Market Review and Outlook

June 2020 Market Review and Outlook

-Darren Leavitt, CFA

The financial markets continued to be volatile throughout June but were ultimately able to build upon May’s gains.  Optimism surrounding the reopening of the global economy fueled investor’s risk appetite for cyclical issues such as financials and airlines, while momentum in mega-cap technology issues remained.  Infection rates of Covid-19 in the US increased in some geographies and headlines regarding the rollback and delay of reopening in some states tempered investor enthusiasm at times.

At the same time, positive news on the development of a vaccine encouraged investor sentiment.  During the month, global central banks increased their efforts to maintain liquidity in the financial system and continued to call on governments to do their part with fiscal spending.  Economic data was generally pretty good and was highlighted by the progress made on job creation and the reduction of the unemployment rate.  For the month, the S&P 500 gained 1.46%, the Dow added 1.33%, the tech-heavy NASDAQ led gains with a 5.30% return, and the Russell 2000 increased by 2.56%.

Technically speaking, the S&P 500 was able to breach resistance at the 200 day moving average of 3100 and able to find support there on two separate retests.  The break above that level is a positive indicator for further gains in the market and caused a painful short-covering trade and also produced a sense of fear in missing out on the next move higher for those with cash on the sidelines.   2-year and 10-year US treasuries were unchanged for the month and closed with yields of 0.15% and 0.65%, respectively.  Gold gained 2.7% or $48 and closed at $1799 an Oz.  Oil traded 11% higher on the month and closed just shy of $40 a barrel as OPEC extended their production cuts for another month.  Emerging markets gained 3.60% for the month while developed international markets lagged a bit with EFA losing 0.16%.

Investors seemed to toggle their interests between cyclical issues and the stalwart mega-cap technology companies during the month.  Financials rallied on news that the Federal Reserve would relax some of the Volcker rules that restricted investments in private equity and hedge funds.  The banks also went through their annual stress tests that were changed to incorporate some of the variables created by the Covid-19 pandemic.  The more sensitive tests showed that most banks continue to be well-capitalized. Still, in an “abundance of caution,” the Federal Reserve suggested that banks suspend their share buyback programs and their 3rd quarter dividends.

Interestingly, most banks decided to maintain their dividend and suspend their buybacks.  Airlines were quite volatile in June but were able to hold on to a good part of their sizeable gains.  American Airlines kicked off the rally with the announcement that it would be materially increasing its capacity in July.  The news induced other airlines to follow suit and increase their capacity.  Furthermore, TSA passenger traffic data seemed to confirm Americans are returning to air travel.  Mega-cap technology also was well bid throughout the month despite some companies cutting their advertising budgets with some social media platforms such as Facebook and Twitter.  Google, Amazon, Microsoft, NVidia, and Tesla inked nice gains as investors sought growth companies that have solid balance sheets.

The ebb and flow of coronavirus news continued to be prominent in headlines and in moving markets.  Infection rates of the virus in many parts of Europe and Asia appear to be subsiding, while rates appear to be increasing in some US states, Latin America, and India.  In Texas, Florida, Arizona, and California, local officials halted opening up further and, in some cases, actually rolled back some of their prior phase initiatives, which may inhibit some economic growth going forward.  Numerous vaccine candidates have emerged with a handful already in phase 3 human trials.  Data on the efficacy of these vaccines have also materially influenced the markets and sent many biotech companies shares soaring in June.

Global central banks were busy during June, adding more liquidity to the financial system.  The US Federal Reserve continued to be all in keeping the Fed Funds rate unchanged at 0-.25%.  The Fed’s dot plot, which lays out each Fed Governor’s rate expectations for the next few years, showed no rate hikes until 2023.  The Fed also announced that it would start to buy individual company bonds.  In Europe, the ECB added 600 million more euros to its quantitative easing program, which now sits at 1.35 trillion. Similarly, the Bank of England added 100 billion pound sterling to their quantitative easing programs that now stands at 745 billion.  Additionally, central bankers have called on governments to do more on the fiscal side.  In the US, the Trump administration introduced a trillion-dollar infrastructure spending bill, and it is also widely expected that the US congress will propose more stimulus in the coming weeks.  The continued support by global central banks is one of the cornerstones of this market rally, and it appears this support will be in place for some time.

One of the catalysts for the markets early in the month was the May Employment situation report.  It showed that 2.509 million non-farm payrolls were created during the month, which blew away the estimate of a loss of 8.5 million.  The report also showed a drop in the unemployment rate from 14.7% to 13.3%.  The same report at the end of June produced similar results with a better than expected print on non-farm payrolls, 4.8 million, and a continued decline in the unemployment rate to 11.1%.  Retail sales for May were also announced in June and crushed the consensus estimate coming it at 17.7%.  High-frequency data such as initial claims continued to paint the difficult situation many Americans face.  Unemployment claims continued to be high throughout the month while continuing claims were still reported north of 19 million, a real concern for economists.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

May 2020 Market Review

-Darren Leavitt, CFA

Financial Markets continued to rebound nicely in May as economies around the globe started to reopen.  There were also constructive news headlines related to effective coronavirus therapies and positive data on some early-stage results for COVID-19 vaccines that added to the bounce. Central Bank policy was little changed over the month. Still, bank officials were often on the podium, reiterating their prior policy initiatives and reassuring markets that they would continue to act if needed.  Earnings announcements for Q1 continued throughout the month, while economic data started to paint the damage already done to the global economies. In the US, the S&P 500 gained 4.53% for the month, the Dow increased by 4.26%, the technology-heavy NASDAQ led gainers with a return of 6.75%, and the small-cap Russell 2000 inked a 6.36% gain.

