Here are the selected return numbers for the year to date through October.
(As of 10/31/14)*
Dow Jones Industrials 4.90%
S&P 500 Index 9.20%
NASDAQ Composite 10.90%
Dow Jones World Index (ex. U.S.) 2.60%
(As of 10/31/14)*
Russell 2000 1.90%
Russell Value Index 10.50%
Russell Growth Index 10.73%
Major Bond Indexes (As of 10/31/14)*
U. S. Treasury – Intermediate 7.41%
Barclays Cap. Aggregate Bond Composite Index 5.12%
Mutual Funds (As of 10/31/14)*
Lipper Large-Cap Growth Index 8.56%
Lipper Large-Cap Value Index 8.40%
Lipper Small-Cap Growth Index -0.33%
(Source: The Wall Street Journal, Russell Investments & Barclays websites)
*Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot
invest directly in any index, and index performance does not include transaction costs or other fees,
which will affect actual investment performance. Individual investor’s results will vary. Past
performance does not guarantee future results.
FINANCIAL AND INVESTMENT PLANNING
October has a bad reputation among US stock market investors. Black Monday in October 1987 will always be remembered. Lehman Brothers failed in September 2008, and October was thoroughly unpleasant. During the first half of the month this year it appeared we might be in for more unpleasantness. In the first half of October global equity markets fell 6% and the 10 year Treasury note yield fell below 1.90% during the day of October 15th. Equity volatility hit multi year highs, when a volatility indicator called VIX spiked from its 2 year average of 14 to above 30 on the 15th. Source: PIMCO Global Update
Then virtually all assets retraced their declines in the second half of October. Go figure.
The decline in the price of crude oil was a big story last month. It hit a four year low. Middle Eastern producers began to lower prices, and a weak European economy hurt demand expectations.
In case you haven’t noticed, gasoline prices have been falling. Naturally, this is a good thing for consumers. And since consumption represents 65-70% of US Gross Domestic Product, many economists compare lower gas prices to a tax cut. We all have more money to spend elsewhere. This makes sense and is the interpretation I have always heard.
However, I read a recent article in Barron’s magazine which suggests lower crude and gasoline prices may not be an altogether good thing. US crude oil production has ramped past 9 million barrels a day. Since our oil production began to surge in 2012, the longstanding inverse relationship between the economy and crude prices has shifted. In the opinion of the quoted expert, lower prices are now a net negative. She asserts that the drop in prices at the pump initially will boost US economic growth by 0.25%. Some 30% of US shale oil production is noneconomic at current prices. Shale plays require a continual high level of investment to maintain output. The reduction of this spending could be a drag of 0.50% on real gross domestic product growth – twice the benefit to consumers.
Keep in mind that while I believe this an informed opinion, it is nevertheless an opinion.
With the exception of certain agricultural items, commodities continue to struggle.
Year to Date
Source: S&P Dow Jones Indices
I read and hear our country is in a sour mood. The right direction/wrong direction periodic national poll leans strongly to the wrong direction column. Also, I suspect most readers are not happy with the level of political discourse or effectiveness in Washington. It is in this environment that I was surprised to read the following information.
Over the past few months, consumer confidence and sentiment readings have broken to new highs, rising to levels not seen since the 2008-2009 financial crisis. The October reading of the University of Michigan Index of Consumer Sentiment climbed 2.3 points to 86.9, and the Conference Board Consumer Confidence Index jumped to 94.5 – up 5.5 percentage points from the prior month. These are the highest readings in both surveys since 2007.
Since the start of the year, payroll employment has added 2.3 million workers according to the Bureau of Labor Statistics - BLS. If November and December match the average of the first 10 months, payroll job growth in 2014 will be the largest annual gain since 1999.
The BLS’s household employment survey reports equally impressive gains. In the last 10 months, total household employment has increased 2.7 million, with almost all the gains centered in full time jobs. The full time employment gains of 2.35 million since the start of the year already represent the largest gain for any full year in the current recovery. If we experience average monthly gains for November and December, full time employment gains in 2014 will rank at the top of the list for the past 30 years. Source: Haver Analytics and US Bureau of Labor Statics.
I share all of this with you because I believe it can be quite difficult to maintain a balanced outlook on our economy as well as other aspects of our country.
We are now entering the November – May period which has historically been better for US equities than the other six months. The global challenges still exist, and it is unlikely only good news will be forthcoming. Nevertheless, as we enter the Thanksgiving holiday, I believe we have a great deal for which to be thankful.
Carl W. Stuart
· Past performance is not indicative of future results.
· The S&P 500 is an unmanaged index of 500 widely held stocks that’s generally considered representative
of the U.S. stock market.
· The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system.
· The Dow Jones Industrials is an index of 30 stocks that is considered representative of the overall market.
· The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks.
· Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.
· The information contained in this report does not purport to be a complete description of the securities, markets, or
developments referred to in this material, is not a complete summary or statement of all available data necessary for making an investment decision, and does not constitute a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Carl W. Stuart and not necessarily those of RJFS or Raymond James. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices generally rise.