Weekly Market Commentary – July 30, 2018

Is it a sugar rush or something more sustainable?
Economic growth in the United States was strong during the second quarter. Gross domestic product (GDP), which is the value of all goods and services produced in the United States, grew by 4.1 percent. That’s the fastest growth in four years, reported the BBC.
The news was received with varying levels of enthusiasm. President Trump said the gain is “an economic turnaround of historic importance” and thinks the economy should continue to grow rapidly, reported Shawn Donnan in Financial Times.
Economists were less certain. They think second quarter’s GDP gains were underpinned by one-time factors. These included high levels of profitability attributable to last year’s corporate tax cuts and an increase in exports as U.S. producers and their buyers abroad tried to avoid upcoming tariffs, reported Financial Times.

Another consideration is the business cycle. The business cycle tracks the rise and fall of a country’s productivity over time. The U.S. appears to be in the latter stages of the current cycle. John Authers of Financial Times explained:  “…President Donald Trump’s self-congratulation yesterday was fully merited. Things are going according to plan. This business cycle looks ever more like a normal one, which is a fantastic and welcome development after an epochal crisis and then a decade of doldrums…The advent of a normal cycle is itself a problem because a normal cycle terminates with high interest rates and declining growth. The president has voiced his disapproval of these things, but they are the logical and sensible consequence of the economic developments that are now unfolding.”

In the United States, the Dow Jones Industrial Average and the Standard & Poor’s 500 Index moved higher while the NASDAQ Composite gave up some ground.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

it’s camping season! In 1869, the first recreational camping guide, Adventures in Wilderness, was authored by minister William H.H. Murray and became a bestseller. The book’s success may have owed something to a new train route that made the Adirondacks more accessible. Time.com reported his practical guide offered advice on important topics:  “For sleeping, he describes how to make ‘a bed of balsam-boughs.’ On what to wear, he suggests bringing a ‘felt hat,’ ‘stout pantaloons,’ and a ‘rubber blanket or coat.’ For warding off woodchucks, ‘a stick, a piece of bark, or tin plate shied in the direction of the noise will scatter them like cats.’ As for wolves, his technique would likely not pass muster with fire wardens: ‘touch a match to an old stump and in two hours there will not be a wolf within ten miles of you.’”

His book inspired Kate Field to try camping, and she became an early advocate of land preservation. She wrote for the Adirondack Almanac in 1870. A more recent article in the publication reported:  “Field advised her readers to bring a tent rather than kill trees. ‘It is cruel to stab a tree to the heart merely to secure a small strip of bark,’ she said. ‘It is ungrateful to destroy the pine and balsam that have given us our beds of boughs, and fanned us with their vital breath. Let there be tents.’”

Additional advice can be found in Civil War veteran John M. Gould’s 1877 guide to backpacking, titled How To Camp Out. He warned against the allure of new gear: “Do not be in a hurry to spend money on new inventions. Every year there is put upon the market some patent knapsack, folding stove, cooking-utensil, or camp trunk and cot combined; and there are always for sale patent knives, forks, and spoons all in one…Let them all alone: carry your pocket-knife…”

He might have been willing to make an exception for some of the gear available today!

 

Weekly Focus – Think About It
“Camping is nature’s way of promoting the motel business.”
–Dave Barry, Humorist

Best regards,
John F. Reutemann, Jr., CLU, CFP®

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Investment advice offered through Research Financial Strategies, a registered investment advisor.

* This newsletter and commentary expressed should not be construed as investment advice.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.

* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* You cannot invest directly in an index.

* Stock investing involves risk including loss of principal.

* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.

* Consult your financial professional before making any investment decision.

* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in

the subject.