International developed and emerging market stocks also did quite well with gains of 5.43% and 5.87%, respectively.  Fixed income markets were also generally higher, but returns were widely different across the debt spectrum.  Emerging market bonds outperformed with a gain of 5.87%.  US high yield and investment-grade corporates increased by 2.47% and 2.21%, respectively.  The US yield curve was rather quiet with the 2-year note yield falling three basis points to close at .15% while the 10-year bond yield increased by three basis points to close at .65%.  Gold prices rose 3.5% or $57.60 to close at $1751.40 an OZ.  Oil was the big winner in the month after a historic move into negative territory in April.  WTI increased over 90% to close at $35.33 a barrel.

Countries around the globe tentatively started to lift shelter in place orders and reopen their economies. By the end of May, all states in the US had opened albeit in many different capacities depending on the geography.  Optimism around the reopening stoked sentiment that the worst may well be behind us.  Memorial Day celebrations seemed to confirm that many wanted to get back to work and everyday life despite infection rates continuing to climb in some places.  Gilead Science’s drug Remdesvir showed promise as a therapy against COVID-19, although the test population was rather small.  Additionally, Phase 1 results out of Moderna’s vaccine were also encouraging – both announcements fostered positive sentiment into the market’s recovery.  Currently, there are over 100 vaccine candidates and numerous therapies being tested to combat the virus.

Central bank policy was little changed in May. Much of the hard lifting had been done by the US Federal Reserve in March and April when it had essentially gone all in to keep markets liquid and pledged to do whatever it took to stimulate the economy.  In Europe, the ECB continued its quantitative easing program and introduced a 750 billion dollar borrowing facility that would provide grants and loans to its member states with the most need.  Federal Reserve Jerome Powell push back on the use of negative interest rates in the future. In contrast, rates in the Eurozone, the UK, and Japan continued to trade in negative territory.  The historic policy response has been massive and needed as we assess the damage done to the global economy.  Economic data in the US in May continued to show colossal job losses, with the unemployment rate climbing to 14.9%.  The number of individuals applying for unemployment surpassed 30 million.  Non-Farm Payrolls decreased by 20.5 million in April.  ISM manufacturing and services both continued to point to contraction.  Retail Sales plummeted, falling over 16.4% in April.  You get the idea- the markets, however, looked past much of the ugly data in hopes that the worst has passed, and as the economy reopens, these numbers will begin to improve.

Q1 earnings showed that the economy was on solid footing before the virus hit.  However, according to FactSet data, only 64% of companies reported an upside earnings surprise- the lowest percentage since Q4 of 2012.  Earnings growth on a blended basis declined -14.6%, the largest year over year decline.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

April 2020 Market Review

April 2020 Market Review

-Darren Leavitt, CFA

Global markets continued to rebound in April as global governments and central banks added more stimulus to combat the economic slowdown caused by COVID-19.  Developed markets outperformed emerging markets, and growth companies outperformed value companies.  The S&P 500 gained 10.1% over the month while the Dow increased 8.5%, the NASDAQ added an impressive 13.3%, and the Russell 2000 was up 9.4%.  Developed Markets increased by 11%, and Emerging markets were higher by 9.2%.  US Treasuries were little changed over the months with the 2-year note yield falling two basis points to 0.18%, and the 10-year bond yield falling eight basis points to close at 0.62%.  US Investment Grade and High Yield bonds rallied alongside Municipals after the Federal Reserve announced that it would buy these securities to aid liquidity in the markets.

Gold prices increased by nearly $100 over the month as investors sought a commodity that historically has provided a safe-haven and hedge against inflation.  Oil was extremely volatile due to the extreme oversupply of the commodity stemming from a lack of demand and a simultaneous production glut.  WTI Oil traded into negative territory in the futures market for the first time in history during the month.  Energy companies continued to be under pressure but were provided some relief when President Trump indicated that the government would step in and help the distressed industry.

Positive sentiment around stimulus efforts and hopes that global economies could re-open sooner rather than later provided the legs for the markets to rebound in April.  In the US, individuals and families started to receive stimulus checks.  Businesses also received PPP loans aimed at keeping employees employed.  The program’s first tranche of funding was exhausted in just a few days but was provided further financing a couple of weeks later.  China and parts of Europe started to re-open their economies, albeit at a slower pace than some had expected.  The US Federal Government also laid out guidelines on how and when State and local governments should re-open their respective economies.  In the US, promising data on some experimental treatments of the Coronavirus also helped sentiment.

Economic data released during the month painted a dismal picture for the global economies.  China’s 1st quarter GDP decreased by 6.8%, 1st quarter GDP in the Eurozone fell by 3.8%, and the US economy in the first quarter contracted by 4.8%.  In the US, initial jobless claims over the last six weeks totaled over 30 million or 18% of the US labor force.  Consumer sentiment cratered and retails sales fell over 8% in March.  To combat the slowdown, global central banks have been taking unprecedented measures.  The US Federal Reserve has acted quickly and reiterated that it would do whatever it takes to meet their mandates.  The Fed has started to purchase US Treasuries as well as investment-grade bonds and has said it would buy high yield bonds if they were considered investment grade before March 22nd.  Additionally, the Fed set up a trillion-dollar backstop in the commercial paper market and has opened up lending facilities to small, medium, and large businesses.  Interest rates continue to be close to record lows, and the Fed Funds rate is likely to be at 0-0.25 basis points for quite some time.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

Mid-April Market Update

Mid-April 2020 Market Update

– David Young, CFA

We vividly recall the financial crisis of 2008. The economy was quickly contracting, several financial institutions required bailouts, layoffs abounded, and the stock market plunged. But we weren’t grappling with fear tied to a health crisis then. We could attend the theater, eat at a restaurant, travel, or enjoy a live sports event. The roots of today’s crisis are different, and nowadays we are in the midst of both an economic and health crisis. Activities outside the home have been greatly curtailed. It’s unsettling for everyone. As we are all aware, the speed of the decline in stocks has been swift.

