Home

Core Inflation Reaches 10-year Peak

INFLATION AT 2.9%, CORE INFLATION AT 2.4%

Friday, the Department of Labor reported these annualized gains through July of this year for the Consumer Price Index. Both the headline and core CPIs rose 0.2% last month, matching the consensus forecast of economists polled by Reuters. The yearly core inflation increase is the largest on record since September 2008. (The core inflation reading leaves out food and energy costs.) The Producer Price Index was flat in July, with the yearly advance declining slightly to 3.4%; the core PPI rose 0.3%, resulting in a 2.8% annualized gain.1,2

HOW IS EARNINGS SEASON GOING?

Ninety-one percent of S&P 500 companies have reported Q2 results so far. FactSet, the respected stock market analytics firm, reports that 72% have surprised to the upside in terms of sales and 79% have topped earnings expectations. Weighing actual earnings results and future projections, FactSet estimates a 24.6% “blended” earnings growth rate for the second quarter. On Friday, the forward 12-month P/E ratio for the S&P 500 was 16.6; that compares to an average of 16.2 across the past five years.3

OIL FALLS FOR A SIXTH STRAIGHT WEEK

WTI crude last suffered such a losing streak in 2015. Friday, it settled at $67.63 on the NYMEX, even after a 1.2% advance during Friday’s trading session. Some commodities investors believe that the emerging trade war will reduce demand for energy products.4

NASDAQ ADVANCES, S&P and DOW RETREAT

Continue Reading

Does the Sequence of Investment Returns Matter

A look at how variable rates of return do (and do not) impact investors over time.

What exactly is the “sequence of returns”? The phrase simply describes the yearly variation in an investment portfolio’s rate of return. Across 20 or 30 years of saving and investing for the future, what kind of impact do these deviations from the average return have on a portfolio’s final value?

The answer: no impact at all.

Once an investor retires, however, these ups and downs can have a major effect on portfolio value – and retirement income.

During the accumulation phase, the sequence of returns is ultimately inconsequential. Yearly returns may vary greatly or minimally; in the end, the variance from the mean hardly matters. (Think of “the end” as the moment the investor retires: the time when the emphasis on accumulating assets gives way to the need to withdraw assets.)

An analysis from BlackRock bears this out. The asset manager compares three model investing scenarios: three investors start portfolios with lump sums of $1 million, and each of the three portfolios averages a 7% annual return across 25 years. In two of these scenarios, annual returns vary from -7% to +22%. In the third scenario, the return is simply 7% every year. In all three scenarios, each investor accumulates $5,434,372 after 25 years – because the average annual return is 7% in each case.1

Here is another way to look at it. The average annual return of your portfolio is dynamic; it changes, year-to-year. You have no idea what the average annual return of your portfolio will be when “it is all said and done,” just like a baseball player has no idea what his lifetime batting average will be four seasons into a 13-year playing career. As you save and invest, the sequence of annual portfolio returns influences your average yearly return, but the deviations from the mean will not impact the portfolio’s final value. It will be what it will be.1

When you shift from asset accumulation to asset distribution, the story changes.

Continue Reading

Inflation Pressure Mounts

INFLATION NEARS 3%

The federal government’s Consumer Price Index rose 2.9% across the 12 months ending in June, a level of annualized inflation last seen in February 2012. Yearly inflation has now increased for five straight months (although the headline CPI went north only 0.1% last month). The core CPI, which removes food and fuel costs, rose 0.2% in June, bringing its 12-month gain to 2.3%. Over the past 12 months, the cost of fuel oil climbed 30.8%; the cost of gasoline, 24.3%. Feeling the effect of those advances, the Producer Price Index rose 3.4% in the year ending in June.1,2

UNIVERSITY OF Michigan CONSUMER SENTIMENT GAUGE DECLINES

At a mark of 97.1, the preliminary July edition of this consumer sentiment index came in 1.1 points underneath its final June reading. Still, it was close to its average reading over the past year (97.7). One year ago, the index stood at 93.4. Thirty-eight percent of consumers felt tariffs would negatively affect the economy, an increase from 21% in June and 15% in May.3

GOLD FALLS TO A 12-MONTH LOW

With a strengthening dollar providing a stiff headwind for the metals market,

Continue Reading

Adjusting Your Portfolio as You Age

As you approach retirement, it may be time to pay more attention to investment risk.

If you are an experienced investor, you have probably fine-tuned your portfolio through the years in response to market cycles or in pursuit of a better return. As you approach or enter retirement, is another adjustment necessary?

Some investors may think they can approach retirement without looking at their portfolios. Their investment allocations may be little changed from what they were 10 or 15 years ago. Because of that inattention (and this long bull market), their invested assets may be exposed to more risk than they would like.

Rebalancing your portfolio with your time horizon in mind is only practical. Consider the nature of equity investments: they lose or gain value according to the market climate, which at times may be fear driven. The larger your equities position, the larger your losses could be in a bear market or market disruption. If this kind of calamity happens when you are newly retired or two or three years away from retiring, your portfolio could be hit hard if you are holding too much stock. What if it takes you several years to recoup your losses? Would those losses force you to compromise your retirement dreams?

As certain asset classes outperform others over time, a portfolio can veer off course. The asset classes achieving the better returns come to represent a greater percentage of the portfolio assets. The intended asset allocations are thrown out of alignment.1

Just how much of your portfolio is held in equities today? Could the amount be 70%, 75%, 80%? It might be, given the way stocks have performed in this decade. As a StreetAuthority comparison notes, a hypothetical portfolio weighted 50/50 in equities...

Continue Reading

Another Strong Month for the Labor Market

Employers hired 213,000 more workers than they laid off in June, according to the Department of Labor. Analysts surveyed by Bloomberg had forecast a gain of 195,000. In the second quarter, net monthly job growth averaged 211,000. As the labor force participation rate increased 0.2% last month, so did the headline jobless rate: it rose 0.2% to 4.0%, moving north for the first time in almost a year. The U-6 rate, which includes underemployed Americans, also increased 0.2% to 7.8%. Annualized wage growth remained at 2.7%.1

BOTH ISM INDICES IMPROVED IN JUNE

The Institute for Supply Management’s twin purchasing manager indices came in at or near 60, last month. ISM’s manufacturing gauge rose to 60.2 from the previous reading of 58.7; its service sector index increased 0.5% to 59.1. MarketWatch projected both PMIs at 58.3 for June.2

FED MiNUTES SHOW OPTMISM, CONCERNS

Minutes from the Federal Open Market Committee’s June policy meeting were released Thursday, and noted that the economy’s expansion is “progressing smoothly” and at “a solid rate.” Policymakers also had some downside risks on their minds, noting the “possible adverse effects of tariffs and other proposed trade restrictions” and “political and economic developments in Europe.” Some FOMC members were concerned that rapid growth could breed “heightened inflationary pressures” and “financial imbalances” that might eventually provoke “a significant economic downturn.”3

TARIFFS TAKE EFFECT, BUT INVESTORS FOCUS ON FUNDAMENTALS 

Continue Reading

More Articles ...

Social icons