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Long Term Care Myth Versus Reality

Myth: I won't need LTC

Reality: 70% of people turning age 65 can expect to use some form of long-term care during their lives.

Click this link to learn more about Long Term Care: http://www.skloff.com/long-term-care-myth-versus-reality/

Weekly Vantage Point | 2.1.16

 
Stocks Extend Gains a Second Week

February 1, 2016 – The S&P 500 surged 2.5% last Friday, its best one-day gain in more than four months, as investors cheered Japan's surprise new stimulus measure and better-than-forecast manufacturing data in the Chicago area. The Bank of Japan said it will encourage banks to lend by imposing a negative 0.1% interest rate on certain excess cash holdings. This first time move is also expected to weaken the yen and boost inflation. Wall Street sentiment also improved after a slightly weaker-than-forecast gross domestic product (GDP) report suggested the Federal Reserve may slow its pace of further interest rate hikes this year. In the first of three government GDP estimates, fourth quarter growth cooled to a 0.7% annualized rate—down from a final 2% pace the prior quarter. Although not yet final, 2015 U.S. GDP real growth expanded by 2.4%, the same pace as in 2014. Further GDP revisions are due out in February and March when more information becomes available.

In other economic data from last week, separate consumer sentiment index readings from the Conference Board and the University of Michigan showed somewhat divergent results. Yet, both shared a common theme that current consumer views remain resilient, defying pressure from overseas weakness. Pending used home sales edged only slightly higher in December, following a downwardly revised 1.1% decline in November. Economists noted that recent delays in contract closings are due to new mortgage documentation rules, which were implemented in November.

For the week, the S&P 500 rose 1.77%, its second weekly gain in 2016, trimming its year-to-date (and worst 10-day start to a year) loss to 4.96%. Since its 1,812 intra-day low on January 20, the benchmark equity index has rallied more than 7%. The Dow Jones Industrial Average gained nearly 373 points, representing a 2.32% gain for the week. The NASDAQ Composite trailed with a 0.51% increase. Nine of the ten major sector groups advanced last week, led by Telecom (+4.32%), Energy (+4.26%) and Utilities (+3.69%). Materials (+0.70%) rose the least, while Healthcare (-1.86%) lagged. West Texas Intermediate (WTI) crude oil rebounded further, gaining $1.43 over the week to close at $33.62/barrel. Treasury prices climbed, pulling the yield on 10-year Treasury notes down 13.1 basis points over the week, ending at 1.922%.

 
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Week’s Economic Calendar
 

Monday, February 1: Personal Income & Outlays, ISM Mfg., Markit U.S. PMI Mfg

Tuesday, February 2: No major releases;

Wednesday, February 3: ADP Private Sector Employment, ISM Non-Mfg., Markit U.S. Services;

Thursday, February 4: Jobless Claims, Labor Productivity & Costs, Factory Orders;

Friday, February 5: January Non-farm Payrolls & Unemployment Rate, International Trade.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones 2.32% -5.50% -7.26% -5.50% -5.46%
S&P 500 1.77% -4.96% -6.63% -4.96% -1.96%
NASDAQ 0.51% -7.82% -8.79% -7.82% -0.33%
Russell 3000 1.68% -5.64% -7.45% -5.64% -3.80%
MSCI EAFE 1.50% -7.23% -9.28% -7.23% -8.92%
MSCI Emerging Markets 4.48% -6.49% -11.96% -6.49% -21.86%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.52% 1.38% 0.89% 1.38% 0.17%
Barclays Municipal 0.22% 1.19% 2.33% 1.19% 2.84%
Barclays US Corp High Yield 1.14% -1.61% -6.22% -1.61% -6.61%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity 2.65% -1.68% -11.06% -1.68% -21.76%
S&P GSCI Crude Oil 4.44% -9.23 -27.01% -9.23% -24.51%
S&P GSCI Gold 1.83% 5.30% -2.69% 5.30% -11.11%
Source: MorningStar
Chart of the Week: December New Home Sales Jumped to 10-Month High; Fourth Quarter Sales Up 15.3%
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New home sales soared 10.8% in December, the most since August 2014, to a 544,000 annualized pace. These figures, which were reported by the U.S. Census Bureau and Department of Housing and Urban Development on January 27, 2016, included upward revisions to prior months that leave new home sales for the quarter up a solid 15.3% on a seasonally-adjusted annualized basis. JPMorgan's latest forecast looks for continued gains in housing starts, based partly on the strong upturn in housing permits in the fourth quarter of 2015. The reported increase in new home sales provides important demand-side support for this forecast (see preceding chart).

