The Federal Reserve Signals a Slow Approach to Raising Interest Rates

Posted on June 19, 2015 | Dividend Investing

This week the Federal Reserve reaffirmed its decision to take a slow approach to raising interest rates, which boosted stocks as bond yields slightly declined. Money managers and market analysts say this go-slow approach could prevent Treasury bond yields from rising significantly.

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Member Opinions Mixed on State of Consumers Today

Posted on June 18, 2015 | AAII Survey

This week’s special question asked AAII members how they thought the average consumer is faring relative to a year ago. About one-third (32%) of all respondents said the average consumer is doing better. An additional 12% said the average consumer is doing somewhat or slightly better. The ongoing improvement within the job market was the most common reason given as to why. Lower fuel prices were a secondary reason, and were cited by the majority of all respondents. Slightly more than 20% of respondents said the average consumer is faring about the same as last year, with several citing low wage growth as a headwind. More than 21% of respondents think the average consumer is worse off or is otherwise struggling, primarily because of wage increases not keeping up with inflation in goods and services other than fuel.

Here is a sampling of the responses:

  • “Better. Gas prices are down and real wages are up from a year ago, resulting in improved consumer confidence.”
  • “Better. Wages are improving and the cost of living is the same or better, mostly from lower gasoline prices.”
  • “I think slightly less well than before. Gas prices are down, but food costs seem higher.”
  • “I would say generally better. It seems like retail and dining establishments are busy.”
  • “Not as well. Food prices have increased and salaries have not kept up.”
  • “No different as wages have stagnated.”


AAII Sentiment Survey: Pessimism Hits a 10-Month High

Posted on June 18, 2015 | AAII Survey

Optimism rebounded and pessimism rose to a 10-month high in the latest AAII Sentiment Survey. The changes came as neutral sentiment plunged to its lowest level since early April.

Bullish sentiment, expectations that stock prices will rise over the next six months, jumped 5.4 percentage points to 25.4%. The rebound follows what had been the lowest level of optimism since April 11, 2013. Even with the increase, bullish sentiment is below its historical average of 39% for a 15th consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 7.1 percentage points to 40.3%. This is the lowest reading since April 2, 2015 (32.6%). It also ends a record streak of 10 consecutive weeks with neutral sentiment at or above 45%. Nonetheless, neutral sentiment is above its historical average of 31.0% for the 24th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 1.7 percentage points to 34.3%. Pessimism was last higher on August 7, 2014 (38.2%). This week’s increase keeps bearish sentiment above its historical average of 30.0% for just the sixth time this year.

Though individual investors’ short-term outlook became more polarized this week, neutral sentiment remains at an unusually high level—even with this week’s drop. There is not a single reason to explain the higher level of polarization this week, particularly since the Federal Open Market Committee’s statement was released near the end of this week’s survey period, though the shift does follow what had been a very low reading for bullish sentiment. The level of optimism registered last week was among the 40 lowest in the survey’s history.

Even with this week’s changes, optimism remains at an unusually low level and neutral sentiment, as noted above, remains at an unusually high level. Both such occurrences have typically been followed by better-than-average six- and 12-month returns for the S&P 500. For more information, see my May 21 AAII Investor Update, Unusually High Neutral Sentiment Often Followed by Good Returns. (There is no guarantee, however, that history will repeat.)

Some AAII members are concerned about the possibility of a bigger decline in stock prices occurring, the pace of economic growth and lack of wage growth, valuations, the impact of the stronger dollar on earnings and geopolitical events. Keeping other AAII members encouraged are the ongoing bull market, sustained economic expansion, earnings growth and still-accommodative monetary policy.

This week’s AAII Sentiment Survey results:

  • Bullish: 25.4%, up 5.4 percentage points
  • Neutral: 40.3%, down 7.1 percentage points
  • Bearish: 34.3%, up 1.7 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 31.0%
  • Bearish: 30.0%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.



Sell OF THE WEEK 6/17/2015

Posted on June 17, 2015 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Bristow Group (BRS) is his “Sell of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Sell of the week





The June 2015 passing company lists and performance data is now available on-line.

Posted on June 16, 2015 | Stock Screens

YTD Return of Top Performers: Foolish Small Cap 8: 43.0 — Foolish Small Cap 8 Revised: 34.9%

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Changes to Model Shadow Stock Portfolio Announced

Posted on June 16, 2015 | Model Portfolios

As we discuss below, several stocks are being added to and deleted from the Model Shadow Stock Portfolio. In addition, the buy and sell rules are being modified.

The Model Fund Portfolio was up for the month by 0.2%, while the Model Shadow Stock Portfolio, which invests in micro-cap value stocks, was down 3.3%.

