September 25, 2020

Markets Higher on Unemployment Claims

The Dow Jones industrial average extended its winning streak to 10 days on Thursday and ended at another nominal high as investors were encouraged by data showing that the labor market’s recovery was improving.

The Standard Poor’s 500-stock index made a late-day run at its nominal closing high, set in October 2007, but it ended two points away. The Dow industrials have been setting nominal highs, unadjusted for inflation, since March 5, when they surpassed a high also set in October 2007.

The last time the Dow rose for 10 consecutive days was November 1996.

Stocks have accelerated their rally without a major consolidation since the start of the year, driven by improvement in the economy and the Federal Reserve’s continuation of its easy monetary policy.

So far this year, the Dow is up nearly 11 percent, while the S. P. 500 is up 9.6 percent.

“It’s simply a natural progression for prices to move to new highs in order for the market to advance. I don’t think it’s scaring investors,” said Tim Ghriskey, chief investment officer of the Solaris Group.

“Fund flows really have reversed direction, and money started moving out of money markets, and some from fixed income to equities,” Mr. Ghriskey said. “This kind of trend doesn’t change easily, so we can expect a lot more to come in.”

The Dow industrials gained 83.86 points, or 0.6 percent, to 14,539.14. The S. P. 500 rose 8.71 points, or 0.6 percent, to 1,563.23.

The Nasdaq composite index advanced 13.81 points, or 0.4 percent, to end at 3,258.93, still well below its nominal high of 5,000, reached in the dot-com boom in 2000.

Data on Thursday provided fresh signs of strength in the United States labor market as the number of new filings for unemployment benefits fell for the third consecutive week.

Ten of the Dow’s 30 stocks hit at least 52-week highs, including Walt Disney. I.B.M.’s shares hit a high of $215.80, up $3.74, or 1.8 percent.

Energy shares led the Dow and the S. P. 500 higher, with the S. P. energy sector index gaining 1.3 percent. Chevron was among the Dow’s biggest percentage gainers, rising $1.64, or 1.4 percent, to $120.

After the bell, the Federal Reserve released scores for 18 bank holding companies that showed how low their capital ratios would fall under proposed plans for dividends and stock buybacks if “severely adverse” economic conditions unfolded over the next two years. JPMorgan Chase shares fell 2 percent in extended-hours trading, while Goldman Sachs fell 1.9 percent.

During the regular session, Apple rose $4.15, or 1 percent, to $432.50, even though its rival, Samsung Electronics, introduced a new Galaxy smartphone on Thursday.

Shares of eBay, operator of one of the largest online marketplaces, climbed 82 cents, or 1.6 percent, to $51.80 after Evercore Partners raised its rating on the company to overweight.

On the downside, shares of Amazon, the world’s biggest Internet retailer, fell $9.36, or 3.4 percent, to $265.74 after JPMorgan cut its rating to neutral from overweight and reduced its price target to $300 from $333.

E*Trade shares lost 97 cents, or 8.2 percent, to $10.85 after Citadel, the company’s largest investor, said it was selling its stake in the company.

In the bond market, interest rates moved modestly higher. The price of the Treasury’s 10-year note slipped 4/32, to 99 22/32, while its yield rose to 2.04 percent from 2.02 percent late Wednesday.

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Bucks Blog: A 10 Percent Savings Rate? Yes, but There’s a Catch

U.S. soldiers stand guard in Zabul province in Afghanistan. Associated PressU.S. soldiers stand guard in Zabul province in Afghanistan.

Most of us looking for a low-risk savings account would jump at an annual interest rate of even 1 percent. So, what would you think of earning 10 percent?

That’s right: 10 percent.

There is a catch, of course. Getting this rate involves risking your life in a foreign country. It’s only available to members of the United States military serving in designated combat zones, including Afghanistan, Iraq, Pakistan and the Persian Gulf.

The rate is available through the Department of Defense Savings Deposit Program. The program, which dates to the Vietnam era, was created to “provide members of the uniformed services serving in a designated combat zones the opportunity to build their financial savings,” according to a Web site maintained by Defense Finance and Accounting Service, which provides payment services to the Defense Department.

The program caught our eye here at Bucks when it was mentioned in a publication from USAA, which provides banking and financial services for members of the military and their families. USAA says the program “can provide a welcome savings boost, thanks to a generous 10 percent interest rate earned on combat pay.”

Joseph Montanaro, a financial planner with USAA in San Antonio, Tex., says the program can be a boon for service members, allowing them to earn about 10 times what their money would earn in a typical domestic savings account at current rates.

There are a host of conditions, however. To qualify, military members must be deployed in a combat zone for either 30 consecutive days, or at least one day in each of three consecutive months. A maximum of $10,000 can be deposited in the account, typically by automatic paycheck withdrawal (or “allotment,” in military parlance).

The program is restricted to pay earned while in the qualifying zone. Soldiers can’t deposit more than their net monthly pay. Nor can service members simply take $10,000 they had managed to save in a low-rate certificate of deposit and put it in the military program as a lump sum to earn the higher rate, said Steve Burghardt, a spokesman for Defense Finance and Accounting Service.

The funds are paid out when the combat tour is finished, he said. Money can be left in the account indefinitely — but interest accrues for just 90 days after soldiers return from combat duty. In general, the funds can’t be withdrawn until soldiers are no longer eligible for the program. If an emergency comes up, military members have to petition their commanding officer to obtain early access to the money.

