Special Perspective: The Changing Price of Oil – Monday, December 22, 2014

Crude oil has plunged nearly 50% to $55 per barrel, from June of this year, amid a widening glut

caused by U.S. shale production. OPEC balked at cutting supplies to shore up prices at its late-November meeting and recent activity suggests it intends to stand by its decision, even if prices fall as low as $40 per barrel. They intend to wait at least three months before considering an emergency meeting. The minister of energy from the United Arab Emirates, said "we're not targeting a price; the market will stabilize itself."

Here are 4 charts (and some brief comments) that help to provide some perspective on the global issues surrounding the drop in oil prices.

 The declining price of oil has wreaked havoc on global investment markets—while consumer confidence has been the benefactor. It seems evident that the drop in price is largely due to 2 factors as explained in these 2 successive charts.

Global supply has been buoyed by a significant increase in US oil production over the past 5 years. US shale drilling projects have increased 47.5% from 2008.

The supply/demand curve for oil will certainly be affected a potential drop in consumption. Future oil demand will likely decrease with a proliferation of alternative and/or renewable energy sources. There is a question as to whether or not cheap oil will make other energy sources less appealing.

The last chart perhaps is most illustrative of the affect of oil prices on resource-driven economies. Russia’s economy has already taken a big hit, and other emerging economies could follow.

The drop in oil prices has caused volatility on investment markets, and I would expect that to
continue. This could potentially slow the Federal Reserve’s move to raise rates in 2015. Though oil is only part of the economic jigsaw, it is a LARGE piece of the puzzle.



Sources: Energy Information Administration; BP Statistical Review of World Energy; Business Insider, Deutsche Bank Research, Wall Street Journal, Citibank Researc

8 Wealth Issues: Fiscal Fitness

A Look at Baseline Financial Health Ratios

In this month’s 8 Wealth Issues blog, I thought I would address the concept of what our practice refers to as “Fiscal Fitness.” New clients to our practice sometimes do not understand what I am referring to, but this is the foundation for sound financial planning. This involves capturing an accurate picture of your current financial condition—documenting what all of your assets are worth, less any liabilities; as well as building a cash-flow model that is true to your income and spending habits.

Fiscal fitness goes beyond this as well. It includes being organized with financial documents, and managing your wealth so that you can feel confident making future financial decisions. Often helping clients make financial decisions comes in “stress-testing” the impact of those decisions within your current financial plan.

Baseline financial health, however, can be brought back to 4 ratios. These are:

Monthly Surplus/Monthly Income

After you pay all of your monthly obligations, how much money do you have left? This is your monthly surplus and if you divide this amount by your total monthly income, you’ll get an idea of how well you manage your finances and also, an ideal percentage of that income you can put away for savings. When calculating your monthly obligations, be sure to include everything — all of your bills, credit card bills, your house payment, groceries, and even your magazine subscriptions.

It is important to note that you should add back in any 401k contributions into your monthly income, as this is periodic savings mechanism and that is exactly the ratio we are looking to measure here. This ratio can identify whether or not you could be putting more toward tax advantaged retirement savings.

Cash and Liquid Assets/Monthly Expenses

For this ratio, you want to add in all of your cash assets, like cash on hand, cash in the bank, money market account balances, and money you have in CDs (do not include cash in retirement accounts). If you divide that total by the total amount of all of your monthly expenses, you’ll get an idea of how long you can sustain your household in the event of an emergency situation, like illness or job loss. For self employed people or single income households, this can be a crucial ratio to be mindful of.

Of all the items I look at when assessing a clients Fiscal Fitness, it is the presence of an adequate emergency fund that is most often missing. Not having this ratio in good health could cause you to have to invade retirement savings in the event of loss of income—which in turn may cause tax headaches and penalties.

Cash and Liquid Assets/Net Worth

Your net worth is the difference between your assets and your debt. To calculate your net worth, add up the value of all of your assets. This includes everything, ranging from the value of your home, to the estimated value of your furniture, to all of your cash and cash assets. Subtract your debts (your credit card balances, mortgage, etc.) from this amount. There are also some online net worth calculators you can use to walk you through the process.

