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Weekly Vantage Point | 12.14.15

 
Equities End Week Sharply Lower

December 14, 2015 – U.S. stocks fell sharply on Friday, with the S&P 500 capping its worst week since late September, as investor optimism about the economy faded ahead of this week's December 16 Federal Reserve interest rate decision. Energy companies slumped the most as crude oil futures closed at lows not seen since 2009, renewing deflation concerns. Financials fell the most since the week of August 21 as the expected shift in monetary policy hurt asset managers amid a rout in high-yield corporate bonds. Besides concerns over a looming rate hike, non-investment grade corporate bonds are also suffering under expectations that defaults could accelerate for energy and commodity producers.

Among key economic releases last week, wholesale inventories declined 0.1% in October, yet year-over-year (YoY) inventories are rising way ahead of sales. Inventories are up 3.6% YoY, while wholesale revenues are down 3.7% over the past 12 months. Weak oil prices together with the strong dollar are keeping international trade prices depressed, with November export and import prices falling 0.6% and 0.4% respectively. Lastly, retail sales rose 0.2% last month, shy of forecasts, while sales excluding auto and gas revenues rose 0.4%, 0.1% above economists' consensus forecast.

For the week, the S&P 500 fell 3.74%, ending at a two-month low that curtailed a three-week bullish trend. The Dow Jones Industrial Average lost 3.26% and the NASDAQ Composite slumped 4.04%. All ten major sector groups ended in negative territory, with Energy (-6.40%), Financials (-5.33%) and Materials (-4.07%) suffering the largest losses. Utilities (-1.67%) and Consumer Staples (-1.95%) fell the least. West Texas Intermediate (WTI) crude oil ended at $35.62/barrel, capping its sixth weekly decline, plunging 10.9% last week and is down 25% since Halloween weekend. The CBOE's VIX Volatility Index, a measure of investor anxiety, surged 65% last week, including a 26% jump on Friday. Treasuries advanced last week, with the yield on 10-year Treasury notes falling 14.2 basis points to finish at 2.128%.

 
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Week’s Economic Calendar
 

Monday, December 14: No major releases;

Tuesday, December 15: FOMC meeting begins, Consumer Price Index, Empire State Mfg., Housing Market Index;

Wednesday, December 16: Housing Starts, Industrial Production, PMI Mfg. Index, FOMC Interest Rate Decisions, Forecasts at 2:00 pm EST and Fed Chair Press Conference at 2:30 pm EST;

Thursday, December 17: Jobless Claims, Philly Fed Business Outlook;

Friday, December 18: PMI Flash Services Index, Kansas City Fed Mfg. Index.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones -3.26% -2.57% 5.06% -3.13% -1.88%
S&P 500 -3.74% -3.19% 3.17% -0.27% 0.96%
NASDAQ -4.04% -3.41% 2.61% 5.34% 6.01%
Russell 3000 -3.90% -3.60% 1.94% -1.11% 0.39%
MSCI EAFE -2.39% -2.91% -0.41% -2.38% -3.03%
MSCI Emerging Markets -4.75% -4.98% -3.34% -17.31% -16.26%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.47% 0.29% 0.50% 1.17% 1.37%
Barclays Municipal 0.51% 0.517% 2.29% 3.17% 3.28%
Barclays US Corp High Yield -2.35% -2.57% -5.25% -4.52% -3.53%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity -4.01% -3.27% -11.79% -24.80% -29.13%
S&P GSCI Crude Oil -6.81% -10.56% -17.32% -30.07% -38.13%
S&P GSCI Gold -0.77% 0.98% -2.50% -9.15% -12.24%
Source: MorningStar
Chart of the Week: Oil Pessimism Intensifies After Latest OPEC Meeting
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Source: OPEC, JP Morgan

At its December 4 meeting, OPEC maintained oil production at its current level of 31.5 million barrels/day. While largely expected, the move effectively removes the ceiling on OPEC production, thereby increasing production in the midst of a global supply glut. OPEC's strategy over the past 18 months has been to maintain market share at the expense of other non-OPEC producers, namely U.S. shale players, and ultimately price them out of the market. With both U.S. and OPEC production increasing, more pain should be felt in the energy sector. However, given OPEC's persistent strategy, there have been signs of future waning production in the U.S. as companies scale back on replacement capex (infrastructure investment) and as active rig counts continue to decline. Inevitably, these measures will lead to less output in the longer term, with agencies such as the EIA and IEA expecting U.S. production to decline by 0.5 million barrels/day and demand increasing by 1.6 million barrels/day in 2016. Energy-related securities in both equity and fixed income markets will likely experience pain in the near term, but value may be found in companies with low debt levels, efficiencies of scale, and strong balance sheets who can successfully manage through the current low price environment.

A Brief History of Estate Taxes

Federal estate taxes have been a source of funding for the federal government almost since the U.S. was founded.

