Daily Journal of Commerce Archives - Page 16 of 20 • Rutherford Investment

Market Averages Reach All-Time High

Originally posted in the Daily Journal of Commerce, Portland OR

Published April 8, 2013
Both the Dow Jones industrial average and the S&P 500 average reached all-time highs in the first quarter of 2013. The Dow jumped 11.25 percent for its best first quarter in 15 years. The S&P moved up 10 percent, finishing the quarter at 1,569.19 and eclipsing the previous high of 1,565 set 5½ years ago. The NASDAQ closed up 8.21 percent year to date at 3,267.52 and reached a 52-week high, but it’s far from its peak. Of course, these “highs” are not adjusted for inflation, and will have to be higher to claim higher real returns.

Meanwhile, 30-year Treasury bonds declined 3.1 percent for the first quarter, with the broader bond market declining 0.3 percent. In March, bonds declined 0.1 percent versus a return on equities of 3.75 percent. This is consistent with my previous admonition regarding bonds and the pressure they will be under as interest rates rise.

Previously I remarked that a movement from bonds to equities is expected as the Fed policies continue to favor equities. Investors have been forced to take more and more risk to find yield, and this will not end well. Bond exchange-traded funds are taking more risk; money market funds, normally thought to be a safe haven, are forced to take more risk.

The averages reached these new records in spite of year-end wrangling over the budget in Washington. First, the so-called “fiscal cliff” fixated the markets, but then came and went. Then sequestration loomed, and that was thought to mean the end of the rally. But the market just shrugged. Another crisis […]

April 10th, 2013|Categories: Daily Journal of Commerce|Tags: 30 year treasury bonds, dow jones, dow jones industrial, dow jones industrial average, market increases, sequestration|Comments Off

Et Tu, Italia?

Originally posted in the Daily Journal of Commerce, Portland OR

Published March 11, 2013

When the early returns of the Italian election for prime minister came in on Feb. 25, the markets took a steep dive. Voters were asked to prolong the policies of Mario Monti, prime minister since 2011.

Monti was considered a technocrat; he had led Italy into a policy of austerity. This financial approach was considered a road map for Spain, Portugal and perhaps France. Greece had already reluctantly stated down this path.

The Italian people were not happy with this austerity even though the financial markets, the Eurozone and the Euro had found comfort with this policy. Under Monti, Italian bonds found a bid, with lower interest rates, and the Eurozone had taken a respite from an extremely volatile period. Europe – Italy specifically – seemed on the mend.

The election featured an array of candidates, including a professional comedian and political buffoon, former Prime Minister Silvio Berlusconi. Already convicted of tax fraud, sentenced to four years in jail and under indictment for sex crimes involving minors, Berlusconi ran on a campaign of a repeal of austerity and Laissez les bons temps rouler (Let the good times roll). For instance, he pledged to return all property taxes paid in the prior year, among other giveaways.

Given the choice between austerity and good times, Italians chose “La Dolce Vita;” they tossed Monti, and placed Berlusconi in a position to win the prime minister’s job again. Bond markets and equity markets were shocked and tumbled. Investors, already discouraged by Europe, pulled to the sidelines and dumped stocks. The U.S. equity market suffered its biggest drop of the […]

March 11th, 2013|Categories: Daily Journal of Commerce|Comments Off

Market Rises Closer To All-Time High

Originally posted in the Daily Journal of Commerce, Portland OR

Published February 11, 2013
The equity market in the U.S. has continued the rally that began June 1, 2012. January’s 5.1 percent increase for the S&P was the largest since October 2011. The Dow surpassed 14,000 for the first time since 2007. What’s more, the market accomplished this in the face of a declining gross domestic product in the fourth quarter of 2012, when GDP dropped 0.1 percent instead of increasing as expected. Unemployment ratcheted up to 7.8 percent.

In response, the Federal Reserve said:

Information received since the Federal Open Market Committee met in December suggests that growth in economic activity paused in recent months, in large part because of weather related disruptions and other transitory factors. Employment has continued to expand at a moderate pace, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has shown further improvement. Inflation has been running somewhat below the committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the committee seeks to foster maximum employment and price stability. The committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate. Although strains in global financial markets have eased somewhat, the committee continues to see downside risks to the economic outlook. The committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery […]

February 13th, 2013|Categories: Daily Journal of Commerce|Tags: energy prices, global financial markets, household spending, inflation expectations, maximum employment, mortgage backed securities, price stability, unemployment rate|Comments Off

Did Congress Work Out A Fiscal Lift?

Originally posted in the Daily Journal of Commerce, Portland OR

Published January 14, 2013

The long awaited and dreaded “fiscal cliff” finally arrived. In a previous column I described it as more of a fiscal slope than a cliff. We received a mixed bag of laws, which could have been better, but also could have been worse. It did provide clarity (not always welcome) for some stakeholders, but left many decisions to be made.

President Obama, after winning re-election, played a tough hand. Tax increases were on his mind, and he believed that he had a mandate to raise taxes because he campaigned on a policy of higher taxes. Describing his tax increases as “fairness,” he called for higher rates for higher-income taxpayers. He insisted that Congress deal with tax rates, and declined to offer any spending cuts.