Nevertheless, a separate reading from the Census Bureau on Housing Vacancies and Homeownership provided mixed takeaways for the housing market. The data showed the number of households grew by only 0.4% in 2015. The report also shows the beginnings of a recovery in the homeownership rate. The rate had declined from a seasonally-adjusted peak of 69.4% in the second quarter 2004 to a multi-decade low of 63.5% in second quarter 2015 before edging up in each of the past two quarters to 63.7%. If sustained, the rise in homeownership would support the market for single-family homes.

Weekly Vantage Point | 1.25.16

 
First Weekly Gain in 2016

January 25, 2016 – U.S. stocks surged on Friday, capping the S&P 500 with its best two-day rally in three months on speculation that central banks in Europe and China may expand stimulus measures to support their respective economies. Recovering from a new 12-year low of $26.55/barrel on Wednesday, West Texas Intermediate (WTI) oil prices likewise rallied—gaining $3.84 over the past two days—posting the strongest back-to-back oil gains since 2009. Investors drew relief following comments from European Central Bank President Mario Draghi that policymakers may increase stimulus in March, while China's Vice President Li Yuanchao pledged action to limit market volatility. Earlier in the week, China reported fourth quarter GDP growth of 6.8%, capping 2015 with the slowest annual growth in 25 years, prompting widely-held views for further central bank easing. The U.S. joined a global rally on Friday, helping push the MSCI All Country World Index (ACWI) to rebound nearly 2.7%, capping the week with almost a 1% gain.

In key economic data last week, U.S. homebuilder confidence edged lower in January, reflecting a slowdown in traffic among first-time buyers. The consumer price index (CPI) slipped 0.1% in December, trimming the headline inflation increase last year to 0.7%. The so-called core CPI, which excludes volatile food and energy prices, crept 0.1% higher last month, up 2.1% for the year. New claims for unemployment benefits increased to a six-month high, while the Federal Reserve Bank of Philadelphia's manufacturing survey activity index improved in January, yet remained negative for a fifth month.

For the holiday-shortened trading week, the S&P 500 rose 1.43%, its first weekly gain in 2016, and trimming its year-to-date (YTD) loss to 6.61%. The Dow Jones Industrial Average finished the week up 105 points, representing a 0.66% gain. The NASDAQ Composite performed best last week, gaining 2.29%. Eight of the ten major sector groups had gains last week, with Telecom (+4.38%), Consumer Discretionary (+2.52%) and Information Technology (+2.42%) gaining the most. Financials (-0.52%) and Utilities (-0.04%) were down. On Friday, WTI crude oil surged over 9% to close at $32.19/barrel capping the week with a $2.91/barrel gain, up 9.9%. Treasury prices edged lower, lifting the yield on 10-year Treasury notes up 1.7 basis points over the week, ending at 2.053%.

 
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Week’s Economic Calendar
 

Monday, January 25: Dallas Fed Mfg Survey;

Tuesday, January 26: FOMC meeting begins, S&P/Case-Shiller Home Price Index, Consumer Sentiment;

Wednesday, January 27: New Home Sales, FOMC Policy Decisions (2 pm ET);

Thursday, January 28: Jobless Claims, Durable Goods Orders, Pending Home Sales;

Friday, January 29: 4Q GDP early estimate, Labor Costs, Chicago PMI, Consumer Confidence.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones 0.66% -7.64% -7.98% -7.64% -9.66%
S&P 500 1.43% -6.61% -6.59% -6.61% -5.60%
NASDAQ 2.29% -8.29% -6.40% -8.29% -2.23%
Russell 3000 1.37% -7.20% -7.45% -7.20% -6.98%
MSCI EAFE 0.21% -8.60% -10.61% -8.60% -9.64%
MSCI Emerging Markets 0.21% -10.49% -16.91% -10.48% -25.99%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond -0.12% 0.86% -0.27% 0.86% 0.25%
Barclays Municipal 0.04% 0.97% 2.15% 0.97% 0.97%
Barclays US Corp High Yield 0.12% -2.71% -7.09% -2.71% -7.24%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity 2.38% -4.22% -14.63% -4.22% -25.90%
S&P GSCI Crude Oil 5.92% -13.09 -29.07% -13.09% -30.51%
S&P GSCI Gold 0.50% 3.41% -5.99% 3.41% -15.79%
Source: MorningStar
Chart of the Week: Emerging Market Investment Funds Begin to Trend Notably Lower Trend Snaps a 30 Year Run
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According to data released from the Institute for International Finance (IIF), a net total of $735 billion has been withdrawn from emerging markets in 2015, following $111 billion in outflows in 2014 (see chart above). Last year's total far exceeded the IIF's estimate for $540 billion worth of outflows, illustrating just how quickly sentiment eroded in the year's final months.