Since the February 19 peak, the S&P 500 Index shed 34%, plummeting to its most recent low on March 23 (St. Louis Federal Reserve data).

Since last month’s low, the S&P 500 Index has rallied more than 25% through April 16th. As of April 16th, the S&P 500 Index was approximately 15% below its February 19 peak. The pace of the sell-off can be traced to the enormous amount of uncertainty tied to shutting down major portions of the economy. What will its ultimate impact be? The brightest minds continue to debate this.

I strenuously counsel against trying to time the market. Many analysts are experts at their craft, but they don’t have a lock on the future. There are too many unknown variables.

We don’t know what might happen next year, but the long-term historical trend has been favorable. Let’s continue to keep our long-term financial goals in mind, even during these trying times.
A Bounce off the Bottom
Since last month’s low, the S&P 500 Index rallied 25% through April 9. Technically, a 20% rally from the market’s bottom constitutes a new bull market–technically. As of April 9, the S&P 500 Index was a modest 16% below its February 19 peak (St. Louis Fed data). The recovery has been cautiously encouraging, and I believe there are three variables that can be cited.

First, the federal government passed the CARES Act. The bill includes over $2 trillion in spending, generous jobless benefits, loans and grants to businesses, stimulus checks, and more. It offers a much more aggressive response than in 2008.

More will be needed, but it is at a good start.

Second, the Federal Reserve has aggressively responded. Pre-crisis, there were questions whether the Fed had the necessary tools in its tool kit, given that interest rates were already low. Apparently, they do.

With much greater speed than in 2008, the Fed has launched numerous programs aimed at propping up the economy–from big business to Main Street.

The two-pronged attack has not been executed flawlessly, but it has cautiously encouraged investors to dip their toes back into stocks. While the economic outlook remains fluid, investors are trying to discern some form of an economic recovery in the second half of the year.

Third, there are signs the virus may be peaking. An April 12 headline in Bloomberg News offered a cautiously upbeat headline: “CDC Says U.S. Near Peak; 70 Vaccines in Pipeline.”

With signs that new cases may be peaking, talk is surfacing over how to best reopen shuttered industries.
Q2 Will Be Ugly
The St. Louis Federal Reserve estimates that GDP, the largest measure of economic activity, could contract at an annualized pace of 50% in Q2. That’s unprecedented. Yet, forecasts vary widely. In reality, we don’t know how steep the downturn may be during the April through June period.

In just a three-week period, the number of first time claims for jobless benefits totaled an astounding 17 million (Dept. of Labor). For perspective, during the 18-month long 2007-09 recession (as defined by the NBER), first-time claims totaled 9.6 million.

A sharp contraction in the economy in Q2 is expected, and layoffs are the first, bitter fruits of the economic crisis.

However–and I believe this is important–the discouraging number of layoffs was brushed aside by investors. The more familiar Dow Jones Industrial Average added 2,107 points over the three days.

It’s not that bad news for Main Street is a reason for Wall Street to celebrate; far from it.

We are in uncharted economic territory, and the future is quite opaque. But the rally in stocks is an attempt by investors to sniff out an economic bottom and eventual economic recovery.

Remember, no one rings a bell that sounds the all-clear signal. Collectively, markets attempt to price in future events. I would expect large daily swings, both to the upside and downside, to continue amid the uncertainty.

We don’t know if we’ll see an uptick in new cases this summer when the economy reopens. We don’t know if an effective treatment will be developed or how quickly a vaccine might come online. And, for that matter, we don’t know how quickly folks will venture back into restaurants, airplanes or the public square.
What Milestones Are We Watching?
Everyone is asking the question “What should we look for to indicate things are getting better, and it is time to consider reinvesting cash?”

1) The U.S. Federal Government and Federal Reserve continuing to add stimulus and liquidity to the economy and markets. The same holds true for other developed countries. By our estimation, there needs to be significantly more stimulus of a variety of forms until economies re-start and regain at least greater-than stall speed rates of growth. In for a penny, in for a pound!

2) When is the first day that people will start to go back to work? How many? Where? What are the criteria and conditions for returning to work? The economy was fine, the people got sick, then the government told everyone to go home and shut down the economy. The only way this starts getting truly better is when we reverse those steps.

3) A widely available, fast, easy, cheap COVID 19 test that can be manufactured in very large quantity. Without testing to tell us who really has to stay at home, we all will continue to stay at home. The answer from authorities going forward can’t be, “We made everyone stay at home, and now we have no good way to decide how and when to tell them to go back to work.” No politician is going to want to be the first to take a chance on getting that call wrong!

4) Credit spreads as the markets’ aggregate estimation of the health of corporate America. Spreads appear to have peaked and to be narrowing. A continuation of this trend will, in our estimation, tell us much more than the volatile and noisy stock market, unemployment, earnings, and other traditionally reliable data points.

5) The market reaction when the Government and the Federal Reserve announce the end of additional stimulus. At some point the money pump has be turned off or run out. If the market swoons, then we risk sliding backwards.
Final thoughts & hope
I don’t want to downplay the havoc created by COVID-19. We are living in a world that nobody could possibly have envisioned a few months ago. The impact caused by the virus has disrupted life around the globe. We have friends and loved ones who are dealing with this disease. It’s incredibly unpleasant.

Yet, unexpected blessings have surfaced. People are reaching out to family and friends via texting and emails. Some are even connecting the old-fashioned way–by phone.

