The Markets This Week

by Connor Darrell CFA, Assistant Vice President – Head of Investments
Both equities and bonds managed to creep higher last week, with equities fueled by positive developments in global politics (Brexit and U.S./China trade negotiations) and bonds buoyed by a drop in short-term yields that was likely driven by weaker than expected retail sales data. The 0.3% decline in U.S. retail sales was the first monthly decline since February and was primarily a product of a decrease in so-called “noncore” spending, which includes auto sales, purchases at gas stations, and building materials stores. Moving forward, many will be watching this and other consumer data very closely in an effort to get a feel for whether the weakness in manufacturing has permeated to other areas of the economy. For now, this looks more like a blip rather than a sustained downward trend, and the U.S. consumer should continue to benefit from the healthiest labor market in decades.

Politics and the Market
As the political climate has continued to become more and more polarized in recent years, many Americans have had a hard time separating politics from investing. We believe the below chart from JPMorgan does an excellent job of helping to convey the importance of investing discipline during periods of difficult political transition.

The chart shows consumer confidence broken down by political affiliation and tells an interesting story. Beginning in 2008 at the onset of the Great Recession, it is clear and unsurprising that neither Republicans nor Democrats felt optimistic about the economy. But as the market and economy recovered during the Obama administration, optimism among Democrats increased at a significantly higher rate. Then, almost overnight in the beginning of 2017, optimism among Republicans skyrocketed and subsequently tapered off among Democrats. Based on the data, it is clear that many Republican-leaning investors may have missed out on the strong market gains during the Obama years, and that many Democrat-leaning investors may have missed out on the market rally that transpired during the Trump years.

With all the talk of concerns over the global economy and weakening manufacturing, the consumer remains pivotal in determining how much juice is left in this economic expansion. With that as a backdrop, one other intriguing aspect of the above chart is that at present, consumer confidence among Republican-leaning investors remains very high. Market sentiment and economic activity are quite sensitive to consumer perceptions of the future, and it certainly makes it more difficult for the economy to turn toward recession if roughly half the population believes things are still looking great.

The Number & “Heat Map”

THE NUMBERS
Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends. Interest Rates: Federal Reserve, Freddie Mac

U.S. ECONOMIC HEAT MAP
The health of the U.S. economy is a key driver of long-term returns in the stock market. Below, we grade 5 key economic conditions that we believe are of particular importance to investors.

CONSUMER SPENDING

A

Our consumer spending grade remains an A despite a recent decline in retail sales numbers. US consumer confidence remains high, but we will be watching this metric closely over the next couple of weeks and throughout earnings season. The consumer has been the bedrock of the US economy through much of the current expansion.

FED POLICIES

A-

Our Fed Policies grade has been increased to A- after the Federal Reserve cut its interest rate target by 25 bps following its most recent meeting. This marks the second time the Fed has cut interest rates in the past few months, but Chairman Jerome Powell hinted that he does not expect “a more extensive series of rate cuts” moving forward.

BUSINESS PROFITABILITY

B-

As was largely expected by markets, corporate earnings growth has been weak thus far in Q3 as a result of the global slowdown and trade policy uncertainty. Throughout earnings season, we will be paying closer attention to management commentary and updates to forward guidance, which are likely to have a bigger impact on stock prices.

EMPLOYMENT

A

The US economy added 136,000 new jobs in September, below the consensus expectations of analysts. However, despite the lower than expected job creation, there was evidence of an acceleration of wage growth. The labor market continues to look quite healthy.

INFLATION

A

Inflation is often a sign of “tightening” in the economy and can be a signal that growth is peaking. Recent inflationary data has increased slightly, but inflation remains benign at this time, which bodes well for the extension of the economic cycle.

OTHER CONCERNS

INTERNATIONAL RISKS

7

Following a re-escalation of the US/China trade dispute, we have raised our “international risks” metric back to a 7. Other key areas of focus for markets include the ongoing Brexit negotiations, rising economic nationalism around the globe, and escalating tensions in the Middle East.

The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.

VNFA NEWS

Meet the Team

Joanne Kurtz, Executive Administrative Assistant
Years at VNFA: 14 years (in March 2020)
I enjoy working with my colleagues because they make me feel supported, and they continuously motivate me to do my best.”

About Joanne: I am married to my wonderful husband and have two adult children. We like to take the time to enjoy the outdoors by visiting the Poconos and the beach. We also have an 11-year-old yellow Labrador retriever, and she is a joy to our whole family. I enjoy reading, exercising, cooking and eating healthy.  

