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)


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

2015 Markets: Nowhere to Run, Nowhere to Hide


2015 was the worst year for U.S. stocks since 2008” is the headline you are likely to see, but going by the numbers, it wasn’t that bad -- or was it? The S&P 500 was down by less than 1 percent, though including reinvested dividends, the index eked out a gain. Small caps fared worse, with the Russell 2000 falling nearly 6 percent, but the NASDAQ increased by 5.7 percent, so not so bad, right? The real problem for disciplined investors who adhered to diversified asset allocation models last year was that there was simply “Nowhere to run to, baby, Nowhere to hide” (h/t Martha and the Vandellas). In fact, 2015 was only similar to 2008 in that many asset classes moved in tandem. If you recall Asset Allocation 101, the whole point is that when stocks zig, another asset class like commodities zags. Yet, the S&P 500 and the Nymex crude oil “both closed down on 87 out of 252 trading sessions in the year. That’s the most in any year since at least 1984”, according to data from The Wall Street Journal’s statistics group.

And if you are the type of investor who sprinkled a dash of the more far-afield asset classes to add a little spice to your portfolio, 2015 may have been far worse. In addition to the crushing performance of oil and commodities, the MSCI emerging equity index was down 17 percent in 2015, its fifth straight year of underperformance versus developed indexes, as the toxic trifecta of slowing growth in China, the commodity washout and a rising US dollar were simply too much for the index to bear.

Maybe you sought to juice up your fixed income return with riskier bonds last year. If so, that decision hurt. The Barclays US corporate high-yield bond index lost 4.5 percent, while longer-dated corporate credit for investment grade holdings, slid 4.6 percent. Had you simply stuck with a boring intermediate term bond index, you would have seen small gains on the year. According to data compiled by Bianco Research LLC and Bloomberg, a case can be made that 2015 “was the worst year for asset-allocating bulls in almost 80 years.”

Does that mean that asset allocation does not work? Perhaps you have a case of investor amnesia and forgot about the dreadful first decade of the 21st century. From 2000 to 2010, the annualized return of the S&P 500, including dividends, was just a paltry 1.4 percent per year. During that same time frame, the Russell 2000 was up 6.3 percent and MSCI Emerging Markets Index jumped 16.2 percent. And if you had owned bonds, your performance improved dramatically. During those ten years, a portfolio of 60 percent equities (split among different types of stocks) and 40 percent fixed income had an annualized return of 7.83 percent.

Does asset allocation work? Over the long term, YES!

2015 Performance

  • DJIA 17,425: down 2.2%
  • S&P 500 2,043: down 0.7%
  • NASDAQ 5,007: up 5.7%
  • Russell 2000 1135: down 5.7%
  • Shanghai Composite 3539: up 9.4%, despite plunging 43% from its intra-day peak on June 12 to the bottom on Aug. 26
  • Stoxx Europe 600 365: up 6.8%
  • 10-Year Treasury yield: 2.273% (from 2.173% a year ago)
  • US Dollar: up 9.3 percent
  • Feb Crude $37.07: down 30.5%
  • Feb Gold $1,060.50: down 10.7%, lowest since Feb 2010
  • AAA Nat'l avg. for gallon of reg. gas: $1.99 (from $2.00 wk ago, $2.23 a year ago)

THE WEEK AHEAD: Hopefully you got some rest over the holidays, because it is going to be a very busy first week of the year, highlighted by the December jobs report on Friday.

Mon 1/4:

9:45 PMI Manufacturing Index

10:00 ISM Mfg Index

10:00 Construction Spending

Tues 1/5:

Motor Vehicle Sales

Weds 1/6:

8:15 ADP Employment Report

8:30 International Trade

9:45 PMI Services Index

10:00 Factory Orders

10:00 ISM Non-Mfg Index

2:00 FOMC Minutes

Thursday 1/7:

8:30 Weekly Jobless Claims

Friday 1/8:

8:30 December Employment Report

3:00 Consumer Credit

5 Big Money Stories of 2015


Now that the Fed’s long awaited for rate hike is behind us, the financial year is essentially over. Sure there will be data over the next couple of weeks, but none of it is likely to be market moving. That means it’s a perfect time to reflect on the year that was and to look back at the big stories that shaped the financial world. Of course this is much easier than the futile attempt to predict the future at the beginning of the year, but in the spirit of full disclosure, I am going to note when I made the right call and when I missed the boat:

China: 2015 began as China was in the midst of a stock market boom. The steep ascent started in mid-2014, after the Chinese government urged small investors to enter the market. “Policy makers and state media continued to trumpet the rally even as prices rose well beyond most reasonable estimates of fair valuation,” according to Capital Economics, as a full-blown bubble formed.

