Highlights of this Week’s Update:
- Our offices will close this Wednesday, November 25th at 3:00pm CST, and be closed through Friday for the Thanksgiving Holiday.
- Stocks gained last week, recouping most of the drop from the previous week.
- Interest rates were flat, oil barely moved, and gold ended little changed on the week.
- Our outlook for stocks/equities remains positive at present.
- December rate hike possible, but would be mostly symbolic in nature.
- Recession in the near-term unlikely based on majority of current indicators.
READ ON FOR FURTHER DETAILS……………………………………………
A New Tradition Born?
The U.S stock and financial markets will be closed this coming Thursday, November 26th in observance of Thanksgiving Day, and will also close on Friday, November 27th at 12:00 Noon, CST, 1:00PM EST. Our offices will close at 3:00pm on Wednesday, November 25th and be closed on Thursday and Friday this week for the Thanksgiving Holiday. We will be back as usual on Monday, November 30th. We wish you and your families a very blessed Thanksgiving!
Last week saw the major stock indices rise about the same as they fell during the previous week. The Dow Jones Industrial Average gained 3.35% and the Standard & Poor’s 500 stock index rose 3.27% over the past five trading days. The Dow is now basically flat for 2015 through Friday’s close. (MarketWatch)
Interest rates remained steady, with the yield for the 10 year U.S. Treasury now at 2.26%, down -0.02 from the previous week. (U.S Treasury) The average rate for a 30 year fixed mortgage ended at 3.83% on Friday, with the 15 year fixed rate finishing the week at 2.98%. (Bankrate.com)
Oil prices ended the week at $41.46 for a barrel of West Texas Intermediate Crude, and gold stood at $1,081.75 per ounce. (CNBC)
At this time we remain positive for stocks/equities moving forward for the next several months. We have positioned portfolios across all risk levels in an effort to take advantage of the market movement we anticipate to occur as we move towards the end of 2015 and into the New Year ahead. We continue to monitor the markets and indicators and can make adjustments as warranted.
Stocks and the Economy:
While there are variables that can influence corporate earnings in the short-term that are outside the economic cycle (the big decline in oil prices and the stronger dollar are headwinds today), economic expansions and recessions have the biggest long-term influences.
Are we near a recession that would take a big bite out of earnings growth? Since WWII, there have been twelve economic expansions and twelve recessions, according to the official arbiter of the business cycle – the National Bureau of Economic Research (NBER).
The current expansion began in July 2009, which puts it at just over six years of age, or the fourth longest expansion since WWII. In other words, it’s not young anymore. The longest occurred in the 1990s and lasted 120 months – 10 years.
Economists do a very poor job of forecasting an impending recession, period. That said we can review some of the key leading economic indicators and get feel for the short-term outlook.
- Weekly first-time jobless claims take the pulse of the labor market and are a hard measure of business confidence. Currently, jobless claims are just off a 42-year low.
- Housing starts and building permits – housing is important to the economy and the direction of this sector can influence overall activity. Using data from the U.S. Census Bureau, housing starts, which feed directly into GDP, are volatile but remain in a gradual upward trend. The data are more encouraging with building permits, which suggests additional housing activity in the coming months.
- Inflation moves higher, which encourages a spike in interest rates. In turn, higher rates slow consumer spending and business investment and a recession begins. Inflation remains low, per the Consumer Price Index (U.S. Bureau of Labor Statistics).
- The fed funds rate – using data from the St. Louis Federal Reserve, all recessions going back to the 1950s were preceded by rate hikes by the Fed. The current expansion has yet to see an increase.
- The yield curve- simply plots interest rates of various maturities of the same debt instrument, such as Treasuries. For example the difference between the yield for a 3 month T-Bill and the 10 Year Treasury. The yield curve usually approaches or falls below zero when a recession is near. That’s not the case right now.
- Manufacturing – it’s a soft spot right now and is sending a mixed signal. The ISM Manufacturing Index suggests activity has slowed this year to the point of being flat. It has dipped into negative territory 13 times between 1983 and 2009 (ISM). But we experienced only three recessions during that period (NBER).
- Spreads on high-yield (junk) bonds are flashing yellow as we’ve seen yields rise on lower quality debt while Treasury bond yields have remained relatively constant (St. Louis Federal Reserve). It’s a sign of risk aversion.
- As detailed last week, we are likely to slip into an “earnings recession,” in which we have two back-to-back quarters of declining profit growth – Q3 and Q4 (Thomson Reuters). But weakness is concentrated in the energy sector. Pull out energy and growth is positive (FactSet).
It’s not an all-encompassing list and every expansion has its own peculiarities. The bottom line: a near-term recession is unlikely at this juncture as most indicators remain positive.
We wish all of you a blessed Thanksgiving Holiday this week and truly hope you all have time to relax and enjoy some quality time with family and friends. We are very thankful for the privilege to serve each of you and look forward to serving you 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.
5 New York Mercantile Exchange front-month contract; Prices can and do vary; past performance does not guarantee future results.
6 London Bullion Market Association; gold fixing pricing at 3 p.m. London time; Prices can and do vary; past performance does not guarantee future results.