Week of October 19, 2015

The first crop of corporate earnings and improving credit-market data from China boosted investor hope last week. Markets also rode the wave of diminishing expectations of a Federal Reserve rate hike in 2015. This pushed each of the major indexes 1% higher for the week, marking the third straight week of gains. The S&P 500 gained 0.9%. The Dow Jones Industrial Average climbed 0.8%. And, the Nasdaq Composite jumped 1.2%. The rebound in October has pushed markets back into a narrow band that they have traded within for the past year.

Equity Investors Heading for Exits

Despite the good run for equities so far in October, investors appear to be taking their chips off the table. More than $1.5 billion has been withdrawn from one the largest ETFs tracking the S&P 500 through October 15th. If the month ends this way, it will be the first monthly outflow since June. Investors are pulling back after September brought one of the biggest quarterly declines in recent memory to a close. Equities dipped 2.6% for September, and prompted many Wall Street strategists to cut their year-end S&P 500 price target. It may seem prudent to trim exposure given October’s notorious reputation due to one-day crashes (1929 and 1987). But timing the market is rarely profitable, and the reality is October is usually a good month for stocks. The S&P 500 has averaged a 0.5% gain for the month dating back to 1927.

_{Source: Bloomberg, October 16, 2015, https://www.bloomberg.com/news/articles/2015-10-16/u-s-stock-investors-hitting-exits-as-october-rebound-continues}

Trillions of Dollars For Free for the U.S. Government

Last week the U.S. Treasury auctioned one and three-month Treasury bills that offered no yield. This was only the second time in history that three-month bills could be issued for free. It was the seventh auction in a row where one-month bills were issued with zero yield. In total, since the financial crisis the U.S. government has held 46 auctions where it was able to issue debt at zero percent. The cumulative total of Treasury debt issued at no yield since then now tops $1.7 trillion. This is just 3% of the total bill supply, but a growing mismatch in supply and demand could increase this. As of the end of September, the volume of Treasury bills outstanding fell to $1.36 trillion, down nearly 7% year-over-year. According to data from the Treasury, it is headed to the lowest annual level since 2007.

_{Source: Wall Street Journal, October 14, 2015 (subscription required), http://www.wsj.com/articles/1-17-trillion-at-zero-percent-interest-1444863388}

Income Dependent Investors Take Another Blow

Investors relying on income have had a difficult environment for some time with low and negative interest rates around the world. Late last week, the 56 million Americans depending on social security as part of that income were dealt another blow. For only the third time this decade the Social Security Administration announced it won’t enact an annual cost-of-living adjustment to benefits. The formula used to make sure benefits keep pace with inflation has resulted in an average annual increase of 4.1% over the past 40 years. However, this has shrunk to just 2% over the past decade, driven in large part by no increases in 2010 and 2011. The official inflation measure used to calculate the adjustment is down 0.4% from last year, due largely to a 30% drop in gas prices. And, a wrinkle in the formula could keep any 2017 raises modest as well.

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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.}