It doesn’t really matter! (I guess)

What I’m referring to is the U.S. Presidential election and the U.S. stock market.

There is a saying “on Wall Street” that the stock market projects six (6) months “down the road.” This means that “the markets” are already anticipating the future or have “a forward looking view.” In other words, “the market” is probably not responding to the news which is happening now (e.g. July 20, 2016), or this week or perhaps even this last month, but rather “the markets” are acting positively or negatively towards “the future”.

The U.S. Dow Jones Industrial Average (DJIA) is bumping it’s head up against ANOTHER “all-time high.” To quote the New York Times, “The Dow Jones industrial average inched 25.96 points, or 0.1 percent, higher for its eighth consecutive gain to set another record at 18,559.01.”

Here’s how the Canadian newspaper, the Globe and Mail relates the U.S. stock market in relation to the U.S. presidential election.

CNBC has an interesting “take” on the stock market vs. presidential election phenomenon: History shows stocks rally

If you are interested in “market indicators”, here are two (2) blog posts which focus on this subject:

What are Economic Indicators?

U.S. Economic Indicators

Numbers #9: U.S. Economic Indicators

All you ever wanted to know about economic indicators! Well, maybe. 

Here’s the list of official economic statistics supplied by the U.S. Census Bureau:

Before we get any further into the nitty-gritty of the numbers, here are some definitions from the folks at

As if putting the raw numbers into some context isn’t difficult enough, these numbers are not “static”, in other words they can change. “The powers to be” can revise them up or down! It’s not a whimsy thing; at least I don’t think so. Factors, when seen in the “rear view mirror” look differently, so that’s why you may hear about “adjusted” economic numbers. It happens frequently! A frequent example of an adjusted economic indicator is the number of unemployed. This number is calculated by the U.S. Department of Labor:

There are three categories of economic indicators:

  • Leading economic indicators
  • Coincident economic indicators
  • Lagging economic indicators, as usual, does a good job of defining them: simplifies it a little bit by highlighting five economic indicators:

  1. Personal income and outlays
  2. Retail sales
  3. Consumer price index
  4. New-home sales
  5. Employment

Read more:

The Conference Board also publishes many economic indicators:

“The composite indexes of leading, coincident, and lagging indicators produced by The Conference Board are summary statistics for the U.S. economy. They are constructed by averaging their individual components in order to smooth out a good part of the volatility of the individual series.  Historically, the cyclical turning points in the leading index have occurred before those in aggregate economic activity, cyclical turning points in the coincident index have occurred at about the same time as those in aggregate economic activity, and cyclical turning points in the lagging index generally have occurred after those in aggregate economic activity.”  Web site:

Here’s a white paper written by the Federal Reserve Bank of Kansas City. It highlights: “Why  do  central  banks  collect  and  analyze  so  many  indicators?  To understand the answer, it is first important to recognize that monetary policy affects economic activity and inflation with long and variable lags.”

This “stuff” may be boring but it is what “drives” the political and economic policies of the United States and other countries of the world. When the politicians talk about “free trade” or interject trade policies in the country’s economic system, it affects “the numbers.” Whenever the Federal Reserve Bank interjects a change in monetary policy it affects “the numbers.” Literally nothing in our age is invoked as economic, wage, banking, foreign, national, or other “labeled” policy that does not affect other economic indicator numbers, which are the life-line indicators of our nation’s health. In an earlier posting, By the Numbers #3: Those Naughty Market Indices, They Move Up and Down!, I referenced a life-support monitor used in a hospital as a way of identifying and monitoring the health of the stock market. I guess the same analogy can be used for monitoring the nation’s economic ‘state of health”.

What’s scary is that the “life monitor” came so close to “straight-lining” in the year 2009. Below are posts that I wrote in 2015 that reference the events and “stop-gaps” that were instituted and invoked to avoid the collapse of the U.S. economy in 2009. The documentary producers  at “Frontline” did a great job of summarizing many of these actions and events.

