TIME stocks

Jobs Confidence Gives Big Boost to Stock Market

A trader on the floor of the New York Stock Exchange on Dec. 22, 2014.
A trader on the floor of the New York Stock Exchange on Dec. 22, 2014. Andrew Burton—2014 Getty Images

The Dow Jones is once again inching toward the 18,000-point mark

Tech stocks and growing confidence in the job market helped to propel the S&P 500 and Dow Jones Industrial Average to record highs Monday.

The S&P 500 gained 0.4% to finish at 2,078.54. The Dow Jones rose 155 points, or 0.9%, to end the day at 17,959.44.

The U.S. market rose broadly on Monday after posting huge gains to close out the previous week, effectively rebounding from a seven-day sell-off earlier this month.

Early in the day, the Gallup polling organization reported that confidence in the job market had hit its highest point since the recession. Meanwhile. Investors seemed to shrug off the news that existing home sales in the U.S. dropped 6.1% in November.

Facebook and Intel both shot up by roughly 2% on Monday as tech companies helped spur the day’s rally.

Markets got a major boost last week when the Federal Reserve said it would take a patient, measured approach to its planned interest rate hike coming at some point in 2015.

The S&P 500 recent performance is a major turnaround from the market retreat earlier this month, when the index dipped below the 2,000-point mark. The index is up more than 100 points, or 5.4%, since the middle of last week, when the market saw some of its biggest gains in years.

Meanwhile, the Dow Jones Industrial Average is also riding a huge turnaround from previous weeks with more than 888 points gained — a 5.2% swing — since last Wednesday. The Dow Jones is tantalizingly close to crossing for the first time the 18,000-point mark — a symbolic milestone the index approached two weeks ago before the market began to sink.

The Nasdaq composite also recorded its fourth-straight day of gains, rising 16 points, or 0.3%, to finish Monday at 4,781.42. The tech-heavy index is also up more than 5% since the middle of last week and has gained more than 230 points over that period.

This article originally appeared on Fortune.com

MONEY Ask the Expert

How to Invest an Inheritance

Investing illustration
Robert A. Di Ieso, Jr.

Q: I’m 22 years old and inherited quite a bit of money from a parent who passed away. What is the best thing to do with the money in terms of investing and long-term growth? — Val

Step One:
Before all else, you want to look at how this money fits into your overall finances, says Ken Moraif, a certified financial planner and senior advisor with Dallas wealth management firm Money Matters.

Do you have high-interest debt, such as a car loan or credit cards? If you do, it makes sense to use some of this gift to pay off the debt, says Moraif — but don’t use it as a license to overspend.

On the other hand, if you have a mortgage outstanding, hang onto that. After factoring for low rates and tax deductions for interest on that loan, your inheritance is better put to work elsewhere. Ditto for student loans, for which interest may also be tax deductible.

Step Two:
Take a look at your cash cushion. If you don’t have one, consider tucking away a small portion of your inheritance in a savings account. Ideally, you want to set aside enough to cover three to six months of expenses. By keeping some cash on the sidelines, you won’t have to tap your investments (perhaps at an inopportune time) if you get into a bind.

Step Three:
Before you think about specific investments, you’ll want to figure out the best investment vehicle for you. If you have access to a tax-advantaged 401(k) retirement plan, bump up your contributions so you’re on track to contribute the maximum ($18,000 in 2015).

The money will need to come from your paycheck, says Moraif, but you can use some of your inheritance to supplement your income if need be. Likewise, you can also set up a Roth IRA and tuck away up to $5,500 a year.

In a Roth, you won’t be able to make tax-free contributions, but your investments will grow tax free and won’t be subject to tax when you withdraw – assuming you do so after age 59½. “You want to take full advantage of any tax breaks,” says Moraif. “Those are grand slams.”

Step Four:
With the ground work laid, then you can finally look at where exactly to invest your money. The answer will depend on how much you inherited and how much you ultimately think you need.

If you are looking for a single place to park your inheritance over the long term, look for a low-cost index fund that offers broad, inexpensive exposure. The Vanguard Total Market Index fund (VTSMX), for example, holds more than 3,700 U.S. stocks of all sizes, across virtually all sectors.

This is a good place to start, but you will eventually want to look at further diversifying with international stock fund, alternative funds and even bond funds. If your retirement plan or brokerage offers target-date funds, this is one way to get the right balance. These funds base their allocation (mix of stocks and bonds) for your target retirement age and automatically shift the allocation as you get closer to your retirement date.

Of course, depending on just how large of an inheritance you’re talking about, you may want a more tailored allocation – one that is just aggressive enough to get your nest egg to where you need it.

