Market Commentary – December 3, 2018

by | Dec 3, 2018 | Weekly Stock Market Commentary

Hold on to your hats!
Recently, stocks have delivered a wild ride. During Thanksgiving week, U.S. stock markets took investor uncertainty on the chin, suffering a 3.8 percent drop, which was the worst performance in eight months. Then, last week, stocks reversed course. The Standard & Poor’s 500 Index and the Nasdaq Composite delivered their strongest weekly gains in seven years, reported Ben Levisohn of Barron’s.

So, what changed?
Two things appear to have influenced investors last week:

The Federal Reserve may be becoming more dovish on interest rates. Comments made by Fed Chair Jerome Powell were interpreted to mean the Fed could stop raising the fed funds rate after December. Thomas Franck of CNBC reported:

“Powell on Wednesday said that rates were ‘just below’ the level that would be neutral for the economy – meaning they would neither speed up nor slow down economic growth. The comment diverged from a previous remark from Powell that rates were a ‘long way’ from the bank’s aimed neutral level.”

Some analysts have pondered whether recent rate hikes have been a mistake that will lead to recession.

Trade tensions between the United States and China could be resolved. President Trump and President Xi Jinping will have a confab following the Group of 20 (G-20) meeting in Buenos Aires. Randall Forsyth of Barron’s offered this insight:
“The best case that can be reasonably expected is for a truce to be declared between the United States and China, to allow talks to continue over the thorny issues of trade barriers and intellectual property. And, equally important, to avoid the consequences of the imposition of even more draconian tariffs on the world economy.”

There is little doubt volatility feels a lot better when share prices move higher than when they move lower. While uncertainty remains elevated, we may see additional jolts up and down. It may be a good idea to ensure your portfolio is well allocated and diversified. Holding diverse assets and investments won’t prevent losses during downturns but it can help minimize losses as investors pursue of long-term financial goals.

Four Fabulous holiday gift ideas for your pet…If you’re a pet owner – and most Americans are – you may be looking for the perfect holiday gift for your dog, cat, bird, bunny, or reptile. Some pet owners will spring for a heated pet bed, a sparkling holiday sweater, or a new grooming set. Others may opt for a decadent pet treat.

Here are some of the indulgences available for today’s pets:

  • A stay at a luxury cat hotel. Why not give your favorite cat the holiday of his or her dreams? Five star catteries have been established in Yorkshire and Kuala Lumpur (and, possibly, elsewhere). The VIP package in England includes, “…bedtime stories, catnip experience, relaxing Spa package, or a juicy prawn plate from [the] a la carte menu.”
  • A relaxing day at the guinea pig spa. The British really know how to spoil their pets. Guinea pigs who travel to the English countryside can receive, “…the full works: a body massage with oils; full shampoo, condition, and blow-dry; haircut and styling; feet and ear massage; nails trimmed and filed; and even a photo shoot of the transformed pet.”
  • A case of pooch hooch. Breweries and pubs around the world have begun to accommodate our desire to share all aspects of our lives with our faithful canine companions. Patrons can bring their pets to the bar and buy them a drink or a case of dog beer. According to VinePair.com, “Dog beer is non-alcoholic, un-carbonated, and doesn’t contain hops. It does contain malt extract, along with a bevy of other healthy-for-dogs ingredients, so you might think of it like a nutritional homebrew, without the fermentation.”
  • A few bottles of feline wine. You know how it is. The hounds are happy with dog grog, but cats have more refined tastes. They may prefer a pack of ‘MosCATo’ or ‘Pinot Meow’ – and now they can have it. One animal wine provider described its mission this way: “Our cat wine and dog wine creations started like any other radical idea…a product designed to help bridge the social divide between humans and their pets.” What better way to ring in the New Year?

Don’t fret if you haven’t found just the right gift yet. Pets are usually appreciative of whatever you give them.

Weekly Focus – Think About It
“Owners of dogs will have noticed that, if you provide them with food and water and shelter and affection, they will think you are a god. Whereas owners of cats are compelled to realize that, if you provide them with food and water and shelter and affection, they draw the conclusion that they are gods.”
–Christopher Hitchens, author and 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.