By the June 12th peak, the Shanghai Composite was up over 160 percent from the 2014 lows. Chinese officials stepped in to try to prick the bubble that it had fostered. Unfortunately, as is the case with most bubbles, pricks often lead to pops and the market tumbled by over 40 percent, before recovering some of the losses.

Economists were less concerned with the stock market and more worried about the waning pace of growth in China. The world’s second largest economy had seen 10+ percent growth for the past three decades, but in 2015, downshifted to a 5-6 percent pace. While China slowed down in 2015 and the stock market tanked, there was no catastrophic “hard landing” as many had predicted. However, the Chinese slowdown, combined with a strong U.S. dollar, made 2015 tough for U.S. manufacturers, who experienced their worst year since 2009.

JS CALL: While I thought that the Chinese economy would slow, I did not predict that the government would intervene in both the stock and currency markets.

Greece: Another year, another flirtation with disaster for Greece and the euro zone. After an election, a snap referendum and lots of political gamesmanship, Greece accepted the harsh terms of yet another European bailout. The Greek Tragedy might be mistaken for comedy, if the human stakes were not so high.

JS CALL: The game of chicken between Greece and the euro zone went on far longer than I thought. I did not think the euro zone (led by Germany) would be as harsh as it was.

U.S. stock market correction It took four years, but U.S. stocks finally dropped by more than 10 percent in August. The main driver was the aforementioned Chinese economy. Investors feared that the slowdown in the world’s second largest economy, in addition to the cooling of once-hot emerging economies like Brazil and Russia, would negatively impact the rest of the world.

The swoon was notable for its brevity - depending on the index; it lasted for a few days to a couple of weeks. Investors were long overdue for the sell-off: according to Capital Research and Management, through 2014, 10 percent corrections occur about every year and 20 percent bear markets occur about every 3 ½ years, so we are also due for one of those—the last one ended in March 2009.

JS CALL: I thought that the correction would occur, but I had no idea that China would be the driving force. Instead, I thought it would occur as a result of the Greek debt stand off.

Oil Plunge: After a 46 percent drubbing, which pushed crude futures down to $53.27 per barrel at the end of 2014, oil managed to trade above $60 early in 2015. But as news emerged that China was slowing down, the bears took hold. In addition to softening demand, global production remained high. Whether it was the U.S.-based frackers, OPEC nations, Russia or Brazil, the oil spigots remained wide open. As a reminder of Econ 101: weak demand + strong supply = lower prices. The savings at the gas pumps was supposed to propel retail sales in the US, but most Americans chose to save those extra pennies, rather than spend them.

 JS CALL: This is one call that I completely blew…I had counted on OPEC nations curtailing output to push up the price of oil and to keep it in a range of $50-$70.

Federal Reserve Rate Hike: In 2015, the U.S. central bank did something that it had not done in over nine years: it raised short-term interest rates. With the economy growing at a decent, though not great 2.25 percent annualized pace, monthly job creation averaging 210,000 and unemployment sitting at a seven-year low of 5 percent, Fed Chair Janet Yellen and her cohorts decided to hike rates at their last policy meeting of the year. Future Fed actions should eventually return rates to the vicinity of 3.5 percent over the course of the next three years, but how markets will react to the normalization of policy is unknown. After all, this was the first increase in over nine years, competing the longest stretch without a fed hike in 25 years. To say that the economy and markets are in uncharted and choppy waters may be the understatement of the decade.

 JS CALL: I predicted that the first hike would occur in September, not in December, so not too far off!

MARKETS: The Dow Jones Transportation Average entered a bear market for the first time since August 2008. The index finished the week down 20.1% its Dec. 29, 2014 record close. Those who subscribe to the “Dow Theory” believe that the 20-stock index that tracks the largest airlines, railroads and trucking companies, can presage broader stock declines.

  • DJIA: 17,128 down 0.8% on week, down 4% YTD
  • S&P 500: 2,005 down 0.3% on week, down 2.6% YTD
  • NASDAQ: 4,923 down 0.2% on week, up 4% YTD
  • Russell 2000: 1121, down 0.3% on week, down 7% YTD
  • 10-Year Treasury yield: 2.20% (from 2.14% a week ago)
  • Jan Crude: $34.73, down 2.5% on week
  • Feb Gold: $1,065, down 1% on week
  • AAA Nat'l avg. for gallon of reg. gas: $2.00 (from $2.01 wk ago, $2.45 a year ago)


Mon 12/21:

8:30 Chicago Fed

Tues 12/22:

8:30 Q3 GDP (final estimate, previous reading: +2.1%)

8:30 Corporate Profits

10:00 Existing Home Sales

Weds 12/23:

8:30 Personal Income and Spending

8:30 Durable Goods

10:00 New Home Sales

10:00 Consumer Sentiment

Thursday 12/24:

1:00 Stock Markets Close Early

Friday 12/25: Christmas Day-Markets closed

Does Plunging Oil Portend Recession?


