Market Watch: Greek Debt Still Unsettled

February 10, 2015

U.S. stocks closed up on Tuesday, overlooking the ongoing debate over ending Greece’s current bailout.

On Sunday, Greek Prime Minister Alexis Tsipras reinforced his pledge to end the bailout. Thus far, however, he has yet to provide a useful solution to the country’s level of debt. The European Central Bank has refused Greece’s request for a ‘bridging loan’ when the bailout ends on February 28.

Today, Germany led a group of nations rejecting Greece’s latest proposal. Negotiators hope to come to an agreement at a Wednesday meeting in Brussels.Until a settlement is reached, market unrest figures to continue both here in the States and in Europe, where stocks were mixed on Tuesday after a Monday downturn.

Coca-Cola’s 4^th quarter earnings helped pushed stocks higher today. The soft-drink manufacturer reported an increase of 3.5% for the last quarter of 2014. Western Union leads the companies who will report after today’s session.

A light week of data continued Tuesday. Wholesale inventory figures stayed level, the latest indication that 4th-quarter GDP could be adjusted downward.

Here are the final numbers from Tuesday on Wall Street:

Dow Jones Industrial Average: 17,868.76 (+139.55)

NASDAQ: 4,787.64 (+61.63)

S&P 500: 2,068.59 (+21.85)

Battle Over Fiduciary Duty Heating Up

February 9, 2015

It’s been almost four years since the Department of Labor (DOL) proposed a rule that would enforce a fiduciary duty on financial advisors who work with retirement accounts.

But little progress has been made towards imposing such a standard, thanks to continued protests from the financial industry. The most recent—and hopefully final— objection came last week, when representatives from several financial industry trade groups met with White House aides.

According to InvestmentNews, these groups hope to shape the DOL’s rule prior to its’ public release. Lawyers for the financial industry are concerned that the restrictions within the proposed law could strongly limit broker compensation for the sale of IRAs. They added that such a standard would prevent brokers from working with middle-income investors.

“Once the rule is re-proposed, there’s only so much that the Department can modify before the rule goes final,” Alice Joe, managing director of the U.S. Chamber of Commerce Center for Capital Markets Competitiveness, told InvestmentNews. “They can’t revamp the entire rule without having to re-propose it.”

Indications are that President Obama is increasing his support for the rule. The Department of Labor says such a standard is imperative to protecting retirees from conflicts of interest in the financial industry.

The recent meeting occurred in the wake of a White House memo that cast a dark light over the financial industry’s handling of retirement accounts. The memo read, in part, that ‘the current regulatory environment creates perverse incentives that ultimately cost savers billions of dollars per year.’ Other highlights from the memo include:

• Financial advisors receiving incentives to move retirement savers from low-cost plans to higher-fee accounts;

• Incentives to encourage excessive ‘churning’ (repeated buying and selling) of assets—all with financial payoffs for the advisor

What does it mean for retirees? The authors of the memo attempted to put a dollar figure on the potential losses—conservatively estimating that these conflicts of interest cost people planning for retirement between $6 billion and $8 billion annually. Moreover, they added, conflicts of interest alone can cost an investor ‘at least’ 5-10 percent of his retirement nest egg over a 30-year period.

The authors added that due to the difficulty of defining specific conflicts of interest, these estimates tilted towards the conservative end of the actual numbers.

Luckily, these costs received enough attention that the DOL is compelled to act. Nonetheless, the financial industry remains determined to make the battle as long and as difficult as possible. The industry likely realizes that they won’t be able to avoid the rule altogether, but they are determined to exhaust every option to slow it down. The ultimate goal, it appears, is to create enough doubt that the rule cannot be passed during the current administration.

“Every delay plays into their hands,” said Barbara Roper, Director of Investor Protection at the Consumer Federation of America.

Market Watch: Greek Crisis Weighs on Markets

Phil Cannella

February 9, 2015

U.S. stocks traded lower Monday, as investors watched the fallout from Greece’s credit crisis affect markets in Europe.

As negotiations over a potential Greek bailout program continued, European markets dropped as much as 5 percent due to the uncertainty that followed a speech by Greece’s Prime Minister Alexis Tsipras.

Tsipras reiterated his commitment to restructuring Greece’s debt, causing another sell-off in the nation’s bonds. With some short-term yields above 20 percent, the situation will likely take center stage on the markets this week.

Domestically, McDonald’s traded lower as the fast-food maker reported a sales decline of 1.8 percent last month. Oil prices were up almost 3% to about $53 per barrel.

It’s a light start to the week for economic data, as the market continues to mull over the possibility of an interest rate hike. The possibility for such an increase grew following Friday’s jobs report.

