February 3, 2015

As Goes January, So Goes the Year...

It's true. January did not turn out to be the best month for U.S. stock markets. At the end of the month, the Standard & Poor's 500 Index (S&P 500) was down about 3.1 percent. Before you start listening to pithy observations – the saying 'as goes January, so goes the year' has been making the rounds — think back to January 2014. The S&P 500 finished the month down 3.6 percent and still managed to deliver positive performance (up 11.4 percent) for the year.

That said, there is a lot going on around the world and it's making markets as feisty as a broody hen. Some of the issues include:

• Low, low oil prices: Oil prices are a boon to consumers at the pump and a detriment to the oil industry which has suffered layoffs and cancelled projects, according to Barron's.
• Greek elections: The Syriza party won the Greek election on promises to reduce austerity measures and restructure Greek debt. Forbes reported there is uncertainty about how this will affect the Greek economy and the euro.
• Currency issues: The Federal Reserve is tightening monetary policy while other central banks are easing. With the value of the euro dropping from $1.45 to about $1.15, U.S. exports are getting more expensive overseas, but it has become a lot cheaper for Americans to travel to most parts of Europe.
• Deflationary pressures: CNBC.com reported prices in the Eurozone fell 0.6 percent year-to-year in January. That was after a 0.2 percent decline in December. Some folks are worried inflation in the U.S. could be headed south, too, if the Federal Reserve raises interest rates too much, too soon.

While stock markets have been struggling (the Dow and the S&P 500 are down but still within 5 percent of their December record highs, according to Barron's), the government bond market has been thriving. Experts cited by Barron's estimated about 16 percent of the government bonds they track, about $3.6 trillion worth, traded at negative yields last week. MarketWatch.com reported, for just the fourth time in more than 50 years, the dividend yield on the S&P 500 Index was higher than the yield on benchmark 10-year Treasury bonds last week.

What Does $1 Trillion Get You?

Its value is estimated at more than $1 Trillion...

• Is it the 2014 U.S. government-spending bill?
• Is it the 282 billion Big Macs?
• Is it 3.1 million Ferrari 599 GTBs?
• Is it the amount of U.S. currency currently in circulation?

All of the above are estimated to be worth more than $1 trillion and so is student loan debt in the United States. Outstanding student loans are roughly equal to all of the greenbacks circulating the world. According to The Wall Street Journal:

"Ever-escalating tuitions, especially in the past dozen years, have produced an explosion of associated debt as students and their families resorted to borrowing to cover college prices that are the only major expense item in the economy that is growing faster than health care. According to the Federal Reserve, educational debt has shot past every other category - credit cards, auto loans, refinancings - except home mortgages, reaching some $1.3 trillion this year."

The Journal said about 70 percent of 2014 graduates borrowed to pay for college, and they left school with an average debt of $33,000. The amount owed varies significantly by state, according to U.S. News & World Report. In 2013, students in New Hampshire, Delaware, Pennsylvania, Rhode Island, and Minnesota graduated with debt exceeding $30,000 on average, while those in New Mexico, California, Nevada, the District of Columbia, and Oklahoma had debt of less than $20,000 on average.

While there may be some attractive alternatives for student borrowers - including income-based repayment loans and crowdfunding for college - the Journal cited statistics showing America's student debt could be negatively affecting our country's economic dynamism. The percentage of younger Americans who own part of a business dropped from 6.1 percent to 3.6 percent between 2010 and 2013. Also, during the past decade, the percentage of new businesses started by people younger than age 34 fell from 26.4 percent to 22.7 percent.

Weekly Focus - Think About It

"If your actions inspire others to dream more, learn more, do more and become more, you are a leader."

—John Quincy Adams, Sixth U.S. President

Best regards,
Sean M. Dowling, CFP, EA
President, The Dowling Group Wealth Management