Market Commentary – February 11, 2019

by | Feb 11, 2019 | Weekly Stock Market Commentary

Central banks take a turn.
At its first policy meeting of 2019, the U.S. Federal Reserve changed direction. After four rate increases in 2018, Chair Jerome Powell announced interest rates were on hold. Last week, banks in the United Kingdom, Australia, and India followed suit by either reducing rates or cautioning rate reductions were likely, reported Sam Fleming and Jamie Smyth of Financial Times.

The dovish tone of central banks owes much to slowing global growth. January’s International Monetary Fund World Economic Outlook lowered global growth estimates for 2019 and 2020. Changing expectations were fueled both by factors that slowed momentum in the second half of 2018 and by issues that pose a potential risk to continued economic growth. These included:

  • The negative effects of higher tariffs
  • New auto emission standards in Germany
  • A slowdown in domestic demand in Italy
  • Economic contraction in Turkey
  • High levels of public and private debt
  • Escalating trade tensions
  • A no-deal British exit from the European Union
  • A severe slowdown in China

These issues have had limited effect on the U.S. economy; however, global risks are affecting the performance of some U.S. companies. Financial Times explained:

“The U.S. domestic economy has continued to put in a robust performance, with the number of new jobs in January coming in well ahead of Wall Street expectations and wage growth running comfortably above inflation. But corporate giants in the S&P 500 index, which generate over a third of their earnings overseas, are sounding the alarm about faltering overseas demand in markets including China, where the government has been battling against a slowdown. Smaller U.S. firms are feeling the global chill as well.”

Randall Forsyth at Barron’s reported major U.S. benchmarks finished last week higher, while the yield on 10-year U.S. Treasuries hit a 13-month low. Outside the United States, some global stock markets moved lower.

AT THE INTERSECTION OF ECONOMICS AND VALENTINE’S DAY…Author and illustrator Liz Fosslien has thought a lot about economics and Valentine’s Day. In ‘14 Ways an Economist Says I Love You,’ she offers this advice:  “Give your loved one a nerdy Valentine and they’ll be yours forever! Why? Because if you give them diamonds/cufflinks this year, anything you get them next year will fall short. Give them [a nerdy Valentine] and anything they receive next year will be a step up. It’s called expectation management and is the key to a long and happy relationship.”

Fosslien suggests a variety of approaches to saying, ‘I love you,’ in economic terms. (Each is accompanied by an illustrative chart or graph at Fosslien.com/heart.) If you’re looking for a way to express the magnitude or enduring nature of your feelings, you could try:

  • I don’t think your great, / I think you’re fantastic, / For what you’re supplying, / My demand’s inelastic.
  • The monopoly you have on my heart is all natural.
  • Our risk of default is zero.
  • The S&P was in the red, / But I wasn’t blue, / Because I shorted the market, / And went long on you.
  • The marginal returns of spending time with you will never diminish.
  • Irrational, asymmetric, / Love is so foolish. / But I could not care less, / If you’re the stock then I’m bullish.

If the dismal science of economics doesn’t deliver the level of romance your relationship requires, you can always go for the cufflinks or the diamonds.

Weekly Focus – Think About It
“Taking in the good, whenever and wherever we find it, gives us new eyes for seeing and living.”
–Krista Tippett, American journalist

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.

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.

Most Popular Financial Stories

No Results Found

The page you requested could not be found. Try refining your search, or use the navigation above to locate the post.

* 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.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* 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.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* 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.ft.com/content/24508f0e-2b91-11e9-88a4-c32129756dd8
https://www.imf.org/en/Publications/WEO/Issues/2019/01/11/weo-update-january-2019
https://www.barrons.com/articles/the-global-slowdown-could-soon-hit-the-u-s-51549676496
https://finance.yahoo.com/news/global-markets-asia-stocks-slip-renewed-anxiety-over-005019341–finance.html
http://fosslien.com/heart/
https://www.goodreads.com/author/quotes/225253.Krista_Tippett

Market Commentary – February 4, 2019

by | Feb 4, 2019 | Weekly Stock Market Commentary

And, U.S. stock markets celebrated.
Last week, the Federal Reserve put itself on hold. The Federal Open Market Committee met on Wednesday, January 30, 2019, to discuss the state of the economy and determine policy. After the meeting, Fed Chair Jerome Powell offered a positive assessment of U.S. economic strength that was leavened with a few concerns.