There are several postings involved, enjoy viewing them separately as each one is an hour-long documentary. Each posting link is indicated in the posting:  Great Recession Retrospective Redux

Popcorn optional, actually a scotch and water might be more appropriate while viewing!


P.S. If you’re up to it, here’s  “A Guide to Tracking the U.S. Economy” written by Kevin L. Kliesen of the Federal Reserve Bank of St. Louis (dated 2014):



Numbers #8: Measuring the Markets

There are many “models” used to measure the pulse of the United States stock market. Below are some of them. There are over 6,000 stocks traded over the New York stock exchange (NYSE). Here’s a laundry list of some of the U.S. stock markets indices. Each index contains a different “sampling” of stocks, however, any one stock can be listed in more than one index “basket”, e.g. Apple is traded on the NASDAQ market and is also included on the Dow Jones Industrial Index of 30 stocks. To be clear, the NASDAQ is a stock trading market place and the Dow Jones Industrial Average is a listing of 30 stocks.

New York Stock Exchange (NYSE)
“A stock exchange based in New York City, which is considered the largest equities-based exchange in the world based on total market capitalization of its listed securities. Formerly run as a private organization, the NYSE became a public entity in 2005 following the acquisition of electronic trading exchange Archipelago. The parent company of the New York Stock Exchange is now called NYSE Euronext, following a merger with the European exchange in 2007.”
Read more: New York Stock Exchange (NYSE) Definition | Investopedia

“A global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks. Nasdaq was created by the National Association of Securities Dealers (NASD) to enable investors to trade securities on a computerized, speedy and transparent system, and commenced operations on February 8, 1971. The term “Nasdaq” is also used to refer to the Nasdaq Composite, an index of more than 3,000 stocks listed on the Nasdaq exchange that includes the world’s foremost technology and biotech giants such as Apple, Google, Microsoft, Oracle, Amazon, Intel and Amgen.” Read more: Nasdaq Definition | Investopedia

Dow Jones Industrial Average (DJIA)
“The DJIA is a price-weighted index, which means that the sum of the component stock prices is divided by a divisor. Instead of dividing by the number of stocks in the average, as is done in an arithmetic average, the Dow divisor is used. The purpose of this divisor, which is continually adjusted, is to smooth out the effects of stock splits and dividends. The result is that the DJIA is affected only by changes in the stock prices, so stocks with a higher share price have a larger impact on the Dow’s movements.

For example, if the DJIA rose by 50 points, it means that the cost of purchasing the 30 stocks in the index was $50 higher than the cost of purchasing those same 30 stocks yesterday, taking into account stock splits and dividends. In other words, those stocks are more valuable today than they were the previous day. Over time, the DJIA can be used as a benchmark for the economy.” Read more: What does the Dow Jones Industrial Average measure? | Investopedia

Dow Jones Utilities Index
“The Dow Jones Utility Average is a price-weighted average of 15 utility stocks traded in the United States. The DJUA was started back in 1929.” Read more: Dow Jones Utility Average (DJUA) Definition | Investopedia

Value Line Index
“A stock index containing approximately 1,675 companies from the NYSE, American Stock Exchange, Nasdaq and over-the-counter market. The Value Line Index has two forms: The Value Line Geometric Composite Index (the original equally-weighted index) and the Value Line Arithmetic Composite Index (an index which mirrors changes if a portfolio held equal amounts of stock.) These indexes are typically published in the Value Line Investment Survey, created by Arnold Bernhard, the founder and CEO of Value Line Inc.” Read more: Value Line Index Definition | Investopedia

S&P Small Cap Index
“An index of small-cap stocks managed by Standard and Poor’s. The S&P 600 SmallCap Index covers a broad range of small cap stocks in the United States. The index is weighted according to market capitalization and covers about 3-4% of the total market for equities in the United States.” Read more: S&P 600 Definition | Investopedia