Here are the final numbers from Monday on Wall Street:

Dow Jones Industrial Average: 17,729.01 (-95.08)

NASDAQ: 4,7267.01 (-18.39)

S&P 500: 2,050.30 (-8.73)

Market Watch: Wall Street Eyes Jobs Report

Phil Cannella

February 6, 2015

U.S. stocks traded lower Friday afternoon as a positive jobs report was overshadowed by more unrest in the Euro Zone.

Experts believed the report would show about 230,000 new jobs created in January, so the actual number of 257,000 new jobs was a pleasant surprise for investors. Wall Street analysts admitted they’ve been looking for non-oil-related news to move markets.

Unemployment rates rose slightly to 5.7 percent, while hourly wages stayed relatively stable—up 0.5 percent.

This afternoon, however, S&P adjusted Greece’s credit rating down from a B to a B-, in the wake of the decision by European banks to no longer accept Greek debt as collateral for loans.

While the jobs report is expected to be the highlight of the day on Wall Street, consumer credit figures will be released as well this afternoon, while Moody’s will post 4^th-quarter earnings figures.

As of 2 p.m., here are the numbers on Wall Street:

Dow Jones Industrial Average: 17,860.06 (-24.82)

NASDAQ: 4,757.79 (-7.31)

S&P 500: 2,062.26 (-0.26)

Market Watch: Stocks Rise With Oil Prices

Phil Cannella

February 5, 2015

U.S. stocks were higher on Thursday, as markets attempted to recover from early setbacks in the Euro Zone.

The European Central Bank (ECB) revoked a previous policy that allowed banks to use Greek government debt as collateral for loans. This had a significant impact because many banks are invested in Greek bonds due to their relatively massive (10 percent) yields.

The market fluctuation brings into question the wisdom of investing in these junk bonds. Many experts say banks previously had no fear of such forays because of the belief that even in a worst-case scenario, someone would bail them out.

On Thursday, oil prices moved forward, resuming the rally that came to a screeching halt on Wednesday when the commodity dropped 8.7 percent. This performance—the worst in three months—followed consecutive days of upticks in oil prices. Today, oil went back up by 6% as of early afternoon. Until oil finds its appropriate level, market volatility will likely continue.

Here are the numbers from Thursday on Wall Street:

Dow Jones Industrial Average: 17,884.88 (+211.86)

NASDAQ: 4,765.10 (+48.39)

S&P 500: 2,062.51 (+21.00)

Market Watch: Will The Momentum Continue?

Phil Cannella

February 4, 2015

U.S. stocks were largely split on Wednesday, as gains in Disney and consumer discretionary spending battled against the screeching halt of the oil rally.

The Dow lost 510 points in the last week of January, but regained all but nine of them in the first two days of February trading. Experts attributed this to the $7 per barrel rise in oil prices that spanned Monday and Tuesday.

But on Wednesday, U.S. crude prices dropped 8% in a single day, which accounted for the largest single-day drop since November.

The slowdown was attributed to the U.S. Energy Information Administration’s report, which said that domestic stockpiles of oil grew by another 6.3 million barrels last week. This brings the total to 413 million barrels of oil–the largest total since record-keeping began in 1982.

The ADP employment report—the precursor to Friday’s all-important jobs report—showed January payrolls increased by 213,000, slightly under the expected figure of 225,000.

Here are the final numbers from Wall Street Wednesday:

Dow Jones Industrial Average: 17,673.02 (+6.62)

NASDAQ: 4,716.70 (-11.03)

S&P 500: 2,041.49 (-8.54)

Market Watch: A Fresh Start?

Phil Cannella

February 2, 2015

U.S. stocks fluctuated considerably Monday, as investors weighed data, oil prices and other factors. By the end of the day, major indexes rebounded thanks to a 3.5% rise in oil prices.

Both indexes suffered major losses last week to end the abysmal month of January. This is the second straight year that stock indexes have seen declines in the year’s first month.

Standing in the way of a bounce back is the unveiling of President Obama’s nearly-$4 trillion budget, one that is expected to set up some serious battles with Republicans. Obama’s budget will attempt to aid the country’s middle class by imposing higher taxes on wealthier Americans and corporations.

The budget proposes new taxes on international earnings, and also hopes to achieve nearly $2 trillion in deficit reduction over the next 10 years. It will be interesting to see how these new rules for businesses are reflected by the markets.

Manufacturing numbers were down Monday, leading to losses after morning gains. But later in the day, investors were encouraged by continued stabilization in oil prices, which closed at their highest level in one month.

