Pointing Fingers and Liability

Posted on June 5, 2015 | Stock Superstars Report

The banking industry as a whole has not been particularly forthcoming about their litigation reserves and how much has been paid out of them. The Securities and Exchange Commission (SEC) has not issued a call for lenders to be more forthcoming about their litigation exposure as it has for other vulnerable areas of public companies, particularly banks. JPMorgan Chase disclosed that its litigation reserve in October 2013 was $23 billion, before a large settlement.

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Deals, Spin-Offs

Posted on June 5, 2015 | Dividend Investing

There continues to be a high amount of merger and acquisition (M&A) activity occurring. Thomson Reuters released a note this morning calculating U.S. deal-making as totaling $775.8 billion year-to-date. To put the number in perspective, this is a 47% increase over the same period last year.

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AAII Sentiment Survey: Optimism Is Below 30% for a Fifth Week

Posted on June 4, 2015 | AAII Survey

Even with a slight increase, optimism remains below 30% for a fifth consecutive week in the latest AAII Sentiment Survey—a streak not seen since early 2003. Neutral sentiment continues to stay at an unusually high level, while pessimism is still at below-average levels.

Bullish sentiment, expectations that stock prices will rise over the next six months, edged up 0.3 percentage points to 27.3%. Even with the slight increase, optimism is below its historical average of 39.0% for the 13th consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, increased slightly (0.2 percentage points) to 48.0%. The minor change keeps neutral sentiment at or above 45% for a ninth consecutive week—the longest such streak in the survey’s 28-year history. This week is also the 22nd 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, declined 0.5 percentage points to a five-week low of 24.6%. The decline keeps pessimism below its historical average of 30.0% for a ninth consecutive week and for the 19th week this year.

As noted above, bullish sentiment is now below 30% for a fifth consecutive week. This is the longest such streak since a seven-week stretch between January 16 and February 27, 2003.

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 months 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.)

Causing some AAII members to be cautious or pessimistic are prevailing valuations, recent price volatility, geopolitical events, the pace of economic growth, the impact of the stronger dollar on earnings growth and worries that a notable decline in stock prices could occur. 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: 27.3%, up 0.3 percentage points
  • Neutral: 48.0%, up 0.2 percentage points
  • Bearish: 24.6%, down 0.5 percentage points

Historical averages:

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

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 6/3/2015

Posted on June 3, 2015 | Podcast

AAII Computerized Investing Editor Wayne Thorp explains to Chuck Jaffe of MarketWatch why Ball Corporation (BLL) 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





Interest Rates, Low Yields Affect Members’ Bond Allocations

Posted on June 2, 2015 | AAII Survey, Asset Allocation

May’s Asset Allocation Survey special question asked AAII members what predominately influences their decision to increase or reduce exposure to bonds and bond funds. About 38% of respondents said interest rates influence their bond allocation. Approximately 13.9% said that current low yields affect their decision. Roughly 12% of respondents noted that they do not allocate to bonds at all. Other responses were evenly distributed among factors such as market volatility, market valuations or behavior, expected withdrawal, rebalancing and the economy.

Here is a sampling of the responses:

  • “I will invest in bond funds when I feel the value in security outweighs the risks of owning only stocks.”
  • “I’ve been staying away from bonds for several years, I just don’t like their dynamics right now.”
  • “My allocation of bonds is based on current economic conditions and my portfolio mix.”
  • “Interest rates. I buy bonds and hold them to maturity. When interest rates are so low that utility stocks are clearly a better buy, I don’t renew in bonds.”


Stock and Stock Fund Allocations Fall to Below-Average Levels

Posted on June 2, 2015 | AAII Survey, Asset Allocation

Fixed-income allocations fell to their lowest level in a year, as individual investors remain frustrated with low interest rates. Cash allocations, meanwhile, rose for a second consecutive month as equity allocations declined.