With the power of his pen, and the Senate on his side, Obama’s only obstacle was the Republican-controlled House. While Congress and Obama knew that we had revenue and spending problems and a large budget deficit, the approaches of the president and the Republicans were vastly different. The president was not interested in spending cuts, but rather only more revenue. The Republicans believed that more revenue would come from a government more favorable to business and therefore the economy, and that spending reductions were needed.

The Democrats baited the Republicans by offering up no cuts, forcing the Republicans to name which entitlement programs they would cut, and by how much. Recognizing that putting a price tag on “sacred cows” was a losing hand, Republicans folded. The deal disappointed many people, but it extended the “Bush tax cuts” for some and […]

January 16th, 2013|Categories: Daily Journal of Commerce|Comments Off

Market In Schizophrenic Mode

Published December 10, 2012
U.S. equity markets suffered more volatility this past month as headlines veered from optimism to pessimism over “fiscal cliff” negotiations. Investors have become accustomed, if not comfortable, to extreme volatility over the past few years as the economy and policy makers in Europe and the U.S. have provided a litany of mostly negative surprises.

Investors have sought refuge in bonds during this time to avoid risk, but in so doing they have bid bonds to a risky level – perhaps even a bubble. They also have forfeited returns. As long as investors are as worried about the equity market as they are now, the appeal of bonds will continue. However, at some point we can expect that trend to unwind with investors returning to equities.

With bonds returning low yields and possessing little upside potential, there is definitely a possibility that investors will run to the other side of the boat. When that happens, we can expect a sell-off in bonds and an increase in equity prices. The catalyst for such a move could be a resolution of the “fiscal cliff” disagreement, or a solution to the various European crises.

The U.S. is probably closer than Europe to reaching an agreement. While one does not appear imminent in the U.S., it is still likely that some sort of agreement will be reached, even if it is only to “kick the can down the road” – a real possibility.

As bad a job that the legislative and executive branches have done, and are doing, neither side wants a calamity. The impetus for a deal is strong. What they are trying to gain now is bargaining […]

December 12th, 2012|Categories: Daily Journal of Commerce|Comments Off

President Obama Wins Second Term

Published November 19, 2012
The market absorbed the news of President Obama’s re-election with a decidedly negative reaction. Both the Dow and the S&P fell more than 2 percent. Still, that was an improvement over 2008, when, on the day after Obama was elected, the Dow and the S&P both dropped more than 5 percent.

Both candidates spent lavishly in what was by far the most expensive race in U.S. history. Obama won a second term as president of the United States, joining a select group. Despite seeming to be disengaged from the campaign, and running on a mixed record with the electorate strongly divided, he won a resounding victory in the all-important Electoral College. The popular vote was closer.

Obama won the election by out-organizing the Republicans. His “ground game” brought the results he needed in turnout and delivered the toss-up states that he needed to win. He received 70 percent of the Hispanic vote, and strong support from women voters.

Mitt Romney suffered from an overlong campaign, with too many brutal primaries, a divided party, and positions that turned away Hispanics and women. Late in the campaign, he seemed dogged by missteps and changed positions.

Romney’s choice of a running mate, meant to appeal to the party’s right wing, brought little benefit. He could have added Sen. Marco Rubio from Florida, or Sen. Robert Portman, a popular Ohioan who regularly wins his elections with more than 70 percent of the vote. Both come from key states that Romney lost by narrow margins.

Democrats also fared well in both House and Senate races, picking up seats and strengthening Obama’s hand. The president, who believes in the […]

November 20th, 2012|Categories: Daily Journal of Commerce|Tags: electoral college, hispanic vote, hispanics, mitt romney, obama, popular vote, senate races, women voters|Comments Off

Market In Rally Mode In Third Quarter

Published October 15, 2012
U.S. equity markets have staged a strong rally since hitting a low point on June 1. At that time investors feared a global recession, Europe was facing disaster and the general outlook was despondency.

The market closed at 1,278.04 on June 1. It has since risen 12.7 percent through the third quarter in a stealth rally. The market closed at 1,440.67 on Sept. 30. In September, usually the worst month for markets, the S&P rose 2.6 percent, the Nasdaq rose 1.6 percent and the Dow rose 2.75 percent.

At the conclusion of the quarter, the Dow had risen in 11 of the past 12 months, falling only in May. The last time this happened was in 1959. The Dow has had a remarkable one-year run in which it has gained about 2,500 points, or 23 percent.

It was not all smooth sailing, because most of the September gains came in the first two weeks. Durable goods orders in July-August fell 13.2 percent. At the end of September, consumer sentiment fell. The nonmanufacturing index rose to 55.1, but less than the 55.3 expected. Second-quarter GDP was revised lower to 1.3 percent growth.

However, jobless claims fell slightly and the economy in September added 162,000 jobs – well short of the 250,000 needed to absorb new workers let alone those out of work for extended periods. By the end of September, government statistics showed that the unemployment rate was below 8 percent, for the first time during the Obama administration.

