Now What: A Guide to Retirement During Volatile Times

How will the job market affect stocks?

by ken | 08:47 in |


How will the job market affect stocks?

The major indices closed mixed last Friday as a week of slow trading was capped by a market-wide selloff on Friday. The retreat was driven by a mediocre June jobs report and fears about a jobless recovery. The S&P closed down only 0.55%, the Dow gained 1.35%, and the Nasdaq rose 0.08%.[1]

The U.S. suffered its third month of sub-100,000 jobs growth in June, adding just 80,000 new jobs. The economy needs an average growth of at least 125,000 new jobs per month in order to be considered healthy.[2] However, let’s take a moment to dig a little deeper and consider what lies behind the jobs numbers each month. One of the complications of calculating jobs growth is seasonality, which economists have to estimate based on their knowledge of annual trends. Currently, we’re in one of the slow periods of the year, when factories slow production and retailers see fewer sales. Economists only expected to see 90,000 new jobs; although we missed that number, the situation is not as grim as it appears.

A more positive indicator that we saw in the jobs report is that the number of temporary workers grew by 25,000, accounting for nearly one-third of the new jobs last month. [3] This is good news because the hiring of temporary workers historically presages that of permanent employees. Hiring full-time employees is a significant investment that businesses may be reluctant to take on in a shaky economy. Temporary employees can fill the gap without a significant investment. As employers become more confident of their own needs and the economy, they often convert temporary employees into permanent staff.[4]

Two more positive indicators could mean that the jobs market is emerging from a spring slump. The number of Americans applying for jobless benefits fell to a three-month low in June, and the number of layoffs announced in June fell to a 13-month low – about 40% less than May’s number of layoffs. Both of these reports indicate that employers are becoming motivated to keep existing employees and reduce layoffs. That plus the increase in temp worker hiring could mean there’s hope for a rosier employment picture later this year.[5]

While the job market and economy are far from healthy and we are unlikely to see the robust employment numbers of earlier this year, we can hope to see moderate employment growth ahead. Falling gasoline prices may increase consumer spending and businesses will see their prospects improve, improving the overall employment outlook. Keep in mind while reading the media’s spin on economic reports that they often tell a small part of the picture. Headlines tend to focus on the worst-case scenario without taking the time to explain the data that can be understood by digging deeper. 

ECONOMIC CALENDAR:
Wednesday: International Trade, EIA Petroleum Status Report, FOMC Minutes
Thursday: Jobless Claims, Import and Export Prices, Treasury Budget
Friday: Producer Price Index, Consumer Sentiment


Data as of 7/6/2012
1-Week
Since 1/1/2012
1-Year
5-Year
10-Year
Standard & Poor's 500
-0.55%
7.72%
1.15%
-2.30%
3.70%
DOW
1.35%
4.54%
1.16%
-6.17%
36.17%
NASDAQ
0.08%
12.75%
3.65%
2.03%
10.28%
MSCI EAFE
-1.04%
2.15%
-14.76%
-6.07%
 2.38%
10-year Treasury Note (Yield Only)
1.66%
N/A
3.10%
5.20%
4.86%

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not available.

HEADLINES:
Greek aid halted until austerity back on track. According to an EU finance official, Greece will not receive its next aid disbursement until it continues the implementation of economic reforms demanded by European creditors. Auditors will assess the current state of its accounts after two difficult elections.[6]
Congress passes student loan extension. The House and Senate passed a transportation bill that included an extension of the low interest rates on government-subsidized student loans. The measure passed just days before rates were scheduled to double.[7]
China cuts lending rates again in surprise move. The interest rates cut, the second in less than a month, signals that the world’s second-largest economy could be in trouble and that Communist Party leaders are getting serious about boosting the economy. By lowering borrowing costs for homebuyers and business owners, finance officials hope to increase private sector activity.[8]
Obamacare opponents focus on state exchanges. Critics of the new healthcare act are focusing their efforts on challenging federal subsidies and tax credits in states which fail to set up insurance exchanges and require federal intervention. At issue is the language of the act, which specifies that subsidies are only available for insurance purchased in state exchanges, but makes no mention of federally-run exchanges.[9]

QUOTE OF THE WEEK:
“The two most unnecessary emotions in life are guilt and worry.” – Dr. Wayne Dyer


Share the Wealth of Knowledge!
Please share this market update with family, friends, or colleagues. If you would like us to add them to our list, simply click on the "Forward email" link below. We love being introduced!


If you would like to opt-out of future emails, please reply to this email with UNSUBSCRIBE in the subject line.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Diversification does not guarantee profit nor is it guaranteed to protect assets

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
The Housing Market Index (HMI) is a weighted average of separate diffusion indices based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. Each resulting index is then seasonally adjusted and weighted to produce the HMI.
The Pending Home Sales Index, a leading indicator of housing activity,  measures housing contract activity, and is based on signed real estate contracts for existing single-family homes, condos and co-ops.  The PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years. The results are weighted to produce the index.
The BLS Consumer Price Indexes (CPI) produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. Survey responses are seasonally adjusted and weighted to produce a composite index.
The Conference Board Leading Economic Index (LEI) is a composite economic index formed by averages of several individual leading economic indicators, which are weighted to produce the complete index.
Google Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
.