In 1797, Congress instituted a system of federal stamps that were required on all wills offered for probate when property (land, homes) was transferred from one generation to the next. The revenue from these stamps was used to build the navy for an undeclared war with France, which had begun in 1794. When the crisis ended in 1802, the tax was repealed.¹

Estate taxes returned in the build up to the Civil War. The Revenue Act of 1862 included an inheritance tax, which applied to transfers of personal assets. In 1864, Congress amended the Revenue Act and added a tax on transfers of real estate and increased the rates for inheritance taxes. As before, once the war ended the Act was repealed.²

In 1898, a federal legacy tax was proposed to raise revenue for the Spanish-American War. This served as a precursor to modern estate taxes. It instituted tax rates that were graduated by the size of the estate. The end of the war came in 1902, and the legacy tax was repealed later that same year.³

Until 1916. The 16th Amendment to the Constitution was ratified in 1913 — the one that gives Congress the right to “lay and collect taxes on incomes, from whatever source derived.” The Revenue Act of 1916 established an estate tax, and in one way or another, it’s been part of U.S. history since then.

In 2010, the estate tax expired — briefly. But in December 2010, Congress passed the Tax Relief Act of 2010 and the new law retroactively imposed tax legislation on all estates settled in 2010.

It’s possible the estate tax law may be revised at least once during the next few years. If you’re uncertain about your estate strategy, it may be a good time to review the approach you currently have in place.

1,2,3. Internal Revenue Service, 2014

Weekly Vantage Point | 12.7.15

 
Solid Jobs Data Stokes Friday Rebound

December 7, 2015 – U.S. stocks ended a volatile week with the S&P 500 rebounding over 2% on Friday, its largest single-day advance in nearly three months, yet finished the week just slightly higher. Markets were roiled early in the week when soft pending home sales disappointed and the closely-watched ISM Manufacturing Index widely trailed projections, falling to its lowest level since June 2009. Equities rebounded mid-week after ADP Research said U.S. businesses hired the most new workers in five months in November and upwardly revised their October tally. Global markets plunged on Thursday after Europe's central bank left the pace of its monthly stimulus bond purchases unchanged at €60B (U.S. $65B), contrary to expectations for an increase.

Then came Friday's turnaround rally, courtesy of a solid jobs report from the Labor Department, showing the economy added 211,000 new jobs last month, while upward revisions the prior two months added a further 35,000 jobs. The headline unemployment rate held steady at more than a seven-year low of 5%. Taken together, the jobs data last week reinforced investor optimism that the economy is strong enough to withstand gradually-rising interest rates. The implied odds for a ¼-point interest rate hike at the conclusion of the Fed's December policy meeting increased to as high as 78%.

For the week, the S&P rose 0.12%, its third consecutive weekly gain, the Dow Jones Industrial Average rose 0.28% and the NASDAQ Composite gained 0.29%. The S&P 500 has rallied back around 12% since its August 25 low, and now just 1.9% below its all-time high. Five of the ten major sectors advanced during the week, led by Technology (+1.62%), Telecom (+1.30%) and Consumer Staples (+1.03%). Energy (-4.43%) and Industrials (-0.82%) fell most among decliners. West Texas Intermediate (WTI) crude oil futures capped its fifth weekly decline, slumping 4.2% last week, finishing at $39.97/bbl. Gold gained 2.8% last week, its first positive week in the last three, while copper posted its first weekly gain since early October. Treasuries fell last week, with the yield on 10-year Treasury notes gaining five basis points to finish at 2.27%.

 
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Week’s Economic Calendar
 

Monday, December 7: No major releases;

Tuesday, December 8: Job Openings and Labor Turnover Survey (JOLTS);

Wednesday, December 9: Wholesale Trade;

Thursday, December 10: Jobless Claims, Import & Export Prices, Treasury Budget;

Friday, December 11: Producer Prices, Retail Sales, Business Inventories, Consumer Sentiment.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones 0.28% 0.72% 10.84% 0.14% -0.27%
S&P 500 0.12% 0.58% 9.47% 3.60% 3.09%
NASDAQ 0.29% 0.66% 10.11% 9.77% 9.08%
Russell 3000 -0.16% 0.30% 8.28% 2.90% 2.74%
MSCI EAFE -0.82% -0.53% 4.14% 0.01% -2.97%
MSCI Emerging Markets -1.69% -0.24% 3.37% -13.19% -15.71%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond -0.12% -0.18% -0.09% 0.69% 1.07%
Barclays Municipal 0.13% 0.06% 1.58% 2.64% 2.99%
Barclays US Corp High Yield -0.06% -0.23% -2.52% -2.22% -2.80%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity 0.75% 0.77% -7.65% -21.66% -27.17%
S&P GSCI Crude Oil -4.17% -4.03% -13.20% -24.97% -40.19%
S&P GSCI Gold 2.64% 1.76% -3.33% -8.45% -10.24%
Source: MorningStar
Chart of the Week: The November Slowdown in Temp Hiring Stirs Concern
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While the November non-farm payrolls (NFP) figure of 298,000 and the revisions to October and September (+35,000) indicate a healthy labor market overall, the temporary staffing numbers are more concerning. The year-over-year (YoY) growth of 2.6% is the lowest since January 2010, compared to 4.2% growth in October (revised up from 4.1%). The November deceleration in new temporary workers is notable, especially considering the seasonal strength we would expect to see going into the holiday period. It's when many temporary employees are usually hired. Since 2009, the month-over-month, non-seasonally adjusted change from October to November has averaged 1.0%, compared to -0.4% this year. On the other hand, the overall retail weakness on Black Friday may be to blame. Moreover, YoY wage growth of 2.3% does indicate an ongoing opportunity for expanding bill-pay spreads. The overall NFP adds, the uptick in participation, and the 5.0% unemployment rate do provide a healthy backdrop for the labor market more broadly.

