Stock Market Stumbles over the Word “Patient”

March
16

Written by: Jon McGraw

stock marketFranklin D. Roosevelt’s first inaugural address was delivered in 1933 in the midst of the Great Depression. He said, “This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.”

Last week, some were speculating that fear and uncertainty were behind U.S. stock market performance. The root of the problem was the word “patient,” which Barron’s reported is likely to be removed from the Federal Open Market Committee’s statement this week, paving the way for an increase in interest rates. The publication cautioned that investors may throw a tightening tantrum:

“That could make 2015 look a lot like 2013, the year of the so-called taper tantrum. Remember when Ben Bernanke first mooted the possibility that the Fed would curtail its bond purchases in testimony to Congress on May 22, 2013? The markets reacted with, well, horror. The S&P 500 fell 5 percent in just over a month of trading. Tapering itself, however, went off without a hitch; the S&P gained 9.1 percent from December 2013 to October 2014 as the Fed slowly cut its bond purchases.”

Continued strengthening of the U.S. dollar also affected markets last week. Reuters reported that stock prices fell, in part, because of concerns about corporate profitability in the face of a stronger dollar. Sources cited by Barron’s pointed out that, in the long run, a strong dollar is better for American companies. After all, a strong dollar increases the buying power of consumers and companies. However, investors currently seem to be focused on short-term consequences rather than long-term results.

Data as of 3/13/15 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -0.9% -0.3% 11.2% 13.7% 12.3% 5.5%
10-Year Treasury Note (Yield Only) 2.1 NA 2.7 2.1 3.7 4.5
Gold (Per Ounce) -2.0 -3.9 -15.8 -12.0 0.9 10.1
Bloomberg Commodity Index -3.2 -6.5 -27.5 -12.6 -5.8 -5.0
DJ Equity All REIT Total Return Index 2.0 1.3 20.8 13.6 15.3 8.9

#Make It Happen!

International Women’s Day (IWD) was on March 8. It celebrated the economic, social and political achievements of women around the world. The United Nations explained that IWD is “a time to reflect on progress made, to call for change and to celebrate acts of courage and determination by ordinary women who have played an extraordinary role in the history of their countries and communities.”

Although IWD is not a recognized holiday in the United States, American women have made great strides, particularly in the workplace. If you look back to the 1890s, when the U.S. government began gathering detailed information about working people, there were about 63 million Americans; 23 million were working-age women. (The working age, whether you were male or female, was 10 or older.) Women were a relatively small part of the paid workforce—just 17 percent—as most labored in the home or alongside their families on farms, producing food and goods.

How times have changed!

The 2013 U.S. Census Bureau American Community Survey estimated there were more than 316 million Americans in 2012. About 103 million were working-age women (ages 16 to 64), and more than 73 million women were part of the paid workforce.

Women have become an integral part of American companies. In early 2015, Catalyst reported that women who worked at Standard & Poor’s 500 companies held:

  • 25.1 percent of executive/senior-level management positions
  • 19.2 percent of the board seats
  • 4.8 percent of chief executive officer positions

In addition, the inclusion of women on corporate boards appears to correlate with better performance. The Bottom Line: Corporate Performance and Women’s Representation on Boards compared the performance of companies that included the most women on their boards with those with the fewest by measuring return on equity (ROE), return on sales (ROS) and return on invested capital (ROI). Companies with more women sitting on their boards had, on average, 53 percent higher ROE, 42 percent higher ROS and 66 percent higher ROI.

Weekly Fun—Think About It

“No matter what message you are about to deliver somewhere, whether it is holding out a hand of friendship or making clear that you disapprove of something, is the fact that the person sitting across the table is a human being, so the goal is to always establish common ground.”

—Madeleine Albright, former U.S. secretary of state