Highlights of this Week’s Update:
- Perseverance over Popularity.
- Major U.S. stock indices continue their move higher for the 7th week in a row.
- Employment numbers improve.
- Oil prices continue to fall, gold higher.
- Interest rates see an increase for the week, fixed mortgages still low.
READ ON FOR MORE DETAILS…………………………………………….
Perseverance is more Important than Popularity:
One U.S. president gave a speech that was considered so pathetic by members of the press that they didn’t even bother to report what was said. “We pass over the silly remarks of the President,” wrote the reporter for a Pennsylvania newspaper. “For the credit of the nation we are willing that the veil of oblivion shall be dropped over them, and they shall be no more repeated or thought of.”
The president who was the subject of this attack was named Abraham Lincoln. The speech in question was the Gettysburg Address. Though revered as perhaps our greatest leader, it’s easy to forget that Lincoln was despised by many in his day.
Popularity is not important. Perseverance is.
(Presidential Prayer Team)
It’s now been seven weeks and seven-straight weekly gains for the Dow Jones Industrials and the S&P 500 Index. The Dow gained .73% for the week closing at 17,958.79 on last Friday, while the S&P 500 rose .38% to end at 2,075.37. The Dow is now up 8.34% for the year as of Friday’s close. (Google Finance, MarketWatch)
The catalyst that may have helped stocks post a modest gain and finish the week higher: a much-better than forecast rise in job growth. Just as significant, investors viewed good news as good news. In other words, accelerating economic activity and its probable impact on corporate profits trumped rate hike worries – more on that later in this update.
The U.S. Bureau of Labor Statistics (BLS) reported nonfarm payrolls rose an impressive 321,000 in November, easily besting the forecast by Bloomberg of 230,000. It was the best showing since nonfarm payrolls rose 360,000 in January 2012 (BLS).
Oil prices continued their decline, with West Texas Intermediate Crude Oil finishing Friday at $65.63 per barrel. There was an additional fall in today’s trading session, with the current price falling in today’s trading session to around $63.15 per barrel, for another 4.0% decline. Gold rose, however, jumping $11.25 per ounce to close out the week at $1,194.00. (MarketWatch, CNBC, missingSTEP.com)
Interest rates crept higher last week, with short term rates increasing more than long term indicating some anticipation of a possible FED rate hike sometime around mid-2015. Mortgage rates still remain relatively low, with the 30 year fixed rate mortgage still at 4% or less, and the 15 year fixed rate at 3.05% (Bankrate.com)
If we continue to see strong employment gains, the Fed could decide to pull forward the date of an expected rate hike, at least that’s what the Federal Reserve explicitly said in the press release that followed its most recent meeting. Remember, the primary reason for very low interest rates is to stimulate borrowing and spending, which boosts economic activity and job creation.
Take a look at action in the yield on the 2-year Treasury bond, which a good proxy for sentiment for changes in the fed funds rate – see Figure 1.
Following Friday’s jobs’ release, the yield on the 2-year bond added 0.08 percentage points to 0.65%, the highest since April 2011 (St. Louis Federal Reserve). Although the path has been jagged since the start of the year, we’ve been in an upward trend, signaling that investors are pricing in a rate increase next year, probably in the middle of 2015. There has been some speculation that the steep decline in oil prices could give the Fed some breathing room, delaying any moves until 2016.
It’s hard to believe there is only 16 calendar days left until Christmas! 2014 is quickly coming to a close, and we encourage you to be sure to call us and schedule your year-end review if you have not already done so. This is a great time of year to start your planning for 2015 and update your overall long term financial plan. Call us today-we are here to help!
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.
4 New York Mercantile Exchange front-month contract; Prices can and do vary; past performance does not guarantee future results.
5 London Bullion Market Association; gold fixing pricing at 3 p.m. London time; 2013 year-end price fixing at 10:30 a.m. London time; Prices can and do vary; past performance does not guarantee future results.