By clicking on these links, you will leave our server as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.



‘Obamacare’ & 2Q Recap

by ken | 08:09 in |


‘Obamacare’ & 2Q Recap

While the first quarter of 2012 beat expectations, the second quarter poured cold water on investors’ hopes for a strong encore. Much like the last two years, the economy got off to a solid start only to falter in the spring. Despite a strong showing in the latter half of June, markets are down for the quarter, erasing some of the gains we saw in Q1. However, the major indices are still up significantly for the year. Since January 1, 2012, the S&P has gained 8.31%, while the Dow is up 5.42%, and the Nasdaq grew by 12.66%.[i]

What are some of the factors that contributed to the Q2 doldrums? Most can be grouped into two major categories:

1.      Global economic turmoil
Concerns about the European debt crisis continued to dominate headlines this quarter, as lawmakers struggled to contain a rapidly growing crisis that threatens the integrity of the entire Eurozone. Greece skirted the edges of a disorderly default on its debt as popular opinion rose against punishing austerity measures. Although voters elected a pro-bailout coalition government, it is still unknown whether Greece will remain in the Eurozone. The Spanish were able to secure bailout funds to recapitalize their struggling banks from a centralized bailout fund as the Eurozone gambles on a more centralized union to save itself.[ii]

China, the world’s second-largest economy is decelerating; its central bank is desperately trying to cushion the landing as China’s manufacturing and export sectors – major drivers of the Chinese (and global) economy – slow.[iii]

2.      Concerns about domestic growth
Investors and analysts are worried about troubling economic reports this quarter that suggest the U.S. economy might be slowing. Stubborn unemployment, slow economic growth, and a stagnant job market continue to undermine confidence. One bright spot is that falling oil and gas prices offer consumer pocketbooks a break, and may encourage Americans to boost spending, the primary driver of economic expansion.

Taking into consideration the upcoming presidential election and expiration of the so-called Bush Tax Cuts in January, it’s no wonder many analysts expect a period of sustained volatility in the months ahead.[iv] With this in mind, we encourage you to stick to an investment strategy that is suitable for your own risk tolerance and personal investment objectives. Every individual has unique needs, and we always strive to match our clients to appropriate solutions to fill those needs. If you have any questions or concerns, please don’t hesitate to contact us.

ECONOMIC CALENDAR:
Monday: ISM Mfg Index, Construction Spending
Tuesday: Motor Vehicle Sales, Factory Orders
Wednesday: Markets closed for Independence Day holiday
Thursday: ADP Employment Report, Jobless Claims, ISM Non-Mfg Index, EIA Petroleum Status Report
Friday: Employment Situation

Data as of 6/29/2012
1-Week
Since 1/1/2012
1-Year
5-Year
10-Year
Standard & Poor's 500
2.03%
8.31%
4.19%
-1.88%
3.76%
DOW
1.89%
5.42%
5.05%
-0.79%
3.93%
NASDAQ
1.47%
12.66%
7.10%
2.55%
10.06%
MSCI EAFE
3.14%
3.22%
-12.72%
-5.61%
 2.40%
10-year Treasury Note (Yield Only)
1.67%
N/A
3.11%
5.03%
4.82%

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not available.

Brief: ‘Obamacare’ Supreme Court Decision

Big news last week was the Supreme Court’s historic move to uphold the president’s Affordable Care Act that will impact the way Americans receive and pay for medical care. What does this move mean for the general public, and for investors?

Broadly, the ACA stipulates that millions of people not currently covered by health care will have insurance by 2016. The Supreme Court upheld the individual mandate, meaning that by 2014, uninsured Americans must purchase insurance, or face a fine. Additionally, prior to the ACA, insurers could cherry-pick their insured, excluding those with pre-existing conditions; the new law prohibits insurance companies from excluding pre-existing conditions, and allows people to purchase insurance from state insurance exchanges.[v]
Winners: (Note: We are not recommending any investments here, just sharing some information.)
·        Hospitals: Hospital stocks jumped sharply after the Supreme Court ruling. Hospitals gain by having to provide less free care for the uninsured; currently, 25% of the care provided by hospitals goes unpaid, an amount that will decrease substantially under the new law. Hospitals also stand to gain additional business from the estimated 33 million people that will be added to the rolls of the insured.

·        Insurers: Although many insurance stocks dipped after the ruling, it’s possible they were overbid on expectations that the Supreme Court would throw out the individual mandate or the entire ACA. Insurers stand to gain under the individual mandate provision by not having to pick up the tab for the uninsured. Additionally, by getting millions young of people into the risk pool, insurers will be able to offset the expense of insuring older Americans.[vi]
Losers:
·        Medical Device Makers: Among the losers are medical device makers, who will be responsible for an excise tax of 2.3% on the sale of medical devices, expected to add $29 billion to federal coffers over the next 10 years.[vii]  

·        Large Employers: Other losers could be employers (with more than 50 employees) who do not provide insurance to employees; they stand to pay a fee of $2,000 per full-time employee.[viii]

·        Wealthy Taxpayers: Medicare payroll taxes will increase for some high-income earners, and a new Medicare surtax will be levied on investment income. Investors who think they may fall into these categories should feel free to speak with us about strategies to help mitigate these taxes.

Subscribe to: Posts (Atom)