 

* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* 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.
* 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/s-p-500-notches-its-best-week-in-seven-years-1543625065
https://www.cnbc.com/2018/11/30/bond-market-fed-minutes-g-20-summit-and-us-china-trade-in-focus.html
https://www.brookings.edu/blog/up-front/2018/10/12/wessels-economic-update-are-the-feds-interest-rate-hikes-a-mistake/
https://www.barrons.com/articles/what-this-market-really-needs-from-the-g20-1543593590
https://www.theingsluxurycathotel.co.uk/v-i-p/
https://www.thetimes.co.uk/article/guinea-pigs-in-blankets-z59hck96s
https://vinepair.com/articles/best-dog-beer-guide/
https://www.apollopeak.com/pages/about-us
https://www.goodreads.com/quotes/tag/pets

What is Thanksgiving?

by | Nov 20, 2018 | Noteworthy

Thanksgiving has always been about being thankful for what you have. Even before it was set as an official holiday, it was a centuries-old tradition to have a feast celebrating a good harvest, victory in battle, or some other momentous occasion.

The custom of celebratory feasts is almost as old as civilization itself. For most of our history, we’ve depended on good harvests to get us through tough times. Winter, famine, war, upheaval – people have long worked hard to “get ahead” of the adversity life always throws our way. These days, of course, most of us don’t have to worry so much about things like starvation. Yet the idea of “Thanksgiving” is still as important as ever.

All of us still face setbacks and obstacles, adversity and hardship. Giving thanks for what we have – for whatever good fortune we’ve enjoyed this year – helps strengthen our resolve to deal with today’s challenges and tomorrow’s trials. I think that’s why Thanksgiving has evolved from being a harvest celebration to something much grander.

It’s a celebration of life.

But what about all those who have no good fortune to celebrate?
One of the best things about Thanksgiving – both now and in the past – is that it’s also been a time for ensuring those less fortunate than us have something to celebrate as well. Even in medieval times, thanksgiving feasts gave much needed respite for beggars, debtors, widows, orphans, and all those who could not provide for themselves.

In the modern age, record numbers of people volunteer food and time to ensure others can eat. Even the President of the United States will traditionally serve a thanksgiving meal to those who can’t enjoy a feast with their families, like the members of our armed forces.

So, this Thanksgiving, please join with me in looking back on our good fortune, not just this year, but in all the years stretching back to the beginning of history. Join me in giving thanks that we have each other to build a world that makes almost every year better than the one before.

On behalf of all us of here at Research Financial Strategies, I wish you a Happy Thanksgiving!

Market Commentary – November 19, 2018

by | Nov 19, 2018 | Weekly Stock Market Commentary

Keep your eyes on the horizon.
Motion sickness happens when your body receives conflicting signals from your eyes, ears, and other body parts. One way to manage the anxiety and queasiness that accompany the condition is by keeping your eyes on the horizon.

The motion of the stock markets has been causing some investors to experience similar symptoms. Surprisingly, the remedy is the same: Keep your eyes on the horizon – your financial planning horizon.

A planning horizon is the length of time over which an investor would like to achieve his or her financial goals. For instance, perhaps you want to pay off student loans by age 30, fund a child’s college tuition when they reach age 18, or retire at age 60.

When stock markets are volatile, an investor may receive conflicting signals from various sources, which may induce anxiety and queasiness. When you start to worry about the effects of market volatility on your portfolio, remember stock markets have trended higher, historically, even after significant downturns.

For instance, in 2008, during the financial crisis, the Dow Jones Industrial Average lost about 33 percent. It finished the year at 8,776. The drop sparked tremendous anxiety among investors who wondered whether their portfolios would ever recover.

Last week, the Dow closed at 25,413.

While stock markets have trended higher historically, there is no guarantee they always will. That’s why asset allocation and diversification are so important. A carefully selected mix of assets and investments can reduce the impact of any single asset class or investment on a portfolio’s performance. Keep in mind, of course, past performance is no guarantee of future results.

Last week, stock markets finished lower. MarketWatch reported U.S. stocks moved higher on Friday after President Trump indicated he might not pursue tariffs against China.

