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Post Mid-Term Election Volatility

Election day has come and gone, yielding results that were in line with expectations in terms of party control. What was thought to be a volatility relief to begin the year end climb has failed to come to fruition. If you are asking yourself why stock markets have not embraced the outcome and subsequent reduction in uncertainty you are not alone. Volatility has increased following a drop shortly after the results and the indices look lost trying to find direction.

Prior to the election, market commentators had mentioned prior to the election that earnings numbers were strong, but the uncertainty of the voting turnout was prohibiting a rise in stocks. An overarching theme was that the markets would rally after voting day if the results were as expected. The following topics explore why the market has continued to decline despite quality earnings and strong economic data.

Technicals

Continued selling has resulted in the formation of some bearish technical patterns which can be alarming to investors. On Wednesday, the Russell 2000 formed a bearish death-cross pattern in intraday trading. The death-cross, which occurs when the 50-day simple moving average crosses below the 200-day simple moving average, is a bearish pattern and may lead to continued selling. The last time this occurred was in 2015, after which the index continued to decline for five months before turning around. While not all death-cross patterns mean impending doom, they are generally not positive events.

Hedge Funds

October happened to be the worst month for hedge funds in 7 years, this on the heels of notable underperformance for some time. As investors receive their statements concern mounts that redemptions may be high. November 15 is significant as it is considered the final day for many funds to accept redemption requests. If many such requests are received, there could be a race to liquidate assets by these large funds, adding to selling pressure in the market

Oil and Dollar Strength

Oil has fallen quickly over the last six weeks after hitting almost four-year highs. The swift decline can be blamed on multiple factors, one of which is slowing global growth. An increase in stockpiles and decrease in demand could be an indicator of slower growth expectations, elevating fears of financial leverage.

Another leading factor is the strength of the US Dollar. Oil is a dollar denominated commodity, meaning a strong dollar puts downside pressure on oil prices. However, the inverse movements between the USD and oil have not been symmetrical. Likewise, a strong dollar puts pressure on earnings for US corporations that have international sales, and is typically a headwind for US markets. It should be noted however that the market weathered moves of greater magnitude and duration in 2014 and 2016 which were of more concern than the current fluctuation.

Politics

Instead of easing after the election, political uncertainty has added to concerns going forward. The door has been opened for increased partisan bickering leading to stalemates and indecision. Investigations will likely continue, and potential indictments lurk for various figures associated with Washington. Increased tensions between parties could prove challenging to budget negotiations, with temporary funding ending on December 8, 2018.

Trade Tensions

Likely the biggest concern for the markets is uncertainty over the ongoing “Trade War” with China. The process has endured longer than many had hoped, and a resolution is not expected soon. At times, both parties have provided positive commentary, but this has failed to lead to actual progress. An escalation of tensions between the two countries could aid in slowing growth in their respective economies and may have a domino effect on other global economies. With plans to add additional tariffs in the new year, a resolution may provide a significant boost to optimism.

Earnings

Back to earnings, which have been a beacon of hope for the current climate. Quarter three has continued the trend for earnings and revenue growth this year. Earnings results from the S&P 500 through the end November 9, 2018 have been impressive when compared to the previous 30 quarters. Using reports from 450 of the S&P 500 companies, the quarter is on pace for the top spot in year-over-year earnings growth and percentage of companies experiencing growth. Earnings surprise percentage, revenue surprise percentage, revenue growth and companies experiencing positive revenue growth are all in the top five over this period.

Highlighting current headwinds is not intended to scare investors, but to identify events and patterns that are currently hampering the market’s advance. Volatility at current levels may continue and could prevent price improvements. We continue to monitor and analyze market and economic trends which impact our clients, and wish to keep you informed of hurdles to come.

Tolerate the Turbulence

Volatility will always be around on Wall Street, and as you invest for the long term, you must learn to tolerate it. Rocky moments, fortunately, are not the norm.

