Stock markets here soared last week on news that Greece had reached a deal with the European Union. Any way you slice it, Greece’s newly elected government danced and danced and made it look like dropping out of the EU was going to be a “strategic career move,” to quote the movie Grease.
But in the end, well, they’ve basically got nothing more than they started with, no matter how they spin it. Greece and the EU have only agreed to a four-month extension. So, there will be more chapters to this drama.
In the U.S., the housing market has reached a plateau. Existing homes sales in January dipped 4.9% from December but were up 3.2% over the past year — essentially flat. Existing home sales have been in a range of roughly 4.5 million to 5.5 million for the past two and a half years.
New home sales, which make up a smaller piece of the housing market than existing homes, were strong in January over last January, and the Case-Shiller index showed home prices rose 4.5% in 2014.
The highlight of last week belonged to Federal Reserve Chairwoman Janet Yellen, who gave testimonies before both the House of Representatives and the Senate. In short, Janet Yellen continues to try to protect the Fed’s flexibility when it comes to the timing of a change in policy.
Though the Fed has essentially said a rate hike will happen this year, Janet Yellen doesn’t want to be locked into a specific timeline. Janet Yellen basically said that while a rate hike could come at any time, there’s no immediate need for one with low inflation and an imperfect job market recovery.
And make no mistake, inflation is low. Headline CPI, which includes energy prices, fell 0.7% in January and has now has declined 0.1% over the past year. Given the dramatic decline in oil prices, this isn’t surprising. We are not in a broad deflationary environment, however, as core CPI, which excludes energy and food, held steady at 1.6%.
Still, investors liked what they heard from Janet Yellen and pushed U.S. stocks of all sizes to new highs after Janet Yellen’s comments on Tuesday. New highs were hit overseas as well, with the U.K.’s FTSE 100 index (essentially the British S&P 500 index) reaching a new high-water mark for the first time since the second to last day of 1999.
Bond yields fell but only enough to marginally ease the pain on what has otherwise been a tough month for bonds. Vanguard Long-Term Treasury (MUTF:VUSTX) is down 6.4% in February, making for one of its worst months since its May 1986 inception.
Yesterday, Vanguard announced more changes to its Vanguard Target Retirement Income Fund (MUTF:VTINX) and Vanguard Star LifeStrategy (MUTF:VASGX) funds-of-funds. First, Vanguard is rolling out a new Institutional Target Retirement lineup.
The new funds, which are planned to launch at the end of the second quarter, will be available for large retirement plans with over $100 million in assets, and are expected to charge 0.1% in annual operating expenses. (The current Target Retirement series charges 0.16% to 0.18%.) Otherwise, the new lineup should look essentially identical to the old series.
In the past, I have raised the question of why Vanguard didn’t use the least expensive share classes of its funds in many retirement plans. The firm may have finally listened, but in this case, investors will only benefit if they work for companies with plans large enough to qualify for the new funds — employees of mid-sized and small companies will be stuck with the more costly investor shares.
Vanguard is also tweaking, once again, the allocations of the Target Retirement and STAR Lifestrategy funds. International stock exposure will increase from 30% to 40% of the overall stock allocation and international bond exposure will increase from 20% to 30% of the overall bond sleeve. Investing for retirement is a complex problem, and even Vanguard doesn’t have it all figured out.
Editor Dan Wiener and Research Director Jeffrey DeMaso publish The Independent Adviser for Vanguard Investors, an award-winning monthly advisory letter that keeps subscribers abreast of recent developments at Vanguard, and provides long-term guidance for investing in the Vanguard fund family.