What is an apology worth?
John List, an economist at the University of Chicago and Chief Economist for a ride-sharing app, needed to go from his house to the hotel where he was a keynote speaker. So, of course, he called his ride-sharing company. The experience was less than stellar, as he explained to Steven Dubner of Freakonomics Radio:  “So I get in the back of the car and it says I’m going to be there in 27 minutes. So I go into my own land of working on my slides, because of course I’m doing things at the last minute. I lose track of time. I look back up about 25 minutes later, and I’m back in front of my house…And I said, ‘Oh my god, what happened?’ The driver said, ‘I got really confused, and the GPS switched, and we turned around and I thought that you changed the destination, so I went back.’ So I told her immediately, ‘Turn around, go back.’ I missed part of my panel.”

List also missed an apology, which neither the driver nor the company offered.  He decided to investigate how much mistakes, like the one he experienced, cost the company and whether an apology would reduce the cost. As it turned out, the cost of 5 percent of trips that resulted in customers being 10 or 15 minutes late was 5 to 10 percent in lost revenue.

List enlisted the help of researchers Benjamin Ho of Vassar College, Basil Halperin of Massachusetts Institute of Technology, and Ian Muir of the ride-sharing company, and conducted a field experiment on clients of the ride-sharing company. They discovered apologies are not universally successful at reducing the costs associated with a bad experience. The most successful apologies had a monetary value. In their case, a $5 coupon produced a 2 percent increase in net spending.

The team discovered another important fact. Apologies lose value and can inflict reputational damage when a company has to apologize multiple times.  No surprise there.

Weekly Focus – Think About It
“When dealing with people, remember you are not dealing with creatures of logic, but creatures of emotion.”
–Dale Carnegie, American writer and lecturer

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.

 

* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* 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.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Stock investing involves risk including loss of principal.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

Sources:
https://www.sharp.com/health-news/does-looking-at-the-horizon-prevent-car-sickness.cfm
http://afcpe.org/assets/pdf/volume_25_2/09013_pg174-196.pdf
https://finance.zacks.com/longterm-stock-market-trends-6294.html
https://clicktime.cloud.postoffice.net/clicktime.php?U=https%3A%2F%2Ffinance.yahoo.com%2Fquote%2F&E=jim.streight%40rfsadvisors.com&X=XID420wkTXFf6103Xd1&T=RFAD&HV=U,E,X,T&H=c07add89594b427a7910f483583c7695db1d1aae^DJI/history?period1=1167631200&period2=1230789600&interval=1d&filter=history&frequency=1d
https://clicktime.cloud.postoffice.net/clicktime.php?U=https%3A%2F%2Ffinance.yahoo.com%2Fquote%2F&E=jim.streight%40rfsadvisors.com&X=XID420wkTXFf6103Xd1&T=RFAD&HV=U,E,X,T&H=c07add89594b427a7910f483583c7695db1d1aae^DJI?p=^DJI
https://www.investopedia.com/terms/s/systematicrisk.asp
https://www.marketwatch.com/story/nasdaq-poised-to-fall-1-at-the-open-as-nvidia-weighs-on-stock-market-chip-makers-2018-11-16
https://www.reuters.com/article/us-usa-trade-china/trump-says-u-s-may-not-impose-more-tariffs-on-china-idUSKCN1NL28Q
http://freakonomics.com/podcast/apologies/
http://s3.amazonaws.com/fieldexperiments-papers2/papers/00644.pdf
https://www.brainyquote.com/quotes/dale_carnegie_130727

 

Market Commentary – November 12, 2018

by | Nov 12, 2018 | Weekly Stock Market Commentary

How are you feeling about financial markets?
Some votes are still being counted but investors appear to be happy with the outcome of mid-term elections. Major U.S. stock indices in the United States moved higher last week, and the American Association of Individual Investors (AAII) Sentiment Survey reported:
“Optimism among individual investors about the short-term direction of stock prices is above average for just the second time in nine weeks…Bullish sentiment, expectations that stock prices will rise over the next six months, rose 3.4 percentage points to 41.3 percent. This is a five-week high. The historical average is 38.5 percent.”