Here are the numbers from Monday on Wall Street:

Dow Jones Industrial Average: 17,360.85 (+195.90)

NASDAQ: 4,676.69 (+41.45)

S&P 500: 2,020.86 (+25.87)

Market Watch: Harsh Month on Wall Street

Phil Cannella

January 30, 2015

U.S. stocks tumbled again Friday, creating a sour finish to what’s been an ugly month on Wall Street.

Both the Dow and S&P are down at least 2% in this first month of 2015, as continued volatility and fear over dropping oil prices have ruled the markets in January. Even Thursday’s rally wasn’t enough to completely reverse the downward trend—though it did momentarily stop the bleeding after the Dow shed nearly 500 points in the first half of the week.

Things weren’t looking good in the early going on Friday, as the 4^th-quarter GDP estimate came in at 2.6% —a few notches below the projected 3 percent. Investors were hoping that the 10 a.m. release of consumer confidence would reverse the trend of shaky data, but even a 6% rise in oil prices wasn’t enough to overcome the downward momentum by mid-afternoon.

As of 3 p.m., these are the numbers on Wall Street:

Dow Jones Industrial Average: 17,305.97 (-110.88)

NASDAQ: 4,657.77 (-25.64)

S&P 500: 2,004.21 (-17.04)

Can Quantitative Easing Succeed In Europe?

Phil Cannella

January 29, 2015

The concept of diminishing returns is one of the oldest tenets of economics. It states that if one factor in production is continually increased while all others remain stable, the results of that production will become smaller and smaller.

The United States realized this during its three separate quantitative easing (QE) programs. During QE1, gross domestic product and production grew, while unemployment fell drastically. But when QE2 and QE3 came around, production and employment remained stable, while GDP declined slightly.

Now it’s the Europeans’ turn. Despite numerous objections, the European Central Bank (ECB) announced its own quantitative easing program last week—one that will begin in March and last through at least June 2016 while creating bond purchases of about 1.1 trillion euros (about $1.25 trillion). According to Newsweek, even the ECB itself regards QE as a ‘necessary evil’ to fight off continued deflation in the Euro zone.

The problem is that quantitative easing has become less of a strategy and more of an expected reaction to times of financial crisis. Even the stock markets aren’t fooled—the excitement over European QE lasted exactly one day last week before prices turned downward again.

Most Europeans are aware that QE is a high-risk means of trying to stimulate a struggling economy. One of the greatest risks is creating larger fractures amongst the already-tense relationships of the 19 countries that comprise the Eurozone.

Germany—the largest Eurozone economy—is on record as being opposed to any quantitative easing measures.
Switzerland made good on its threat to abandon the unilateral cap on the value of its own currency, the Swiss franc, against the Euro.
Greece recently held an election in which Syriza, the radical left-wing party, received the most seats of any political faction in the country’s Parliament. Many experts believe Syriza favors a Greek exit from the Euro currency altogether.

When the United States embarked upon its own controversial QE program, the Federal Reserve made a unilateral decision intended to jump-start the world’s largest economy. Contrast that with the situation in Europe, where 19 different economies of all shapes and sizes will be affected in different ways by this change in policy. As we’ve seen, at least a few policymakers in the affected nations are taking steps to avoid the potentially negative consequences.

The ECB hopes that quantitative easing will stop the growing fears of deflation and boost economic growth. But the early returns are not encouraging—the stock markets have already factored in QE, while individual economies are hedging their bets. By the time the program wraps up in the summer of 2016, the economic climate in Europe will almost certainly look different. Investors can only hope it’s for the better.

Market Watch: Wall Street Recovers Earlier Losses

Phil Cannella

January 29, 2015

U.S. stocks shrugged off further drops in oil prices and disappointing earnings reports to move higher Thursday afternoon.

Alibaba, Ford and Hershey are among the big names reporting today. Both Alibaba and Ford’s reports fell short of expectations, while McDonald’s saw some gains after announcing they’d be hiring a new CEO by March 1.

Investors are also hoping for a recovery—or at least some stabilization—in oil prices. Wednesday saw a 4% drop, and on Thursday morning prices fell below $44 a barrel for the first time in six years.

Optimism surrounded jobless claims, which dropped almost 15% in the past week. One expert pointed out that those numbers were skewed due to the Martin Luther King, Jr. holiday.

But after losing almost 500 points from the Dow this week, investors were happy to grab ahold of any good news.

Here are the final numbers from Thursday on Wall Street:

Dow Jones Industrial Average: 17,416.97 (+225.48)

NASDAQ: 4,683.41 (+45.41)

S&P 500: 2,021.26 (+19.10)