We have analyzed the last 18 presidential election years since the mid-1940’s. Presidential election years produced positive returns for 16 of those 18 years for the S&P 500 stock index or about 89% of the time.
Daily Archives: June 22, 2016
The “Heat Map”
Most of the time, the U.S. stock market looks to 3 factors (call them the “pillars” which support the stock market) to support its upward trend – let’s grade each of the pillars.
CONSUMER SPENDING: This grade is A- (very favorable). Favorable activity in the housing market continues to support growth in the level of spending.
THE FED AND ITS POLICIES: This factor is rated B (favorable). The U.S. economy can handle higher rates as long as the pace of future interest rate increases is slow. Fed Chair Janet Yellen made clear in her press conference after the June meeting that the path higher would be “gradual”.
The Fed’s plan to gradually raise rates in the coming years won’t derail the economy and brings some certainty to the market, says Morningstar’s Bob Johnson.
BUSINESS PROFITABILITY: This factor’s grade is a C- (below average). The first quarter corporate-earnings reports weren’t as bad as anticipated but certainly nothing to write home about.
OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING 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 6, an increase due to the risks of the BREXIT vote on Thursday. These risks deserve our ongoing attention.
The Numbers
Last week, Bonds increased. U.S. Stocks and Foreign stocks decreased. During the last 12 months, BONDS outperformed STOCKS.
|
Returns through 6-17-2016 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
.1 |
4.5 |
5.1 |
3.3 |
3.3 |
5.1 |
|
US Stocks-Standard & Poor’s 500 |
-1.1 |
2.4 |
.8 |
.8 |
10.4 |
7.4 |
|
Foreign Stocks- MS EAFE Developed Countries |
-2.8 |
-5.3 |
-11.8 |
-11.8 |
.4 |
2.0 |
Source: 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.
“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 will discuss: “Take-aways from prior shows”
Laurie will take your calls on these topics and other inquiries this week. Questions may be submitted early through www.yourfinancialchoices.com by clicking Contact Laurie. This show will be broadcast at the regular time. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton and Phillipsburg area– or listen to it online from anywhere on the internet. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org.
Motivational Quote of the Week
“The secret of getting ahead is getting started. The secret of getting started is breaking your complex, overwhelming tasks into smaller manageable tasks, and then starting on the first one.” – Mark Twain
The Markets This Week
Who’s afraid of Brexit?
Most of the world’s stock markets, it appears. Bond markets, however, not so much, as investors fled to safe-haven fixed-income assets last week and abandoned equities.
The major U.S. indexes fell more than 1% in volatile trading, caused by uncertainty about the potential outcome of the United Kingdom’s June 23 referendum on whether to leave the European Union.
Also unnerving investors were fears of slowing U.S. growth. The Federal Reserve not only didn’t raise interest rates last Wednesday, as expected, but it also lowered its projections of U.S. growth and future hikes. Not so expected. The Fed now looks for paltry annual economic expansion of 2% through 2018.
The Dow Jones Industrial Average fell 190 points, or 1.1%, to 17,675.16. The Standard & Poor’s 500 index declined 25 points to 2071.22, and the Nasdaq Composite dropped 1.9%, to 4800.34.
That markets are pretty nervous is clear from the first-ever drop below zero in yields on 10-year German bonds, says Michael Sheldon, chief investment officer at Northstar Wealth Partners. With rates negative or low in other developed-nations bond markets, “we are in uncharted territory,” he says.
He doesn’t expect a recession this year, but global bond-market behavior “has an increasing number of investors worried that there is something out there that should have us more worried.”
“The Fed’s in a pickle,” says Aaron Clark, a portfolio manager at GW&K Investment Management. “It wants to raise rates, but the data isn’t strong enough.”
The central bank continually has had to back away from its own overly aggressive projections in the past two years. “The Fed’s credibility is at risk,” says Clark.
Although Brexit seems to be holding U.S. stocks hostage, Clark says an EU exit might be priced in. European banks have been crushed, he notes, with some down 40% and others at lows not seen in years.
There might not be much more downside if Britons vote to leave, but there could be a pretty rapid and volatile unwinding of positions if the U.K. votes to remain, he adds.
And, if you haven’t had enough of the Fed, Chair Janet Yellen is testifying in Congress Tuesday and Wednesday.
(Source: Barrons Online)