S&P MidCap Index
“This Standard & Poor’s index serves as a barometer for the U.S. mid-cap equities sector and is the most widely followed mid-cap index in existence. To be included in the index, a stock must have a total market capitalization that ranges from roughly $750 million to $3 billion dollars. Stocks in this index represent household names from all major industries including energy, technology, healthcare, financial and manufacturing.” Read more: S&P MidCap 400 Index Definition | Investopedia

Russell 2000 Index
“An index measuring the performance approximately 2,000 small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. The Russell 2000 serves as a benchmark for small-cap stocks in the United States.” Read more: Russell 2000 Index Definition | Investopedia

Dow Jones Transportation Index (DJTA)
“A price-weighted average of 20 transportation stocks traded in the United States. The Dow Jones Transportation Average (DJTA) is the oldest U.S. stock index, compiled in 1884 by Charles Dow, co-founder of Dow Jones & Company. The index initially consisted of nine railroad companies – a testament to their dominance of the U.S. transportation sector in the late 19th and early 20th centuries – and two non-railroad companies. In addition to railroads, the index now includes airlines, trucking, marine transportation, delivery services and logistics companies.”
Read more: Dow Jones Transportation Average (DJTA) Definition | Investopedia

Of further interest: By the Numbers #3: Those Naughty Market Indices, They Move Up and Down!

Numbers #6: Producer Price Index (PPI)

“Excluding food and energy”, how many times have you heard that phrase when there is talk about inflation? Well, here is where that “exclusion” happens…. in calculating the Producer Price Index (PPI).

Wow, this is an incredibly complicated economic measurement of U.S. productivity. It not only tracks the price of “finished goods,” it tracks prices all along the “supply chain” using the “intermediate goods index” and the “crude goods index.”  Dan Caplinger of “The Motley Fool” sums up the function of the PPI nicely, “economists look to the PPI to see evidence of price pressure at the industrial level.” His article entitled “Understanding Economic Data: Producer Price Index” is a short but very informative tutorial on the PPI.

I found this a difficult economic indicator to “wrap around my brain” but hope that you find it informative. As I personally go through the learning curve on all these economic indicators along with you, the reader, I think the waters get murkier rather than clearer, as I  hoped. If you dive into the details of compiling the PPI, you will see how “the numbers” may be interpreted or calculated differently by difference parties.

A comparison

One might ask, “What’s the difference between the Producer Price Index (PPI) and the Consumer Price Index (CPI)?”  The following table gives some highlights of these differences.

Consumer Price Index Producer Price Index
Includes goods and services provided by business or government, where explicit user charges are paid for consumers. Personal consumption portion includes all marketable output sold by domestic producers for households.
Includes imports Excludes imports
Only includes components of personal consumption directly paid for by consumer Includes components of personal consumption that may not be paid for by consumer
Sales and other taxes paid by consumers are part of household expenditure and included Excludes taxes

Source: Bureau of Labor Statistics

A definition

The Producer Price Index (PPI) is a family of indexes that measures the average change over time in selling prices received by domestic producers of goods and services. PPI measures price change from the perspective of the seller. This contrasts with other measures, such as the Consumer Price Index (CPI), that measure price change from the purchaser’s perspective. Sellers’ and purchasers’ prices may differ due to government subsidies, sales and excise taxes, and distribution costs. Source:


About 10,000 PPIs for individual products and groups of products are released each month. PPIs are available for the output of nearly all industries in the goods-producing sectors of the U.S. economy— mining, manufacturing, agriculture, fishing, and forestry— as well as natural gas, electricity, construction, and goods competitive with those made in the producing sectors, such as waste and scrap materials. The PPI program covers approximately 72 percent of the service sector’s output, as measured by revenue reported in the 2007 Economic Census. Data includes industries in the following sectors: wholesale and retail trade; transportation and warehousing; information; finance and insurance; real estate brokering, rental, and leasing; professional, scientific, and technical services; administrative, support, and waste management services; health care and social assistance; and accommodation.