What I enjoy most about my job is helping clients and helping our team. There are a variety of tasks that are involved which makes each day unique and enjoyable. Our team benefits from making sure procedures are carried through for great organization and communication which helps our clients meet their financial goals.

“Your Financial Choices”

The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®, AEP®.

This week, Laurie welcomes back Tim Roof, CFP and Connor Darrell, CFA to discuss: “Third Quarter Commentary and Investment Education.”

Laurie and her guests will take your questions live on the air at 610-758-8810 or in advance via yourfinancialchoices.com/contactlaurie.

Recordings of past shows are available to listen or download at both yourfinancialchoices.com and wdiy.org.

VNFA NEWS

We are pleased to announce the promotion of Jessica Goedtel, CFP® to the position of Assistant Vice President / Financial Advisor.

Jessica has been part of our team since 2016 helping clients with comprehensive financial planning, including tax, insurance and corporate benefits. She joined VNFA with several years of experience in the financial services industry and has continued developed her skills through our firm’s Entry Level Professional (ELP) program. The ELP program is specifically designed to prepare the next generation of financial advisors at VNFA with key skills and knowledge.

“Jessica received her Certified Financial PlannerTM Professional designation in 2018 and has completed all levels of our firm’s ELP development standards,” says CEO Matthew Petrozelli. “She has been and will continue to be a valuable part of our professional advisory team in this new capacity as a full-time financial advisor.”

Jessica can be reached at jgoedtel@valleynationalgroup.com or 610-868-9000 x127. Get to know Jessica.

The Markets This Week

by Connor Darrell CFA, Assistant Vice President – Head of Investments
Most of last week’s action took place on Friday, when the first signs of meaningful progress toward an eventual trade resolution between the U.S. and China broke into the news cycle. Markets rallied in reaction to the announcement from President Trump that he and Chinese officials arrived at an agreement for China to resume purchases of U.S. agricultural products and to begin addressing issues related to intellectual capital. Ultimately however, many were quick to point out that while the progress is a sign that the two sides are willing to work with one another, this first phase of an agreement is far from a finished product and does not address the most pressing issues that face negotiators; many of which are related to technology, cybersecurity, and intellectual property theft.

The positive sentiment from the trade front pushed a sense of optimism through financial markets and helped to steepen the yield curve, which led to negative returns in the bond market. With the economic calendar dormant this coming week, most of the market’s focus will remain on geopolitical concerns like trade and Brexit negotiations, as well as the beginning of Q3 corporate earnings season, which could provide investors with a better glimpse into how the recent slowdown in manufacturing has impacted corporate profits.

We provide our perspective on many of the above issues in our most recent quarterly commentary, which is available on our website – valleynationalgroup.com/Q32019

The Numbers & “Heat Map”

THE NUMBERS
Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends. Interest Rates: Federal Reserve, Freddie Mac

U.S. ECONOMIC HEAT MAP
The health of the U.S. economy is a key driver of long-term returns in the stock market. Below, we grade 5 key economic conditions that we believe are of particular importance to investors.

CONSUMER SPENDING

A

Our consumer spending grade remains an A. Surveys of US consumers continue to indicate that the consumer is in a strong position, and recent GDP data provided further evidence of healthy consumer spending.

FED POLICIES

A-

Our Fed Policies grade has been increased to A- after the Federal Reserve cut its interest rate target by 25 bps following its most recent meeting. This marks the second time the Fed has cut interest rates in the past few months, but Chairman Jerome Powell hinted that he does not expect “a more extensive series of rate cuts” moving forward.

BUSINESS PROFITABILITY

B-

Q3 corporate earnings season begins soon, with many experts predicting negative growth for the quarter as a result of more sluggish global economic growth. The strength of corporate profits in Q3 will provide investors with a glimpse into how the recent slowdown in manufacturing may have impacted US companies.

EMPLOYMENT

A

The US economy added 136,000 new jobs in September, below the consensus expectations of analysts. However, despite the lower than expected job creation, there was evidence of an acceleration of wage growth. The labor market continues to look quite healthy.

INFLATION

A

Inflation is often a sign of “tightening” in the economy, and can be a signal that growth is peaking. Recent inflationary data has increased slightly, but inflation remains benign at this time, which bodes well for the extension of the economic cycle.

OTHER CONCERNS

INTERNATIONAL RISKS

7

Following a re-escalation of the US/China trade dispute, we have raised our “international risks” metric back to a 7. Other key areas of focus for markets include the ongoing Brexit negotiations, rising economic nationalism around the globe, and escalating tensions in the Middle East.

The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.