MONTHLY ECONOMIC UPDATE : FEBRUARY 2016

THE MONTH IN BRIEF

The opening month of 2016 definitely tested the patience of stock and commodity investors. The Dow Jones Industrial Average fell, losing 5.50% on the month. Overseas stock benchmarks also recorded big losses. Key indicators showed our manufacturing sector contracting again; our service sector remained in better shape, and that could also be said for consumer confidence and household incomes. The Bank of Japan made an interest rate decision that raised eyebrows worldwide; OPEC made no mention of trying to reduce the global oil glut. Wall Street hung on and hoped for a calmer market climate while witnessing an earnings season that was playing out much as expected.1

DOMESTIC ECONOMIC HEALTH

Early January brought another solid jobs report from the Labor Department. Employers had added 292,000 new hires in December, with the largest sector gain (73,000) in business and professional services. The headline jobless rate stayed at 5.0% and the U-6 rate measuring underemployment stayed at 9.9%. October job gains were revised upward to 307,000, November job gains to 252,000. Wages grew an unspectacular 2.5% during 2015.2

Speaking of wage gains, the December personal spending report showed personal incomes rising 0.3% – but that money was apparently being pocketed rather than spent. Personal spending was flat in the last month of 2015, in contrast to the (revised) 0.5% gain recorded in November. December retail purchases, as also measured by the Commerce Department, slipped 0.1%; the National Retail Federation announced that sales had increased 3.0% across November and December, below the 4.1% rise seen during those months in 2014.3,4

Even as stocks fell, consumers remained reasonably upbeat. January brought a gain of 1.8 points for the Conference Board consumer confidence index, which rose to 98.1. Consumer sentiment, as measured by the University of Michigan’s index, wavered – that index posted a month-over-month loss of 0.6 points from its final December mark, ending January at 92.0.5,6

December had seen consumer prices retreat 0.1% after a flat November. That meant just a 0.7% yearly advance for the Consumer Price Index in 2015. Core inflation rose 0.1% in December, taking the annual gain to 2.1%.7

Turning to industry, we see disappointing numbers when looking at several key indicators. The Institute for Supply Management’s manufacturing PMI ticked up 0.2 points in January to 48.2, still below the expansion mark of 50.0. As November factory orders had been off 0.2% and December industrial production down 0.4%, a huge gain for the ISM index was not to be seen. U.S. industrial production declined 1.8% in 2015, though U.S. manufacturing output rose 0.8%.3,7

Orders for capital goods were off 5.1% in December, 1.2% minus transportation orders. As for wholesale inflation, the headline Producer Price Index fell 0.2% in December, resulting in a 1.0% dip for 2015. The core PPI rose 0.1% in December, but it advanced just 0.3% last year. After statistics like these, it is little wonder that the Bureau of Economic Analysis initially calculated Q4 GDP of just 0.7%, well below the 2.0% growth of Q3.5,7

One bright spot in all this was the ISM non-manufacturing PMI, which did decline for December but remained well into expansion territory. Its December mark of 55.3 was close to its November reading of 55.9.8

GLOBAL ECONOMIC HEALTH

While the Federal Reserve surprised no one by leaving the federal funds rate unchanged in January, the Bank of Japan surprised the world by doing something it had never done before. It followed the lead of the European Central Bank and cut a benchmark interest rate below zero. With its 3-year asset-buying campaign having produced only 0.1% annualized inflation, Japan opted for a new weapon in its long battle against deflation. The announcement set off a global stock rally on January 29. Like the Federal Reserve, the BofJ has a 2% yearly inflation target.9

Manufacturing was still ailing in many countries, but things appeared to be picking up a bit, at least by the latest key manufacturing PMI readings. While China’s official factory PMI was below 50 in January (49.4), Japan’s was at 52.3; the U.K.’s Markit PMI improved to 52.9, Canada’s to 49.3, and Brazil’s to 47.4. The JPMorgan Global Manufacturing PMI ticked up to 50.9.10