“Your asset allocation should be a function of your hurdle rate,” he says. “You only want to take as much risk as is necessary to accomplish your financial goals.”

Read next: Buying or Selling a Home in 2015? Here’s What You Need to Know

TIME stocks

Biggest Gains for U.S. Stocks in Years

Traders on the floor of the New York Stock Exchange on Dec. 18, 2014.
Traders on the floor of the New York Stock Exchange on Dec. 18, 2014. Andrew Burton—Getty Images

The rally marked the biggest two-day increase for the Dow Jones index in three years

U.S. stock indexes surged Thursday, with the Dow rallying over 400 points, driven higher by reassurances from the Federal Reserve that it won’t imminently raise interest rates.

The broad S&P 500 index posted its biggest jump in nearly two years, extending a Fed-fueled rally from the previous day, as tech shares gained after stronger-than-expected results from business software giant Oracle.

The Dow Industrials also posted big gains following a rally in the prior trading session, marking the biggest two-session percent increase for blue-chip index since November 2011, according to The Wall Street Journal.

The Dow Jones industrial average closed the day up 421 points, or 2.4%, while the S&P 500 gained 48 points, or 2.4%, and the Nasdaq composite added 104 points, or 2.2%.

Stock indexes rallied as investors continued to find good cheer in the Federal Reserve’s accommodative approach to monetary policy. On Wednesday, the Fed said it would be patient about the timing of its first rate hike, suggesting its expected increases will be slow and steady.

—Reuters contributed to this report.

This article originally appeared on Fortune.com

TIME stocks

Cruise Line Shares Sail Higher as U.S., Cuba Relations Improve

Carnival's Breeze cruise ship stands docked prior to departure in Miami, Florida on March 9, 2014.
Carnival's Breeze cruise ship stands docked prior to departure in Miami, Florida on March 9, 2014. Bloomberg—Bloomberg via Getty Images

Investors place bet on cruise operator shares even though tourism is still banned

Shares of cruise-line operators sailed to big gains on Wednesday as investors placed a bet that improving relations between the U.S. and Cuba could lead to new opportunities for tourism.

Shares of Carnival, Norwegian Cruise Line and Royal Caribbean all rose in early trading Wednesday, outpacing the Dow Jones Industrial Average, after the Obama administration said it plans to lift many of its existing travel restrictions on Cuba.

The new regulations will make it easier for Americans to visit to Cuba under the 12 categories of travel that are currently allowed, The Wall Street Journal reported, though it isn’t immediately clear if or when the island will be open for mass tourism. Some kinds of tourism are still banned, according to various media reports,.

Still, Cuba is appealing to companies with the most to gain from the increased travel. The tropical island’s attractive beaches and proximity to the United States makes it a potential vacation hotspot. The Caribbean is already the largest cruise line market in the world, and Americans hop on the industry’s bulky ships more than any other nation.

Some of the cruise line operators already have strong links to the Caribbean. For example, nearly all of Norwegian’s ships serve the region. The Caribbean also makes up roughly 35% of Carnival’s passenger capacity, more than any other region. That means that if the U.S. were to allow its citizens to freely visit Cuba, many of the cruise industry’s ships are already in prime position to dock at Havana and other Cuban cities.

This article originally appeared on Fortune.com

TIME stocks

Dow Jumps After Fed Pledges Patience in Rate Hikes

Dow Jones Average Follows Foreign Markets And Closes Lower
Traders work on the floor of the New York Stock Exchange during the afternoon of Dec. 9, 2014 in New York City. Andrew Burton—Getty Images

(NEW YORK) — The Dow Jones industrial average surged as much as 300 points after the Federal Reserve signaled it was edging closer to raising interest rates because of a strengthening U.S. economy, but promised to be “patient” in its approach.

The Fed says this approach is consistent with what it called its “previous” guidance that it expected to keep the rate near zero for a “considerable time.”

The Dow was up 288 points, or 1.7 percent, to 17,356 when markets closed Thursday. It rose as much as 303 points shortly after the announcement.

The Fed gave no specific guidance on when the first rate hike might occur.

MONEY Taxes

How to Keep Stock Gains From Hiking Your Tax Bill

By following a few simple steps, you can make sure gains in your portfolio don't result in a big gain in your tax bill.

MONEY Federal Reserve

What Will the Fed Do Today? These Five Numbers Can Tell Us

With the economy and job markets finally looking healthy, the Federal Reserve may signal its first interest rate hike in years.

While you’ve been doing your Christmas shopping, the Federal Reserve’s Open Markets Committee — the club of officials who set short-term interest rates — has been meeting in Washington.

