A Tale of Two Very Different Months

A kinder, gentler Fed

December was a bad month for stocks. There’s no way to sugarcoat it. Long-term investors recognize the need for disciplined approach, but that doesn’t mean extreme levels of volatility won’t create some degree of concern. I get it.

We touched a bottom on Christmas Eve, and shares extended gains into January. In fact, the Wall Street Journal ran an article stating the S&P 500’s advance last month was the best start to the year since 1987.

Market Returns 2-11-19.jpg

Much of the data suggests the economy continues to expand, but one important reason the bull market is waking up from its late-year slumber is the Federal Reserve.

In December, the Fed was talking about “gradual” rate hikes–possibly two this year. I placed gradual in quotes because that’s how the Fed phrased its guidance.

In late January, just six short weeks later, the Fed said it can be “patient” as it ponders the direction of rates. Yes, that’s right–the direction. When Fed Chief Jerome Powell was asked at his late-January press conference whether the next move in rates might be up or down, he didn’t tip his hand. Instead, he said it all depends on the economic data.

At this point, the Fed’s on hold–no more rate hikes, at least through the shorter term and maybe longer.  Discussions about an “inverted yield curve” for bond markets came up a lot in the 4th quarter and there was a lot of talk about possible recession in 2019 or 2020.  Historically when that spread between longer term (e.g. 10 years) and shorter term (e.g. 2 years) gets less, banks have less of an incentive to borrow at short term rates to lend out at longer term rates and “lending standards” tend to get more restrictive, making money less available to consumers and businesses to get money to do the activities that lead to economic growth, which can obviously lead to recession.  That is a simplified overview, but hopefully one that helps with understanding what that means when you hear about it.  The chart below shows the history of those 2 components and how they’ve interacted with previous recessions.  As the orange line (the difference between 10 yr and 2 yr) approaches zero, banks have historically tightened their lending standards and that has preceded recessions.

Yield Curve 2-11-19.png

It’s not that economic growth has stalled or even slowed considerably. The latest 300,000+ payroll number provided by the U.S. BLS would suggest the economy is not weakening.

But various surveys of consumer and business confidence have eased (University of Michigan survey, Conference Board, Wall Street Journal), and economic growth has slowed a bit around the globe.

Throw in a cautionary signal in the market decline from investors late last year (fears the Fed was poised to tip the economy into a recession if it continued to tighten the monetary screws), and the Fed shifted its stance.  How did tweets from the President impact some of this softening?  Hard to say, but he has been open about criticizing the Fed regarding rate increases as he certainly wants the economy & markets to keep clicking.  It is an unprecedented time of involvement in these matters from the White House.

The Fed stance now seems to be the main catalyst for the challenges experienced by the markets in the 4th quarter.  Other primary issues, including trade talks with China and government shutdown related to border security funding at least seem to have some promise of progress in the weeks and months ahead.  While we will certainly be keeping an eye on all of these issues and economic data, current indicators have both our strategic and tactical portfolios invested.

If you have any questions or would like to discuss any matters, please feel free to email back or give me a call.  As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.

 

Thanks to Horsesmouth for portions of the info above

October/November 2018 Market and Economic Update

October/November 2018 Market and Economic Update

As a summary update of what’s been happening in the markets, as well as how we are looking at things going forward, I wanted to share this from a Weekly piece put out last week by CLS Investments, a well-known 3rd-party money manager.

 “As of this writing, with a few days left in the month, October has lived up to its scary reputation as one of the worst months of the year for the stock market. There is a bevy of reasons commonly cited for the stock market weakness with each holding some truth, but the leading reasons are

March 2018 Market Update

March 2018 Market Update

As we noted last month, the end of January and early February’s slide saw the S&P 500 Index lose just over 10% in value–an official correction–in just nine trading days. That’s right–nine trading days from an all-time high to a 10% decline which, according to LPL Research, was the quickest on record.

Let’s review the landscape. Moderate economic growth at home and abroad has been fueling corporate profits; analysts have been sharply revising 2018 profit estimates higher (Thomson Reuters); inflation has been low, and interest rates, while creeping upward, remain near historically low levels.

Is the Party Over for the Markets?

