U.S. Stock Futures Suggest Flat Market Opening

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Richard Drew/AP
By Sreeja VN

U.S. stock futures point to a lower open Thursday, ahead of the publication of the initial and continuing jobless claims reports, the Philadelphia Fed Manufacturing Index, and corporate earnings statements from tech-giants Google and Microsoft.

Futures on the Dow Jones industrial average (^DJI) were down 0.05 percent, while futures on the Standard & Poor's 500 index (^GPSC) were up 0.04 percent, and those on the Nasdaq 100 index were down 0.11 percent.

The initial jobless claims report, which measures the number of individuals who filed for unemployment insurance for the first time last week, is scheduled to be released by the Department of Labor at 8:30 a.m. EDT. Economists predict that claims are likely to decline to 345,000 for the week ended July 13, down from 360,000 in the previous week.

Meanwhile, economists expect continuing jobless claims data, which measure the number of unemployed individuals who qualify for benefits under unemployment insurance, to marginally decline to 2.96 million from the 2.98 million recorded in the previous week.

The Philadelphia Federal Reserve Manufacturing Index, which rates the relative level of general business conditions in Philadelphia, is scheduled to be released at 10:30 a.m. EDT. The index is expected show a reading of 7.8 in July, a steep decline from 12.5 points surge recorded in May. In April, the index had declined to minus 5.2 points. A reading above zero on the index indicates improving conditions while a reading below zero indicates worsening conditions.
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However, some analysts point out that given the signs of improvement in the Empire State survey for New York, it is unlikely that the Philly Fed index will fall as steeply as the consensus estimate suggests.

"The rise in the Empire State index in July, to +9.5 from +7.8 in June, casts some doubt over our forecast that the Philly Fed index fell back in the same month, to +5.0 from +12.5. These two surveys of regional manufacturing activity don't always move in the same direction, but there is some evidence that industry is starting to fare a little better," Paul Dales, an economist with Capital Economics said, in a research note.

On the corporate earnings front, a number of major companies, including: Baxter International Inc. (BAX); The Blackstone Group (BX); BB&T Corp. (BBT); Danaher Corp. (DHR); Safeway Inc. (SWY); UnitedHealth Group Inc. (UNH); Verizon Communications Inc. (VZ); and Philip Morris International Inc. (PM) are scheduled to announce their quarterly earnings before market hours. Companies such as Advanced Micro Devices Inc. (AMD), Capital One Financial Corp. (COF), Google Inc. (GOOG) and Microsoft Corp. (MSFT) will report earnings after market hours.

In Europe, the Stoxx Europe 600 index was trading up 0.23 percent, London's FTSE 100 was up 0.41 percent, Germany's DAX-30 was flat and France's CAC-40 was trading up 0.31 percent.

In England, the retail sales report for June showed that month-on-month sales were in line with expectations, nudging up 0.2 percent, after rising 2.1 percent in the previous month. Year-on-year, retail sales registered a 2.2 percent increase, beating expectations of a 1.7 percent rise.

Asian markets traded mixed on Thursday, with Japan's Nikkei and India's BSE Sensex tracking overnight gains in Wall Street and Europe, following Bernanke's comments on the future of the U.S. Federal Reserve's massive asset-purchase program, while markets in China fell on worries over Beijing's reluctance to stimulate a slowing economy.

Japan's Nikkei ended up 1.3 percent and Australia's S&P/ASX 200 rose 0.23 percent. However, in China, the Shanghai Composite index closed down 1.05 percent and Hong Kong's Hang Seng Index ended down 0.12 percent, while South Korea's KOSPI Composite index ended the day down 0.64 percent. India's BSE Sensex was trading up 0.65 percent in late-afternoon trade on Thursday.

Investors will also follow Bernanke's statements before the Senate Banking Committee on Thursday at 10.30 a.m. for further cues on the direction of U.S. monetary policy.

On Wednesday, Bernanke, at his congressional testimony, sought to assure markets that the Fed's $85 billion-a-month bond-buying program "is by no means on a preset course." The Fed chairman reiterated his comments from earlier this month to say that the Fed's "asset purchases depend on economic and financial developments" and they could either be tapered or boosted depending on the economic data.

His comments soothed investors' concerns, sending stocks up in U.S. and Europe on Wednesday.

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If You Only Know 5 Things About Investing, Make It These
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U.S. Stock Futures Suggest Flat Market Opening

Warren Buffett is a great investor, but what makes him rich is that he's been a great investor for two thirds of a century. Of his current $60 billion net worth, $59.7 billion was added after his 50th birthday, and $57 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him. His secret is time.

Most people don't start saving in meaningful amounts until a decade or two before retirement, which severely limits the power of compounding. That's unfortunate, and there's no way to fix it retroactively. It's a good reminder of how important it is to teach young people to start saving as soon as possible.

Future market returns will equal the dividend yield + earnings growth +/- change in the earnings multiple (valuations). That's really all there is to it.

The dividend yield we know: It's currently 2%. A reasonable guess of future earnings growth is 5% a year. What about the change in earnings multiples? That's totally unknowable.

Earnings multiples reflect people's feelings about the future. And there's just no way to know what people are going to think about the future in the future. How could you?

If someone said, "I think most people will be in a 10% better mood in the year 2023," we'd call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.

Someone who bought a low-cost S&P 500 index fund in 2003 earned a 97% return by the end of 2012. That's great! And they didn't need to know a thing about portfolio management, technical analysis, or suffer through a single segment of "The Lighting Round."

Meanwhile, the average equity market neutral fancy-pants hedge fund lost 4.7% of its value over the same period, according to data from Dow Jones Credit Suisse Hedge Fund Indices. The average long-short equity hedge fund produced a 96% total return -- still short of an index fund.

Investing is not like a computer: Simple and basic can be more powerful than complex and cutting-edge. And it's not like golf: The spectators have a pretty good chance of humbling the pros.

Most investors understand that stocks produce superior long-term returns, but at the cost of higher volatility. Yet every time -- every single time -- there's even a hint of volatility, the same cry is heard from the investing public: "What is going on?!"

Nine times out of ten, the correct answer is the same: Nothing is going on. This is just what stocks do.

Since 1900 the S&P 500 (^GSPC) has returned about 6% per year, but the average difference between any year's highest close and lowest close is 23%. Remember this the next time someone tries to explain why the market is up or down by a few percentage points. They are basically trying to explain why summer came after spring.

Someone once asked J.P. Morgan what the market will do. "It will fluctuate," he allegedly said. Truer words have never been spoken.

The vast majority of financial products are sold by people whose only interest in your wealth is the amount of fees they can sucker you out of.

You need no experience, credentials, or even common sense to be a financial pundit. Sadly, the louder and more bombastic a pundit is, the more attention he'll receive, even though it makes him more likely to be wrong.

This is perhaps the most important theory in finance. Until it is understood you stand a high chance of being bamboozled and misled at every corner.

"Everything else is cream cheese."
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