Before you get too excited about the rise in optimism, you should know pessimism also remains at historically high levels. According to AAII:  “Bearish sentiment, expectations that stock prices will fall over the next six months, fell 3.3 percentage points to 31.2 percent. The drop was not steep enough to prevent pessimism from remaining above its historical average of 30.5 percent for the eighth time in nine weeks.”

So, from a historic perspective, investors are both more bullish and more bearish than average. If Sir John Templeton was correct, the mixed emotions of investors could be good news for stock markets. Templeton reportedly said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”

While changes in sentiment are interesting market measurements, they shouldn’t be the only factor that influences investment decision-making. The most important gauge of an individual’s financial success is his or her progress toward achieving personal life goals – and goals change over time.

is A Zeal of zebras a better investment than a blessing of unicorns?
Collective nouns are the names we use to describe collections or significant numbers of people, animals, and other things. The Oxford English Dictionary offered a few examples:

  • A gaggle of geese
  • A crash of rhinoceros
  • A glaring of cats
  • A stack of librarians
  • A groove of DJs

In recent years, some investors have shown great interest in blessings of unicorns. ‘Unicorns’ are private, start-up companies that have grown at an accelerated pace and are valued at $1 billion.

In early 2018, estimates suggested there were approximately 135 unicorns in the United States. Will Gornall and Ilya A. Strebulaev took a closer look and found some unicorns were just gussied-up horses, though, according to research published in the Journal of Financial Economics.

The pair developed a financial model for valuing unicorn companies and reported, “After adjusting for these valuation-inflating terms, almost one-half (65 out of 135) of unicorns lose their unicorn status.”

Clearly, unicorn companies must be thoroughly researched. There is another opportunity Yifat Oron suggested deserves more attention from investors: zebra companies.  Oron’s article in Entrepreneur explained: “Zebra companies are characterized by doing real business, not aiming to disrupt current markets, achieving profitability and demonstrating it for a while, and helping to solve a societal problem…zebra companies…are for-profit and for a cause. We think of these businesses as having a ‘double bottom line’ – they’re focused on alleviating social, environmental, or medical challenges while also tending to their own profitability.”

Including both types of companies in a portfolio seems like a reasonable approach.
If you were to choose a collective noun to describe investors, what would it be? An exuberance? A balance? An influence?

Weekly Focus – Think About It
“In his learnings under his brother Mahmoud, he had discovered that long human words rarely changed their meanings, but short words were slippery, changing without a pattern…Short human words were like trying to lift water with a knife.”
–Robert Heinlein, American science fiction 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.

 

 

 

* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* 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.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Stock investing involves risk including loss of principal.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

Sources:
https://www.aaii.com/sentimentsurvey
https://www.franklintempleton.com/forms-literature/download/SIRJT-POS
https://blog.oxforddictionaries.com/2014/07/11/what-do-you-call-a-group-of/
https://blog.oxforddictionaries.com/2012/08/09/collective-nouns/
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2955455
https://www.entrepreneur.com/article/322407
https://books.google.com/books?id=p9UiDQAAQBAJ&pg=PT194&dq=stranger+in+a+strange+land+Long+human+words&hl=en&sa=X&ved=0ahUKEwjunsfS0MreAhVrQt8KHVkbDbgQ6AEILTAB#v=onepage&q=stranger%20in%20a%20strange%20land%20Long%20human%20words&f=false (Page 167) 

Market Commentary – October 29, 2018

by | Oct 29, 2018 | Weekly Stock Market Commentary

Why did the stock market fall when the economy is doing well?
The answer is that one reflects the past and the other anticipates the future. Last Friday’s advance estimate from the Bureau of Economic Analysis showed the U.S. economy grew 3.5 percent during the third quarter of 2018. Harriet Torry of The Wall Street Journal reported:  “The economy powered ahead in the third quarter, driven by robust consumer and government spending, though Friday’s report included warning signs that the business sector faces turbulence that could hold back the expansion in the months ahead.”

Third quarter’s economic growth was slower than economic growth during the second quarter and stronger than economic growth during the first quarter of 2018. Economists refer to economic growth as a ‘lagging indicator.’ It is a measure that may help confirm longer-term trends, but offers little information about the future.