Well, this long-felt sense of unease people have had about things being “too good” showed up quickly last week and Monday as the stock markets had a sell-off (with a pretty solid comeback today).  After the unprecedented run-up we have had to new highs seemingly every week with historically low volatility in 2017 there has been a feeling among many I've talked to of “not if, but when” there would be a pullback.  Market pullbacks are historically a normal part of a healthy functioning market, but everything has pretty much lined up this past year to give us positive months in the S&P 500 ever since the election (and 22 of the last 23 months - Ycharts). 

Corporate tax reform combined with strong earnings outlooks carried 2017 into January of this year with a 5.73% return to start the year for the S&P 500.  The market action from the last few days (as of this writing) erased the 2018 gains and brought us back early January levels (still way up over this past year).  It is important when you hear the scary-sounding headlines that we keep things in context.  The drop on Monday, while the largest point drop in history, was only the 100th largest from a % standpoint in the history of the Dow and the 127th largest in the history of the S&P due to the massive increases in value the markets have experienced in the last 9 years.  Where things go from here is the obvious question.

A few of the triggers for the drop:

Are You Getting the Best Return on Life You Possibly Can?

Are You Getting the Best Return on Life You Possibly Can?

When it comes to investing, the current standard of return on investment (ROI) can be self-limiting, adding pressure that is counterproductive. So much of ROI is not within our control. We can diversify investments––always a good strategy––but we cannot control how the markets perform or how global events affect the markets. Just as meteorologists can predict the weather but still be wrong, we can try to predict and plan for market upheavals, but we cannot control them.

It’s important to balance return on investments with return on life (ROL). ROL is defined as, ‘How well you are doing in living the life you want, with the money you have.”

Here are some key ROL indicators:

Yes, You Might Actually Enjoy a “Working” Retirement

An important part of your retirement plan is a discussion of the benefits of working, regardless of age. Retirement is no longer an event––it is a segue into an altered definition of life as you know it.

One definition of “work” is that it consists of actions that bring value to others and meaning to you. While you may feel that you’ve had enough work, it’s probably the underlying issues (i.e., meetings, corporate politics, commuting) that have left you drained and exhausted.   

Think about this: many people who go back to work after retirement are motivated by more than money––they are also motivated by the psychological and existential payoffs.

September Update

Happy September!  I hope that you had a great Labor Day and end to your summer.  Another year with summer seeming to fly by and now football is here again.  My kids both started up new schools as Leilani is now officially a kindergartener & Joshua is in middle school!  Crazy.

We have some exciting things coming up in the fall that I want to let you know about & also want to give an update on markets, the economy & things I'm keeping an eye on, but I will send those in separate emails since I have a lot to share in this email, primarily focused on retirement.

6 Ways to a Happier Retirement 

Picture this—it’s Friday afternoon, your work is done, and you have the weekend ahead of you. But what makes this weekend different than any other weekend is that two-week vacation following it. You wish your colleagues well, they express similar thoughts, and you head toward freedom.

Of course, you’re excited! Travel, new experiences, time away from the mundane, and time to recharge.

In the back of your mind, you know it’s temporary and you’ll be back at your desk before you know it. Maybe that’s part of the reason why the time away is special. It’s short-lived.

Now, let’s take this another step.

Three Ways to Avoid the Downside of Retirement

When it comes to retirement, it’s easy to dream about the perks: sleeping in, traveling, reading a good book, playing golf––name your fantasy. Even if your retirement is fully funded, the reality can be far less fulfilling if you don’t plan ahead.

Repeated studies have shown that people who do not have a rewarding retirement can suffer both physically and psychologically during retirement. Lack of mental stimulation is a primary reason. People are often forced into retirement before they are ready. Others think they are ready, and yet are not prepared for the day-to-day realities of a new lifestyle. 

It May Be Time to Reconsider What Retirement Means to You

Whether you’ve been told you should retire at 62, 65, or some other age, only you can decide what is right for you. In fact, you may want to reconsider retiring at all––at least in the traditional sense.

Many of us don’t like the circumstances we find ourselves in––and look at retirement as the nirvana we’ve been missing. The truth probably lies somewhere between completely dropping out (i.e., piddling around in retirement) and never retiring (i.e., dying with their boots on).