The International Monetary Fund cut its 2016 forecast for global growth last month. It projects world GDP at 3.4%, down from the previous outlook of 3.6%. The IMF sees growth of 2.6% for the U.S. in both 2016 and 2017.11

WORLD MARKETS

Many world benchmarks retreated 4% or more in January. Among them were France’s CAC 40 (4.75%), the pan-Europe STOXX 600 (6.44%), the Europe Dow (7.12%), Germany’s DAX (8.80%), the Asia Dow (7.75%), India’s Sensex (4.77%), Japan’s Nikkei 225 (7.96%), the MSCI World (6.05%) and Emerging Markets (6.52%) indices, the Global Dow (6.80%), Brazil’s Bovespa (6.79%), the Dow Jones Americas (5.44%), and Spain’s IBEX 35 (7.63%).1,12

Even heavier losses plagued some stock markets. China’s Shanghai Composite plummeted 22.65% for the month, Hong Kong’s Hang Seng 10.18%, and Italy’s FTSE MIB 12.89%.1

There were also more mild losses last month – and even a few gains. The U.K.’s FTSE 100 fell 2.54%, Russia’s RTS 1.55%, and Canada’s TSX Composite 1.44%. Indonesia’s Jakarta Composite rose 0.48% in January and Mexico’s IPC All-Share advanced 1.52%. The global winner last month was Turkey’s BIST 100, up 2.45%.1

COMMODITIES MARKETS

Gasoline futures actually fell further than oil in January. Unleaded gas took an 11.40% plunge on the NYMEX for the month, exceeding even oil’s 8.98% descent. For the record, WTI crude ended January at a price of $33.26. Natural gas and heating oil suffered relatively minor January slumps, the former losing 1.91%, the latter 2.28%.13

The middle of winter brought gains for some crops and losses for others, especially the warm-weather variety. Coffee fell 6.01%, cocoa 13.89%, cotton 2.35%, and sugar 14.68%. On the other hand, wheat futures advanced 1.38%, soybean futures 1.12%, and corn futures 3.77%.13

Gold and silver respectively ended the month at $1,120.00 and $14.28, and both metals posted January gains. Gold advanced 5.56%, silver 2.88%. The U.S. Dollar Index followed suit, gaining 0.79%. Platinum gave back 2.79% while copper sank 3.11%.13,14

REAL ESTATE

As delayed November closings leaked into December numbers, new and existing home sales figures saw improvement. The National Association of Realtors reported a 14.7% leap in resales for the last month of 2015, and that gain made 2015 the finest year for existing home sales since 2006. New home buying was up 10.8% for December, taking the 2015 gain to 14.5%.15,16

Those who wanted to buy or refinance a home in January found mortgage rates more to their liking. On the last day of 2015, Freddie Mac’s Primary Mortgage Survey found average home loan interest rates as follows: 30-year FRM, 4.01%; 15-year FRM, 3.24%; 5/1-year ARM, 3.08%. By the January 28 survey, interest on the 30-year fixed was averaging just 3.79%, and average interest rates for the 15-year FRM and 5/1-year ARM were respectively at 3.07% and 2.90%.17,18

Rounding up other important real estate statistics, pending home sales ticked up 0.1% in December, better than the 1.1% setback NAR announced for November. The 20-city national S&P/Case-Shiller home price index showed 5.8% annualized price appreciation through November in its latest edition. Housing starts were down 2.5% for December, building permits 3.9%.5,7

LOOKING BACK…LOOKING FORWARD

Just two U.S. equity indices had a positive January. The Dow Jones Utility Average rose an impressive 5.80%, and the PHLX Gold/Silver index advanced 1.47%. A different kind of benchmark did much better than that: the CBOE VIX. The “fear index” gained 10.93% in January to end the month at 20.20. Paralleling the Dow’s five-and-a-half percent fall, the two other major U.S. stock indices posted big monthly retreats, as evidenced by the Y-T-D column below. The Russell 2000 lost 8.85% in January, falling to a settlement of 1,035.38 as trading ended for the month on January 29. The Dow closed at 16,466.30 that day, the S&P at 1,940.24, and the Nasdaq at 4,613.95.1