Once you’ve determine your net worth, divide your net worth by all of your cash and liquid assets (your bank account balances, CDs, money market accounts, etc.). This will give you the percentage portion of your net worth that is held in liquid form. Too high of a ratio means you could have too much cash at hand and therefore your money is likely not working for you adequately. Conversely, a common mistake I see is people reaching for growth by putting short term money in risk-based investments. Be mindful of time horizon.

Monthly Debt/Monthly Income

This is your debt to income ratio and it helps determine how much of a lending risk you are. Banks use this ratio as a baseline for determining loan approvals & mortgages. The lower your debt-to-income ratio, the better chance you have of receiving credit from lenders in most cases. Ideally, 36 percent is the highest debt-to-income percentage you should have. You can calculate this ratio on your own by dividing your total monthly debt (credit card payments, student loans, mortgage payment, etc.) by your monthly income.

These ratios can help you set a good baseline for financial health and making sound financial decisions. Please be sure to contact our practice if you would like help in looking at all the aspects of Fiscal Fitness or any of the other 8 Wealth Issues we help with tackling. The beginning of a new year is a great time to turn over a new financial leaf.

Happy Holidays.

Citations.
Personal Finance Cheat Sheet – “How Financially Healthy Are You? Find Out Using 4 Ratios”

This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Perspectives from Above the Noise – Week of December 15, 2014

Last week was volatile for global equities, ending with the Dow Jones Industrial Average falling 315 points on Friday to bring its weekly loss to 3.8%. This was the worst weekly loss for the Dow on a percentage basis since September of 2011 and was driven by a continued meltdown in the energy sector. Fears of a sharp global slowdown continue to be fed by the steep drop in oil prices, which many investors believe is at least in part attributable to a weakening economic outlook.

However, some positive domestic data came from Thursday’s retail sales data, which indicated that the plunge in oil prices over the past three months is generating a boost to consumer spending heading into the holiday shopping season. Retail sales (minus gasoline) surged 6% in November on a year-over-year basis, the most in nearly three years.

For the week, the S&P 500 dropped -3.52%, the Dow Jones Industrial Average fell -3.78%, and the MSCI EAFE (developed international) lost -3.54%.

Here are the 3 stories this week that rose above the noise:

Why Russia's Monster Rate Hike Spells Trouble Ahead

Early Tuesday, the Central Bank of Russia (CBR) hiked its key interest rate by 650 basis points to 17%, the sixth rate increase this year. The impact was immediately reflected in the Russian ruble which plunged about 12%, bringing its loss against the dollar to nearly 50% this year.

The rate hike and falling currency will further threaten financial stability in the troubled economy which has faced the double whammy of collapsing oil prices and the specter of new U.S. sanctions. Ordinary Russians are feeling the squeeze as consumer price inflation is forecast to reach 10% by the end of the year.

Similarities and Differences Between Now and 1998 Emerging-Market Crisis

In recent weeks, there has been a flight of foreign capital fleeing emerging markets creating fears of a full-blown currency crisis and a resulting financial market contagion similar to what happened in 1998. A recent Bloomberg article provides a nice summary of the similarities and differences between now and 1998. Despite some concerning similarities, the article details a few important differences which suggests the odds favor a somewhat less severe outcome than the 1998 experience.

These key differences include many emerging countries holding much larger foreign reserves than in the 1990's, as well as now issuing most debt in local currency rather than U.S. dollars. These changes should increase the odds that most countries will weather the current currency volatility and capital outflows, without experiencing a crisis on the scale of 1998.

One Hundred Years of Bond History Means Bears Destined to Lose

A Bloomberg article offers some longer-term perspective on bond yields suggesting the era of high inflation and interest rates that occurred in the 1970's and 1980's was an aberration. With the longest-dated U.S. Treasury bonds now yielding less than half the 6.8% average over the past five decades, it’s not hard to see why forecasters say they're bound to rise as the Federal Reserve prepares to raise interest rates following the most aggressive stimulus measures in its 100-year history. Yet, compared with levels that prevailed in the half-century before that, yields are in line with the norm.

Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team. First Allied Asset Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. First Allied Asset Management individuals who provide investment management services are not associated persons with any broker-dealer.

International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.

Perspectives from Above the Noise – Week of December 8, 2014

Contrasting several recent data points that provided evidence of slowing domestic growth, the past week included a couple of important economic releases that indicated U.S. economic momentum remained solid in November. Wednesday’s release of the ISM Non-manufacturing Index for November showed an improvement to 59.3, the second-highest level since August 2005 and well ahead of consensus expectations. 

