Market Wrap: Stocks Slip as Investors See Weakness Overseas

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Dow Opens Slightly Lower After Labor Day Weekend
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By MATTHEW CRAFT

NEW YORK — Concerns over weaker global economic growth appeared to outweigh a pair of strong reports on the U.S. economy Tuesday, nudging stocks to a tiny loss.

Crude oil prices sank 3 percent, pulling down stocks of oil producers. Small-companies, which have fewer ties to the world economy, made gains. Meanwhile, the dollar reached a one-year high against the euro as short-term interest rates edged up.

“It’s the picture of U.S. strength against the backdrop of global weakness,” said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.

The SP 500 index (^GPSC) slipped 1.09 point, less than 0.1 percent, to 2,002.28. The Dow Jones industrial average (^DJI) fell 30.89 points, or 0.2 percent, to 17,067.56. Market gauges that give greater weight to smaller companies fared better. The Nasdaq composite (^IXIC) rose 17.92 points, or 0.4 percent, to 4,598.19.

Two reports out Tuesday offered encouraging signs of U.S. economic growth. The Institute for Supply Management, a trade group, said its gauge of manufacturing reached 59 in August, the highest level since March 2011, buoyed by new orders for goods and increased production. Separately, the Commerce Department said that construction spending surged 1.8 percent in July, the biggest increase in more than 2 years.

“It’s clear we have a very solid economic expansion, but the stock market isn’t buzzing much at all,” said Anastasia Amoroso, Global Market Strategist at J.P. Morgan Funds. The explanation, she said, is that signs of solid growth raise the odds that the Federal Reserve will move to lift short-term interest rates. Rate increases typically slow stock markets down.

“We’re moving closer and closer to higher rates,” Amoroso said, “so strong economic momentum could actually put a damper on the market.”

A handful of key events and economic reports out later in the week could make for volatile trading.

The European Central Bank meets Thursday, and the U.S. employment report for August comes out Friday. Stronger hiring by U.S. businesses and rising corporate profits have helped push the SP 500 index up 8 percent this year.

Ablin said a stock market drop caused by the Fed hiking rates wouldn’t exactly be a bad thing. Waiting too long could make the pain much worse. “I would rather take a spoonful of medicine today than a tourniquet later.”

Major markets across Europe were mixed. Germany’s DAX inched up 0.3 percent, and both the CAC-40 in France and Britain’s FTSE 100 ended flat.

The euro continued its summer slide, hitting $1.313 against the U.S. currency. Recent economic reports have shown the eurozone’s economy slowing to a crawl, and that has weighed on the euro.

The price of oil slumped, pulling down shares of oil and gas companies. Benchmark U.S. crude dropped $3.08 to close at $92.88 a barrel, its lowest price since January. Brent crude, a benchmark for international oils used by many U.S. refineries, fell $2.45 to end at $100.34. That was Brent’s lowest closing price since May of 2013.

News that Norwegian Cruise Line (NCLH) agreed to buy Prestige Cruises International for $3 billion sent Norwegian Cruise Line’s stock up 11 percent. Analysts said the deal should help Norwegian compete with its larger rivals: Carnival (CCL) and Royal Caribbean Cruises (RCL). Norwegian Cruise Line jumped $3.68 to $36.99.

Exelixis (EXEL) lost more than half its value following news that the drug developer’s potential treatment for prostate cancer fell short in late-stage research. The company’s stock plunged $2.29, or 55 percent, to $1.85.

U.S. government bond prices dropped, lifting long-term interest rates. The yield on the 10-year note rose to 2.41 percent, up from 2.35 percent late Friday.

In metals trading, gold fell $22.40, or 1.7 percent, to $1,265 an ounce. Silver slipped 34 cents, also 1.7 percent, to $19.152 an ounce. Copper was flat at $3.155 a pound.

What to Watch Wednesday:

  • Automakers report vehicle sales for August throughout the day.
  • Payroll processor ADP (ADP) releases its survey of private-sector hiring for August at 8:15 a.m. Eastern time.
  • The Commerce Department releases factory orders for July at 10 a.m.
  • The Federal Reserve releases its Beige Book survey of regional economic conditions in the U.S. at 2 p.m.

These major companies are schedule to release quarterly financial statements:

  • ABM Industries (ABM)
  • G-III Apparel (GIII)
  • HR Block (HRB)
  • Navistar (NAV)
  • PVH (PVH)
  • Toll Brothers (TOL)
  • This is the granddaddy of them all. Start to type “emergency” into Google (GOOG), and the first suggestion is “emergency fund.” The rule is to make sure you have six month’s of living expenses tucked away in cash in case you losefyour job or suffer a financial setback. Of course it’s important to have a financial safety net, but when you earn virtually nothing on your cash, this rule can cost you. For example, if six months of living expenses for you is $25,000, you’d be sacrificing close to $1,000 of income a year by keeping this money in a checking or money market account.

    For years, I’ve broken the mold on this financial rule by telling clients they shouldn’t have their emergency fund in cash. Instead, choose a short-term bond fund that pays 3 percent or higher for your safety net. If you need the money quickly, you can easily sell the fund and get access to the cash. If you don’t need the cash –- and these emergency fund accounts are rarely used –- you can still make money on the assets.

    1. You need six months of living expense in cash

  • Not so fast. There are many good reasons to contribute to a 401(k), such as tax savings, tax-deferred growth and a possible employer match, but there are also good reasons not to contribute as well. Don’t blindly dump money into your 401(k) if you don’t have an emergency reserve of some sort and there is a chance you will be laid off. It is taking longer for most to find a job, so if you think you may be out of work, make sure you have the resources to pay rent and buy food until you land a new job. 