% CHANGE Y-T-D 2015 5-YR AVG 10-YR AVG
DJIA -5.50 -2.23 +7.85 +5.11
NASDAQ -7.86 +5.73 +14.34 +10.00
S&P 500 -5.07 -0.73 +10.40 +5.10
REAL YIELD 1/29 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.53% 0.55% 1.09% 2.03%

Sources: wsj.com, bigcharts.com, treasury.gov – 1/29/151,19,20,21,22
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

Most investors know about the supposed “January effect…” as goes January, so goes the year. That supposition was proven wrong as recently as 2014, when the S&P 500 fell 3.6% in January but ended the year ahead 11.4%. A down January does not even mean a down February: the S&P gained 2.9% in February 2010, 4.3% in February 2014, and 5.5% in February 2015 in the wake of January losses greater than 3% in each year. So February may bring some calm, and some positive change. Even as OPEC nations wish to preserve their market share, some kind of oil production cutback seems inevitable in the next month or two, especially with more oil from Iran entering the market. Also, the Bank of Japan’s adoption of a negative interest rate policy may have given the Federal Reserve some pause. Any dovish hint in the next round of Fed minutes (or in the March Fed policy statement) would be welcome after the trial for investors that was January. One bad month does not always foretell a whole year, and the rest of the quarter (and year) may surprise us.23

UPCOMING ECONOMIC RELEASES: Investors will wait for, watch for and react to many of these stateside indicators in February: ISM’s January service sector PMI and the January ADP employment change report (2/3), the January Challenger job-cut report and December factory orders (2/4), the Labor Department’s January jobs report (2/5), December wholesale inventories (2/9), January retail sales and business inventories and February’s preliminary University of Michigan household sentiment index (2/10), January’s PPI, January industrial output, housing starts and building permits and the minutes from December’s Federal Reserve policy meeting (2/17), January’s Conference Board leading indicators index (2/18), the January CPI (2/19), January existing home sales, February’s Conference Board consumer confidence index and the December S&P/Case-Shiller home price index (2/23), January new home sales (2/24), January capital goods orders (2/25), the second estimate of Q4 GDP from the Bureau of Economic Analysis, the January personal spending report and the final University of Michigan household sentiment index for the month (2/26), and January pending home sales (2/29).
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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. MarketingPro, Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. The Europe Dow measures the European equity markets by tracking 30 leading blue-chip companies in the region. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The Asia Dow measures the Asia equity markets by tracking 30 leading blue-chip companies in the region. The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE). Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The Global Dow is a 150-stock index of corporations from around the world created by Dow Jones & Company. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The Dow Jones Americas Index measures the Latin American equity markets by tracking 30 leading blue-chip companies in the region. The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, Spain’s principal stock exchange. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The FTSE MIB (Milano Italia Borsa) is the benchmark stock market index for the Borsa Italiana, the Italian national stock exchange. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The RTS Index (abbreviated: RTSI, Russian: Индекс РТС) is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The IDX Composite or Jakarta Composite Index is an index of all stocks that are traded on the Indonesia Stock Exchange (IDX). The Mexican IPC index (Indice de Precios y Cotizaciones) is a major stock market index which tracks the performance of leading companies listed on the Mexican Stock Exchange. The Borsa Istanbul (BIST) 100 Index is a capitalization-weighted index composed of National Market companies except investment trusts in Turkey. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.
1 – wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [1/31/16]
2 – cnbc.com/2016/01/08/nonfarm-payrolls-december-2015.html [1/8/16]
3 – briefing.com/investor/calendars/economic/2016/02/01-05 [2/1/16]
4 – latimes.com/business/la-fi-december-retail-sales-holiday-20160112-story.html [1/12/16]
5 – briefing.com/investor/calendars/economic/2016/01/25-29 [1/29/16]
6 – bloomberg.com/news/articles/2016-01-29/fourth-quarter-growth-sentiment-cool-u-s-economic-takeaways [1/29/16]
7 – tradingeconomics.com/united-states/calendar [2/1/16]
8 – instituteforsupplymanagement.org/ismreport/nonmfgrob.cfm [1/6/16]
9 – reuters.com/article/us-japan-economy-boj-decision-idUSKCN0V70A7 [1/29/16]
10 – reuters.com/article/us-global-economy-idUSKCN0VA1H1 [2/1/16]
11 – npr.org/sections/thetwo-way/2016/01/19/463566180/imf-lowers-its-growth-forecast-for-the-global-economy [1/19/16]
12 – msci.com/end-of-day-data-search [1/31/16]
13 – money.cnn.com/data/commodities/ [1/31/16]
14 – marketwatch.com/investing/index/dxy/historical [1/31/16]
15 – consumeraffairs.com/news/existing-home-sales-soar-in-december-012216.html [1/22/16]
16 – usnews.com/news/business/articles/2016-01-27/us-new-home-sales-soar-in-december [1/27/16]
17 – freddiemac.com/pmms/archive.html [2/1/16]
18 – freddiemac.com/pmms/archive.html?year=2015 [2/1/16]
19 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F28%2F11&x=0&y=0 [1/29/16]
19 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F28%2F11&x=0&y=0 [1/29/16]
19 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=1%2F28%2F11&x=0&y=0 [1/29/16]
19 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=1%2F30%2F06&x=0&y=0 [1/29/16]
19 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=1%2F30%2F06&x=0&y=0 [1/29/16]
19 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=1%2F30%2F06&x=0&y=0 [1/29/16]
20 – wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [12/31/15]
21 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldYear&year=2016 [2/1/16]
22 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [1/29/16]
23 – schwab.com/public/schwab/nn/articles/The-Active-Trader-Market-Outlook [1/29/16]

