Highlights of this Week’s Update:
- Special thought to start off the New Year.
- Monthly book review to begin again the end of January.
- Stocks continue to rise last week.
- Oil decline continues-ending at $55.14 per barrel.
- Mortgage rates stay low.
- U.S. economy surprises to the upside in the third quarter.
- Stock valuations continue to stretch higher.
Thought to Start the New Year:
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.
Remember: Popularity is not important. Perseverance is. (Source: Presidential Prayer Team)
Also, starting in January, we will once again provide a book review each month as we have in the past. Our first review will be in the January, 2015 month-end newsletter.
The Markets:
The major U.S. stock indices continued to climb last week, giving us the “Santa Claus” rally that was in question just a few weeks ago. The Dow Jones Industrial Average gained another 1.4% last week, breaking the 18,000 mark for the first time. The Dow is now up 8.91% for the year.
Oil resumed its decline, with West Texas Intermediate Crude oil closing at $55.14 per barrel on Friday. Interest rates inched higher, with the yield on the 10 year U.S. Treasury finishing the week at 2.25%, up .08 for the short trading week. The average rate for a 30 year fixed rate mortgage ended at 3.96% and the 15 year fixed rate ended at 3.25% just before Christmas on December 23rd. (Bankrate.com)
The Economy:
The final revision to the third quarter’s Gross Domestic Product (GDP, the broadest measure of economic activity) for July through September exceeded the most optimistic expectations (Bloomberg). Simply put, it reflects an economy that seems to finally be breaking free of the low growth orbit it has been stuck in for much of the 5-year old recovery (National Bureau of Economic Research).
Real (inflation-adjusted) GDP expanded in Q3 by an annualized rate of 5.0% (Bureau of Economic Analysis-BEA), the fastest pace in 11 years (Figure 1). Further, it easily topped the most optimistic forecast of 4.5% (Bloomberg), as it was revised upward from an earlier estimate of 3.9%. 
The advance was broad-based with both consumer and business spending contributing to the better-than-forecast report. Notably, an unexpected jump in defense spending contributed 0.66 percentage points to the 5.0% increase (BEA).
It’s unlikely we’ll get another gain of that magnitude. Nonetheless, minus out higher defense spending and GDP still grew at a healthy rate.
Of course, all is not rosy with the U.S. economy, as many of us continue to grapple with the impact from the worst recession in over 70 years. The latest data on housing from the National Association of Realtors and the Commerce Department – existing home sales and new homes sales – are far from impressive.
U.S. exports may slow amid the latest recession in Japan, lackluster growth in Europe, and the slowdown in China. Wage growth may finally be showing signs of picking up, but it has been weak since the economy fell into the Great Recession.
Bottom line
Unless we see an unexpected slowdown in the economy, it’s likely that the Fed will start raising interest rates in the middle of next year. There’s a good chance rates will stay at the present level until that time unless we continue to see the type of GDP numbers that were generated in the third quarter. Stocks continue to stretch overall valuations at current prices in general and therefore we continue to focus on individual companies for our equity holdings as we move into the New Year.
We hope you all had a wonderful Christmas Holiday with family and friends and wish you a safe and Happy New Year. It’s hard to believe, but we only have 3 days left in 2014! We are looking forward to continue to serve all of you in 2015as well as the years to come.
God Bless,
Your TEAM at F.I.G. Financial Advisory Services, Inc.
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