2015: The year of the goat meme

The markets closed mixed today as a series of disappointing earnings reports and forecasts weighed on investors.

The Dow lost 141 points, with 24 of its 30 components in the red; the S&P 500 Index fell 11; but the Nasdaq closed higher by 7. Decliners outpaced advancers by six to five on the NYSE and five to four on the Nasdaq. Treasury prices strengthened. Gold futures lost $8.10 to close at $1,292.60 an ounce, and the price of crude oil declined $0.72 to settle at $45.59 a barrel.

For the week, the Dow was down 0.3%, the S&P 500 Index gained 0.3%, and the Nasdaq advanced 1.1%.

In earnings news:

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Will ballpark billboards thwart rooftop Cubs clubs?

Stocks rallied, led by the Dow’s triple-digit finish, as investors reacted to the European Central Bank’s historic move to save the eurozone’s stagnant economy. The ECB announced a 1.1 trillion euro ($1.3 trillion) stimulus program focused on quantitative easing, or purchasing bonds from banks and financial institutions, so they can use the funds to increase lending to households and businesses.

The Dow climbed 259 points, with all but three of its 30 components gaining; the S&P 500 Index rose 31 points; and the Nasdaq added 82. Advancers led decliners by 11 to 3 on the NYSE and by 5 to 2 on the Nasdaq. The prices of Treasuries weakened. Gold futures rose $7.00 to close at $1,300.70 an ounce. The price of crude oil fell by $1.47 to settle at $46.31 a barrel.

In earnings news:

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Hot topics in stocks (excerpt)

The equity markets are volatile. Here to make sense of that volatility is John Manley, CFA, chief equity strategist at Wells Fargo Funds Management, LLC, in this excerpt of On the Trading DeskSM from Tuesday, January 20, 2014.

Listen to the full interview.

John Manley

John Manley

Oil is top of mind with everybody, John.
It is.

As we look at oil prices, do you feel as though the recent oil-price decline is a risk to U.S. equity markets?
I think over the short term it might be. Oil is down about 50% not only from its high but from its three-year moving average. So that means some investments were made that, in retrospect, people probably wish they hadn’t made. But I don’t think it’s the end of the world. I actually tend to view it rather positively on a longer-term basis. I think this is the test we’re going through right now that proves deflation is firmly behind us. We went through the same thing a little over 30 years ago with inflation in 1984—markets got a little bit riled; it seemed to be a little bit desperate, but at the end of the day, the market moved higher—in fact, moved substantially higher over the next several years, so I wouldn’t be surprised if they shake things up a little bit more than they have. But I really don’t want to make too much of that.

I think this is a buying opportunity and should be treated as such.

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ECB’s shock and awe—or confusion?

European Central BankThe European Central Bank (ECB) defied my expectations and said it intends to purchase 60 billion euros of investment-grade debt per month until September 2016. That intention can change, giving the ECB flexibility to expand and contract the asset-purchase program as the data dictates.

From Mario Draghi’s comments, it was pretty clear that the asset-purchase program was a political compromise. The pace of purchases was slightly higher than originally rumored (60 billion versus 50 billion), but there also isn’t full loss sharing with the purchases. National central banks will bear the bulk of the losses if the securities they buy default, but the eurosystem will retain some of the losses. This should help create an environment where Greek debt trades at a higher yield than, say, German debt, reflecting the credit fundamentals of the issuers. Complete loss sharing would be a backdoor way of creating a eurobond, which would only promote profligacy and prodigality.

A final aspect of the ECB plan that bears mentioning is the more favorable terms on offer for the targeted long-term refinancing operations. These are cheap loans to banks that are now even cheaper. One criticism that could be levied against this is that it’s like pushing on a string. That’s a baseless charge. Banks are shifting from dragging on growth toward contributing to growth. The ECB’s loan officer survey at the end of 2014 showed that credit conditions were tight but improving. Bank lending to the private sector turned from shrinking to expanding. The ECB and the banking system are finally pushing in the same direction. This has been a long time coming, as banks really weren’t given the green light to take on more risk and lend to the private sector until late 2014. When U.S. banks turned from shrinking to risk-taking, that gave growth a good boost. Government officials seem to forget that growth needs to be financed. In Europe, especially, that financing happens through the banks.

For investors, this could be the opportunity to go long Europe. Growth is likely to surprise to the upside when banks are contributing to growth rather than dragging on it. The euro, meanwhile, should stay low but probably not sink much lower. Investors may not need to hedge their currency risk, as price appreciation of the securities will likely more than offset any potential depreciation in the currency. But perhaps one of the biggest effects of the ECB’s decision will be psychological: The will they or won’t they fear should be lifted, and U.S. markets should hopefully stop being buffeted by speculation about potential actions (or the lack thereof) from Europe.