Unsurprisingly, much of money running for the exits occurred in China, where increasingly slow growth radically reshaped investor expectations over the last year. The IIF estimates that some $676 billion of net capital-both officially and through unrecorded channels-fled the People's Republic last year. The chart helps explain why emerging market currencies such as China's yuan, Russia's ruble and Brazilian real are so weak. Likewise, it also helps explain why the US dollar is strong - and why U.S. Treasury prices are so well supported.

Weekly Vantage Point | 1.19.16

 
Worst 10-Day Start to a Year

January 19, 2016 – Global stocks plummeted last Friday, capping a third weekly retreat as oil prices sank to a 12-year low and below $30/barrel, prompting new concerns about slowing world growth. Investors grew anxious over the likelihood that Western economic sanctions against Iran would be soon lifted (which they were over the weekend), allowing the Islamic Republic to boost exports by an estimated 500,000 barrels per day, worsening a global oversupply. The S&P 500 experienced its worst day in over four months on Friday. The MSCI All Country World Index (ACWI) is down 17.7% from its May 2015 high, closing Friday at its lowest level since August 2013. European stocks, as measured by the Stoxx Europe 600 Index, are down 20% from their May peak last year, entering a bear market.

U.S. economic data released last week also added to investor angst. While job openings edged slightly higher in November, the collapse in oil and strong dollar effects stunted international trade prices. Retail sales declined in December, capping 2015 with a 2.1% gain, the smallest annual sales increase since 2009. Meanwhile, U.S. manufacturing took a sharp turn for the worse, with the New York Fed's Empire State manufacturing index plunging much deeper into negative territory in January, reaching a level last seen during the 2007-2009 recession.

For the week, the S&P 500 fell 2.15%, finishing the week around 13-points above its August 25 low of 1,867. The index capped the week with its worst ten-day start of a year in U.S history, down 8%. After shedding as much as 530-points on Friday, the Dow Jones Industrial Average closed down 391 points, ending the week with a 2.19% loss. The NASDAQ Composite lost 3.34%. Nine of the ten major sector groups slumped last week, with Materials (-4.4%), Financials (-3.0%) and Consumer Discretionary (-2.9%) falling the most. Utilities (+0.7%) outperformed. On Friday, West Texas Intermediate (WTI) crude oil fell as low as $29.28/barrel before finishing the day down 5.7% at $29.42, down 11.3% for the week. Safer-haven buying drove Treasury prices higher, pushing the yield on 10-year Treasury notes down eight basis points over the week, ending at 2.036%, its lowest yield since October 22.

 
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Week’s Economic Calendar
 

Monday, January 18: Markets closed for the Martin Luther King Jr. Day;

Tuesday, January 19: Housing Market Index;

Wednesday, January 20: Consumer Price Index, Housing Starts;

Thursday, January 21: Weekly Jobless Claims, Philly Fed Business Outlook;

Friday, January 22: Chicago Fed National Activity Index, PMI Mfg., Existing Home Sales, Leading Economic Indicators Index.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones -2.19% -8.25% -6.73% -8.25% -7.70%
S&P 500 -2.15% -7.93% -6.58% -7.93% -3.62%
NASDAQ -3.34% -10.34% -7.56% -10.34% -0.66%
Russell 3000 -2.48% -8.46% -7.74% -8.46% -5.01%
MSCI EAFE -2.82% -8.79% -10.48% -8.79% -8.00%
MSCI Emerging Markets -4.17% -10.68% -17.69% -10.68% -24.33%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.33% 0.97% -0.01% 0.97% -0.09%
Barclays Municipal 0.08% 0.94% 2.22% 0.94% 2.84%
Barclays US Corp High Yield -2.55% -2.83% -6.65% -2.83% -7.18%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity -4.22% -6.45% -18.17% -6.45% -27.72%
S&P GSCI Crude Oil -8.99% -17.95 -35.16% -17.95% -34.99%
S&P GSCI Gold -0.66% 2.89% -8.14% 2.89% -13.83%
Source: MorningStar
Chart of the Week: JPMorgan Looks for Confirmation of Consumer Spending Pickup; Believes Temporary Factors are Weighing on Growth
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JPMorgan (JPM) notes that the rout in global markets continued this past week, stemming from a set of related concerns, including the collapse in commodity prices and the possibility of a related credit market event, China's policy intentions and growth outlook, and the sluggishness of global economic activity. Indeed, the global economy ended the year on a surprisingly weak note, with 2.7% GDP growth posting the weakest quarterly gain of the entire expansion.

