The Markets This Week

by Connor Darrell, Head of Investments
Stocks trended lower last week with U.S.-China trade tensions again taking the blame for the market’s weakness. Friday brought news that the U.S. economy added a higher than expected 201,000 jobs in August, causing interest rates to jump higher amid speculation that the Fed would be more likely to keep its current pace of rate hikes. Internationally, the uncertainty surrounding global trade has made it difficult for companies to make investment decisions and has weighed on stocks. International stock markets (in both developed and emerging countries) were down close to 3%.

Preparing for the Next Storm
With many on the eastern seaboard bracing for the impacts of Hurricane Florence, it seems appropriate to evaluate what investors can be doing to prepare their portfolios for the next storm in financial markets. In the tenth year of a healthy bull market, the action plan for many investors should simply be to rebalance and re-evaluate their changing goals. A global investor who has remained disciplined throughout the last 10 years is likely to now be overweight stocks relative to bonds, and overweight U.S. equities relative to international equities simply as a result of how market returns have been distributed over that time. As a result, that same portfolio is likely to contain more risk (as a result of the higher allocation to stocks) than it did 10 years ago despite the investor being 10 years closer to retirement (which would typically call for a more conservative portfolio). As bond yields continue to creep higher, the rebalancing required to bring a portfolio back to its target allocation is likely to become easier to stomach since the relative income from bonds will be more favorable.

“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 and her guest Joseph F. Goldfeder, CFP® Vice President at Valley National Financial Advisors, will discuss a “Retirement Plan Checkup.”

Laurie and Joe will take your calls on this or other topics at 610-758-8810 during the live show, or via yourfinancialchoices.com. Recordings of past shows are available to listen or download at both yourfinancialchoices.com and wdiy.org.

Did You Know…? VIDEO

In February this year federal regulators introduced the “Trusted Contact” person as a form of protection for the investing public. The trusted contact person is someone our advisors can reach out to if he/she suspects diminished capacity and the possibility of fraud. Our CEO offers an overview of the trusted contact person and an update on what to expect from your VNFA financial advisory team on this topic. WATCH THE VIDEO | READ MORE

Valley National News

This month, VNFA marks nine years of “Your Financial Choices” on WDIY. The first broadcast of the radio program hosted by our own Laurie Siebert on 88.1 FM was September 30, 2009.

As an underwriter of WDIY, Valley National is pleased to continue to support public radio and contribute to the education and enrichment of our Lehigh Valley community.

Thank you to Laurie for coming to us live every Wednesday evening (6-7PM) with fresh insights and conversation. Thank you to all the staff and volunteers at WDIY who produce and promote the show. And, of course, thank you to all the radio and online listeners, and podcast subscribers!

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

US ECONOMIC HEAT MAP
The health of the US 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+

Consumer spending is expected to remain healthy as individuals with lower tax rates spend their windfalls.

FED POLICIES

C-

The Federal Reserve held pat following its most recent meeting, but it remains probable that two more rate hikes will be implemented before year-end. Rising interest rates tend to reduce economic growth potential and can lead to repricing of income producing assets.

BUSINESS PROFITABILITY

A

Factset is reporting a blended earnings growth rate of 24.6% YoY for the 2nd quarter of 2018. Tax reform has played a major role, but the strength of the US consumer is boosting corporate profits as well.

EMPLOYMENT

A+

The US economy added 157,000 new jobs in July, and the unemployment rate dropped back below 4%. The job market remains very healthy.

INFLATION

B

Inflation is often a sign of “tightening” in the economy, and can be a signal that growth is peaking. The inflation rate remains benign at this time, but we see the potential for an increase moving forward. This metric deserves our attention.

OTHER CONCERNS

INTERNATIONAL RISKS

5

The above ratings assume no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 5. These risks deserve our ongoing attention.

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.

The Markets This Week

by Connor Darrell, Head of Investments
Trading activity was expectedly below average last week, as many investors were more likely focusing on the upcoming holiday weekend than on the limited new developments in global markets. With Q2 earnings season finally winding down, trade policy once again took back the spotlight. Stocks reacted positively to improving relations between the U.S. and Mexico, but some of the positive momentum was lost on Friday when it became clear that Canada was not ready to take part in any new trade agreements.

The S&P 500 managed to climb about 1% on the week, with international markets positive as well. The bond market was largely flat.

A Note on “Short-Termism”
There is an argument gaining traction that investors are too “short-term” focused, which leads to inefficient decision making at the executive level in response to shareholder demands that do not align with a long-term view of value creation. This argument is the essence of why Elon Musk made headlines earlier this month, claiming he desired to take the company private to avoid the incessant demands heavy scrutiny of public shareholders. It is also the core of a new bill being proposed in Washington aimed at taking power from shareholders and giving it to employees and the government.

Ironically, Tesla itself is a perfect example of shareholders not falling into the trap of “short-termism.” Tesla currently reports losses on its income statements on a regular basis due to its heavy investment in new technologies. In other words, Tesla doesn’t actually make any money because it invests all of its revenues back into research and development. However, the market values Tesla at about $13 billion dollars, more than it does Ford and about equal to General Motors, both of which have a much larger foothold on the automobile marketplace and are considerably more profitable. The reason that markets value Tesla so highly is precisely because there is an expectation that down the road, Tesla will be more profitable than both Ford and GM. Shareholders and the investment community at large do a tremendous job of taking a long-term view, and serve a pivotal role in keeping corporate decision makers accountable for properly running their respective businesses.

“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 and her guest Daniel Banks, President of Silver Crest Insurance, will discuss: Updates & Changes in Medicare Planning.

Laurie will take your calls on this or other topics at 610-758-8810 during the live show, or via yourfinancialchoices.com. Recordings of past shows are available to listen or download at both yourfinancialchoices.com and wdiy.org.