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Google takes off its rose-colored Glass(es)

Central banks were the news of the day, as the Bank of Canada lowered its overnight interest rate, the Bank of Japan dropped its inflation forecast, and anticipation built over potential outcomes of the European Central Bank meeting tomorrow. Stocks closed moderately higher.

The Dow rose 39 points, with 19 of its 30 components gaining ground; the S&P 500 Index was up 9; and the Nasdaq gained 12. Advancers led decliners by seven to four on the NYSE and decliners led four to three on the Nasdaq. The prices of Treasuries weakened. Gold futures slipped 50 cents to close at $1,293.70 an ounce, and the price of crude oil gained $1.31 to settle at $47.78 a barrel.

In earnings news:

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Introducing The Essential Practice (podcast)

Financial advisor meeting with clientsWe are pleased to introduce The Essential Practice podcast. Each Wednesday, Wayne Badorf, CFP®, CFS®, head of intermediary sales for Wells Fargo Asset Management,and Jon Lagerstedt, director of internal sales at Wells Fargo Funds Distributor, LLC, will discuss timely and relevant topics that are essential to financial advisors.

Listen to the podcast.

Wayne Badorf: Hi, I’m Wayne Badorf.

Jon Lagerstedt: And I’m Jon Lagerstedt, and we’d like to welcome you to this new weekly audio podcast we call The Essential Practice.

Badorf: We’ll provide practice-management tips and tools you can use as part of our Essentials of Excellence® platform. We’ll also offer timely market and industry insight from our perspectives as well as the perspectives of advisors like you and industry experts and practice-management specialists—information we think is essential to helping you grow your practice and making your practice essential to your clients.

Lagerstedt: We know you’re busy professionals so were keeping it brief. You can choose to either listen to or read transcripts of these editions. We’ll release new content every Wednesday right here on our AdvantageVoice® blog in our practice-management section.

Badorf: So, take a break and join Jon and me for The Essential Practice.

Lagerstedt: Take care!

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Mailboxes groan as catalogs make comeback

Declining oil prices again set a sour mood to start the day, but a late afternoon tech rally helped push the major indexes into positive territory, with strong showings from Apple, Yahoo!, and Netflix. China’s economy, meanwhile, missed the annual growth target officials had set for the first time in more than a decade.

The Dow rose 3 points, with 15 of its 30 components advancing; the S&P 500 Index gained 3; and the Nasdaq closed 20 points higher. Decliners led advancers by three to two on the NYSE and the Nasdaq. The prices of Treasuries strengthened. Gold futures rose $17.30 to close at $1,294.20 an ounce, and the price of crude oil sank $2.66, or 5.41%, to settle at $46.47 a barrel.

In earnings news:

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Hot topics in stocks (podcast)

John Manley

John Manley

Here to help make sense of volatile equity markets is John Manley, chief equity strategist with Wells Fargo Funds Management, LLC.

Listen to the podcast.

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A 40-year history of crude oil price fluctuations

Manley on the StreetI think everyone knows that crude oil prices have declined quite a bit in the past six months. It is probably the topic of conversation on the Street these days. However, when it comes to the consequences of that decline, there seems to be a rather lively debate as to the benefits and the damages. Consumers should benefit from lower prices in many of the things they buy. Producers (and their backers) may find themselves poorer than they thought and behave accordingly. I suspect that the potential problems may arrive before the benefits, but I also believe that the benefits ultimately will swamp the problems.

But that’s just speculation on my part. I think what investors need is some perspective on this issue. Before we discuss what will happen, we need to have a better picture of what has happened. Obviously prices are down, but how much have expectations changed and how does that change compare with past changes?

Measuring the decline of anything from its absolute peak can be misleading. That peak generally was a moment in time that was too brief for market participants to assimilate into their thinking. Whether the tip of a spike or the apex of an arc, it probably did not stick around long enough to be taken for granted. It takes time for a consensus to coalesce, and most peaks have lacked that persistence.

Comparison with some sort of trailing average is usually a better reference. Familiarity may breed contempt, but it also brings acceptance. It is what we are used to and, therefore, what we may subconsciously expect to continue. It is an unspoken norm against which we really judge current reality.

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Diamonds may not be a girl’s best friend anymore

The International Energy Agency said that falling oil prices would likely lead to a cut in supply from countries outside of the Organization of the Petroleum Exporting Countries. Oil prices jumped on the news, as did the energy sector, which gained 3% and led the markets higher.

The Dow added 190 points, with 27 of its 30 components advancing; the S&P 500 Index was up 26; and the Nasdaq added 63. Advancers outpaced decliners by nine to two on the NYSE and three to one on the Nasdaq. Treasury prices weakened. Gold futures rose $12.10 to close at $1,276.90 an ounce, and the price of crude oil climbed $2.40 to settle at $49.13 a barrel.

For the week, the Dow dropped 1.3%, the S&P 500 Index lost 1.2%, and the Nasdaq was down 1.5%.

In earnings news:

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