Given all of the green on the screen during these days, this could be a good time to think about what big up days usually mean. Typically, they occur when the market has already run into trouble, and are often technical in nature. An analysis by Michael Batnick at The Irrelevant Investor, showed that 22 of the 25 best days since 1970 occurred under the 200-day moving average. That implies they were oversold rallies with some element of short covering. Traders may like them, but long-term investors would much rather see three 100-point days than one 300-point day. The more gradual gains reflect a healthier accumulation and not a reflexive reaction.
Stocks declined across the board, giving back the prior week's modest gains and falling further into the red for the year. The Dow Jones Industrial Average finishing the week down 541 points, shedding -3.3% to 16,102. The S&P 500 Index fell 68 points, dropping -3.4% to end the week at 1,921.
The Nasdaq Composite dropped -3.0% to close at 4,684. The S&P MidCap 400 Index closed the week at 1,386, down -2.8%. The Russell 2000 fell -2.3% to end the week at 1,136.
The MSCI ETF "EFA", the proxy for developed international equity markets, was off -4.7% for the week. Emerging markets, as represented by the MSCI ETF "EEM", plunged 4.9%.
Domestic High Yield corporate bonds gained 0.3% for the week, as measured by the Bank of America Merrill Lynch US High Yield Master II Index.
Equity Markets continued to sell off after more negative data from China intensified fears of a slowdown in global growth. The yield on the benchmark 10-year US Treasury note dropped to 2.12%. Oil prices continued to fluctuate but ended the week only moderately higher at around $46.50 for West Texas Intermediate and $50 for Brent Crude. Pressure on prices remains heavy, with global drillers continuing to pump. Both Russia and Venezuela commented this week that they would not reduce output, with the latter citing plans to increase production after receiving a $5 billion loan from China.
In high-yield bond markets, the volatile market environment of recent weeks caused issuers to pause on new deals, as no new high-yield debt was issued for the week ended August 28th. Investors pulled $714 million from high-yield investments during the week ended September 3rd. As of September 3rd, the Effective Yield on the Bank of America Merrill Lynch High Yield Master II index stood at 7.3% with the Option-Adjusted Spread at 5.7%. Energy companies continue to show weakness in the high-yield space, accounting for 7 out of 11 high-yield issuer rating downgrades from Moody's in August.
Rival rating agency Standard and Poor's downgraded 25 highyield issuers, with energy firms also representing 7 of the downgrades. The US trailing 12-month speculative default rate rose to a two-year high in August at 2.4%. Alpha Natural Resources Inc., ASG Consolidated LLC, SandRidge Energy Inc., Samson Resources Corp., Wilton Holdings Inc., SAExploration Holdings Inc., and Halcon Resources Corp. each defaulted in August. Also of note, the S&P US distress ratio rose to 15.5% in August, its highest level in more than four years.
In US economic news, the August jobs report showed a gain of 173,000, positive but below expectations. The unemployment rate declined to its lowest level since April 2008 at 5.1%. It should be noted that the August jobs report is notoriously subject to sharp upward revisions. Over the past five years August jobs data has been revised upward by an average of 79,000 and the revisions have been as high as 128,000. The mixed report has economists divided on the likelihood of a September rate hike; while the report shows evidence of the job growth that the Fed has been waiting for, the current volatile markets could give them reason to pause until year-end. In other economic reports, the ISM manufacturing index for August came in at 51.1, indicating the slowest rate of growth for the factory sector since May 2013. The US trade gap narrowed to -$41.9 billion in July following a revised -$45.2 billion reading in June, a positive reading that will likely provide some lift to third-quarter GDP estimates.
The Dow Jones Industrial Average finished the week up 331 points, adding 2.1% to close at 16,433. The S&P 500 Index gained 40 points, up 2.1% to end the week at 1,961.
The Nasdaq Composite advanced 3.0% to close at 4,822. The S&P MidCap 400 Index closed the week at 1,414, up 2.0%. The Russell 2000 ended the week up 1.9% at 1,158.
The MSCI ETF "EFA", the proxy for developed international equity markets, rose 3.2% for the week. Emerging markets, as represented by the MSCI ETF "EEM", bounced back from last week's loss with a 4.1% gain. Domestic high-yield corporate bonds gained 0.5% for the week, as measured by the Bank of America Merrill Lynch US High Yield Master II Index.