 

Sources:

https://www.bbc.co.uk/news/business-44979607

https://www.ft.com/content/fe50168c-9197-11e8-b639-7680cedcc421

https://www.investopedia.com/terms/b/businesscycle.asp

https://www.ft.com/content/a3d6a03a-91a2-11e8-b639-7680cedcc421

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on “U.S. & Intl Recaps”, then on “Geopolitical nerves”)

http://time.com/5343675/history-of-camping/

https://www.adirondackalmanack.com/2014/03/babe-woods-kate-field-adirondack-preservation.html

https://archive.org/stream/howtocampout17575gut/17575.txt

https://www.brainyquote.com/quotes/dave_barry_128131?src=t_camping

Weekly Market Commentary – July 23, 2018

Last week, there was some good news and some notable news.
Here’s the good news: Corporate earnings have been strong. As of July 20, 17 percent of the companies in the Standard & Poor’s 500 Index had reported second quarter results. More than 85 percent of those companies reported positive earnings surprises, according to FactSet, which means they earned more than expected.  “It appears the lower tax rate is more than offsetting the impact of rising costs, resulting in a record-level net profit margin for the index for the second quarter,” explained FactSet.

Here’s the notable news: U.S. stock markets largely ignored a slew of domestic and global issues to finish up a basis point or two last week. (Performance was flat when you round to one place, as we do in the table.) Barron’s reported: “President Donald Trump took on the Federal Reserve, telling an interviewer that he’s ‘not happy’ about rising interest rates, the kind of meddling we haven’t seen in a while. We also had the usual trade war concerns, as the president and his advisors talked about the need to take on what they consider China’s unfair trade practices. China’s yuan, meanwhile, tumbled in a way that was a little too reminiscent of August 2015, when its slide caused global markets to shudder. Those concerns, however, were offset by strong corporate earnings.”

The U.S. bond market has been less sanguine than the U.S. stock market. Debate has focused on the flattening yield curve. The yield curve reflects the difference in yield on U.S. Treasuries from short- to long-term. Normally, investors expect to earn higher yields when they lend their money for longer periods of time (e.g. invest in longer-term bonds).  At the end of last week, two-year U.S. Treasuries yielded 2.6 percent and 30-year Treasuries yielded 3.0 percent. Some say when short-term rates rise above long-term rates, inverting the yield curve, recession is ahead.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

Forward looking career: Air Broker. By 2050, about 70 percent of the world’s population is expected to live in cities, reports UNICEF.  The United States is ahead of the curve. Since the 1990s, 75 percent or more of Americans have lived in metropolitan areas. The same was true in Spain, the United Kingdom, Australia, and Canada. In 2000, citizens of Mexico, Korea, and Brazil were largely urban dwelling. By 2050, China and India are expected to have almost two billion people living in cities – and neither will have crossed the 75 percent level.  If the thought of densely packed cities inspires a bit of claustrophobia, you’re not alone. Anyone who has ever watched ‘Green Acres’ knows city living isn’t for everyone. However, cities are innovation engines, reports Fast Company. “The more people there are in an area, and the more densely they’re networked, the more startups get created and the more patents get filed.”

Consider the entrepreneurial example set by a New York City (NYC) deli owner who was trying to figure out how to stay in business on the Lower East Side of Manhattan. The answer was selling air, reports The Indicator From Planet Money:  “So when you buy a plot of land in New York, it comes with what are called ‘air rights.’ That essentially says how much you are allowed to build on that plot of land. Let’s say you buy a plot of land and it comes with 10 stories worth of air rights, you could build a 10-story building on it.”  The deli owned five stories worth of air rights, or 27,960.66 square feet of air. How much was all that air worth? Reportedly, a developer in New York paid about $17 million for it.
Guess who negotiates air deals in NYC……That’s right: Air brokers.

Weekly Focus – Think About It
Growth is inevitable and desirable, but destruction of community character is not. The question is not whether your part of the world is going to change. The question is how.”
–Edward T. McMahon, Author

Best regards,
John F. Reutemann, Jr., CLU, CFP®

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address, and we will ask for their permission to be added.

 

 

Investment advice offered through Research Financial Strategies, a registered investment advisor.
* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Stock investing involves risk including loss of principal.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