How is the PPI used?

Three major uses are:

As an economic indicator: The PPIs capture price movements prior to the retail level. Therefore, they may foreshadow subsequent price changes for businesses and consumers. The President, Congress, and the Federal Reserve employ these data in formulating fiscal and monetary policies.

As a deflator of other economic series: PPIs are used to adjust other economic time series for price changes and to translate those series into inflation-free dollars. For example, constant-dollar gross domestic product data are estimated using deflators based on PPI data.

As the basis for contract escalation.: PPI data are commonly used in escalating purchase and sales contracts. These contracts typically specify dollar amounts to be paid at some point in the future. It is often desirable to include an escalation clause that accounts for increases in input prices. For example, a long-term contract for bread may be escalated for changes in wheat prices by applying the percent change in the PPI for wheat to the contracted price for bread. For more information on contract escalation and PPIs, see Escalation Guide for Contracting Parties.  Source:

The above information comes from the U.S. Government’s Bureau of Labor Statistics

Here’s a nice overview of what PPI is: Producer Price Index: CNBC Explains.  Author is Mark Koba, Senior Editor CNBC.

Eye Crosser #11: Consumer Confidence vs. Consumer Sentiment?

Now this is truly an “eye crosser” candidate.  To me, the amateur investor, the two concepts surely seem interchangeable. They sort of “sound the same.” But there is a difference between them. The intent of both survey/indices is to track consumer buying habits and attitude or feelings about the current economy. Here are two differences between the survey/indices:

  1. Consumer Confidence index(r):
  •             Developed by the Conference Board
  •             Data developed through mail-in surveys to 5,000 households
  1. Consumer Sentiment index:
  •             Developed by the University of Michigan
  •             Data developed by telephone survey of 500 people

More details:

  1. The University of Michigan Consumer Sentiment Index

University of Michigan Surveys of Consumers is a consumer confidence index published monthly by the University of Michigan. The index is normalized to have a value of 100 in December 1964.

View the current University of Michigan survey press release here.

Definition of “Consumer Sentiment:”

A statistical measurement and economic indicator of the overall health of the economy as determined by consumer opinion. Consumer sentiment takes into account an individual’s feelings toward his or her own current financial health, the health of the economy in the short term and the prospects for longer term economic growth.  Source: Consumer Sentiment Definition | Investopedia 

  1. The U.S. Consumer Confidence index(r)  (CCI) is an indicator designed to measure consumer confidence, which is defined as the degree of optimism on the state of the economy that consumers are expressing through their activities of savings and spending.

Definition of  Consumer Confidence Index(r) – CCI

A survey by the Conference Board that measures how optimistic or pessimistic consumers are with respect to the economy in the near future.

Source: Consumer Confidence Index(r)  (CCI) Definition | Investopedia

Read more:   What’s the difference between consumer confidence and consumer sentiment?

In 2006, the Philadelphia Federal Reserve Bank issued a newsletter called Business Review covering the topic: Consumer Confidence Surveys: Can they help us forecast consumer spending in real time? Below is a link to the newsletter:


Philadelphia Fed:

Author note: Any updated facts appreciated since this is an overview posting.

Numbers #5: The Real Low-down on Real Estate Data

This posting is “everything you’d ever want to know about real estate. Well, not really, but it probably comes darn close to covering the landscape. I guess this posting could be considered a quintuple “eye crosser!”

