March 25, 2019 Market Update

Friday 3/22/19 saw the largest single day decline in the S&P 500 since January 3, 2019. The catalysts were weaker than expected manufacturing index reports for the US and Europe, and the inversion of the yield curve.

The yield curve inverts when shorter-term interest rates are higher than longer-term interest rates.  Historically, an inverted yield curve is a fairly reliable predictor of an upcoming recession.  However, while every recession since 1962 has been preceded by an inverted yield curve, not every inversion of the yield curve has led to a recession.

Some analysts like to use the 2-year Treasury versus the 10-year Treasury.  My research tells me the more reliable indicator comes from comparing the 3-month Treasury bill to the 10 year Treasury bond.  Recessions have historically started within 18-24 months of an inversion of the 3-month/10-year rates.  On Friday, the 3-month/10-year rates inverted briefly.  It finished the day with the 10-year rate higher by only 0.02%, the smallest spread between these rates since September 2007.

These factors combined to heighten concerns of a slowing global economy.  Two other big unknowns hanging over the markets right now are the US/China trade deal and the United Kingdom leaving the European Union.  A negative outcome for either or both will likely put further pressure on global growth.  A positive outcome for either or both will likely relieve some of the concern.

The next couple of weeks should provide some clarity as the UK has a vote on Brexit this coming week and the Trump administration is pushing to conclude their trade negotiations with China. I expect volatility to be elevated as the market awaits the outcome of these issues.

As always, we continue to monitor the situation closely and will respond accordingly.

Weekly Market Notes – March 25, 2019

Weekly_Market_Notes

For the Week of March 25, 2019

The Markets

Stocks tumbled Friday. The three major indexes had their worst day in 2½ months. Contributing factors included weak factory data from the U.S., Europe and Japan, and a negative spread between the three-month Treasury bill yield and the 10-year note. For the week, the Dow lost 1.34 percent to finish at 25,502.32. The S&P dropped 0.75 percent to finish at 2,800.71, and the NASDAQ fell 0.60 percent to end the week at 7,642.67.

Returns Through 3/22/19 1 Week YTD 1 Year 3 Year 5 Year
Dow Jones Industrials (TR) -1.34 9.97 8.93 15.96 12.05
NASDAQ Composite (PR) -0.60 15.18 6.64 16.60 12.31
S&P 500 (TR) -0.75 12.26 8.07 13.24 10.71
Barclays US Agg Bond (TR) 0.87 2.61 4.68 2.19 2.72
MSCI EAFE (TR) -0.34 10.09 -3.88 7.33 2.90

Source: Morningstar.com. *Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Three- and five-year returns are annualized. The Dow Jones Industrials, MSCI EAFE, Barclays US Agg Bond and S&P, excluding “1 Week” returns, are based on total return, which is a reflection of return to an investor by reinvesting dividends after the deduction of withholding tax. The NASDAQ is based on price return, which is the capital appreciation of the portfolio, excluding income generated by the assets in the portfolio in the form of interest and dividends. (TR) indicates total return. (PR) indicates price return. MSCI EAFE returns stated in U.S. dollars.

 

 

 Worth It — The average college graduate with a bachelor’s degree will earn $2.8 million over their lifetime. The average high school graduate with no additional higher education will earn $1.5 million over their lifetime (source: Center on Education and the Workforce, BTN Research).

Making Things — The 12.8 million manufacturing jobs in the U.S. as of February 2019 is the nation’s largest total since December 2008 (source: Department of Labor, BTN Research).

Wage Gains — The year-over-year increase in the average hourly earnings of all private sector workers was 3.4 percent in February 2019, i.e., wages of $27.66 per hour in February 2019 vs. wages of $26.75 per hour in February 2018. That’s the largest year-over-year percentage increase reported in the private sector since April 2009 (source: Department of Labor, BTN Research).

 

WEEKLY FOCUS – Pros and Cons of Consolidating Retirement Accounts

According to U.S. Bureau of Labor statistics, baby boomers average 12 jobs over their lifetimes. As a result, they often wind up with 401(k) accounts left at several former employers – plus bank and brokerage accounts. There are pros and cons of consolidating those scattered accounts.

