of rumor or shrouded in mystery and distorted over the years as they are passed down through generations. Some of these tall tales turn out to be just that, nothing but fiction used to tell a story. However, there are some that turn out to be true. Up until recently, there was a rumor of a river deep in the Peruvian rainforest that is so hot it can literally boil. Adding to the mystery were cryptic references to the river in old petroleum survey reports dating back to the 1930s. It wasn’t until geoscientists decided to pursue those legends and journey deep into the rainforest to see it with their own eyes. What they discovered was the Mayantuyacu, a natural, 4-mile geothermal stretch of a river that is indeed over 200 degrees Fahrenheit. This is exceptionally amazing in that it would require incredible amounts of heat to boil the river’s flowing water. While there are documented hot springs throughout the Amazon, none are nearly as big as the Mayantuyacu or as far away from the nearest volcano. In fact, the river lays hundreds of miles away from the closest active South American volcano, making it truly a natural wonder.

Weekly Advisor Analysis: February 1, 2016

Last week was a busy week in terms of data releases and news. Estimated U.S. gross domestic product (GDP), unemployment data, and the Federal Reserve were just a few headlines that grabbed investors’ attention. U.S. indexes enjoyed another week in the black as domestic indexes surged on Friday. The S&P 500 was up 3.2 percent while the Dow Jones Industrial Average and the NASDAQ were up 3 percent and 2.8 percent, respectively. Internationally, the picture was quite different. The Euro Stoxx 600 index was up 3.77 percent but Chinese equities, as measured by the Shanghai Composite Index, were down 5.63 percent.

Unemployment Figures

The job market continues to look strong here in the United States. The most recent release by the Labor Department indicated initial jobless claims fell 16,000 to 278,000. Economists surveyed by The Wall Street Journal were expecting 280,000 claims. Economists pay close attention to the initial jobless claims because, if they are falling, it frequently means less companies are laying employees off and more are hiring. This is typically good for wages which can lead to more consumer spending and domestic growth. More generally, unemployment numbers usually fall during the fourth quarter of the year as temporary hiring picks up for the holidays. The number then tends to rise in the first quarter of the following year as those temporary jobs are no longer needed.

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U.S. GDP

GDP slowed in the last quarter of 2015. Economists were expecting 0.8 percent growth but the first estimate of fourth quarter GDP was 0.7 percent. GDP results typically go through a number of revisions as the preliminary estimate includes incomplete data. The final figure can be meaningfully different than the first estimate. According to the results, business inventory investment, personal consumption, and trade were the main detractors. The drop-in trade is likely due to the stronger U.S. dollar and uninspiring global growth while the lagging inventory investment and slowing personal consumption could indicate a decelerating domestic economy. On the positive side, residential investment jumped 8.1 percent in the fourth quarter and, by some measures, the housing market in 2015 was the most robust since the recession.

Fun Story of the Week

A team of physicists appear to have cracked a significant roadblock in quantum computing, paving the way for quantum computers that can solve “insolvable” problems. If the physicists are correct, then they have solved the causality problem by using quantum particles that are moving along “open timelike curves.” Theoretically, quantum computers using “closed timelike curves” create causality problems. A more practical (or relatable) example of a causality problem takes place in the Back to the Future movie. Since Michael J. Fox’s Marty McFly went back in time and tampered with the past, he almost caused a new future in which he didn’t exist. The same type of problem happens at the particle level, too. With the “open timelike curves,” the physicists hypothesize, as long as they entangle the time-traveling particles with one in the present, they won’t interact with anything in the past, thus preventing causality problems. Think of this as Marty McFly going back in time, still tied to his present-day “self,” and being able to use that information, but not being allowed to speak with his teenage mother and father or interact with anyone else during his trip. According to their report, while these particles never interact, the nature of quantum mechanics and computing still allows for the solving of impossible calculations. Confused? So am I.

Weekly Advisor Analysis: January 20, 2016

The beginning of the week appeared as though investors would get some much needed rest from the market turmoil. However, that wasn’t to be the case. All three major U.S. market indices entered corrections or 10 percent off their 52-week high. The Dow Jones Industrial Average briefly fell 500 points on Friday before closing down more than 3 percent last week. The NASDAQ Composite Index ended an eight-day losing streak on Tuesday only to slump with the broader market, ending down 4.3 percent, with the S&P 500 down 3.2 percent.