 

 

MONTHLY ECONOMIC UPDATE : JANUARY 2016

MONTHLY QUOTE

“We can draw lessons from the past, but we cannot live in it.”

– Lyndon Johnson

MONTHLY TIP

The new year may be the right time to rebalance your portfolio, so that your asset allocation can stay aligned with your risk tolerance and investment objectives. During 2015, some of your asset categories may have shifted away from your target allocations.

MONTHLY RIDDLE
It can make food for the whole world, but it does not eat and will never spend time on this planet. What is it?

Last month’s riddle:
Which side of an ocelot has the most fur?

Last month’s answer:
The outside.

FEBRUARY LUNCH N LEARN

Kicking off 2016, our February Lunch N Learn will take place on Wednesday, February 3rd from 12-1 p.m. at Johnny Carino’s in Sioux Falls. If you are in your 50’s or 60’s and wondering what you need to know before you take Social Security or what all the fuss is about with the recent changes, then this month’s meeting is for you! Of course anyone who is interested in learning more about the topic is welcome to come too. The title of the presentation is:

Navigating Social Security: What Baby Boomers Need to Know to Maximize Retirement Income

LUNCH AND LEARN OVERVIEW

We encourage you bring any friends or family that would enjoy attending with you.

The Lunch N Learn events will include a complimentary lunch while members of Verley Financial or guest presenters discuss current economic conditions and topics. The Lunch N Learn events will be held on the first Wednesday of each month. Discussions include but are not limited to financial planning, retirement planning, estate planning, Medicare, and tax topics. Clients will be able to add input and ask any questions during the conversation.

Each event is purely educational for the benefit of our guests, clients and their family and friends. The events and attire are casual. As space is limited, please call the office at (605) 987-2117 to book your reservations today. We look forward to seeing you for an enjoyable meal and complimentary education.