Having assets in a lot of places complicates recordkeeping, monitoring and balancing your portfolio, updating beneficiaries and required minimum distributions (RMDs). Along with simplifying life, consolidating may reduce fees and qualify you for price breaks based on asset and trading thresholds.

If a current employer’s plan allows, you may have a choice to either roll over previous employers’ plans into its defined contribution plan or to roll older 401(k)s into a personal IRA. Defined contribution plans offer some benefits IRAs don’t. You can’t take penalty-free withdrawals from IRAs before you are 59½, but once you’re over 55, you can take penalty-free withdrawals from a 401(k) if you separate from an employer. If you work past age 70½ and don’t hold more than a 5 percent ownership in your company, you may be able to delay 401(k) RMDs.

401(k) accounts are shielded from creditors. Up to $1,283,025 in an IRA is protected from bankruptcy, but state laws vary on other types of claims. Your 401(k) plan may let you take up to a five-year loan while an IRA will allow at most a 60-day, tax-free rollover.

IRA accounts have advantages, too. A primary benefit is more freedom to choose investments. Typically, 401(k) plans include around 20 fund choices, while IRAs can encompass thousands of investment choices. Although most 401(k) plans have a good lineup of pro-growth stock funds, some smaller plans have underperforming funds and high administrative fees – particularly for former employees. And even larger plans may be weak on low-risk, fixed-income options.

When it comes to withdrawals, you can direct your IRA provider to take them out of a specific fund. But a 401(k) administrator may take an equal amount from all your investments.

When considering consolidating, it’s important to check potential fees and tax implications. Special tax rules may apply if your 401(k) includes employee stock. Give us a call if you’d like help deciding whether to consolidate previous employer plans into a current employer’s 401(k) or into a personal IRA. Securities America and its representatives do not provide tax advice; coordinate with your tax advisor regarding your specific situation.

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* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities America, Copyright March 2019. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI# 2474733.1

 

Weekly Market Notes – March 18, 2019

Weekly_Market_Notes

For the Week of March 18, 2019

The Markets

Stocks rose Friday and posted strong weekly gains. The S&P achieved its best weekly advance since Nov. 30. The three major indexes have all risen more than 10 percent each in 2019. For the week, the Dow rose 1.64 percent to close at 25,848.87. The S&P gained 2.95 percent to finish at 2,822.48, and the NASDAQ climbed 3.78 percent to end the week at 7,688.53.

Returns Through 3/15/19 1 Week YTD 1 Year 3 Year 5 Year
Dow Jones Industrials (TR) 1.64 11.47 6.35 17.22 12.68
NASDAQ Composite (PR) 3.78 15.87 2.76 17.59 12.61
S&P 500 (TR) 2.95 13.11 4.80 14.17 11.19
Barclays US Agg Bond (TR) 0.23 1.72 3.72 2.02 2.46
MSCI EAFE (TR) 2.80 10.46 -5.00 7.85 3.00

Source: Morningstar.com. *Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Three- and five-year returns are annualized. The Dow Jones Industrials, MSCI EAFE, Barclays US Agg Bond and S&P, excluding “1 Week” returns, are based on total return, which is a reflection of return to an investor by reinvesting dividends after the deduction of withholding tax. The NASDAQ is based on price return, which is the capital appreciation of the portfolio, excluding income generated by the assets in the portfolio in the form of interest and dividends. (TR) indicates total return. (PR) indicates price return. MSCI EAFE returns stated in U.S. dollars.

 

No Doctor Needed — Roughly 25 percent of Americans neither had claims for any health care service (i.e., they did not see a doctor or visit a clinic) nor filled a drug prescription in 2017 (source: Health Care Cost Institute, BTN Research).

Coming Soon? — Ten percent of 281 economists surveyed in February 2019 believe the United States will be in a recession by Dec. 31, 2019. Forty-two percent believe a recession will have started by Dec. 31, 2020 (source: National Association for Business Economics, BTN Research).

