The November jobs report came in significantly higher than expectations leading to a 300+ point rally in the Dow on Friday. The economy added 266k net new jobs, the unemployment rate declined to 3.5% and wages grew at a 3.1% annual rate. While this was a good report, it’s important to remember it’s only one month. We have good and bad months on the employment front. Job creation remains positive in 2019, but it is down from 2018 and the few years before that. However, the low unemployment rate makes finding employees for new positions more difficult than it has been in decades. The President of the Dallas Federal Reserve Bank spoke on CNBC recently and mentioned that some companies are reducing new capital investment because they can’t find the employees to support their ventures. For the week the Dow declined 0.5% while the S&P 500 decreased 0.2%. Read More
Amazon sells a ton of products to people around the world. Sometimes, people return those purchases. What happens with those returns is a great example of the beauty of a free-market economy. While some products are added back to inventory and resold through the Amazon platform, others are roughly grouped in bins and auctioned off to discount resellers. Repackaging and putting products back in inventory has a cost – selling those products at a steep discount generates some money and eliminates those costs. People are calling this the ‘reverse supply chain.’ A pallet of returned goods with a suggest retail price of $4,000 might get sold for $200. If you’ve ever watched the show Storage Wars, you understand the game. Buy a pallet with a vague idea of what’s on it and hope to find a treasure or two that make buying the whole pallet profitable. Companies now exist that conduct the auction of the Amazon pallets and numerous small entrepreneurs are buying pallets and setting up cheap retail websites to sell the stuff. What a country! Read More
Oil increased 1.6% this week to close at $59.06/barrel. The yield on the 10-yr Treasury moved higher to 1.84% from 1.77% last week. The average rate on a 30-yr fixed rate mortgage held steady at 3.68%.
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Stocks climbed higher through Wednesday in the holiday-shortened week. Markets are closed tomorrow and will only be open until 1pm on Friday, so the Weekly Recap is coming out early. Both indices closed at all-time highs as concerns about economic growth abate. For the week, the Dow gained 1.0% while the S&P 500 increased 1.4%. Read More
This has been a good year for stock markets. One of the least talked about aspects of this strong market has been equity fund flows. Fund flows track how much new money is invested into equity mutual funds and exchanged-traded funds (ETFs). These flows can tell investors a few things. First, if people are pulling money of equities, there is a belief that investors are nervous and reducing exposure to riskier assets. If a lot of money is flowing into equity funds it generally means investors are bullish on future prospects. Most of the time, fund flows can be a leading indicator of where equity prices are going. More money flowing into stocks should create more demand and push prices higher and vice versa. What we’ve seen throughout most of 2019 though is a stock market that continues to move higher while investors, in aggregate, are pulling money out of equity mutual funds and ETFs. Through the first three quarters of 2019, over $150bn flowed out of equity funds. That’s a tiny percentage of the overall equity market, but it creates a situation where there is money on the sideline to provide additional price support going forward. Fund flows have started turning positive this month and while the future is never known, it does seem to offer tailwinds to the market over the coming week/months.
Oil increased 0.3% this week to close at $58.13/barrel. The yield on the 10-yr Treasury held steady at 1.77%. The average rate on a 30-yr fixed rate mortgage moved higher to 3.68% from 3.66% last week.
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A strong Friday rally pushed both indices to record highs. The Dow closed over 28,000 for the first time today and the S&P 500 eclipsed 3,100 for the first time. Earlier this week, Bank of America described the rally over the last few weeks as the Fear of Missing Out (FOMO) rally. Many institutional investors were convinced recession was right around the corner over the summer and are trying to catch up to the broader indices. The concerns about a US or global recession have declined and investors have started moving money back into equities. For the week, the Dow gained 1.2% while the S&P 500 increased 0.9%. Read More
The SEC announced this week it is turning its focus towards retirement plans run for teachers nationwide. Several companies, including an AIG subsidiary, cover certain costs for school districts in return for being allowed to offer financial advice to teachers and staff. Large insurance companies and most financial firms do not have a fiduciary responsibility to clients. They are not required to put client interests ahead of their own. The SEC is concerned, likely correctly, that these firms are targeting consumers that aren’t overly financially savvy and pitching high-fee products. My business is structured as a Registered Investment Advisor (RIA). RIAs have a fiduciary obligation to clients and we are legally required to put your interests ahead of our own. RIAs make up only 6-7% of all advisors though. It’s a shame how many regular investors receive questionable financial advice and are sold poor investments based upon advisors making higher commissions on certain investment products. Read More
Oil increased 0.8% this week to close at $57.86/barrel. The yield on the 10-yr Treasury moved lower, closing at 1.83%, from 1.94% last week. The average rate on a 30-yr fixed rate mortgage moved higher to 3.75% from 3.69% last week.
continued higher in a relatively quiet week. Third quarter earnings are
largely over, with roughly 75% of all companies reporting better than
expected earnings. We hit all-time highs several times this week and
while the indices were down most of the day on Trump’s negative trade
remarks this morning, both closed slightly up on the day. The S&P
500 has been up five straight weeks with the Dow posting three
consecutive positive weeks. The Dow gained 1.2% while the S&P
increased 0.7% this week. Read More
Stock buybacks have become front page news during the Democratic primary
election. Stocks buybacks are simply companies using their own money to
buy shares in the market, reducing the overall number of shares
outstanding. As stockholders, you own a small percentage of a company.
In a simple example, if an investor owns 100 shares of a company that
had 1,000 shares outstanding, the investor would own 10% of the company.
If the company bought back 50 shares, there would now be 950 shares
outstanding. The investor would now own 100/950 = 10.5% of the company.
This is one of two ways companies return capital to shareholders.
Dividends is the other. Many companies prefer buybacks to dividends
because they can adjust their purchases easily from year to year,
whereas dividend payments are very difficult to cut. Some investors
prefer buybacks because it doesn’t create a taxable event while
receiving a dividend does.
How a company decides to use the money it generates is arguably the
single most important decision a management team makes. There are four
options – share buybacks, dividends, reinvesting in the business and
building up cash. Growth is challenging for many large companies and
management teams have decided investors are best served by getting the
capital back and letting them reinvest the money. I think it’s
critically important to leave these capital allocation decisions in the
hands of management. Investors can debate the value of buybacks versus
other uses of capital, but having the government get in the middle and
decide what companies can and cannot do seems like a bad idea and
potentially a slippery slope.
Oil increased 2.3% this
week to close at $57.41/barrel. The yield on the 10-yr Treasury moved
sharply higher, closing at 1.94%, from 1.72% last week. The average rate
on a 30-yr fixed rate mortgage moved lower to 3.69% from 3.78% last