Global Equities

Despite the brief rally earlier in the week, markets turned sour across the world as investors continued to focus on oil and China. Both are in official bear-market territory, down 20 percent from their highs. Early Friday morning, China released disappointing news as their banks’ loan growth fell more than economists had predicted. Chinese banks have indicated lending conditions are getting riskier, causing many to wonder if this is the beginning of a credit cycle slowdown. Such a slowdown could have broad, global ramifications for investors and, with asset values inflated after years of stimulated Central Bank policies, it may mean even more volatility as we move further into 2016. Indeed, the CBOE Volatility Index, a measure of market volatility based on S&P 500 index option prices, is up over 8 percent last week. A higher measure in the CBOE Volatility Index indicates increased near-term volatility is expected by investors.

Another Week, Another Historic Low

Oil once again grabbed headlines as the usual suspects of oversupply and lack of demand pushed the commodity lower. Many analysts were hesitant to forecast oil at $20 a barrel, but it appears more are joining the chorus as it fell below $30 a barrel on Tuesday and Friday. These are prices not seen since 2003. Oil ended the week down more than 14 percent and off more than 20 percent since its 2016 high. While this bodes well for the consumer and what they pay for gas, there are more than 30 small oil companies that, altogether, owe more than $13 billion in debt and have already filed for bankruptcy during oil’s rout. Adding fuel to the fire, the U.S. shale drillers are proving to be more resilient than investors previously thought. Many of these producers borrowed heavily to participate in the once-thriving U.S. drilling expansion and are now forced to continue drilling at depressed prices in order to make their debt payments. This only serves to exacerbate the supply issue and a possible global slowdown triggered by China could mean depressed demand for the foreseeable future.

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Auto Sales

2015 was a banner year for car sales. A stronger U.S. economy last year, lower oil, and favorable financing terms helped push the measure beyond its previous peak 15 years ago. According to the report, Americans spent roughly $570 billion on new vehicles with auto makers selling 17.5 million cars and trucks. In fact, trucks and sport-utility vehicles accounted for more than 50 percent of auto sales last year as the price of gasoline hovers around $2 per gallon across the country. However, a confluence of events in 2016 seeks to cast a shadow on the industry. Higher interest rates may impact auto financing while the world’s largest car market, China, is showing signs of an economic slowdown. This led to declines in a number of large U.S. auto makers late last year and the early part of 2016.

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Fun Story of the Week

There is a particular tree native to the Caribbean that has a rather nasty reputation. The manchineel tree, or as the Spanish call it, the “tree of death,” has rightly earned the Guinness World Record as the world’s most dangerous tree. The sap of the tree contains a number of compounds that can cause severe burning reactions to the skin, making it a precarious spot to hide during the rainstorms that frequent the Caribbean. While that may sound bad, it’s the fruit of the tree that can ultimately kill a full grown adult. The small, green fruit look a lot like apples and, according to those who have unwittingly tried them, taste slightly sweet. The trees are notoriously difficult to eradicate as chopping them down releases the sap and burning them spreads chemicals in the smoke that can temporarily blind a person and cause significant breathing problems. Given the lack of competition and its toxic nature, it’s no wonder it has retained the ominous moniker.

Weekly Advisor Analysis: December 7, 2015

Equity markets finished a roller coaster week essentially flat. By midweek the markets were up nearly 70 basis points before collapsing 3 percent on disappointments from the European Central Bank who decided not to expand bond purchases. This also caused a plunge in the U.S. dollar as investors who were short the Euro in anticipation of this move. Then, Friday saved the week when the encouraging November jobs report pushed markets 2 percent higher and investors viewed this as confirmation a rate hike by the Federal Reserve next week is now a certainty. When all was said and done, the S&P 500 ended the week up just 0.1 percent, with the Dow Jones Industrial Average and NASDAQ Composite both gained 0.3 percent.