Volume was light and volatility remained elevated as stocks fluctuated over the holiday-shortened week but failed to make significant headway in either direction. The yield on the benchmark 10-year US Treasury note rose to 2.18%. Oil prices declined to $45.16 for West Texas Intermediate (WTI) and $48.70 for Brent Crude. Goldman Sachs issued revised oil price projections through 2016, with median projections indicating that WTI will still be at $45 a barrel 12 months out and a worst case estimate of $20 a barrel, noting that production has not declined fast enough to resolve the massive oversupply.
For the second consecutive week, there was no new highyield debt issued in the primary market. High-yield bond issuance has dropped off significantly since mid-August and now stands at $205.6 billion year-to-date, 3% lower than the same period in 2014. Investors cautiously returned to highyield funds, which reported a net inflow of $186 million for the weekly period ended September 9th. The Effective Yield on the Bank of America Merrill Lynch High Yield Master II index declined slightly for the week, to 7.22% as of September 10th, down from 7.3% a week prior. The OptionAdjusted Spread (OAS) over the risk-free Treasury rate was 5.58%.
The OAS of highly speculative CCC-rated bonds is currently 11.35%, 7.58% greater than that of BB-rated debt, considered the least risky of the high-yield rating tiers.
This spread stood at 6.38% at the beginning of the year, so investors seem to be demanding a greater relative risk premium for the lower rated, riskier debt. High-yield markets are clearly flashing warning signs despite a relatively low rate of defaults, which have thus far been contained to energy and mining companies. The Moody's high-yield bond Covenant Quality Index (CQI), which tracks the quality of investor protection mechanisms embedded in high-yield bond transactions on a rolling 3-month basis, weakened to 4.53 in August, a new record low. The CQI measures bond covenant quality on a five point scale, with 1.0 denoting the strongest level of investor protection and 5.0 being the weakest. Of the bonds issued in August, 29% were considered "covenant-lite", a term used when the bond indenture lacks traditional investor protection clauses, therefore making the bond issuance more risky to the investor.
In US economic news, inflation remains muted in advance of next week's Federal Open Market Committee (FOMC) meeting. The August producer-price index (PPI) was unchanged after rising 0.2% in July. The Labor Department's Job Openings and Labor Turnover Survey (JOLTS) showed a spike in job openings from 5.323 million in June to 5.753 million in July. The rate of workers quitting their jobs, an indicator of worker confidence, was unchanged for a fourth consecutive month at 1.9%. The rise in job openings is indicative of tightening in the labor market, and will likely be cited by hawkish FOMC members in next week's meeting. Consumer sentiment data, however, may give the Fed reason to pause. The preliminary September flash index fell sharply from 91.9 to 85.7, the lowest level in nearly a year. New York Fed President William Dudley singled out this report as an early indicator of the effect of Chinese stock market turbulence on US consumers. Weekly jobless claims fell 6,000 to 275,000 for the week ended September 5th. The less-volatile four-week moving average rose slightly to 275,750. Continuing claims, reported on a one-week lag, rose 1,000 to 2.260 million.
After beginning the week deep in the red, The Dow Jones Industrial Average finished up 183 points, gaining 1.1% to 16,643. The S&P 500 Index also finished in positive territory, advancing 18 points, or 0.9%, to finish at 1,989. The Nasdaq Composite rose 2.6% to close at 4,828. The S&P MidCap 400 Index closed the week at 1,426 up 0.2%. The Russell 2000 added 0.5% to end the week at 1,163.
The MSCI ETF "EFA", the proxy for developed international equity markets, was up 0.8% for the week. Emerging markets, as represented by the MSCI ETF "EEM", bounced back 3.2%.
Domestic High Yield corporate bonds gained 0.3% for the week, as measured by the Bank of America Merrill Lynch US High Yield Master II Index.
Stocks experienced severe price fluctuations, beginning with a Monday selloff that saw the Dow Jones Industrial Average plummet more than 1,000 points before ending the day down 588 points, or -3.6%. The S&P 500 Index posted a one-day loss of -3.9% on Monday and the Nasdaq fell -3.8%. Stocks bounced back sharply on Wednesday and Thursday, with the Dow posting 619 and 369 point gains, the largest two-day point increase in the history of the index. Monday's panic selling drove the yield on the 10-year US Treasury note below 2% for the first time in nearly four months, down to an intraday low of 1.976%. The 10-year note ended the week at 2.18%, up from the prior week. Oil prices were extremely volatile, crashing to below $38 a barrel for West Texas Intermediate early in the week before surging 10% on Thursday, the largest one-day rally in six years. West Texas Intermediate finished the week around $45.23 and Brent Crude was trading at $50.00 as of Friday.