How Are Your Tax Dollars Allocated?

Have you ever wondered where your tax dollars have gone?

According to the Tax Foundation, a Washington, D.C. based think-tank, Americans worked until April 24, 2015 just to earn enough money to pay their federal taxes.

Wondering what you get in return for your hard work? Roughly 66% of the $3.5 trillion in federal spending for 2014 was used for Social Security, Medicare, defense, and related programs. Here’s how it breaks down:

24% - Social Security
24% - Medicare, Medicaid, CHIP, marketplace subsidies
18% - Defense and international security assistance
11% - Safety net programs
8% - Benefits for federal retirees and veterans
7% - Interest on debt
3% - Transportation infrastructure
2% - Education
2% - Science and medical research
2% - All other
1% - Non-security (international)

Source: Center on Budget and Policy Priorities, 2015

And, yes, for those of you paying close attention, those numbers add up to 102%. The Center on Budget and Policy Priorities notes that category percentages are estimates based on the most recent historical data released by the Office of Management and Budget for the 2014 federal fiscal year (October 1, 2013, to September 30, 2014).

Weekly Vantage Point | 11.30.15

 
Stocks End Week Little Changed

November 30, 2015 – U.S. stocks ended mixed on Friday's shortened trading session, as global markets were rocked by an overnight 5.5% plunge on China's Shanghai Composite Index after Beijing officials placed three major Chinese brokerage firms under investigation. Authorities detained executives, investment managers, and a reporter, and they are probing for securities violations relating to this past summer's 30% market plunge. A jump in U.S. online sales together with an improved euro-area economic confidence survey, which reached a four-year high, helped moderate Wall Street jitters.

According to market research published by Adobe, a new record was set for 2015 Thanksgiving Day online sales, reaching $1.73B, up 25% over last year (57% done by mobile devices). That's a good set up for potentially the best Holiday shopping season sales since before the financial crisis. Gallup polls suggest American adults will spend $830 on Christmas and Hanukkah gift-buying, up from $720 last year, after cratering to $616 in 2008. The National Retail Federation said 103 million people shopped online over the four-day weekend as compared to 102 million visiting "brick-and-mortar" stores. In other key economic data last week, the U.S. manufacturing PMI for November slipped to its slowest pace in over two years, third quarter GDP growth was upwardly revised to 2.1% from 1.5%, personal incomes rose in October by the most in five months and household spending rose less-than-forecast.

For the week, the S&P 500 rose 0.08%, its smallest weekly change since July, the Dow Industrials fell 0.14% and the NASDAQ Composite gained 0.47%. The small-cap oriented Russell 2000 Index rose a fifth day, its longest rally since March. Five of the ten major sectors advanced during the week, led by Consumer Staples (+1.59%), Energy (+1.33%) and Healthcare (+0.75%). Utilities (-1.48%) and Technology (-0.87%) fell most among decliners. WTI crude oil futures capped a fourth weekly decline, albeit down mildly. Gold fell $20/oz. last week, falling to a fresh six-year low of $1,058, and capped its sixth weekly decline. WTI crude oil dipped just $0.13 on the week, ending at $41.77/bbl. Treasuries rose again last week, with the yield on 10-year Treasury notes down 4.2 basis points to 2.221%.

 
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Week’s Economic Calendar
 

Monday, November 30: Chicago PMI, Pending Home Sales, Dallas Fed Manufacturing;

Tuesday, December 1: PMI Manufacturing, ISM Manufacturing, Construction Spending;

Wednesday, December 2: ADP Private Payrolls, Productivity & Costs, Beige Book;

Thursday, December 3: Jobless Claims, Factory Orders, ISM Non-Mfg (Services Sectors);

Friday, December 4: November Non-farm Payrolls, U.S. Trade Deficit.