THE MONTH IN BRIEF

Stocks limped to the finish in December. The S&P 500 slumped 1.75% during the month and lost 0.73% for the year. The market rallied when the Federal Reserve raised interest rates for the first time in nearly a decade, but it retreated repeatedly during the month as oil prices continued to fall. Payrolls expanded nicely, consumer confidence improved, and most of the housing market news was positive. In the wake of the Federal Reserve interest rate decision, Wall Street seemed ready to focus on 2016 and forget a weak year for equities.1

DOMESTIC ECONOMIC HEALTH

On December 16, U.S. monetary policy changed course. The Federal Reserve raised the benchmark interest rate a quarter-point, the central bank’s first upward move since 2006. The Federal Open Market Committee’s updated dot-plot forecast projected four rate hikes during 2016, with a median projection of 1.4% for the federal funds rate at the end of this year.2,3

December saw the Conference Board consumer confidence index advance 3.9 points to a mark of 96.5. The University of Michigan’s household sentiment index ended the month at 92.6, slightly improved from its initial December reading of 91.8.4,5

Commerce Department data showed both consumer spending and consumer incomes rising 0.3% in November. Core retail sales (minus auto buying) improved 0.4% in that month as headline retail sales increased 0.2%; October had seen both indicators rise just 0.1%.5,6

The Labor Department’s December jobs report showed wages up 2.3% through the 12 months ending in November – in the eyes of some analysts, a statistic contributing to the Fed’s decision to hike. Payrolls swelled with 211,000 new hires in November, and September and October job gains were revised up to leave the average monthly hiring total at 218,000 for that 3-month period. The headline unemployment rate stayed at 5.0% in November, but the U-6 total unemployment rate ticked up to 9.9%.7

November’s Consumer Price Index was flat, with core consumer prices increasing 0.2%; that left the headline CPI up 0.5% and the core CPI up 2.0% year-over-year. Both the headline and core Producer Price Indexes rose 0.3% in November, offsetting a 0.4% dip for the headline PPI and an 0.3% fall for the core PPI in the prior month.6,8

December also brought the last estimate of Q3 growth from the Bureau of Economic Analysis. It was an unexceptional 2.0%, down from 2.1% in the previous estimate. In November, the Institute for Supply Management’s factory PMI came in at 48.6, falling an alarming 1.5 points from October and indicating sector contraction. ISM’s service sector PMI also fell sharply, losing 3.2 points for November but remaining in good shape at 55.9. Industrial output had declined 0.6% in November and was 1.2% underneath the level of a year ago according to the Federal Reserve; durable goods orders were flat for November, core durable orders down 0.1%.5,8,9

GLOBAL ECONOMIC HEALTH

The European Central Bank cut its already negative deposit rate further to -0.3% in early December, but the markets were assuming a deeper cut to -0.4%. ECB president Mario Draghi did announce a 6-month extension of the central bank’s quantitative easing campaign (to March 2017) and a pledge to buy a wider range of assets from banks, with proceeds from maturing bonds being reinvested in new debt instruments. As the year drew to a close, the euro area had almost no inflation (0.2%) and more than twice the unemployment of the United States (10.7%).10,11

Manufacturing PMIs from the eurozone and China were in marked contrast. The Markit eurozone PMI came in at 53.1 for December, up 0.3 points from its November level. China’s official PMI showed sector contraction for a fifth straight month in December at 49.7, and the private-sector Caixin manufacturing PMI was lower at 48.9. China’s official service sector PMI reached a 16-month peak of 54.4 last month, however, corresponding to the nation’s effort to transition from an economy rooted in manufacturing and investment to one driven by consumer spending and service industries.12,13

WORLD MARKETS

The important regional and multi-regional equity indices lost ground in December. The month saw descents of 1.87% for the MSCI World Index, 2.48% for the MSCI Emerging Markets Index, and 2.29% for the Global Dow. The Asia Dow fell 1.32% in December, but the Europe Dow and Stoxx 600 respectively dropped 3.47% and 5.09%; the Dow Jones Americas gave back 2.38%.1,14