Globally, the focus was on the European Central Bank’s (ECB) latest meeting on Thursday, when it substantially lowered its forecasts for both inflation and growth. ECB President Mario Draghi seemed to, at least initially, disappoint investors by failing to commit to additional stimulus measures to offset those drags, explaining in rather vague terms that officials are still evaluating whether the ECB is already doing enough. Needless to say, European equity markets reversed lower and the euro currency rallied sharply in the wake of his comments.

For the week, the S&P 500 rose +0.38%, the Dow Jones Industrial Average added +0.73%, and the MSCI EAFE (developed international) dropped -0.40%.  Here are the 3 stories this week that rose above the noise:

Economists See Revved-Up U.S. Economy Next Year   

U.S. economic growth is expected to increase from 2.2 percent this year to 3.1 percent in 2015, according to the latest forecast from the National Association for Business Economics (NABE). The economists surveyed also expect the unemployment rate to drop to 5.4 percent, but anticipate that inflation will remain low.

They were not as optimistic about global growth in 2015 and nearly half of the economists surveyed feel that foreign developed economies will experience slower growth for an extended period of time. According to the survey, the economists anticipate that Europe and Japan will experience GDP growth of around 1 percent in 2015.

Dollar Surge Endangers Global Debt Edifice, Warns BIS   

As summarized in a recent article, the Bank for International Settlements recently identified a growing risk to global financial stability triggered by the strengthening U.S. dollar. Many companies in emerging markets expanded their issuance of U.S. dollar-denominated debt over the past decade in response to general dollar weakness. 

However, as the U.S. dollar rises in value the debt burden of companies in emerging markets which have issued dollar-denominated debt will also rise, potentially straining global credit markets and creating financial market volatility. This is one risk worth watching closely in 2015.

US Manufacturers Still Outpacing Rest of World  

U.S. manufacturers barely slowed down in November even as major competitors around the world continued to scale back production. The Institute for Supply Management said its U.S. manufacturing index edged down to 58.7% last month from 59% in October. Yet any number above 50% signals expansion, and the latest reading kept the ISM index near a three-year high. Fourteen of the 18 industries tracked by ISM said business increased in November while the closely watched new orders component hit a three-month high.

Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team. First Allied Asset Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. First Allied Asset Management individuals who provide investment management services are not associated persons with any broker-dealer. 

International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.

Perspectives from Above the Noise – Week of December 1, 2014

In last week’s holiday-shortened schedule, economic data was highlighted by Wednesday’s initial jobless claims and durable goods orders. Weekly initial jobless claims rose 21,000 to the highest level since September. However, the four-week average of claims remained below 300,000 for the eleventh straight week. This week’s claims data also included the continuing claims figure that will be used to calculate the unemployment rate for November and showed 71,000 fewer continuing claims than last month, suggesting the headline unemployment rate could fall further when reported this Friday.

Last week’s trading was notable for a sharp plunge in oil prices following OPEC’s surprise decision to maintain output despite falling prices and excessive global supplies. The weakness in oil, which has pushed West Texas Intermediate crude near its lowest level since July 2009, has been exacerbated by signs of slowing global growth. The S&P GSCI Crude Oil commodity index is down more than 32% year to date.

For the week, the S&P 500 rose +0.20%, the Dow Jones Industrial Average added +0.10%, and the MSCI EAFE (developed international) increased +0.48%.

Here are the 3 stories this week that rose above the noise:

Black Friday Fatigue? Thanksgiving Weekend Sales Slide 11%

Spending over the four-day Thanksgiving weekend declined by an estimated 11% compared to last year, according to the National Retail Federation. Many analysts predicted strong growth in Black Friday sales this year because of rising consumer confidence and labor growth, falling energy costs, and the increase in retailers open on Thanksgiving. But it’s still possible for overall holiday season spending to increase compared to 2013.

Consumers might not be as enticed by Black Friday bargains as in years past because retailers now provide deep discounts on prices throughout the entire holiday season and also provide special online discounts.

Lower Gas Prices: How Big a Boost for the Economy?

