Alpha Wealth Management and Planning Presents:
“So many of our dreams at first seem
impossible, then they seem improbable, and then, when we summon the will,
they soon become inevitable.”
– Christopher Reeve
Apart from your day job, do you attempt to make extra money from some form of self-employment or pastime? If you do and incur a financial loss as a result, check with your tax advisor to see that you are not subject to the hobby loss rules.
Andrei Jigalin, CFP
Alpha Wealth Management and Planning. Marin & Sonoma County Financial Planning Company. Offices in Santa Rosa and Novato, CA.
THE MONTH IN BRIEF
DOMESTIC ECONOMIC HEALTH
Payrolls expanded by 288,000 new hires in April and the jobless rate fell to 6.3%. The sour note: the sharp drop in unemployment was mostly because fewer people looked for work. The U-6 rate (unemployment + underemployment) was still up at 12.3%, no doubt a troubling factoid for the Federal Reserve.4
Walking randomly up Main Street, further March indicators show a 1.1% rise in retail sales and a 0.2% increase in the Consumer Price Index. (The headline CPI was up 1.5% in a year.) Consumers spent 0.9% more in March as wages rose 0.5%.3,5
Even with that significant consumer spending boost, the economy hardly grew in Q1. In its initial estimate, the Bureau of Economic Analysis measured first quarter Gross Domestic Product (GDP) at 0.1% – not exactly the 1.2% growth projected by analysts in a Bloomberg poll, and a far cry from the 2.6% GDP of Q4.6
The Institute for Supply Management’s factory Purchasing Managers Index (PMI) was at a healthy 53.7 in March and an even healthier 54.9 in April; by April, the factory sector had expanded for 11 straight months. ISM’s service sector PMI came in at 53.1 for March. The third month of the year saw a 2.6% pickup in durable goods orders, with the gain at 2.2% minus defense industry orders. Wholesale inflation increased, too – the 0.5% March rise in the Producer Price Index took the yearly rise in PPI up to 1.4%.3,7,8
Last but not least, the Fed announced another $10 billion cut in Quantitative Easing (QE3) come May, reducing its monthly economic stimulus to $45 billion. Its April 30 statement reiterated that it would keep the main U.S. interest rate near zero for a “considerable time” after the end of its extraordinary asset purchase campaign.6
GLOBAL ECONOMIC HEALTH
At least the global manufacturing picture looked a bit brighter. China’s official purchasing manager index ticked north a tenth of a percent to 50.4 in April, and last month found South Korean exports up 9% year-over-year. The United Kingdom’s Markit manufacturing PMI rose 1.5 points to 57.3 for April, while Germany’s official factory PMI advanced to 54.2. The overall euro area manufacturing PMI rose slightly to 53.3 last month.10,11
The Global Dow was up 0.75% for April; the MSCI Emerging Markets Index rose just 0.06%, but the MSCI World Index gained 0.83%.1,12
At the end of April, a barrel of oil was worth $99.74 on the NYMEX, an ounce of gold $1,295.90 on the COMEX. Commodity performance was mixed for the month, with some of the biggest gains unsurprisingly coming in crops.13
Coffee was out front in April, with futures rising 16.48%. Cotton gained 1.28%, soybeans 4.62%, cocoa 1.22%, and corn 2.34%; sugar fell 4.59% for the month. Thoughts of possible interruption of natural gas supplies in Europe sent those futures 9.73% higher in April; unleaded gasoline futures also rose 1.57%. Heating oil futures retreated 0.19% in April, and oil futures pulled back 1.79%.13
Copper (-0.71%) and silver (-3.34%) did not advance in April, but gold (+0.67%) and platinum (+0.76%) did. The U.S. Dollar Index lost 0.75% in April and settled at 79.47 to end the month.13,14
As for home prices, the annual increase recorded by the S&P/Case-Shiller index decreased to 12.9% in the February edition from the previous 13.2%. On a monthly basis, the Case-Shiller was flat. NAR recorded a median existing home sales price of $198,500 in March, up 7.9% year-over-year. On the construction front, a 2.8% March boost in housing starts was offset by a 2.4% fall for building permits.3,15
In Freddie Mac’s March 27 Primary Mortgage Market Survey, average interest rates for various home loans were as follows: 30-year FRMs, 4.40%; 15-year FRMs, 3.42%; 5/1-year ARMs, 3.10%; 1-year ARMs, 2.44%. On May 1, most of those numbers were lower, with average rates on 30-year FRMs at 4.29%, 15-year FRMs at 3.38%, 5/1-year ARMs at 3.05%, and 1-year ARMs at 2.45%.16
LOOKING BACK…LOOKING FORWARD
As the trading day ended April 30, 310 S&P 500 member firms had announced quarterly results, with 75% of them exceeding profit forecasts and 52% of them beating sales projections. Analysts tracking profits for Bloomberg estimated that profits for S&P 500 companies improved 3.4% in the first quarter.6
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.
These returns do not include dividends.
So far, it looks like Wall Street is on pace for ... well ... exactly the kind of year analysts thought it would have. Can stocks find fresh tailwinds in May? Will investors opt to buy rather than sell given some solid fundamental indicators of late? As the world closely watches events in Ukraine and continues to monitor the signals from the Chinese and eurozone economies, it is pretty hard to deny the stream of positive news coming from the U.S. There definitely seems to a sentiment that the U.S. economy is growing stronger and stronger, and improving jobs data and a spring pickup in home sales would add to that perception.
UPCOMING ECONOMIC RELEASES: Here is what awaits for the rest of May: the ISM services PMI (5/5), March wholesale inventories (5/9), April retail sales (5/13), March business inventories and April’s PPI (5/14), the April CPI and April industrial production (5/15), the University of Michigan’s initial May consumer sentiment index plus April housing starts and building permits (5/16), the April 30 FOMC minutes (5/21), the Conference Board’s April leading indicator index and April existing home sales (5/22), April new home sales (5/23), April hard goods orders, the Conference Board’s May consumer confidence index and the March FHFA and Case-Shiller home price indices (5/27), April pending home sales and the BEA’s second Q1 GDP reading (5/29), and then the University of Michigan’s final May consumer sentiment index and the April consumer spending report (5/30).
May 2014 Economic Update
| May 27, 2014