Crude oil has tumbled 15 percent in the past ten trading session, approaching the summertime low of nearly $40 a barrel. That means it’s time for one of the favorite economic themes of 2015: “Plunging demand for oil is the harbinger of a recession”. As recounted many times in this space, there has indeed been a drop off in activity in China and those emerging markets, which rely on trade with the world’s second largest economy. But surprisingly, as demand for oil has drifted down, supply has increased. That’s not supposed to happen, at least in the econ textbooks. You know how it works: demand weakens, prompting suppliers to cut back and then prices start to climb back up. But around the globe, production levels have remained robust. US, Russia, Saudi Arabia and other Persian Gulf states are keeping the spigots open, creating a glut of oil.

The good news is that gas prices have resumed a downward slide. AAA says that the average price for a gallon of regular gas is $2.18, down from $2.91 a year ago, with prices below $2 in many areas. AAA spokesman Avery Ash said “It looks increasingly likely that drivers will find the cheapest gas prices for both Thanksgiving and Christmas in seven years.”

Lest you think that Americans will use those savings at the pumps and beef up their holiday purchases, don’t bet on it. As gas prices have careened lower this year, there has been little evidence that consumers are spending it freely in the economy. Instead, they have been beefing up their cash reserves or saving for large purchases, like cars.

That parsimonious trend has been bad news for US economists, who have been hoping that our retail instincts would kick in and boost growth in the fourth quarter. It also may worrisome for the nation’s retailer’s, some of whom (Macy’s, Nordstrom) have been struggling, as the all-important holiday season is about to kick off.

But, wait…where’s that holiday optimism? OK, here it is: the last jobs report was really good, the service sector continues to advance and according to the Federal Reserve, “household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further.” That sounds pretty decent and not at all like a recession is imminent.

MARKETS: Investors broke a six-week winning streak in stocks, producing the largest percentage losses since the week ended August 21st.

  • DJIA: 17,245 down 3.7% on week, down 3.2% YTD
  • S&P 500: 2,023 down 3.6% on week, down 1.7% YTD
  • NASDAQ: 4,927 down 4.3% on week, up 4% YTD
  • Russell 2000: 1146, down 4.4% on week, down 4.8% YTD
  • 10-Year Treasury yield: 2.28% (from 2.32% a week ago)
  • Dec Crude: $40.76, down 7.9% on week (biggest weekly loss in 7 months)
  • Dec Gold: $1,080.90, down 0.6% on week
  • AAA Nat'l avg. for gallon of reg. gas: $2.18 (from $2.22 wk ago, $2.91 a year ago)


Mon 11/16:

8:30 Empire State Manufacturing

Tues 11/17:

8:30 CPI

9:15 Industrial Production

10:00 Housing Market Index

Weds 11/18:

8:30 Housing Starts

2:00 FOMC Minutes

Weds 11/19:

10:00 Philly Fed

Weds 11/20:

Correction Reflection


Time flies when investors are enjoying a bull market. It has been four, mostly blissful years since the last 10 percent correction for stock markets. Back then, the fragile economic recovery was at risk due to a Congressional battle over raising the US debt ceiling limit. This time around, we have plain old anxiety about global economic growth. Although the U.S. economy continues to show improvement, the fear is that a slowdown in the world’s second largest economy – China – not to mention the cooling of once-hot emerging economies like Brazil and Russia, will impact the rest of the world. Considering that Europe and Japan are muddling along and the U.S. is only growing by about 2.5 percent a year, any significant headwind could pose a threat.

Yes, you have heard this story before, but previously, when sluggishness infected China, the government there would waive its magic wand and poof—things would pick up. This time, efforts by Beijing officials to intervene in its stock and currency markets have thus far failed to quell the slowdown fears.

As a result of the China deceleration story, commodities have also came under renewed pressure. After bouncing up to $60 per barrel earlier this year, fear that Chinese demand would wane, as U.S. and OPEC’s production remains high, culminated in an 8-week rout that left NY oil futures at $40.45 per barrel, the lowest price since March 2009. Crude is now 34 percent off its 2015 peak and down a staggering 62 percent from a year ago.

The sell-off in oil has pushed down the big energy companies in the Dow and S&P 500, but that’s not the only industry under pressure. Apple stock is down by more than 20 percent from its May high; 328 stocks within the S&P 500 are in correction territory; and about a quarter of them are down more than 20 percent. So, even though the S&P 500 has not yet dropped by 10 percent from its recent peak, two-thirds of its components are suffering mightily.

OK, so now you know what’s behind the market drubbing, but it is important to note that corrections are a normal part of market action. According to Capital Research and Management, through last year, 10 percent corrections occur about every year, so we have been long overdue for one. (20 percent bear markets occur about every 3 ½ years, so we are also due for one of those—the last one ended in March 2009.)