These developments pose a significant challenge to JPM's global growth outlook, which calls for trend-like expansion this year, modestly stronger than in 2015 (see Judgmental Blend outlook above of +3.2%). For JPM to hold their current forecast much longer, several key shifts need to take place. First, a significant acceleration in developing markets' (DM) consumer spending is needed in the coming months. JPM continues to believe that the collapse in oil prices predominantly reflects a positive "technological" supply shock, in which a wave of new production has overwhelmed demand. As such, the net effect of falling oil prices should be to boost global growth (Oil Supply shock only of +4.3%).

At the same time, there are reasons to temper this view. DM consumer spending has been lackluster in recent months, with last week's U.S. retail sales report suggesting this pattern continued in December. The sluggishness has fed perceptions that households have saved a large portion of the energy-price windfall. Additionally, fears about a possible credit event, related to the drop in commodity prices or the rise in the dollar, and negative feedback to the broad economy are contributing to uncertainty and undermining the prices of risk assets more broadly. These various forces dampen demand, such that without any positive consumer effects from lower energy costs, the effects could possibly turn 2016 global growth slightly negative.

Weekly Vantage Point | 1.11.16

 
Worst Start to a Year on Record

January 11, 2016 – Optimism over Friday's better-than-forecast jobs report gave way to anxiety over sliding oil prices, global growth concerns and the timing of future Federal Reserve rate increases. The S&P 500 fell 1.08% on Friday, capping the week with a near 6% loss, its worst five-day start to a year on record. The week began with a weak PMI manufacturing reading out of China, sending the nation's Shanghai Composite down nearly 7%. Also last week, the People's Bank of China devalued its currency, sending the yuan down the most since its August 25 devaluation last year. Also contributing to investor angst, North Korea conducted a nuclear weapons test, claiming a successful detonation of its first hydrogen bomb. The Shanghai Composite slid 10% for the week, while the MSCI Emerging Market Index sank 6.81%. Europe's Stoxx 600 Index fell 6.69%, its worst weekly loss in four years.

In key economic data last week, December non-farm payrolls climbed by 292,000, topping economists' consensus forecast by 92,000, while revisions on the prior two months added another 50,000. The unemployment rate was unchanged at 5%. Wage growth was also unchanged in December, while full-year wages rose 0.2% to 2.5%. Other key readings showed U.S. manufacturing activity contracted to its lowest level since July 2009. The U.S. trade deficit narrowed more than expected in November as imports fell to the lowest level since early 2011, a third month of import declines. Exports also contracted in November, falling to the lowest level since January 2012.

For the week, the S&P 500 fell 5.91%, finishing at 1,922, its lowest level since September 30th. The Dow Jones Industrial Average shed 1,078-points, ending the week down 6.19%. The NASDAQ Composite tumbled 7.24%. All ten major sector groups ended in negative territory, with Materials (-7.78%), Financials (-7.39%) and Technology (-6.97%) falling the most. Utilities (-0.40%) fell the least. Gold futures rose by $42.63 last week to $1,104.05/oz., while West Texas Intermediate (WTI) crude fell $3.88 to $33.16 per barrel, a 12-year low. Treasury prices rallied on safer-haven buying, with the yield on benchmark 10-year Treasury notes falling by 15.4 basis points over the week to end at 2.116%.

 
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Week’s Economic Calendar
 

Monday, January 11: No major releases;

Tuesday, January 12: Job Openings and Labor Turnover Survey (JOLTS);

Wednesday, January 13: MBA Mortgage Activity, Fed Beige Book;

Thursday, January 14: Jobless Claims, Import/Export Prices;