Investors withdrew $1.602 billion from high-yield bond funds during the week ended August 26th. New high-yield issuance ground to a halt with just $1.3 billion issued across three transactions. Spreads continued to widen and the average bid on high-yield bonds dropped to 96.78 according to S&P Capital IQ's LCD. The Moody's Liquidity Stress Index (LSI) for US speculative-grade companies, a measure of high-yield corporate liquidity, reached a five-year high of 4.8% in mid- August as low oil prices took their toll on energy
companies. LSI rises when corporate liquidity weakens and falls when it improves. Energy-related debt is clearly dragging down the high-yield market as a whole, and conditions for stressed oil producers could worsen in the coming months if oil prices remain depressed. Credit lines issued by banks to oil drillers typically take into account the value of the borrowers' oil reserves. With crude prices at their current depressed levels, many drillers will likely see their credit lines significantly reduced.
In US economic news, second-quarter GDP was revised higher from 2.3% to 3.7%, exceeding analysts' estimates of a 3.2% revision. Consumer demand was strong, largely driven by vehicle spending. A strong increase in residential investment also contributed to the higher-than-expected revision. New home sales rose in July, up 5.4% to an annual pace of 507,000. Year-on-year sales are up 26%. Weekly initial jobless claims fell 6,000 in the week ended August 22nd to 271,000. The four-week moving average rose slightly to 272,500. Continuing claims, reported on a one-week lag, rose 13,000 to 2.269 million. New York Federal Reserve Bank President William Dudley, in a mid-week press conference, categorized a September rate hike as "less compelling" in the wake of global market volatility. Both Dudley and Fed Chair Janet Yellen have indicated a preference for a rate hike some time in 2015, but current market conditions have made anything prior to December unlikely.
In international markets, the roller-coaster ride in Chinese equities continued as the Shanghai Composite plunged -8.5% on Monday. Chinese stocks continued to sell off until midweek, then reversed course in response to gains in the US equity markets and 140 billion yuan in fresh government stimulus. Despite the late week surge, The Shanghai Composite still ended the week nearly -8% lower.
The Dow Jones Industrial Average plummeted 1,018 points for the week, declining -5.82% to 16,460. The S&P 500 Index was also down sharply, dropping 121 points, or -5.8%, to finish at 1,971.
The Nasdaq Composite fell -6.8% to close at 4,706. The S&P MidCap 400 Index closed the week at 1,423, off -5.2%. The Russell 2000 was down -4.6% to end the week at 1,157.
The MSCI ETF "EFA", the proxy for developed international equity markets, was down -6.4% for the week. Emerging markets, as represented by the MSCI ETF "EEM", fell -7.8%.
Domestic High Yield corporate bonds were off -0.8% for the week, as measured by the Bank of America Merrill Lynch US High Yield Master II Index.
US stocks sold off dramatically in their worst week of 2015 as the S&P 500 turned negative for the year. Sinking commodity prices and poor manufacturing data out of China prompted investors to exit international and emerging market stocks in favor of safe-haven US Treasuries and gold. Gold rose to a five-week high. The yield on the benchmark 10-year US Treasury note fell to 2.05%. Oil prices continued to slide, with West Texas Intermediate breaking below $40 a barrel for the first time since 2009, before closing the week around $40.23. Brent Crude fell to below $45.50. High-yield bond funds saw a net inflow of $111.3 million for the week ended August 19th, reversing course after three consecutive weeks of net outflows. High-yield bond issuance was up marginally in the week ended August 14th, with $4.6 billion in new debt issued across 9 transactions. The Effective Yield on the Bank of America Merrill Lynch US High-Yield Master II Index stood at 7.38% as of August 21st.
In US economic news, market expectations of a September interest rate hike have been all but erased after the release of rather dovish Federal Open Market Committee (FOMC) meeting minutes from July. The minutes showed most Fed policymakers believe the conditions for a rate hike have not been met. While FOMC members noted some improvements in the labor market, they cited a lack of inflation and concern over China in their decision to pause on implementing an interest rate policy liftoff. The July Consumer Price Index rose only 0.1% in July, failing to meet expectations of a 0.2% increase. Existing home sales data was positive, up 2% in July to an annual rate of 5.59 million. Year-on-year sales are up 10.3% and the median price is up 5.6% at $234,000. The Philadelphia Fed Business Outlook Survey index reading for August was stronger than expected at 8.3, compared to July's measure of 5.7. The positive Philly Fed data was contradicted by Friday's Flash PMI report however, which showed a reduction to 52.9 in August from July's reading of 53.8. Weekly jobless claims for the week ended August 15th were up 4,000 from the prior week at 277,000. The lessvolatile four-week moving average was up 5,500 to 271,500. Continuing claims, reported on a one-week lag, fell 24,000 to 2.254 million.