The Nail in the Coffin

The November jobs report from last Friday should put to rest the debate over whether or not the Federal Reserve is going to raise rates after its Open Market Committee meeting December 15-16. During the month of November, U.S. employers added 211,000 jobs which was above consensus expectations. Additionally, the two prior months were revised higher by 35,000 jobs. The unemployment rate remained at 5 percent and, importantly, wage expansion remained above 2 percent year-over-year growth. Another promising data point out of the release was the continued rise of the quit rate, or measure of those who voluntarily quit their jobs. This reached 10 percent, the highest level in four months. All of the boxes appear to be checked for Chair Yellen to begin hiking rates next week. And, while it seems like a foregone conclusion, we think investors should be mindful the Fed has moved the goalposts before and, just last week, almost every financial prognosticator was proven wrong when the European Central Bank did not expand its bond buying program.

Emerging Market Defaults on the Rise

According to Standard & Poor’s, corporate defaults in emerging markets are up 40 percent year-over-year and have hit their highest level since 2009. The default rate over the past 12 months is close to 4 percent compared to just 0.7 percent four years ago. The 4 percent also outpaces default rates for U.S. companies, which hovers around 2.5 percent. The increasing pace of defaults should be no surprise. The amount of emerging market corporate debt has quintupled over the past 10 years to nearly $24 trillion as investors have stretched for yield in a low rate world and companies were eager to borrow as their commodity-driven economies expanded. However, this has come to an abrupt end and the worst may be yet to come. According to the Institute of International Finance, more than $600 billion of debt matures in 2016. Even worse, some $85 billion of this is denominated in dollars. A rate hike by the Federal Reserve could continue pushing the dollar higher, making it more expensive to repay debt when slowing economic growth is crimping profit.

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Provided by The Wall Street Journal

Renminbi Becomes a Reserve Currency

Early last week, the International Monetary Fund (IMF) added the Chinese renminbi to its basket of reserve currencies. It joins the U.S. dollar, the Euro, the British pound, and the Japanese yen in the basket known as Special Drawing Rights. The Managing Director of the IMF stated the renminbi’s inclusion is an important step but more financial reform is needed. Shortly after the decision, a deputy governor from the People’s Bank of China said the country would maintain a managed-floating system before gradually moving a free-floating currency. This allayed fears that China would move immediately to devalue the renminbi. The addition of China’s currency to the reserve basket is a testament to that country’s growth over the past decade. It now accounts for more than 15 percent of global economic output, up from just 5 percent nearly a decade ago.

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Provided by The Wall Street Journal

Fun Story of the Week

A classic schoolyard insult is to bellow, “You’re slower than my grandma!” For Elvira Montes’ three grandkids, this is probably true. The 81-year old recently became the oldest finisher of the 2015 Beer Mile World Championship. The beer mile requires runners to chug a 12-ounce beer before each of the four quarter-mile laps around a track. She finished in just over 20 minutes, even beating her 47-year old daughter by 50 seconds. Mrs. Montes began running more than two decades ago, and this was her second beer mile. She plans to return to the world championships next year; her goal is to break 20 minutes.

Weekly Advisor Analysis: November 25, 2015

Equity markets posted their best weekly gain of the year after the Federal Reserve continued hinting a decision to hike rates is likely at its mid-December meeting. More importantly, the Fed is signaling the pace of liftoff will be moderate at best. The S&P 500 gained 3.3 percent, the Dow Jones Industrial average rose 3.4 percent, and the NASDAQ Composite gained 3.6 percent.

Sub-Prime Auto Lending Revs Up

History doesn’t repeat itself; it rhymes, so the saying goes. This is why financial regulators are growing increasingly concerned about the rise in subprime lending in the auto industry. In the six months leading up to September, more than $110 billion of auto loans were originated for borrowers with less than “good” credit, or a FICO score below 660. Of that, more than $70 billion went to those whose credit is scored as “bad” (below 620), according to data released last week by the Federal Reserve Bank of New York. This is nearly the same level reached in 2006 just before the financial crisis. This comes as auto lending as a whole has been reaching historic heights. Following the financial crisis, lending began recovering in 2010 and, by 2013, it returned to its pre-crisis peak. Earlier this year the amount of originated loans topped $1 trillion for the first time. The deteriorating credit quality of the aggregate loan portfolio is having little impact, at least so far. According to data from the New York Federal Reserve Bank, just 3 percent of auto loans were more than 90 days delinquent in the third quarter. This has actually improved from 5 percent nearly five years ago.