Since the end of World War II, there have been dozens of Wall Street shocks. Wall Street has seen 56 pullbacks (retreats of 5-9.99%) in the past 73 years; the S&P index dipped 6.9% in this last one. On average, the benchmark fully rebounded from these pullbacks within two months. The S&P has also seen 22 corrections (descents of 10-19.99%) and 12 bear markets (falls of 20% or more) in the post-WWII era.1

Even with all those setbacks, the S&P has grown exponentially larger. During the month World War II ended (September 1945), its closing price hovered around 16. At this writing, it is above 2,750. Those two numbers communicate the value of staying invested for the long run.2

This current bull market has witnessed five corrections, and nearly a sixth (a 9.8% pullback in 2011, a year that also saw a 19.4% correction). It has risen roughly 335% since its beginning even with those stumbles. Investors who stayed in equities through those downturns watched the major indices soar to all-time highs.1

As all this history shows, waiting out the shocks may be highly worthwhile. The alternative is trying to time the market. That can be a fool’s errand. To succeed at market timing, investors have to be right twice, which is a tall order. Instead of selling in response to paper losses, perhaps they should respond to the fear of missing out on great gains during a recovery and hang on through the choppiness.

After all, volatility creates buying opportunities. Shares of quality companies are suddenly available at a discount. Investors effectively pay a lower average cost per share to obtain them.

Bad market days shock us because they are uncommon. If pullbacks or corrections occurred regularly, they would discourage many of us from investing in equities; we would look elsewhere to try and build wealth. A decade ago, in the middle of the terrible 2007-09 bear market, some investors convinced themselves that bad days were becoming the new normal. History proved them wrong.

As you ride out this current outbreak of volatility, keep two things in mind. One, your time horizon. You are investing for goals that may be five, ten, twenty, or thirty years in the future. One bad market week, month, or year is but a blip on that timeline and is unlikely to have a severe impact on your long-run asset accumulation strategy. Two, remember that there have been more good days on Wall Street than bad ones. The S&P 500 rose in 53.7% of its trading sessions during the years 1950-2017, and it advanced in 68 of the 92 years ending in 2017.3,4

 Sudden volatility should not lead you to exit the market. If you react anxiously and move out of equities in response to short-term downturns, you may impede your progress toward your long-term goals.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
 Citations.
1 – marketwatch.com/story/if-us-stocks-suffer-another-correction-start-worrying-2018-10-16 [10/16/18]
2 – multpl.com/s-p-500-historical-prices/table/by-month [10/18/18]
3 – crestmontresearch.com/docs/Stock-Yo-Yo.pdf [10/18/18]
4 – icmarc.org/prebuilt/apps/downloadDoc.asp [2/18]

 

Weekly Market Commentary

The Markets

Stocks edged higher Friday. Although financials dropped following disappointing reports from three big banks, gains in industrials and other areas helped the S&P 500 hit its highest close in more than five months. The Dow logged its best week in nearly a month. And the NASDAQ closed at a historical high. For the week, the Dow rose 2.32 percent to close at 25,019.41. The S&P gained 1.55 percent to finish at 2,801.31, and the NASDAQ climbed 1.79 percent to end the week at 7,825.98.

Returns Through 7/13/18 1 Week YTD 1 Year 3 Year 5 Year
Dow Jones Industrials (TR) 2.32 2.41 18.75 14.46 12.81
NASDAQ Composite (PR) 1.79 13.36 24.73 15.56 16.80
S&P 500 (TR) 1.55 5.86 16.69 12.40 13.08
Barclays US Agg Bond (TR) 0.18 -1.20 0.05 1.97 2.41
MSCI EAFE (TR) 0.16 -2.05 6.38 4.76 5.67
Source: Morningstar.com. *Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Three- and five-year returns are annualized. The Dow Jones Industrials, MSCI EAFE, Barclays US Agg Bond and S&P, excluding “1 Week” returns, are based on total return, which is a reflection of return to an investor by reinvesting dividends after the deduction of withholding tax. The NASDAQ is based on price return, which is the capital appreciation of the portfolio, excluding income generated by the assets in the portfolio in the form of interest and dividends. (TR) indicates total return. (PR) indicates price return. MSCI EAFE returns stated in U.S. dollars.

Not a Record We Want — The total U.S. debt is projected to reach $21.5 trillion by the end of fiscal year 2018 (i.e., Sept. 30, 2018), equal to 107 percent of the size of the U.S. economy. That’s the highest level of debt relative to the size of our nation’s economy since 1947 (source: Office of Management and Budget, BTN Research).

Look Back — As of June 30, the total return of the S&P 500 was +14.4 percent for the trailing one year, +11.9 percent per year for the last three years, +13.4 percent per year for the last five years and +10.2 percent per year for the last 10 years (source: BTN Research).