In international economic news, concern over a weakening Chinese economy sent global stocks into panic mode after the Caixin China Manufacturing Purchasing Managers' Index fell to a six-and-a-half year low. The Shanghai Composite Index ended the week down -11.5% in response. In European news, Greece cleared one of the final obstacles in securing a third bailout after the plan won approval from the German and Dutch parliaments. With the bailout secured, Greek Prime Minister Alexis Tsipras announced he would be stepping down. While a majority of Greeks still support Tsipras, his concessions to the Eurozone during the bailout negotiations caused a great deal of friction in the left-wing Syriza party and will likely lead to further political uncertainty for the struggling nation. Elsewhere in the Eurozone, manufacturing data was generally positive for August according to Markit's Purchasing Managers' Index, which rose to 54.1 in August from 53.9.
The Dow Jones Industrial Average gained 104 points for the week, up 0.6% to 17,477. The S&P 500 Index was up 14 points, or 0.7%, to finish at 2,092. The Nasdaq Composite added 0.1% to close at 5,048. The S&P MidCap 400 Index closed the week at 1,502, up 0.9%. The Russell 2000 advanced 0.5% to end the week at 1,213.
The MSCI ETF "EFA", the proxy for developed international equity markets, was down -0.9% for the week. Emerging markets, as represented by the MSCI ETF "EEM", fell -2.1%. Domestic High Yield corporate bonds were off -0.6% for the week, as measured by the Bank of America Merrill Lynch US High Yield Master II Index.
US Stocks moved marginally higher for the week, while global stocks turned slightly negative after a series of surprise currency devaluations from China's central bank sparked concerns over a potential global currency war. The yield on the benchmark 10-year US Treasury note slipped to a threemonth low of 2.08% before recovering to close out the week at 2.19%. Oil prices were relatively flat for the week, with West Texas Intermediate at $42.56 a barrel and Brent Crude at $49.02. High-yield bond funds posted their third straight week of net outflows as investors withdrew $1.2 billion in the week ended August 12th. Investors are clearly going "riskoff" across asset classes, as investment-grade funds also saw large outflows of $1.8 billion and US equity funds experienced a $1.5 billion outflow. Investors are parking their cash in safe-haven money market and US Treasury funds, which saw inflows of $6 billion and $601 million, respectively, during the same time period.
High-yield bond issuers returned to the market in the week ended August 7th, issuing $4.135 billion over 8 transactions. The Effective Yield on the Bank of America Merrill Lynch US High-Yield Master II index spiked to 7.69% as of August 13th. The Option-Adjusted Spread (OAS) rose to 6.04%, the highest level since August of 2012. OAS is a measure of the spread on high-yield debt over the risk-free rate, accounting for prepayment risk via embedded options. While investors are receiving relatively greater yields in the high-yield market as of late, they are foregoing traditional investor protections in the process.
The Moody's high-yield bond Covenant Quality Index (CQI), which tracks the quality of investor protection mechanisms embedded in high-yield bond transactions on a rolling 3month basis, weakened to 4.37 in July. The CQI measures bond covenant quality on a five point scale, with 1.0 denoting the strongest level of investor protection and 5.0 being the weakest. The single month measure in July was 4.6, the worst-ever reading.
In US economic news, Producer Price Index data for July pointed to a 0.2% rise for the month, with the year-on-year change at -0.8%. Energy prices, which fell -0.6% in July and are down -17.6% for the year, will likely continue to decline next month and keep the Fed hawks at bay. Industrial production posted a solid gain of 0.6% in July, beating the consensus estimate of 0.4%. Retail sales rose 0.6% in July, largely driven by a 1.4% increase in vehicle sales. The Labor Department's Job Openings and Labor Turnover Survey (JOLTS) showed a contraction in job openings from 5.357 million in May to 5.249 million in June. Layoffs increased from 1.2% to 1.3%. Weekly jobless claims remain low, at 274,000 for the week ended August 8th. The less-volatile four-week moving average was down 1,750 to 266,250. Continuing claims, reported on a one-week lag, rose 15,000 to 2.273 million.
