2018 Quarter 2 Market Commentary

2018 Quarter 2 Market Commentary

The U.S. Economy Looks Up

For our 2018 Quarter 2 Market Commentary, we want to focus on some recent facts concerning the U.S. economy that leave us seeing the glass half full. We will be looking at three key indicators: Consumer Price Index (CPI), Job Openings and Labor Turnover (JOLT) Report and International Capital Flows.

Consumer Price Index (CPI) – increased only 0.2% in February and is up just 2.3% over the past year.  So-called “core CPI” – which excludes food and energy prices – has gained a modest 1.9% year-over-year. The February numbers regarding inflation are within the range the Federal Reserve has set for our economy to grow, but not overheat.

Job Openings and Labor Turnover (JOLT) Report – this monthly report showed a significant increase in available job openings (6.3 million) in January.  There were 5.4 million new hires and 5.2 million separations (discharges and quits) during the month, which reflects the tremendous dynamic of the U. S. economy. We see a strong economy with new jobs ranging somewhere between 200,000 to 300,000 new each month.

International Capital Flows – Foreign investors – individuals, institutions, and governments – poured $62.1 billion into domestic securities.  Even more interesting was the fact that $34.5 billion went into common stocks instead of the usual Treasury and agency bonds. The fact that foreign investors are investing in American businesses, not just bonds, is an even bigger vote in the US economy!

The Markets Trying to Find Balance

Last week, major U.S. stock indices experienced a sell-off, and we saw a dramatic downturn in stock markets. The Dow Jones Industrial Average was down 5.7 percent, the Standard & Poor’s 500 index lost 6 percent, and the NASDAQ fell 6.5 percent, reported Barron’s.

Those are big moves for a single week. The kind of moves that light up the emotion centers of investors’ brains and make them want to sell.

It’s not a new phenomenon. In 2002, in an article for CNN Money, Jason Zweig explained the brain’s potentially negative influence on investment decisions, “But in the world of investing, a panicky response to a false alarm – dumping all your stocks just because the Dow is dropping – can be as costly as ignoring real danger. For one thing, it can cause you to flee the market at a low point and miss out when the market bounces back. A moment of panic can also disrupt your long-term investing strategy.”

So, what happened last week? In short:

  • The Fed raised rates, as expected. The Federal Reserve raised the Fed funds rate by a quarter of a percent, which may benefit savers and investors, but will make borrowing more expensive.
  • Tariffs triggered trade war worries. The Trump administration levied tariffs on China, raising concerns of a global trade war.
  • You’re fired! There was additional turnover among senior advisers to President Trump.
  • Can they do that? British news reported a data analytics firm has been influencing elections around the world in some unsavory ways.
  • Don’t share my data! There was news a social media firm had shared the personal data of thousands with a researcher who shared it with a third-party firm without permission.
  • Another data breach. An online travel company experienced a data breach that may have exposed the personal information of 880,000 users.
  • The economy is chugging along. Last week’s U.S. economic releases were overshadowed by everything else, but many indicated a strengthening economy, reported Barron’s.

Here’s the thing: During 2017, volatility settled at historically low levels and stock markets charged ahead. As a result, it was relatively easy for investors to become sanguine about risk. You could say 2017 made investing seem as mundane as driving across the flatlands of the Plains states. It’s possible 2018 will be more like traveling icy switchbacks through the Rocky Mountains. The critical thing is to recognize these short-term events are unlikely to change your long-term financial goals.

No matter what happens in the months to come, it’s a good time to reassess your risk tolerance and make sure it aligns with your financial goals and asset allocation.

Market Commentary | March 26, 2018 | WMBC

* These views are those of Carson Group Coaching, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.

* This newsletter was prepared by Carson Group Coaching. Carson Group Coaching is not affiliated with the named broker/dealer.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.

* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* You cannot invest directly in an index.

* Stock investing involves risk including loss of principal.

* Consult your financial professional before making any investment decision.

Sources:

https://finance.yahoo.com/

https://www.scientificamerican.com/article/what-is-loss-aversion/

https://www.consumerreports.org/interest-rate/fed-rate-hike-your-money/

https://www.cnn.com/2018/03/22/politics/donald-trump-china-tariffs-trade-war/index.html

https://www.brookings.edu/research/tracking-turnover-in-the-trump-administration/

https://www.ft.com/content/e4e95b6c-2dac-11e8-9b4b-bc4b9f08f381

https://www.marketwatch.com/story/this-data-breach-affected-880000-people-and-it-has-nothing-to-do-with-facebook-2018-03-24

https://www.cnet.com/news/how-to-stop-sharing-facebook-data-after-cambridge-analytica-mess/

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