We are pleased to be participating again in the Community Bike Works second annual Spin-a-Thon!
Our team is ready to take on the competition to support bike mentoring programs. The event will be on Saturday, September 22 at Lehigh Valley Health Network Fitness in Allentown. Until then, we are joining in the fundraising effort.
We invite you to learn more about this unique event on the crowdrise website and, of course, the programs it supports at communitybikeworks.org.
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 |
Just over 50% of S&P 500 companies have now reported Q2 earnings, and Factset is reporting a blended earnings growth rate of 21.3% YoY. |
|
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 |
||
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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.
“Luck is what you have left over after you give 100 percent.” – Langston Coleman
by Connor Darrell, Head of Investments
A relatively quiet week in terms of market returns was highlighted by a major milestone in market history. On Thursday, Apple became the first company ever to achieve a market valuation of $1 trillion. The story of Apple’s rise from a startup company headquartered in its founder’s garage to $1 trillion tech behemoth is one of the greatest narratives in the history of capitalism, and that story understandably dominated headlines. But more pertinent to everyday investors, the U.S. economy added 157,000 new jobs in July and the unemployment rate ticked back down below 4%. Wage growth, which has been closely watched by the Federal Reserve, remained subdued.
International equities (as measured by the MSCI EAFE index) traded down 1.45% for the week, while U.S. equity markets (as measured by the S&P 500) produced a 0.8% gain. Interest rates moved higher to start the week, with the 10-year treasury briefly pushing back above 3% on Wednesday before dropping lower and finishing the week largely unchanged.
Mega Cap Stocks Dominate the Index
Apple’s trillion-dollar milestone highlights another phenomenon that we have discussed in the past; that the world’s largest companies have an outsized impact on index returns. In the first 6 months of 2018, the top 5 largest companies in the S&P 500 contributed over 80% of the index’s 2.7% gain. Indexing is a popular and low cost means of capturing market returns, but as the biggest companies continue to get bigger, index investors would be well served by reviewing the concentrations that exist within their index of choice. The strongest argument in favor of indexing stems from how notoriously difficult it is for stock pickers to consistently beat the market. There exists a natural and inexpensive means of achieving diversification within an index fund, and by purchasing a fund that tracks the index, an investor is not exposed to the risks of choosing the wrong stocks. However, as the biggest companies continue to capture a larger share of market cap weighted indexes, that diversification benefit begins to fade.
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. WDIY will air a recorded program. Questions submitted online will be addressed during the next live broadcast – August 15.
Listen to past shows at yourfinancialchoices.com and listen live at wdiy.org.