Weekly Market Commentary – July 2, 2018

There’s a bear in China – and it’s not a panda.
The Shanghai Stock Exchange (SSE) Composite Index, which reflects the performance of all shares that trade on the Shanghai Stock Exchange, dropped into bear market territory last week, reported CNBC. The Index has fallen more than 20 percent from its previous high. It appears some investors saw an opportunity and bought the dip since the SSE Index bounced higher last Friday, gaining more than 2 percent. Slower economic growth and rising trade tensions were responsible for much of the red ink in China, reported Barron’s, but the Chinese government may be playing a role, too:
“What’s got global market watchers worried is that China’s stocks are sliding in tandem with its currency, the renminbi or yuan…That suggests China is using the exchange rate as a weapon. ‘The most effective way for China to retaliate [against] rising U.S. tariffs is to weaken the yuan,’ according to the July Bank Credit Analyst. That could roil financial markets, however. The dual declines in China’s equity market and currency are raising concerns of a repeat of 2015. Treasury strategists at NatWest Markets recall that the drop in the yuan that summer sparked severe equity market losses, including a 10.5 percent correction in the S&P 500.”  That may explain, in part, why U.S. Treasury bills were so popular last week, although it probably didn’t hurt the yield on short-term Treasuries was roughly equivalent to the dividends paid by the Standard & Poor’s 500 Index.  The coming weeks may deliver more excitement than Fourth of July fireworks.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

From Asia with love. Sometimes the hottest trends in other regions of the world are similar to those in the United States and sometimes they’re very different. Here are three recent chapters in the book of Asian cultural trends.

Improving your future wife’s ROI. Single men in the Land of the Rising Sun are trying to increase their value on the marriage market by taking parenting classes. The lessons include developing empathy for future spouses by wearing pregnancy suits. The Atlantic reported, “The man in the traditional kimono is having difficulty…The weight of the belly strains his back. Simply walking around the room – a party room in a Tokyo condo building – is more like lumbering. Lying down and getting up again is a struggle. The rest of the men in the Ikumen class laugh as he tries to adjust to the new reality.”

Shopaholics rejoice. ‘Shopstreaming’ is a little bit e-commerce and a little bit live streaming, reports Trendwatching Quarterly. “Asians are social shoppers – they rely on social media recommendations for their purchase decisions. For many, the ability to talk to sellers and buyers can build trust and allay fears about counterfeit goods. In Southeast Asia, 30 percent of e-commerce sales are started on social media and completed in messaging apps…”

It’s not just puppy love. Newly minted middle classes in developing nations are turning to pets for comfort and companionship. In emerging markets in the Asia Pacific region, Spire Research reports, “Changes in consumer lifestyles and rising disposable income are driving acceptance for pets and boosting the entire pet-related industry along the way.”

Trends are entertaining. As in any industry, they also can help business owners unearth expansion opportunities and help asset managers discover companies with potential.

Weekly Focus – Think About It
“I learned to make my mind large, as the universe is large, so that there is room for contradictions.”
Maxine Hong Kingston, Chinese American author

Best regards,
John F. Reutemann, Jr., CLU, CFP®

 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

 

Investment advice offered through Research Financial Strategies, a registered investment advisor. * This newsletter and commentary expressed should not be construed as investment advice.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.

* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* You cannot invest directly in an index.

* Stock investing involves risk including loss of principal.

* Consult your financial professional before making any investment decision.

* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

 

Sources:

https://www.cnbc.com/2018/06/29/shanghai-stocks-on-pace-for-worst-year-since-2011.html

https://www.investopedia.com/terms/s/sse-composite.asp

https://www.barrons.com/articles/why-stocks-are-losing-out-to-cash-1530316991

https://www.theatlantic.com/magazine/archive/2018/07/dad-classes-for-the-single-guy/561704/

https://trendwatching.com/quarterly/2017-11/5-asian-trends-2018/

https://www.spireresearch.com/spire-journal/yr2014/q1/the-pet-economy-boom-in-asia/

https://www.brainyquote.com/quotes/maxine_hong_kingston_389654

8 Things to Know About the USA-China Trade Dispute

The headlines are filled with rumors of a trade war between the United States and China. You’ve probably heard by now that both nations have announced tariffs on many of each other’s goods.  This has many economists concerned about a trade war.  A trade war, in case you’re not familiar with the term, is “an economic conflict in which countries impose import restrictions on each other in order to harm each other’s trade.”
In response, the markets are doing their best impression of a see-saw – falling and then rising again.  Because this story probably won’t go away any time soon, let’s break it down.

Eight Things to Know about the USA-China Trade Dispute

ONE: The U.S. has announced tariffs on almost $50 billion in Chinese exports.1
The list, which stretches to over 1300 items, includes goods like medical equipment, chemicals, televisions, and automobile parts.1  This is on top of an earlier spate of tariffs on Chinese steel and aluminum.  However, many of the most commonly-used goods Americans use, like shoes, clothing, and phones, are not included.