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Inflation Shows Up at Thanksgiving Table

The average cost of a Thanksgiving dinner is rising this year by nearly 1.5 percent according to the 30th annual price survey conducted by The American Farm Bureau Federation. For the first time ever, the average cost of the turkey dinner for ten people will top $50. This compares to just under $29 in 1986 and between $49 and $49.50 where the price has hovered since 2011. The study uses information from 138 volunteers who check prices at grocery stores in 32 states. The largest component of this basket is obviously turkey, and this year the average price of a 16-pound turkey will run $23.04, up more than 6 percent year-over-year. Most products included in the basket have increased since last year with the notable exception being milk. The average price of a gallon of whole milk has dipped nearly 14 percent to $3.25. The price of canned pumpkin pie mix rose only 2.5 percent, surprising many experts who expected a shortage due to heavy Midwestern rains in late summer.

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Stock Splits Lose Favor

Late last week, Nike became only the 11th company within the S&P 500 to announce a stock split this year. By this time in 2000, more than 83 companies had done so. Stock splits have historically been a way for management teams to attract retail investors with a more attainable price per share. Now, however, now that seems less important to CFOs. As the average stock price has risen since the housing crisis, so have the number of companies with per share prices above $100. Within the S&P 500, 114 companies now have a share price above $100. This compares to just 12 in 2000. In recent years, stock splits have taken a back seat to share buybacks. According to FactSet, S&P 500 companies used just over 5 percent of their cash towards share repurchases in 2000. That number has climbed to nearly 7 percent so far this year.

Fun Story of the Week

Beginning in 2016, the brewer of Guinness is changing the recipe of its famed Irish stout for the first time in more than 250 years by removing one ingredient: fish guts. The move comes after months of protests by vegan beer lovers. Guinness, like many other brewers and wineries has used a substance called isinglass for centuries to clarify the beer and help stabilize yeast. Isinglass is a collagen derived from the swim bladder of a fish. While most of substance is filtered out during brewing, traces of the fish bladder remain in every pint. Fortunately, newer technologies are taking hold in the brewing community, and the usage of isinglass is being phased out by Guinness and others.

Weekly Advisor Analysis: October 27, 2015

Central Banks coaxed the equity markets higher yet again this week. Hints of more easing from the European Central Bank (ECB) and a surprise rate cut by the Bank of China pushed stocks higher in the back half of the week. It also didn’t hurt that earnings reports from large technology companies beat expectations. The S&P 500 finished last week 2.1 percent higher, its fourth consecutive weekly gain. The Dow Jones Industrial Average rose 2.5 percent, and the technology heavy NASDAQ Composite jumped 3 percent.

Central Banks to the Rescue Again

A pair of central banks boosted equity markets this past week. First, the ECB President, Mario Draghi, hinted that more stimulus could be coming when that central bank reexamines its current policy in December. The ECB is currently purchasing 60 billion euros worth of bonds each month. This sent European equity markets to their highest point since August and pushed yields on the German ten-year note below 50 basis points. The euro also sank nearly 2 percent to $1.11 on the news. Then, on Friday the Central Bank of China announced a quarter-point cut in its benchmark interest rate as well as a 50 basis point reduction in reserve requirement ratios for banks. This was the sixth time since November 2014 that the Chinese central bank cut interest rates.

Existing Home Sales Surge

The National Association of Realtors recently announced existing home sales rose 4.7 percent for the month of September to an annual rate of 5.5 million. The September figure puts us on pace for the best year for existing home sales since the housing crisis. The increased activity appears to be driven by job growth, low rates, and pent-up demand given years of low new household formations. However, the robust report did show some cracks. Primarily, the reduction in the percentage of first-time home buyers. First-time buyers represented just 29 percent of purchases in the month, down from 32 percent in August. A reduction in this source of new demand could foreshadow a slowdown in the coming months. This is largely the result of home prices rising faster than incomes. The median home price for September rose more than 6 percent year-over-year, compared to just 2 percent income growth.

http://www.wsj.com/articles/u-s-sales-of-existing-homes-surge-in-september-1445522932?alg=y
http://www.wsj.com/articles/u-s-sales-of-existing-homes-surge-in-september-1445522932?alg=y