With the economy finally humming along, and interest rates still close to zero, market watchers are wondering how much longer the Fed will hold out before signaling its first rate hike since before the financial crisis.

That step isn’t likely to be taken Wednesday, when the two-day meeting concludes and the Fed issues an official statement. But economists do expect a significant change in the language that the Fed uses to telegraphs its policies.

In particular, the central bank has consistently stated that it will keep rates low for a “considerable time.” But a recent survey conducted by Bloomberg found that four-fifths of economists believe the Fed will drop the phrase today in order to signal a more aggressive time table — and that rates are actually likely to rise in the middle of next year.

In the meantime, here are five data points the Committee is likely discussing. The statement comes out at 2 p.m.

 

GDP

GDP

The economy is growing at a healthy pace. After a blip earlier this year — widely attributed to 2013’s severe winter — the economy grew 3.9% in the third quarter. Hiking interest rates would presumably help fight off unwanted inflation. But it would also slow economic growth and could even throw the country back into a recession. That was a much bigger risk when growth was crawling along at 1% to 2% rate. With growth close to 4%, the Fed may finally be getting ready to move.

 

Payroll

Jobs

Of course, GDP growth doesn’t mean much if you can’t actually get a job. And the employment picture has been downright sluggish in recent years, even at times when the broader economy was showing signs of life. But that’s finally started to change. The most recent jobs report, which showed the economy adding 321,000 jobs in November, was widely regarded as one of the best in years.

 

Inflation

Inflation

While GDP and jobs growth may be robust enough to justify an interest rate hike, the Fed may remain cautious for several reasons. The first one is that there is not much forcing its hand. Interest rates hikes are the central bank’s main weapon for fighting inflation. But with prices rising at less than 2%, there’s not much inflation to fight. That’s good news, meaning the Fed has flexibility to keep rates low if it seems helpful.

 

stocks

Stocks

Like the economy more broadly, the stock market is doing well — up about 12% so far this year. Nonetheless the Fed will want to avoid roiling markets with unexpected news. That’s what happened during 2013’s “taper tantrum” when markets slumped after the Fed let slip plans to taper off its stimulative bond purchases. Since economists are widely expecting the Fed to hint at higher interest rates, that seems unlikely this time…but markets are always fickle.

 

oil

Oil

While the U.S. may be looking rosier, there’s still plenty to worry about in the rest of the world. One dramatic manifestation of these fears: the sudden, sharp drop in oil prices. Booming economies tend to use a lot of energy. Weakening ones less so. In many ways cheap oil helps the U.S. It’s certainly been a boon to Detroit. But it can also have destabilizing effects. It’s the key reason the ruble has crashed in the past few days. It’s also the prime suspect in the U.S. stock market swoon in past two weeks. Shares have fallen nearly 5% since Dec. 5, including 112 points on Tuesday. Those jitters are one more reason the Fed may choose to tread carefully.

MONEY Food & Drink

Chipotle CEO Freely Admits He’s Unsure About the Company’s Future

A restaurant worker fills an order at a Chipotle restaurant in Miami, Florida.
Joe Raedle—Getty Images

And that's great news for investors.

When Chipotle Mexican Grill CHIPOTLE MEXICAN GRILL INC. CMG 2.493% released third-quarter results in October, the numbers were awe-inspiring.

Revenue jumped 31.1% year over year to $1.08 billion, helped by an amazing 19.8% increase in comparable-restaurant sales. Meanwhile, restaurant level operating margin climbed by 200 basis points to 28.8%, cash generated from operating activities rose 41.4% to $549.8 million, and net income increased a whopping 56.9% to $130.8 million.

However, the market was much less enthusiastic about Chipotle’s guidance, driving shares down 7% after the burrito maker called for 2015 comparable-restaurant sales to increase in the low- to mid-single digit range. During the subsequent conference call, analysts unsurprisingly grilled Chipotle management on exactly how they reached that range. After all, it seemed especially conservative considering Chipotle’s Q3 performance had just capped a six-quarter streak of accelerating comps growth.

Chipotle doesn’t have a clue

Here’s how Chipotle Chairman and co-CEO Steve Ells responded:

We don’t spend a lot of time trying to predict how we are going to leap over that number. What we do is, we take our current sales trends and we literally just push them out over the next 14 months — for the rest of this year and then for all of 2015. … This is the way we have always predicted comps. … [W]e really don’t have a magic approach or a crystal ball to predict how you are going to exceed like a 19% comp, for example.

Translation? Chipotle is happily ignorant when it comes to determining precisely what future comps will be. The company simply extrapolate sales trends out, as it always has, to get a rough ballpark figure of what the coming year might look like.