Families are closer than they have ever been before. Activities and jobs around the country have been suspended but not ended. And I am confident we will see an economic recovery take root and the pandemic will subside.

We are a resilient people. Together we will get through this dark night, and we will be stronger for it.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable. No representations are made by FIA or its affiliates as to the informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates. Information presented is believed to be current, but may change at any time and without notice. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

 

January 2020 Market Review

January 2020 Market Review

-Darren Leavitt, CFA

The markets started January with nice gains but gave back some of those gains later in the month on concerns related to the spread of the novel coronavirus and its effect on the global economy. During the month, the US and China signed a “Phase One” trade accord and started negotiations on the next phase
of a broader trade agreement. At the end of January, the UK exited the European Union and both sides have now begun work on new trade agreements. Tensions between the US and Iran increased in January, but a further escalation, was for the time being, avoided. Central bank meetings during the month
yielded very little in new policy which continues to be accommodative. The easy money comes as global economic data appears to be on better footing. For the month the S&P 500 lost 0.16%, the Dow lost 0.99%, the NASDAQ bucked the trend with a gain of 1.99%, and the small-cap Russell 2000 lost 3.26%.

Developed international equities lost 2.82% and emerging market equities lost 6.15%. Safe-haven assets were in favor for the month with US Treasuries outperforming. The 2-year note yield decreased by 25 basis points to close at 1.32% while the 10-year bond yield decreased by 40 basis points to close at 1.52%. Bond prices increase as their yields decrease. Gold was also well bid and gained ~$64 or 4.2% on the month to close at $1587.70 an Oz. The global demand for oil fell over the month. For the month, WTI crude sold off 16.1% or $9.90 a barrel to close at $51.58 a barrel.

Fears of the novel strain of coronavirus hindered markets in the second half of January. The virus which originated within China has now spread across the globe and should be considered a threat that has numerous unknown variables attached to it. The outbreak is still in its infancy, and the fear of contracting the virus, coupled with aggressive policy measures taken by the Chinese and other countries, will undoubtedly have an impact on global economies.

“Phase One” of US and Chinese trade negotiations was signed in the middle of January. A reduction of tariffs along with increased purchase agreements of US agricultural products, access to Chinese financial markets, and an understating between the two nations on currency policy were the major highlights of the initial deal. The next steps in a broader deal are on the way and will include further Intellectual property protection and procedures to enforce any breach of these policies. Brexit, the departure of the UK from the European Union, took place on January 31st. The saga has been ongoing for years now
but will continue over the next year as both sides negotiate a new arrangement. The UK will now also be in negotiations with other countries to forge unilateral trade accords.

A targeted attack in early January by the US killed an Iranian General. The attack came after numerous Iranian attacks on various US and US-allied assets. The attack prompted a subsequent non-lethal strike on US forces in Iraq by Iran, but the attack was seen ironically as a de-escalation of the situation. The US imposed more sanctions on the country which has also had to contend with widespread unrest following the mistaken attack on a civilian airliner and the perceived cover-up attempts by the Iranian government.

Central banks across the globe continue to be accommodative in support economic growth. The accommodation led to better than expected economic data in January, with both global manufacturing and global services looking better than prior data sets. Employment data in the US and consumer confidence
continued to be healthy. The US Federal Reserve left its policy rate range unchanged at 1.5%-1.75%. The European Central bank also left its current policy rate unchanged and continued with its quantitative easing program.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

 

November 2019 Market Review

November 2019 Market Review

-Darren Leavitt, CFA

US equity markets crushed it in November with substantial gains across all the major indices.  Record highs were inked for the S&P 500, up 3.4%, the Dow, up 3.72%, and for the NASDAQ, which gained 4.5% over the month.  The Russell 2000 hit a 52-week high after gaining 3.97%.  Optimism over the possibility of an initial trade accord with China hailed as “Phase One,” coupled with some encouraging economic data helped markets extend what has been a great year so far for US equities.  The S&P 500 is up over 25% for the year.  Employment continues to be healthy which has continued to support the consumer who has been the cornerstone for the US economy.  Manufacturing and Services data were also supportive as both data sets were better than the prior month’s readings.  Q3 earnings reports continued to filter in and were generally viewed as better than expected. Roughly 80% of companies that have reported have beat Wall Street’s estimates, although earnings growth has been anemic when compared to results from the third quarter a year ago.

Developed international markets also performed nicely with the MSCI EAFE, increasing 1.13% for the month.  Emerging markets lagged its counterparts with a loss of -0.09% partly due to China’s market losing -0.51% over the month. Weaker than expected economic data, along with the continued violent protests in Hong Kong, likely hindered Chinese market performance.  Industrial production in China grew at 4.7% but came in much worse than the prior months reading of 5.8%.  Additionally, China’s industrial profits fell the sharpest in over eight years.  Retail sales in the region have also been a source of concern, as recent data suggest a significant slowdown.

Global bond yields generally increased in November.  The US 2-year note yield increased eight basis points to close at 1.60% while the US 10-year bond yield rose by nine basis points to close at 1.78%.  It was relatively quiet on the Central Bank front.  The US Federal Reserve reiterated that its current Monetary Policy is appropriate and that it is in a wait a see mode for now.  In Europe, the ECB’s new president, Christine Lagarde, took the helm.  She is the former head of the International Monetary Fund and comes into the position with quite a few headwinds facing the economies of the EU.   UK elections are set for the second week of December and are widely viewed as a proxy for the outcome of Brexit.