“We continue to expect that the American economy will grow at a solid pace in 2019, although likely slower than the very strong pace of 2018…Despite this positive outlook…Growth has slowed in some major foreign economies, particularly China and Europe. There is elevated uncertainty around several unresolved government policy issues, including Brexit, ongoing trade negotiations, and the effects from the partial government shutdown in the United States…We are now facing a somewhat contradictory picture of generally strong U.S. macroeconomic performance, alongside growing evidence of cross-currents. At such times, common sense risk management suggests patiently awaiting greater clarity…”

The Standard & Poor’s 500 Index (S&P 500) welcomed the news and delivered its best January performance since 1987, reported Reuters.

Earnings may have helped. Through the end of last week, almost one-half of companies in the S&P 500 had shared fourth quarter 2018 earnings. FactSet reported the blended year-over-year earnings growth – which includes earnings for companies that have reported and earnings estimates for companies that have not yet reported – was 12.4 percent. That’s lower than the 20-plus percent growth companies have delivered since late 2017, and it’s the fifth straight quarter of double-digit earnings growth.

There was good news to close the week, too. The Bureau of Labor Statistics reported far more jobs were created in January than analysts had anticipated, although unemployment ticked higher for the month because of the government shutdown, reported Bloomberg.

here they are: Some of The best inventions of 2018. Time Magazine asked its editors and correspondents to nominate inventions that are making the world smarter and more fun. The magazine whittled down the suggestions to 50 inventions it considers to be the very best. They include:

  • Off-the-rack bespoke clothing. If you have ever found yourself between two sizes or have had difficulty figuring out women’s swimsuit sizing, you’ll appreciate an innovation offered by a Japanese retailer. All you have to do is put on one of the company’s “…stretchy black bodysuits…covered in white dots, which enables consumers to make a ‘3-D scan’ of their bodies in the comfort of their own home, via a companion mobile app.” Once you’ve completed the scan, you can order custom-fit clothing. Next up: custom shoes.
  • Blankets that ease anxiety. Science suggests there is a connection between insomnia and anxiety – and we all know how important sleep is. Weighted blankets offer gentle pressure that may help soothe the nervous system and improve sleep, according to Time. Retailers suggest consumers opt for blankets with a weigh equal to 10 percent of body weight. Be forewarned. The blankets come with a hefty price tag.
  • A gravity-defying toolbox. If you’re looking for the perfect Valentine’s gift for a friend or family member who uses tools in tough environments, this might be a good choice. A former F-16 aircraft mechanic designed a flexible toolbox that stays on curved surfaces without slipping.
  • A compass that points to friends and family. If you stress over the possibility of a child or pet getting lost at a crowded event or in an unfamiliar place, you may appreciate these paired compasses. They use GPS technology, in tandem with long-wave radio frequencies, to help people keep track of each other.

Just for fun, check out the other inventions at Time.com.

Weekly Focus – Think About It
“The fact is that my brain goes out to play. That’s what creativity is – intelligence having fun.”
–Joey Reiman, American businessman

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.

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.

Most Popular Financial Stories

No Results Found

The page you requested could not be found. Try refining your search, or use the navigation above to locate the post.

* 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.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* 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.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* 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.federalreserve.gov/mediacenter/files/FOMCpresconf20190130.pdf?mod=article_inline
https://www.reuters.com/article/us-usa-stocks-weekahead/fed-pause-validates-market-fears-about-u-s-growth-idUSKCN1PQ4MW
https://insight.factset.com/earnings-season-update-february-1-2019
https://www.bls.gov/news.release/empsit.nr0.htm
https://www.bloomberg.com/news/articles/2019-02-01/u-s-payrolls-rise-304-000-while-wage-gains-cool-amid-shutdown
http://time.com/5453189/how-we-chose-50-best-inventions-2018/
http://time.com/collection/best-inventions-2018/5454324/zozosuit/
http://time.com/collection/best-inventions-2018/5454469/gravity-blanket/
https://www.researchgate.net/publication/243970419_A_Systematic_Review_Assessing_Bidirectionality_between_Sleep_Disturbances_Anxiety_and_Depression
https://www.healthline.com/health/mental-health/weighted-blanket-for-anxiety-review#5
http://time.com/collection/best-inventions-2018/5454282/grypmat/
http://time.com/collection/best-inventions-2018/5454439/lynq/
https://quoteinvestigator.com/2017/03/02/fun/#note-15588-5

Market Commentary – January 28, 2019

by | Jan 28, 2019 | Weekly Stock Market Commentary

Like competitors who’ve completed a difficult section in an endurance race, U.S. stock investors took a breather last week.

The Standard & Poor’s 500 Index, which has gotten off to its best start since 1987, ended the week with a slight loss, while the Dow Jones Industrial Average and Nasdaq Composite finished slightly higher, reported Ben Levisohn of Barron’s.

News the U.S. government shutdown would end, albeit temporarily, appeared to be of little interest to investors. Barron’s suggested the markets’ muted response to the government reopening was in balance with its response to the shutdown – there wasn’t much of one. In fact, the S&P 500 has gained 10 percent since the federal government closed.

Despite apparent disinterest, the shutdown could negatively affect sentiment, according to Sam Fleming and Brooke Fox of Financial Times. They reported:

“The record-breaking US government shutdown is triggering ripple effects across the US economy and risks denting confidence among companies that have already been fretting about trade disputes and stock market turbulence. Shutdowns have historically had only fleeting economic effects, but Jay Powell, the Federal Reserve chairman, warned last week that a dispute that outlasts past impasses could begin to change the picture for the worse.”

Last week, stock investors weren’t all that impressed by earnings, either. Earnings indicate how profitable companies were in the previous quarter. At the end of last week, 22 percent of companies in the S&P 500 had reported earnings and, overall, they were 3 percent above estimates, according to John Butters at FactSet.

However, indications the Federal Reserve may decide to keep more Treasuries on its balance sheet than originally anticipated gave U.S. stocks a boost late in the week, reported Nick Timiraos of The Wall Street Journal. The Fed began shrinking its balance sheet in 2017 by letting Treasury and mortgage bonds mature. We’ll know more after this week’s Fed meeting.

What is going on across the pond? Last November, BBC commentator Chris Mason reflected the frustration of a nation with his report on the rapidly approaching deadline for the British exit from the European Union (EU). He said:  “So, where are we in all of this Brexit process…people like me are paid, aren’t we, to have insights and foresights and hindsight about these things, to be able to project where we’re going to go. To be quite honest, looking at things right now, I haven’t got the foggiest idea what is going to happen in the coming weeks. Is the prime minister going to get a deal with the EU? Dunno. Is she going to be able to get it through the Commons? Don’t know about that, either.”

The report went viral. Since then, we’ve gotten some answers. The Prime Minister did indeed negotiate a deal with the EU and, on January 15, the British Parliament soundly rejected it. Heather Stewart of The Guardian reported it was, “…the heaviest parliamentary defeat of any British prime minister in the democratic era.”

The lack of an agreement in combination with a looming Brexit deadline – it’s just 9 weeks out – has created tremendous uncertainty about the future of British trade with the EU. One response has been stockpiling goods. Last week, Sarah Butler of The Guardian reported three-fourths of warehouse space in the United Kingdom is at capacity.

One intrepid entrepreneur has been marketing Brexit survival kits that provide 30 days of food rations for £295 ($380). Reuters reported the kit includes, “…60 portions of freeze-dried British favorites: Chicken Tikka, Chili Con Carne, Macaroni Cheese and Chicken Fajitas, 48 portions of dried mince and chicken, firelighter liquid, and an emergency water filter.”

As they say, necessity is the mother of invention.

Weekly Focus – Think About It
“Courage is like – it’s a habitus, a habit, a virtue: you get it by courageous acts. It’s like you learn to swim by swimming. You learn courage by couraging.”
–Marie M. Daly, Chemist

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.

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.

Most Popular Financial Stories

No Results Found

The page you requested could not be found. Try refining your search, or use the navigation above to locate the post.

* 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.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* 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.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* 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.barrons.com/articles/the-s-p-500-goes-nowhere-after-its-big-runup-51548462969?mod=hp_DAY_8
https://www.ft.com/content/b4970904-1907-11e9-9e64-d150b3105d21
https://insight.factset.com/earnings-season-update-january-25-2019
https://www.wsj.com/articles/fed-officials-weigh-earlier-than-expected-end-to-bond-portfolio-runoff-11548412201
https://www.washingtonpost.com/world/2018/11/14/bbc-reporter-replaced-his-brexit-analysis-with-exasperated-noises-now-hes-hero/?utm_term=.d696c195120b (Watch brief video)
https://www.theguardian.com/politics/2019/jan/15/theresa-may-loses-brexit-deal-vote-by-majority-of-230
https://www.theguardian.com/politics/2019/jan/21/uk-warehouse-space-nears-capacity-firms-stockpile-for-brexit
https://www.reuters.com/article/us-britain-eu-boxes/brexit-survival-kit-helps-britons-face-the-worst-with-freeze-dried-fajita-idUSKCN1PG1G4
https://femaleentrepreneurs.institute/15-amazing-female-scientists/

Market Commentary – January 22, 2019

by | Jan 22, 2019 | Weekly Stock Market Commentary

We’re off to a good start.
Investors who remained steady during December’s wild ride are probably pleased with their decision as stocks have gotten off to a strong start in 2019. Unfortunately, those who reduced their exposure to the asset class may be feeling the sting of missed opportunity.

Last week, the Dow Jones Industrial Average gained about 3 percent. The Index is up 5.9 percent year-to-date, which is its best start in more than a decade, according to Ben Levisohn of Barron’s. The Standard & Poor’s 500 Index (S&P 500) and NASDAQ Composite also moved higher last week.

Barron’s reported investors were encouraged by positive news about trade talks between the United States and China, as well as stronger-than-expected fourth quarter earnings. Eleven percent of S&P 500 companies have reported so far and, altogether, their earnings have beaten expectations by 3.2 percent, according to FactSet. (Quarterly earnings indicate how profitable a company was during the period being reported.)

The FTSE All-World Index also moved higher last week. It is up almost 8.5 percent for the year.

Richard Henderson, Emma Dunkley, and Robin Wigglesworth of Financial Times offered the opinion investors could have been overly pessimistic during December, and their change in attitude might be attributed to a more dovish tone at the U.S. Federal Reserve, as well as evidence the U.S. economy remains strong.

While investor confidence appears to be strengthening, consumer confidence wavered. The University of Michigan Survey of Consumers showed consumer confidence was lower in January 2019 than it was in January 2018. The Survey’s Chief Economist Richard Curtin wrote, “The loss was due to a host of issues including the partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies.”

How much would those burgers cost in britain? Purchasing power parity, or PPP, is a straightforward idea with a tongue twister of a name. When two countries have PPP, people pay the same amount for the same goods, after adjusting for the exchange rate. For example, if one British pound is worth 50 U.S. cents, then an item that costs one British pound in the United Kingdom should cost 50 cents in the United States.

The Economist developed ‘The Big Mac Index’ to measure burger parity. It’s an engaging way to look at local prices and exchange rates. The index measures the price of the seven-ingredient, double-decker burger in different countries and offers a rough estimate of whether a country’s currency is overvalued or undervalued relative to the U.S. dollar.

In January 2019, the index served up the news that almost every currency, in developed and emerging economies, is undervalued relative to the U.S. dollar. The only countries with currencies that appear to be overvalued are Switzerland, Norway, and Sweden.

So, how undervalued are other countries’ currencies?

  • The Canadian dollar is 8.9 percent undervalued
  • The European Union’s euro is 16.8 percent undervalued
  • The British pound is 27 percent undervalued
  • The Chinese yuan is 45.3 percent undervalued
  • The Russian ruble is 70.4 percent undervalued

The Economist explained, “It is not unusual for emerging-market currencies to look weak in our index. But, today the dollar towers over rich and poor alike. The pound, for example, looked reasonably priced five years ago. Today, Americans visiting Britain will find that [burgers] are 27 percent cheaper than at home.”

The U.S. dollar is stronger than usual because higher interest rates and tax cuts made American assets more attractive to investors than other assets in 2018, reported The Economist.

A strong dollar is a boon to travelers, who get more for their money in other countries. It also can make imports from other countries more attractive price-wise. There are disadvantages to a strong dollar, too. For example, it makes the United States a more expensive destination for travelers from other countries, which could discourage tourism. In addition, a strong dollar makes exports more expensive and that could make U.S. goods less competitive in overseas markets.

Weekly Focus – Think About It

“Wealth begins in a tight roof that keeps the rain and wind out; in a good pump that yields you plenty of sweet water; in two suits of clothes, so to change your dress when you are wet; in dry sticks to burn; in a good double-wick lamp; and three meals; in a horse, or a locomotive, to cross the land; in a boat to cross the sea; in tools to work with; in books to read; and so, in giving, on all sides, by tools and auxiliaries, the greatest possible extension to our powers, as if it added feet, and hands, and eyes, and blood, length to the day, and knowledge, and good-will.”
–Ralph Waldo Emerson, American writer

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.

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.

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* 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.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* 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.
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* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
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Sources:
https://www.barrons.com/articles/dow-gains-3-for-its-best-start-since-1997-51547857364?mod=hp_DAY_10
https://insight.factset.com/earnings-season-update-january-18-2019
https://www.investopedia.com/terms/e/earnings.asp
https://www.ft.com/content/e5e72cbc-157b-11e9-a581-4ff78404524e
http://www.sca.isr.umich.edu
https://www.economist.com/news/2019/01/10/the-big-mac-index
https://www.economist.com/graphic-detail/2019/01/12/the-big-mac-index-shows-currencies-are-very-cheap-against-the-dollar
https://www.investopedia.com/articles/forex/051415/pros-cons-strong-dollar.asp
https://emersoncentral.com/texts/the-conduct-of-life/wealth/

Okay, let’s all take a deep breath

by | Jan 9, 2019 | Noteworthy

It was a rough fourth quarter of 2018 for the markets. It seems like week after week, the major indexes – like the Dow and S&P 500 – get hammered by volatility. These days, just about every news website you can find is packed with breathless headlines about plummeting stocks, photos of nervous-looking traders, government shutdowns and editorials about a possible bear market sometime in 2019.

Frankly, it’s true. One major index was brushing up against a bear already, and it’s possible volatility will continue for the foreseeable future. But does that mean we should panic?

Nope.

Okay, take another deep breath. Market volatility is unpleasant, and here at Research Financial Strategies, we certainly take it seriously. But panic? Never. Let’s break this down objectively by discussing:

Five Things to Know about Market Volatility

1. The definition of a bear market.
A bear market is defined as a 20%-or-greater decline from a recent peak. As of this writing, the Nasdaq, an index largely comprised of technology stocks, is flirting with bear market territory.1 The other two main indexes, the Dow and the S&P, are still some distance away. Instead, the Dow and the S&P are hovering around what’s known as a market correction, which is a 10%-or-greater drop from a recent peak. Whether that correction will eventually turn into a bear is impossible to say, but regardless, here’s what investors need to remember:

2. Corrections – and even bear markets – are a normal part of investing.
On average, a market correction occurs about every 1-2 years. In fact, both the Dow and the S&P 500 endured brief corrections earlier this year before soaring to new heights. Bear markets are less common, but far from rare. Between 1900 and 2015, the markets encountered 32 bears – roughly one every 3.5 years.2
Pleasant? No.  Normal? Absolutely.
In a sense, a market correction is like the common cold. Annoying – but you tend to get one every year, and it hardly stops you from living your life. A bear market is more like influenza. It makes the average investor feel miserable, and you certainly should treat it seriously. But for most people, it’s nothing to panic about. You get some rest, follow your doctor’s orders, and wait to get better.
Right now, the markets have a cold. Do colds sometimes turn into the flu?  Sure, and it’s possible the current correction will develop into a bear. But it’s not unusual and it’s nothing to freak out about.

3. Panic only makes things worse.
Imagine you got sick and then didn’t get better as quickly as you wanted. Would you start panicking?  No. You would probably go see a doctor, but you wouldn’t resort to extreme measures like using leeches or asking for an operation.

Unfortunately, investors aren’t always so rational.  The fact is, many investors do panic during corrections and bear markets, especially if they last for a long time.  They sell all their investments without forethought, or move everything over into bonds, or any of a hundred other things.  It’s reckless – and recklessness has destroyed more wealth than any bear market.
History shows that it takes around four months for the markets to recover from a correction, and twentytwo months from a bear.3  Some are shorter, some are longer, but regardless of the duration, our own emotions are the bigger problem.
When we get sick, we understand that it might take a while before we feel entirely normal.  It’s a healthy acceptance of reality – and it’s a key part of getting better.
As investors, we need to bring the same acceptance to the markets.

4. The best way to combat panic is to increase our own knowledge.
When you’re sick, you go to the doctor and ask questions.  Or you research your symptoms online, hoping to find answers there.  Maybe you fire up an old episode of The Magic School Bus. Either way, you seek to understand exactly what’s going on in your body – and what your body’s doing to fight the infection.  And if you’ve ever known anyone with a chronic illness, you’ve probably heard them say that simply understanding what was going on made them feel much, much better.
Let’s do that right now by looking at what’s causing this current market malaise. In this case, there are four main factors:

Interest rates. The Federal Reserve raised the country’s key interest rate on Wednesday, December 19.4  This was expected. Part of the Fed’s mandate is to raise interest rates when the economy is strong – as it currently is – because a strong economy mixed with low rates often leads to inflation.  However, the markets don’t always appreciate higher interest rates, because it makes borrowing more expensive.  This, in turn, reduces spending and can slow economic growth. Which leads me to the next factor.

The economy may be slowing down anyway. Make no mistake, the economy is currently strong – but there are signs that it might be weakening a little.  Corporate earnings are slowing, many corporations are deeply in debt, oil prices have fallen dramatically, and the housing market is coughing, too.  Some analysts even believe the U.S. is due for a recession in 2020 or 2021.  This has many calling for the Fed to cut back on raising interest rates, and the Fed itself predicted it would only do it twice in 2019. 4
Another possible reason for a slowing economy is the third factor, which is:

The trade war. Trade tensions with China continue, and while new tariffs are on hold for now, there’s no immediate end in sight. It’s not hard to understand why the markets worry about this so much. Tariffs – essentially a tax on imported goods and services – often hurt businesses. That’s because higher tariffs often lead to higher prices, which in turn lead to higher expenses. For example, if companies must pay more for the raw materials they need, that can significantly eat into their own profits. This, in turn, can lead to shipping delays, supply chain problems, higher prices for consumers, a resulting loss of business, you name it. All these issues, of course, are then reflected in the stock prices of the various companies affected.

Investor psychology. We already talked about the dangers of panicking. With any market correction, fear is always a factor. In this case, pundits have been proclaiming for months that the bull market may be ending, and that a bear isn’t so far away. This often becomes a self-fulfilling prophecy, because bearphobic investors will soon see bear tracks everywhere they look. This fear leads to panic, panic leads to sell-offs, and sell-offs lead to corrections.

So, what can we do with this information? We can use it to understand there are reasons for the current market volatility, just as there are reasons we get sick. Neither, however, spells certain disaster or the end of the world.

5. Accepting market volatility as normal doesn’t mean we don’t have a plan for dealing with it.
The final thing you should know about bear markets is also the most important.

Here at Research Financial Strategies, we believe strongly in the use of technical analysis. That means we decide when to buy and when to sell based on supply and demand, not storylines in the media or emotion. We have long been prepared to “go on defense” when necessary, and we understand that protecting your money is just as important as growing it.

Using technical analysis, we look at market trends. Is the market trending up or down? What about different sectors of the market? What about your individual investments? As you know, we have rules in place specific to you that determine at what point in a trend we decide to buy, and at what point we decide to sell. For example, if an investment trends down below a certain price, we follow the rules and sell. Period. If an investment trends up above a certain price, we buy. This allows us to make investment decisions based on what makes sense for you rather than just following the herd. And the best part about this kind of approach? It works whether we’re in a bull market or a bear! Other investment philosophies, like buy-and-hold, can’t say the same.

It’s cold-and-flu season here in the United States…and apparently in the markets as well. That’s why you should focus on living and let us do the worrying. We’ll continue to monitor the markets and the economy. We’ll continue researching your investments to make sure they continue to make long-term sense for your goals. We’ll continue focusing on keeping your finances healthy. As always, contact us if you have questions or concerns. Our team stands ready, our door is open, and so is our inbox! In the meantime, have a great 2019!

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