Friday, January 15: Producer Price Index, Retail Sales, Empire State Mfg., Industrial Production, Business Inventories, Consumer Sentiment.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones -6.19% -6.19% -4.13% -6.19% -8.72%
S&P 500 -5.91% -5.91% -4.01% -5.91% -4.81%
NASDAQ -7.24% -7.24% -3.18% -7.24% -0.81%
Russell 3000 -6.13% -6.13% -4.99% -6.13% -5.81%
MSCI EAFE -6.14% -6.14% -6.79% -6.14% -4.71%
MSCI Emerging Markets -6.81% -6.80% -12.45% -6.80% -20.94%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.64% 0.64% 0.08% 0.64% 0.52%
Barclays Municipal 0.86% 0.86% 2.30% 0.86% 3.55%
Barclays US Corp High Yield -0.29% -0.29% -3.88% -0.29% -4.85%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity -2.33% -2.33% -15.04% -2.33% -25.94%
S&P GSCI Crude Oil -9.85% -9.85 -32.76% -9.85% -31.71%
S&P GSCI Gold 3.57% 3.57% -4.04% 3.57% -9.16%
Source: MorningStar
Chart of the Week: S&P 500 Dividend Payments Set a Record in 2015, Another Record Likely for 2016
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On an overall basis, S&P 500 companies paid out 10% more in regular cash dividends in 2015 than in 2014, according to S&P Dow Jones Indices calculations. It was the fifth consecutive year of double-digit increases and the fourth record year for payments. From a quarterly perspective, payments for the fourth quarter of 2015 set a record, the seventh in a row. However, the quarter, with $3.6B in dividend net increases, showed a massive deceleration from the $12B increase registered during the fourth quarter of 2014. Energy issues accounted for 48% of the dividend cuts and 80% of the dollar cuts in this year's fourth quarter.

As this preceding chart illustrates, when reviewing the entire U.S. common stock universe (and not just the S&P 500), 755 dividend increases were reported during the fourth quarter of 2015, down from 971 increases reported during the fourth quarter of 2014, a 22.2% decrease. For all of 2015, 2,810 issues increased their payments, down from the 3,308 issues that increased their payments during 2014, a 15.1% decrease. Meanwhile, 142 companies decreased their dividends in the fourth quarters of 2015 (defined as either a decrease or a suspension) compared with 67 in the fourth quarter of 2014, a 112% difference. For all of 2015, 504 issues decreased their dividend payments, a large jump from 291 decreases in 2014, a 73.2% increase.

S&P Dow Jones Indices see two possible scenarios for 2016. On the pessimistic side, commodities would continue down as U.S. economic growth slows, and earnings would falter with a 0.75% (maximum) 2016 Fed increase—leaving dividend growth in the 3% area for 2016. On the optimistic side, oil and commodities would rebound slightly over the year (gyrating), and the economy would adjust to the Fed increase (1%-1.25%), inflation would pick up, especially in the second half of the year, consumers (though still selective) would spend more, and earnings would increase by low double-digits allowing dividends to increase roughly 8%-9% for 2016.

Business Succession

Succeeding at Business Succession

LegalZoom reported that 75% of small-business owners have no formal succession plan.¹ While the number may shock, it doesn’t surprise since so many small business owners are consumed by the myriad responsibilities of running their businesses.

Nevertheless, owners ignore succession planning at their peril, and possibly at the peril of their heirs.

There are a number of reasons for business owners to consider a business succession plan sooner rather than later. Let's take a look at two of them.

The first reason is taxes. Upon the owner’s death, estate taxes may be due that a proactive strategy may help to better manage.² Failure to properly plan can also lead to a loss of control over the final disposition of the company.

Second, the absence of a succession plan may result in a decline in the value of the business in the event of the owner’s death or unexpected disability.

The process of business succession planning is comprised of three basic steps:

  1. Identify Your Goals: When you know your objectives, it becomes easier to develop a plan to pursue them. For instance, do you want future income from the business for you and your spouse? What level of involvement do you want in the business? Do you want to create a legacy for your family or a charity? What are the values that you want to ensure, perhaps as they relate to your employees or community?
  2. Determine Steps to Pursue Your Objectives: There are a number of tools to help you follow the goals you’ve identified. They may include buy/sell agreements, gifting shares, establishing a variety of trusts or even creating an employee stock ownership plan if your desire is that employees have an ownership stake in the future.
  3. Implement the Plan: The execution step that converts ideas into action. Once implemented, you should revisit the plan regularly to make sure it remains relevant in the face of changing circumstances, such as divorce, changes in business profitability, or the death of a stakeholder.

Keep in mind that a fundamental prerequisite to business succession planning is valuing your business.

As you might imagine, business succession is a complicated exercise that involves complex set of tax rules and regulations. Before moving forward with a succession plan, consider working with legal and tax professionals who are familiar with the process.