In international economic news, China's central bank initiated currency controls, devaluing the yuan in successive moves by 1.9%, 1.6%, and 1.1% over the course of three days. Asian currencies sold off sharply in response, over fears that the weaker Chinese yuan will negatively impact the competitiveness of neighboring countries. In European news, Eurozone GDP rose 0.3% in the second quarter, below the anticipated pace of 0.4%.
The Dow Jones Industrial Average dropped 316 points for the week, down -1.8% to 17,373. The S&P 500 Index was down 26 points, a loss of -1.3%, to finish at 2,078.
The Nasdaq Composite fell -1.7% to close at 5,044. The S&P MidCap 400 Index closed the week at 1,488, down -1.0%. The Russell 2000 declined by -2.6% to end the week at 1,207.
The MSCI ETF "EFA", the proxy for developed international equity markets, was down slightly at -0.3% for the week. Emerging markets, as represented by the MSCI ETF "EEM", were down -2.2%.
Domestic High Yield corporate bonds were off -0.8% for the week, as measured by the Bank of America Merrill Lynch US High Yield Master II Index.
US stocks slid while European stocks rose this week, and Asian shares were mixed. Global data were mildly disappointing overall, though a solid US monthly employment report was seen as increasing the likelihood that the US Federal Reserve will raise interest rates in September. The yield on the 10-year US Treasury note rose to 2.22%, while the yield on Germany's 10-year bund closed at 0.66% on Friday. The euro stood near $1.09. Oil prices extended a sharp six-week slide, with US West Texas Intermediate and international Brent crude oil falling to around $44 and $49 per barrel, respectively. High-yield bond funds reported net weekly outflows of $1.201 billion for the week ended August 5th. High-yield bond issuers grew cautious in the week ended July 31st, issuing just $2.48 billion in new debt across 4 transactions.
In US economic news, the US economy added 215,000 jobs in July, and the May and June tallies were revised up by 14,000 for an average of 235,000 per month, up from the first quarter's average of 195,000. The unemployment rate remained at 5.3% and labor force participation at 62.6%, a 38-year low. Full-time jobs rose to 81.7% of total employment, the highest share since November 2008.
Hourly pay rose 0.2% over the month and 2.1% from a year earlier, while the average work week increased 6 minutes to 34.6 hours. Initial jobless claims edged up 3,000 to 270,000 for the week ended August 1st, marking the 22nd consecutive week of initial claims below 300,000. The four-week moving average fell 6,500 to 268,250. Continuing claims declined 14,000 to 2.26 million for the week ended July 25th. The US trade deficit widened 7.1% to $43.8 billion in June. Exports were flat, while imports rose 1.2%, with the strong US dollar and weak overseas demand hurting exports and boosting imports. This has weighed on US manufacturers and created an obstacle to faster US growth.
In international economic news, Greece's manufacturing PMI plunged to an all-time low of 30.2 in July, but the overall Eurozone PMI rose to 52.4. While activity slowed somewhat in Germany, Spain, and the Netherlands; Italy's PMI rose to a four-year high. German factory orders rose 2% from May to June and 7.2% year over year, according to the country's Federal Statistical Office. Strengthening demand from neighboring Eurozone countries more than offset the slight contraction in domestic orders. By contrast, in a separate report released Friday, German industrial production contracted -1.4% month over month. The Caixin China manufacturing PMI dropped from 49.4 in June to 47.8 in July, held back by slumping foreign and domestic demand and possibly impaired by China's sharp stock market slide in late June and July.
The Dow Jones Industrial Average rose 121 points for the week, up 0.7% to 17,690. The S&P 500 Index was up 1.2% to 2,104.
The Nasdaq Composite rose 0.8% to close at 5,128. The S&P MidCap 400 Index closed the week at 1,503, up 1.8%. The Russell 2000 moved up 1.0% to end the week at 1,239.
The MSCI ETF "EFA", the proxy for developed international equity markets, gained 1.4% for the week. Emerging markets, as represented by the MSCI ETF "EEM", was almost unchanged rising a mere 0.2% for the week.
Domestic High Yield corporate bonds were positive, up 0.4% for the week, as measured by the Bank of America Merrill Lynch US High Yield Master II Index.
