Daily Archives: July 23, 2018

The Numbers & “Heat Map”

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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-

Following its June meeting, the Federal Reserve implemented the second rate hike of 2018, and suggested that two more hikes should be expected before year-end. Rising interest rates tend to reduce economic growth potential and can lead to repricing of income producing assets.

BUSINESS PROFITABILITY

A

Q2 Earnings season is now underway and analysts are expecting an 8th consecutive quarter of positive earnings per share growth for the S&P 500.

EMPLOYMENT

A+

The US economy added 213,000 new jobs in June, and the labor force participation rate is now on the rise. Jobs are available for those who want them.

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

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by Connor Darrell, Head of Investments
U.S. equity markets finished roughly flat last week as Q2 earnings season kicked into full gear. Small cap stocks continued their recent leadership amid ongoing uncertainty over global trade. Small cap stocks tend to be more domestically focused than their large cap peers, and this has helped insulate them from some of the pressure felt by companies that rely on global commerce as a key revenue driver. International markets managed to creep higher in the aggregate but produced mixed results by region. European stocks have been troubled recently by some signs of slowing economic growth and uncertainty surrounding the ongoing Brexit negotiations.

In the bond market, interest rates ticked higher and the recent trend of curve flattening was bucked for the time being. The 10-year treasury now sits at about 2.89%, still well below the peak of 3.11% that it reached back in May. In an interview with CNBC last week, President Trump commented that he was “not happy about interest rates going up,” but it remains unlikely that the Federal Reserve (which operates independently of government) would adjust its policies based upon the president’s comments.  Part of the president’s concerns stem from the resulting rise in the U.S. dollar, which makes it relatively more expensive for foreign investors to allocate capital to U.S. based projects/companies.

Trump and the Fed
President Trump’s comments regarding the Fed’s interest rate policies caught the attention of some segments of the market but were not significant enough to cause any major disruption. In fact, it is unlikely that anything the president says about Fed policy will be material enough to meaningfully move markets because the Federal Reserve was created as an independent body, designed to function free of political interference.

This was not the first time President Trump has commented on the efficacy of the Fed’s policies, and it likely will not be the last, but we anticipate the Fed to continue its interest rate increases for as long as the economic data suggests that it is prudent.

Did You Know…?

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If you or a veteran or surviving family member of a U.S. veteran released from service due to injuries sustained in combat, you may be able to recover a substantial tax refund. “For 25 years, between 1991 and 2016, a computer glitch at the agency caused non-taxable disability severance payments to be subject to income taxes, a Defense Department official told CBS MoneyWatch. The government is now trying to help veterans or their survivors recover these old overpayments, each of which is expected to result in refunds of $1,750 or more.” READ MORE FROM CBS NEWS

“Your Financial Choices”

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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®. On this week’s show – July 25 – guest hosts Rodman Young, CPA/PFS, CFP® and Jaclyn Cornelius, CFP®, EA from Valley National Financial Advisors, will discuss: “Company transitions and your job.”

For more information, including how to listen to the show online, check the show’s website yourfinancialchoices.com and visit wdiy.org.