    ​Also, if your employer doesn’t provide a match and you are in a low-income tax bracket, it may make more sense to pay the tax now (since you are in a low tax bracket) and invest in a Roth individual retirement account instead. Use this 401(k) vs. Roth IRA calculator to crunch the numbers.

    2. Max out your 401(k)

  • You cannot cut your way to wealth. Too many people and financial advisers focus on trimming expenses when they should be focused on the other half of the equation — income. I’m a proponent for living within one’s means, but too often that creates an artificial barrier or ceiling. “This is what I make, so I have to cut back to save more,” is often the thought process. Rather than living within your mean, work on increasing your means.

    There are many ways you can make more money, including asking for a raise, boosting your skills –- your human capital –- and getting a promotion, starting a side project in the after-hours or going back to school and starting a new career. What you make today is not necessarily what you can make tomorrow. Cut unnecessary expenses and then use your energy to increase your income.

    3. They key to financial success is cutting expenses

  • You should only save for your children’s education if you can afford it. That means when you’re on track to having enough assets for your retirement. Assuming you have the retirement assets and now want to save for college, most advisers will recommend a 529 college savings account.

    Not so fast. These 529 accounts have some real advantages, such as tax-free growth of contributions if they are used for approved higher education expenses. This tax-free growth is a big benefit. However, if you withdraw money from this account and do not use it for approved higher education expenses, the gains will be subject to ordinary income tax and a 10 percent penalty.

    The big risk is if you fully fund your child’s college education but he or she decides to not go to college, drops out, finishes early or goes to a less expensive school. You have the ability change the beneficiary to another qualifying family member without penalty, but if you have just one child, there may not be anyone you can transfer the funds to. You would then have to liquidate the account and pay the tax and penalty. If you are undeterred and still want to pay for your child’s college education, start with a small contribution into the 529 and fund up to a maximum of 60 percent of the cost in case one of the above scenarios occur.

    4. Fully fund a 529 account to save for college expenses

  • 5. It’s always better to buy a car than lease

  • The certified financial planner designation is the gold standard when it comes to financial planning. I wouldn’t think of hiring a financial planner if they weren’t a CFP practitioner. However, just because you are working with a CFP doesn’t mean you shouldn’t research your adviser, his or her areas of expertise and how he or she charges. The CFP tells you he or she has advanced training in areas related to tax, investing and retirement planning; has passed a comprehensive and difficult exam; and has agreed to adhere to a high code of ethics.

    The onus is on you to know what you need and to make sure your CFP financial planner can deliver. Don’t get lulled into thinking that just because he or she have three letters after his or her name that he or she has been screened. Ask tough questions before you trust your money to anyone -– even a CFP.

    6. A CFP designation is all you need

  • Most financial pundits will advise taxpayers to have just enough taken out of their paycheck so when April 15 comes around, they will neither owe money nor receive a refund. The rationale is if you get a refund from the Internal Revenue Service, it means you paid too much in over the year — and the government has had use of your money without paying you any interest. Keep the money and invest it yourself is the theory.

    ‘Again, that’s the theory, but reality is much different. It all comes down to psychology. I look at paying a bit more to the IRS as a forced and automatic savings account. Sure you won’t earn interest, but human nature tells us you probably won’t save the money anyway. There is a greater chance you will squander $100 a paycheck then if you receive a $2,400 check from the IRS. One approach takes a plan and discipline each month to save and invest while the other doesn’t. A check from the IRS isn’t an interest-free loan; it is an automatic savings plan.

    7. Don’t give the government an interest-free loan

  • Nobody wants to endure an IRS audit, but too often I see honest and ethical taxpayers avoid claiming certain deductions or taking certain positions that are completely legitimate because they fear it will increase their chances of an audit. First, your chances of being audited are small –- about 1 in 104 chance. If your return doesn’t include income from a business, rental real estate or farm, or employee business expense deductions, your chances are even smaller -– 1 in 250. Second, if you and your tax preparer are not crossing the line, you have little to worry about. In fact, thousands of taxpayers get a check from the IRS at the end of the audit. Don’t let a small chance of an audit keep you from taking advantage of every tax strategy for which you qualify.

    8. Avoid IRS audit red flags

  • Do what you love, and you’ll never have to work a day in your life, or so the saying goes. It sounds good and feels good, but it’s not necessarily true. Sometimes –- often, actually –- doing what you love can be a great hobby but not a good career. There are a lot of things I enjoy that I’ll never make a dime doing. A better approach is to find something you enjoy, are good at and that you can get paid to That is the financial trinity you should aspire to find because it ties your interests with your skills with the marketplace

    9. Follow your passion, and the money will follow

  • Follow this rule, and I’ll send you straight to detention. We know college costs are soaring, and we don’t want to bury our kids in college debt, so most parents prioritize college saving over retirement saving. Big mistake. If worse comes to worst, Junior can get a loan, work while in school or go to a less expensive school. Basically, Junior has decent options, and you have tough choices. 

    ​If you haven’t saved enough for retirement, you are stuck. There’s very little you can do other than slash your expenses, work longer or both. Save for your own retirement first. That’s the financial rule you should follow. If you have amassed so much wealth when your children head off to college that you can afford to help them, go for it. If you haven’t, you’d be doing your kids a disservice by jeopardizing your own retirement by paying for their tuition.

    10. Start saving early for your kid’s college education

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