From Lowest to Now — The yield on the 10-year Treasury note closed at 1.36 percent on July 8, 2016, its lowest closing yield ever. Ten-year notes have been traded in the U.S. since 1790, i.e., 228 years of trading. The yield on the 10-year note closed on Friday, July 6, 2018, at 2.82 percent (source: Treasury Department, BTN Research).

WEEKLY FOCUS – What to Know About Interest Rates

During much of the extended Bull Run preceding 2018, cheap money flows and low-interest rates helped drive the market. But that tide has turned. Thanks to a growing economy and positive jobs reports, the Federal Reserve made its seventh interest rate hike in two years in June and signaled two more increases are probably coming this year. Here’s how climbing rates may affect different groups:

Credit Card Holders: Rising interest rates can be bad news for Americans with considerable credit card balances. Bankrate reports average credit card rates are at a record high of 17 percent. Credit card borrowers will want to shop around for better rates or a zero-interest balance transfer and aggressively pay their cards down.

Millennials: Individuals with variable-rate school loans will also feel the pinch. They may want to combine their federal and private loans into one fixed-rate, lower-interest loan. But they should weigh that choice carefully since they could lose federal loan benefits, such as deferment, forbearance and forgiveness. 

Homeowners: Although longer-term loans like mortgages react more slowly to increases, home shoppers may want to move soon in the likelihood of future hikes. Since home equity loans are more directly linked to the prime rate, baby boomers may prefer to downsize to a home that allows them to age in place rather than financing a remodel of their present home.

Investors: One might expect rising interest rates to impact equities negatively as conservative investments like bonds and Treasury notes become more appealing. But stock prices also reflect investors’ outlook on the economy and may retain their appeal when rising rates are tied to economic confidence. And certain sectors can actually benefit from rising rates, such as financial institutions, which generally raise interest on loans faster than the interest they pay.

When interest rates rise or are expected to rise, bond prices often fall, particularly longer-term bonds. But investors must weigh the risk of falling prices with longer-term bonds against smaller returns with short-term bonds. Some invest in bonds with varying maturities to reduce these risks. Often, a 401(k) bond fund will recoup potential losses over time as it acquires new bonds at higher yields.

Every economic environment provides challenges and opportunities. Give us a call if you have questions about the best choices for your situation in light of climbing interest rates.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities America, Copyright July 2018. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI#2179969.1

Weekly Market Commentary – 7/2/2018

The Markets

The major indexes edged up Friday as trade fears that rattled the market earlier in the week calmed temporarily. But major benchmarks closed lower for the week, and the Dow and the S&P have been in correction territory for several months. For the week, the Dow fell 1.26 percent to close at 24,271.41. The S&P lost 1.31 percent to finish at 2,718.37, and the NASDAQ dropped 2.37 percent to end the week at 7,510.30.

Returns Through 6/30/18 1 Week YTD 1 Year 3 Year 5 Year
Dow Jones Industrials (TR) -1.26 -0.73 16.31 14.07 12.96
NASDAQ Composite (PR) -2.37 8.79 22.31 14.62 17.15
S&P 500 (TR) -1.31 2.65 14.37 11.93 13.42
Barclays US Agg Bond (TR) 0.34 -1.62 -0.40 1.72 2.27
MSCI EAFE (TR) -1.04 -2.75 6.84 4.90 6.44
Source: Morningstar.com. *Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Three- and five-year returns are annualized. The Dow Jones Industrials, MSCI EAFE, Barclays US Agg Bond and S&P, excluding “1 Week” returns, are based on total return, which is a reflection of return to an investor by reinvesting dividends after the deduction of withholding tax. The NASDAQ is based on price return, which is the capital appreciation of the portfolio, excluding income generated by the assets in the portfolio in the form of interest and dividends. (TR) indicates total return. (PR) indicates price return. MSCI EAFE returns stated in U.S. dollars.

Surprise — Of households headed by individuals at least age 75, 23 percent will experience an extraordinary out-of-pocket medical expense of at least 1 percent of household income this year (source: JP Morgan Chase & Co. Institute, BTN Research).

Big Improvement — The U.S. unemployment rate was 3.8 percent as of May. The U.S. unemployed and underemployed rate was 7.6 percent as of May, i.e., the combination of jobless individuals plus workers who are part-time purely for economic reasons. The U.S. unemployment rate was 10 percent as of October 2009. The U.S. unemployed and underemployed rate was 17.1 percent as of October 2009 (source: Department of Labor, BTN Research).

