Memorial Day – 75th D-Day Anniversary

Normandy. D-Day. Operation Overlord. The events of June 6, 1944 are known by many names, and have been commemorated in countless books, dramas, and documentaries. You’ve seen the pictures of GIs wading through rough, freezing water onto a murderous, mine-strewn beach. You’ve heard the stories of those who braved smoke and shell to scale the cliffs beyond. But most of the stories we hear were told by the survivors – the lucky ones who made it to the top and saw France on the other side.

What about the others?
As you know, Memorial Day is just around the corner. It’s a day for remembering those who didn’t make it. The ones who gave their lives so that others might live. And since this Memorial Day coincides with the 75th anniversary of Normandy, I think it’s an especially good opportunity to remember the men who couldn’t tell their stories afterwards.
Men like the soldiers of Able Company.

The First Wave
Picture it: Roughly two-hundred soldiers packed like sardines in tiny boats that sway with the choppy sea. This is Company A – “Able Company” – of the 116th Infantry Regiment. Most are in their early twenties and barely into manhood, yet men they are. Long before they land, they are already fighting fear and the worst seasickness any of them has ever known. If they lift their heads above the sides, they can see the imposing cliffs of Normandy in the distance – and the 200-yard beach they’ll have to cross just to get there. A beach that offers no shelter or protection.

But when the order comes – “This is it men, you’ve got a one-way ticket and this is the end of the line,” – they shoulder their packs and lift their weapons, ready to do their duty.1

Until everything starts going wrong.
First, water begins spilling over the sides of the boats, and many are swamped completely. Those that stay afloat do so only because the men of Able Company use their helmets to bail the water out. Other boats, hit by German artillery, catch fire and sink. The noise is deafening.

Then, at 6:36 A.M, the boat ramps are lowered, and it’s time.2   

One by one, the men jump into the frigid ocean. They are not yet on the beach at all, but on a sandbar that stretches up to 100 yards out. To even get to the beach, they’ll have to wade through water that often comes up to their necks. Many soldiers, weighed down by heavy jackets, packs, and equipment, start to sink. Those who can’t shed the weight, drown. Those who can come up gasping for air – only to be greeted by a hail of bullets.

From the cliffs, German machine guns pepper the ocean, decimating Able Company before they even reach the shore. But still they advance. One pair of boots makes it to dry land. Then a second, and a third. They are the first wave, and they know what’s expected of them. What’s required. Despite fire and water, despite mine and mortar, they are the first liberators to step onto the shore.

The first free men to set foot on the beaches of France. But in the meantime, they have more work to do. Medics do what they can for the wounded, pulling anyone who might still be alive from the ocean. Minutes pass. No one from Able Company has yet fired a shot, and almost every officer – the men who give commands, who know the plans and have studied the maps – is dead. The others, leaderless and bloodied, continue anyway. It’s no glorious charge, but a desperate crawl. Liberating France inch by inch, foot by foot.

Thirty minutes later, over half the Company is dead. Most of the survivors are wounded and exhausted. But still they continue. Those who fall lift their heads to shout encouragement one final time. For they are the first wave. This is their job, their mission, their calling. To pave the way for waves to come.

Finally, after an hour, the survivors make it across the sand to the bottom of the cliff. A few join a nearby group of Army Rangers and scale to the top. The others remain behind, holding the beach. Most will remain forever. Behind them comes the second wave.

Seventy-Five Years Later
It may seem like Able Company’s sacrifice was futile, or their assault was a failure. But I don’t think so. Every yard they gained was a yard the next wave wouldn’t have to. Every bullet they attracted was a bullet someone else was saved from. Theirs was the smallest of footholds, yet it was enough – for the next wave, and the one after. For what they did that morning led to everything that followed. By the afternoon, the beach was theirs. By evening, the cliffs were theirs.

And less than one year later, all of Europe was theirs.

History is often written down as the story of great leaders making grand speeches and grander plans. But in truth, history is made up of moments. Moments when normal men and women stared fear in the face and acted. Moments when men and women offered service and sacrifice. Moments that lasted the length of a heartbeat…and yet still affect our lives to this day.

This Memorial Day, I want to remember those men and women. I want to remember the beaches of Normandy. I want to remember the men of Able Company. I hope you can take a moment to remember them, too.

1 “The suicide wave,” The Guardian, June 1, 2003. https://www.theguardian.com/theobserver/2003/jun/01/features.magazine37
2 “First Wave at Omaha Beach,” The Atlantic, November 1960. https://www.theatlantic.com/magazine/archive/1960/11/firstwave-at-omaha-beach/303365

Market Commentary – May 20, 2019

Trade war trade-off.   
There was some good news on trade, last week. The United States took steps to reduce trade friction with the European Union, Canada, Mexico, and Japan.

“The United States on Friday reached an agreement with Canada and Mexico to remove steel and aluminum tariffs, which had been a persistent source of friction across North America over the past year. The deal on metals came as Mr. Trump decided not to press ahead immediately with levies on EU and Japanese automotive products – despite declaring that foreign car and vehicle imports represented a threat to U.S. national security,” reported James Politi, Jude Webber, and Jim Brunsden of Financial Times.

There was some bad news, too. Trade tensions escalated between the United States and China. The United States doubled tariffs on $200 billion of Chinese goods and threatened tariffs on an additional $325 billion of goods. The United States imports about $539 billion worth of goods from China each year, reported the BBC.

In addition, President Trump signed an executive order preventing U.S. companies from using telecommunications equipment made by firms believed to pose a risk to national security. The move is expected to affect the ability of a large Chinese telecoms firm to conduct business in the United States, reported David Lawder and Susan Heavey of Reuters.

China currently has tariffs on $110 billion of American goods and they announced plans to hike tariffs on $60 billion of these goods. In total, China imports $120 billion worth of goods overall from the United States each year.

While the relatively small amount of American goods imported by China would seem to give the United States an advantage in a trade war, China has other means of gaining leverage. The country holds about 7 percent of U.S. debt, which is more than any other nation, reported Jeff Cox of CNBC. If China were to slow purchases of Treasuries, yields on U.S. government bonds may move higher.

A source cited by Reshma Kapadia of Barron’s suggested it is unlikely the Chinese will stop buying Treasuries. “Where would they put the trillions of dollars? Ten-year German Bunds are below Japanese 10-year yields; there aren’t a lot of options…They also don’t want their currency to appreciate, so that handcuffs them…China tends to find things to hurt adversaries without hurting themselves.”

The Standard & Poor’s 500 Index finished the week lower.

Which Cities offer the best quality of life?
In March, Mercer published its 21st Quality of Living Survey. The goal is to help multinational corporations with data that can help them optimize their global operations. The survey considers factors like safety, housing, recreation, economics, public transport, consumer goods, and more. For 2019, the cities offering the highest quality of life were:

  1. Vienna, Austria
  2. Zurich, Switzerland
  3. Vancouver, Canada
  4. Munich, Germany
  5. Auckland, New Zealand
  6. Düsseldorf, Germany
  7. Frankfurt, Germany
  8. Copenhagen, Denmark
  9. Geneva, Switzerland
  10. Basel, Switzerland

Thirteen of the world’s top-20 cities were in Europe. The safest cities in Europe were Luxembourg, Basel, Bern, Helsinki, and Zurich. The least safe, as far as personal safety goes, were Moscow and St. Petersburg.

In North America, Canadian cities generally did better than U.S. cities. The highest ranked city in the United States was San Francisco, which came in at 34th. Boston ranked 36th and Honolulu 37th. The safest cities in North America were Vancouver, Toronto, Montreal, Ottawa, and Calgary.

Dubai offers the best quality of life in the Middle East. Dubai and Abu Dhabi were the safest cities, while Damascus was the least safe – in the Middle East and the world.

Singapore, Tokyo, and Kobe had the highest quality of life rankings among Asian cities. Cities in Australia and New Zealand also did quite well, overall.

Weekly Focus – Think About It
“You are all there, the people in the city. I can’t believe I was ever among you. When you are away from a city it becomes a fantasy. Any town, New York, Chicago, with its people, becomes improbable with distance. Just as I am improbable here, in Illinois, in a small town by a quiet lake. All of us improbable to one another because we are not present to one another.”
–Ray Bradbury, 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.

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

Six Steps To Financial Independence For Women

Financial independence: Whether you enjoy it or dream about it, it’s a common term that you’ve probably seen in magazine ads, TV commercials and billboards. But what really does financial independence mean, exactly?Read more>>

read more

Active Portfolio Management – How We Do It!

Research Financial Strategies specializes in providing financial advice using a proprietary investment methodology that leverages technical analysis to identify and protect our clients against stock market risk. Research Financial Strategies provides our...

read more

Don’t Be Deceived By Mutual Funds

Best Mutual Funds? Since the bull market run started 10 years ago, how many mutual funds would you guess outperformed the stock market? If you are thinking 500, 200 or even 20, you are very wrong.  In fact, not one single mutual fund has beaten the market...

read more

* 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/9aca49e0-78a3-11e9-be7d-6d846537acab (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-20-19_FinancialTimes-Donald_Trump_Eases_Tariffs_for_Allies_as_He_Focuses_on_China-Footnote_1.pdf)
https://www.bbc.com/news/business-45899310
https://www.reuters.com/article/us-usa-trade-china/us-blacklists-chinas-huawei-as-trade-dispute-clouds-global-outlook-idUSKCN1SL2DI
https://www.cnbc.com/2019/05/16/china-has-cut-its-holdings-of-us-debt-to-the-lowest-level-in-two-years.html
https://www.barrons.com/articles/trade-war-stock-market-outlook-51558120641 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-20-19_Barrons-The_Trade_War_Will_Make_Stocks_Scary-5_Reasons_Not_to_Panic-Footnote_5.pdf)
https://mobilityexchange.mercer.com/Insights/quality-of-living-rankings (Click on 2019 City Ranking, Show/Hide full ranking)
https://www.mercer.com/newsroom/2019-quality-of-living-survey.html
https://www.goodreads.com/quotes/tag/cities?page=6

Examining the cause and effect of the new tariffs between the U.S. and China

After months of relative quiet, the trade war between the U.S. and China has erupted again in a big way. The markets are the most immediate casualty, with the Dow plunging over 600 points on Monday alone.1

In all likelihood, you’re probably more focused on things like spring cleaning, your upcoming summer plans, and the end of Game of Thrones. My job in this letter is to briefly explain what’s going on, what matters, what doesn’t, and why you can go back to focusing on those other things

So, here’s what’s going on:
Failed deals lead to new tariffs
You may have noticed that headlines about the trade war had been rather muted in 2019. That’s because negotiators for both nations had been quietly working behind the scenes to come to an agreement on how to address the $375 billion trade deficit the U.S. has with China. The White House expressed optimism that a deal was close – until a sudden hardening of positions prompted both sides to retreat to their corners.

On Friday, May 10, President Trump raised the stakes by placing 25% tariffs on all Chinese imports that had previously been spared. Here’s how the U.S. trade representative put it:
“[The President has]…ordered us to begin the process of raising tariffs on essentially all remaining imports from China, which are valued at approximately $300 billion.”2

Throughout this trade war, it has seemed like both countries are waiting for the other to blink first. Both are still waiting. For on Monday, May 13, China announced it would raise tariffs on $60 billion in U.S. goods, some up to as much as 25%.3

Why all this matters to the markets
You’ve heard, of course, of the principle of cause and effect. If one thing happens, something else is affected. Fail to brush your teeth and you get cavities. Leave meat out of the refrigerator too long and it will spoil. You get the idea.
Investors, analysts, money managers, and traders who participate in the markets on a daily basis make decisions based on cause and effect. How tariffs impact certain companies is a perfect example of this. For instance, imagine a fictional American company called Widgets n’ Stuff, or WNS for short. In order to make its widgets, WNS buys thingamajigs from China. But thanks to tariffs, the price of importing thingamajigs goes up.

Investors know this, and thanks to the principle of cause and effect, predict it will have a negative impact on WNS’s finances. Maybe they’ll have to raise prices on their own widgets to make up the difference. Maybe they’ll have to produce fewer widgets. You get the idea. So, investors sell stock in Widgets n’ Stuff because it no longer looks like an attractive investment.

Like them or not, tariffs act as a double-edged sword that affect companies and consumers on both sides of the Pacific. On the American side, China’s tariffs can make it harder for U.S. companies to sell their goods to Chinese consumers. At the same time, American tariffs can make it harder for U.S. companies to import the goods they need for their own products. Either way, prices go up, corporate finances suffer, and consumers are often the ones left to foot the bill. That’s why the markets care about the trade war.

But here’s why all this doesn’t matter to us – yet
The principle of cause and effect is important, but it’s more important to short-term traders than long-term investors like us. That’s because we don’t actually know what the long-term effects are yet. We can guess, but guessing isn’t really a viable strategy in life, is it?

Think of it this way. Let’s say you come down with a fever. The short-term effect is that you probably don’t feel very good. But the long-term effect isn’t yet known. Perhaps it’s just a symptom of a mild cold that will pass in a few days – and that’s why we don’t immediately start chugging antibiotics the moment we feel sick.

While it’s never fun, the markets have fallen after almost every round of tariffs to date. Each time, the markets absorbed the blow, and then rebounded relatively quickly. Previous trade war battles faded into the background and investors turned their attention to other things. Will that happen again this time? We don’t know. And that’s the point: We don’t know what the long-term effects are. What’s more, with the markets having enjoyed a remarkable bull market in recent years, we can afford to be patient. What we can’t afford is to make important decisions by guessing at the long-term effects of these tariffs.

Hippocrates once wrote that, “To do nothing is sometimes the best remedy.” For that reason, it’s okay for you to go back to planning your summer vacation or betting which character will die next on Game of Thrones. In the meantime, my team and I will continue monitoring all the causes and effects in the markets. If, at some point, we have a better understanding of the long-term effects of this trade war, we’ll make decisions accordingly.

As always, please let us know if you have any questions or concerns. We are always happy to speak to you!

Most Popular Financial Stories

Six Steps To Financial Independence For Women

Financial independence: Whether you enjoy it or dream about it, it’s a common term that you’ve probably seen in magazine ads, TV commercials and billboards. But what really does financial independence mean, exactly?Read more>>

read more

Active Portfolio Management – How We Do It!

Research Financial Strategies specializes in providing financial advice using a proprietary investment methodology that leverages technical analysis to identify and protect our clients against stock market risk. Research Financial Strategies provides our...

read more

Don’t Be Deceived By Mutual Funds

Best Mutual Funds? Since the bull market run started 10 years ago, how many mutual funds would you guess outperformed the stock market? If you are thinking 500, 200 or even 20, you are very wrong.  In fact, not one single mutual fund has beaten the market...

read more

1 “Dow plunges 700 points after China retaliates with higher tariffs,” CNN Business, May 13, 2019. https://www.cnn.com/2019/05/13/investing/dow-stocks-today/index.html
2 “Trump Renews Trade War as China Talks End Without a Deal,” The NY Times, May 10, 2019. https://www.nytimes.com/2019/05/10/us/politics/trump-china-trade.html?module=inline
3 “After China Hits Back With Tariffs, Trump Says He’ll Meet With Xi,” The Wall Street Journal, May 13, 2019. https://www.wsj.com/articles/china-to-raise-tariffs-on-certain-u-s-imports-11557750380

Have you been watching the markets lately?

“We are now in a bear market – here’s what that means.” – CNBC headline on December 24, 20181

“The stock market rally to start 2019 is one for the history books.” – CNBC headline on February 22, 20192

If you’re like most people, it’s probably not uncommon for you to plan your day or week based on the weather forecast. For example, you might check the forecast, see that it’s supposed to be sunny, and decide to go fishing on Saturday.
But when Saturday rolls around, it starts to rain.

The frustration you’d feel is very similar to how investors and analysts often feel about the markets. The forecast says one thing – and then the opposite happens.

For example, let’s go back to the end of 2018. For months, the markets had been hammered by volatility. The Nasdaq entered bear market territory. Many pundits predicted even more volatility after the new year.

But four months later, the markets are on the verge of record highs.
So, the question is: Why the change in direction? What’s behind this year’s market rally? And most importantly, what can we learn from it?

The volatility that dominated the end of 2018 was largely due to fears of an economic slowdown. The Federal Reserve raised interest rates, which can cool both inflation and economic growth. Trade tensions with China showed no signs of stopping. Corporate earnings slowed down, oil prices had dropped, and several other indicators had many analysts predicting a recession in 2020 or 2021.

Even after the turn of the year, there was some interesting data that, when compared with historical trends, suggested more storms on the horizon. For example, you may have seen the term “inverted yield curve” bandied about in the media for a time. We’re venturing into “financial nerd” territory here, but this is when the yield on short-term Treasury bonds rises higher than the yield on long-term bonds. It doesn’t happen often, and historically, it has sometimes been a sign of an impending recession. The result of all these signals was a forecast that had many investors reaching for their umbrellas, convinced that gloomy weather was here to stay.

But instead, the markets enjoyed their strongest start to a year since 1998.3
In many ways, this rally has been driven by something very simple: Nothing really got worse. The Federal Reserve has stopped raising interest rates, saying that it won’t raise them again in 2019.4 The trade war with China seems to have hit a lull. And now, investors can point to a host of different historical trends that work in their favor. For example, some data suggests that when the stock market rises 13% or more “during the first three months of a calendar year,” it will gain even more before the end of the year.3

So, does that mean the good times are here to stay?
No.
Warren Buffett, the legendary investor, has a saying: “Be fearful when others are greedy and greedy when others are fearful.” While we shouldn’t take that maxim too literally, it does illustrate an important point. Time after time, conditions that cause fear can change in an instant, leaving the fearful behind. On the other hand, conditions that stoke greed can shift before you know it, giving the greedy a nasty shock.

On their website, CNN has something called the Fear & Greed Index. 5 Using seven different indicators, they can calculate which emotion is driving the markets most at any given time. As of this writing, that emotion is greed. A few months ago, it was fear. As we’ve just seen, the scale can swing from end to another very quickly.

When you look more closely at the data, there are still reasons to think a recession is possible in the next year or two. (A contracting labor market, problems in Europe, stocks being valued too highly, to name just a few.) Other data suggests that the stock market’s current highs are overblown.6 But does this mean it’s time to run and hide? Nope! While data is very good at telling us what was and what is, it’s still unreliable at telling us what will be – at least as far as the markets are concerned. In fact, for as much grief as we give meteorologists for getting a forecast wrong, they do a much better job predicting the weather than experts do the markets!

Here’s what we can learn from all this
As your financial advisor, the reason I’m sending you this letter is because there are a few things I think we need to keep in mind as 2019 rolls on.

First, we need to remember to guard against recency bias. Recency bias is when people make the mistake of thinking what happened recently is what happens usually. It’s why investors tend to panic during market volatility or take on unnecessary risk during a market rally.

Second, remember that emotion is a good servant, but a bad master. Emotion helps us interact with other people. It makes experiences more memorable and life more colorful. But it can be come harmful if it drives our decisions. We should always strive to keep our own personal Fear & Greed Index from swinging too sharply one way or the other.

Finally, whether the markets go up, down, or sideways, you’ll probably hear about many different statistics, indicators, and historical trends that predict this, that, or the other thing. When you do, remember that correlation is not causation.

Correlation, as you probably know, is the measurement of how closely related two things are. In finance, we often find that many things tend to change in sync with one another. Asset classes, market sectors, you name it. It’s why we spend so much time looking at things like inverted yield curves – because they are often correlated with the health of the markets or economy.

But just because two things are correlated does not mean that one causes the other. (It’s why an inverted yield curve doesn’t always mean a recession is nigh.) All the indicators and historical trends you hear about in the news are important, and worth studying – but again, they only tell us what was or what is. Not what will be.

So, to sum up:
• Just as we didn’t give in to fear when the markets were down, so too will we not give in to greed while the markets are up.
• We will remember that sun today doesn’t protect against rain tomorrow, or vice versa.

Instead, we’ll make decisions as we’ve always done: by keeping your long-term goals foremost in our minds. In other words, we’re not working to help you go fishing just this weekend.

We’re working to help you go fishing any weekend you want.

As always, if you have any questions or concerns about the markets, please don’t hesitate to contact us. In the meantime, have a wonderful Spring!

1 “We are now in a bear market – here’s what that means,” CNBC, December 24, 2018. https://www.cnbc.com/2018/12/24/whats-a-bear-market-and-how-long-do-they-usually-last-.html
2 “The stock market rally is one for the history books,” CNBC, February 22, 2019. https://www.cnbc.com/2019/02/22/the-stockmarket-rally-to-start-2019-is-one-for-the-history-books.html
3 “The Stock Market is Having Its Strongest Start in 21 Years,” Money, March 20, 2019. http://money.com/money/5639032/stock-market-strong-start/
4 “Fed holds line on rates, says no more hikes ahead this year,” CNBC, March 20, 2019. https://www.cnbc.com/2019/03/20/fedleaves-rates-unchanged.html
5 “Fear and Greed Index,” CNN Money, accessed April 17, 2019. https://money.cnn.com/data/fear-and-greed/
6 “Dow, S&P 500 and Nasdaq near records but stock-market volumes are the lowest in months,” MarketWatch, April 18, 2019. https://www.marketwatch.com/story/why-stock-market-volumes-are-the-lowest-in-months-as-the-dow-sp-500-and-nasdaq-testrecords-2019-04-17

SEC warns investors not to base stock decisions on social sentiment

Social media posts can have hidden agendas, regulators said.

The Securities and Exchange Commission and the Financial Industry Regulatory Authority Inc. are warning investors about using social media data to make investment decisions.

In recent years, companies like TickerTags, Social Market Analytics and LikeFolio have launched to turn the massive amounts of data on social media into investment research. The idea is that by aggregating and analyzing posts on Twitter, Facebook and others, one can detect a “social sentiment” that predicts future market or economic performance.

For example, if millions of people are tweeting how much they hate the latest iPhone, it could predict Apple falling short on its next earnings report.

Social sentiment data is increasingly popular among both retail and institutional investors. Several companies are providing earnings predictions to individual investors directly, and is selling data to quantitative fund managers.

But the SEC and FINRA said the information on these tools can be inaccurate, incomplete or misleading. Data can be stale or out-of-date, and social media posts may have hidden agendas. The SEC has actually charged someone for sending false tweets in order to influence stock prices.

FINRA’s  The investor alert added that buy or sell indicators driven by social sentiment can lead investors to make emotionally-driven or impulsive investment decisions. The SEC and FINRA advised investors to not rely solely on these tools when making decisions and to stick to a long-term financial plan.

The general consensus is that FINRA is warning investors that if they trade based on social sentiment and lose money, don’t expect FINRA to investigate, even if there is proof there were flaws in the social sentiment provider’s data.  Institutions likely will want to develop clear disclosures and disclaimers for any social sentiment data they make available to investors on their platform.

Financial industry insiders applauded the alert and said the SEC and FINRA correctly identified the issues that may arise for investors.

As always, We are here to help you find the best solution for your situation and your needs. Contact us to set up a free, no obligation consultation.