Stock and stock fund allocations declined 0.2 percentage points to 67.7%, the lowest level since January. Even with the decline, equity allocations remained above their historical average of 60% for the 26th consecutive month.

Bond and bond fund allocations fell 0.7 percentage points, to 15.5%. Fixed-income allocations were last lower in December 2013 (15.2%). The historical average is 16.0%.

Cash allocation rose 1.0 percentage points, to 16.9%. Cash allocations were last higher in October 2014 (18.7%). Despite the increase, May was the 42nd consecutive month with cash allocations below their historical average of 24%.

The rise in cash allocations occurred as neutral sentiment (as measured by the weekly AAII Sentiment Survey) has stayed at or above 45% for eight consecutive weeks and above average for 21 consecutive weeks. Though cash allocations have risen for two consecutive weeks, allocations to stocks and stock funds remain high as investors fret over low interest rates and see a lack of attractive alternatives for their portfolio dollars. Speculation about an interest rate increase occurring this year may also have contributed to the decline in fixed-income allocations.

May AAII Asset Allocation Survey results:

  • Stock and Stock Funds: 67.7%, down 0.2 percentage point
  • Bond and Bond Funds: 15.5%, down 0.7 percentage point
  • Cash: 16.9%, up 1.0 percentage point

May AAII Asset Allocation Details:

  • Stocks: 33.1%, up 0.9 percentage point
  • Stock Funds: 34.6%, down 1.1 percentage points
  • Bonds: 3.6%, up 0.3 percentage point
  • Bond Funds: 11.8%, down 1.0 percentage point

*The numbers are rounded and may not add up to 100%.

The AAII Asset Allocation Survey has been conducted monthly since November 1987 and asks AAII members what percentage of their portfolios are allocated to stocks, stock funds, bonds, bond funds and cash. The survey and its results are available online at: http://www.aaii.com/investor-surveys.



BUY OF THE WEEK 6/2/2015

Posted on June 2, 2015 | Podcast

AAII Computerized Investing Editor Wayne Thorp explains to Chuck Jaffe of MarketWatch why Express Scripts (ESRX) 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




Value Is In, Plus Changes to the Portfolio

Posted on May 29, 2015 | Stock Superstars Report

The June SSR Monthly Report is now available at the SSR website. There is one new portfolio deletion and one new portfolio addition to announce.

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Stepping Into the Quiet Period

Posted on May 29, 2015 | Dividend Investing

This week, Deere & Company (DE) declared a quarterly dividend that was the same as the prior quarter’s payout. In 2014, Deere increased its dividend in May; in 2012 and 2013, the company bumped its payout in February. Whether February or May, the company has failed to increase its payment when expected for 2015. It’s worth noting that Deere will in fact pay a higher annual dividend to its shareholders in 2015 compared to 2014, even if it does not increase its quarterly payment in calendar-year 2015.

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Health Care and Tech Favored Among Members

Posted on May 28, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members what sectors or industries they are currently favoring. About 35% of respondents favored the health care sector, 20% were optimistic regarding technology, approximately 17% were bullish regarding energy, 10% preferred financials, 6.8% liked consumer staples, 5% favored industrials, 3% were for consumer cyclical and 2.6% were bullish towards basic materials. Within each of the sectors, there was favoritism shown toward biotechnology, pharmaceuticals, oil and gas, real estate, and banks. There were some mentions of emerging markets and European stocks as well.

Here is a sampling of the responses:

  •  “Biotechnology, pharmaceuticals and oil and gas.”
  • “I like consumer discretionary, because those in upper income brackets will spend consistently. I also like manufacturing, as long as the companies are sound.”
  • “Big pharma is my favorite sector right now. The introduction of biosimilars is heating up the competition. Let the winners run.”
  • “Oil has been beaten down quite a bit in the last year. Some snap back is likely, in my opinion.”
  • “Health-related industries. Demand for services and/or medications when needed does not go down with the fluctuations in the overall economy.”


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