Market Week: September 30, 2015

September 30th, 2015

The Markets

Like an early fall flu, investor anxiety continued to spread last week as uncertainty around the future of interest rates continued to drag down markets. Even a Friday rally in blue chips spurred by Federal Reserve Chair Janet Yellen’s most recent comments couldn’t cure the malaise. All indexes tracked here posted losses, with the Russell 2000 dropping nearly 3.5%.

Gold rose to $1,145.50, compared to $1,139.10 a week earlier, while crude oil ended the week at $45.34 a barrel. The national average regular gasoline price declined for the fifth week in a row to $2.327 per gallon on September 21, down $0.048 from the previous week and $1.285 lower than a year prior.

Market/Index

2014 Close

Prior Week

As of 9/25

Weekly Change

YTD Change

DJIA

17823.07

16384.58

16314.67

-0.43%

-8.46%

Nasdaq

4736.05

4827.23

4686.50

-2.92%

-1.05%

S&P 500

2058.90

1958.03

1931.34

-1.36%

-6.20%

Russell 2000

1204.70

1163.35

1122.79

-3.49%

-6.80%

Global Dow

2501.66

2326.45

2259.74

-2.87%

-9.67%

Fed. Funds

0.25%

0.25%

0.25%

0%

0%

10-year Treasuries

2.17%

2.13%

2.17%

4 bps

0 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

·
In a speech at the University of Massachusetts, Fed Chair Janet Yellen seemed to quell some uncertainty about the U.S. economy, saying she expects the Fed to raise interest rates “sometime later this year.” Of course, she qualified the prediction by saying the organization would continue to rely on economic data.

·
In an announcement that came as a surprise to even some of his closest congressional colleagues last Friday, John Boehner (R-OH) announced his resignation as House Speaker and congressman, effective October 30. The announcement follows long-term criticism by members of his own party that the Speaker was not strong enough in supporting GOP principles, and comes amid heated negotiations over a bill that is needed to extend federal
funding beyond September 30.

·
The third estimate for second-quarter gross domestic product (GDP) was revised upward to 3.9% from the previous estimate of 3.7%, according to the Bureau of Economic Analysis. The growth is primarily due to accelerations in consumer spending, exports, nonresidential fixed investment, and state and local government spending. The upward revision was largely attributed to positive revisions in consumer spending, and nonresidential and residential fixed investment, partially offset by a downward revision in private inventory investment.

·
After three months of gains, total existing home sales fell 4.8% in August to 5.31 million. Moreover, July figures were revised downward to 5.58 million, reported the National Association of Realtors® (NAR). Despite the drop, sales are 6.2% higher than one year ago, and have risen year-over-year for 11 consecutive months. The median existing-home price for August was $228,700, 4.7% higher than in August 2014. Lawrence Yun,
NAR’s chief economist, attributed the decrease to tight inventories.

·
On the other hand, sales of new homes continue to be an economic bright spot, rising 5.7% in August, to 552,000, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. The figure is nearly 22% above the August 2014 estimate. The median sales price of new homes in August was $292,700, while the average was $353,400.

·
The September reading from the Markit Flash U.S. Manufacturing Purchasing Managers’ Index remained unchanged from its August 22-month low. At 53.0, the reading is one of the slowest rates of overall manufacturing expansion in nearly two years and is lower than the post-financial-crisis average of 54.3. While output rose at a faster pace in September, the increase was offset by a softening in new business and employment growth.

·
After two months of increases, durable goods orders declined by 2% in August. Excluding transportation, which fell by 5.8%, orders were virtually unchanged.

·
Jobless claims rose by 3,000 for the week ended September 19, to close at 267,000. The advance seasonally adjusted insured unemployment rate remained unchanged at 1.7%.

·
The University of Michigan’s final reading on consumer sentiment for September was 87.2, compared to August’s 91.9. Although at its lowest level in 11 months, the reading is 3% higher than it was a year ago. It is also higher than the mid-September figure reported earlier this month. “The decline in optimism continued to narrow in late September as consumers increasingly concluded that the stock market declines had more to do with the international conditions than the domestic economy,” said Surveys of Consumers chief economist Richard Curtin.

Eye on the Week Ahead

Eyes will be on Washington this week, to see if lawmakers can agree on a measure to continue funding the federal government through early December. Investors will monitor whether Boehner’s resignation announcement will affect the negotiation process. Also on tap are more housing market and manufacturing data, as well as information on personal income and expenditures and the overall job picture.

Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

The Safest Higher-Yield Values

September 24th, 2015

Two of the safest higher-yield values are found in two former members of the old Standard Oil Company: Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX).

Exxon Mobil yields just under 3.9%, while Chevron yields 5.4%. Falling oil prices have lead to falling share prices: Exxon Mobil shares are down 22%; Chevron shares are down 36%.

But neither oil giant is in danger of a dividend cut. In fact, Exxon Mobil even raised its dividend 6% with the June payout. Despite oil prices at a six-year low, Exxon Mobil still generated $3.9 billion of free cash flow for the latest quarter. This was more than enough to cover the $3.1 billion paid in dividends.

A low debt load, an efficient operation, and copious borrowing capacity ensures Exxon Mobil can maintain its dividend in all but the most extreme markets.

