Apple to Replace AT&T in the Dow Jones Industrial Average

The Dow Jones Industrial Average will add Apple (AAPL) to its index after close of trading on March 18th. As the Dow is “capped” at 30 stocks, AT&T (T) will be removed from the index to make room for Apple. Due to how the index works, the swap will not affect the value of the Dow on March 18th. However, given that the Dow is a price-weighted index, growth in Apple’s stock price will affect the value of the Dow more than growth in AT&T’s stock price would have going forward. The move to include Apple in the Dow did not come as a surprise, as it has been discussed ever since Apple’s 7-1 stock split took place back in June of last year. The recent 4-1 split of Visa, which will take effect also on March 18th and will lower its price per share to around $68, also factored into adding Apple. However, many analysts were expecting the Dow to drop a different “tech” name to keep the sector weightings similar to how they are now. However, the index attempts to reflect the nature of our economy, so adding another tech name makes sense given the current composition of the U.S. corporate landscape.

U.S. Adds 295,000 Jobs in February:

U.S. employers added 295,000 workers in February, far surpassing the average economist estimate of 235,000. This is the twelfth straight month the U.S. has added over 200,000 jobs and is the longest such streak since 1995. The unemployment rate ticked down to 5.5% from 5.7% last month. The data showed that the unemployment rate was helped by steady employer hiring, as well as more people leaving the labor force. In February, wage growth was up about 2% from last year, a somewhat disappointing number. However, the 5.5% unemployment rate is considered by many economists to be very close to “full employment”. When full employment is reached, wage growth tends to follow. This jobs report could influence the Federal Reserve to raise rates sooner rather than later.

Corporate Spending Finally Improving:

The Wall Street Journal wrote that, after a long stretch of lackluster business investment, large companies across the U.S. are finally preparing to ramp up capital spending in a sign of growing confidence that could give another boost to the strengthening U.S. economy. The article notes that capital investment for 423 large companies rose 15% in the fourth quarter to a five-year high of $166 billion. The one exception to the spending binge has been energy companies, which are slashing spending plans as oil prices fall, but that decline is being more than offset by the pickup in spending in other industries.

Largest U.S. Banks Pass Stress Test:

Yesterday, the Federal Reserve released the results of its Stress Test, a test which determines whether or not banks are strong enough to keep lending during a severe recession (hypothetically: deteriorating corporate debt market, unemployment at 10% and falling housing stock and prices). All 31 banks that were subjected to the test passed, meaning they have adequate capital reserves to keep lending during a severe recession. The test is designed to determine that large banks can withstand severe losses without the need of a taxpayer bailout. Several banks passed easily while a few, like Goldman Sachs and Zion, barely passed the test. Banks that are adequately capitalized may also get a green light to increase their share buybacks and dividends, so we anticipate several banks announcing these plans in the coming weeks.

Europe Shows Signs of Improvement:

The European Central Bank (ECB) raised its economic forecasts for this year and next year in a sign of growing confidence that the European economy is gaining strength even before the ECB launches its €1 trillion bond-buying program beginning Monday. The ECB said it now expects the euro-zone economy will expand 1.5% this year, 1.9% in 2016, and 2.1% in 2017. These numbers are up from the previous estimates that the economy would grow 1% in 2015 and 1.5% in 2016.

The European Central Bank kept its benchmark interest rate steady at a record low today as it launches it €1 trillion bond-buying program. At its monthly monetary policy meeting today, the Governing Council left its main refinancing rate unchanged at 0.05% and its deposit rate at -0.20%. “The substantial additional easing of our monetary-policy stance supports and reinforces the emergence of more favorable developments for the euro-area economy,” Mr. Draghi said at a Thursday news conference.

China Lowers its Growth Forecast:

On the opening day of the National People’s Congress, Chinese Premier Li Keqiang acknowledged the country is entering an era of slower growth, stating they expect 2015’s growth rate to fall to around 7%. This is lower than the 7.4% growth rate from last year and was in line with economist estimates. The Premier’s tone was much different compared to past speeches; Mr. Li referred to the necessity of not letting growth slide further a number of times and he called for “a medium-high-level growth rate”. The tone also showed that China is trying to balance its necessary, perhaps impending, reform while trying to simultaneously sustain growth. The government said it will increase deficit spending, lower targeted trade and fixed-asset investment growth, and will increase the money supply if needed. At the same time, the government will loosen price controls on things like pharmaceuticals and energy in an attempt to encourage more of a free-market.

U.S. Running Out of Room to Store Oil:

As oil supply reaches its highest level in more than 80 years, producers and traders running into issues on where to store it. A U.S. storage hub in Cushing, Oklahoma is two-thirds full and is expected to be at maximum capacity this spring. Producers are still pumping nearly 1.5 million barrels per day more than demand dictates, meaning this problem will likely not get better anytime soon. Ultimately, this could drive down oil prices further as producers look to sell oil at a discount to the few buyers with remaining storage capabilities. This could lead to additional job cuts in the oil industry that has already seen 39,261 people lose their jobs so far this year, a number that equates to about 38% of all job losses in 2015.

How Long Should you Keep your Tax Documents?:

As clients finish up filing their taxes for the year, we often get asked how long they need to hold onto everything. While it is always easy to err on the side of caution and just keep everything, it certainly takes up space and can be hard to organize as you accumulate more and more documents.

I have attached a “Best Practices” article for you to review on this matter. We have been rolling out the Paradigm Secure Client Vault to help alleviate this issue for our clients. The Client Vault allows you to upload your tax documents (or any documents really) to our secure server. This way, you can shred any documents you have and still have full access to your tax information, should you need it later. We have been rolling this out to clients as they come in for their review meetings and have about 25% signed up right now. If you are not scheduled for a meeting soon, we can still schedule you to come in for a demo and get you signed up for the Client Vault. Please let us know if you would like to do this before your next review meeting.

 

This publication is provided as a service to our clients and associates of PFA solely for their own use and information. The material is derived from sources believed to be reliable but its accuracy and the opinions based thereon are not guaranteed and have not been verified. The content in this publication is for general information only and not intended to serve as individual investment advice. You should seek independent advice from a professional based on your individual circumstances.