Stocks cautiously advanced for the week, with most domestic indices ending the month of July in positive territory. The yield on the benchmark 10-year US Treasury note fell to 2.20%, the lowest level in more than three weeks. Oil prices continued to sink, with the price of West Texas Intermediate down to under $47.37 a barrel and Brent Crude sliding to $52.25. Other commodities such as copper and gold were also down sharply. The S&P GSCI index, a measure of a basket of 24 commodities, lost approximately 13% of its value in July, with nearly every single component trading in negative territory.
High-yield debt yields, as represented by the Bank of America Merrill Lynch U.S. High Yield Master II Effective Yield, rose to new highs for the year, hitting 7.14% on Monday, the highest level since December 16th, 2014. High-yield bond funds reported net outflows of $1.722 billion for the week ended July 29th. $3.355 billion in new high-yield debt was issued across six transactions in the week ended July 24th.
In US economic news, the Federal Reserve held their July Federal Open Market Committee (FOMC) meeting, taking no action on interest rate policy. The Fed cited no change in what has been described as "moderate" economic growth. The Fed viewed the labor market as "solid" and described the unemployment rate as "declining." The general tone of the statement was slightly more upbeat than the previous one, and Fed Chair Janet Yellen has indicated her intent to raise rates before the year is through, but the timing still remains uncertain. Second quarter GDP came in on the lower end of expectations, up 2.3% compared to the consensus estimate of 2.9%. The first quarter number was revised upward from 0.2% to 0.6%. Weekly jobless claims rose by 12,000 to 267,000. The less-volatile four-week moving average was down 3,750 to 274,750. Continuing claims, reported on a one-week lag, rose 46,000 to 2.262 million.
In international economic news, Eurozone inflation was stable in July, casting doubts on the effectiveness of the European Central Bank (ECB)'s quantitative easing program. The ECB began buying bonds in March in an effort to spur economic growth and avoid deflation. After consumer prices saw a boost in May, the June and July readings have been lackluster, with inflation at 0.2% year-on-year, well below the ECB target of 2%.
A high level of unemployment also threatens to derail the Eurozone recovery story. Across the Eurozone unemployment is at 11.1%, with Germany enjoying the lowest level at 4.7% and Greece the highest at 25.6%. In Asian market news, Chinese stocks continued to struggle, ending July down more than -14% for their biggest monthly loss in nearly six years, as measured by the Shanghai Composite Index.
The Dow Jones Industrial Average fell 518 points for the week, down -2.9% to 17,569. The S&P 500 Index was off 2.2% to 2,080. The Nasdaq Composite fell -2.3% to close at 5,089. The S&P MidCap 400 Index closed the week at 1,477, down 2.1%. The Russell 2000 dropped -3.2% to end the week at 1,226. The MSCI ETF "EFA", the proxy for developed international equity markets, lost -2.2% for the week. Emerging markets, as represented by the MSCI ETF "EEM", were down a steep 4.4% for the week. Domestic High Yield corporate bonds were negative, down 1% for the week, as measured by the Bank of America Merrill Lynch US High Yield Master II Index. Mixed earnings reports from some large companies dragged down domestic stock indices for the week. Globally, a commodities slump and poor manufacturing data out of China also caused stocks to sell off.
The yield on the benchmark 10-year US Treasury note fell to 2.26%. Oil prices sunk to fresh lows after an unexpected increase in US inventories. West Texas Intermediate fell firmly below the key $50 mark, down to around $48 a barrel. Brent Crude was down as well, to approximately $54.50 a barrel. Despite the depressed prices, OPEC producers continue to pump, producing a three-year high 95 million barrels per day, with Saudi Arabia contributing a record 10.6 million barrels. Fitch Ratings increased its 2015 US high-yield default outlook to 2.5%-3% from 1.5%-2%, reflecting the impact that "languishing oil prices, weak coal demand, and burdensome regulation have had on energy and metals/mining companies during the first half of the year." After prior week's $1.2 billion inflow, cash flows to the high-yield sector slowed a bit, with high-yield bond funds posting a net inflow of $82 million for the week ended July 22nd. High-yield bond issuers cautiously returned to the market for the week ended July 17th, issuing $4.175 billion in new debt over eight transactions, six of which were from energy companies.
In US economic news, weekly jobless claims fell by a steep 26,000 to a 42-year low of 255,000. The less-volatile fourweek moving average was down 4,000 to 278,500. Investors largely disregarded the dramatic headline number, as July weekly data is typically volatile due to auto industry retooling for new model year production, which results in temporary layoffs.