Europe saw some major retreats last month. Italy’s FTSE MIB slipped 5.72%, Russia’s RTS 10.63%, France’s CAC 40 6.47%, Spain’s IBEX 35 8.11%, and Germany’s DAX 5.62%. The United Kingdom’s FTSE 100 gave back but 1.79%.1

Around the rest of the world, there were mixed gains and losses: Nikkei 225, -3.61%; Kospi, -1.54%; Shanghai Composite, +2.72%; Manila Composite, +0.36%; Jakarta Composite, +3.30%; Hang Seng, -0.37%; ASX 200, +2.50%; KSE 100, +1.74%; Sensex, -0.11%; TSX Composite, -3.41%; IPC All-Share, -1.02%; Bovespa, -3.92%. Among consequential indices, the notable 2015 performers per region were the Shanghai Composite at +9.41%, Argentina’s Merval at +36.09%, and Ireland’s ISEQ at +30.00%.1

COMMODITIES MARKETS

Gold futures had another down month in December. The yellow metal lost 0.50% to end the year at $1,060.50 on the COMEX. Gold lost 10.53% for the year. A 1.21% December slip left silver futures at $13.82 on December 31; silver notched an 11.69% loss for 2015. Platinum and copper both posted impressive December gains, the former rising 7.25%, the latter 4.14%.15

December saw the U.S. Dollar Index decline 1.50%, but fuels and crops benefitted little from that descent. With OPEC nations declining to reduce production, NYMEX crude futures lost another 11.06% for the month, finishing 2015 at just $37.07 a barrel. Oil fell hard on the year, sinking 30.98%. Unleaded gasoline gave back 5.30% in December, heating oil 14.49%. Natural gas futures rose 5.38%. Coffee was December’s best performer among major crops, advancing 7.42%; sugar was next, up 3.98%. Smaller gains came for wheat (2.23%) and cotton (1.02%). Soybeans lost 1.19%, corn 1.92%, and cocoa 3.57%.15,16

REAL ESTATE

An unexpected slip in existing home sales occurred in November, according to the National Association of Realtors. The new “Know Before You Owe” closing rule may have contributed to the 10.5% slide, as it lengthened some closings. That left resales down 3.8% year-over-year, but analysts still anticipated an annualized rise. NAR said that the median existing home sale price had increased 3.8% in the 12 months ending in November. (October’s 20-city S&P/Case-Shiller Home Price Index had shown a yearly gain of 5.5% in home values.) New home sales advanced 4.3% during November, bringing their year-over-year gain to 9.1%.4,17

Mortgage rates climbed appreciably during December. In Freddie Mac’s November 25 Primary Mortgage Survey, the average interest rate on the 30-year fixed rate mortgage was 3.95%; by December 31, it was 4.01%. The average interest rate on the 15-year FRM was 3.24% at year’s end, up from 3.18% on November 25. In the same interval, average rates on 5/1-year ARMs went from 3.01% to 3.08% and average rates for 1-year ARMs rose from 2.59% to 2.68%.18

Looking at indicators geared toward the near future, the pending home sales index maintained by the NAR fell 0.9% for November. That negative was offset by two positives: a 11.0% climb in building permits and a 10.5% surge in housing starts in the year’s eleventh month.4,19

LOOKING BACK…LOOKING FORWARD

The year’s final settlements: DJIA, 17,425.03; NASDAQ, 5,007.41; S&P, 2,043.94; RUT, 1,135.89; VIX, 18.21. Out of all five, only the NASDAQ managed to ascend in 2015 – it rose 5.73%. The Russell lost 5.71% and even the VIX fell 5.16%; the Dow merely lost 2.23% for the year, the S&P just 0.73%. Four U.S. equity indices realized double-digit gains in 2015: the Dow Jones Internet Index at +28.79%, the Ocean Tomo Growth index at +18.93%, the NASDAQ Biotech Index at +11.42%, and the NYSE Arca Biotechnology Index at +10.90%. For December, the CBOE VIX jumped 12.90%.1