Bull Market Year-By-Year — The bull market for the S&P 500 reached 10 years in length as of the close of trading on Friday, March 8, having gained 400.1 percent over the period. Out of the 10 years, the two best years were the first (up 72.3 percent and the fifth (up 23.7 percent). The two worst years were the seventh (down 2.2 percent) and the 10th (up 0.4 percent). Each of the annual returns are total return results, which include the impact of reinvested dividends (source: BTN Research).

 

WEEKLY FOCUS – Ease Inflation’s Impact On Your Savings

Even if your portfolio’s value has steadily grown during this bull market, it’s important to consider the impact inflation will have on your investments between now and the day you withdraw those funds.

Inflation is a decrease in your money’s purchasing power due to rising prices. You might remember when gas was just 50 cents a gallon. Back then, a dollar went farther than today. So, it’s safe to assume your savings will have less spending power in the future. To ease the impact of inflation, consider taking steps, such as:

Invest in Stocks: Because stocks can pay dividends and their value can continue to grow, they can provide protection from inflation. A diversified portfolio that includes stocks may be subject to more volatility but can have more purchasing power down the road.

Consider Bonds and Real Estate: The fixed income provided by bonds can add stability to your portfolio. To limit exposure to inflation, focus on short-term bonds that can be sold and reinvested in just a few years. You may also consider Treasury Inflation Protected Securities and some high-yield bonds. While high-yield bonds carry more risk, they can generate income that can help offset inflation. With a few exceptions, property values have historically kept pace with inflation, making rental properties, publicly traded real estate securities and real estate investment trusts viable safeguards to your portfolio’s future value.

Evaluate Your Big-Ticket Expenses: Whether you rent or have a mortgage, you may want to consider how much you pay each month for your home and consider moving into a more affordable option. If it’s just you and your spouse living in your big family home, it may be time to downsize. If you’re making large car payments or in the market for a new car, consider buying a reliable used car. The money you save could be reinvested and used to help offset inflation in the years ahead.

The effects of inflation can hit you particularly hard in retirement. As the cost of day-to-day necessities goes up, your disposable income declines, leaving just two options: curb spending or borrow money. You’ve worked hard to build a portfolio to make your retirement years enjoyable. While you can’t slow inflation, you can ease its impact to help you get the most from your money. To learn more ways to protect your retirement savings from inflation, call us today.

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* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities America, Copyright March 2019. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI#2465585.1

Weekly Market Notes – March 11, 2019

Weekly_Market_Notes

For the Week of March 11, 2019

The Markets

A weak U.S. jobs report and a sharp drop in Chinese exports pushed Wall Street lower Friday. The three major indexes dropped for the fifth session in a row. It was the Dow’s longest slide since June 21, the S&P’s longest skid since Nov. 14 and the NASDAQ’s longest losing streak since April 25. For the week, the Dow fell 2.17 percent to finish at 25,450.24. The S&P lost 2.12 percent to finish at 2,743.07, and the NASDAQ dropped 2.46 percent to end the week at 7,408.14.

Returns Through 3/08/19 1 Week YTD 1 Year 3 Year 5 Year
Dow Jones Industrials (TR) -2.17 9.67 4.56 17.28 11.80
NASDAQ Composite (PR) -2.46 11.65 -0.27 16.82 11.31
S&P 500 (TR) -2.12 9.87 2.16 13.79 10.12
Barclays US Agg Bond (TR) 0.68 1.49 3.69 1.87 2.53
MSCI EAFE (TR) -1.94 7.45 -7.04 7.35 1.79

Source: Morningstar.com. *Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Three- and five-year returns are annualized. The Dow Jones Industrials, MSCI EAFE, Barclays US Agg Bond and S&P, excluding “1 Week” returns, are based on total return, which is a reflection of return to an investor by reinvesting dividends after the deduction of withholding tax. The NASDAQ is based on price return, which is the capital appreciation of the portfolio, excluding income generated by the assets in the portfolio in the form of interest and dividends. (TR) indicates total return. (PR) indicates price return. MSCI EAFE returns stated in U.S. dollars.

 

Past Performance Is No Guarantee — Only 16 percent of 1,013 adults surveyed believe stock market performance during the decades before they were born is a very or extremely important factor to consider when making financial decisions (source: J. Choi and A. Robertson’s study “What Matters to Individual Investors?”, BTN Research).

