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Daily Archives: November 12, 2019
The Markets This Week
by Connor Darrell CFA, Assistant Vice President – Head of Investments
Fading fears of a global recession helped push risk assets higher while traditional safe-haven assets such as bonds underperformed. U.S. equity indices achieved new all-time highs as several signs of improvement in global economic conditions eased investors’ concerns. Markets cheered marked improvements in both non-manufacturing and manufacturing PMIs, which help to evaluate the confidence of business leaders. There were also encouraging signs from European consumer data, where retail sales rose 3.1% year-over-year. The reassuring data led to an increase in longer term bond yields and a steepening of the yield curve, resulting in negative returns for the major bond indices.
With Q3 earnings season close to wrapping up, FactSet Research is reporting a blended earnings growth rate of -2.4% year-over-year. With revenues rising 3%, the decline in corporate profits helps to underpin the impacts that rising costs have had on businesses coping with the fallout from the U.S./China trade dispute. Despite the decline, the overall numbers have actually exceeded analyst expectations, and many companies have seen their stock prices rise following earnings releases; yet another sign that things may not be quite as bad as many investors may have thought.
The Numbers & “Heat Map”
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
U.S. ECONOMIC HEAT MAP
The health of the U.S. 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.
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CONSUMER SPENDING |
A |
Our consumer spending grade remains an A despite a recent decline in retail sales numbers. US consumer confidence remains high, but we will be watching this metric closely over the next couple of weeks and throughout earnings season. The consumer has been the bedrock of the US economy through much of the current expansion. |
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FED POLICIES |
A- |
The Federal Reserve cut its interest rate target by an additional 25 bps following last week. This was the third cut this year, but Chairman Jerome Powell signaled to markets that we this may be the last adjustment to the Fed’s policy target until there is a meaningful shift in the economic data (either poitive or negative). |
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BUSINESS PROFITABILITY |
B- |
As was largely expected by markets, corporate earnings growth has been weak thus far in Q3 as a result of the global slowdown and trade policy uncertainty. Throughout earnings season, we will be paying closer attention to management commentary and updates to forward guidance, which are likely to have a bigger impact on stock prices. |
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EMPLOYMENT |
A |
The US economy added a healthy 128,000 new jobs in October. Furthermore, there were upward revisions to data from the September and August reports in addition to evidence of strong wage growth. Considering the slew of negative sentiment leading up to its release, this was one of the more uplifting release in recent memory. |
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INFLATION |
A |
Inflation is often a sign of “tightening” in the economy, and can be a signal that growth is peaking. Recent inflationary data has increased slightly, but inflation remains benign at this time, which bodes well for the extension of the economic cycle. |
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OTHER CONCERNS |
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INTERNATIONAL RISKS |
7 |
Despite the US & China being close to a “Phase One” agreement, we are keeping our “international risks” metric at an elevated level of 7 for now. Other key areas of focus for markets include the ongoing Brexit negotiations, rising economic nationalism around the globe, and escalating tensions in the Middle East. |
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.
Quote of the Week
“No legacy is so rich as honesty.” – William Shakespeare
Did You Know…?
by Jessica Goedtel, CFP®, Assistant Vice President / Financial Advisor
The IRS has just released their 2020 contribution and benefit limits. Here’s what you need to know:
- The maximum 401(k) contribution has increased to $19,500, from $19,000. Catch-up contributions for those age 50 and older have also been increased to $6,500 (from $6,000 in 2018 & 2019).
- The annual IRA contribution amount has not been increased and remains at $6,000 (plus $1,000 for catch-up contributions).
The income brackets for IRA and Roth IRA contributions have also been updated for the 2020 tax year; more information can be found on the official IRS press release at irs.gov.
This is a great time to review your current retirement savings strategies to make sure you are taking full advantage of your tax deferral options.
“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: “Capital Blue Cross – Medicare Options.”
Laurie will take your questions live on the air at 610-758-8810 or in advance via yourfinancialchoices.com/contactlaurie.
Recordings of past shows are available to listen or download at both yourfinancialchoices.com and wdiy.org.