Highlights of this Week’s Update:
1. The U.S. stock indices finish with positive net results for last week, but the Dow is still negative year-to-date while the S&P 500 now up just 1.8% so far in 2014. (MarketWatch)
2. Economic news continues mixed, as the unemployment rate drops but does not account for the underemployed.
3. The FED cuts back its bond buying program to $45 billion per month, leaves interest rates unchanged.
4. Our outlook remains unchanged and portfolios continue to perform well relative to risk so far in 2014.
READ ON FOR MORE DETAILS……………………………………………………………………..
The major U.S. stock indices ended Friday with positive results for the week. The Dow was up .9% last week, while the broader based S&P 500 gained just 1%. For the year, the Dow is still down .4%, while the S&P 500 is up just 1.8%. (MarketWatch) Mortgage rates inched higher today, with the rate for a 30 year fixed mortgage at 4.4% and 3.36% for a 15 year fixed rate mortgage. (Bankrate.com)
Russia continues to rattle the Ukrainian cage, with little impact on U.S. stocks-so far. If tensions continue to accelerate, this could change in the near future.
The first quarter Gross Domestic Product (GDP), the broadest measure of the economy, slowed from Q4’s 2.6% annualized pace to 0.1% (Bureau of Economic Analysis), well shy of an anemic 1.1% estimate per Bloomberg. Winter clearly took a bite out of economic activity.
That brings us to the employment report, which is confirming the recent acceleration in the economic data following a rough winter. Nonfarm payrolls rose by 288,000 in April, the best reading since January 2012 (Bureau of Labor Statistics). The unemployment rate fell from 6.7% in March to 6.3% in April, but the drop was a bit misleading and occurred amid a steep decline in those who were looking for work. This does not take into account the underemployed as well. According to the official definition of unemployment, if you are not working AND choose to put your job search on hold or had to settle for part-time work, you are not counted in the official unemployment rate.
The Fed and Interest Rates:
The Federal Reserve meeting was probably the biggest non-event in memory. About the only significant change in the latest press release was the acknowledgment that the pace of economic growth has picked up after a slow start early in the year. Granted, many would be hard pressed to notice any acceleration in the economy as we go about our daily lives, but it’s something economists measure in the various economic reports that come out each month.
The Fed did shave another $10 billion from its monthly bond-buying program, bringing the total in monthly purchases down to $45 billion. The unanswerable question remains: are we on the verge of a quicker pace of growth, one that will spark faster job growth and hasten the day when the Fed begins to raise interest rates? Or is it simply catch-up from a weak winter and we’ll once again settle back down into a slow growth pattern? Does the April employment report by itself improve the odds of an eventual rate hike? It’s doubtful. The big decline in the labor force (the BLS’ Household survey), still-weak wage gains, and a small rise last month in those who are working part time but would prefer to work full-time (BLS) signal more progress is needed. The Fed will most likely want more than one data point before it moves the rate-hike needle.
We continue with our strategy of caution regarding the stock market in general, and remain underweighted in stock exposure for all risk levels. The portfolios continue to perform well year-to-date relative to risk, with both the fixed-income/bonds and alternative assets performing well in 2014. Our stock models continue to invest in individual company names as well and we are avoiding the equity/stock mutual funds at this time. We will keep you advised.
As always, please don’t hesitate to call if you have any questions or concerns, or if we can be of further service in any way. It’s a privilege to serve each of you and we look forward to working together in the years to come.
Your TEAM at F.I.G. Financial Advisory Services, Inc.
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1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.