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.


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).


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.


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.


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


[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


Earnings data proving to have almost no impact on market performance

Earnings Season has been highlighted by positive numbers as of late in the S&P 500: 4Q16 saw total earnings at an all-time high and 1Q17 carried the momentum with double-digit earnings growth. As it stands, reports for 2Q17 have yielded yet another double-digit year over year earnings growth while on pace to set another total earnings record. In 13 years, this is the highest percentage of companies reporting earnings results that beat both top and bottom line analyst expectations.[1] But despite the promising results in company earnings, it seems that these numbers have little to no impact on a stock’s relative performance to that of the S&P 500.

The chart below shows the one- day relative performance of a stock after reporting earnings that beat both top and bottom line estimates and the one-day relative performance of a stock that missed on both top and bottom line estimates. Basically, it tracks how the average company that beat earnings expectations compares to the performance of the S&P 500 and how the average company that missed expectations compares:[2]

earnigngs data chartLooking at the yellow line, companies that missed both top and bottom line earnings estimates have had a 1-day relative performance of about -3%, meaning that the average company reporting poor earnings results will see negative performance compared to the benchmark index (in this case, the S&P 500)[3]. This is somewhat normal and about the average performance for that category of stocks in the last 17 years. What is abnormal is that companies who are beating both top and bottom line earnings estimates (blue line) are having a relative 1-day performance of 0. In theory, companies beating analyst forecasts should be outperforming the benchmark (S&P 500), but for the first time since 2000, these positive reports are only keeping performance in-line with the benchmark.[4] Why aren’t these stocks performing better and in turn, bolstering the market even higher?

It’s possible that earnings beats were already priced into the market, which explains why these numbers haven’t garnered a reaction in their performance. The market has been mostly flat in the last few months, but positive earnings results are definitely doing their part to keep the S&P 500 and DJIA near all-time highs. Right now, everything boils down to politics and it seems to be the only real driver behind market performance. While there has certainly been a lot of talk of things to come, we will wait to see if and when government takes real action in tax-reform, the debt ceiling debate, and foreign affairs to see a significant reaction in the market.

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.zacks.com/commentary/124249/q2-earnings-season-brings-all-around-strength
[2] http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:price_relative
[3] http://www.barrons.com/articles/a-whole-lotta-nothing-dow-gains-just-25-points-hits-9th-straight-high-1502143313
[4] http://www.businessinsider.com/stock-market-today-earnings-season-share-moves-smallest-since-tech-bubble-2017-8

Big banks pass the Fed’s Stress Test

The Federal Reserve released the results of their annual stress tests on the nation’s biggest banks, and the positive impact can be a turning point in the stock market. Amid concerns that banks would not have enough capital to endure another financial crisis a la 2008, the results came through with flying colors and for the first time in 7 years, all 34 financial institutions passed[1]. The rigorous examination tests the stability and strength of these banks to withstand a severe recession. Each bank is put through a hypothetical scenario of harsh economic conditions– such as 10% unemployment or a GDP growth rate of -10.6%[2]. Regulators then determine whether the banks have enough capital to survive such conditions, as well as their ability to measure and manage risk when paying dividends or buying back shares.

Behind the positive results however, looms the ongoing campaign from the Trump Administration to reduce regulation. The Fed determines the minimum level of capital that banks must hold, and to pass these tests, banks must hold even more capital than they are required. With unemployment under 5% and GDP growing at 2%2, the tests in extremely dire situations can beg the question that the Fed’s capital requirements are perhaps too high. The Trump Administration campaigned on the premise of decreasing the Fed’s regulation, arguing that high capital requirements hinder bank’s ability to lend to small businesses and homeowners. This view differs greatly from Fed Governor Jerome Powell, who indicated that the Fed intends to further increase regulation and minimum capital requirements for the eight largest banks. In fact, recent data suggests that bank lending has increased to all-time high levels for commercial and industrial loans.[3] However, about 50% of loan applicants received smaller loans than requested, indicating that the conservative and risk-averse nature of bank lending is hurting the growth of younger and less proven applicants.

While the Fed will ultimately decide what direction capital requirements go in the future, investors can take comfort knowing that banks are strong enough to lend to households and business, even during a recession. Banks are now eligible to raise their dividends and buy back shares, which may help attract more investment in the future. Investors and shareholders of big banks can expect to see higher payouts in the coming weeks.

bank loan graph

Source: CNN Money

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] http://money.cnn.com/2017/06/28/news/economy/fed-stress-test-wall-street-results/index.html
[2] http://www.cnbc.com/2017/07/03/the-trump-administration-not-the-fed-has-it-right-on-bank-regulation-commentary.html
[3] http://money.cnn.com/2017/02/13/investing/bank-business-lending-dodd-frank-trump/index.html?iid=EL

Has tech’s run-up in the market ended?

Early this week, technology shares saw a sell-off across the sector after an analyst downgraded Apple (AAPL) stock from Buy to Neural.[1] Prior to the pullback, investors already had growing concerns about a potential “Tech-Bubble” reminiscent of the Dot-Com bubble of 2000, which would eventually result in a crash that disrupted the entire stock market. [2] These concerns were somewhat muted when the decline in the sector that has carried the stock market to all-time highs in the last year did not influence a wider market selloff.

The tech sector has become increasingly popular, mostly due to the performance of FAAMG, the acronym given to the Tech Giants that have dominated the US stock market: Facebook (FB), Apple (AAPL), Google-owner Alphabet, Amazon (AMZN), Microsoft(MSFT) Corp, and Google owner Alphabet (GOOGL). The Los Angeles Times has reported that the technology component of the S&P 500 alone was up 18% this year.2 The chart below shows how these 5 powerful companies have become the key drivers in major indices:

FAAMG chart

Source: Business Insider

But popularity can also indicate an over-crowded trade, and the fall on Monday is what can happen once these shares lose their momentum. The past few years have seen a steep rise in the technology sector and any amount of disruption can be brutal for shareholders.

However, even despite the run-up, the most powerful companies in the sector have recorded lower volatility than any other sector in the last 6 months, according to the Research Team at Fidelity Investments.[3] These are companies that people interact with daily; the fact that the tech sector’s biggest names are well-established and highly-profitable should dispel any fears of a dot-com-like bubble. Some might even view a pull-back as “healthy”, potentially allowing for more growth in the future.

It’s hard to imagine the FAAMG companies falling out of favor anytime soon, even with the new Trump Administration’s proposed trading policies that could impact tech companies specifically by imposing a border tax that could hurt profits.[4] But for now, investors shouldn’t sweat a 1 or 2 day move into the red for technology companies. Technology shares bounced back in Wednesday’s pre-market trade, and the short-term negative move can be seen as a small correction to a sector that has had a spectacular run.[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] http://www.nasdaq.com/article/close-update-wall-street-weighed-down-by-tech-sector-cm802337

[2] http://www.latimes.com/business/la-fi-markets-20170522-story.html


[4] https://www.thestreet.com/story/14001605/1/these-are-the-trump-policies-that-would-hurt-tech-companies-like-apple-the-most.html

[5] http://www.nasdaq.com/article/technology-sector-update-for-06142017-msft-aapl-ibm-csco-googl-nok-mvis-cm803192