More out Than in This Year — For the last 35 years (1983-2017), the total income of our nation’s Social Security program (i.e., payroll taxes collected plus interest income) has exceeded the total cost of the program (i.e., benefits paid out plus administrative expenses), a streak that is projected to end in 2018 (source: Social Security Trustees Report 2018).

WEEKLY FOCUS – Adult Children vs. Retirement Security

Raising a child from birth to their 18th birthday costs $233,610 according to the U.S. Department of Agriculture. Add the skyrocketing costs of college tuition, and parents make considerable financial sacrifices for their children. And many parents don’t stop with college.

Last fall, Bloomberg News reported 31 percent of moms and dads continue to give money to their adult kids, at an average of $3,084 a year. A TD Ameritrade survey a few years earlier reported an even higher figure – an average of $10,000 over the previous 12 months. Clearly, gifts or loans in these ranges can negatively impact parents’ retirement savings. Here are some possible ways to balance the desire to help loved ones with your own long-term security. 

Gifts: Have a clear conversation about your need to protect your future – unless your child wants you to move in with them in your later years. Don’t support irresponsible spending habits. If you help out after a regrettable purchase, make it clear you won’t do so a second time. Keep the timing and amount of gifts random, so children don’t expect them or rely on them. Or consider setting up a trust account for your child explaining the trust will distribute a certain amount each year – and no more. 

Loans: Never loan a child money you can’t afford to lose. When you do make a loan, put the terms in writing, including the purpose of the loan, a payment schedule, potential interest and consequences for late payments. Having details in writing ensures a child can’t deny conditions and safeguards a surviving parent if the other dies. Charging interest may convince the IRS it was a loan and not a gift. To prevent resentment from other siblings, written terms could include a clause stating any unrepaid balance will be deducted from the child’s future inheritance.

To ensure the funds are used as agreed, you might consider paying a child’s bill directly or dolling out the loan in small amounts over time. If you find it difficult to say no or set limits, seek the help of a third-party who is not emotionally involved, such as your financial advisor.

It’s only natural to want to help family members. Our office can help you determine the impact a gift or loan may have on your own lifestyle or future plans and provide the guidance to ensure any help you provide is executed well.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities America, Copyright July 2018. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI# 2167450.1

Weekly Commentary for the Week of June 18, 2018

 

Things to Know Before Your Summer Getaway Abroad

Is traveling abroad on your mind? Below are some savvy tips to make sure you get the most out of your money.

Let your credit card company know you’re traveling out of the country and ask about foreign transaction fees. When it comes to cash, avoid currency exchange booths in favor of ATMs, which will give you better rates. Find a bank ATM that accepts major credit cards for cash withdrawals, and use your bank or major credit card. Larger institutions or your bank will handle exchange rates on their end, and the withdrawal will provide you with foreign currency. You’ll still be charged a transaction fee, so make fewer and larger withdrawals.

When seeking out an ATM, make sure you know what to ask for. For example, in Chile, it’s called un Redbanc; in France, ask for a distributeur; in the U.K, a cashpoint; in Italy, look for a Bankomat; and in Canada, an ABM, short for automatic banking machine. You may want to shorten your pin number – many foreign ATMs won’t accept pins longer than four digits.

Renting cars in large foreign cities may not be the best economic choice. However, it can be a good option if you visit smaller cities and villages. If you do rent a car, check the glove compartment for a cardboard parking clock. In many countries, signs post the amount of time you can park in a spot for free. Set the clock to your arrival time and return before it expires. Also, be cautious about where you park. Thieves are always on the lookout for tourist cars. A parking lot with glittering pavement could mean broken glass from break-ins. A safer option would be to use a parking garage with an attendant on staff.

Rail passes are another good choice if you’re traveling quite a bit outside bigger cities. Consider a second-class train car. They’re just as fast as first-class and cost about 50 percent less. For the most economical way to travel, look to buses. They’re slower but even less expensive than rail. For example, traveling from London to Edinburgh by train will cost around $145 but only about $45 by bus.

Call our office today. We can help ensure planning for travel and other important activities is part of your overall financial strategy.