If you forgot about the downside risk of owning stocks, shame on you—there’s no crying in baseball or investing! Over the last 15 years, markets have shown that wild swings are part of being in the game. Hopefully, most investors learned the beauty of a diversified portfolio, one that can help avoid a cycle of buying high/selling low. Additionally, one of the big lessons of the financial crisis/bear market/Great Recession is that everyone should strive to keep at least six months in an emergency reserve fund-twelve months is preferable. If a big expense is coming up, the money necessary to cover it should never be at risk in the stock market.


  • DJIA: 16,459 down 5.8% on week, down 7.7% YTD (down 10.1% from peak)
  • S&P 500: 1,970 down 5.8% on week, down 4.3% YTD (down 7.5% from peak)
  • NASDAQ: 4,706 down 6.8% on week, down 0.6% YTD (down 9.8% from peak)
  • Russell 2000: 1156, down 4.6% on week, down 4% YTD (down 10.5% from peak)
  • 10-Year Treasury yield: 2.05% (from 2.2% a week ago)
  • October Crude: $40.45, down 6.2% on week
  • October Gold: $1,159.60, up 4.2% on week
  • AAA Nat'l avg. for gallon of reg. gas: $2.61 (from $2.67 wk ago, $3.44 a year ago)

THE WEEK AHEAD: The market noise has left many wondering if the Federal Reserve might delay its lift off for rate increases. Before the sell-off, consensus was forming around a quarter point bump at the September meeting, but there could be more clues about the Fed’s thinking at the Jackson Hole symposium economic issues facing the U.S. and world economies occurs. The annual event, sponsored by the Kansas City Fed, has often been a place where central bankers introduce new policies, but Janet Yellen has decided not to participate, the first Fed chair to skip the Western sojourn in some time.

Mon 8/24:

8:30 Chicago Fed National Activity Index

Tues 8/25:

9:00 S&P Case-Shiller Home Price Index

10:00 New Home Sales

10:00 Consumer Confidence

Weds 8/26:

8:30 Durable Goods Orders

Thurs 8/27:

Federal Reserve Jackson Hole Symposium begins

8:30 GDP (Q2 2nd reading, expected to be revised from +2.3% to +3.2%)

8:30 Corporate Profits

10:00 Pending Home Sales Index

11:00 Kansas City Fed Manufacturing Index

Fri 8/28:

Federal Reserve Jackson Hole Symposium

8:30 Personal Income and Outlays

10:00 Consumer Sentiment

2015 Economic Intermission


Every January, I outline the big issues and economic predictions for the year ahead. With six months down, the Independence Day weekend is a perfect intermission, where we can review the highs and lows of Act I, and look ahead to Act II. US Economy: There were great hopes coming into the year, but a trio of events conspired to dash them. For the third time in five years, the US economy contracted in the first quarter of the year (2011, 2014 and now 2015). The combination of bad winter weather, the West Coast port shutdown and shrinking investment in the energy sector due to lower oil prices, caused Q1 GDP to shrink by 0.2 percent. There are a number of encouraging signs that growth has snapped back in the second quarter and beyond: Despite a weak reading in March, job growth is accelerating and wages are edging up; new and existing home sales have reached six to seven hear highs; personal income and spending have jumped; and consumer sentiment is at a five-month high.

Federal Reserve Rate Hikes: Back in January, I predicted that “the first rate hike will occur in the third quarter of the year.” I’m sticking to my guesstimate that the Fed will increase rates for the first time in over nine years at the September meeting, especially after Fed Chair Janet Yellen said that she expects “the economic data to strengthen.”

Oil: Oil prices bounced up from the $40-lows to $60 per barrel and have settled into a trading range. While drivers may miss those sub-$2/gallon prices at the pumps, they can take solace in the fact that prices are down about 90 cents from a year ago.

Housing: The improving economy and labor market, combined with still-low mortgage rates and loosening credit conditions, should help housing in the second half of the year.

Markets: Stocks have bounced around a bit more this year than last, but the story is the same: Investors are laser-focused on Fed rate hikes and the bond yields appear to have started the long-anticipated drop in price and rise in yields.

Greece: I didn’t specifically mention Greece back in January, but I would put this under the category of “geopolitical”. After a five-month standoff, Euro group leaders and Greece officials came to a major impasse at the end of June. At issue was €7.2 of European rescue funds, which Greece needs to make loan repayments throughout this summer. In order to get the lifeline from the Euro group, Greece must agree to more taxes and an increase in employee pension contributions. Greece’s Prime Minister Alexis Tsipras called for a surprise referendum for July 5th, where Greek citizens will have the opportunity to vote on the euro group’s demands and essentially determine whether or not the country remains in the euro zone.