The market got a lift from the announcement by the Fed of another round of quantitative easing. Both the anticipation of QE3 and the implementation […]

October 15th, 2012|Categories: Daily Journal of Commerce|Tags: dow, global recession, jobless claims, market investors, nasdaq, qe3, quarter gdp, swing states, unemployment rate|Comments Off

Central Bankers In The Spotlight

Published September 10, 2012
Since the overall market, as measured by Standard & Poor’s, is up over 13 percent for the year, over 10 percent since May lows and more than 2 percent in August alone, cautious optimism has emerged.

However, political risk hangs so heavily over markets globally, it is hard to be anything but worried. Furthermore, September is a notoriously difficult month for stocks. Expect more turbulence.

Globally, economies are slowing. Even Germany, which has been the bulwark of the European economy, has slowed as Europe sinks into a recession. In Asia, much uncertainty prevails as China, the key driver there, sees its economy slowing.

In the U.S., signals are mixed. Factory orders are reported stronger than expected. Consumer confidence, as measured by the University of Michigan index, also is surprisingly up.

Durable goods manufacturing is up 9.8 percent year over year, with durable goods sales and orders both up over 14 percent. Factory order backlogs are 14.4 percent. New housing starts are up 29 percent, and new housing building permits are up 29 percent year over year.

The big three automakers mark double-digit sales gains in August year over year. Productivity increases to 2.2 percent up from expected 1.9 percent year over year.

But other measures, such as the purchasing managers’ index and the construction index (which includes government construction), show declines in July and August. And a serious drought in the Midwest threatens farmers and farm-related industries.

With the mixed tone, one can be wary of the U.S. economy – especially factoring in the political risk. As the election nears, the outcome is still very much in doubt. At this juncture, President Obama is probably […]

September 11th, 2012|Categories: Daily Journal of Commerce|Tags: european economy, mitt romney, obama|Comments Off

Pessimism Prevails As Global Economy Slows

Published August 10, 2012

Indications are strong that the global economy is slowing. In Europe, a continent sinking into recession, even Germany is showing signs of struggle. China is letting its currency devalue in an effort to lower the costs of its exports and set up a conflict with the U.S. The yuan’s lower value will lead to jobs being siphoned from other countries.

In the meantime, the U.S. economy has been affected by the global slowdown. The Federal Reserve has noted that economic activity has decelerated somewhat over the first half of this year. Consumer spending has slowed, which is worrisome because consumer spending represents about 70 percent of GDP. Normally resilient restaurant chains such as McDonalds, Starbucks and Chipotle Mexican Grill noted a drop in consumer traffic.

However, a few bright spots have appeared. Jobless claims are mildly positive, durable goods orders are slightly better than expected, and U.S. GDP rose by 1.5 percent in the second quarter – slightly more than the 1.3 percent expected.

The Federal Reserve, after meeting July 31 and Aug. 1, decided to continue its accommodative stance and provide additional support as needed. This was a mild approach to the problems at hand, and disappointing to the markets.

In light of the slowdown in Europe, Mario Draghi, president of the European Central Bank, pledged to protect the eurozone. He was joined by German Chancellor Angela Merkel, and French President Francois Hollande. Their full-throated defense of the eurozone has been followed by little definitive action. The ECB in a recent meeting promised more meetings and initiatives, but little of substance. The markets were very disappointed with Draghi’s follow-up to his strong comments, […]

August 13th, 2012|Categories: Daily Journal of Commerce|Tags: economic activity, european markets, eurozone, global economy, global slowdown, world economy|Comments Off

Market Slumps Amid Economic Slowdown

Published June 11, 2012
A dramatic slowdown in Europe caused by credit issues there has brought the global economy to stall speed. European unemployment has reached all-time highs during the euro era. Manufacturing in the euro zone has fallen further. The Chinese economy has shown effects of a government-engineered slowdown. China has devalued the yuan, after allowing it to appreciate, in order to stimulate its economy.

All of these factors impact the U.S., where the rate of economic growth (gross domestic product) is less than 2 percent. U.S. factory output is near a 2½-year low, indicating the economy may be headed back toward recession.

The Institute for Supply Management reported that its business barometer fell 3.5 points to 52.7 in May; it was the third straight monthly drop and the lowest reading since September 2009 (readings above 50 reflect economic expansion). The consensus estimate was for the barometer to continue at 56; so the current reading reflected a significant weakening.

At the same time, the ISM production index fell 7.1 points in May to a neutral reading of 50, also the lowest since September 2009. This index is compiled from surveys of purchasing managers in the Chicago region.

Also, the Labor Department showed that the number of workers filing for unemployment benefits rose by 10,000, to 383,000, for the week that ended May 26.

On June 1, the jobs report from the Labor Department showed that non farm payroll grew by a lackluster 69,000 last month. The rate of unemployment ticked up to 8.2 percent. All of the growth came from private industry: 82,000 jobs were added, but governments cut payrolls by 13,000.

Compounding the already weak report, […]

June 11th, 2012|Categories: Daily Journal of Commerce|Tags: business barometer, chinese economy, economic expansion, european unemployment, global economy, gross domestic product, recession|Comments Off