FINANCIAL FACTS

In the Year 2034 — On June 5, Social Security trustees announced the trust fund backing the payment of Social Security benefits (OASI retirement benefits) would be zero in 2034. A zero trust fund does not mean the payment of Social Security benefits would also go to zero but rather would drop to 77 percent of their originally promised levels through the year 2092. When the trustees released their 2008 report (i.e., 10 years ago), the Social Security Trust Fund was projected to be depleted in 2042 (source: Social Security Trustees 2018 Report, BTN Research).

Downhill From Here — Forty-six percent of Americans surveyed believe future generations of retirees will be worse off financially than current American retirees (source: Aegon Center for Longevity and Retirement).
Strong Banks — No U.S. banks failed during the first five months of 2018 (January-May), the first time that has occurred since 2006. There were no bank failures in 2006, the last calendar year when that happened. Since 2007, 531 banks have failed, an average of 48 per year over the last 11 years (source: FDIC, BTN Research).

THE MARKETS

Wall Street closed lower Friday but off the day’s lows after President Trump announced new tariffs on Chinese goods and a plummet in oil prices pushed energy stocks down. For the week, the Dow fell 0.84 percent to close at 25,090.48. The S&P rose 0.07 percent to finish at 2,779.66, and the NASDAQ climbed 1.32 percent to end the week at 7,746.38.

Returns Through 6/15/18 1 Week YTD 1 Year 3 Year 5 Year
Dow Jones Industrials (TR) -0.84 2.62 20.17 14.97 13.47
NASDAQ Composite (PR) 1.32 12.21 25.64 15.48 17.74
S&P 500 (TR) 0.07 4.92 16.52 12.39 13.65
Barclays US Agg Bond (TR) 0.13 -1.94 -1.08 1.66 1.90
MSCI EAFE (TR) -0.49 -0.77 9.45 5.15 6.24

Source: Morningstar.com. *Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Three- and five-year returns are annualized. The Dow Jones Industrials, MSCI EAFE, Barclays US Agg Bond and S&P, excluding “1 Week” returns, are based on total return, which is a reflection of return to an investor by reinvesting dividends after the deduction of withholding tax. The NASDAQ is based on price return, which is the capital appreciation of the portfolio, excluding income generated by the assets in the portfolio in the form of interest and dividends. (TR) indicates total return. (PR) indicates price return. MSCI EAFE returns stated in U.S. dollars.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities America, Copyright June 2018. All rights reserved. Securities offered through Securities America, Inc., Member FINRA/SIPC. SAI# 2153883.1

 

April Market Update

To sum up the US financial markets of 2017 in one word, serene would be a top choice.  Major indices produced record after record, while displaying some of the lowest volatility in history.  Many headlines in the US and around the globe gave opportunities for investors to get out of the market, but the bait was left on the hook.  All of last year, the S&P 500 had four days of one percent or greater advances, as well as four days of one percent or greater declines.  The largest drop from a high during the year was -2.8% and the worst single day decline was -1.82% on May 17, 2017.  Average closing level of the VIX was 11.09 for the year which was the lowest annual average in the history of the ‘fear index.’

The first quarter of 2018 has been anything but calm.  Passing of the Tax Reform and Jobs Act in late December propelled the markets higher to start the year, but since the high on January 26, volatility has picked up significantly.  Already through quarter one there have been eleven days of one percent or worse losses, and thirteen days of one percent or greater gains.  The largest drop in one day was -4.1% on February 15, and the largest fall from recent highs was -10.2%.  The VIX has averaged 17.35 based on closing values, significantly above 2017 levels.

The early days of the second quarter have continued where the first quarter ended.  What could be the cause of the drastic change from 2017 to 2018 then?  You could say that the markets have returned to normal, more healthy activity.  It may be hard to think of this as normal, when 2017 was so different, but last year had the lowest drop from a high in any year since 1995, when the largest fall from highs was -2.53%.  Not to say 2018 hasn’t caused some angst in many investors, but the calm before this storm lasted so long that few remembered what a darker day felt like.

Ultimately, while recent volatility can be cause for concern it is important for long-term investors to remember the positive developments in the economy and the markets.  While the current bull run just recently turned nine, the second longest for the S&P 500, the saying goes that bull markets don’t die of old age.  Global synchronous growth has continued into the new year.  US GDP has continued its growth and US corporate earnings continue to impress.  On top of the earnings, revenue growth has been even more of a positive for these companies.