Gold lost much of what it had gained in the prior month as safe-haven assets were out of favor.  Gold lost just under 3% or $44 to close at $1470.40 an Oz.  Oil had a slight gain for the month with WTI up $1.24, closing at $55.42 a barrel.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

October 2019 Market Review and Outlook

October 2019 Market Review

-Darren Leavitt, CFA

Global risk assets were in favor during the month of October.  In October, investors continued to be hopeful that a trade deal between the US and China could be forged and also optimistic that a no-deal Brexit could be avoided.  Additionally, third-quarter earnings were on the margin better than expected, and global central banks continued to signal accommodation due to weak global manufacturing data and declines in consumer confidence.  Emerging markets led gains with an impressive 4.2% increase over the month.  Developed markets returned 2.6%.  International corporates returned 1.2%, while global government bonds posted gains of 0.5%.  Here in the US, the S&P 500 gained 2.04%, the Dow increased by 0.48%, the NASDAQ increased by 3.66%, and the Russell 2000 was up 2.57%.  The US Treasury curve steepened a bit over the month with the 2-year note yield declining ten basis points to 1.52% while the 10-year bond yield gained one basis point to 1.69%.  Despite safe-haven assets being out of favor, Gold rallied ~$41 over the month.  Oil was pretty much unchanged for the month, closing off a fraction at $54.18 a barrel.

Trade negotiations between the US and China produced a “Phase One” deal that avoided another tranche of tariffs levied on Chinese goods.  The proposal encouraged investors, but many remain skeptical that a comprehensive agreement can be negotiated.  “Phase One” requires the Chinese to purchase more US agricultural products, to open more access to their financial sector, and to agree on a more transparent currency market policy.  The partial agreement is scheduled to be signed in the next few weeks.

The avoidance of a non-deal Brexit helped market sentiment in October too.  The EU and Prime Minister Johnson came to an agreement, but it was unable to pass in Parliament. The reality of the situation is that another extension was provided by the EU so that the UK could try and form a government that could get the agreement passed.  UK elections are scheduled for December 12th, and the extension expires on January 31st 2020.  Stay tuned.

Surprise surprise third-quarter earnings have been on the margin better than expected and quite constructive for the markets.  Influential Tech companies like Apple, Microsoft, Google, and Facebook had better than expected results.  Financials, such as JP Morgan, Citi Bank, Morgan Stanley, and Bank of America, posted solid numbers as well.  Industrials Honeywell, United Rentals, and CSX also had solid results.  So far Earnings per share have grown 1% on a year over year basis, while Revenues have increased 4% over the same time frame.  For sure, there have been some results that have missed the mark- perhaps Amazon is a good example, but again results have mostly been better than expected.  That said, many companies have taken the opportunity to reduce expectations for next year’s earnings given the many uncertainties that are still looming.

Global central banks continue to provide stimulus.  Here in the US, the Federal Reserve cut its benchmark Fed Funds rate by 25 basis points in October, which was the third cut this year.  In Europe, the ECB kept its policy rate unchanged at -0.50% but did reiterate that their quantitative easing program, worth purchases of 20 billion euros monthly,  would begin in November.  In China, the PBOC continued to reduce reserve requirements on banks that are aimed to increase lending.  These initiatives stem from weaker global economic data.  Uncertainty on trade has been particularly hard on manufactures where the data suggest this critical part of the economy continues to contract.  Consumer confidence has also declined and is especially concerning given the consumer’s influence on the overall economy.  That said, most recent data suggest that these declines may be moderating as the pace of declines are less and or are, in fact, better than the prior month’s figures.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

Third Quarter Market Review and Outlook

Third Quarter Check-Up: Is the US Consumer Still Healthy?

-David Young, CFA

It may seem like a simple question with a simple answer, but there’s a lot more to it than you might think. Financial trade publications and cable television networks often discuss the importance of “GDP” or Gross Domestic Product, a measure of a country’s (or group of countries’) economic output. In the United States, the consumer accounts for approximately 70% of national GDP, which is why the health—or sickness—of the US consumer is so vital to our economy. In fact, the US consumer is also an integral part of the global economy, as the US consumer accounts for 17% of global GDP, surpassing the world’s second largest economy (China), according to some estimates (source: US Bureau of Economic Analysis, World Bank).

Understanding the behavior of the U.S. consumer is a function of knowing the consumer will continue to spend as long as: 1) they have a job, 2) they think they will keep their job, 3) they can count on stable or rising wages, 4) asset prices for stocks, bonds, and real estate continue to rise, 5) they can pay their bills and monthly expenses on time, and 6) they have access to (more) credit should they need it.

Therefore, when assessing the health of the consumer, I like to break it out into these six different categories and make a report card:

  1. Employment: The unemployment rate is currently 3.5%, a 50-year low not seen since 1969 (source: US Bureau of Labor Statistics). It is important to note, however, that the month-over-month job-creation rate has been slowing. For the first time since early 2019, there were less hires in manufacturing jobs, one of several sectors that have taken a hit as a result of the trade wars. Overall, we grade this section a “B+”.
  1. Disposable Income: How much money do consumers actually have to spend? A good measure of this is Real Personal Disposable Income, which has been growing in the 3.0-3.5% (year-over-year) range thus far in 2019 (source: US Bureau of Economic Analysis). Retail sales, while not to the moon, are pretty solid. If you’ve been to Costco or Home Depot on the weekends, you know there’s no shortage of folks trying to improve their home or purchase an oversized trampoline for their backyards. Because we see headwinds down the road such as slowing wage growth and increasingly high debt levels, our current grade is a “B”.
  1. Sentiment / Expectations: Are people feeling good about their living situation and where the economy is going? Uncertainty is paramount both politically and economically. The constant barrage of negativity coming from financial and political pundits certainly has an impact on everyday consumers, and we believe it is possible to “talk” the economy into recession. Amongst other indicators, the University of Michigan (who publishes the closely watched Index of Consumer Sentiment) recently released a report showing signs of erosion in consumer confidence and for this and other reasons, we give sentiment a B- (and you could talk us into a C+).
  1. Wealth Effect: What is the “wealth effect”? Simply put, people spend more money as the value of the items they own goes up; as the saying goes, it takes money to make money. As it stands now, the averages are pretty positive since many of the houses that had negative equity post-financial crisis are now positive, and people are still paying off their credit and monthly bills. The flipside is that only a small percentage of the population has benefited from the surging stock market over the last decade and approximately 45% of people are not able to cover a surprise $400 expense, according to CNBC. Overall, however, we feel comfortable with a “B” here, though uncertainty can erode the wealth effect rather quickly.
  1. Indebtedness: How much debt do you carry? There is a growing amount of student, auto, housing and credit card debt among the broad population, although the cost to service said debt is relatively low due to extremely low interest rates. According to the Federal Reserve, US consumers hold a record $1.3 trillion in automobile debt, almost double from that held just a decade ago. The latter point is one we are watching closely, and therefore rate this area a “B”, with a possible downgrade if the cost of debt rises materially or the job market takes a turn for the worse.
  1. Access to Credit: How difficult is it for someone to get a loan? While not as easy as the early 2000s, access is pretty good, with the caveat that the cost of credit to retail users is actually very high. Strictly speaking, the amount of options for people to get financing are numerous and convenient—that being the case, we assign a marking of “B+”.
After considering all of the above, we come to a picture of a consumer who is employed with money to spend. Though they might think twice about adding another streaming service to their TV bundle, or opt for takeout on Friday evening instead of a weekend on the town, the average consumer is still willing and able to spend. The uncertainty in the markets seems to be one of most pressing items on the minds of the consumer—take a look for example at the increase in the personal savings rate, according to the Wall Street Journal; the average rate is higher now at 8.2% than for any full year since 2012. Overall, we are arguably in the best position possible given that we are in the 11th year of an expansion, and relative to consumers across the globe, the US consumer is generally in much better shape. We will be watching all of the above closely as we decide the most prudent ways to allocate to our models.

Our final grade for the US consumer is a “B”, but the best days are almost certainly behind us; this grade was an “A” just a few quarters ago. With the “peak consumer” behind us, it is important to put this simple report card into perspective.

A straight “A” consumer typically spends at or above the long run rate of wage and income gains, call that 3%, which contributes something like 2% to total GDP.

A “B” grade consumer spends more like 2%, contributing 1.25% or so to total GDP—still not bad.

But should the health of the US consumer deteriorate further from here and become a “C” rated spender, this implies more of a maintenance-level spending rate of 1%, contributing only 0.5% to 0.75% to GDP.

With less than 1% GDP from consumption, the risk is the economic expansion approaches stall speed, becoming much more vulnerable to further negative developments. In turn, negative overall GDP is not far away when the consumer spends at below a 1% growth rate, especially when concurrent with a rapidly slowing manufacturing sector—which we are seeing right now. We are not at this time calling for a recession, but if the consumer continues to slow, the second half of 2020 could threaten the end of this expansion.

September 2019 Market Review and Outlook

September 2019 Market Review

-Darren Leavitt, CFA

Equity markets around the globe bounced back from the sell-off we had in August.  Uncertainties around trade continued to be in focus for investors as the US and China countered each other’s policies.  The continuing saga of Brexit was also front and center during the month and continues to leave investors with numerous outcomes to ponder.  An attack on one of Saudi Arabia’s most productive oil assets sent oil soaring and reinforced the geopolitical tensions within the Middle East.  Economic data continued to suggest the global economy is slowing and prompted monetary policy changes in the US and European Union.  The S&P 500 gained 1.72% over the month while the Dow tacked on 1.95%.  The Russell 2000 posted a gain of 1.91%, and the NASDAQ lagged its counterparts with an increase of just 0.46%.  During the month, high flying technology and cyclical names took a back seat to value-oriented issues.  International developed and emerging markets also fared well in the month.  Developed international markets gained 3.16%, while emerging markets increased by 1.69%.  Safe-haven assets such as US Treasuries and Gold sold off during the month as investors reassessed the outsized move seen in these assets in August.  The 2-year yield increased 12 basis points over the month and closed at 1.62%.  The 10-year yield ticked up 17 basis points to close at 1.68%.  Gold lost a bit of its luster, falling ~$56 or 3.6% and closing at $1473 an Oz.  It was a very volatile month for oil.  The attack on Saudi Arabia’s oil fields sent crude up nearly 20% in overnight trading.  However, subsequent comments regarding a better than expected supply recovery timeline from Saudi officials coupled with a tempered response from the US and Saudis against Iran hindered the rally.  Oil closed the month down ~$1 with WTI closing at 54.12 a barrel.

Gyrations in trade rhetoric between the US and China continue and are a considerable source of uncertainty for the markets.  Trade concerns have been top of mind for investors for quite some time now and have undoubtedly caused some of the weakness seen in global economic data.  The two sides traded tit for tat during the month, with both sides seemingly de-escalating the situation for most of the month.  However, in the last week of the month, reports out of Bloomberg news suggested that the White House is contemplating measures to stem US investment in China and is considering delisting Chinese companies listed on US exchanges.  The report sent markets lower and again cast doubt that anything constructive will come out of meeting set between the two nations in the middle of October.

The UK’s plan to exit the European Union also known as Brexit stole headlines throughout the month.  During September, Parliament passed legislation that would block a no-deal Brexit and effectively require the government to ask for an extension from the EU.  In response, the prime minister suspended parliament, which subsequently was ruled to be an unlawful act.  The drama continues, and another deadline looms, which only adds to the uncertainty in global markets.