A blog posting from The Wall Street Journal provides a nice summary of what impact lower oil prices are likely to have on the U.S. economy. The benefits that most businesses and consumers receive from falling energy prices are partially offset by headwinds potentially created from reduced investments by the domestic energy industry. However, as the energy industry still represents a relatively small percentage of employment, the net impact of lower oil prices is likely to be a 0.2 to 0.3 boost to economic growth in 2015 if the price of oil remains near current levels.

US Manufacturers Still Outpacing Rest of World

U.S. manufacturers barely slowed down in November even as major competitors around the world continued to scale back production. The Institute for Supply Management said its U.S. manufacturing index edged down to 58.7% last month from 59% in October. Yet any number above 50% signals expansion, and the latest reading kept the ISM index near a three-year high. Fourteen of the 18 industries tracked by ISM said business increased in November while the closely watched new orders component hit a three-month high.

Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team. First Allied Asset Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. First Allied Asset Management individuals who provide investment management services are not associated persons with any broker-dealer.

International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification

Perspectives from Above the Noise – Week of November 24, 2014

The market’s virtually uninterrupted rise since mid-October continued in the past week, with the S&P 500 rising four out of five days to close at another all-time high. Global monetary policy provided a strong catalyst for higher asset prices during the week, starting with Wednesday’s release of the Fed’s October meeting minutes revealing concern over a possible downward shift in longer-term inflation expectations. Some of the participants also noted that any downturn in inflation expectations “would be even more worrisome if growth faltered.”

So, how is the growth outlook shaping up? Well, for most of the world, growth is decelerating. The latest evidence was the purchasing managers’ index for the Eurozone, which unexpectedly dropped to a 16-month low in November, suggesting that GDP for the region is barely growing, and a drop in the new-orders component indicates that Europe’s growth may slow even further by the end of the year. Here in the U.S., though, the data has thus far been able to generally buck the global trend.

For the week, the S&P 500 rose +1.16%, the Dow Jones Industrial Average added +0.99%, and the MSCI EAFE (developed international) increased +1.03%.

Here are the 3 stories this week that rose above the noise:

Home Prices in 20 U.S. Cities Increase at a Slower Pace

The growth in U.S. home prices continues to decelerate as the S&P/Case-Shiller index of property values increased 4.9 percent from September 2013, down from last month’s 5.6 percent reading. The current growth represents the smallest gain since October 2012.

On a month-over-month basis, seasonally adjusted prices increased 0.3 percent in September. Most analysts believe the year-over-year gauge is a better indicator of trends in prices than the month-to-month data. Despite the recent decline, David Blitzer, chairman of the S&P index committee, stated, “with the economy looking better than a year ago, the housing outlook for 2015 is stable to slightly better.”

Why the Saudis Actually Like it When the Price of Oil Plummets

The price of crude oil has plummeted by 35 percent over the past year, easing energy costs to global consumers. This Thursday, the Organization of the Petroleum Exporting Countries (OPEC) meets to discuss possible output cuts to shore up the price of crude oil. However, analysts say the cartel’s largest producer, Saudi Arabia, is content to see U.S. shale oil producers suffer from low oil prices and will resist pressure to reduce output.

Low prices could potentially make U.S. shale oil production unsustainable and force U.S. producers out of business. With some analysts predicting first-half 2015 demand for OPEC crude oil at only 28-29 million barrels per day vs. the 30.9 million barrels a day the cartel produced last month, they say OPEC needs to cut 2 million barrels a day to balance the market. Absent a cut of this magnitude (which seems unlikely this week), oil prices may well be headed lower.

In Change of Strategy, China Cuts Interest Rate

The People’s Bank of China (PBOC) cut interest rates for the first time in over two years in an attempt to stabilize China’s slowing growth, ward off deflation, and assist local state-owned companies that are having trouble managing high debt burdens. China’s leadership was previously resistant to a rate cut based on fears that lower interest rates could potentially create a debt and property bubble.

In recent months, growth began to weaken and the property market has cooled. GDP growth slowed to 7.3 percent last quarter (below China’s target of 7.5 percent) and home prices declined in October year-over-year in 67 of the 70 largest cities in China.

Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.

International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.