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones -0.14% 0.76% 6.87% -0.14% -0.16%
S&P 500 0.08% 0.76% 5.75% 3.48% 2.97%
NASDAQ 0.47% 1.65% 6.88% 9.45% 8.36%
Russell 3000 0.37% 1.02% 5.20% 3.06% 2.68%
MSCI EAFE -0.47% -1.27% 1.38% 0.83% -2.82%
MSCI Emerging Markets -2.02% -2.48% 2.04% -11.69% -16.43%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.14% -0.32% 0.23% 0.82% 1.08%
Barclays Municipal 0.19% 0.33% 1.49% 2.51% 3.17%
Barclays US Corp High Yield -0.14% -2.38% -2.02% -2.16% -3.75%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity 0.40% -7.23% -7.54% -22.24% -30.97%
S&P GSCI Crude Oil -0.45% -10.47% -2.00% -21.70% -43.42%
S&P GSCI Gold -1.87% -7.46% -5.91% -10.80% -11.81%
Source: MorningStar
Chart of the Week: Global GDP Growth May See Improvement
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Source: J.P. Morgan

J.P. Morgan's forecast of 4Q global GDP growth declined two-tenths this week, to a lackluster 2.2% seasonally-adjusted rate. Just two weeks ago, their estimate stood at 2.7%, and it was reduced due a 13.4%-point downward revision to India's 4Q GDP growth outlook. (Unfortunately, the statistics office's new methodology has made tracking India's quarterly GDP difficult.) In contrast to the 4Q global GDP growth forecast, J.P. Morgan continues to increase the 3Q number. This week, the 3Q global GDP growth estimate is 2.8%, up from only 2.4% at the start of October. This increase is also largely due to India's revisions and there are still about 10 countries that have yet to finalize their 3Q GDP outcomes.

In Figure 1, J.P. Morgan's "Nowcasting" projections are for global GDP to advance 2.5% on an annualized basis this quarter, the same reading as in the past three weeks. However, with the J.P. Morgan forecast moving down (Table 1), the Nowcaster is signaling upside risk for the current quarter. Moreover, the monthly Nowcast projections signal a stronger pace for global GDP growth at 2.7% for each month within this quarter-held back only by the weak trajectory from the prior quarter.

Weekly Vantage Point | 11.23.15

 
Best Week of the Year for the S&P 500

November 23, 2015 – U.S. stocks broadly recovered last week, with the S&P 500 posting its best weekly gain of the year, as Federal Reserve policymakers said the economy is strong enough to withstand the first hike in interest rates since 2006. With a rate increase coming as soon as December, the Fed's Federal Open Market Committee (FOMC) policy meeting minutes also revealed that further rate increases would be shallow and more gradual than conventionally believed. As U.S. interest-rate concerns faded, investor sentiment strengthened after Europe's central bank president, Mario Draghi, said the ECB will aggressively do whatever is needed to boost inflation across the euro-region. Impressively, investors also overcame anxieties stemming from the Islamic State terrorist attacks in Paris. The CBOE VIX Volatility Index, a measure of investor fear and anxiety, fell 25% last week, its largest drop since July.

Emerging market equities also rallied last week as the MSCI Emerging Markets Index advanced 2.73% over the past five sessions, its largest gain in six weeks. Turning to key domestic economic data last week, industrial production fell for a third month in October, as persistent U.S. dollar strength continued to hamper exports of American manufactured goods. Housing starts steeply declined last month, primarily due to a pullback in multi-family homes that had surged in September. On Thursday, the Conference Board said its index of leading economic indicators, which had been slightly negative to flat since July, jumped beyond economists' consensus forecast, portending further strength ahead for the economy.

For the week, the S&P 500 surged 3.34%, the Dow Jones Industrial Average (DJIA) advanced 3.36%, while the NASDAQ Composite jumped 3.65%. All ten major sectors advanced during the week, with Consumer Discretionary (+4.55%), Technology (+4.37%) and Healthcare (+2.83%) rising the most. WTI crude oil futures capped a third weekly decline, as U.S. inventory levels increased for an eighth week, now more than 100 million barrels above the seasonal five-year average. Gold futures are down for a fifth week, the longest string of declines since July. Treasuries rose last week, with the yield on 10-year Treasury notes slipping 0.4 of a basis point lower to 2.267%, while 30-year bonds fell 3.2 basis points to 3.020%.

 
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Week’s Economic Calendar
 

Monday, November 23: Chicago Fed National Activity, Markit flash PMI Mfg., Existing Home Sales;

Tuesday, November 24: 3Q GDP second estimate, S&P/Case-Shiller Home Prices, Consumer Confidence;

Wednesday, November 25: Durable Goods Orders, Weekly Jobless Claims, Personal Income and Outlays, New Home Sales, and Consumer Sentiment;

Thursday, November 26: Thanksgiving Day Holiday, All Markets Closed;

Friday, November 27: No major releases, Early Market Closes: Stocks: 1 pm ET, Bonds: 2 pm ET. .

