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.
Last week, Bonds and Foreign Stocks increased, and U.S. Stocks declined. During the last 12 months, STOCKS outperformed BONDS
Returns through 3-16-2018
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
.2
-2.0
1.4
1.3
1.8
3.6
US Stocks-Standard & Poor’s 500
-1.2
3.4
17.9
12.1
14.4
10.2
Foreign Stocks- MS EAFE Developed Countries
.2
.1
16.7
6.5
6.4
3.1
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.
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 not host a live show due to the snow storm. Tune in at the same time for a recorded program.
“IRA Trusts” with guest James Ruggiero will be rescheduled to another date.
The market is so discombobulated right now that it can’t even decide what it’s afraid of.
What do we mean? When the Standard & Poor’s 500 index suffered its first correction since the beginning of 2016 last month, the cause was easily identified—a good old-fashioned inflation scare caused by a larger-than-expected increase in wages and a rapidly rising 10-year Treasury yield, which almost hit 3%.
Fast-forward more than a month, and those fears seem almost quaint. February’s payrolls print on March 9 alleviated those inflation concerns when wages rose far less than expected, but that hasn’t relieved the tension in the market, never mind the S&P 500’s 1.7% rise that day.
Consider this past week’s returns. The Dow Jones Industrial Average dropped 389.23 points, or 1.5%, to 24,946.51, while the Nasdaq Composite declined 1%, to 7481.99. The S&P 500 fell 1.2%, to 2752.01, after slipping for four consecutive days to start last week.
The funny part is that each day’s drop was caused by an apparently different reason—Special Counsel Robert Mueller’s subpoena of the Trump Organization, reports of new tariffs being planned for China, the exit of Secretary of State Rex Tillerson.
Our favorite, though, has to be the response to this past week’s retail-sales data. The number was bad—sales dropped 0.1% in February from January, its third consecutive monthly decline—and one that came despite the recent tax cuts that were supposed to get consumers spending again. The fact that the Atlanta Fed’s GDPNow forecast for first-quarter gross-domestic product growth dropped below 2% only added to the concern, and caused the 10-year Treasury yield to drop as low as 2.80%. With that, concerns about too much growth were replaced by fears there’s too little, a flip-flop worthy of a good politician.
It’s also a sign that the market has yet to recover from February’s correction. “The markets are jittery,” says Todd Lowenstein, chief equity strategist at HighMark Capital Management, who notes that investors are treating each incoming data point as the start of a new narrative.
Still, this isn’t unusual when markets are going through a corrective phase like they are now, writes Michael Shaoul, CEO of Marketfield Asset Management. That means there’s a good chance that if the market tumbles even more, it won’t be because of higher bond yields and concerns about inflation. “If a full retest of the March or February low is required, it may be accompanied by a very different set of headlines,” Shaoul explains. Was last week just a sneak preview?