  1. National Federation of Independent Business, October 2013

Weekly Vantage Point | 1.4.16

 
No Santa Claus Rally in December

January 04, 2016 – The S&P 500 fell 0.94% last Thursday, closing near session lows and capping the month with a 1.58% loss, its worst December decline since 2002. Energy shares fell 9.87% last month to cap their worst year since 2008 (-21.12%) as the global oil glut pushed crude oil futures down 13.78% last month, ending the year with a -30.47% loss. Coupled with 28.22% drop in 2014, crude oil experienced its largest two-year slump on record. The latest oil inventory report from the Energy Information Administration (EIA) showed the nation's oil supplies rose to a record 1.18 billion barrels in October. Meanwhile, the U.S. oil and gas rig count declined by 2 last week to end the year at 698, down from 1,811 a year ago (-61.46%), according to Baker Hughes.

New first time jobless claims jumped by 20,000 in the week ending December 26, a report released by the Labor Department showed on Thursday. Despite the surge, the less volatile four-week average increased to 277,000, which is nearly the same as the 2015 year average. Other data released the last trading day of the year showed the Chicago-area PMI manufacturing conditions index fell five points to 42.9 in December, the lowest reading since July 2009. Additional economic data last week showed home prices in all 20 cities, tracked by the Case-Shiller Home Price Index, posted gains for a second straight month. Pending home sales fell slightly in November, its third decline in four months, as buyers wrestle rising home prices and reduced inventory of used homes available for sale, according to the National Association of Realtors.

For the week, the S&P 500 fell 0.80%, closing below its 200-day moving average, the Dow Jones Industrial Average lost 0.72% and the NASDAQ Composite also declined 0.80%. All ten major sector groups ended in negative territory, with Energy (-2.23%), Materials (-1.51%) and Telecom (-0.95%) down the most. Consumer Discretionary (-0.37%) fell the least. Gold futures fell 1.34% on the week, while West Texas Intermediate (WTI) crude oil declined 2.78% to end the year at $37.04/barrel. Treasury prices extended declines last week, with the yield on benchmark 10-year Treasury notes rising 2.8 basis points to finish at 2.270%.

 
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Week’s Economic Calendar
 

Monday, January 4: ISM Manufacturing PMI, Markit U.S. Manufacturing PMI;

Tuesday, January 5: ISM New York City Business Conditions;

Wednesday, January 6: ADP Private Jobs, U.S. Trade Deficit, Markit U.S. Services PMI; ISM Non-Mfg PMI, Durable Goods Orders, FOMC Meeting Minutes;

Thursday, January 7: Weekly Jobless Claims, Markets Close Early;

Friday, January 8: December Nonfarm Payrolls, Wholesale Inventories/Sales.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones -0.72% na 7.09% na -2.23%
S&P 500 -0.80% na 6.80% na 1.38%
NASDAQ -0.80% na 8.53% na 6.97%
Russell 3000 -0.86% na 6.11% na 0.48%
MSCI EAFE -0.16% na 4.04% na -0.82%
MSCI Emerging Markets -1.09% na -0.03% na -14.92%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond -0.03% na -0.63% na 0.55%
Barclays Municipal 0.08% na 1.48% na 3.30%
Barclays US Corp High Yield 0.40% na -1.86% na -4.47%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity 0.10% na -9.81% na -24.67%
S&P GSCI Crude Oil -2.78% na -17.21% na -30.48%
S&P GSCI Gold -1.46% na -4.80% na -10.47%
Source: MorningStar
Chart of the Week: The JPM Global Manufacturing PMI
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Does a Good Job Tracking Activity Growth But Has an Exception: The United States

Having partnered with Markit Economics, the JPMorgan Global Manufacturing PMI index turned 18 years old and we reviewed its use as a business cycle indicator, highlighting its key properties and assessing its accuracy. The PMI has a good track record, but models that rely solely on the PMI survey to gauge growth in manufacturing output or gross domestic product (GDP) have frustratingly large standard errors. Recently, the global PMI (dark blue line) has persistently over-estimated global growth relative to actual output (orange line). With respect to changes in the levels of the global PMI, on average, a 1 point increase in the global manufacturing output PMI has been associated with a 0.8 point increase in manufacturing output growth. A closer look at Figure 1 reveals that the global manufacturing output PMI developed a notable forecast error during 2014 and first-half of 2015 in which it consistently over-predicted the growth of global industrial production (IP). The relationship between the output PMIs and economic growth varies widely on a national basis. But generally, the PMI surveys provide an important guide to activity. The prominent exception is the United States. Neither Markit's PMI nor ISM's manufacturing survey do a good job of tracking the growth of U.S. manufacturing output.