% CHANGE 2015 1-MO CHG 5-YR AVG 10-YR AVG
DJIA -2.23 -1.66 +10.10 +6.26
NASDAQ +5.73 -1.98 +17.75 +12.71
S&P 500 -0.73 -1.75 +12.50 +6.37
REAL YIELD 12/31 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.73% 0.49% 1.00% 2.06%

Sources: wsj.com, bigcharts.com, treasury.gov – 12/31/151,20,21,22
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

As January begins, investors are wondering how much strength remains in the bull market. Was 2015 just a pause? The month began with the S&P 500 trading at 22.5x reported earnings, higher than at the conclusion of nine of the past ten bull markets. Is there more room to run? Some analysts are marveling how well equities held up last year in the wake of plummeting oil prices, terrorism shocks, and the volatility in Chinese stocks. Given that wage growth is picking up, hiring is strong, and many economic indicators are decent-to-positive, the hope is that a resilient U.S. economy can weather any prolonged slowdown in the emerging markets, and that higher interest rates exert little drag on stocks in the months ahead. Will the first month of the year show renewed strength and confidence from the bulls? With little if any hints of a downturn on the horizon, we can hope to see just that.23

UPCOMING ECONOMIC RELEASES

The rest of January unfolds as follows in terms of news items: the minutes from the December Federal Reserve policy meeting, the December ADP employment change report, the December ISM service sector PMI and November factory orders (1/6), the December Challenger job-cut report (1/7), the Labor Department’s December employment report (1/8), a new Federal Reserve Beige Book (1/13), December retail sales and industrial output, December’s PPI, November business inventories and the preliminary January University of Michigan household sentiment index (1/15), December’s CPI and December housing starts and building permits (1/20), the December Conference Board leading indicators index and December existing home sales (1/22), a new Conference Board consumer confidence index and the November S&P/Case-Shiller home price index (1/26), a Federal Reserve interest rate decision and December new home sales (1/27), December durable goods orders and pending home sales (1/28), and to close out the month, the University of Michigan’s final January household sentiment index and the first estimate of Q4 GDP from the Bureau of Economic Analysis (1/29). The December personal spending report will arrive February 1.