There are five (5) numbers tracked by the financial and economic gurus in calculating the various reports, predictions, reflections, and opinions regarding the U.S. housing market. They are:

  1. S&P/Case-Shiller home price index which tracks the price of existing? Homes for sale.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate both nationally as well as in 20 metropolitan regions.  Source:

  1. New Home Sales U.S. Census Bureau and Department of Housing and Urban Development (HUD) reports new home sales (

New residential sales for July 2015: Press Release

  1. New Housing Starts U.S. Census Bureau and the Department of Housing and Urban Development (HUD) track new housing starts

New residential construction for July 2015: Press Release

  1. Number of mortgage applications: Mortgage Bankers Association reports on mortgage applications.

Press Release:   New mortgage applications

  1. Existing Home Sales The National Association of Realtors reports on existing home sales

Press Release: Pending Sales July 2015

In another posting, I wrote about “Shadow Banking.” Shadow Banking is a rather scary financial mechanism in my hunble opinion. Well, this time I discovered “Shadow Inventory.”  Here is the Department of Housing and Urban Development a.k.a. HUD’s definition for “shadow inventory”:

For our purposes, we define the shadow inventory as housing units being held off the market by lenders, either in the form of Real Estate Owned (REO) properties not offered for sale or in the form of mortgages delinquent for more than X months on which the lenders have not foreclosed.

Source: U.S. Department of Housing and Urban Development

HUD has published a “white paper” regarding this subject: Chasing Shadow Inventory: Sloppy Foreclosures and Unintended Consequences

Source: Department of Housing and Urban Development

Numbers #3: Those Naughty Market Indices, They Move Up and Down!

heart monitor

The three (3) most widely watched U.S. market indices are the Standard and Poor’s (S&P) 500, the DOW Jones Industrial Average and the NASDAQ.

Since analogies are a great way to explain concepts, I think that picturing the ten (10) Standard & Poor’s  (S&P) market sectors as a vital signs monitor would be a graphic visualization. Not that I’m insinuating that the U.S. economy is a “patient”…. at least not right now.

The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. There is over USD 7.8 trillion benchmarked to the index, with index assets comprising approximately USD 2.2 trillion of this total. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

Quote Source:  Standard & Poor’s Index

Anyway, the S&P 500 index consists of ten (10)  industrial/commercial sectors of publicly traded common stock.  The ten sectors of the S&P 500 are:

  • Consumer Discretionary
  • Consumer Staples
  • Energy
  • Financials
  • Healthcare
  • Information Technology
  • Industrials
  • Materials
  • Telecommunication Servies
  • Utilities

On the other hand, the DOW Jones Industrial Average (the DOW) consists of only thirty (30) publicly traded stocks and they are not all industrial companies as the index name implies. The thirty (30) stock components (companies) do change, although not very often.  A look at the history of  Dow listings since inception in 1884  is an interesting “portal” into how the industrial age and new technologies changed the landscape of the United States over the last one hundred years. Just this year 2015, Apple Inc. was added to the DOW. The DOW Industrial Average is indexed by the price of each stock. Thus the Dow Jones Industrial Average (DJIA) changes daily and may move abruptly up or down based upon the price of each DOW “component.” Apple Inc. is such a highly priced stock at this point in time it can “move” the DJIA value up or down quite a bit just based on Apple’s pricing activity for the day! So even though there are 29 other corporate stocks on the DJIA index, Apple because of it’s high capitalization* can greatly affect the DJIA on any one day.

*DEFINITION of ‘Market Capitalization’
“The total dollar market value of all of a company’s outstanding shares. Market capitalization is calculated by multiplying a company’s shares outstanding by the current market price of one share. The investment community uses this figure to determine a company’s size, as opposed to sales or total asset figures.”  Source: Market Capitalization Definition | Investopedia

The third market index I mentioned above is the NASDAQ. The NASDAQ is a very “technology heavy” index meaning many of the hardware/software and high tech publicly traded companies are listed here. The NASDAQ is actually an electronic stock exchange  just like the New York Stock Exchange (NYSE), but the NASDAQ does not have a traditional physical trading floor like the NYSE does. To be listed on the NYSE, a company must meet certain capitalization criteria. Thus, new companies that become public many times list on the NASDAQ exchange first and then move to the NYSE after meeting its listing criteria. Some companies such as Apple and Microsoft still list on the NASDAQ even though they would qualify to be listed on the NYSE exchange.  However, both Apple and Microsoft qualify to be listed on the Dow 30!