Bob’s Journal 9/12

Good Luck and Bad Luck for Indexes

Sometimes luck and timing, both good and bad, contribute to the returns of stock indexes.

A good example is recent activity involving Super Micro Computer (SMCI). The technology hardware manufacturer was in the Russell 2000 Index of smaller companies when it became an investor favorite.

While the large-company growth stocks that make up the Magnificent Seven generated most of the headlines, Super Micro Computer’s stock did at least as well. The stock rose more than 20 times over two years and 200% in the first few months of 2024.

The big move in the stock led to several actions. The capitalization of the company increased to $48 billion, up from $15 billion at the start of 2024. Since the Russell 2000 is an index of smaller capitalization companies, the stock had to leave the index.

The index is reconstructed each June, so Super Micro Computer left the Russell 2000 at the end of June. Because of its growth, the stock was added to two large-company indexes, the S&P 500 in March and the Nasdaq 100 in July.

The timing of the changes worked well for Russell 2000 investors, but not for investors in the other two indexes.

SMCI is in a significant correction. It still is up 44.19% for the year to date. But it is down 46.71% over the last three months and 19.44% in the last four weeks.

Its share price peaked at over $1,200 in March and recently closed just under $400. The change in the indexes seemed to be a factor in the price volatility.

The stock price was around $800 at the end of February. After its addition to the S&P 500 was announced in March, the stock jumped to over $1,200 within days and then traded down to around $1,000 at the end of March.

The Russell 2000 avoided a big part of the losses. After falling from the March peak, the stock traded between $800 and $1,000 until it left that index at the end of June.

SMCI suffered big losses in the global stock correction that began in July, and it hasn’t recovered from that downturn. Investors in the large company stock indexes that added the stock during 2024 have been riding the stock down.

Over the years, there have been other examples of stocks having their best returns before being added to an index. It shows that index investors periodically suffer losses from bad timing just as active stock investors do.

Social Security Makes Doing Business With It Easier

The Social Security Administration recently introduced enhancements that should make it easier for beneficiaries to do business with the agency.

One change is the acceptance of many more electronic signatures and form submissions. Most correspondence and forms no longer will require a physical, or wet, signature.

Social Security said 50 forms and almost 80 types of evidence now can be submitted online with electronic signatures using the website’s new eSignature/Upload Documents feature. In most cases, beneficiaries won’t have to mail, fax or physically deliver information to Social Security.

Beneficiaries will need to open a “my Social Security” account on the agency’s website to use the feature.

A second change is that many of the most frequently used forms have been or will be converted to online versions. The forms can be completed online and then submitted online with an electronic signature. Some don’t require a signature, including the 12 forms used most frequently.

Social Security indicated 90% of its most commonly used forms now can be completed and submitted electronically.

The Dangers of Using Paper Checks Have Increased

After years of favoring online and telephone scams, a number of crooks are drifting back to old-fashioned theft involving paper checks.

In the last year, a number of individuals, including employees of the U.S. Postal Service, have been arrested or indicted for stealing paper tax refund checks. Over $3 million in such check thefts were discovered in one New York congressional district.

Also, there has been an increase in reported thefts of tax refund and Social Security benefit checks around the country.

Congressional representatives in New York and Georgia have asked the IRS and USPS inspectors general to fully investigate the thefts, determine their nationwide scope and make recommendations to prevent them.

There also are problems with checks going in the other direction. Taxpayers who send paper checks to the IRS report experiencing non-delivery problems. Checks sent to pay bills also arrive at their destinations less often.

In some cases, postal employees steal checks. In other cases, problems at USPS processing centers cause delays in delivery or lost mail, which results in taxpayers being assessed interest and penalties.

In my community in Aiken, South Carolina, this year, the local police began making presentations to various groups to alert the public to the problems with paper checks. They recommend that if at all possible, people avoid sending or receiving checks through the mail.

The Data

The Consumer Price Index (CPI) rose 0.2% in August, the same rate as in July. Over 12 months, the CPI increased 2.5% through August and 2.9% through July.

The core CPI, which excludes food and energy prices, rose 0.3% in August after jumping 0.2% in July. Over 12 months, the core CPI increased 3.2% through both August and July, which is the lowest rate since April 2021.

The Small Business Optimism Index from the National Federation of Independent Business (NFIB) dropped to 91.2 in August from 93.7 in July. That ended the consecutive increase streak at four months.

Inflation remained the top issue for business owners, but many now have lower sales expectations for the coming months.

Total consumer credit outstanding jumped in July by 6%. Revolving credit outstanding (mostly credit cards) increased 9.4%. Nonrevolving credit (most vehicle and student loans) rose 4.8%.

The number of jobs increased by 142,000 in August, which improved from 89,000 in July (revised down by 25,000 from the initial estimate).

The number of new jobs in August was the highest in three months and the second highest in five months. But it was well below the average of 202,000 for the past 12 months.

Average hourly earnings increased 0.4% in August and 3.8% over 12 months. In July, average hourly earnings rose 0.2% and 3.6% over 12 months.

The ISM Services Index crept up to 51.5 in August from 51.4 in July.

The PMI Services Index also increased in August to 55.7 from 55.0 in July.

When the PMI Services Index is combined with last week’s PMI Manufacturing Index, the PMI Composite Index for the economy rises to 54.6 in August from 54.3 in July.

Only 99,000 new private sector jobs were created in August, according to the ADP Employment Report. That’s the lowest number since January 2021. In each of the last five months, the number of new private sector jobs was lower than in the previous month.

Productivity increased at an annualized rate of 2.5% in the second quarter, an increase from the 0.4% rate in the first quarter. Output increased 3.5% in the second quarter while hours worked increased only 1.0%.

The combination of higher output and lower hours worked means unit labor costs increased only an annualized 0.4% in the second quarter, down from 3.8% in the first quarter.

New unemployment claims fell by 5,000 to 227,000 in the latest week.

Continuing claims, which lag a week behind new claims, decreased to 1.838 million from 1.860 million.

The Markets

The S&P 500 fell 0.60% for the week ended with Tuesday’s close. The Dow Jones Industrial Average lost 0.49%. The Russell 2000 dropped 2.36%. The All-Country World Index (excluding U.S. stocks) declined 1.44%. Emerging market equities retreated 1.27%.

Long-term treasuries rose 3.01% for the week. Investment-grade bonds increased 1.57%. Treasury Inflation-Protected Securities (TIPS) added 0.84%. High-yield bonds gained 0.64%.

In the currency arena, the U.S. dollar declined 0.04%.

Energy-based commodities lost 3.55%. Broader-based commodities fell 2.31%. Gold gained 0.98%.

Bob’s News & Updates

A recent review on amazon.com of my latest book said, “Carlson is a unique national Asset while alive! Get the book, dude!” Look for “Retirement Watch: The Essential Guide to Retiring in the 2020s” (Regnery Capital: 2023) at amazon.com, barnesandnoble.com, booksamillion.com, and regnery.com.

My previous book, “Where’s My Money: Secrets to Getting the Most out of Your Social Security,” is receiving mostly five-star reviews on Amazon for telling you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on amazon.com or Regnery.com.

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.

A recent five-star review of my book, “The New Rules of Retirement” on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.