Geopolitical tensions in the Middle East increased markedly in September.  An attack on one of Saudi Arabia’s most productive oil fields allegedly by Iran sent oil markets into disarray.  The attacks come after numerous other attacks on oil tankers and other assets in the region.  The worst scenario for supply disruption was, however, avoided, and a tempered response from Saudi Arabia and the US helped to calm oil markets.  More stringent sanctions have been placed on Iran because of the attacks, but it is more than likely that Iran will continue to antagonize to gain concessions on current sanction policies.

A slowdown in global economic data continued into September.  On the margin, the US economic data still appears better than the rest of the world. However, an indication that US manufacturing is in contraction, along with a slower pace of hiring and a decrease in aggregate hours worked, is a concern.  These concerns appear to be influencing the continued decline of sentiment surveys.  Industrial production in China continues to decline, and their retail sales also have slumped most recently.  In Germany manufacturing data hit lows not seen in a decade.  In response to the data, global central banks have continued to add various types of stimulus.  Here in the US, the Federal Reserve decided to cut its Fed Funds rate by 25 basis points, and this comes after a prior 25 basis point cut in July.  The decision was widely expected but also saw three Federal Reserve Presidents disagree with the policy.  The EU also cut its deposit rate by ten basis points from -0.4 to -0.5-, yes these are negative rates, crazy.  Additionally, the ECB announced that it would initiate another round of Quantitative Easing (QE) in an aim to stimulate their economies.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

August 2019 Market Review and Outlook

Market Recap August 2019

-Darren Leavitt, CFA

Investors endured a volatile month in August that saw most developed and emerging equity markets decline. The S&P 500 lost -1.81% during the month, the Dow lost -1.72%, the NASDAQ shed -2.60%, and the Russell 2000 lost just over -5%.  Developed International markets lost -1.92% while emerging markets lost -3.78%.

Uncertainty regarding trade between the US and China escalated fears of an already evident slowdown in global economic growth.  In turn, central banks across the globe expressed their concerns and offered various plans to stimulate their respective economies.  Here in the US, the Federal Reserve has acknowledged the adverse effects of the ongoing trade war and is now most likely poised to cut the Fed Funds rate in September by 25 basis points.  President Trump also proposed further tax cuts to help stimulate the economy, but nothing formally was announced.  In Europe, the ECB has introduced further quantitative easing, and in China, officials have continued to try and boost their economy with various monetary policies and incentives.

Negative interest rates in many developed markets coupled with a flight to safe-haven assets due to the increased market volatility induced a significant rally in global debt.  The rally inverted the US 2-10 yield curve (shorter maturity rates are higher than longer-dated maturity rates) which in the past has been a harbinger of an impending recession, generally thought to come 18 to 24 months hence.  The 2-year note yield closed the month at 1.50%, down from 1.87% or 37 basis points lower, the Ten-year bond yield closed down 57 basis points for the month and closed with a yield of 1.51%.  These were enormous gains for US Treasuries- as bond prices move up when their yields move down.  Investment grade, High yield, and emerging market debt also did quite well during the month.

Economic data in the US was mixed in August.  The consumer is a crucial component to the economic outlook and Consumer spending data along with retail sales during the month was better than expected. The spending data was most likely aided by the continued strength in the labor market where job growth continues to be stable, and wages have increased as well.  However, consumer sentiment indicators took a step back during the month as fears of a prolonged trade war with China, and the possibility of a recession weighed on sentiment.   Manufacturing data in the US signaled contraction for the first time, and global manufacturing data for the most part also continued to show weakness.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