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Securities offered through First Heartland Capital, Inc.
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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. MarketingPro, Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. 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The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. The Dow Jones Americas Index measures the Latin American equity markets by tracking 30 leading blue-chip companies in the region. The FTSE MIB (Milano Italia Borsa) is the benchmark stock market index for the Borsa Italiana, the Italian national stock exchange. The RTS Index (abbreviated: RTSI, Russian: Индекс РТС) is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, Spain’s principal stock exchange. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. 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The Mexican IPC index (Indice de Precios y Cotizaciones) is a major stock market index which tracks the performance of leading companies listed on the Mexican Stock Exchange. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires Stock Exchange. The ISEQ Overall Index is a capitalization-weighted index of all official list equities in the Irish Stock Exchange, excluding U.K.-registered companies. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.
1 – wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [12/31/15]
2 – marketwatch.com/story/federal-reserve-lifts-interest-rates-for-first-time-since-2006-2015-12-16 [12/16/15]
3 – marketwatch.com/story/federal-reserve-dot-plot-still-signals-4-interest-rate-hikes-in-2016-2015-12-16 [12/16/15]
4 – briefing.com/investor/calendars/economic/2015/12/28-01 [12/30/15]
5 – briefing.com/investor/calendars/economic/2015/12/21-25 [12/23/15]
6 – briefing.com/investor/calendars/economic/2015/12/07-11 [12/11/15]
7 – forbes.com/sites/samanthasharf/2015/12/04/solid-jobs-report-211000-jobs-added-in-november-unemployment-rate-unchanged-at-5/ [12/4/15]
8 – tradingeconomics.com/united-states/calendar [12/18/15]
9 – instituteforsupplymanagement.org/ismreport/nonmfgrob.cfm [12/3/15]
10 – theguardian.com/business/live/2015/dec/03/ecb-stimulus-qe-negative-rates-mario-draghi-live#block-56605399e4b029bfed2566e0 [12/3/15]
11 – tradingeconomics.com/euro-area/indicators [1/2/16]
12 – tradingeconomics.com/euro-area/manufacturing-pmi [1/2/16]
13 – bloomberg.com/news/articles/2016-01-03/two-speed-china-economy-intact-as-factories-slump-services-gain [1/3/16]
14 – msci.com/end-of-day-data-search [12/31/15]
15 – money.cnn.com/data/commodities/ [12/31/15]
16 – marketwatch.com/investing/index/dxy/historical [12/31/15]
17 – news.morningstar.com/articlenet/article.aspx?id=734650 [12/26/15]
18 – freddiemac.com/pmms/archive.html [1/3/16]
19 – bankingjournal.aba.com/2015/12/housing-starts-rose-in-november/ [12/16/15]
20 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=12%2F31%2F10&x=0&y=0 [12/31/15]
20 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=12%2F31%2F10&x=0&y=0 [12/31/15]
20 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=12%2F31%2F10&x=0&y=0 [12/31/15]
20 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=12%2F30%2F05&x=0&y=0 [12/31/15]
20 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=12%2F30%2F05&x=0&y=0 [12/31/15]
20 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=12%2F30%2F05&x=0&y=0 [12/31/15]
21 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [12/31/15]
22 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [1/3/16]
23 – bloomberg.com/news/articles/2015-12-31/year-of-twists-leaves-s-p-500-investors-right-where-they-started [12/31/15]

Will you have enough money to retire? Will your income last?

Income planning can be one of the most complicated and critical aspects of retirement.  How you restructure your assets from a pre-retirement portfolio to a reliable income stream is critical to insure that you have an income that will keep up with inflation and last for the rest of your life.  At Verley Financial our experienced team provides income planning for clients in both good markets and bad.

How?  We accomplish this by:

  • Constructing an income-generating portfolio and running risk analysis testing
  • Sourcing and analyzing lifetime and increasing income options
  • Analyzing Social Security benefits and educating clients on ways to optimize that income
  • Risk management – Unplanned for disability, death and long term care exposure can have tragic effects on a couple’s lifetime income security.

Ideally, the process begins several years before retirement, so we can have everything in place when the day comes.  We also work with younger clients to help them set and meet long term goals that enable them to have the retirement lifestyle they desire.

Business Succession and Estate Planning

“Avoid common mistakes and execute a plan that accomplishes what you want.”  It sounds simple, but many times the documents people have in place do not meet their needs or are outdated and fail to take into account tax and estate law changes.   Our key goal in estate planning is to help the client determine what it is they want to accomplish and coordinate with the tax and legal experts who can draft and execute that plan.

When a family business is involved, the estate planning process can become more complicated.  In the example of a family farm, there may be non-farming and farming children to take into consideration, along with highly appreciated land values and estate tax liability.   Estate planning should address:

  • Asset Protection
  • Responsible Transfer of Wealth to the Next Generation
  • Charitable Goals
  • Gifting
  • Proper Titling & Ownership of Assets
  • Estate, Gift and Income Taxes
  • Life Insurance & ILITs
  • Revocable, Irrevocable & Testamentary Trust Planning vs. Simple Wills
  • Disability and/or Mental Incapacity
  • Elder Law Planning, Long Term Care, and Home Health Care
  • End of Life Decisions

This is not an exhaustive list, but is some of the more common concerns.  In order for an estate plan to work, it must be tailored to your specific situation, risks, and goals.