Weekly Vantage Point | 12.28.15

 
Oil Rebound Revitalizes Equity Optimism

December 28, 2015 – U.S. stocks slipped on Thursday, slightly paring a strong Christmas holiday-shortened trading week. The 2.8% gain on the S&P 500 over the 3 ½ day period was largely fueled by a rebound in crude oil, spurring a 4.6% rally in energy shares – their best performance since October. A full eight of the ten best performing stocks within the S&P 500 were in the energy sector, led by a company upgrade within the natural gas industry. Economic data on Thursday showed initial claims for unemployment benefits fell to a four-week low. The number of Americans receiving jobless benefits has stayed below the 300,000 level since early March, a level economists say is necessary for a healthy labor market.

Key economic data last week was the third and final GDP revision for third quarter growth, showing the economy expanded at a slightly lower annualized rate of 2%, but better than the consensus growth forecast for 1.9%. Revised inventory growth was the most negative factor in the revision, while residential fixed investment was upwardly revised to a very strong 8.2% pace. In sum, third quarter came in at a slightly subdued, but still respectable rate, and down from an outsized 3.9% bounce in the second quarter that followed a severe winter weather-related 0.6% pace in the first quarter. Current forecasts for fourth quarter GDP are tracking at around the same 2% level and may get a boost from an overall milder winter.

For the week, the S&P 500 rallied 2.80%, the Dow Industrials gained 423-points for a 2.47% advance, and the NASDAQ Composite rose 2.56%. All ten major sector groups posted gains last week, with commodity producers jumping 4.6% as a rally in metals from copper to gold joined a rebound in oil. WTI crude oil ended at $38.10/bbl., snapping seven weekly losses with a 5.65% gain on the shortened week. The CBOE VIX Volatility Index, a measure of investor anxiety, fell for a second week, down nearly 24%, the most since July. Treasury prices extended declines last week, with the yield on benchmark 10-year Treasury notes gaining 3.7 basis points to finish at 2.242%.

 
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Week’s Economic Calendar
 

Monday, December 28: Dallas Fed Manufacturing Survey;

Tuesday, December 29: S&P Case-Shiller Home Prices, Consumer Confidence;

Wednesday, December 30: Pending Home Sales;

Thursday, December 31: Weekly Jobless Claims, Markets Close Early;

Weekly Jobless Claims, Chicago PMI;

Friday, January 1: New Year's Day Holiday, All Markets Closed

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones 2.47% -0.95% 7.59% -1.52% -2.65%
S&P 500 2.80% -0.79% 7.32% 2.20% 1.10
NASDAQ 2.56% -1.12% 8.05% 7.82% 7.00%
Russell 3000 2.81% -1.20% 6.33% 1.35% 0.42%
MSCI EAFE 1.94% -1.19% 4.01% -0.66% -1.43%
MSCI Emerging Markets 1.87% -1.15% 2.17% -13.98% -13.36%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond -0.23% -0.29% -0.19% 0.58% 1.03%
Barclays Municipal 0.05% 0.62% 1.70% 3.22% 3.57%
Barclays US Corp High Yield 0.61% -2.91% -3.66% -4.85% -4.72%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity -1.34% -3.18% -11.29% -24.73% -26.05%
S&P GSCI Crude Oil 5.66% -8.52% -16.63% -28.48% -31.79%
S&P GSCI Gold 1.02% 1.00% -6.08% -9.14% -8.32%
Source: MorningStar
Chart of the Week: U.S. Ends Oil Export Ban
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U.S. Oil Production Now Slightly Trails Domestic Consumption But Oil Imports Have Nearly Doubled Since 1974 Oil Embargo

While U.S. oil imports have fallen over the past decade and the amount of import oil has dramatically declined as a percentage of consumption, the U.S. this year has imported 6.8 million barrels per day (mmbpd) compared to just 3.5 mmbpd at the time of the Arab Oil Embargo in January 1974. That's a 97% increase. Consumption has increased by about 1/3 since the embargo to 16,169 mmbpd in 2015, while production has only increased by around 7% to over 16 mmbpd. In the chart above, the U.S. Shale (fracking) oil revolution is shown by the steeply rising production (green line) from a five decade low in 2008. What is surprising to many people is how far U.S. production had fallen from its November 1970 peak.