Gas Drops to Six-Year Low

Gasoline futures have dipped 10 percent so far in October capping off a collapse to a six-year low. The decline stems from further increases in supply. According to the Energy Information Administration, gasoline inventories stood at 221 million barrels at the end of the first week of October. This is the highest level for this time of year since 1990. On top of the increased supply is the seasonal effect where refineries begin ramping production of heating oil, which produces gasoline as a byproduct. This is causing some forecasters to call for gasoline prices to fall below $2 per gallon this winter. However, domestic demand is expected to remain strong, which may keep prices elevated. The United States now uses more than nine million barrels of gasoline a day, the highest level for this time of year since 2009.

http://www.wsj.com/articles/oil-prices-begin-down-as-china-data-spooks-investors-1445246756
http://www.wsj.com/articles/oil-prices-begin-down-as-china-data-spooks-investors-1445246756

Fun Story of the Week

For most people, completing a marathon is, in and of itself, a major accomplishment. However, Steve Bergstrom went above and beyond during this year’s Chicago marathon by finishing in less than four hours and receiving twelve date requests in the process. The recently-single marketing professional decided to run the marathon shirtless with a simple message, written with a marker, onto his back: SINGLE/on Facebook/Steve Bergstrom. The runner thought he would have a better time finding a suitable mate during the marathon since he spends hours a week training. Even in a world of social media and online banner ads, some of the best marketing can still be done with a little creativity and pen.

Weekly Advisor Analysis: October 19, 2015

The first crop of corporate earnings and improving credit-market data from China boosted investor hope last week. Markets also rode the wave of diminishing expectations of a Federal Reserve rate hike in 2015. This pushed each of the major indexes 1 percent higher for the week, marking the third straight week of gains. The S&P 500 gained 0.9 percent, the Dow Jones Industrial Average climbed 0.8 percent, and the NASDAQ Composite jumped 1.2 percent. The rebound in October has pushed markets back into a narrow band that they have traded within for the past year.

Equity Investors Heading for Exits

Despite the good run for equities so far in October, investors appear to be taking their chips off the table. More than $1.5 billion has been withdrawn from one the largest ETFs tracking the S&P 500 through October 15th. If the month ends this way, it will be the first monthly outflow since June. Investors are pulling back after September brought one of the biggest quarterly declines in recent memory to a close. Equities dipped 2.6 percent for September and prompted many Wall Street strategists to cut their year-end S&P 500 price target. It may seem prudent to trim exposure given October’s notorious reputation due to one-day crashes (1929 and 1987). But timing the market is rarely profitable, and the reality is October is usually a good month for stocks. The S&P 500 has averaged a 0.5 percent gain for the month dating back to 1927.

http://www.bloomberg.com/news/articles/2015-10-16/u-s-stock-investors-hitting-exits-as-october-rebound-continues
http://www.bloomberg.com/news/articles/2015-10-16/u-s-stock-investors-hitting-exits-as-october-rebound-continues

Trillions of Dollars for Free for the U.S. Government

Last week the U.S. Treasury auctioned one- and three-month Treasury bills that offered no yield. This was only the second time in history that three-month bills could be issued for free. It was the seventh auction in a row where one-month bills were issued with zero yield. In total, since the financial crisis the U.S. government has held 46 auctions where it was able to issue debt at zero percent. The cumulative total of Treasury debt issued at no yield since then now tops $1.7 trillion. This is just 3 percent of the total bill supply, but a growing mismatch in supply and demand could increase this. As of the end of September, the volume of Treasury bills outstanding fell to $1.36 trillion, down nearly 7 percent year-over-year. According to data from the Treasury, it is headed to the lowest annual level since 2007.

http://www.wsj.com/articles/1-17-trillion-at-zero-percent-interest-1444863388
http://www.wsj.com/articles/1-17-trillion-at-zero-percent-interest-1444863388

Income-Dependent Investors Take Another Blow

Investors relying on income have had a difficult environment for some time with low and negative interest rates around the world. Late last week, the 56 million Americans depending on social security as part of that income were dealt another blow. For only the third time this decade the Social Security Administration announced it won’t enact an annual cost-of-living adjustment to benefits. The formula used to make sure benefits keep pace with inflation has resulted in an average annual increase of 4.1 percent over the past 40 years. However, this has shrunk to just 2 percent over the past decade, driven in large part by no increases in 2010 and 2011. The official inflation measure used to calculate the adjustment is down 0.4 percent from last year, due largely to a 30 percent drop in gas prices. And, a wrinkle in the formula could keep any 2017 raises modest as well.

