Stocks went nowhere on Tuesday as markets have already turned their attention to Wednesday’s monetary policy statement out of the Federal Reserve, which is expected to see the Fed keep interest rates unchanged but potentially signal that additional hikes could come later this year.
First, the scoreboard:
- Dow: 17,981.7, +4.5, (+0.03%)
- S&P 500: 2,090.8, +3, (+0.1%)
- Nasdaq: 4,885.7, -10.2, (-0.2%)
- WTI crude oil: $44.02, +3.2%
It’s a busy week for US economic data releases and Tuesday morning followed that theme with data on the hosing market, durable goods orders, the services sector, and consumer confidence all crossing the tape.
The biggest release out this morning was the Conference Board’s April reading on consumer confidence, which showed the measure falling to 94.2, down from 96.2 last month and missing expectations for a reading of 95.8.
Lynn Franco, director of economic indicators at The Conference Board, said in a release that, “Consumers’ assessment of current conditions improved, suggesting no slowing in economic growth. However, their expectations regarding the short-term have moderated, suggesting they do not foresee any pickup in momentum.”
So this basically affirms the theme we’ve been seeing in the US economy over the last several months: not great, not horrible. The first estimate on first quarter GDP, we’d remind readers, is due out Thursday morning. The Atlanta Fed’s latest GDPNow forecast shows the economy likely grew 0.4% to start the year.
Turning to the services sector, Markit’s preliminary reading on activity in April showed the largest sector of the US economy expanded more than expected with the reading hitting 52.1, up from 51.3 at the end of last month and better than expected. Any reading over 50 indicates expansion in the sector.
“The upturn in the rate of growth of business activity and increased inflows of new orders suggest the economy should see GDP rise at an increased rate in the second quarter, but growth is clearly far more fragile than this time last year,” said Markit chief economist Chris Williamson.
Durable goods orders rose 0.8% in March, less than expected, while the February reading on home prices from S&P/Case-Shiller rose less than expected. The Case-Shiller report also highlighted an issue we’ve been hammering in recent months: a lack of supply for low-end homebuyers.
But perhaps the biggest piece of millennial news yet is that the man who appears to be the most important person in Saudi Arabia right now is, well, a millennial. On Monday, the kingdom outlined its “Vision 2030” plan to wean itself off oil, which has been a dominant source of its government revenues for generations.
Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman has been the public face of this plan — which is set to include a partial public listing of massive state-owned oil company Saudi Aramco, among other things — and as BI UK’s Lianna Brinded noted Tuesday, bin Salman is bucking the Saudi tradition of conducting its economic affairs behind closed doors.
Analysts, however, are sceptical of this plan spearheaded by bin Salman, with Jason Turbey at Capital Economics writing that, “There was very little that was new in the Saudi government’s ‘Vision 2030’ and there are still several key areas that policymakers have yet to address.”
Turbey added, “We don’t buy into Mohammed bin Salman’s assertion that Saudi Arabia will no longer be dependent on oil by 2020… In short, we were hoping for more.”
There are a lot of junk bonds out there.
Some analysts even think there is a $1 trillion bubble of them. Other analysts think that bubble or no, this whole thing is crazy anyway.
“Back when I was in school, you wouldn’t even talk about those kinds of things because you couldn’t even issue CCC bonds,” Charles Schwab’s Kathy Jones told Business Insider. ‘CCC’-rated bonds are the junkiest of junk bonds. As a result of the higher risk posed to investors by this debt, yields are higher. And with interest rates low, investors have developed a fondness for these bonds.
The worry, then, has been that investors who don’t really know what they have bought will end up losing money. And with so much of this debt outstanding, lots of bad decisions by lots of people could lead to lots of problems for markets.
Alternatively: everything could be fine.
Fees are low.
A report out of Morningstar on Tuesday said that in 2015, investors paid the lowest net expenses on record for US funds.
In 2015, the asset-weighted average net expense ratio of all US funds was 0.61% in 2015, down from 0.64% in 2014 and 0.73% five years ago.
The most encouraging reason for this decline in fees, for those who are concerned many investors are still losing untold sums on silly things like management fees when perfectly suitable alternatives exist, is that this decline was driven not by the industry dropping fees but investors choosing lower-fee funds.
Morningstar said flows into passive and less-expensive share classes led this decline, with funds in the lowest quintile of expenses having now collected $1.7 trillion in the last five years.
Recall that earlier this month Meb Faber was telling Business Insider that mutual funds were going extinct because of this competition from exchange-traded funds which often offer cheaper but perfectly acceptable replacements.
And as we’ve written before, the only way to really “beat the market” as Regular Joe who wants to invest some money while saving for retirement is to save on fees.
The low-fee evangelists like the folks at Ritholtz Wealth Management, for example, are unlikely to continue pounding the table on this issue and you know what? They’re right!
Paying high fees for below-average returns is a scandal and you should stop doing it now.