And, while combat pay isn’t taxable, interest earned in the savings program is.

Roughly 19,500 service members currently participate in the program, Mr. Burghardt said.

I plugged some numbers into an online savings calculator. If a soldier deposited $300 a month into the savings program for a year at 10 percent, he’d earn about $170 in interest. A 1 percent rate — the most generous currently available on low-risk savings accounts back home — would earn roughly $17. (The numbers may vary slightly depending on the assumptions built into the calculator used.) So the program appears to be a benefit, for those who are eligible — and who don’t need access to the money right away.

As for those of us who aren’t eligible, maybe we should just be thankful that we’re not.

Have you ever used the Defense Department’s savings program? What was your experience?

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BUCKS BLOG: Gyrating Markets Are What You Signed Up For

Carl Richards

During the last few weeks, I’ve heard a lot of chatter about volatility. I knew something was going on when I overheard people at the grocery store talking about their investments, saying things like,”This volatility is killing me.”

I used to joke that volatility was a word that people in the investment industry used and the rest of us nodded our heads at in agreement, pretending to know what it meant. Volatility has long been used as a proxy for risk, but in all the conversations I’ve had over the years, no one has admitted to laying awake at night over concern about their volatility.

Volatility is a measure of the variation of the price of an investment over time, but over the years I’ve referred to volatility as the amount something wiggles. Stocks wiggle more than bonds. Bonds (intermediate term bonds) wiggle more than cash. And, of course, cash wiggles the least of all.

So if you believe that risk and return are related, then volatility represents the risk of investing in a diversified basket of stock-based mutual funds and in turn it is the reason we get paid more to own stocks over the long haul than we do sitting in bonds or cash.

In the last few weeks, we’ve lived through a historic seesaw, including a period when the S.P. 500 either rose or fell over 4 percent for each of four consecutive days. While these dramatic days have us all talking, it’s important to realize that volatility and investing go hand in hand. They always have, and chances are they always will.

So if you’ve discovered that you can’t stomach the wild swings, now might be a good time take note of how much you didn’t like it so that when the time is right you can reduce your exposure to the stock market and add more bonds. The entire idea behind including bonds and cash in a longer-term investment portfolio is to smooth out the ride a little. Bonds act as ballast to the portfolio so that the swings aren’t as dramatic.

Please note that I’m not saying you should sell or buy stocks now. That is a entirely different discussion. I am just trying to point out the role volatility plays in an investment plan and one of the ways of dealing with it.

No one really knows if this type of volatility is here to say, but in the end it really doesn’t matter much. After all, volatility has always been part of the deal when you invest in the stock market. If you still believe that stocks will be a better investment over time than bonds, then you will simply have to deal with the volatility.

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Economix Blog: Podcast: Bonds, Markets, the Economy and History

The markets are being whipsawed. How severe has the volatility been? One statistic tells the story: for the first time in its history, the Standard Poor’s 500-stock index moved up or down by at least 4 percent on four consecutive days.

In the new Weekend Business podcast, I talked to Floyd Norris and Julie Creswell, two veteran financial reporters for The Times, about the turmoil in the markets. Ms. Creswell has been covering the impact on individual investors and says many have been rushing to sell their stock holdings.

Of course, selling in a downturn is not always the best approach, Mr. Norris pointed out, especially if markets rise again soon. A big issue at the moment is whether we are experiencing a repeat of the 2008-9 crisis, when markets fell far more steeply than they have in recent weeks, or whether the current situation is more benign. Unfortunately, there are no firm answers.

One reason for the plunge in asset values is a global economic slowdown. In a separate conversation on the podcast, Christina Romer, an economist at the University of California, Berkeley, says the Great Depression and World War II supply some important lessons for dealing with the current crisis. In the Economic View column in Sunday Business, she says that expansive monetary and fiscal policy worked well back then to promote economic growth. In addition, the United States took on a far heavier debt load in the war years than it has so far, and still managed to pay it down when the economy was stronger.

Reconciling economic stimulus with a prudent long-term fiscal policy can be done again, she says, but the logic for these intertwined approaches needs to be conveyed forcefully to the American public.
I also chatted with Steve Lohr, a Times technology reporter, about a new approach to corporate social responsibility. In the Unboxed column in Sunday Business, he says academic theorists are proposing a concept known as shared value, in which companies profit by taking on tasks that result in public good. One example is General Electric’s “ecomagination” program, in which the company has invested in technology to lower the energy consumption of its products and to reduce the use of water and other resources in manufacturing. The company says its sole motive has been profit; the social benefits are ancillary.

And in another podcast conversation, Phyllis Korkki interviewed me about the implications of the downgrading of United States Treasury debt, the subject of my Strategies column in Sunday Business. Treasury bonds have been the linchpin of the world financial system, and the center of myriad calculations in business, portfolio construction and capital markets. The 10-year Treasury yield has been plugged into countless algorithms as the putative “risk-free rate of return,” against which other cash flows are compared. Now, the rate for a risk-free investment may need to be approximated, and the center of the global financial structure seems much less solid than it was just a few years ago.

You can find specific segments of the podcast at these junctures: Floyd Norris and Julie Creswell (37:06); news headlines (27:41); Steve Lohr (23:14); Christina Romer (16:01); Strategies column (8:51); the week ahead (1:57).

As articles discussed in the podcast are published during the weekend, links will be added to this post.

You can download the program by subscribing from The New York Times’s podcast page or directly from iTunes.

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