A bull market ends when a drop of 20% or more from the highs occurs.  Since 1990, there have been two ends to bull markets, both of which coincided with an US economic recession.  Many indications show that a recession is not in our near future.  Headlines could continue to create volatility for the markets, especially those of a looming trade war.  Earnings season starts rolling in the middle of March which should alleviate the focus on headline risk and put the emphasis back on the corporate data.  With anticipation for continued growth, there is likely an end to this storm soon.

chart

Should the fundamental picture change it will be necessary to review our strategy and allocation.  Currently, estimates for first quarter are 7.2% revenue growth and 17.8% earnings growth year-over-year, according to Zacks Investment Research Inc.[1]  These growth numbers follow last quarters results that were the best in 6 years.  GDP growth is expected to be over 2% for the fourth quarter in a row.  Unemployment remains low and consumer confidence is high.  These indicators give us reason to remain optimistic about current valuations.

[1]https://www.zacks.com/commentary/153833/q1-earnings-season-to-show-growth-acceleration

The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results. An investor cannot invest directly in an index.

Holiday Season + the Growth of E-commerce

It’s a growing trend that holiday shoppers are increasingly choosing to avoid the hassle of crowded malls for the convenience of shopping online. Holiday shopping in 2017 is already breaking records, even though there are still a few shopping days left until Christmas, and e-commerce is projected to have its biggest season ever.

Thanksgiving weekend alone shows how much online sales have grown significantly from just a year ago. Thanksgiving Day e-commerce sales were up 18.3% year-over-year; compared to last year’s 12% year over year growth, this was a huge jump.[1] The weekend broke records for sales on both Black Friday and Cyber Monday. $5.03 billion was spent online during Black Friday, and Cyber Monday sales totaled $6.59 billion, making it the biggest online spending day ever in the US. Amazon’s performance on Thanksgiving and Black Friday continued its relevance as juggernaut, accounting for 55% of all e-commerce transactions from the top 50 online retailers.[2] A report from Mastercard shows that Black Friday sales are generally dominated by flat screen TVs, and other electronics, while Cyber Monday tends to be tailored to shoppers looking for toys, clothes, on other items more likely to be given as gifts.[3] This large amount of spending probably benefited all retailers, but steep discounts on items will most likely cut their profit margins.

A big determinant if a retailer can keep up is the quality of their mobile experience; smartphones accounted most of shopping traffic over Thanksgiving weekend; desktops however, accounted for the majority of online sales. Consumers are trusting their smartphones and tablets more and more to make purchases, but the amount of browsing vs. actual online purchases suggests that many shop around online as a research tool prior to spending in-store.[4]

This holiday season already had a bright outlook on retail sales: the high stock market, relatively strong GDP and low unemployment have consumers feeling good from an economic standpoint. -stretch, we have a better idea of just how much e-commerce and the act of buying online has grown: shoppers are on pace to spend $109.3 billion online this holiday season, e-commerce sales are up 16.3% since November alone.[5]

An investor cannot invest directly in an index. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.

[1] https://www.statista.com/statistics/426712/holiday-season-ecommerce-development-usa/

[2] https://www.forbes.com/sites/deborahweinswig/2017/12/01/black-friday-weekend-highlights-from-brick-and-mortar-and-online-stores/#6eef891e2d53

[3] https://www.webwire.com/ViewPressRel.asp?aId=217970

[4] https://www.bloomberg.com/news/articles/2017-11-27/cyber-monday-caps-strong-e-commerce-holiday-sales-growth

[5] https://www.digitalcommerce360.com/2017/11/13/online-sales-web-traffic-higher-earlier-growth-holidays/

Black Monday anniversary + why this year is different

This week marks the 30-year anniversary of “Black Monday”—the stock market meltdown that occurred on October 19, 1987. It was the biggest ever single-day percentage decline with the DJIA (Dow Jones Industrial Average) falling 22.6%. What makes that day so significant is that is happened around the anniversary of October 28th, 1929, the original “Black Monday” stock market crash that ultimately led to the Great Depression.[1]

October has gotten a bad rap for being one of the most feared months—not only is it a time when people are encouraged to scare each other, it’s also been a time that is historically bad in finance. Since 1987, there have been seven stock market crashes that have occurred in October.[2] While this may instill some panic for investors, there are many reasons to believe that this year is quite different from 1987.