Worst to First — The worst performing stock in the S&P 500 in 2018 lost 67.1 percent last year. That same stock is ranked No. 1 among all stocks in the index this year through Feb. 28, up 67.7 percent YTD (source: BTN Research).

No Work — Thirty-seven percent of retired Americans report they retired earlier than planned because of health problems, buyout packages, layoffs, grandchildren or caring for an aging parent (source: Health and Retirement Study, BTN Research).

 

WEEKLY FOCUS – Joint Planning for Medicare and Social Security

Medicare and Social Security planning can be complicated, particularly for couples. It’s important to look at the short- and long-term impact of decisions on both individuals. Here are a few typical planning examples to consider.

Medicare: When a couple of mixed ages are both enrolled in the primary provider’s healthcare plan at work, the younger spouse will need to find their own insurance if the provider spouse switches to Medicare at age 65. To prevent this, the provider spouse may delay Medicare enrollment to keep the uninsured spouse on their company plan while they remain employed. They will not pay a penalty if their company has at least 20 employees.

While on the employer plan, the provider spouse may sign up for Medicare Part A (free hospital insurance). If their company has less than 20 employees, Part A could become the primary payer for hospital stays. One potential drawback is an individual enrolling in Part A can no longer contribute to an HSA.

In most cases, an individual should wait to sign up for Part B (medical insurance) until they are ready to purchase a supplement. An individual who enrolls in Part B but doesn’t purchase a supplement may be subject to underwriting when they try to purchase a supplement later, which means they could be turned down or pay more because of health conditions.

Social Security: Couples with comparable earnings often weigh whether they can afford to wait to draw Social Security, how much their benefits will grow by delaying them and how long they expect to live. Typically, an individual must live into their late 80s before the increased benefits from deferral offset benefits they lost by not drawing from age 62 to 70.1 Among couples with disparate earnings, the lower earning spouse may draw whichever is greater – their own benefits or half their spouse’s benefits (once their spouse begins drawing).

So a higher earning spouse may increase the amount their partner receives by delaying drawing their own Social Security. If the primary earner dies first, this will also leave their spouse with a greater monthly survivor benefit during his or her remaining years.

When to claim Social Security and Medicare are major decisions that will have a lasting impact on you and your spouse. We can help you look at your individual circumstances and evaluate your options to make an informed decision. 1https://www.fidelity.com/viewpoints/retirement/social-security-tips-for-couples

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* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities America, Copyright March 2019. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI# 2456347.1

Weekly Market Notes – March 4, 2019

Weekly_Market_Notes

For the Week of March 4, 2019

The Markets

Despite data indicating slowing GDP growth in the last quarter of 2018, optimism over a trade resolution with China pushed stocks up on March’s first trading day. The S&P 500 finished above 2,800 for the first time since Nov. 8. For the week, the Dow rose 0.07 percent to close at 26,026.32. The S&P gained 0.46 percent to finish at 2,803.69, and the NASDAQ climbed 0.90 percent to end the week at 7,595.35.

Returns Through 3/01/19 1 Week YTD 1 Year 3 Year 5 Year
Dow Jones Industrials (TR) 0.07 12.10 8.22 18.38 12.47
NASDAQ Composite (PR) 0.90 14.47 5.78 17.44 12.01
S&P 500 (TR) 0.46 12.26 6.81 14.64 10.82
Barclays US Agg Bond (TR) -0.40 0.80 2.68 1.75 2.28
MSCI EAFE (TR) 0.58 9.57 -4.46 9.08 2.12

Source: Morningstar.com. *Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Three- and five-year returns are annualized. The Dow Jones Industrials, MSCI EAFE, Barclays US Agg Bond and S&P, excluding “1 Week” returns, are based on total return, which is a reflection of return to an investor by reinvesting dividends after the deduction of withholding tax. The NASDAQ is based on price return, which is the capital appreciation of the portfolio, excluding income generated by the assets in the portfolio in the form of interest and dividends. (TR) indicates total return. (PR) indicates price return. MSCI EAFE returns stated in U.S. dollars.