As always, these big picture events are out of your hands, but during the economic intermission here are some actions you can take in your financial life to gain control!

Investments: Review your investment accounts and be sure to rebalance them so that your asset allocations remain in check. Make sure that your allocation remains at your desired levels. If you don’t know what’s the right allocation for you, there are plenty of resources on line that help incorporate your risk tolerance and your investment time horizon. Remember that rebalancing a diversified portfolio is not meant to time the market, but it should help you sell high and buy low, when your emotions might otherwise prevent you from doing so.

If you have any big expenses coming up within the next 12 months, like a college tuition or a home down payment, it’s time to free up cash. You don’t want to risk having to sell an asset if it happens to be down at the wrong moment. Finally, if you work with a financial advisor or broker, schedule an appointment to review your progress. Ask a lot of questions and clarify how you pay for the services.

Retirement: Use EBRI’s “Choose to Save Ballpark E$timate” (www.choosetosave.org/ballpark/) to calculate where you stand. If your cash flow has improved, bump up your retirement plan contribution, even if it's just by one percent!

Homeowners and Renters insurance: Make sure that your property insurance is up to date, especially with the summer tornado, fire and hurricane season upon us. It’s important to review your policy before an event occurs, to make sure that it is adequate. The three biggest mistakes that people make with their homeowners or renters insurance are: 1) under-insuring; 2) shopping for price only and not comparing apples to apples; and 3) not reading policy details before a loss occurs. If you have questions, give your sales agent a jingle and he or she can walk you through some of the fine print.

Estate Planning: Hire a qualified estate attorney to prepare a will, power of attorney and health care proxy/living will. Those with larger estates, or who want more control over the disposition of their assets, may want to consider a revocable or changeable trust. In 2015, the estate tax exemptions are $5.43 million for individuals and $10.86 million for couples.

Jan Jobs: A Good Start to 2015


The economy added 257,000 jobs in January, slightly ahead of expectations; and the previous two months were revised higher, producing an additional 147,000 positions than the government previously reported. The economy has created more than a million new jobs in the last three months alone. That's the strongest pace of job growth we've seen since 1997. The unemployment rate edged up to 5.7 percent, but did so for the right reason, as more people entered the labor force in search of work. Yes, the participation rate, which tallies the share of Americans who are employed or are actively seeking employment, is still low—just 62.9 percent.

Before the recession started in late 2007, 66 percent of the working age population either had a job or was looking for one. Economists estimate about half of the drop is attributed to baby boomers retiring and the other half is likely due to the severity of the recession. Let’s hope the small 0.2 percent increase is the beginning of a more positive trend.

Perhaps the best part of the report was the nascent sign that American workers could start to earn more money in 2015. Average hourly wages jumped by 0.5 percent in January, the best month over month increase since November 2008. The 12-month increase at 2.2 percent, which is close to a post-recession high. While the gain still lags the 3 to 3.5 percent raises that employees usually earn during recoveries, with inflation running low, even the small increase could help Americans feel more financial secure.

Of course economists are hopeful that with that with their new-found dough, Americans will go on a spending spree and spur additional economic growth. The data have been mixed on that front, though. Although consumer spending jumped by 4.3 percent in the final three months of last year, it looks like it slowed down in December. This caused some concern among analysts, who are worried that consumers were not willing to (gasp!) spend freely.

If I may don my CFP® cap for a moment, I don’t think it’s the worst thing in the world if more Americans were inclined to save, especially after the painful lessons of the recession. The trade-off between the economic recovery suffering a bit at the expense of households strengthening their balance sheets would seem to be a good one over the long term. Time will tell whether or not people will return to the great American pastime of spending, but for now, wage increases should improve both consumers and the economy this year.

Meanwhile, there seemed to be a lot of hand wringing over gas prices (finally) rising last week. The Energy Information Administration's weekly survey showed the U.S. average regular retail gasoline price increased for the first time in 18 weeks. Wait, wasn’t the massive drop in oil and gas prices a sign that the global economy was headed into the abyss? Not so fast, according to Capital Economics, whose analysts say “The recent pick-up in oil prices has the potential to develop into a Goldilocks’ scenario: prices high enough to keep most oil producers in business, but low enough to provide a substantial boost to global economic activity.”