Why this is a great thing

And to be honest, though that might seem unsettling, I think Chipotle investors should be perfectly happy with this approach for two reasons.

First, though it’s true comps give us an idea of how effectively Chipotle is drawing in new customers and keeping them coming back for more, it’s far from a perfect metric to gauge the long-term prospects of the business. Comps tend to naturally ebb and flow with irregular events like price increases, as well as difficult (or easy) year-over-year comparisons. In the end, I’m relatively unconcerned that Chipotle’s not-so-scientific approach at modeling comps predicts it may finally decelerate growth from 19.8% — which, by the way, was its best result since going public in 2006.

On the other hand, I suppose near-term disappointments with comparable-store sales do create buying windows for opportunistic investors.

Second, note Chipotle is focusing on what really matters instead. Ells elaborated:

We are constantly working on improving our customer experience, we are constantly working on improving our people culture, and we are constantly looking to upgrade the quality of our ingredients. … So we are constantly working on the things that will enhance the dining experience. And over the years it has paid off, so that when we do a good job, when we have great teams, and when they do a good job of providing a great dining experience, customers want to come back to Chipotle more often.

Notice nowhere in that comment were actual comps mentioned. Rather, Ells has a singular focus on improving the Chipotle experience for customers, from fostering its amiable culture all the way down to improving the quality of its already excellent food.

In short, he’s thinking about Chipotle Mexican Grill not just as a stock ticker or piece of paper, but rather as the living, thriving, growing business it truly is. From an investor’s standpoint, it’s hard to think of a better way to create shareholder value than that.

MONEY stock market

Why Nobody Should Have Believed the $72 Million High School Stock Trader Rumor

disappearing stack of cash
Walker and Walker—Getty Images

We should have just done the math.

Now that high school senior Mohammed Islam has admitted to New York Observer editor (and former MONEY columnist) Ken Kurson that he completely made up that whole stock-trading boy-genius gazillionaire story, the Twittersphere is condemning New York magazine (and writer Jessica Pressler) for what’s assumed to be sloppy fact-checking.

There’s no doubt that the situation is embarrassing, and that the still-posted article — a section of the magazine’s “Reasons to Love New York” feature that already went through a headline revision Monday (“Because a Stuyvesant Senior Made $72 Million Trading Stocks …” became “Because a Stuyvesant Senior Made Millions Picking Stocks …”) — will need to be corrected further.

It now appears that there are no millions. Not the rumored 72. None.

Still, there’s an argument that Pressler and New York are not solely culpable for yesterday’s media circus. Let’s be honest: Many in the media who covered and disseminated this story (including, albeit very skeptically, MONEY) are New York-based media types, proud of our city and its if-you-can-make-it-here-you-can-make-it-anywhere mythology.

Taken at its word, the story felt like an ode to free markets and the American Dream. From hobbyists to professionals, investors are thrilled by the idea that with enough smarts and hard work anyone can go from rags to riches, no matter where they start. If an industrious first-generation American can build a massive fortune between the age of 9 and 17, you can too, right?

There’s a term for this impulse, in fact: “confirmation bias,” which is what experts call the common human tendency to seek out only information that confirms what we already think — or want to think.

The fact is, we should have done the math, as the graph and explanation below show.

Screen Shot 2014-12-16 at 8.44.58 AM
Source: MONEY calculations

In New York and other publications, Islam claimed he started trading using money from tutoring while he was in middle school. His starting age was given as either 9 or 11. Lets assume he had started at 9, in 2006. Then let’s assume he was exceptionally industrious with his tutoring, allowing him to start with $10,000 in savings. In order to end up with $72 million dollars by his senior year, Islam would have had to post average annual returns of 168% from age 9 to 17. That’s staggeringly unlikely.

But let’s take it further: Imagine that someone had spotted Islam’s prodigious talent and given him $100,000 to play with in the markets. Even then he would have had to return an average of 108% annually. That’s more than five times Warren Buffett’s average returns of 20%. And he would have had to do it every year for nearly a decade.

In other words, Islam’s story was preposterously unlikely even if we’d given him all of the benefits of all of our doubts.

Other stories of investing prodigies have come out recently, including one about a New Jersey teen who claims he turned $10,000 into $300,000 trading penny stocks, a feat that would require a one-year return of nearly 3,000% (which is improbable though not impossible). The reporter on that story seems more confident in his fact checking.

Bottom line: $72 million is an insane amount of money to make from scratch while day trading. Pressler originally did call it “unbelievable,” and that’s what it should have been, for all of us.

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