 

Mortgage Debt — For the average American household, mortgage debt represents 67 percent of total household debt. Aggregate household debt (e.g., mortgages, credit cards, auto loans) as of Dec. 31, 2018, was $13.54 trillion. Aggregate mortgage debt as of the same day was $9.1 trillion (source: Federal Reserve Bank of New York, BTN Research).

Expensive Education — Outstanding student loan debt in the U.S. was $1.46 trillion as of Dec. 31, 2018, up 128 percent from $640 billion as of Dec. 31, 2008 (source: Federal Reserve Bank of New York, BTN Research).

Six Corrections — Since March 10, 2009, the beginning of the current bull market for the S&P 500, the stock index has suffered six tumbles of at least 10 percent but less than 20 percent (source: BTN Research).

 

WEEKLY FOCUS – Tips to Prevent Credit Card Fraud

Credit card fraud is a type of identity theft. The terms are often used interchangeably, but there are differences. Identity theft is comprehensive. It means not just one aspect of your identity was taken, but many. Social Security number, home address, credit card number – everything thieves need to file fraudulent tax returns, apply for government benefits, open a cell phone account and more.

Credit card fraud can happen in two ways. With existing-account fraud, thieves access a current credit card by stealing your card information or login information with an online retailer. In new-account fraud, a new credit card account is opened in your name using personal identification information, such as a Social Security number.

In both cases, criminals rack up as many charges as possible before you realize it. While precautionary tactics, such as signing up for a credit monitoring service are smart, you might want to take steps to prevent thieves from getting even that far. Follow these tips to help prevent credit card fraud.

For cash advances, use bank-owned ATMs. Thieves often use skimmers to steal credit card information. The devices are placed on ATMs to “skim” data from the magnetic strip on the back of the card. Don’t use ATMs at convenience stores, bars or on the street.

Pay inside at the gas station. Magnetic strip technology doesn’t have layers of protection afforded by chipped cards. If you refuse to give up the convenience of paying at the pump, at least look for irregularities on the card scanner. For example, look for keyboards that look odd, a broken seal or loose card reader. But remember, while you can sometimes spot skimmers, they don’t always look the same, and some are nearly impossible to detect.

Use mobile device payment apps, like Apple Pay, Samsung Pay or Android Pay, available through your mobile app store, for in-store shopping. It might be less common, but your card could still be skimmed at in-store card readers. A transaction made with this type of app isn’t associated with the primary account number on your card. The payment apps use “tokenization” to slice and dice the data to make it unusable after the first transaction.

Keeping your credit cards safe from criminals takes awareness and diligence, and so does protecting your financial future. Call our office today; we can help ensure your financial plans are secure and working to achieve your goals.

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* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities America, Copyright March 2019. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI#2446303.1

March 2019 Monthly Outlook – Conflicting Signals, Part Deux

Two big news items from Directional Wealth Management.

  1. Christian and his wife Maecy had a baby boy – Skyler on February 27th.  Mom and baby are doing great.  Please join me in welcoming Sklyer to the Directional Wealth family.
  2. Richard passed his Series 66 exam. He is now a fully licensed financial advisor and capable of assisting me in managing your portfolio.  Please join me in congratulating Richard.

 

In our February 2019 Monthy Outlook, we highlighted the conflicting signals we are seeing, both in the economy and the financial markets.  Well, February did nothing to clear things up.

Hence, conflicting signals, part deux.

Part of the problem was the delay in economic reports caused by the government shutdown in January 2019.  4th quarter 2018 GDP (gross domestic product) was just released on February 28.  GDP growth was 2.6% in the 4th quarter, down from 3.4% in 3Q 2018.  While a decline was expected, the item that caught my attention was the decline in consumer spending to 2.8% from 3.5% the prior quarter.  The consumer really fuels the US economy (accounting for ~67% of GDP), so this decline is concerning.  It may have been caused by the volatility in the financial markets in the 4th quarter last year.  This is likely reflected in the recovery in the Conference Board’s Consumer Confidence Index which bounced up in February after a sharp decline in December 2018 and January 2019.