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
Dow Jones 3.36% 0.91% 4.90% 0.00% 0.59%
S&P 500 3.34% 0.67% 3.21% 3.40% 3.94%
NASDAQ 3.65% 1.18% 4.99% 8.94% 9.84%
Russell 3000 3.19% 0.64% 2.45% 2.67% 3.42%
MSCI EAFE 2.52% -0.80% -1.74% 1.31% -0.86%
MSCI Emerging Markets 2.73% -0.47% 2.02% -9.88% -12.75%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.15% -0.46% -0.30% 0.68% 1.48%
Barclays Municipal 0.50% 0.14% 1.19% 2.31% 3.15%
Barclays US Corp High Yield -0.51% -2.25% -2.07% -2.03% -3.07%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity -1.22% -6.86% -8.74% -21.93% -30.94%
S&P GSCI Crude Oil -0.24% -10.07% 1.40% -21.34% -44.78%
S&P GSCI Gold -0.48% -5.70% -6.67% -9.10% -9.67%
Source: MorningStar
Chart of the Week: U.S. Manufacturing Still Having a Tough Time
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Source: Federal Reserve.

In October, manufacturing output increased 0.4% on a seasonally-adjusted monthly rate following two monthly declines. This solid gain raises the issue of whether factory output is finally breaking out of the doldrums. As the chart shows above, while industrial production (IP) posted a strong gain in October, this followed two monthly declines and the 3-month run rate for factory IP is an anemic 0.6% with weakness broad-based across industries. And this slow growth probably remains more indicative of the current trend. This view partly reflects results of the first three regional manufacturing surveys for November. While the New York, Philadelphia, and Kansas City Fed surveys each improved a little in November, the slightly higher readings for all three were still very weak as measured by their derived composites (44.9, 48.9, and 50.3, respectively). This subdued view of near-term prospects for manufacturing also reflects the headwinds still facing the industrial sector. The strong dollar and generally weak foreign growth have been stifling exports.

Weekly Vantage Point | 11.16.15

 
Stocks End Week Sharply Lower

November 16, 2015 – U.S. stocks slumped last week, as a rout in commodities sparked concerns over uneven world growth and as central bank policymakers are still considering raising interest rates in December. On Friday, the Eurozone reported third quarter GDP growth of 0.3%, down from 0.4% the prior quarter. The S&P 500 fell the most since August and ended it's six-week rally. With West Texas Intermediate (WTI) crude oil falling just over 8% since November 6th, the Bloomberg Commodity Index retreated 3.3% on the week to the lowest level since 1999. While China's slowing growth is largely to blame for falling commodity prices, metals prices have also tumbled as prospects for higher interest rates make them less competitive against yield-returning assets.

In key U.S. economic updates, import and export prices both fell in October. Import prices fell 0.5% for its tenth consecutive monthly contraction, while September prices revised lower (-0.6% from -0.1%), with non-petroleum import prices off 0.4%. Export prices fell 0.2%. Retail sales rose just 0.1% last month, missing forecasts, while the Producer Price Index (PPI) unexpectedly declined in October, falling a second month in a row. Producer prices are down 1.6% over the past 12 months, a record low for the index since its final demand addition was introduced in late 2009. On the bright side, the University of Michigan's preliminary reading of November consumer sentiment climbed to a four-month high.

For the week, the S&P 500 fell 3.56%; the Dow Jones Industrial Average lost 3.71%; while the NASDAQ Composite slumped 4.22%. Nine of the ten major sectors ended negative for the week, with Energy (-5.70%), Technology (-4.59%) and Consumer Discretionary (-4.56%) falling the most. Utilities (+0.69%), a defensive oriented sector, advanced. WTI crude oil futures fell 2.42% on Friday, ending the week at $40.74/bbl. Oil supplies have soared to a record of nearly 3 billion barrels because of strong output in OPEC and other oil producing nations. Treasuries advanced last week, with the yield on 10-year Treasuries down seven basis points to 2.267%.

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Words of Wisdom
 

"The stock market is a place where a man with experience gains money and a man with money gains some experience."

Daniel Drew (1797-1879)

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
DOW -3.71% -2.37% -0.94% -3.24% -2.31%
S&P 500 -3.56% -2.58% -2.37% 0.06% 1.29%
NASDAQ -4.22% -2.38% -1.80% 5.11% 6.52%
Russell 3000 -3.63% -2.47% -3.03% -0.50% 0.85%
MSCI EAFE -1.72% -3.24% -6.72% -1.18% -3.13%
MSCI Emerging Markets -3.66% -3.12% -4.64% -12.27% -15.29%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond 0.19% -0.61% -0.02% 0.53% 1.37%
Barclays Municipal 0.04% -0.36% 0.85% 1.80% 2.73%
Barclays US Corp High Yield -1.42% -1.75% -2.06% -1.53% -3.47%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity -3.28% -5.71% -8.85% -20.96% -28.89%
S&P GSCI Crude Oil -5.67% -9.85% -2.28% -21.16% -43.39%
S&P GSCI Gold -0.59% -5.25% -3.06% -8.66% -6.96%
Source: MorningStar
The US Dollar Hasn't Been this Overbought in 30 Years
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The U.S. Dollar Hasn't Been this Overbought in 30 Years