Finally, there were two stories about identity theft last week and we covered both of them on CBS This Morning: “Anthem Health Insurance Data Breach” and “TurboTax Halts and Resumes Filing of State Returns. Check out this post to learn “How to Guard Against Identity Theft


  • DJIA: 17,824, up 3.8% on week, up 0.01% YTD (biggest weekly % gain since Jan 2013)
  • S&P 500: 2055, up 3% on week, down 0.2% YTD
  • NASDAQ: 4,744 up 2.4% on week, up 0.2% YTD
  • Russell 2000: 1205, up 3.4% on week, up 0.1% YTD
  • 10-Year Treasury yield: 1.94% (from 1.68% a week ago; largest one-week increase since June 2013)
  • March Crude Oil: $51.69, up 7.2% on week, biggest weekly % gain since Feb 2011
  • February Gold: $1,234.60, down 3.5% on week
  • AAA Nat'l average price for gallon of regular Gas: $2.17 (from $2.05 week ago, $3.27 a year ago)


Mon 2/9:


Tues 2/10:


9:00 NFIB Small Business Optimism Index

10:00 Job Openings and Labor Turnover Survey (JOLTS)

Weds 2/11:

AOL, Cheesecake Factory, Cisco, Panera, Pepsi, Time Warner

Thurs 2/12:

CBS, Kellogg, Kraft, Zynga

8:30 Weekly Jobless Claims

8:30 Retail Sales

10:00 Business Inventories

Fri 2/13:

8:30 Import/Export Prices

10:00 Consumer Sentiment

2015 Economic Crystal Ball


No rest for the weary or hung over…time to dust off the crystal ball to see what lies ahead! Global Economy: After increasing at an estimated 2.4 percent rate in 2014, economists expect that U.S. GDP will pick up to 3 percent this year, which would be the strongest growth in a decade. Since 2000, the fastest real GDP growth was 3.8 percent in 2004, and the fastest growth for the recovery was 2.5 percent in 2010. The dot-com meltdown, plus the financial crisis has taken a toll on the U.S. economy since 2000, with an annualized pace of 1.9 percent, well below the post World War II average of 3.3 percent.

The drivers of growth include: consumers, who after paying down lots of debt, should see wage gains and will continue to enjoy the benefits of low energy prices; state and local governments, which have stopped slashing budgets and may spend a bit more freely; and the housing market, which after taking a breather in 2014, should contribute more to the economy in 2015.

Outside the U.S., the picture is more complicated. China’s double-digit growth rates are a thing of the past, as the world’s second largest economy attempts to impose controls that will likely keep GDP at six to 7 percent in the year ahead. Japan and Europe are still battling low prices, which is why central banks in both areas are likely to crank up efforts to defend against inflation. Emerging markets will continue to diverge, with countries that have not addressed economic imbalances, like Russian, Brazil and Venezuela struggling, while more balanced economies, like India, Thailand and Chile should be better positioned for growth.

2015 Year of the Raise: If 2014 was the year of the job (probably the best year for job creation since 1999), economists are hopeful that 2015 will be the year of the raise. Wage growth has remained stubbornly at 2 percent during the recovery, but this year, the improving economy and labor market should help wage growth finally start to outpace the rate of inflation.

Federal Reserve Rate Hikes: With bond buying over, the big question for 2015 is: “When will the Fed FINALLY increase short-term interest rates?” Reading between the lines of central bank speeches, statements and press conferences, most believe the first rate hike will occur in the third quarter of the year. Goldman Sachs analysts’ noted that once the Fed starts the process, it could move faster than the market now expects.

Oil: At her last press conference of the year, Janet Yellen called low oil a “transitory” phenomenon, which loosely translated means “Don’t get too used to those cheap gas prices!” The reason is that supply and demand will surely change. If the global economy picks up, so too will demand for oil, but these changes often occur slowly, which is why some economists are predicting that oil prices will likely remain in a range of $50 to $75 a barrel in 2015.


  • DJIA: 17,823.07, up 7.5% (6th annual gain, longest streak since 1990s)
  • S&P 500: 2058.90, up 11.4% (up an average of 20.7% a year for the last 3 years including dividends, its best three-year returns since the late 1990s)
  • NASDAQ: 4736.05, up 13.4%
  • Russell 2000: 1204.70, up 3.53%
  • Stoxx Europe 600: 342.54, up 4.35%
  • Argentina Merval: 8579.02, up 59.14%
  • Shangahi A Shares (Mainland China): 3389.40, up 53.06%
  • RTS Russia: 790.71, down 45.19%
  • 10-Year Treasury yield: 2.173% (from 3.03% a year ago)
  • February Crude Oil: $53.27, down 46% (lowest level since May, 2008)
  • February Gold: $1,184.10, down 1.5%
  • WSJ Dollar index: 83.04, up 12% (highest level since Sep 2003)
  • AAA Nat'l average price for gallon of regular Gas: $2.24 (from $3.32 a year ago)


Mon 1/5:

Automobile Sales

Tues 1/6:

9:45 PMI Services Index

10:00 Factory Orders

10:00 ISM Non-Mfg Index

Weds 1/7:

8:15 ADP Employment Report

8:30 International Trade

2:00 FOMC Minutes

Thurs 1/8:

8:30 Weekly Jobless Claims

3:00 Consumer Credit

Fri 1/9:

8:30 December Jobs Report

10:00 Wholesale Trade

2014 Financial Year in Review


With just a few days before we turn the page to 2015, it’s time to take look back at 2014 and highlight some of the big financial stories and trends of the year. Economic Growth: The year started with weakness, due to unusually cold weather across the nation. The economy actually contracted by annualized pace of 2.1 percent in the first three months of the year, before recovering to grow by 4.6 percent in the second quarter and by a surprisingly strong 5 percent annualized pace in the third. The fourth quarter probably expanded by 2.5 to 3 percent, though the government will not release its first estimate of growth until January 30th. For the year, the economy likely grew by two and a half percent, which is a small improvement from the previous few years, though still below the long-term average of 3.3 percent.

Labor Market: 2014 was the year of the job. Through November, the year was on pace to be the best year for job creation since 1999, with the economy adding just over 2.6 million total payroll jobs. The unemployment rate stands at 5.8 percent, down from 6.7 percent at the end of last year; and the number of people out of work for more than six months has dropped from 3.9 million last December, to 2.8 million, the lowest level for long-term unemployed since January 2009. While 2.8 million is still very high, it is down from over 6 million from a peak in early 2010.

Federal Reserve and the Bernanke Hand-Off to Yellen: The transition from the Ben Bernanke era to the Janet Yellen regime was mostly smooth. Oh sure, there was the inevitable woops moment at her first press conference back in March, when the newly-anointed Fed Chair let it slip out that the Fed would raise rates “something on the order of around six months” after the central bank’s bond buying (aka “Quantitative Easing” or “QE”) ended. Those eight words threw financial markets into a temporary tailspin (reminiscent of 2013’s “Taper Tantrum,” which occurred after then-Chairman Ben Bernanke began discussing tapering bond purchases), as investors worried that the Fed would increase rates faster than expected.

As it turned out, Yellen’s Fed slowly unwound the central bank’s bond buying policy and announced its conclusion at the October FOMC meeting. Then, in its last policy meeting of the year, the Fed split the difference on the language it used to describe when it would increase short-term interest rates. The central bank “judges that it can be patient (emphasis mine) in beginning to normalize the stance of monetary policy,” but also added the new description of their stance was “consistent” with past assurances that rates would stay low for a “considerable time.” The last Fed meeting of the year and the subsequent Yellen press conference spurred the 2014 Santa Claus Rally.

Financial markets: The biggest market story of 2014 was the swift and steep near-50 percent plunge in crude prices. The catalyst for the drop was a combination of softening demand in China, Europe and Japan, combined with a surge in U.S. production. Because the price of oil determines about two-thirds of the price of a gallon of regular gas, drivers were delighted to enjoy the 38 percent dive from a high of $3.70 a gallon on April 8th, to $2.29 today.

Meanwhile, both the stock and bond markets performed far better than most analysts expected at the beginning of the year. While there were periodic ups and downs, investors were spared a full-blown stock market correction, defined a fall of at least 10 percent. (It may have felt like a correction in October, but that was a 7.3 percent drop.) As of this writing (I’ll update this post after the close on December 31), the S&P 500 is up 13 percent and the bond market has also seen smart gains, with US Treasuries returning 5.6 percent this year, on track for the best performance since 2011, after losing 3.4 percent last year, according to the Bloomberg U.S. Treasury Bond Index.

Of course, in any given year, there are winners and losers (in market lingo, this is sometimes called “divergence in performance.”) In 2014, the laggards in the equity universe were US small caps (loosely defined has companies having a market value less than $1 billion); and a handful of emerging stock markets. Before you throw in the towel on these assets, its good to remember that just because 2014 was a U.S., big-cap world, does not mean that 2015 will see a repeat performance. (There’s a reason why every investment prospectus features the warning “Past performance is not indicative of future results.”) In fact, small caps outperformed the broader market from the bear-market bottom of March 2009 through 2013. Think of 2014 as a bit of give back on that outperformance.

U.S. Government Backs Off: Here’s a nice change from 2013: this past year had no Congressional stand-offs! That’s right, no Fiscal Cliff, no Sequestration, no government shut down and no fight over the debt ceiling.

Geopolitical Issues Heat Up: 2014 was filled with a series of scary geopolitical events: unrest in Ukraine; Russian annexation of Crimea; an outbreak of violence between Israel-Hamas; the rise of ISIS; pro-democracy protests in Hong Kong; and an outbreak of Ebola. Economists call these events “exogenous,” which means coming from outside. The practitioners of the dismal science hate exogenous events, because they are impossible to predict. Investors also detest these events, because they often can have a significant negative effect on prices.

