US Corporate Profits Increased by $47.5 Billion in 2Q15
Corporate profits from current production, including inventory valuation and capital consumption adjustment, rose by $47.5 billion in 2Q15.
The benchmark-tracking SPDR S&P 500 ETF Trust gained 2.47% on August 27, as the US Bureau of Economic Analysis came out with its second estimate for the 2Q15 gross domestic product.
The State Street Investor Confidence Index measures investor confidence, or risk appetite, quantitatively by analyzing the actual buying and selling patterns of institutional investors.
Orders for durable goods in the US in July were primarily boosted by the lower oil prices. On a year-over-year basis, new orders for durable goods changed by -19.6% in July 2015.
August saw mixed reports from the US industrial sector. The Philadelphia Federal Reserve Manufacturing report and the Markit PMI report shed a positive light on the sector’s growth and performance, but the Empire State report indicated a dip in industrial sector activity.
According to the Conference Board report, consumer confidence jumped to 101.5 index points in August. August’s consumer confidence index is above July’s 91.0.
Mortgage applications for purchases were up by 2%. However, applications for refinances were down by 1%.
The United States Census Bureau released the new home sales figures on August 25. New home sales increased by 26,000 in July, falling short of consensus estimates of 516,000.
The US economy added ~215,000 jobs in July, compared to ~260,000 in April and ~231,000 jobs in June. Although this number is dipping, it is still above the 200,000 mark, which is usually seen during economic booms.
Large caps tend to outperform small caps in rising interest rate scenarios, while small caps outperform large caps when interest rates are low or falling.
Small caps have underperformed large caps in 2015, despite low foreign exposure. While it would have made sense to overweight small caps at the start of the year, this strategy has not yielded much.
The stronger dollar has been a major headwind for large-cap earnings in the last few quarters. A stronger dollar makes US exports less competitive as the rest of the world must pay more in exchange for a dollar.
SPY yielded -1.20% on Monday, August 25. Only 83 stocks out of 502 component stocks trailed upward for the day. All the component sectors of the S&P 500 Index yielded returns less than 0%.
The market was still in turmoil on Tuesday, August 25, after a short rise in the SPDR S&P 500 ETF (SPY). SPY was down by 1.2% for the day.
What should fixed income investors do today? Generally, widening spreads provide a buying opportunity for investors, because spreads widen when yield of a security rises.
High-yield bond issuance has clearly fallen as 2015 has progressed. For most of the first five months of 2015, issues related to refinancing needs dominated the primary market for high-yield bonds.
Investors should note that high-yield bonds are risky securities to begin with. The add-on risk of widening spreads may not suit all types of investors.
Issuance volume of high-grade bonds has fallen as 2015 has progressed. One reason for the fall in issuance is the rise in yields, which makes issuances expensive for high-grade bond issuers.
If spreads widen further, high-grade bonds will become more attractive because yields and prices are inversely related. A rise in yields indicates falling prices.
Over an eight-year period, the term premium on a ten-year US security rose to 3.25% in October 2008. It saw a low of -0.37% in January 2015.
But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.