Chevron offers a more attractive yield than Exxon Mobil, but it comes tethered to more risk. Chevron has spent prodigiously to boost sales and earnings. This includes $54 billion on a liquefied-natural-gas plant in Australia. The investment has yet to contribute to earnings.

As for earnings, Chevron’s earnings cover the dividend, but free cash flow doesn’t. The good news is that this dynamic is expected to change by 2017, when recent investments begin generating significant earnings and cash flow. In the meantime, Chevron has sufficient borrowing capacity and CAPEX flexibility to sustain the dividend.

Investors willing to venture farther out on the risk curve can capture even more income and yield with European oil giants Royal Dutch Shell (NYSE: RDS.a) and BP (NYSE: BP). Both yield over 7%. Shell shares yield 7.3%; BP shares yield 7.5%. Shell and BP shares (ADRs, technically) are down 35% and 33%, respectively.

Shell shares have been weighed down by lower oil prices (like everyone else) and concerns its impending acquisition of large British natural-gas company BG Group won’t come to fruition. As for the latter issue, Shell has assured investors that the BG deal will come to fruition.

At the same time, Shell CEO Ben van Beurden has assured investors that Shell is committed to its dividend. Van Beurden went so far as to call Shell’s current yield “outrageous,” and history supports the claim. Shell hasn’t reduced the dividend since 1945. The payout has stood for 70 years, whether oil fetched $140 or $10 a barrel.

Market Week: September 15, 2015

September 15th, 2015

The Markets

The stock market rebounded nicely from the prior week’s sell-off with each of the major indexes listed here posting positive gains last week. The Nasdaq was the leader, increasing 2.96% ahead of the previous week’s close, followed by the S&P 500 and the Dow. Nevertheless, market uncertainty abounds, as investors anxiously await news from this week’s Federal Reserve policymakers’ meeting relative to a potential interest rate hike.

The price of gold (COMEX) dropped again, selling at about $1,107.90 by late Friday afternoon compared to $1,122.30 a week earlier. Crude oil (WTI) prices remained relatively the same, selling at $44.78/barrel by week’s end. The national average retail regular gasoline price decreased to $2.437 per gallon on September 7, 2015, $0.073 under the previous week’s price of $2.510 per gallon and $1.02 below a year ago.

Market/Index

2014 Close

Prior Week

As of 9/11

Weekly Change

YTD Change

DJIA

17823.07

16102.38

16433.09

2.05%

-7.80%

Nasdaq

4736.05

4683.92

4822.34

2.96%

1.82%

S&P 500

2058.90

1921.22

1961.05

2.07%

-4.75%

Russell 2000

1204.70

1136.17

1157.79

1.90%

-3.89%

Global Dow

2501.66

2281.91

2328.19

2.03%

-6.93%

Fed. Funds

0.25%

0.25%

0.25%

0%

0%

10-year Treasuries

2.17%

2.12%

2.19%

7 bps

2 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

·
Job seekers apparently had more opportunities in July as the number of job openings increased to 5.75 million compared to a revised total of 5.32 million openings in June, according to a report from the Bureau of Labor Statistics. This is the highest level of job openings since December 2000. Professional and business services, accommodation and food services, and retail led the way. Interestingly, while the number of job openings increased, the number of actual hires edged lower to 4.98 million, down from June’s total of 5.18 million hires.

·
For the week ended September 5, new claims for unemployment insurance decreased 6,000 to 275,000 from the prior week’s revised level. The seasonally adjusted insured unemployment rate remained at 1.7% for the week ended August 29, with 2.26 million continuing claims.

·
The price of goods bought in the United States but produced abroad (import prices) fell 1.8% in August, while export prices–the price of goods produced domestically but sold abroad–dropped 1.4%, according to the Bureau of Labor Statistics. The August decrease was primarily driven by lower fuel prices, although falling nonfuel prices and the continued strength of the dollar contributed to the decline as well. Compared to a year earlier, import prices are down 11.4%, while export prices are off 7%.

·
The Producer Price Index, which measures the average change over time in prices received by domestic producers of goods and services, was unchanged in August, according to the latest report from the Bureau of Labor Statistics. On an unadjusted basis, the final demand index moved down 0.8% for the 12 months ended in August–the seventh straight 12-month decline. In August, a 0.4% increase in the index for services offset a
0.6% decrease in prices for goods. These figures suggest that inflation remains relatively soft.

·
Possibly sending a message to the Fed concerning a possible near-term interest rate hike, consumer sentiment dropped from 91.9 in August to 85.7 for the early part of September, according to the University of Michigan’s Index of Consumer Sentiment. Richard Curtin, chief economist for the Surveys of Consumers suggests, “To be sure, consumers still anticipate a weaker domestic economy due to the global slowdown and are less optimistic about future growth in jobs and wages than they were a few months ago.”

·
According to the latest monthly budget report from the Department of the Treasury, the budget deficit for August stood at $64.4 billion–down from July’s $149 billion figure. Through 11 months of the government’s fiscal year, the deficit sits at about $530 billion compared to a $589.2 billion deficit for the same 11-month period last year.

Eye on the Week Ahead

This week, inflationary trends will be examined through reports on retail sales and the Consumer Price Index. But the big news will follow the FOMC meeting and whether interest rates will be raised.

Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.