An Uncertain Year-End
Current Market Analysis
Last Month's Results
Trends To Watch
What I'm Thinking
News and Notes
Current Market Analysis
As of the close of business Friday,
the Dow Jones Industrial Average stood at 17,265, which is essentially
the same as when I wrote to you each of the last two
belies the big moves, up and down, that have happened in the
interim (as you can see below). Last week was pretty poor, with
the #DJIA falling by 582 points thanks in part (again) to
questions about upcoming Fed moves and
plunging oil prices. I'm really sounding like a broken record. I hope
I'll be able to write about something different next year.
The carnage last week erased the minuscule gains
for the year and reduced the #DJIA to a loss of 3.1% for the year. By
itself, that isn't the end of the world. Given all of the uncertainty
this year, and the correction in August, finishing the year down
"only" 3% would almost feel like a victory.
Looking at the chart of the #DJIA
we can see the almost identical rise and fall in each of the last two
months. As a result, the
index is again testing support at around 17,100. It would be
very constructive for the overall market if support held and the index
moved higher before year-end.
After showing some signs of life over the past few
months, the Transportation
Index has rolled over and headed lower, testing support around 7,450.
This is bad news and portends larger troubles for our economy. I can't
sugarcoat it; this really has me worried for the short-term health of
The Dow Jones Utility
Average has been churning in a range between 610 and 540 almost
all year as the utility sector continues to battle the specter
of looming interest rate increases. Here too the price has fallen below
the moving averages and is ready to test support. This is another ugly
For the past six months the yield on the 10-year
treasury bond has continued to flit between 2.0% and 2.5%.
Interestingly, for all the sturm and drang, the yield is essentially
unchanged for the year. It's hard to make a case for it being
appreciably different for the next few months.
After a powerful rally in October, the gains in
November were relatively tepid, unless you owned large-cap growth
stocks like Alphabet, Netflix, Facebook or Amazon.com. Going in to the
final month of the year, it appeared that the broad market averages
would be able to finish in the black, albeit modestly. That was before
the market plunged last week, leaving its year-end fate in doubt. It's
been very tough to make money in equities this year
as only a narrow slice of the market has been able to record
significant gains while the rest have wallowed in mediocrity, or worse.
With two weeks left in the year, it appears that the price of oil, and
a big decision by the Fed, will determine whether the market ends the
year in the black or the red.
Name of Index
Dow Jones Industrial Average
Large-cap tech stocks
Russell 1000 Growth
Large-cap growth stocks
Russell 1000 Value
Large-cap value stocks
Russell 2000 Growth
Small-cap growth stocks
Russell 2000 Value
Small-cap value stocks
Europe, Australia, Far East
US government bonds
Barclays High Yield
High-yield corporate bonds
* Return numbers
include the reinvestment of dividends
According to the Department of Labor, the
figure for seasonally-adjusted initial jobless claims for the week
ended December 5 was 282,000, 13,000 higher than the prior
week, and about 6,000 higher than the prior month's figure.
The four-week average of 270,750 was slightly higher
than the tally from a month ago. About 2.24 million
people continue to collect unemployment insurance, about 73,000 more
than last month.
a big surprise to the upside in October, the non-farm payroll
employment report in November was roughly in line with
expectations as 211,000 jobs were gained in the
month, while revisions added back 36,000 jobs to the September
and October totals. The household survey
reported that the unemployment rate held steady at 5.0% while the
labor force participation rate managed to tick up to 62.5.
Average hourly wages for blue collar workers inched up to a new high of
$21.19 while the average work week remained at 33.7 hours.
7.9 million workers were still being counted as
unemployed and 2.0 million people remained unemployed longer
than 27 weeks. The seasonally
adjusted number of people who could only find part-time work rose to
6.0 million while the number of marginally attached workers
fell to 1.7 million. The number of people holding multiple jobs
dipped slightly to 7.5 million. All of this helped the comprehensive
U-6 "underemployment" rate tick higher to 9.9%. This relatively
good report wakes it more likely that the Fed will begin
raising rates in December.
Congressional Budget Office (CBO) estimated that on a net present value
basis, the Treasury reported a budget deficit of $64 billion in
November, about $7 billion more than the shortfall recorded
in the same period last year. This leaves the two month deficit at $201
billion, $22 billion more than last year.
The National Association of Homebuilders/Wells Fargo Confidence
Index fell three points to 62 in November, the second highest
level of the year. "The November report is pullback from an unusually
high October, and is more in line with the consistent, modest growth
that we have seen throughout the year," said NAHB Chief Economist David
Crowe. "A firming economy, continued job creation and affordable
mortgage rates should keep housing on an upward trajectory as we
The Census Bureau reported that privately owned housing starts
were 11.0% lower in October, after a sharp increase in September,
falling to an adjusted annual rate of 1,060,000 units, which was 1.8%
lower than a year ago. New building permits
managed to rise 4.1% from the prior month and were 2.7% higher than the
year before. Like many of these statistics, this is a mixed message.
The Census Bureau reported that on a seasonally
adjusted annualized basis 495,000 new homes
were sold in October, up a solid 10.7% from a revised lower figure in
September, and 4.9% from a year ago. The estimate of the
number of homes for sale was 226,000, representing 5.5 months of
inventory at the
current rate of sales. The median sales price was $281,500, leaving it
well below the 12-month moving average price of $294,433.
The National Association of Realtors reported that on a seasonally
adjusted annualized basis, 5.36 million existing homes
were sold in October, a decrease of 190,000, or 3.4%, from September,
but was still 3.9% higher than a year ago. The estimate of homes for
sale is 2.14 million, which represents 4.8 months of inventory
at the current rate of sales. The average selling price
was $219,600, off the high levels recorded in June and
slightly above the rising 12-month average of $217,608. Overall, the
housing market appears to be in decent shape.
According to the Institute for Supply Management (ISM), economic
activity in the manufacturing sector contracted in November for the
first time in 36 months, falling to 48.6. This marked five consecutive
monthly drops. The ISM index of non-manufacturing activity also slowed,
falling to 55.9, but still signaled growth in the
service sector for 70 consecutive months. None of this suggests
anything but a very sluggish economy.
Conference Board reported that its index of Leading Economic
Indicators (LEI) increased 0.6% in October, following a modest decline
of 0.1% in September, the first drop of the year. "The U.S. LEI rose
sharply in October, with the yield spread, stock prices, and building
permits driving the increase," said Ataman Ozyildirim, Director of
Business Cycles and Growth Research at The Conference Board. "Despite
lackluster third quarter growth, the economic outlook now appears to be
improving. While the U.S. LEIís six-month growth rate has moderated,
the U.S. economy remains on track for continued expansion heading into
According to the "second" estimate by the Bureau of Economic Analysis,
GDP increased at an annual rate of 2.1% in Q3 2015, up
from only 1.5% in the initial estimate, but down sharply
from the 3.9% rate reported in Q2. This was still better than the
decrease of 0.2% in Q1, but below the 2.2% increase in Q4 2014.
And it remains well below the 5.0% and 4.6% growth rates in Q3 and
Q2 2014, respectively. Clearly this is not the strong growth
that anyone is hoping for, but it may be just enough to allow
the Fed to nudge rates a bit higher next week..
According to the BLS, the seasonally adjusted Consumer Price Index
for all Urban Consumers (CPI-U) increased 0.2% in October,
after falling 0.2% last month. If you strip out food and energy, CPI
rose the same 0.2%. Since February the CPI has moved in a tight range
between -0.2% and 0.2%.
The Conference Board's Consumer Confidence Index
dropped again in November to 90.4. "Consumer confidence retreated in
November, following a moderate decrease in October," said Lynn Franco,
Director of Economic Indicators at The Conference Board. "The decline
was mainly due to a less favorable view of the job market. Consumers'
appraisal of current business conditions, on the other hand, was mixed.
Fewer consumers said conditions had improved, while the proportion
saying conditions had deteriorated also declined. Heading into 2016,
consumers are cautious about the labor market and expect little change
in business conditions."
dollar index has been on a wild ride this year. A few weeks ago it
failed, for a third time this year, to completely pierce resistance
around 100. It quickly fell back to interim support around 97.5. A
weaker dollar would be a boon to commodities, the energy sector and
most of the multi-national corporations that pay for wages and
materials in dollars but accept payment in other, weaker,
chart of West Texas Crude has gone from
plain ugly to almost catastrophic as the price has
fallen below major support at $37.50. Things haven't been this bad in
the energy sector since the depths of the financial crisis, when a
barrel of oil briefly sold for around $33.50. Bankruptcies are
on the rise, layoffs are multiplying and dividends are being slashed.
And as bad as things are here, it's worse for many of the
major oil producing countries around the world. Until we hear about
being slashed around the globe things are not likely to improve any
chart isn't going to make the gold bugs very happy. The price of gold
has been in decline for the entire year. Each rally ends in a lower
high, and every subsequent drop results in a lower low. That is simply
bad. As you can see, the current price is well being both moving
averages and seems to be headed even lower. Stay away!
simply isn't anything to say about how horrible this chart is. As I've
been saying all year, the desultory picture shown here is a neon sign
trumpeting major troubles in our economy.
price action for the Nasdaq Composite looks eerily similar to the
#DJIA, which is unusual as the two indices have little in common.
Still, it would be very constructive for future action for the index to
remain above support at 4,900.
financial sector continues to be one of the few areas of the
market that is holding up pretty well, even though it rolled
over, like everything else, last week.
a late November rally fizzled, the price of the housing index
has returned to its primary trading range (purple dotted lines). Will
housing hold up if the Fed tights by 0.25%? I think it should.
index for developed international markets has remained in the bottom
part of its trading range for the past five months. Given how little
global economic growth is in evidence right now, it's hard to make a
case that this index will move much higher any time soon.
tired of writing about the Shanghai Index. I don't trust anything about
the stock markets in China. Therefore this will be the last time I'll
show this chart. I'd leave China to the real professionals with boots
on the ground over there. For the rest of us, it's probably best to
forming a double bottom from late August through September, NYSE
sentiment index surged higher in October before taking a breather in
November and falling in December with the rest of the market. The rally
I anticipated came to fruition, but it was far too short lived. It's
hard to decipher what's coming next.
price of the volatility index, the VIX, is moving back up
towards the "fear" zone. If you gathered the courage to buy in August,
you likely did very well. And while I often enjoy a good buying
opportunity, I'm hoping that we don't have another correction coming up
in our immediate future.
What I'm Thinking and
months I've been predicting a year-end rally. And with just over two
weeks left in the year, that forecast is looking less and less likely,
although I suppose anything can happen. I also predicted, going back to
last January, that the Fed was unlikely to raise rates this year, and
if they do, it will just be one increase. I can make the case for the
Fed to go either way on Wednesday, but as I've said before, I hope they
do raise rates 25 basis points and get it over with. Then they should
say that they expect to leave the rate
alone until there is clear evidence of economic growth. That certainty
would likely send the market higher and quiet all of the useless, and
almost daily, speculation of when will the rate increase finally
also been thinking a lot about the upcoming presidential election. As a
disclaimer, I am a registered Democrat. That being said, I am disgusted
by the whole process so far. The money being raised to fund these
bloated and blathering campaigns is truly repugnant. Tens of billions
(perhaps hundreds of billions) of dollars will be wasted rather than be
put to much better use. Just think how many jobs would be
created and how much progress could be made if that $100 billion
were instead spent on our crumbling infrastructure, medical research or
education, not to mention the hundreds of deserving
charities that are starving for funding. Instead, that money will be
spent convincing the masses to vote for one or another completely
undeserving sycophant. If someone like Donald Trump, or Ben Carson or
Ted Cruz is the Republican nominee, I'll be packing my bags. We cannot
allow our government to be run by the church (or by idiotic
egomaniacs). That should frighten the
crap out of any reasonable minded citizen. Our country is supposed to
have a separation between church and state. Ted Cruz and the rest of
the religious zealots currently barnstorming the country would like to
eliminate that separation. I don't want god, or God, running this
country. Let Cruz and the rest of the preachers spin their sermons in
church, not the White House. And the less I say about the hairpiece
with foot in mouth disease the better.
for the stock market, as I've said before, I've completed
almost all of the anticipated trades for the year on behalf of my
anything unforeseen events happening in the market over the next two
weeks, I'll be pleased to begin 2016 with my portfolios as
they are currently constituted. I did eliminate three or four small,
underperforming positions over the past month, adding a bit of cash to
our holdings. It's possible I'll sell one or two more things before the
end of the year if they drop in price too much more. That being said,
I'm very comfortable with my current
holdings and I believe my clients are well positioned for whatever the
market will throw at us in 2016.
hard to believe another year is coming to a close; and what a year it's
been. I recently celebrated one year of marriage to my incredible wife
Kathiryn. She and I have enjoyed a few great vacations, lots of time
with our great circle of friends as well as more time and energy
invested in our philanthropic pursuits. And as good as 2015 has been
for us, we're looking forward to an even better 2016.
looking forward to having Nola return from college this weekend, just
in time to celebrate her 20th birthday before she heads off to Thailand
to spend a week with one of her good friends. Lily is keeping her
fingers crossed about an early decision coming in this week from one of
her top college choices. Then she heads to Colorado at the end of the
month to visit a good friend for a few days. And Ezra is looking
forward (as am I) to the return of Star Wars this weekend. After we
learn the fate of Han Solo, Kathiryn and I take Ezra out to Steamboat
Springs for a few days of skiing with my mother. May the Force be with
all of us.
that's it for 2015. Please accept my warm wishes for a very happy
season and a healthy and prosperous New Year.
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