TWO: China has retaliated with tariffs of their own.
On April 4, China announced plans to levy a 25% tariff on roughly $50 billion worth of American goods.1  This includes airplanes, cars, soybeans, and other vegetables.  Earlier, China had already declared tariffs on $3 billion worth of agricultural exports, like fruit, nuts, and pork.

THREE: The two countries aren’t actually in a trade war – yet.
Notice how often I’ve used the word “announced”?  As of this writing, none of these tariffs have gone into effect yet.  The U.S. intends to hold public hearings sometime in May, and has 180 days after that to decide whether to go through with the tariffs.2  China, meanwhile, has avoided mentioning any specific dates.  It’s possible both sides are hoping to engage in talks before the tariffs are in place.  If successful, there’s a chance the tariffs never will.
In other words, a trade war has been declared, but the “fighting” hasn’t started yet.

FOUR: Both sides see the situation very differently.
It’s safe to say neither country wants a trade war – hence the delay.  But that doesn’t mean negotiations will be simple or easy.

The issue, at least from the U.S. administration’s standpoint, is a $375 billion trade deficit2 with China, which many see as being due to unfair or even illegal trade practices.  China has a long history of forcing American companies to share their technology in order to do business there, making these companies less competitive than they might otherwise be.  In some cases, Chinese companies are alleged to have outright stolen American intellectual property.  The administration believes that tariffs will stop these practices and reduce the deficit.  China, of course, doesn’t see it the same way.  The Brookings Institution, a well-known think tank, describes it like this: “From Beijing’s perspective, the U.S.-China trade imbalance is a result of many factors—automation, evolving global supply chains, increased competitiveness of Chinese firms, the Federal Reserve’s normalization of interest rates, and the Congress’s deficit-increasing tax cuts. Because the trade balance is the difference between savings and investment, Beijing also views U.S. fiscal and monetary decisions as contributing to America’s overall trade deficit—including with China.”3

Overcoming this basic difference in opinion will probably need to happen before the two countries can strike a new deal.

FIVE: Trade wars can impact markets…
Again, we’re not yet in a trade war.  But should these tariffs go through, history suggests it will have an impact on the markets.

Tariffs are a tax on imported goods and services.  They essentially make it costlier and more difficult to import certain things, like metals, foodstuffs, consumer products, and so on.  That can be a major boon to industries that produce those same things, because it forces consumers to buy domestically.  On the other hand, China’s tariffs could make it harder for U.S. companies to sell their own goods.  For those companies that do a lot of business in China, this can have a major effect on their bottom line.  As a result, some companies’ stock price could suffer.

SIX: But that doesn’t necessarily mean the markets are going to plummet.
To give you an example, take this past Wednesday, April 4th.  When the markets opened, the news out of China caused the Dow to drop 510 points.  But the Dow rallied later in the day, ending up 300 points.4

While a trade war can be unsettling for investors, it’s important to remember that the day-to-day movement of the markets is based on many factors.  Trade is only one of these.  The overall economy is still doing well, unemployment remains low, corporate earnings continue to be solid – you get the idea.

The point is, the U.S.-China trade dispute is important, but not the be-all and end-all.  It’s something to keep an eye on, but not something to overreact to.  And again, we’re not yet in an actual trade war!  If history is any judge, there will be a lot more twists and turns to this story.  A lot can change over the next few weeks and months.

SEVEN: This is an opportunity to practice discipline.
The markets are in the habit of jumping at the slightest sound – but we’re not.  We rely on the news to stay informed and up-to-date, but not to dictate our every decision.

As a financial advisor, I can’t tell you what President Trump will do, or what China will do, or whether a trade war will happen.  I can say that we’ll keep seeing a lot of headlines on this.  Remember the see-saw metaphor?  As the situation develops, it’s not unlikely the markets will continue to rise and fall as investors digest the news coming out of Washington.  For that reason, it’s wise to expect more volatility – but let’s bear in mind that volatility doesn’t equal catastrophe. 

All this means we have a wonderful opportunity to practice discipline.  To avoid getting caught up in the day-to-day.  To not let headlines – and the emotions they evoke – control us.  The more we do this, the more we’ll keep moving toward our goals.