Perspectives from Above the Noise – Week of November 17, 2014

Markets were little changed in the past week with stocks pausing from the furious rally that began in mid-October. For some perspective on how relentless the recent rally in equities has been, consider that the S&P 500 has closed above its five-day moving average for 21 consecutive days, the fourth-longest streak in the past 20 years. A number of other indicators also suggest the market is overbought and some further consolidation is likely in the short-term.
A relatively strong earnings season will enter the homestretch this week. With more than 90% of companies in the S&P 500 having reported third-quarter results, a very solid 74% have beaten earnings expectations according to data compiled by S&P Capital IQ. The encouraging earnings results reported by a range of companies have played a major role in boosting investor sentiment in recent weeks and it appears unlikely that there is any broad risk remaining from third-quarter earnings season.
For the week, the S&P 500 rose +0.39%, the Dow Jones Industrial Average added +0.35%, and the MSCI EAFE (developed international) gained +0.88%.
Here are the 3 stories this week that rose above the noise:
Consumer Sentiment in U.S. Increases More Than Forecast
Consumer confidence increased ahead of expectations this month and reached a seven-year high, which bodes well for retailers with the holiday shopping season only a few weeks away. Retailers have already seen a boost from rising consumer sentiment, as retail sales rebounded in October and increased by 0.3 percent compared to September.
Consumer sentiment has been boosted by the strengthening labor market, falling gasoline prices and record high stock prices. Despite stronger economic growth and falling unemployment, consumers appear pessimistic about the outlook for wage growth and inflation.
Mega-Mergers Popular Again on Wall Street
One potential sign of excessive risk taking that warrants close scrutiny is an ongoing surge in mergers and acquisitions. An article from The New York Times DealBook blog details the recent megadeals that have pushed the value of announced transactions in 2014 to the highest level since the dot-com boom. Given the recent history of merger booms preceding economic downturns many analysts are worried about the implications of this year’s surge in deal activity. 

The article provides a balanced view of the sustainability and risks associated with current wave of mergers and acquisitions and some reasons for optimism that the current boom will prove more sustainable than the past two cycles.
Abe Calls Early Election, Delays Sales Tax Increase
Japanese Prime Minister Shinzo Abe called an early election in a bid to extend his term and salvage his Abenomics policies after the country fell into recession. Abe also delayed for 18 months a second planned sales-tax increase after the first installment in April led consumer spending to stagnate and the economy to contract for two straight quarters.
Although he didn’t give an election date, observers believe he will probably pick December 14 for the election. For U.S. investors, the renewed weakness in Japan and Europe is being watched closely by the U.S. Federal Reserve and may delay its decision to raise interest rates toward the middle of next year.

Articles chosen and summarized by the First Allied Asset Management, Inc. investment
management team. First Allied Asset Management provides investment management and advisory services to a number of programs sponsored by First Allied Securities and First Allied Advisory Services. First Allied Asset Management individuals who provide investment management services are not associated persons with any broker-dealer.
International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. 

Perspectives from Above the Noise – Week of November 10, 2014

U.S. markets continued their recent surge in the past week, with the S&P 500 closing at a series of all-time highs. Tuesday’s mid-term elections turned out to be a big night for the Republicans, with the GOP taking control of the Senate and adding to its majority in the House. Despite the strong gains the GOP registered, it remains far from the two-thirds majority necessary to override a presidential veto, making continued gridlock on many issues a pretty likely scenario.

With the economic calendar somewhat light and earnings season passing its peak, the coming week may present an opportunity for the market to take a breather after the wild ride of recent weeks.  Expectations for the Fed’s first rate hike have been pushed out to the second half of 2015 following the market volatility of October and the comments of these officials will be scrutinized for any indications of a possible shift in the Fed’s thinking.

For the week, the S&P 500 rose +0.69%, the Dow Jones Industrial Average added +1.05%, and the MSCI EAFE (developed international) dropped -1.01%.

Here are the 3 stories this week that rose above the noise:

Budget Blues Fade as U.S. Fiscal Drag Ends After Election

Last week’s election results – which saw Republicans gain control of the Senate – paradoxically also may lead to a little extra spending from Washington. While the party opposes much federal spending as wasteful, it’s been more open to expanding military support. Moreover, states and cities are taking advantage of low interest rates to borrow money for roads, bridges and other infrastructure projects. Last year’s budget restraint was the strongest since the recession ended in June 2009, as Congress eliminated a payroll tax cut, raised income taxes on the wealthy and reined in spending.

