Week of May 4, 2015

Equity markets reversed course last week. The S&P 500 fell 0.4%. The Dow Jones Industrial Average lost 0.3%. And, the tech-heavy Nasdaq Composite and the small-cap Russell 2000 were harder hit, declining 1.7% and 3.1%, respectively.

Another First Quarter GDP Slowdown

The U.S. economy hit the brakes in the first quarter of 2015. On Wednesday, the Commerce Department reported that GDP expanded at just a 0.2% seasonally adjusted rate. This is a drastic slowdown from the 5% and 2.2% growth posted during the last two quarters. The rate of growth surprised many economists who were expecting just 1% expansion due to the strengthening dollar, the West Coast port strike, declining energy prices and harsh winter weather. Over the past few years, a pattern has emerged where weak first quarter numbers are followed by a rebound throughout the year. The Federal Reserve thinks this may occur again. Hours after the Commerce Department released the GDP figures, the Fed issued its policy statement, blaming the slowing growth on “transitory factors.”   

^{Source: http://www.wsj.com/articles/u-s-gdp-expands-at-0-2-pace-in-first-quarter-1430310699}

It’s Always Sunny On Earnings Calls

Anyone who has ever listened to more than a handful of quarterly earnings calls knows the familiar refrain that dominates the question and answer session: “great quarter, guys!” It seems almost as if congratulating management is the first rule in the how-to-be-an-equity-analyst playbook. But, are these congratulations genuine or lip service? Bloomberg recently compiled data that looked at the 1,265 calls between 2007 and 2014 where at least one analyst chimed in with a “great quarter” comment and plotted the frequency against the return of the S&P 500 in the following period. It turns out, the number of congratulations doesn’t necessarily predict a return good for the market. One of the periods with the highest number of congratulatory proclamations was the first quarter of 2008 where 66 companies received accolades. This of course proceeded five consecutive losing quarters for the S&P 500, one of which was the 23% plunge final quarter of 2008.

^{Source: http://www.bloomberg.com/news/articles/2015-04-29/it-s-always-a-great-quarter-guys-if-you-re-an-equity-analyst}

Saving the World Looks Good on a Resume

Last week, bond behemoth PIMCO announced it has hired Ben Bernanke as a senior advisor. This is the former Federal Reserve Chairman’s second such post since leaving civil service. At the beginning of April, Mr. Bernanke joined the Chicago-based hedge fund Citadel in a similar capacity. For PIMCO, the hiring of the former Fed Chairman fills a void left when Bill Gross departed for Janus last September. Mr. Gross’s departure has resulted in more than $20 billion of outflows from the firm’s flagship Total Return Fund. Mr. Bernanke rounds out a group of experts the California-based money manager has added over the past few months to bolster its macroeconomic forecasting team. Additions include Michael Spence (Nobel laureate), Gene Sperling (former White House economic advisor) and Joachim Fels (former chief economist for Morgan Stanley).

Fun Story of the Week

Earlier this week, both Facebook and Twitter were abuzz about a website unveiled at Microsoft’s annual Build Developer Conference: how-old.net. On the surface, it seems like a digital version of an old-school carnival barker who attempts to guess your age by simply looking at a photograph. But, facial recognition is becoming a serious endeavor. Recently, a group of Chinese scientists published a study in the Journal Cell Research that demonstrated that facial features can indicate how quickly a person is aging. Specific attributes change over time: noses and mouths widen, the space between eyes shrinks, and the distance between someone’s upper lip and nose grows. By collecting and analyzing data from photographs, the scientists were able to build an algorithm that predicts someone’s age by essentially measuring these distances and other age-related changes. More interestingly, when the predicted ages were compared to medical information from blood samples, the age estimated by looking at someone’s face provided a much better gauge of their overall health than their birthday. It is often said that the key to remaining young is to stay young at heart. Perhaps that should be changed to stay young in the face.

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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, CFP^TM are registered representatives of JFLLC. Joseph W. Jacques, CPA, CFP^TM 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.}

^{Sources:
Barron’s, April 2015 http://blogs.barrons.com/incomeinvesting/2015/04/29/first-quarter-gdp-growth-weaker-than-expected/?mod=BOL_hp_blog_ii
Wall Street Journal, April 2015, http://www.wsj.com/articles/u-s-gdp-expands-at-0-2-pace-in-first-quarter-1430310699
FinancialTimes, April 2015, http://www.ft.com/intl/cms/s/0/b5385706-ee6c-11e4-88e3-00144feab7de.html#axzz3YhaM93mT
Bloomberg Business, April 2015, http://www.bloomberg.com/news/articles/2015-04-29/it-s-always-a-great-quarter-guys-if-you-re-an-equity-analyst
Wall Street Journal, April 2015, http://www.wsj.com/articles/pimco-hires-former-fed-chairman-ben-bernanke-as-senior-adviser-1430318343
The New Yorker, May 2015, http://www.newyorker.com/tech/elements/whats-written-on-your-face}