Prior to the DJIA’s major crash in 1987, the S&P 500 was up almost 40% year to date. But even despite the 22% setback, the S&P 500 still finished positive, up 2% for the year.[3]

While this year has also seen an unprecedented run in the stock market, with new highs being reached consistently, much of this is attributed to positive earnings reports. Earnings growth in the last year can be tied to two factors: companies are arguably more efficient, and stock buybacks from many large corporations. Since 2010, it’s been estimated that companies have collectively spent over $3 trillion on stock buybacks. Stock buybacks can inflate earnings in the short-term, as corporations will use company cash to buy their own shares, thus creating a positive attitude towards trading. Also, historically low interest rates makes stocks more attractive when compared to bonds, which will have low yields. At the time in 1987, bond yields were much higher and seemed more appealing/less risky than a stock market with stretched valuations.

There are three major reasons why this year is different than 1987:

  1. Technology changes: in 1987, it was a relatively new concept to have computer systems that could make large-scale trade orders. As the market fell, stop-loss orders were triggered at a rapid pace, causing a domino effect that dragged the market further down.[4]
  2. Regulation changes: after the 1987 crash, the Securities and Exchange Commission (SEC) implemented “circuit breakers” that trigger a market-wide trading halt if it detects a decline of 10%, 20%, and 30% in the DJIA. These rules ensure more stability in the market in times of overreaction.
    1. Similar to the market-wide trading halts the SEC implemented for large declines in the major market indices, the SEC also mandated trading halts for any stock that that starts trading outside of a specific range based on recent prices. Therefore, if a significant drop is detected in a stock’s price, trading is temporarily stopped.
  3. Using history to guide trading strategies: We are also more aware of the history following major market declines. Below is a table of the S&P 500 after Intraday Drop of 7% or more going back to 1987. You can see that the index tends to wildly outperform 1 year after a major down day.[5]

Graph SP 500 7 percent drop

Source: Schaeffersresearch.com

So while a major run in the stock market can at times precede a major correction, more efficient technology, stronger regulation, and a more tactful trading strategies are just some of the measures taken to safeguard and help subside negative effects in times of market chaos.

 

An investor cannot invest directly in an index. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.

 

[1] https://seekingalpha.com/article/4113726-black-monday-30th-anniversary-forget-history?page=2

[2] http://www.investopedia.com/articles/financial-theory/09/october-effect.asp

[3] http://www.schaeffersresearch.com/content/analysis/2017/10/17/black-monday-anniversary-a-look-at-stock-market-meltdowns

https://www.forbes.com/sites/aalsin/2017/08/09/how-stock-buybacks-cause-economic-stagnation-a-qa-with-robert-ayres-and-michael-olenick/#4315109316dd

[4] https://finance.yahoo.com/news/could-1987-stock-market-crash-050919703.html

[5] http://www.schaeffersresearch.com/content/analysis/2017/10/17/black-monday-anniversary-a-look-at-stock-market-meltdowns

Equifax Data Breach: How to protect yourself

The credit reporting agency Equifax had a massive data breach that occurred in mid-May, one of the largest hacks ever according to some cybersecurity experts.[1] The breach went on through July until the company learned of it on July 29th . At the time, they were not aware of the scope of the hack, or how many people were affected. As it turns out, up to 143 million people may have had their personal information exposed: names, birthdays, addresses, Social Security Numbers, drivers license numbers, and even credit card numbers were leaked, making those affected hugely susceptible to identity theft. The company is blaming their software for the hack

The effect is pretty disheartening, considering such a large company that holds some of the most important information could allow the breach to happen, let alone happen for almost 3 months. As far as the risks associated with potentially having your information leaked, identity thieves can spend on credit cards, take out loans in your name, and take out other lines of credit under your name that make you liable for massive debt. Criminals could also assume control of your existing accounts to steal your money if they can get access to pin codes and passwords. It’s up to each person to keep an eye on their credit to ensure they aren’t a victim of identity theft, but there are other steps you can take to see if you are one of the 143 million affected and how to protect yourself. We advise everyone to act now and determine if they are at risk; because Social Security Numbers don’t expire, your information could be at risk to be stolen now or 10 years down the line.