Fun Story of the Week

The adage goes “you are what you eat,” but perhaps we should be more aware of what we drink. Last week, a new study published in the journal Appetite suggested lovers of beer and coffee might be psychopaths. The study surveyed 500 participants and asked how much they enjoyed different tastes like sweet, sour, salty, and bitter. The participants were then asked to take a series of personality tests to assess levels of aggression, narcissism, and Machiavellian tendencies. The results indicated that people who like bitter foods, especially those who drank black coffee and preferred extra hoppy beer, scored highly in measures of sadism, aggression, and psychopathy. However, the study appears to have some flaws, the most notable of which is researchers and participants couldn’t agree on what foods were actually bitter. This would lead anyone with an intermediate understanding of statistics to conclude the correlation is fabricated at best. The best advice to coffee drinkers: keep sipping your morning cup. Common sense tells us heavy coffee drinkers are more likely to exhibit psychopathic tendencies if they don’t get that morning jolt of java!

Weekly Advisor Analysis: October 12, 2015

The “risk on” trade emerged in full force last week after investors dissected the release of the minutes of the Federal Open Market Committee. The S&P 500 rose 3.3 percent. The Dow Jones Industrial Average jumped 3.7 percent. The NASDAQ Composite climbed 2.6 percent. Equities were not the only asset class moving higher last week; the price of oil soared 9 percent.

IMF Lowers Forecast Again

The International Monetary Fund (IMF) hosted its annual meeting of central bankers and finance ministers in Peru last week, and the organization lowered its outlook for global growth for 2015 to 3.1 percent compared to the prior estimate of 3.3 percent. The slowdown in emerging markets has prompted the organization to cut its outlook there to 4 percent. This is the fifth consecutive year of slowing growth. The IMF stated there is a 50 percent chance global growth will continue decelerating in 2016 and fall below 3 percent, which is the equivalent of a global recession.

http://www.wsj.com/articles/imf-downgrades-global-economic-outlook-again-1444140016
http://www.wsj.com/articles/imf-downgrades-global-economic-outlook-again-1444140016

No Concerns of Deflation Here

As the rest of the world grapples with potential deflation there is one area of the domestic economy where there is no confusion around continually higher prices: childcare. According to the Economic Policy Institute, the price of childcare exceeds rent for families with two children in 500 of the 618 local areas where the group collected data. According to the Bureau of Labor Statistics, childcare costs have ballooned 168 percent since 1990, more than twice the rate of total consumer prices. Shockingly, childcare costs have outpaced another family budget line item that has notoriously risen over the years: college tuition. In 33 states, infant care costs more than the average in-state college tuition for a public institution. And there is no relief in sight: millennials are now entering their prime child-bearing years and the supply of daycare centers has not kept pace, pushing demand ever higher.

Holiday Shopping Expected to Grow Slower

Those higher daycare costs may be denting holiday sales. Last week, the National Retail Federation predicted a 3.7 percent rise in sales for the upcoming holiday seasons. Several other forecasting services are calling for sales expansion in the same ballpark. This compares to a 4.1 percent gain last year. However, despite the slight slowdown from last year, the expected rate is still higher than the average for the last decade, which measures 2.5 percent. The trend toward more online purchases is expected to continue. The National Retail Federation anticipated growth in this segment to range between 6-8 percent.

http://www.wsj.com/articles/national-retail-federation-sees-sales-increasing-3-7-over-holiday-season-1444303081
http://www.wsj.com/articles/national-retail-federation-sees-sales-increasing-3-7-over-holiday-season-1444303081

Fun Story of the Week

Thanksgiving is still weeks away, but it’s never too early to start thinking about your strategy for maximizing dessert consumption. This year’s tip is to head for the pumpkin pie first; it might not last. Severe rains in the Midwest have put a big dent in pumpkin harvests. Yields in Illinois, America’s great pumpkin patch, are down 50 percent year-over-year according to Libby’s, the largest U.S. producer of canned pumpkin. Libby’s has an 80 percent market share in the United States, and the Nestle brand said it will make enough cans of filling to bake 45 million eight-inch pies, but this is half of what it originally planned.