EIGHT: We here at Research Financial Strategies are monitoring your portfolio.
This is our job: to monitor your portfolio.  If at any point we feel the trade situation could harm your holdings and impede your progress towards your goals, we’ll let you know immediately.

In the meantime, remember: My team and I love hearing from you!  Please let us know if you have any questions or concerns.  Our door is always open.  Have a great month!

1 “All the Goods Targeted in the Trade Spat,” The Wall Street Journal, April 5, 2018.  https://www.wsj.com/articles/a-look-at-which-goods-are-under-fire-in-trade-spat-1522939292

2 “U.S. Announces Tariffs on $50 Billion of China Imports,” The Wall Street Journal, April 3, 2018.  https://www.wsj.com/articles/u-s-announces-tariffs-on-50-billion-of-china-imports-1522792030

3 “How to avert a trade war with China,” The Brookings Institution, February 27, 2018.  https://www.brookings.edu/blog/order-from-chaos/2018/02/27/how-to-avert-a-trade-war-with-china/

4 “Trade war? Not so fast. Why stocks are rallying again,” CNN Money, April 5, 2018.  http://money.cnn.com/2018/04/05/investing/stocks-rebound-trade-war-us-china/index.html

Weekly Market Commentary – April 2, 2018

In like a lion…
Investors roared into 2018.  During the first week of the first quarter of the New Year, the Dow Jones Industrial Average rose above 25,000 for the first time ever. Less than two weeks later, it closed above 26,000. The Standard & Poor’s (S&P) 500 Index and NASDAQ Composite also reached new all-time highs.

Strong performance was supported by strong fundamentals. In December 2017, Mohamed A. El-Erian wrote in BloombergView economic and policy fundamentals, including synchronized global recovery, progress on U.S. tax reform, improved certainty around Brexit, and orderly acceptance of changing U.S. monetary policy, “…reinforce the prospects for better actual and future growth, thereby increasing the possibility of improved fundamentals validating notably elevated asset prices.”

During the first quarter, the global economy remained robust, reported Forbes. American companies were profitable (profitability is measured by earnings) and earnings per share for the S&P 500 Index are expected to increase during 2018. FactSet reported analysts currently estimate the S&P 500 Index will deliver double-digit earnings growth (18.5 percent overall) during 2018. Here’s what the analysts anticipate each quarter:

  • Q1: Earnings growth of 17.3 percent
  • Q2: Earnings growth of 19.1 percent
  • Q3: Earnings growth of 20.9 percent
  • Q4: Earnings growth of 17.1 percent

Improving expectations for American companies can be credited, in large part, to tax reform, which lowered corporate tax rates significantly. In addition, rising oil prices may help companies in the Energy sector, and rising interest rates may give a boost to companies in the Financials sector.

Despite a robust global economy, strong earnings, and improving earnings per share (EPS) expectations, the major U.S. stock indices delivered negative quarterly returns for the first time since 2015. On March 29, the last trading day of the quarter, the Dow closed at about 24,100.  If fundamentals are strong, why did major indices in the United States (and many indices around the world) finish the quarter lower? Financial Times suggested uncertainty might have something to do with the retreat:

“The tax cut has been achieved. We are no longer so sure that [President Trump’s] remaining ideas are so good, and most investors think his ideas about trade are downright terrible. And so the market has started reacting to presidential tweets… Most importantly, though, key assumptions have been stripped away. We can no longer rely on low volatility. And critically, the positive view of a low-inflation strong-growth future has been called into question – but only after the stock market had priced in that assumption as a done deal.”

Market declines may also reflect concern about valuations. One financial professional told Financial Times many asset classes have gone from being very expensive to being expensive. They haven’t yet gotten inexpensive.

Out like a lamb…
The last week of the quarter was a good one for U.S. stock markets, which pushed higher. However, the major indices were unable to overcome deficits accumulated earlier in the quarter. The Dow Jones Industrial Average gained 2.4 percent last week, finishing the quarter down 2.5 percent. The S&P 500 Index was up 2.0 percent last week, down 1.2 percent for the quarter. Likewise, the NASDAQ bounced 1.0 percent last week, but ended the quarter down 2.3 percent, reported Barron’s.

Data as of 3/29/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 2.0% -1.2% 11.9% 8.2% 10.1% 7.2%
Dow Jones Global ex-U.S. 0.6 -1.5 13.6 3.9 3.9 0.6
10-year Treasury Note (Yield Only) 2.7 NA 2.4 2.0 1.8 3.4
Gold (per ounce) -1.7 2.1 5.8 3.8 -3.5 3.6
Bloomberg Commodity Index 0.0 -0.8 2.4 -4.1 -8.5 -8.0
DJ Equity All REIT Total Return Index 3.7 -6.7 -0.3 2.7 6.7 6.9

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

If you asked Artificial Intelligence (AI) to bake, what would it make? Janelle Shane at PopSci.com wrote, “When computers try to imitate humans, they often get confused. But simulated brain cells in so-called neural networks can mimic our problem-solving skills. An AI will look at a dataset, figure out its governing rules, and use those instructions to make something new. We already employ these bots to recognize faces, drive cars, and caption images for the blind. But can a computer cook?”

Shane addressed the question by training a computer’s neural network to write a recipe. The computer reviewed a dataset of more than 24,000 online recipes (647 of them began with the word chocolate and 8 included blood as an ingredient). After two days of processing, the network delivered a remarkable recipe that includes a title, category, ingredients, and directions, although the nonsensical word choices are likely to leave bakers uncertain about how to proceed:

 

CHOCOLATE BUTTERBROTH BLACK PUDDING
cheese/eggs
4 oz cocoa; finely ground
1teaspoon butter
½ cup milk
¼ teaspoon pepper
¼ cup rice cream, chopped
1 lb cream
1 sesame peel

– Date Holy –
1 large egg
1 powdered sugar serving barme
¼ cup butter or margarine, melted

Brown sugar, chocolate; baking powder, beer, lemon juice and salt in chunk in greased 9×2 inch cake. Chill until golden brown and bubbly. Place serve garlic half by pieoun on top to make more use bay. Place in frying pan in preheated oven. Sprinkle with fresh parsley for cooking. Eating dish to hect in pot of the oil, pullover half-and half…Yield: 1 cake”

AI seems to have missed an important governing rule for recipes: Instructions should not include unlisted ingredients and all ingredients should be included in the instructions. DATE HOLY is particularly baffling. The author suggested the neural network might have been trying for frosting. It is a cake, after all.

Weekly Focus – Think About It

“We are surrounded by hysteria about the future of artificial intelligence and robotics – hysteria about how powerful they will become, how quickly, and what they will do to jobs…Mistaken predictions lead to fears of things that are not going to happen, whether it’s the wide-scale destruction of jobs, the Singularity, or the advent of AI that has values different from ours and might try to destroy us. We need to push back on these mistakes.”

–Rodney Brooks, Australian robotics entrepreneur

Best regards,
John F. Reutemann, Jr., CLU, CFP®

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Securities offered through Investment advice offered through Research Financial Strategies, a registered investment advisor.

*  This newsletter and commentary expressed should not be construed as investment advice.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.

* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* You cannot invest directly in an index.

* Stock investing involves risk including loss of principal.

* Consult your financial professional before making any investment decision.

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Sources:

https://www.barrons.com/articles/dow-25-000-how-high-can-it-go-1515213968

https://www.bloomberg.com/view/articles/2017-12-11/4-developments-to-watch-in-global-economy

https://www.forbes.com/sites/kenrapoza/2018/03/27/sorry-bears-these-big-market-corrections-are-not-evidence-the-end-is-near/#307d2be9fa38

https://insight.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_032918.pdf

https://insight.factset.com/record-high-increase-in-sp-500-eps-estimates-for-q1-and-cy-2018

https://finance.yahoo.com/quote/%5EDJI/history?p=%5EDJI

https://www.ft.com/content/05a60e04-3357-11e8-ac48-10c6fdc22f03

https://www.ft.com/content/1e6c15e4-3359-11e8-ac48-10c6fdc22f03

https://www.barrons.com/articles/dow-gains-569-points-but-falls-for-the-quarter-1522454402

https://www.popsci.com/neural-network-bakes-a-cake

https://www.technologyreview.com/s/609048/the-seven-deadly-sins-of-ai-predictions/

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