It may not officially be summer yet. But it sure has felt like it lately on Wall Street. Earnings season ended weeks ago. Volatility has collapsed. Economic data has been thin as can be.
But no longer. This week, we get major updates on both the policy and economic front — and depending on what happens, it could have dramatic impacts on your wealth.
First, the European Central Bank (ECB) meets Thursday to decide its next major policy move. Speculation is running rampant that the ECB will follow the lead of the U.S. Federal Reserve and Bank of Japan, and shift the printing presses into overdrive.
Full-scale “Euro-QE” is the most aggressive move policymakers could choose. Alternatively, the ECB could cut select interest rates into negative territory — meaning the ECB would actually charge banks interest to park money with it rather than do something productive with the funds. We could also see the launching of long-term loan programs designed to spur banks to lend … or more-targeted purchases of select instruments, such as asset-backed securities made up of bundled loans.
“This week, we get major updates on both the policy and economic front – and depending on what happens, it could have dramatic impacts on your wealth!”
Second, the Labor Department will release the all-important May jobs report Friday. This is the most important economic report in any given month, and especially so this time around because there’s so much uncertainty about where things are headed.
The reason? We got a dismal report on first-quarter GDP last week. Many investors are desperately seeking signs that it was a weather-driven, short-term bump in the recovery’s road rather than a major trend change. This report could go a long way toward settling the debate.
Economists polled by Briefing.com expect an increase in payrolls of 220,000, down from 288,000 in April. They believe the unemployment rate will climb to 6.4 percent from 6.3 percent, but that average hourly earnings growth will rise to 0.2 percent from flat.
We actually got a “data appetizer” today in the form of the ISM manufacturing index. It rose to 55.4 in May from 54.9 in April, a pretty decent reading.
|Economists polled expect an increase in payrolls of 220,000, down from 288,000 in April. They believe the unemployment rate will climb to 6.4 percent from 6.3 percent.|
But on a lighter note, the Institute for Supply Management botched the release of the figures twice. The initial release said the index dropped sharply to 53.2 … but it turned out that figure stemmed from a computer error. Then an “incorrect correction” from ISM said it was 56. Finally, we got the actual number of 55.4 or at least, I think we did — hopefully my iPhone’s Bloomberg app won’t fire off in the middle of the night with another revision.
So what kind of results are you expecting? Is the ECB going to go all-out when it comes to money printing? Or do you think ECB President Mario Draghi lacks the willingness to follow Ben Bernanke and Janet Yellen into the monetary policy wilderness? Is the job market improving, or is the first-quarter slump only going to get worse? And what does all of it mean for your investing approach?
Share your thoughts on the blog with your fellow investors now — before the fireworks get going. Personally, I believe Draghi wants a weaker euro and will do what he can to bring that about. That’s one reason I’m so attracted to investments that rise in value when the euro falls. (You can read about my favorite in the Safe Money Report. More details here.)
I also think the economy is still on a recovery track, albeit one that’s being dragged down by renewed weakness in housing. That’s why I’m focusing on select bull markets in sectors like domestic energy, aerospace, and food and beverage, and generally avoiding financials and housing stocks.
|OUR READERS SPEAK|
Speaking of housing, Reader Brian V. weighed in on the return of home equity loans and lines of credit. He said he doesn’t want to see homeowners get buried under too much mortgage debt again, adding:
“As long time Realtors in Idaho and Washington, we do not want to see HELOCs come back. We have worked with many selling clients who went the HELOC route and even with increases in home prices; most of them do not have enough equity to sell without bringing money to the table.”
Reader Scott H. echoed Brian’s concerns, saying he has “never held a second mortgage and never will.” He added:
“How does one pay their home loans off if they keep pulling money out of their equity? It’s like falling in to a hole and putting dirt on top of you. Add up all the interest charges to see what you could buy each month with that money. It will make most folks sick.”
As for the markets, Reader Fred can’t help but wonder — like I have — if we might be vulnerable because of extreme investor complacency. He described it like this: “Volatility has collapsed … It is like when you are in the wilderness and you suddenly realize … things are getting too quiet.”
Do you worry like Fred that an unexpected threat could pounce out of the brush? Are you as anti-HELOC as Brian? Feel free to hop over to the blog and share your thoughts on those or other topics when you have time!
|OTHER DEVELOPMENTS OF THE DAY|
Everyone’s favorite technology company — Apple (AAPL, Weiss Rating: A-) — launched its World Wide Developers Conference in San Francisco today. At the closely watched event, the company tried to get some of its post-Steve Jobs mojo back by announcing a series of features associated with its new mobile software system iOS8, amid other things. But I didn’t see anything earth shattering in the news.
Speaking of Apple, the firm’s 7-for-1 stock split takes effect shortly. Shareholders of record today will receive seven shares for each one share they currently own on June 6, but the price of those shares will be divided by seven. The new, split-adjusted shares will then begin trading on June 9.
Yes, owning seven shares of a $100 stock is the same as owning one share of a $700 stock. But the big stock split could theoretically encourage more investors to buy Apple because the per-share price will be lower (and therefore, more affordable to investors with less capital).
The Environmental Protection Agency released wide-ranging regulations that apply to coal-fired power plants today. Only time will tell whether it drives up retail electricity costs and eliminates jobs throughout the coal-mining sector, or whether the trade offs in terms of reducing greenhouse gas emissions will be worth it.
The latest Disney (DIS, Weiss Rating: A) hit — Maleficent — raked in $70 million in the U.S. and Canada over the weekend. Not sure if my girls will be singing every song from the soundtrack like they did with Frozen. But I’ll just be glad if I can figure out how to pronounce the title character’s darn name!
Reminder: If you have any thoughts to share on these market events, all you have to do is hop on over to the blog and leave your comments.
Until next time,