MARKETS: Holiday shortened weeks are usually kind to investors and last week did not disappoint. If history is any guide, the bulls are likely to remain in control next week too. During the last five trading sessions of December and the first two of January, the Dow has gained an average of 1.7 per cent, according to the Stock Trader's Almanac (the data go back to 1896!)

  • DJIA: 18,053, up 1.4% on week, up 8.9% YTD (best 5 days since 2011)
  • S&P 500: 2088, up 0.9% on week, up 13% YTD (52nd record high of the year)
  • NASDAQ: 4806, up 0.9% on week, up 15.1% YTD
  • Russell 2000: 1215, up 1.5% on week, up 4.4% YTD
  • 10-Year Treasury yield: 2.25% (from 2.18% a week ago)
  • February Crude Oil: $54.73, down 4.2% on week
  • February Gold: $1,195.30, down 0.04% on week
  • AAA Nat'l average price for gallon of regular Gas: $2.29 (from $3.31 a year ago)


Mon 12/29:

10:30 Dallas Fed Manufacturing Activity

Tues 12/30:

9:00 Case Shiller Home Price Index

10:00 Consumer Confidence

Weds 12/31:

8:30 Weekly Jobless Claims

9:45 Chicago PMI

10:00 Pending Home Sales


Fri 1/2:

9:45 PMI Manufacturing

10:00 ISM Manufacturing

10:00 Construction Spending

Janet Yellen Spurs Santa Claus Rally


Leave it to a nice Jewish girl from Brooklyn to give Santa Claus a nudge. In its last policy meeting of the year, Janet Yellen (who hails from Bay Ridge, Brooklyn) and her cohorts at the Fed split the difference on the language used to describe when we would see an increase short-term interest rates. The central bank “judges that it can be patient (emphasis mine) in beginning to normalize the stance of monetary policy,” but also added the new description of their stance was “consistent” with past assurances that rates would stay low for a “considerable time.” Investors loved the punt, believing that the Fed is not likely to raise rates any time soon. All of the sudden, the Santa Claus Rally was ON! In fact, after a dismal start to the week, stocks powered higher Wednesday through Friday (the best three-day percentage gain for the Dow and the S&P 500 in three years) and finished within striking distance of all-time highs. Fears melted away about the oil plunge signifying a global growth slowdown and a possible financial contagion from the Russian currency crisis, allowing ol’ Saint Nick (via Saint Janet) to take control.

Meanwhile, consumers and retailers are preparing for the last gasp of holiday shopping before Christmas. Early results have been mixed, but that might have more to do with the season stretching out over a longer period, than the fact that people are spending less overall. Separate data from IBM’s real-time tracking index of digital shopping and Adobe confirm that consumers have already spent record amounts online and companies like Wal-Mart and Target reported strong holiday numbers.

These results fly in the face of the National Retail Federation’s finding that total projected sales tumbled 11 percent during the Thanksgiving holiday weekend, but it’s important to note that NRF data is based on a totally non-scientific survey, which asks random shoppers whether they plan to spend more or less than last holiday season. Considering that most consumers can hardly recall what they spent last week - let alone last year, most analysts have dismissed NRF findings.

To determine whether or not Santa delivered retailers a jolly holiday season, we’ll have to wait until the Commerce Department releases its monthly retail sales report in January and retailers report their earnings reports for the fourth quarter. Until then, it’s probably best to concentrate on the holidays themselves and not get wrapped up in guesswork.

MARKETS: Last week was a great lesson in volatility…and if you can’t take it, then you might want to consider reviewing your portfolio allocation. For the five days, Santa stuffed investors’ stockings with gifts, not lumps of coal, as indexes climbed within spitting distance of milestones (Dow 18K) and records (S&P 500 2075).

  • DJIA: 17,804, up 3% on week, up 7.4% YTD
  • S&P 500: 2070, up 3.4% on week, up 12% YTD
  • NASDAQ: 4765, up 2.4% on week, up 14.1% YTD
  • Russell 2000: 1196, up 3.8% on week, up 2.8% YTD
  • 10-Year Treasury yield: 2.18% (from 2.08% a week ago)
  • January Crude Oil: $56.52, down 2.2% on week
  • February Gold: $1,196, down 2.1% on week
  • AAA Nat'l average price for gallon of regular Gas: $2.43 (from $3.22 a year ago)

THE WEEK AHEAD: By Tuesday at 10:15ET, you can call it quits for the week!

Mon 12/22:

8:30 Chicago Fed Nat’l Activity

10:00 Existing Home Sales

Tues 12/23:

8:30 Durable Goods Orders

8:30 Q3 GDP (final reading, previous=3.9%)

8:30 Personal Income and Spending

10:00 New Home Sales

Weds 12/24:

1:00 US Markets close early for Christmas


Fri 12/26: