Market Commentary – November 18, 2019

Market Commentary – November 18, 2019

The longest bull market in history showed no signs of slowing last week.
U.S. stock markets climbed higher for the sixth week straight – the longest rally in U.S. markets in two years – and the Dow Jones Industrial Average surpassed 28,000 for the very first time, reported Bloomberg.

The Economist reported, “It has been a year of mood swings in financial markets. In the spring and summer, anxious investors piled into the safety of government bonds, driving yields down sharply. Yields have recovered in recent weeks…Equity prices in America have reached a new peak. But what is more striking is the performance of cyclical stocks relative to defensive ones. Within America’s market the prices of industrial stocks, which do well in business-cycle upswings, have risen relative to the prices of utility stocks, a safer bet in hard times.”

Last week, Federal Reserve Chair Jerome Powell confirmed the United States appears to be in good economic shape. The U.S. economic outlook remains favorable despite weakening business investment, which has slowed because of sluggish global growth and uncertainty surrounding trade. The unemployment rate remains low and more people are returning to the workforce, which is a positive development. Overall, Powell and his colleagues believe economic expansion is likely to continue.

A similar phenomenon has occurred in European markets.

Randall Forsyth of Barron’s cited a source who stated, “…the global economic backdrop has, for the first time in 18 months, begun to improve.” Forsyth went on to explain, “It’s not just because of prospects of a trade deal. Recession risks have, well, receded. Growth may slow to a 1 percent annual rate in the current quarter, but odds of falling into an outright recession have slid.”

Whenever investors are happy and markets are moving higher, contrarians begin to ask questions. For example, a leading contrarian indicator is the Investors Intelligence Sentiment Survey. The survey queries investors and investment professionals about whether they are feeling bullish or bearish. When the ratio of bulls to bears is above 1.0, the market may be overly bullish. When it is less than 1.0, it may be too bearish.

Yardeni Research reported the ratio stood at 3.22 last week; 57 percent bulls and 18 percent bears

In case you missed it, the winner was #435.
For the last five years, Katmai National Park and Preserve in Western Alaska has hosted ‘Fat Bear Week’ to celebrate bears as they prepare for hibernation. The participants are coastal brown bears who live along Alaska’s Brooks River.

The event helps people better understand hibernation. You may not have realized it, but bears spend the summer fattening up because they lose about one-third of their body weight during the winter. It’s an interesting scientific phenomenon. The Katmai National Park Service website explained:

“Hibernation is a state of dormancy that allows animals to avoid periods of famine. It takes many forms in mammals but is particularly remarkable in bears…After a summer and fall spent gorging on food, a bear’s physiology and metabolism shifts in rather incredible ways to help them survive several months without food or water.”

In Katmai, conservancy media rangers select twelve participants from among the park’s 2,000 bears and post before-and-after photos on social media to showcase the effects of summer feasting. People near and far can participate by watching bear cams. There is even an ursine madness bracket where voters choose the fat bear that wins each pairing, and the crowd favorite moves on to the next match-up.

This year, the Fat Bear Week champion was number 435, a.k.a. Holly. The Katmai announcement touting 435’s win stated, “All hail Holly whose healthy heft will help her hibernate until the spring. Long live the Queen of Corpulence!”

Weekly Focus – Think About It
“If we had no winter, the spring would not be so pleasant: if we did not sometimes taste of adversity, prosperity would not be so welcome.”
–Anne Bradstreet, Poet

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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* 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. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* 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.
* 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.bloomberg.com/news/articles/2019-11-15/stocks-breeze-to-records-as-trade-hopes-cover-up-economic-gloom?srnd=markets-vp
https://www.economist.com/finance-and-economics/2019/11/14/the-improved-mood-in-financial-markets (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/11-18-19_TheEconomist-The_Improved_Mood_in_Financial_Markets-Footnote_2.pdf)
https://www.federalreserve.gov/newsevents/testimony/powell20191113a.htm
https://www.barrons.com/articles/next-stop-dow-30-000-it-could-happen-51573871667?mod=hp_DAY_1 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/11-18-19_Barrons-Next_Stop-Dow_30000-It_Could_Happen-Footnote_4.pdf)
https://investinganswers.com/dictionary/b/bullbear-ratio
https://www.yardeni.com/pub/stmktbullbear.pdf (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/11-18-19_Yardeni-Stock_Market_Indicators-Bull_Bear_Ratios-Footnote_6.pdf)
https://www.npr.org/2019/10/06/767384374/its-fat-bear-week-in-alaska-s-katmai-national-park-time-to-fill-out-your-bracket
https://www.npr.org/2019/10/09/768475870/stuffed-with-sockeye-salmon-holly-wins-fat-bear-week-heavyweight-title
https://www.nps.gov/katm/blogs/bear-hibernation.htm
https://www.goodreads.com/quotes/tag/winter

Market Commentary – November 18, 2019

Market Commentary – November 11, 2019

Last week, major United States stock indices finished at historic highs.

According to a source cited by Barron’s, U.S. stock markets are responsible for creating $6 trillion in paper wealth this year. ‘Paper’ wealth is when an asset is estimated to be worth a specific amount. The wealth becomes ‘real’ when the asset is sold.

If you’re having difficulty comprehending $6 trillion, imagine this: 3,786 miles of stacked $100 bills. That’s about 15 times higher than the space station. It’s roughly the distance of a drive from the East Coast to the West Coast of the United States and about halfway back again.

To date, 2019 has been an exceptional year for U.S. stocks. At the end of last week, the Dow Jones Industrial Average was up 18.7 percent year-to-date, the S&P 500 had gained 23.4 percent, and the Nasdaq Composite had risen 27.7 percent.

Returns like these sometimes inspire investors to ignore their risk tolerance and increase allocations to U.S. stocks. That may not be a wise move. In an article titled, ‘How not to understand money,’ Financial Times explained:  “One of the first things to know about equity investing is that stocks go up as well as down, and even the most successful ones never go up in a straight skyward trajectory.”

There is a theory which holds that, over time, returns revert to the mean. Investopedia describes the phenomenon like this:  A reversion to the mean involves retracing any condition back to a previous state. In cases of mean reversion, the thought is that any price that strays far from the long-term norm will again return, reverting to its understood state.”

Since the current U.S. bull market in stocks has delivered above average returns for more than a decade, some analysts anticipate future returns may be less robust as returns revert to the mean.

Suffice it to say, it’s not a good idea to be lured into holding more stocks because recent returns have been exceptional. Those returns are, after all, in the past.

The newest new math.
If you learned ‘old’ math, you may find ‘new’ math bewildering, and that can make helping with homework really challenging. It’s possible we’ll soon have an even newer math curriculum.

Many Americans learned old math: addition and subtraction, multiplication tables, and long division. Some may have absorbed linear equations in algebra and isosceles triangles in geometry. The new math entails a similar but different skill set. For instance, new math requires students to:

  • Solve 12 times 37 using box multiplication
  • Answer 10 minus 7 using a 10-frame
  • Solve 57 minus 14 using base ten subtraction
  • Explain how to decompose numbers
  • Solve word problems using an open number line

If you are familiar with any of these new problem-solving methods, congratulations! You are ahead of the curve.

Unfortunately, the new math hasn’t been improving Americans’ performance on the Program for International Student Assessment (PISA), a standardized test administered in 70 countries. In 2018, the U.S. placed 39th in math.

Jo Boaler, the Nomellini-Olivier Professor of Mathematics Education at Stanford University, and Steven Levitt, an economist and author, think we need to change what we’re teaching. In an opinion piece in the Los Angeles Times, they wrote:  “What we propose is as obvious as it is radical: to put data and its analysis at the center of high school mathematics. Every high school student should graduate with an understanding of data, spreadsheets, and the difference between correlation and causality. Moreover, teaching students to make data-based arguments will endow them with many of the same critical-thinking skills they are learning today through algebraic proofs, but also give them more practical skills for navigating our newly data-rich world.”

Get ready for 21st century math!

Weekly Focus – Think About It
“Instead of being like a circus where the trainer uses his stick to make animals do stunts to serve the interest of the audience, the system of education should be like an orchestra where the conductor waves his stick to orchestrate the music already within the musicians’ hearts in the most beautiful manner. The teacher should be like the conductor in the orchestra, not the trainer in the circus.”
–Abhijit Naskar, Neuroscientist and 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.

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* 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. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* 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.
* 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/stocks-keep-hitting-record-highs-where-to-find-values-now-51573261145?mod=hp_DAY_1 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/11-11-19_Barrons-Stocks_Keep_Hitting_Record_Highs-Where_to_Find_Values_Now-Footnote_1.pdf)
https://corporatefinanceinstitute.com/resources/knowledge/valuation/paper-wealth/
https://www.thecalculatorsite.com/articles/finance/how-much-is-a-trillion.php
https://www.worldatlas.com/webimage/countrys/namerica/usstates/uslandst.htm
https://ftalphaville.ft.com/2019/11/07/1573161957000/How–not-to-understand-money-/ (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/11-11-19_FinancialTimes-How_Not_to_Understand_Money-Footnote_5.pdf)
https://www.investopedia.com/terms/m/meanreversion.asp
https://www.investopedia.com/why-morgan-stanley-says-the-60-40-portfolio-is-doomed-4775352
http://theconversation.com/the-common-core-is-todays-new-math-which-is-actually-a-good-thing-46585
https://www.understood.org/en/school-learning/learning-at-home/homework-study-skills/9-new-math-problems-and-methods
http://factsmaps.com/pisa-worldwide-ranking-average-score-of-math-science-reading/
https://www.latimes.com/opinion/story/2019-10-23/math-high-school-algebra-data-statistics
https://www.goodreads.com/quotes/tag/education-reform

Veterans Day 2019

Veterans Day 2019

In 1945, there were sixteen million of them.
Today, there are less than 500,000 left.

They endured the hardships of the Depression. They watched firsthand as radio, talking pictures, and television changed how we live. They witnessed the dawn of the Space Age. And, of course, they fought to free the world from the evil grip of fascism. I’m sure you’ve already guessed who I’m referring to:

The American veterans of World War II.

According to the Department of Veterans Affairs, there were only 496,777 veterans left in 2018 – and approximately 348 die every day.  That means every day, a little bit of courage, valor, determination, and sacrifice leaves the world forever. Every day, the sights, sounds, and smells of Pearl Harbor, Midway, Iwo Jima, Sicily, Omaha Beach, Bastogne, and a hundred other tragedies and triumphs disappear from living memory.

But the world will never forget what they did there.

They slogged in trenches and stormed beachheads. They parachuted from planes and plumbed the ocean’s depths in submarines. They built bridges, broke codes, and brought food to desperate, war-wracked villages. They liberated countries and concentration camps.

Why did they do it? Why did they go, leaving their families, jobs, and futures? Not because they were paid lots of money or promised great rewards. For most, it wasn’t even because they or their loved ones were in any real danger.

They went because it was the right thing to do.
They truly are the Greatest Generation. And now, they are almost gone.

But this is why we have days like Veterans Day. While November is usually dominated by thoughts of turkey, family, and football, we really have two Thanksgivings this month. There’s the more famous one, sure, and it’s important, too.

But we also have an earlier Thanksgiving. A day to give thanks for one of the most important things in our country – our veterans. Now, Veterans Day is for all living veterans, not just those who served in World War II. But, since we don’t have much time left with the men and women who served in that epic conflict, I think it’s important to do all we can to honor and help them before they’re gone.

Fortunately, there are many ways we can serve those who served our country. We can share our money, our talents, and our time by:
• Volunteering at veterans’ hospitals, nursing homes, and clinics.
• Working with Local Veterans Assistance Programs to run errands or do housework.
• Donating funds to various charity organizations that serve veterans.

Even something as simple as delivering a homemade card, heartfelt thank you letter, or batch of cookies can make a real difference.

If you’re interested, here are two websites to get you started:
www.dav.org/help-dav/volunteer/volunteer-locally-help-veterans/
www.volunteer.va.gov/

***

It’s no exaggeration to say the world we know, the country we live in, and the freedoms we enjoy would all be drastically different were it not for those who served in the second World War. So, this Veterans Day, I hope we all can remember to give thanks for our veterans.

There were sixteen million of them once. All serving so that uncountable millions more would live free from tyranny. Now, they are almost gone – and it’s up to us to ensure that what they accomplished lives on forever.

Because it’s the right thing to do.

On behalf of everyone here at Research Financial Strategies, we wish you a happy Veterans Day!

How Can We Help?

Annuities, Potomac, Annuity, Bethesda,  Annuity Advisor, Rockville, 

Inverted Yield Curve – Should You Worry About A Recession?

Inverted Yield Curve – Should You Worry About A Recession?

If you ask an economist what makes them toss and turn at night, chances are they’ll tell you, “Fear of missing the warning signs of a recession.” After all, for anyone who studies the economy for a living, few things could be worse than a sudden economic slump catching you by surprise.

That’s why many economists rely on certain indicators to predict if there’s rough weather ahead.  Historically, one of the most reliable indicators is the inverted yield curve. This is when the yield on long-term bonds drops below the yield on short-term bonds. Why does this matter to economists?  Because an inverted yield curve has preceded every recession since 1956.1

Long-Term Bond Yield Hits Record Low2
Stocks Skid as Bonds Flash a Warning3
The Wall Street Journal, August 14, 2019

 On August 14, the yield on 10-year Treasury bonds dropped below 1.6%, officially falling beneath the yield on 2-year Treasury bonds for the first time since 2007.4 That’s an inverted yield curve. The markets responded the way children do when a hornet gets inside the family car – they panicked. The Dow, the S&P 500, and the NASDAQ all fell sharply, with the Dow plunging over 700 points.3

The obvious question, of course, is “Why?”

It’s a smart question! To the average investor, the term “inverted yield curve” probably doesn’t sound very scary. So, why does it have the markets freaking out? Let’s break it down by answering a few basic – but also smart – questions.

What’s a bond yield, again?
A bond yield is the return you get when you put your money in a government or corporate bond. Whenever an investor buys a bond, they’re agreeing to loan money to the issuer of that bond – the government, in the case of Treasury bonds – for a specific length of time. Typically, the longer the time, the higher the yield, as investors want a greater return in exchange for locking up their money for years or even decades. That’s why the yield on long-term bonds is almost always higher than on short-term bonds. When these trade places, we have an inverted yield curve.

Okay, so why have bond yields inverted?
Bear with me here, because I’m about to get a little technical. Bond yields have an inverse relationship with bond prices. That means when prices go up, yields fall, and vice versa.

What do I mean by price? Well, investors must pay to buy bonds, of course, and when more people buy them, the price of these bonds goes up. (It’s the basic law of supply and demand: When the demand for something increases, so does the price.) When that happens, yields drop.

Investors often see bonds as safe havens of sorts, especially during economic turmoil. Stocks, on the other hand, tend to be seen as “higher risk, higher reward” investments. In this case, investors are selling their stocks and plowing more and more money into long-term bonds, pushing prices up and yields below that of short-term bonds. The fact investors are doing this suggests they’re not optimistic about the near future health of the economy and are seeking safe places to park their money.

Why are investors so worried about the economy?
On the home front, it’s largely because of the trade war between the U.S. and China. As the two nations engage in an ever-growing battle of tariffs, the fear is that businesses in the U.S. will have to raise prices, thereby hurting consumers. On August 13, President Trump decided to delay the most recent round of tariffs until December, saying he didn’t want tariffs to affect shopping during the Christmas season.5  Previously, Trump predicted tariffs would not hurt U.S. businesses, so this sudden about-face suggests even he is worried.

Investors are also worried about a slowdown in the global economy. Two of the world’s most important economies, China and Germany, have both shrunk. Put all these things together and it’s not hard to see why investors worry about a recession in the near future.

Fears the recent news about inverted yield curves will only stoke.

So is a recession imminent?
As I mentioned earlier, inverted yield curves have preceded every recession since 1956. This includes the Great Recession of 2008. But does this mean a recession is just around the corner?

No!

There are two things to keep in mind here. First, a brief inverted yield curve is not the same thing as a sustained one. While inversions have preceded every modern recession, inversions do not always lead to a recession. Think of it this way: You can’t have a rainstorm without dark gray clouds. But dark gray clouds don’t always lead to a rainstorm. Make sense?

You see, correlation does not equal causation. By this I mean that while inversions and recessions are often seen together, one does not actually cause the other. An inverted yield curve is like a sneeze: It’s a symptom, not the disease itself. And while a sneeze can mean you have a cold, it doesn’t lead to a cold. Sometimes, we sneeze because we got pepper up our nose.

Second, let’s assume for argument’s sake that this recent inversion is a warning sign of a future recession. That doesn’t mean a recession is imminent. Some analysis suggests that it takes an average of twenty-two months for a recession to follow an inversion.1 That’s a long time! A long time to save, invest, plan and prepare.

So does an inverted yield curve even matter, then?
I’ll put it simply: It matters enough to pay attention to. It doesn’t matter enough to be worth panicking over. Make no mistake, we’re in a volatile period right now. There’s a lot of evidence to suggest that volatility will continue. But while comparing the markets to the weather has become something of a cliché, it also makes a lot of sense. When storm clouds gather, we pack an umbrella or stay inside. We don’t run for the hills.

The same is true of market volatility.

Remember, an inverted yield curve is an indicator, not a prophecy. Economists can toss and turn about such things, but you and I are focusing on something much less abstract: your financial goals. More important than any indicator, more important than the day-to-day swings in the markets, is the discipline we show. If you think about it, market volatility is really a symptom, too – a symptom of emotional decision making. Investors see a good headline, and they buy, buy, buy! That’s a market rally. Investors see a bad one, and they sell, sell, sell! That’s a market dip.

Investing based on emotion leads to one thing: Regret. Regret that we bought into the hype and bought when we should have waited for a better deal. Regret that we fell into fear and sold when we should have held on longer. We invest by being disciplined enough to buy, hold, or sell when it makes sense for your situation.

That’s the best way to stay on track toward your goals. That’s the best way to not toss and turn at night. We don’t make decisions based on predictions. We make decisions based on need.

Our team at Research Financial Strategies will keep watching the indicators. We’ll keep doing our best to explain the twists and turns in the markets. And we’ll keep doing our best not to overreact to any of them. In the meantime, please contact us if you have any questions or concerns. We always love to hear from you!

1 “The inverted yield curve explained,” CNBC, August 14, 2019. https://www.cnbc.com/2019/08/14/the-inverted-yield-curveexplained-and-what-it-means-for-your-money.html
2 “Long-Term Bond Yield Hits Record Low,” The Wall Street Journal, August 14, 2019. https://www.wsj.com/articles/bondrally-drives-30-year-treasury-yield-to-record-low-11565794665
3 “Stocks Skid as Bonds Flash a Warning,” The Wall Street Journal, August 14, 2019. https://www.wsj.com/articles/asianstocks-gain-on-tariff-delay-11565769562
4 “Dow tumbles 700 points after bond market flashes a recession warning,” CNN Business, August 14, 2019. https://www.cnn.com/2019/08/14/investing/dow-stock-market-today/index.html
5 “U.S. Retreats on Chinese Tariff Threats,” The Wall Street Journal, August 13, 2019. https://www.wsj.com/articles/u-s-willdelay-some-tariffs-against-china-11565704420

Market Commentary – November 18, 2019

Market Commentary – November 4, 2019

They did it.
The Federal Reserve lowered interest rates last week, as expected. There were no enthusiastic fans singing the Baby Shark song, but the Federal Open Market Committee’s decision was well received.

