Markets, Consumer Confidence and Debt End 2016 at Record Highs


Number of the Week: 19,988

The 20,000 mark for the Dow Jones industrial average has eluded us in 2016, despite hitting this intraday high on December 20. Well, there’s always the New Year…and then onto Dow 30,000 by 2021?

When Being Passive Makes Perfect Sense

Investors have been pouring money into the stock market since the election—but not all types of investments are feeling the love. According to a new Morningstar report, investors pulled out of active U.S. stock funds—for the 32nd month in a row—to the tune of $21.2 billion. At the same time, we piled $41.9 billion into passive funds.

So, what? While there’s still more money overall in funds that are actively managed, investors have been moving money into passive funds in record numbers. Those funds typically track an index like the S&P 500 rather than attempting to beat its returns with active management.

Bottom line: The passive attraction makes perfect sense. Index funds tend to charge lower fees than actively managed funds because they’re easier to run and require less trading. During bull markets, they tend to post bigger wins because costs don’t eat into returns as much. That’s been especially true in recent years, as most active managers have failed to beat the indexes.

Debit or Credit?

According to a study from the Federal Reserve, most of us prefer to punch in our PINs (or insert the chip card). Americans made 69.5 billion debit payments compared to 33.8 billion credit transactions in 2015. But the value of of those credit card payments still greatly outweighs debit charges at $3.2 trillion versus $2.6 trillion.

So, what? Reaching for debit over credit might be a smarter move for many of us. Debit cards draw cash directly from our checking accounts while credit cards are just an easy way to borrow from banks. So using debit more frequently means avoiding increasingly expensive interest charges. (Of course, paying off our bills in full each month does that, too.)

Bottom line: We still have a ways to go to improve our debt situation. The Federal Reserve Bank of New York says U.S. households carried $747 billion worth of credit card debt at the end of 2016’s third quarter—up $33 billion from the year before.

If you’re working off a debt hangover from this past holiday season, tap into January’s motivational vibes and kick off the new year with a solid repayment plan.

Happy New Year

We’re expecting a very happy New Year, indeed. The Conference Board’s Consumer Confidence Index—a measurement of how we’re feeling about the economy—hit its highest level in more than 15 years in December. While confidence in our present situation (a.k.a. the Present Situation Index) dropped a little from 132 in November to 126.1, our hope for the future (the Expectations Index) increased dramatically from 94.4 to 105.5.

So, what? Combined with other positive statistics, it indicates we’re poised to start 2017 off on the right foot, economically speaking. And our next president is inheriting a pretty good situation…that he’s thanked himself for.

Bottom line: The year 2016 has gotten a bad rap, what with its political surprises and a long, long list of shocking celebrity deaths: Prince, David Bowie, Muhammad Ali, George Michael, Carrie Fisher and Debbie Reynolds… Please. Just. Stop. But financially speaking, it’s ending on a high note and heralding a positive start for 2017. Now let’s all promise to keep an eye on Betty White.