In contrast, the stock market is a ‘leading indicator.’ It reflects what investors think may happen over the next few weeks or months. The volatility we’ve seen during the past two weeks suggests investors are uncertain about what may be ahead. Many factors are contributing to uncertainty. For instance, investors are concerned:

  • The U.S. economy may grow more slowly. Economic growth slowed during the third quarter and investors are uncertain whether the trend will continue through the remainder of 2018 and into 2019.
  • Negative earnings guidance from companies. Corporate earnings growth was robust during the third quarter. Through Friday, almost one-half of companies in the Standard and Poor’s 500 Index had reported earnings and their blended earnings growth rate was 22.5 percent, according to FactSet. However, despite strong earnings growth, many companies’ shares lost value. One reason is a fair number of companies have issued negative guidance indicating earnings may be weaker in the future.
  • Trade tensions could slow global growth. While trade disputes with Mexico and Canada have been resolved, trade issues between the United States and China remain. Al Root of Barron’s reported:

“Now, on third-quarter calls, companies have begun to spell out tariff impacts in greater detail. Calculating the ultimate impact of tariffs isn’t easy or precise. A fair calculation would include not only costs but also changes in demand and the possibility of supply-chain disruptions. The result could be significant. The International Monetary Fund lowered its global growth expectations when it released its recent outlook because of, in part, ‘escalating trade tensions.’

  • Federal Reserve rate hikes could slow economic growth too quickly. The Fed has begun raising the Fed funds rates, encouraging interest rates higher, in an effort to keep inflation in check. Some are concerned the Fed may raise rates too quickly or too high and choke economic growth.

You have probably heard the saying, “Markets hate uncertainty.” Recent volatility seems to be the result of uncertainty and it is possible uncertainty will cause stock markets to bounce around for some time.

When stock markets are volatile and headlines describe the action with words like ‘plunge’ and ‘erase,’ it’s easy to let emotion get the better of you. Before making changes to your portfolio, please give us a call. We can discuss your concerns and any changes you would like to make to your long-term financial plan.

Is that a fact?
A recent Pew Research Center survey found younger people (ages 18 to 49) were better able to distinguish facts from opinions than older people.

Jeffrey Gottfried at Pew reported, “About a third of 18- to 49-year-olds (32 percent) correctly identified all five of the factual statements as factual, compared with two-in-ten among those ages 50 and older. A similar pattern emerges for the opinion statements. Among 18- to 49-year-olds, 44 percent correctly identified all five opinion statements as opinions, compared with 26 percent among those ages 50 and older.”

Pew concluded younger Americans, especially millennials, were better able to distinguish fact from opinion than older Americans because young people tend to be more digitally savvy and also tend not to have a strong affiliation to either political party.

If you’re ready to test your acumen, visit the Pew Research Center website and search for ‘Quiz: How well can you tell factual from opinion statements?’

Weekly Focus – Think About It
“I never considered a difference of opinion in politics, in religion, in philosophy, as cause for withdrawing from a friend.”
–Thomas Jefferson, 3rd American President

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.

 

 

 

* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* 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.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Stock investing involves risk including loss of principal.
* Consult your financial professional before making any investment decision.

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

Sources:
https://www.bea.gov/data/gdp/gross-domestic-product
https://www.wsj.com/articles/u-s-economy-grew-at-3-5-rate-in-third-quarter-1540557378
https://www.investopedia.com/terms/l/laggingindicator.asp
https://www.investopedia.com/articles/economics/08/leading-economic-indicators.asp
https://www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_102618.pdf
https://www.barrons.com/articles/trade-war-hits-stock-market-1540493330?mod=hp_DAY_9
https://www.brookings.edu/blog/up-front/2018/10/12/wessels-economic-update-are-the-feds-interest-rate-hikes-a-mistake/
http://www.pewresearch.org/fact-tank/2018/10/23/younger-americans-are-better-than-older-americans-at-telling-factual-news-statements-from-opinions/
http://www.pewresearch.org/quiz/news-statements-quiz/
https://www.brainyquote.com/quotes/thomas_jefferson_389008

 

 

 

 

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