The upshot is that the combined budgets of cities, states and the federal government will add 0.4 percent to annual growth in the fourth quarter of this year, after reducing it by 0.9 percent in the year-ago period, according to St. Louis based Macroeconomic Advisers. Over the next two years, state and municipal governments are expected to add about 300,000 jobs to payrolls, more than offsetting a probable 50,000 cut in the federal workforce, primarily from attrition in jobs not filled.

The Rise of Invisible Unemployment

While headline employment data has been generally solid throughout 2014, one troubling weakness that continued to show up in last week’s nonfarm payrolls report has been anemic wage growth. This article from The Atlantic provides a good summary of possible explanations for the weakness in wages, with the relative lack of improvement in the number of individuals working part-time for economic reasons an important indicator to watch in 2015.

The lack of wage growth has been a key factor in preventing concerns about an aggressive Fed tightening cycle from impacting investor sentiment and this article provides some evidence that wage growth may remain soft for the foreseeable future.

Full Housing Recovery May Not Happen Until 2018

The housing recovery still has a long way to go according to the most recent Zillow survey of 100 real estate professionals and economists. The consensus view is that home values might not reach their prerecession peak until 2018. The panelists place most of the blame for the slower-than-expected recovery on changing demographics and cash-strapped potential first-time homebuyers.

High student loan debt, rising rents, and strict lending standards are all cited as reasons why the housing market remains challenging for potential first-time homebuyers. The panelists predict that home values will finish this year 4.8 percent above 2013 levels and gain an average of 3.7 percent annually between 2015 and 2019.

Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.

International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.

Perspectives from Above the Noise – Week of November 3, 2014

The remarkable market recovery that began on October 15 gained even more steam in the past week with catalysts provided by central bank policy and a better-than-expected print for third quarter U.S. GDP.

Expectations that the Federal Reserve would take a somewhat more dovish stance in its latest policy statement in response to recent weakness in Europe were largely dashed when the statement was released on Wednesday. With the statement the Fed officially ended its latest quantitative easing program that began in September 2012 and ultimately added more than $1.6 trillion to its balance sheet.  In addition to mid-term election results, the upcoming week will be headlined by the release of October’s major economic data

For the week, the S&P 500 rose +2.72%, the Dow Jones Industrial Average rocketed +3.48%, and the MSCI EAFE (developed international) gained +2.24%.

Here are the 3 stories this week that rose above the noise: 

A Breakdown of How the Market Performs after Midterm Elections

Tuesday’s midterm elections will be closely monitored to see whether Republicans take control of the Senate from the Democrats, creating a unified Republican Congress. Historically, markets have performed well following midterm elections. Seasonality plays a part — since the end of World War II the November-April period has proven to be the strongest period for stocks, with an average 7.1 percent gain for the S&P 500.

However, Bank of Montreal notes that “midterm election years tend to see that performance get an extra boost, with stocks returning 16.3 percent over the same stretch.” Furthermore, S&P Capital IQ’s Sam Stovall points out that the combination of a Democratic president and a unified Republican Congress has been accompanied by the best average performance for the S&P 500 since 1945 and the second best since 1901.

Oil Hits Four-year Low Near $82 after Saudi Arabia Cuts U.S. Prices

Oil prices have been under steady pressure for several months and experienced another sharp drop this morning on news that Saudi Arabia is cutting its prices for the oil it sells to the United States. This Reuters article details the price reduction and provides some theories on potential ramifications of the move.

The price cut adds to evidence that OPEC will not curb output at its November 27 meeting despite falling prices and a very well-supplied market. This latest price drop has taken Brent crude to a four-year low, which should continue to pressure retail gasoline prices and provide a boost to consumer sentiment in the coming weeks.

Factories Spur U.S. Growth as World Markets Cool: Economy

U.S. manufacturing activity surged in October, as the Institute for Supply Management’s (ISM) factory index increased to 59 from 56.6 in September (above 50 signals expansion). Last month’s manufacturing activity matched its highest level since March 2011, indicating that the future looks bright for U.S. manufacturing despite slowing global growth.

The ISM New Orders index rose last month to its second-highest level since August 2009, providing added optimism that manufacturing will continue to be a strength for the U.S. economy in the coming months. Additionally, consumer demand will most likely get a boost from a strengthening job market and falling gasoline prices. The projected increase in consumer demand may provide a tailwind for U.S. manufacturing.

Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.

International investing involves additional risk, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification.