Week of April 6, 2015
Equity markets witnessed a tiny rise in the holiday-shortened week of trading. Both the S&P 500 and Dow Jones Industrial average inched just 0.3% higher. The Nasdaq composite slipped slightly, or 0.1%. While the equity markets were closed immediately following the disappointing jobs report on Friday, the bond market reacted before closing at noon. The yield on the 10-year Treasury fell to a two-month low of 1.8%.
Ready to Burst In China?
While a lot of attention has been given to China’s potential housing bubble, less has been made of the potential stock market bubble, until lately. Chinese stocks have been one of the world’s best performing asset classes over the last nine months, having risen nearly 80%. This has occurred in the face of GDP growth slowing to a 20-year low and an 8% contraction in corporate profits. Despite this, Chinese investors have opened new investment accounts at a stunning pace over the past six months, largely because there is nothing better to do with their savings. Banks pay paltry interest, the real estate market is beginning to crack and several capital controls exist to keep the money from moving offshore. Many seem to be borrowing to play the stock market too. The number of margin accounts more than doubled in December 2014 to 12% of all new accounts.
The Shifting Stance on Oil Prices
When oil prices tanked in the back half of 2014, several contrarian investors went fishing for companies that would benefit from a quick rebound. Some may be changing their tune now. Mutual fund managers who interviewed for a recent Reuter’s article now see an oil glut that they expect to stick around for a while. Many are now shifting attention to companies that can benefit from lower oil prices. Interestingly, professional and individual investors are coming to different conclusions. While many professional investors are sitting on the sidelines waiting for another leg down in the price of oil (some expect per barrel lows to reach $20), retail investors have been driving big inflows into energy related Exchange Traded Funds (ETFs). Those focusing on oil and gas have captured 20% of the net inflows to all ETFs this year. This compares to just 2.5% in the last quarter of 2014.
Building the Nest Egg
Retirement savings is rising. The total assets in U.S. retirement accounts rose 6% in 2014 to $24.7 trillion, according to the Investment Company Institute. This accounts for slightly more than one-third of all household financial assets. Within the retirement assets, approximately $7.4 trillion were in IRAs, nearly half of which are invested in mutual funds. Surprisingly, defined benefit or traditional pension plans still account for one third of total retirement assets with most of these coming from the public sector.
Fun Story of the Week
In early 1954, Roger Bannister broke what was thought to be a mythic barrier, running a mile in under four minutes. It took him nearly a year of trying; his first attempt in 1953 was 4:03:06. Today, the world record is held by Moroccan Hicham El Guerrouj who clocked in at 3:43:13. Last week another record breaking run occurred on a track in Australia when Jim Hansen broke the beer mile record with a time of 4:56:25. A beer mile consists of running four laps around a quarter mile track and chugging a 12 ounce beer prior to each lap. While it sounds like nothing more than college hijinks, the beer mile has caught the attention of serious runners worldwide. Like the four-minute mile barrier, the five-minute beer-mile barrier was considered unattainable until broken last year. So far, only two people have run it faster.
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Securities offered through Jacques Financial, LLC (JFLLC) a Broker-Dealer, Member FINRA and SIPC. Certain associates of Joseph W. Jacques, CPA, CFPTM are registered representatives of JFLLC. Joseph W. Jacques, CPA, CFPTM and JFLLC are affiliated. Investment advisory services are offered through Jacques Advisors, LLC an affiliate of JFLLC. Tax services are offered through Jacques & Associates Certified Public Accountants, LLC an affiliate of JFLLC.* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, consult with your financial advisor.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public.
* The Dow Jones Industrial Average is an unmanaged group of securities demonstrating how 30 large publicly owned companies have traded and cannot be invested into directly.
* Indexes are unmanaged, statistical composites and their returns do not include payment of any sales charges or fees an investor would pay to purchase the securities they represent. Such costs would lower performance. It is not possible to invest directly in an index.
* Past performance does not guarantee future results.
* Charts and graphs should not be relied upon as the sole basis for any investment decision and are for general informational purposes only.
* The prices of small cap stocks are generally more volatile than large cap stocks.
* Consult your financial professional before making any investment decision.
* This newsletter was prepared by CWM, LLC.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.