Source: Bloomberg, MarketWatch, SentimentTrader. As the bottom chart shows, the Currency Extreme Dispersion (z-score) of the six ICE U.S. Dollar Index (Canadian dollar, Japanese yen, British pound, Swiss franc, the euro and Australian dollar) that trade relative to the U.S. dollar, has risen above six (6) for the first time since 1985. And while the euro wasn't in the index back in 1985, the currency replaced several that were and thus are reflected in the chart. As the chart further reveals, the six level immediately preceded an inflection point in the dollar's longer-term downward trend. This signal comes as the dollar index is preparing to cross above the 100-mark for the first time since March – a level that analysts are watching with great anticipation. It was down 0.3% on the day to 98.9940 in recent trading. Lastly, while the data is a telling indicator of the market's positioning, it doesn't mean the end of the dollar rally is imminent, the analysts said. The sample size of the dollar's rivals is "ridiculously small," and that the bullish trend didn't reverse until the second signal arrived.

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Week's Economic Calendar
 

Monday, November 16: Empire State Manufacturing Survey;

Tuesday, November 17: Consumer Price Index, Industrial Production, Housing Prices;

Wednesday, November 18: Housing Starts, FOMC Minutes (2 pm ET);

Thursday, November 19: Jobless Claims, Philly Fed Business Outlook, Leading Indicators;

Friday, November 20: Kansas City Manufacturing Index.

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Weekly Trivia
 

Today: What was the lowest price for Berkshire Hathaway Class A share since the turn of the century?

Last Week: What is the most expensive thing ever sold on eBay?

Answer: In February 2006, a Frank Mulder designed "Gigayacht," was auctioned on eBay for an astounding $168 million. The 405 foot long vessel was bought by Russian billionaire Roman Abramovich.

The Election Effect on the Stock Market

 

The Election Effect on the Stock Market

Could the 2016 presidential election influence the direction of the markets?

Open the newspaper or turn on the TV and you know the 2016 presidential election cycle is in full swing. Whether it’s Donald Trump, Carly Fiorina, Hillary Clinton or the many other presidential hopefuls vying for their White House bids, there is one thing we know: history shows presidential election cycles have the potential to influence the direction of the economy and, in turn, the markets. Things like tax rates, budgetary decisions and investment policies all hang in the balance of the elected candidate’s decisions and beliefs. These are just a few reasons why investors have kept a close eye on the markets every four years.

We want to state up front that past stock market activity is not an actual indicator of future market activity* or of one political party’s prospects. That said, here are some interesting facts about previous presidential election cycles and their effect on the markets:

Election Effect #1: One common myth is that Republican candidates are better for stocks. Actually, a 2012 study by Adviser Perspectives newsletter found that since 1900, the Dow Jones Industrial Average gained about 8.7 percent annually under a Democratic president, compared with 5.7 percent under Republicans.1

Election Effect #2: According to the Stock Trader’s Almanac, historical analysis of past election years shows during the tail end of presidential election years, stocks tend to be on the bullish side, no matter what candidate wins.2 In fact, the Standard & Poor's 500 rose in the final seven months in 13 of the past 15 presidential election years from 1950 to 2011.3

Election Effect #3: Election years do not normally constitute a big loss for stocks. According to Ned Davis Research, since 1900, stocks grow 3.4 percent on average in the post-election year, compared with gains of 4.0 percent in the midterm year, 11.3 percent in the pre-election year and 9.5 percent in an election year.4

Election Effect #4: Looking back on past election years, the Stock Trader’s Almanac shows that when the current political party in power wins the office, which has happened 16 out of the past 27 elections (1901-2011), the Dow rose by about 1.5 percent in the first two quarters of the year before the election. Compared to the Dow’s activity, if the political party was ousted then the blue chip index lost about 4.6 percent in the first two quarters of the year before the election.5

Despite historic market trends, it’s best not to draw conclusions about the presidential election effect on stock market performance. Let us not forget 2008 when investors suffered one of the worst bear markets on record, despite it being an election year.

PlanningWorks advises going with tried and true investment advice: stay invested for the long-term and maintain a diversified investment portfolio that fits your investment style and goals. Please don’t hesitate to contact PlanningWorks to discuss your concerns.

* Past performance is not a predictor of future investment results. Investing involves risk including the loss of your principal. Prior to investing, you should consult with a financial advisor to discuss the risks, expenses and objectives of any investments.