The Model Shadow Stock Portfolio’s 3.3% decline for May atypically trails both of its comparison benchmarks: The Vanguard Small Cap Index fund (NAESX) gained 2.0% and the DFA US Micro Cap Index fund (DFSCX) gained 1.4% in May. Year to date, the Shadow Stock Portfolio has gained 1.2%, while NAESX is up 5.0% and DFSCX is up 2.5% over the same time period. Since its inception in 1993, the Model Shadow Stock Portfolio has a compound annual average return of 16.7%, while the Vanguard Total Stock Market Index fund (VTSMX) has gained 9.4% annually over the same period.

The Model Fund Portfolio’s 0.2% gain in May compared to a 1.4% increase for the Vanguard Total Stock Market Index fund. Since its inception in June of 2003, the Model Fund Portfolio has a compound annual average return of 9.2%, slightly below the Vanguard Total Stock Market Index fund over the same time period, which gained 9.5%.

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BUY OF THE WEEK 6/9/2015

Posted on June 16, 2015 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Caleres (CAL) is his “Buy of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Buy of the week




What Does “When Issued” Mean?

Posted on June 12, 2015 | Dividend Investing

Securities trade on a when-issued basis when a corporate change has been announced and authorized, but the new shares have not yet issued.

The when-issued approach allows companies to seek a smooth transition to post-spin-off trading of the shares of the parent and the spin-off companies by establishing multiple listings…

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Members Weigh In on High M&A Activity and the Market

Posted on June 11, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members what they think about this year’s relatively high level of merger and acquisition (M&A) activity. Responses varied. The largest group of respondents (17%) said the elevated level of activity was a reflection of low interest rates and an attempt to close to deals before rates rise. About 13% of respondents described the deal-making activity as a positive for the market, with an additional 5% saying the mergers reflected improved economic and market conditions. A nearly equal number of respondents said this year’s jump in M&A activity is a sign of a market top, is concerning, or that corporations are sitting on too much cash (8% for each group). Many of those who thought corporations are sitting on too much cash wanted more money returned to shareholders instead. More than 11% of respondents said they do not have an opinion or haven’t given much thought to the higher level of deal-making.

Here is a sampling of the responses:

  • “Interest rates remain at historical lows, which makes now a good time to finance acquisitions.”
  • “It indicates that stocks may not be overvalued at still low interest rates.”
  • “A lack of profitable opportunities is causing firms to consolidate and seek enhanced profitability.”
  • “Companies have too much cash…they should buy back stock or declare a special dividend.”
  • “I think companies are taking advantage of cheap money because they know it won’t last much longer.”
  • “More or less expected…I think the end results could be detrimental to the acquiring company.”


AAII Sentiment Survey: Optimism Plunges to a Two-Year Low

Posted on June 11, 2015 | AAII Survey

Optimism plunged to a two-year low as pessimism surged to its highest level in nine months, according to the latest AAII Sentiment Survey. Neutral sentiment continued its streak of unusually high readings.

Bullish sentiment, expectations that stock prices will rise over the next six months, plunged 7.3 percentage points to 20.0%. Optimism was last lower on April 11, 2013 (19.3%). The drop puts bullish sentiment below its historical average of 39.0% for the 14th consecutive week. Optimism is also below 30% for a sixth consecutive week, the longest such streak since a seven-week stretch between January 16 and February 27, 2003.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined by 0.7 percentage points to 47.4%. The minor change keeps neutral sentiment at or above 45% for a record 10th consecutive week. This week is also the 23rd consecutive week with a neutral sentiment reading above its historical average of 31.0%.

Bearish sentiment, expectations that stock prices will fall over the next six months, surged 8.0 percentage points to 32.6%. Pessimism was last higher on October 16, 2014 (33.7%). The jump puts bearish sentiment above its historical average of 30.0% for just the fifth time this year and for the first time since April 2, 2015.

Bullish sentiment readings below 28.6% are unusually low, and unusually low levels of optimism have typically been followed by better-than-average six- and 12-month returns for the S&P 500. Similarly, the S&P 500 has realized better-than-average returns when neutral sentiment is at an unusually high level, as it currently remains. For more information, see my May 21 AAII Investor Update, Unusually High Neutral Sentiment Often Followed by Good Returns. (There is no guarantee, however, that history will repeat.)

It’s worth noting that the S&P 500 declined throughout most of the survey period, before rebounding yesterday. This decline may have contributed to concerns about the stock market having established a short-term top or being close to doing so. In addition to nervousness about the recent price volatility and possibility of a notable decline in stock prices occurring, some AAII members are also concerned about the pace of economic growth, the impact of the stronger dollar on earnings growth and geopolitical events. Keeping other AAII members encouraged are the ongoing bull market, sustained economic expansion, earnings growth and still-accommodative monetary policy.

This week’s AAII Sentiment Survey results:

  • Bullish: 20.0%, down 7.3 percentage points
  • Neutral: 47.4%, down 0.7 percentage points
  • Bearish: 32.6%, up 8.0 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 31.0%
  • Bearish: 30.0%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.



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