Stock Market Commentary
For the week of December 7, 2009
The major indexes ended the week higher after the Labor Department reported better-than-expected jobs data (see below). U.S. factory inventories rose in October for the first time in more than a year, and factory orders were up 0.6 percent, according to the Department of Commerce. Declines in commodity prices and related stocks caused by a strengthening dollar led to speculation that the U.S. Federal Reserve may need to consider raising interest rates, according to Reuters. For the week, the Dow gained 0.78 percent to close at 10,388.90. The S&P rose 1.36 percent to finish at 1,105.98, and the NASDAQ climbed 2.61 percent to end the week at 2,194.35.
Not So Bad – The U.S. economy lost 11,000 jobs in November, far below the 130,000 expected by analysts polled by Thomson Reuters and below October’s revised loss of 111,000 jobs. The U.S. unemployment rate dropped from 10.2 percent in October to 10 percent in November.
Golden Years – Americans that are working today expect to live an average of 21 years in retirement (Source: Wells Fargo, BTN Research).
How Long – Following the end of our nation’s eight-month recession in November 2001, the Federal Reserve first raised interest rates on June 30, 2004, or more than 2½ years later (Source: National Bureau of Economic Research, BTN Research).
Cyber Monday – Total retail sales over the 2009 Thanksgiving weekend were on par with a year ago, but the average amount spent per person was down. Retailers enjoyed a boost on the following Monday, dubbed “Cyber Monday” by the National Retail Federation five years ago, with online sales up about 14 percent above last year, according to the Coremetrics.
Bigger Numbers, Similar Ratio – The cost of tuition, fees, room and board at an average private college for the 2009-10 school year is $35,636, 2.3 times the $15,213 cost that a college student would pay this year at an average in-state public college. Thirty years ago (i.e., the 1979-80 school year), the cost at an average private college ($5,013) was 2.2 times the cost at an average in-state public college ($2,328) (Source: College Board, BTN Research).
WEEKLY FOCUS – Evaluating Employer Buy-Out Packages
What if your employer announced it wants to eliminate several hundred jobs by offering buyouts, also known as early retirement packages, to a group of employees, including you? You had no intention of leaving – you like your job, you’re paid well, your benefits are good – but your employer considers you expendable. To paraphrase a famous rock anthem – should you stay or should you go?
Buyouts often occur after a merger when duplicate positions need to be eliminated. Companies may offer a staying bonus to those who don’t jump ship to ensure they have adequate staff to complete the transition. If you accept a staying bonus, you should still write your resume and check your finances to make sure you can survive being terminated when the transition is done.
Evaluating the financial implications of buyout packages can be difficult enough if you’re more than happy to go. It gets complicated on the emotional side when you intended to be loyal butnow see that loyalty has been betrayed. So consider first the security of your job if you decide to stay. Could it be eliminated later with a less attractive severance package or none at all?
Your age and life stage will greatly impact your decision. You may be young enough that retirement now isn’t an option, so the severance will be your paycheck while you find another job. Or you may have young children and decide severance will provide income while you stay at home for a few years. If you were looking at retirement within a few years anyway, this may give you the opportunity to start early.
Of course, you’ll need to evaluate the financial pros and cons of accepting or rejecting the offer. That means more than just the bottom-line cash, which companies usually calculate based on seniority and years of service. Consider bonuses, stock options, paid time off and insurance premium subsidies that you will no longer receive. Consult a tax specialist about the impact of receiving a lump sum or stretching it out over time – severance or early retirement pay is considered taxable income.
Even if you decide to stay, you may determine a need for greater cash reserves or other financial revisions to prepare for moving to another job if your employment future looks uncertain. Call us to determine how your goals and objectives may change in light of a layoff or buyout.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities America. SAI# 301898