1http://www.tampabay.com/news/business/markets/politifact-do-stocks-do-better-under-democratic-presidents/2240473
2http://www.usatoday.com/money/perfi/columnist/krantz/story/2011-12-11/stocks-during-presidential-election-years/51770758/1
3http://www.usatoday.com/money/perfi/columnist/krantz/story/2011-12-11/stocks-during-presidential-election-years/51770758/1
4http://abcnews.go.com/Business/story?id=6185252&page=1
5http://www.usatoday.com/money/perfi/columnist/krantz/story/2011-12-11/stocks-during-presidential-election-years/51770758/1

Weekly Vantage Point | 11.9.15

 
Stocks Rose for a Fifth Week in a Row

November 9, 2015 – U.S. stocks ended mostly positive on Friday, as the largest monthly gain in payrolls this year helped boost investor confidence even as the Federal Reserve remains poised to raise interest rates. Economic data, together with an increase in merger and acquisition (M&A) activity, drove the S&P 500 to a sixth consecutive weekly gain. The benchmark equity index ended the week just 1.5% below its May 21, 2015 all-time high of 2,130. Around $47B worth of North American M&A deals were announced last week and $104.2B on a world-wide basis, reflecting a 66.5% year-over-year (YoY) increase. As the third quarter earnings season winds down, about 74% of the S&P 500 companies that have reported results have exceeded analysts' forecasts, while only 44% have beaten their revenue forecasts. S&P Capital IQ now estimates that third quarter earnings have declined 3.8% YoY, better than initial projections for a 6.1% decline.

Markit Economics' said on Monday its U.S. manufacturing PMI index increased to 54.1 in October, the strongest gain in business conditions since April. Commerce officials said Wednesday that factory orders declined a second month, while the latest monthly auto sales remain robust. On Friday, the U.S. Department of Labor said the economy created 271,000 jobs in October, widely exceeding economists' consensus forecasts for 182,000, which brought the unemployment rate down to 5% from 5.1%.

For the week, the S&P 500 rose 1.02%, the Dow Jones Industrial Average gained 1.40%, while the NASDAQ Composite returned 1.92%. Seven of the ten major sectors posted gains, led by a surge in Financials (+2.79%), Energy (+2.41%) and Technology (+1.97%). Utilities (-3.50%) starkly underperformed, falling the most last week. WTI crude oil futures sank 4.9% last week, while gold futures lost 4.6%, ending below the $1,100 for the first time since early August. Treasuries also declined last week, with the yield on 10-year Treasuries climbing over 18 basis points to 2.326%.

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Words of Wisdom
 

"There have been three great inventions since the beginning of time: Fire, the wheel and central banking."

Humorist Will Rogers

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
DOW 1.40% 1.40% 2.82% 0.49% 2.03%
S&P 500 1.02% 1.02% 1.30% 3.76% 5.52%
NASDAQ 1.92% 1.92% 2.09% 9.74% 12.25%
Russell 3000 1.20% 1.20% 0.63% 3.25% 5.12%
MSCI EAFE -1.54% -1.54% -6.46% 0.56% -0.87%
MSCI Emerging Markets 0.56% 0.56% -3.20% -8.94% -11.93%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond -0.80% -0.80% -0.09% 0.34% 1.33%
Barclays Municipal -0.40% -0.40% 0.99% 1.76% 2.80%
Barclays US Corp High Yield -0.33% -0.33% -1.54% -0.10% -2.12%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity -2.51% -2.51% -5.84% -18.28% -27.14%
S&P GSCI Crude Oil -4.43% -4.43% -0.30% -16.41% -42.87%
S&P GSCI Gold -4.69% -4.69% -0.20% -8.12% -4.79%
Source: MorningStar
Inflation Liftoff Expected Too
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Inflation Liftoff Expected Too

As of September, headline Consumer Price Index (CPI) inflation was running 0.0% on year average (oya), while core was running 1.9% oya. This gap is mostly due to the drop in energy prices that began in June of last year and dragged significantly on overall inflation; core and food price inflation meanwhile were more stable. As oil price base effects turn more supportive, we expect this gap to become less exaggerated, with headline inflation moving rapidly from 0.1% oya in 3Q15 to 1.6% oya by 1Q16 (in Figure 1 above). We expect core CPI inflation to move gradually to 2.0%.

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Week's Economic Calendar
 

Monday, November 9: No major releases;

Tuesday, November 10: Import & Export Prices, Wholesale Trade;

Wednesday, November 11: Veteran's Day, Equity markets open, Bond market closed, no releases;

Thursday, November 12: Weekly Jobless Claims, JOLTS, Treasury Budget;

Friday, November 13: Producer Prices, Retail Sales, Business Inventories, Consumer Confidence.

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Weekly Trivia
 

Today: What is the most expensive thing ever sold on eBay?

Last Week: When was the last inspection of Gold vaulted at Fort Knox and how much is there?

Answer: The last gold "inspection" at Fort Knox was on September 23, 1974, while the last official audit occurred sometime in 1953. Peak gold holdings were 20,000 metric tons during WWII, but how much remains is a closely guarded secret. Some estimate between 4,500 and 8,000 metric tons.