As you can see from the chart below, recessions generally don’t occur while consumer confidence is high and rising.  However, recessions generally do start shortly after a sharp rollover of consumer confidence from a previous high level (see 2001, 2009).  Similarly, leading economic indicators (LEI) are a reasonably good predictor of changes in the economy.  Here again, recessions tend to follow shortly (usually within 18 months) of a rollover of LEI from a previous high.  Like consumer confidence, LEI started to rollover in December 2018 and January 2019.  Due to the government shutdown, February hasn’t been released yet.  I’m watching to see if LEI rebounds like consumer confidence did.  My outlook is that US GDP remains positive but the growth rate slows in 2019, with a low probability of recession this year.

Source: Advisor Perspectives                                                                                                                                      source: Yardeni Research

 

In February, the equity markets continued to recover from the brutal selloff in 4Q18, while volatility has declined to levels not seen since early in 2018.  While no one likes the wild swings the market sometimes goes through, too little volatility is a sign of complacency by investors, which often is an indicator that the equity market is about to hit a rough patch. In the chart below, notice the level of the VIX (S&P 500 volatility index) in January and October 2018, right before major selloffs. Another way to look at this is through the eyes of the investor.  The stock market is primarily driven by two emotions, Greed and Fear.  Ironically, this too is a “contra” indicator.  The greedier investors get, the more likely the stock market is about to turn down. Notice the spike in level of greed in early 2018 and again towards the end of the year, and where it is now.  Warren Buffett’s approach  to investing is  “be fearful when people are greedy, and greedy when people are fearful”.  These are indicators I am watching closely right now.

Source: YCharts                                                                                                                                      Source: CNBC.com

 

On the positive side for equities, corporate profits remain strong.  However,  similar to the economic data, corporate profits are showing signs of slower growth going forward.   “To date, 96% of the companies in the S&P 500 have reported actual results for Q4 2018. In terms of earnings, the percentage of companies reporting actual EPS above estimates (69%) is below the five-year average. In aggregate, companies are reporting earnings that are 3.3% above the estimates, which is also below the five-year average. In terms of revenues, the percentage of companies reporting actual revenues above estimates (61%) is slightly above the five-year average.   The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report), year-over-year earnings growth rate for the fourth quarter is 13.1%. If 13.1% is the actual growth rate for the quarter, it will mark the first time the index has not reported earnings growth above 20% since Q4 2017. However, it will also mark the fifth straight quarter of double-digit earnings growth for the index. All 11 sectors are reporting year-over-year earnings growth”.   Source: FactSet

Double digit earnings growth is quite solid.  But the stock market is forward looking and will not react well to a declining rate of profit growth going forward.

March will see US/China trade negotiations, the UK perhaps exiting the EU, the Congress needing to raise the debt ceiling (although this can be put off until sometime this summer) and the newest geo-political risk of hostilities between Pakistan and India, the first armed conflict between 2 nuclear states since the end of the Cold War.

Given the conflicting signals-part deux our outlook remains cautious. We continue to monitor our indicators and will adjust accordingly.

I hope this report proves informative.

 

We have added a new tool to help those nearing or just beginning retirement to explore their readiness for retirement.  It’s an easy interactive tool.  Please share it with family, friends and colleagues.

https://www.ready-2-retire.me/JimMcCarthy

 

 

March Calendar of Events   (comments and additions for future months are always welcome)

March is Women’s History Month.  Please says thanks to all the important women in your life.

March 5th                   Mardi Gras

March 8th                   International Women’s Day

March 10th                Daylight Savings begins – Spring forward

March 17th                 St Patrick’s Day

March 20th                 Spring begins in US

March 21st                Purim – Chag Purim Sameach to all of the Jewish faith

 

Sources: Yardeni Research, Advisors Perspective, CNBC.com, FactSet

 

Although information herein has been obtained from sources deemed reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results.

Please consider the charges, risks, expenses and investment objectives carefully before investing. Please see a prospectus containing this and other information. Read it carefully before you invest or send money.

Information provided should not be construed as legal or tax advice.  You should discuss any tax or legal matter with the appropriate professional.