Your account values may go lower, but history tells us in time they will bounce back and provide an attractive rate of return. There is no guarantee, but we know several things for sure. The recent drop is normal. The abnormal market was the 2017 market which only went up, up, up……
The consumer, the economy, and business profits are quite strong. It is highly unlikely the U.S. will encounter a recession in the foreseeable future. I recommend trying not to listen too much to the media’s description of the stock markets ups and downs. The media tends to distort conditions in order to grab your attention and keep you coming back for updates.
Hope this helps. Just remember the first sentence.
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 strengthen as individuals with lower tax rates spend their windfalls.
FED POLICIES
C-
The Federal Reserve increased the Fed Funds Rate by 0.25% last week, and is expected to implement at least 2 more hikes this year. Rising interest rates tend to reduce economic growth potential and can lead to repricing of income producing assets.
BUSINESS PROFITABILITY
A-
4th quarter earnings season was stellar, with S&P profits growing at a fast pace. Q1 2018 earnings season starts in just a few short weeks.
EMPLOYMENT
A+
The unemployment rate currently stands at 4.1%, the lowest reading since 2000. The economy added 313,000 new jobs in February, a very strong number.
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.
Our own Laurie A. Siebert is featured on the Pennsylvania Institute of CPA website because of her contributions to their journal in the form of articles and video that were picked up by several regional and national media stations.
Medicare is issuing new cards over the next 12 months in the hopes of protecting your identity and providing more security. Scammers have already found ways to take advantage of the confusion. Medicare will not contact you so beware of anyone who says they are Medicare or requesting sensitive information or payment of any kind. Understand that you will receive your new card in the mail so keep your address updated with Medicare. Other than that, there is nothing for you to do. Because the new cards will be issued over 12 months, you may receive your new card at a different time than your spouse, neighbor or friend. Know that it is coming and there is nothing you have to do but be patient and avoid scammers. Destroy your old card once the new card is received. Medicare has a notice on their website about the new cards – https://www.medicare.gov/Pubs/pdf/12002-New-Medicare-Card-flyer.pdf
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:
“Listener’s tax questions & multi-state issues”
Laurie will take your calls on this or other topics. 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.
2018 started out with a bang, with the S&P 500 index up 7.45% over the first 26 days of January. Since then, a flurry of speculation surrounding tariffs, trade wars, and the Fed has pushed markets into a period of consolidation. So where do we go from here?
That question is never easy to answer without the aid of a functional crystal ball, but based on the key data we track on a regular basis (see this week’s “Heat Map” for more details), we see little that would seem to portend a recession in the near future. As markets have zigged and zagged over the past several weeks, we have been expressing to clients that from an economic standpoint, nothing much has changed. Corporate earnings still look healthy, global growth is picking up, and new data from just over a week ago suggests that consumers are more confident now than at any point over the past 14 years.
All of this bodes well for the foundational support the markets need to continue their expansion, but it’s important to keep everything in context. The reality is that the current bull market just celebrated its 9th birthday, and we are likely closer to the summit than we are to the base of the mountain. Investors are recognizing this and beginning to acknowledge that the next 5-10 years are likely to look very different than the last 5-10 years. Given that reality, markets will likely be very sensitive to new news and speculation (like rumors about trade wars), which can lead to volatility.
A Note on Tariffs and ‘Trade Wars’ The biggest piece of economic news last week was far and away the Trump Administration’s announcement that it plans to impose approximately $50-$60 Billion worth of tariffs on Chinese imported goods in response to China’s history of strong-arming foreign companies who wish to do business there. Global markets sold off in response to the announcement on Thursday, and that sell pressure carried over into Friday. At this juncture, we do not see a need to change course in response to the news. Ultimately, that trade wars have negative consequences is one of the few things that economists seem to unanimously agree upon, and both the United States and China benefit from a healthy economic relationship. These realities provide an incentive for both sides to keep things from escalating too far. As always, we will provide updates to our outlook if things change.
According to Jeff Gundlach, a highly respected bond market expert, it is plausible that the federal budget deficit could double to $1.25 trillion in the fiscal year that begins in October 2018; and, we could be looking at roughly $2 trillion of new government debt being issued.
Economic experts have published a number of studies, some controversial, indicating the U.S. has a limit to how much debt can be issued before major problems develop. These studies deserve our attention so as to develop a long term plan for your investments.
THIS IS THE LAST WEEKLY UPDATE ON THE 4 INITIATIVES OF THE TRUMP ADMINISTRATION. WE EXPECT RELATIVELY SLOW PROGRESS ON THE UNFINISHED INITIATIVES. WE WILL REPORT ON CHANGES IF AND WHEN THEY OCCUR.
Tax cuts and tax reforms benefiting most individuals and businesses. THE MOST SIGNIFICANT TAX LEGISLATION IN A GENERATION WAS SIGNED INTO LAW LAST YEAR. CUMULATIVE PROGRESS TOWARD GOAL: 100%
Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years. PROGRESS TOWARD GOAL: 20%. ON THURSDAY, A RUMOR CIRCULATED AROUND WASHINGTON INDICATING THE INFRASTRUCTURE BILL MAY NOT BE CONSIDERED IN 2018.
Affordable Care Act amendment, reform or reorganization. THE TAX REFORM LAW REMOVED THE REQUIREMENT EACH INDIVIDUAL OBTAIN HEALTHCARE COVERAGE. PROGRESS TOWARD THIS GOAL IS 35%
Roll back of government regulations and Executive Orders considered to be difficult for businesses. ROLL BACKS HAVE CONTINUED. AMENDMENTS TO DODD-FRANK ARE WORKING THROUGH CONGRESS AND ARE EXPECTED TO PASS. CUMULATIVE PROGRESS TOWARD GOAL: 60%
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+ (extremely favorable). Consumer spending is expected to strengthen as individuals with lower tax rates spend their windfalls.
THE FED AND ITS POLICIES: This factor is rated C- (Below average).
BUSINESS PROFITABILITY: This factor’s grade is A- (very favorable). The 4th quarter earnings season was stellar, with S&P profits growing at a fast pace.
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, I rate these international risks collectively as a 5. These risks deserve our ongoing attention.