Continuing claims, reported on a one-week lag, fell 9,000 to 2.207 million. Existing home sales data was strong, up 3.2% in June to an annual rate of 5.49 million, the highest level since February 2007. Year-on-year sales are up 9.6%. Median home prices are at a record level of $236,400, being driven higher by the continuing decline in distressed sales. New home sales data, however, was weak in June, declining -6.8% to an annual rate of 482,000.
In international economic news, the Caixin China Manufacturing Purchasing Managers' Index fell to 48.2 in July, down from 49.4 in June. The Caixin PMI is skewed towards private firms, unlike than the official PMI, which favors large state companies and which is scheduled to be released next week. A reading above 50 indicates expansion from the previous month, while a reading below 50 indicates contraction. The poor reading is concerning, considering the great lengths that the Chinese government has gone to in an effort to keep growth at 7%. In corporate news, earnings season turned mixed after a slew of companies reported this week.
Apple exceeded analysts' expectations for earnings and revenue, but the stock fell sharply after the company revealed it missed iPhone sales targets. Amazon posted a surprise profit after sales rose 20% year-on-year. General motors, Visa, Coca-Cola, and Starbucks also posted strong earnings; while Caterpillar, IBM, Yahoo, Microsoft, 3M, and American Express all disappointed.
In a long lost movie called “The Great Rupert,” a dancing squirrel finds one man’s horde of cash stashed away inside the wall of his duplex apartment and showers it, one bill at a time, through a hole in the ceiling upon Jimmy Durante, the occupant of the adjoining space. Durante, of course, is thrilled by his good fortune. His neighbor, on the other hand, loses his hard-earned nest egg, one wadded up bill at a time.
There’s No Good Fortune in Inflation!
Like a hidden rodent, inflation gnaws away at the substance of your retirement dreams until, bit by bit, the value of your own treasure -- your long-term security -- is depleted. Just think, a paltry annual inflation rate of 2% would have eroded the value of cash, stashed away in the year 2000 in some apartment wall or coffee can, by 34 cents on every dollar in today’s value. In effect, we’re being robbed...and yet we might as well be battling a squirrel for all the recourse we have. At whom can you point a finger and cry, “Thief! Thief!”?
You Have to Fight Back!
Within a much larger arsenal of weapons at our disposal as financial professionals, here are four basic rules to live by:
1. A Comprehensive Plan is Absolutely Essential.
Just as a wise man works with his CPA or his financial advisor to devise clear tax strategies, so you need to plan well to protect your retirement dreams against inflation. Very often, by carefully reviewing your financial choices with you, we can not only help you fight inflationary drag; we may also recharge your savings plan to build even more security and comfort.
2. Re-Check Your Investments.
Every single investment is either resistant or vulnerable to inflation. Are your investments secure? Just as you go to a doctor to check out the state of your physical health, you need to seek out a financial professional to secure your investments against the ravages of inflation. Let us help you in this regard.
3. Buy Your House.
Even as the housing market has taken a beating over the last decade, it still makes sense for retirees to own their own home. A fixed-rate mortgage will establish the amount of your monthly payment for decades.
4. Don’t Let Lifestyle Inflation Creep In.
“Lifestyle inflation” is marked by an increasing
cost of daily living, not so much because of the decreasing value of money as much as it is our appetite for better things, coupled with an ever growing range of options. Think! You used to just love your little cell-phone, but today you feel naked without a smart-phone. You place a high value on the camera, calendar service, GPS and a thousand other handy phone applications. Do you need all that? Now multiply that phenomenon by applying it to restaurants, kitchen equipment, home services, your car, etc., and you can see the result -- a constantly increasing cost of living without an increase in real value.
Please contact us for a free review of your financial portfolio and investments to make sure that you are protected against inflation and other financial threats.
Source: Ning, David. “Five Sensible Ways to Combat Inflation in Retirement” U.S. News & World Report / Yahoo! Finance. 11/28/12
Investment advice is offered by Horter Investment Management, LLC, a Registered Investment Adviser. Insurance and annuity products are sold separately through TWP Financial. Securities transactions for Horter Investment Management clients are placed through Pershing Advisor Solutions, Trust Company of America, Jefferson National Monument Advisor, Fidelity, Security Benefit Life, ED&F Man Capital Markets and Wells Fargo Bank, N.A.