Reuters reported, “Gaps between market expectations and the Fed’s own outlook have been wide at times this year, a source of concern for policymakers who don’t want to kowtow to markets, but also don’t want to surprise or disrupt them. But, the two are now roughly in line with the idea that the Fed is on hold and the economy continuing to chug along, a fact highlighted by data showing 128,000 jobs were created in October…”

Last week’s unemployment report was full of good news. It reported job gains and moderate pay increases, according to Barron’s, but there was a counterintuitive twist. The unemployment rate increased even though the economy added new jobs. That was good news, too, because it meant more people are returning to the workforce.

The only bad news was found in manufacturing. The October ISM manufacturing index ticked higher, but remains in contraction territory. CNBC reported, “Manufacturing has been at the heart of the economy’s sluggishness, with a drop in business investment a big reason for the third quarter’s sluggish 1.9 percent [economic] growth pace.”

Barron’s attributed softness in manufacturing to the ongoing U.S.-China trade war.

By the end of the day on Friday, the Standard & Poor’s 500 Index had closed at a record high three times in five days. The Nasdaq Composite also reached a record high.

What will we do with Parking garages? As the popularity of ride-sharing services and personal transportation options (like scooters and bicycles) grows, the need for cars in urban areas may diminish.

The arrival of autonomous vehicles could reduce demand even further.

Pew Research explained, “By 2030, 15 percent of new cars sold will be totally autonomous, according to one estimate. One in 10 will be shared. And, as it becomes easier for people to summon shared or autonomous cars when they need them, fewer people will want to own their own vehicle, meaning fewer cars overall.”

So, what’s going to happen to all of the parking garages?
There are a lot of interesting ideas about how parking garages might be repurposed. Some companies plan to reserve the spaces for autonomous vehicles. Others are remodeling garages to accommodate businesses and services.

For example, one company is buying properties with the intention of turning them into “commercial kitchens for delivery-only restaurants and other consumer services.” Other possibilities include:

  • Recreational areas
  • Gyms
  • Movie theaters
  • E-commerce distribution centers
  • Flood protection areas
  • Urban farms
  • Apartment buildings

The co-CEO of an architecture and design firm told Axios News, “An obvious and functional challenge we face is that these structures were not originally designed for human habitation. These spaces often require us to raise the floor height, level the floors between ramps and incorporate design techniques that bring natural light into the space.”

Redeveloping parking garages may be challenging and costly, but it could create opportunities for investors. 

Weekly Focus – Think About It
“Before you become too entranced with gorgeous gadgets and mesmerizing video displays, let me remind you that information is not knowledge, knowledge is not wisdom, and wisdom is not foresight. Each grows out of the other, and we need them all.”
–Arthur C. Clarke, Science fiction writer and futurist

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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* 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.
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Sources:
https://www.reuters.com/article/us-usa-fed/after-year-long-bumpy-ride-fed-appears-to-make-soft-landing-idUSKBN1XB4DD
https://www.barrons.com/articles/what-the-perfect-jobs-report-means-51572627916 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/11-04-19_Barrons-This_Perfect_Jobs_Report_Looks_Like_a_Game-Changer-Footnote_2.pdf)
https://www.cnbc.com/2019/10/31/jobs-numbers-out-friday-but-another-report-could-be-more-important.html
https://www.reuters.com/article/us-usa-stocks/sp-500-nasdaq-set-records-on-jobs-data-trade-headway-idUSKBN1XB3ZD
https://www.axios.com/the-future-of-parking-near-and-far-2c91eec1-32ef-4347-bd6a-fe1c91aad657.html
https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2017/12/12/why-downtown-parking-garages-may-be-headed-for-extinction
https://www.axios.com/newsletters/axios-cities-3c36bdfc-2b64-4926-85c9-a58a4369058f.html
https://www.goodreads.com/quotes/tag/technology

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