Weekly Vantage Point | 11.2.15

 
Stocks Rose for a Fifth Week in a Row

October 26, 2015 - The S&P 500 fell 10-points last Friday, closing out the week up 0.2% and capped its fifth straight weekly advance, its longest stretch of gains so far this year. The benchmark equity index jumped 8.4% in October, its best month since 2011, ending just 2.4% below its May 21, 2015 all-time high of 2,130. Mixed economic data released last week suggests the economy remains sluggish, seemingly mired in a pattern of uneven growth displayed over much of the post-recession recovery. On Wednesday, Fed policymakers held interest rates unchanged at the 0%-0.25% level, but said December is still in play to possibly begin raising rates on a gradual basis. The following day, Commerce officials reported their first of three GDP estimates for the third quarter, showing growth slowed to a 1.5% annualized pace from 3.9% the prior quarter.

In the housing market, the National Association of Realtors' index of pending sales of previously-owned homes declined 2.3% last month to 106.8, the largest monthly pullback since the end of 2013. Personal incomes and outlays both rose just 0.1% in September, while total labor costs increased 0.6% during the third quarter. Lastly, the University of Michigan's consumer confidence index rose from 87.2 to 90 in October.

For the week, the S&P 500 rose 0.22%, the Dow Jones Industrial Average edged 0.10% higher and the technology-focused NASDAQ Composite climbed 0.45%. Just four of the ten major sectors posted gains, led by a surge in Healthcare (+3.06). Utilities (-1.90%) and Consumer Staples (-1.63%) fell the most last week. WTI crude oil futures rose $2/bbl. (+4.5%) last week after a Baker Hughes weekly report showed the U.S. rig count fell by 16 to 578. Treasuries fell on the week, with the yield on 10-year Treasuries climbing to 2.143%.

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Words of Wisdom
 

"No man's life, liberty, or property are safe while the legislature is in session."

-- Judge Gideon Tucker (1866)

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Market Watch
Stocks 1-Wk MTD 3-Month YTD 1-Year
DOW 0.10% 8.47% -0.46% -0.90% 2.72%
S&P 500 0.22% 8.44% -0.85% 2.70% 6.44%
NASDAQ 0.45% 9.44% -1.18% 7.68% 11.97%
Russell 3000 0.22% 7.90% -1.69% 2.02% 5.76%
MSCI EAFE -0.30% 7.82% -4.12% 2.13% 1.03%
MSCI Emerging Markets -2.38% 7.13% -4.67% -9.45% -13.82%
Bonds 1-Week MTD 3-Month YTD 1-Year
Barclays Agg Bond -0.32% 0.02% 0.82% 1.14% 1.85%
Barclays Municipal 0.15% 0.40% 1.43% 2.17% 2.77%
Barclays US Corp High Yield -0.09% 2.75% -1.65% 0.23% -1.83%
Commodities 1-Week MTD 3-Month YTD 1-Year
Bloomberg Commodity -0.02% -0.45% -5.60% -16.18% -25.87%
S&P GSCI Crude Oil 4.46% 3.33% -3.98% -12.54% -42.59%
S&P GSCI Gold -1.84% 2.35% 4.84% -3.61% -4.78%
Source: MorningStar
Service Sector Activity Matters Most
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Service Sector Activity Matters Most

Figure 3 above shows the fraction of employment, GDP, nonresidential fixed investment, and its components that were accounted for by the manufacturing sector in 2014, along with other major sectors of the private economy. The figure shows that manufacturing accounted for 9% of total employment, 12% of value-added in GDP, and 18% of private nonresidential fixed investment. Of the components of the latter, manufacturing accounted for about 18% of equipment investment, 4% of structures investment, and 39% of intellectual property products investment. Meanwhile, services industries accounts for the largest swath of economic activity (66% of employment, 70% of GDP, and 63% of private nonresidential fixed investment).

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Week's Economic Calendar
 

Monday, November 2: PMI Manufacturing, ISM Manufacturing, Construction Spending;

Tuesday, November 3: Factory Orders;

Wednesday, November 4: ADP Private Employment, US Trade Deficit, ISM Non-Mfg; (2 pm ET);

Thursday, November 5: Jobless Claims, Productivity & Costs;

Friday, Novemmber 6: October Non-farm Payrolls & Unemployment Rate.Personal Incomes & Outlays, Labor Costs, Chicago PMI, Consumer Sentiment.

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Weekly Trivia
 

Today: When was the last inspection of Gold vaulted at Fort Knox and how much is there?

Last Week: Lake Superior has a maximum depth of 1,332 ft and holds three-quadrillion gallons- enough to cover North and South America with one foot of water. Its total water volume is equal to all the water in the other Great Lakes combined plus how may more Lake Eries?

One,

Three,

Five or

Ten?

Answer: Three more.

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