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Good morning! Stock futures today (Friday, March 27) forecasted a 10-point retreat from yesterday's close. On Thursday, The DJIA managed to bounce back from early triple-digit losses but still closed down 39 points, notching its fourth consecutive drop.
This morning, it's all about fourth-quarter GDP. The U.S. Commerce Department will release its final estimate on GDP for the last quarter of 2014. Economists expect the final level to tick up to 2.4% growth over the quarter.
After today, investors must turn their focus to first-quarter growth. With earnings season approaching, corporate revenue growth faces four distinct challenges: bad weather, the now-settled labor dispute at western U.S. ports, a strong U.S. dollar, and weakening global demand.
And speaking of global demand…
Japan will release a very important report on February Consumer Price Index (CPI) data today. The Bank of Japan has eased monetary policy to combat weak internal demand. The benchmark Nikkei 225 fell 1.4% yesterday, but the Japanese stock market has climbed more than 11% so far this year. Yesterday, we outlined the best way to play the Japanese markets for the year ahead.
Here's what else you should know about the stock market today – including your "Money Morning Tip of the Day" – to make it a profitable Friday:
- Rate Repeat: Federal Reserve Chair Janet Yellen will give a speech today on monetary policy at the Federal Reserve Bank of San Francisco Conference "The New Normal for Monetary Policy." On March 18, the Fed removed the word "patient" to describe its approach to raising interest rates in the near future. Get the rundown on last week's FOMC meeting – and our picks for three assets that play the latest Fed moves – here…
- Huge Payday: Tech giant Google Inc. (Nasdaq: GOOG, GOOGL) has announced an incredible pay package for incoming CFO Ruth Porat. In addition to her base salary of $650,000, the company agreed to pay her a $5 million one-time sign-on bonus, a $25 million new hire grant, and a $40 million biennial grant that begins in 2016. Google hired Porat, the former finance chief of Morgan Stanley (NYSE: MS), to replace Patrick Pichette. Pichette recently announced his retirement.
- Buyback Time: Google rival Yahoo! Inc. (Nasdaq: YHOO) has received board approval to boost its share buyback program by an additional $2 billion. The news was reported in a filing with the Securities and Exchange Commission. The company has been under fire from activist hedge fund investors to return cash to its shareholders or to consider asset purchases thanks to the windfall produced its Alibaba Group Holding Ltd. (NYSE: BABA) stake. Shares of YHOO stock rose more than 2.1% in premarket hours.
- Semiconductor Slump: Shares of SanDisk Corp. (Nasdaq: SNDK) cratered 18.45% yesterday on news the semiconductor giant slashed its 2015 sales outlook. The firm received several downgrades on the news and dragged down the broader sector on the day. The iShares PHLX Semiconductor ETF (Nasdaq: SOXX), the market's largest chip ETF, fell for the fourth consecutive day, down 1.4%.
- Oil Prices Today: Crude oil prices are retreating despite rising violence in Yemen. Saudi Arabia is leading a coalition of five Gulf countries and Egypt in raids, leading many analysts to grow worried over oil shipments in the region. Brent oil, priced in London, fell 1.4% to $58.32 per barrel. WTI crude, priced in New York City, slipped nearly 1.4% to hover just above $50.50 per barrel.
- Earnings Reports: Investors can expect earnings reports today from Capstone Companies Inc. (Nasdaq: CAPC), Carnival Corp. (NYSE: CCL), Blackberry Ltd. (Nasdaq: BBRY), and Finish Line Inc. (Nasdaq: FINL).
Full U.S. Economic Calendar March 27, 2015 (NYSE: all times EST)
- GDP at 8:30 a.m.
- Corporate Profits at 8:30 a.m.
- Consumer Sentiment 10 a.m.
Today's tip comes from Money Morning Chief Investment Strategist Keith Fitz-Gerald:
Reinvesting dividends is the practice of buying additional shares of a stock using the dividends themselves to pay for your purchase. It results in long-term compounding, and that's key to building a fortune.
Let's use Altria Group Inc. (NYSE: MO), a high-yield dividend stock, as an example. Last September, Altria boosted its dividend for the 48th time in the last 45 years. Shares yield 4.11%.
While that's fabulous for any investor, some have made out like bandits. Depending on when they originally purchased shares, they've had the chance to receive more in dividends than they originally paid for the stock itself. Which means, practically speaking, they own the stock for "free."
Over time, the difference between simple appreciation and the effects of continual dividend reinvestment is jaw-dropping.
Had you invested in MO stock on Jan. 2, 1970, and left that money alone until the close of trading on Sept. 2, 2014, your return would be 431,800%, adjusted for dividends and stock splits.
Many companies even offer dividend reinvestment plans (DRIPs) as a means for investors to purchase shares over time. Investors can start with a small number of shares and, instead of receiving dividends as cash, reinvest continually in the company's stock.
This achieves two things. 1) It puts the plan on autopilot, and 2) it helps you maximize the effectiveness of dollar-cost averaging over time. You spread your purchases out and never have to lift a finger to do so.
The DRIP strategy isn't a get-rich-quick tactic. But for investors with an eye toward the long term, its power is unrivaled in transforming modest investments into mega-returns down the road.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.