Wrap Party

We had a blast helping wrap gifts with friends at our Gift Wrapping Party - hosted by Lisa Allen & Laura Featherston

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Weekly Vantage Point | 12.21.15

 
Falling Oil Sparks Global Growth Concerns

December 21, 2015 – U.S. stocks fell sharply on Friday, with the S&P 500 registering its worst two-day slide since September 1 (-3.3%) and more than fully erased its gain on the week. Investors were spooked by weaker oil prices and afternoon comments from Moody's Investor Services, saying "weak commodity prices are likely to persist for years." The Bloomberg Commodity Index, which tracks the prices of 22 raw materials, fell 1.24% last week, having fallen on Thursday to its lowest level since March 1999. The collapse in oil prices—West Texas Intermediate (WTI) crude is down nearly 35% year-to-date—and the broader tumble in commodities spawned new concerns over a slowdown in world growth. Selling intensified near Friday's closing bell due to the quarterly options expiration, known as quadruple witching.

Meanwhile, it was a historic week on Wall Street as members of the Federal Reserve's policy committee voted unanimously on Wednesday to raise interest rates for the first time since June 2006, increasing its federal funds rate by ¼-point to a new target range of 0.25%–0.50%. The move ends the Fed's so-called zero-interest-rate-policy that has been in place since December 2008. Fed Chair Janet Yellen emphasized that "future rate normalization (increases) will occur gradually" next year. She added that the central bank projects its key interest rate to end 2016 at 1.375%, implying four future ¼-point rate increases from the new target range. In a key economic data release last week, the consumer price index (CPI) was unchanged last month, while the core-CPI, which excludes volatile food and energy prices, rose 0.2%. Headline consumer prices are up just 0.5% from a year ago, while core prices are up a full 2%.

For the week, the S&P 500 slipped 0.31%, the Dow Jones Industrial Average lost 0.79%, and the NASDAQ Composite slipped 0.19%. Five of the ten major sector groups declined, led by Materials (-3.05%), Technology (-1.30%) and Energy (-1.05%). Utilities (+2.77) and Telecom (+1.34%) outperformed. WTI crude oil ended at $34.73/barrel, capping its seventh weekly decline, losing 2.5% last week. Gold prices fell 0.8% during the week. Treasury prices also declined last week, with the yield on 10-year Treasury notes gaining 7.7 basis points to finish at 2.205%.

 
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Week’s Economic Calendar
 

Monday, December 21: Chicago Fed National Activity Index;

Tuesday, December 22: Final 3Q GDP, Existing Home Sales;

Wednesday, December 23: Durable Goods Orders, Personal Incomes & Outlays, New Home Sales, Consumer Sentiment;

Thursday, December 24: Weekly Jobless Claims, Markets Close Early;

Friday, December 25: Christmas Holiday, All Markets Closed.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones -0.79% -3.34% 4.54% -3.90% -3.66%
S&P 500 -0.31% -3.48% 2.98% -0.58% -0.64%
NASDAQ -0.19% -3.59% 2.29% 5.13% 4.90%
Russell 3000 -0.31% -3.90% 1.64% -1.42% -1.28%
MSCI EAFE -0.17% -3.07% -1.12% -2.55% -2.09%
MSCI Emerging Markets 2.12% -2.96% -4.59% -15.55% -13.49%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond -0.35% -0.06% -0.20% 0.81% 1.13%
Barclays Municipal 0.00% 0.57% 1.90% 3.17% 3.45%
Barclays US Corp High Yield -0.95% -3.50% -5.63% -5.43% -4.58%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity -1.23% -4.46% -11.69% -25.73% -28.61%
S&P GSCI Crude Oil -3.19% -13.42% -19.90% -32.31% -33.68%
S&P GSCI Gold -0.99% -0.03% -6.40% -10.06% -10.86%
Source: MorningStar
Chart of the Week: Core CPI Inflation is Already up to 2.0%
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Trends of low overall inflation and a gradual acceleration of the CPI measure of core inflation were sustained in November. The CPI was unchanged on declines in energy (-1.3%) and food (-0.1%) prices. We expect weak energy and food prices to keep the CPI close to flat through the first quarter of 2016. The core CPI increased 0.18% in November and the over-year-ago change edged up to 2.0% from a recent low of 1.6% at the beginning of the year. Core goods prices remained weak in November and were down 0.2% on the month and are down 0.6% year-over-year (YoY). But the CPI for core services increased 0.3% in November and accelerated to 2.9% YoY.

We believe that core personal consumption expenditures (PCE) prices—the Fed's preferred measurement of inflation—will likely hold at 1.3% in November. Considering the chart above, we forecast the unusually wide split between these two leading measures of core inflation will widen further in coming months. Part of the divergence reflects different scope and source data for the price of medical services. We expect the core PCE for medical services to rise 0.14% in November but be up 0.9% YoY and 1.0% annualized over the past six months.

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