Stocks rallied for the second straight day on Wednesday and since folks in and around markets love a story about why stocks did what they did, a number of folks in our inbox suggested a “short squeeze” was behind today’s rally.
First, the scoreboard:
- Dow: 17,852, +147, (+0.8%)
- S&P 500: 2,090, +14, (+0.7%)
- Nasdaq: 4,894, +34, (+0.7%)
- WTI crude oil: $49.70, +2.2%
- 10-year Treasury yield: 1.87%
The biggest sector of the US economy sent a warning signal to markets on Wednesday morning.
Markit Economics’ flash reading on service sector activity slipped to 51.2 in May, indicating a continued expansion of activity in the sector but at a slower pace than expected and against what was seen in April. Expectations were for this measure to hit 53.
The services sector accounts for about two-thirds of GDP and Wednesday’s report showed that optimism from businesses in the sector fell to its lowest level in almost seven years. Hiring also fell to the slowest pace since December 2014.
“Having correctly forewarned of the near-stalling of the economy in the first quarter, the surveys are now pointing to just 0.7% annualized GDP growth in the second quarter, notwithstanding any sudden change in June,” said Markit chief economist Chris Williamson. On Monday, Markit’s flash reading for US manufacturing activity in May also disappointed.
This report was preceded, however, with some better-than-expected news about the US economy with the FHFA’s latest home price index showing home prices rose 0.7% in April, better than the 0.5% appreciation that was expected. In the first quarter of the year home prices rose 1.3%.
The trend of rising home prices, while a positive for homebuilders and existing homeowners, continues to illustrate what we’ve called the “next housing crisis,” which say not enough homes at the low end of the market are going to be available for young people who want to start families and move from being renters into homeowners.
Alibaba, the Chinese e-commerce giant that is the world’s largest by gross merchandise volume, disclosed in its annual report that the SEC has some questions about its accounting practices.
Following this news, shares of the company fell more than 7%.
Shares of Yahoo — which owns about 15% of the company — also fell 5% on Wednesday.
Here’s the relevant passage from Alibaba’s filing (emphasis ours):
Earlier this year, the U.S. Securities and Exchange Commission, or SEC, informed us that it was initiating an investigation into whether there have been any violations of the federal securities laws. The SEC has requested that we voluntarily provide it with documents and information relating to, among other things: our consolidation policies and practices (including our accounting for Cainiao Network as an equity method investee), our policies and practices applicable to related party transactions in general, and our reporting of operating data from Singles Day.
So while many companies are often in talks with the SEC about various issues, Alibaba’s disclosure comes as the company has long faced questions from investors regarding its accounting practices. And the market was certainly not thrilled with Wednesday’s disclosure.
Stop me if you’ve heard this before: the US has a retirement crisis.
And a new report on the state of US household finances from the Federal Reserve released Wednesday revealed some depressing data on how much people have set aside for retirement — and how in-control of those investments they really are.
Among the low-lights:
- 31% of non-retired adults responding to the Fed’s survey have no money set aside for retirement
- 38% of working adults don’t think they will have enough money to retire and will keep working instead
- 48% of non-retiree saving US workers contribute to either defined contribution or self-directed plans; only 48% of these folks are confident they are making the right decisions for their portfolios
- About 25% of non-retiree savers contributing to self-directed accounts don’t use any financial advice at all when deciding how to manage their savings
The basic outline of the US “retirement crisis” comes in two parts.
On the one hand you have will-be pensioners (current teachers, municipal workers, and so on) contributing to funds that have planned to earn 8% on investments and are not, realistically, going to be able to earn that return. These are “defined benefit” plans, meaning you’re guaranteed an annual payment based on some formula of your recent salary along with health benefits. So, if the pension fund falls short of its investment goals, well, then you’re in trouble.
The other side of the retirement crisis is that there are lots of people who need to make their retirements work on their own… and many of these people simply don’t have the funds to pull it off.
As we noted above, 31% of people who are working now and not retired have nothing saved for their twilight years. And, again, almost 38% of people between the ages of 18 and 60 don’t really think they’re ever going to retire.
The $140 million Gawker owes Hulk Hogan will not be reduced, a judge ruled Wednesday. (Gawker will appeal.)
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