To see if you were potentially affected by the leak, you can go to  https://trustedidpremier.com/eligibility/eligibility.html and type in your last name and the last 6 digits of your Social Security Number. It will give you an immediate answer whether you may or may not have potentionally had your information exposed. Your next best bet, regardless if you were possibly affected, would be to contact your primary bank and look into identity fraud protection programs. Because of the high demand right now, they may be running specials and discounting new sign-ups. If you do not plan on purchasing a house or car, and/or do not plan on opening up any new credit cards, you can also get a credit freeze. A credit freeze prevents creditors from accessing your credit report, so credit, loans, and other services in your name will not be approved without your consent. Originally, there would be a fee charged for placing a credit fee but from now until November 21st, Equifax is allowing free credit freezes. Go to https://www.freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jsp to register. You can also lift the freeze at any time to apply for new lines of credit. And to ensure there isn’t any suspicious activity going on in your accounts, keep an eye on your credit report; if there is anything you do not recognize, take action quickly.

As always, you can call our office for more information and assistance in dealing with this crisis at 216-313-9999.

[1] https://www.cnbc.com/2017/09/13/us-senator-on-equifax-hack-somebody-needs-to-go-to-jail.html

2017 US Mobile App Report

By now we are all pretty much aware of the disruption that digital media has created in journalism, politics, education, and so much more, towards a paperless society. Digital media encompasses any media that is accessed through a digital electronic device: from reading articles, to playing videos, streaming music, playing games and even educating, almost everything can be accessed online now[1]. In 2017, 57% of all digital media engagement is driven through mobile apps, according to the 2017 US Mobile App Report from comScore[2]. The company tracks digital audiences on their use of desktop computers, smartphones, and tablets, as well as mobile web and app audiences. This report explores the behaviors of mobile media consumption and gives context to how that industry has evolved and how it keeps growing.

The report specifically targets “Mobile”, which refers to smartphone and tablet devices. In 2017, Smartphone apps alone (therefore, not including tablet apps) drive over half of all digital media usage. This is in comparison to the mobile web, where anything can be accessed but apps specifically tend to have more feasibility. Apps also dominate mobile web in terms of usage time: while 87% of time accessing digital media is spent on mobile apps, only 13% of time spent accessing digital media is through the mobile web.

Millennials continue to adapt to mobile trends to a point that questions if mobile apps can truly be addictive. The report finds that younger users between ages 18-24 spend more than 3 hours a day on apps. And they don’t just drive the consumption of mobile apps, they help drive their revenue. A survey shows that millennials are much more willing to spend money on downloading apps and are also more willing to make purchases within an app then their older counterparts.

So with so many apps available now, what makes people discern which apps to keep and use most frequently? It turns out that looks matter: according to the report, 21% of millennials will delete an app if they don’t like how it looks on their home screen. And distance matters, too. Millennials are more likely to consider “thumb reach” method when positioning apps on their screen, so as to make their most frequented apps as convenient as possible to access with one hand.

There is also a reported increase in the amount of people who allow apps to send “Push Notifications” in 2017, which are messages that pop up on mobile devices for updates on certain apps. Last year, there was a sense that “push notification fatigue” had started, with less users allowing them. The most notable increase in mobile app usage came from apps that categorize as “news/information”. It is possible that with so many news-worthy events happening in the last year, the increase in users allowing for push notifications indicates a desire to stay connected to the latest news.

The top 10 most used apps are ranked in the chart below. Of those ten, Facebook and Google combine to own 8 of the most used apps. Facebook in particular has the highest amount of users among all mobile apps:

most used apps chart

Source: comScore.com

With mobile engagement becoming more prevalent, the stock market has reacted as well: FANG, the acronym for large-cap tech stocks (Facebook, Amazon, Netflix, and Google) have led the way for the market’s bull run. In fact, Goldman Sachs reported that the top-5 companies in the tech sector in terms of gains have contributed about 40% to the S&P 500’s overall gains for the year[3]. Despite the slight pullback in June in the tech-heavy Nasdaq 100 Index and high valuations in the sector, there hasn’t been much resistance to their growth. Mobile app usage is at all-time highs and there is seemingly no end to their usefulness. As mobile tech continues to develop, it’s becoming clear that mobile devices will soon be applicable to every aspect of life, and companies will need to continue to evolve to the consumers demands.

 

An investor cannot invest directly in an index. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.

[1] https://thecdm.ca/program/digital-media

[2] https://www.comscore.com/Insights/Presentations-and-Whitepapers/2017/The-2017-US-Mobile-App-Report

[3] https://www.cnbc.com/2017/06/12/tech-stocks-tank-but-these-investors-are-still-bullish.html