2019 Mid-Year Review, Outlook and Expectations

  • US Consumer – Still Strong, Best is Behind Us
    • Expected to contribute 1.5% (solid) of GDP growth, chugging along at 2%ish spending clip
    • Nothing related to the consumer on the horizon that would force the Fed’s hand one way or the other.
    • From the consumer standpoint, it is difficult to paint a recessionary picture for the next 6-12 months
    • Debt capacity/access to debt is still generally positive
  • Political Landscape – Gridlock with Caution, But Could Get Worse
    • The House has passed bills to:
      • Lower prescription drug prices
      • Protect pre-existing conditions
      • Nine bills on veterans issues
      • Four environmental related bills
      • Five bills related to the military and foreign affairs
      • They are all DOA when they reach the Senate, let alone getting to the President’s desk
    • New budget deal – spending set beyond the 2020 elections (to make both parties look “good”), budget deficit and debt ceiling warnings have proven to be completely worthless
    • USCMA (formerly NAFTFA) vote expected in Fall 2019
      • “I’m optimistic that we have a very good chance of getting that through.” – Larry Kudlow (Source: CNBC)
      • Democrats + Republicans involved both acknowledge meetings have been “open, constructive & successful” (CNBC)
    • Trade talks have restarted between US & China.
      • Chinese economy has slowed to 6.2%, its weakest rate in 27 years.
      • Cumulative impact on annual growth due to tariffs on China approximately 1.5% (Source: IMF, Bloomberg)
    • Infrastructure: Not likely to happen according to Chief of Staff Mick Mulvaney. R’s &D’s most likely to work on:
      • Raising debt ceiling (completed as of 7/23/19)
      • Passing a budget
      • Get USCMA approved
    • Information Technology: Washington vs. Silicon Valley
      • Has the tech industry grown too powerful?                     
        • Facebook recently fined $5B by FTC for violating promises made to improve privacy practices
      • Cryptocurrency
        • Facebook’s LIBRA and regulation thereof has come under scrutiny by the government due to proposed implementation
      • Peter Thiel and others have accused Google of censoring conservatives
  • Earnings – Second Quarter Not as Bad as Originally Expected (So Far)
    • …But still weak (-2.6% blended EPS growth YoY per FactSet as of 7/26/2019)
    • Low-single digit YoY growth for 2019 (Source: FactSet)
    • Sales up low single digits: 4% (Source: FactSet)
    • Banks who have reported are saying their clients have spent most of the year sitting on the sidelines (Goldman Sachs, Citi, and Morgan Stanley).
    • Things will be stable or accelerate during 2nd half of the year (Trading/Mergers & Acquisitions front).
    • All their (banks referenced above) guidance based on 1-3 rates cuts rest of the year.
    • Stock example:
      • Fastenal: Eating half of the supply chain cost pass-thrus.
        • Experienced first sub 10% growth in 9 quarters. An increase in tariffs means inflation.
        •  Customers paying slower. Inventory too big. The company stockpiled prior to tariffs being implemented and now can’t get rid of it.
    • Consensus is slowing, but not dying
    • Management teams don’t want to take action (they control labor, capital expenditures, and wages)
      • Anyone sourcing from off-shore is hurting.
    • It doesn’t look like earnings will get to the high single digits number many thought       for 2019.
  • US Federal Reserve – Don’t Fight the Fed, Because the Fed Isn’t Fighting Other “Feds”
    • During the July 30-31 meetings, the Federal Reserved decided to cut interest rates by 25 basis points
    • We believe there will be 1 more rate cut, possibly 2, this year (25bps each); US 10 yr. at 2% (-) on Oct. 1
      • However, the Fed’s choice to cut rates is confounding many other asset managers (including us) as to the rationale
      • The best answer might be the Fed doesn’t want to fight other central banks, who appear to be committed to easing rather than further tightening
    • The Fed announced in March 2019 its desire to end its balance sheet runoff program in September 2019, yet at the July 30-31 meeting, decided to cease the program early
  • Real Estate – How Much are Lower Rates Helping?
    • Neutral to modestly positive outlook; this area won’t be a huge driver of the economy but contributes to overall growth. Prices are high across the board but have been higher in past cycles.
      • Housing starts could remain flat/stable YoY w/ potential surprise to the upside
      • US existing home sales growth rate fell in 2018, but have rebounded nicely thus far in 2019
      • Price outlook is more negative for upper-income households
    • According to YCharts, the US 30 yr. mortgage rates started the year at 4.51%, but have since fallen by approximately 76bps to 3.75% (as of 7/25/2019)
    • Despite falling mortgage rates, existing home sales fell in June for the 16th month in a row.
      • In the monthly press release, Lawrence Yun, the National Association of Realtors chief economist noted, “Home sales are running at a pace similar to 2015 levels – even with exceptionally low mortgage rates, a record number of jobs and a record high net worth in the country… Imbalance persists for mid-to-lower priced homes with solid demand and insufficient supply, which is consequently pushing up home prices… Either a strong pent-up demand will show in the upcoming months, or there is a lack of confidence that is keeping buyers from this major expenditure. It’s too soon to know how much of a pullback is related to the reduction in the homeowner tax incentive.”
      • At a briefing in Washington, Yun also commented “Sales refuse to break out higher” noting “it doesn’t make economic sense” given the backdrop of job creation, rising wages, and strong equity market returns.
    • Housing starts: We had unwanted inventory at the end of 2018 which was  followed by a bounce back in 2019 (also low rates helped)
      • Could end up flat to slightly positive from a housing starts perspective.
    • Home prices: much more negative price outlook from higher income household; different than what we’ve experienced in the past.
    • Mortgage originations picked up with the bulk of these seeming to be to be refinance driven. There has been growth from young adult population growth (some states are winners and some are losers). Stable to possibly mild improvement going to the end of the year

      Sources: National Association of Realtors (NAR), US Census Bureau

  • Europe – Muddling Along as Usual, No Change in Outlook
    • More likely than not we get a rate cut (sending benchmark rates even more negative) this year, possibly this quarter
    • Europe in a muddle along, but does the changing of leadership (LaGarde replacing Draghi at the ECB, Boris Johnson as the new UK PM) provide an opportunity for stronger growth and higher equity prices?
    • GDP growth Examples: Germany / Italy poor.
      • Overall half of US (U.S around 2%, Germany around 1%)
    • Most countries have negative rates except for Greece
    • Spread between US and Europe 2%+
    • Currency rates: dollar has strengthened 4% over everything else; this corresponds with the US having higher GDP and higher interest rates
    • Through July 29, US markets are up approximately 21% and Europe up 14-15% (Source: YCharts). All of this a bounce-back from the misery of Q4 2018
      • Is this sustainable? There is a very high correlation between equity markets regardless of differences in GDP/rates, etc.
    • ECB even looser than US ECB buying all sovereigns and putting pressure on corporates, so the only other option is to buy the equities.
      • Banking sector in trouble. They could lose a name or two in the next 12 months (Deutsche Bank in trouble)
      • Stuck in a rut of super low growth. Can they fall off a cliff without actually falling off the cliff?
    • Disappointing June (Flash) PMIs across the board (IHS Markit):
      • Germany Manufacturing PMI falls to 43.1, an 84-month low
      • Eurozone Manufacturing PMI falls to 46.4, a 79-month low
      • Composite PMIs in Germany, France, and the broader Eurozone all fell MoM and YoY into the low(er) 50s, indicating very tepid growth.
  • Emerging Markets – No Change in View, Still Not a Dynamic Story

Strategy Outlook and Forecast Detail

  • We remain generally cautious with an eye towards holding onto strong YTD gains
  • After robust discussion, we have decided not to make any changes to the current model allocations
  • The decision-making process is fluid and we will notify you once our thinking has changed

DISCLOSURES

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation.
Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

May 2019 Market Review and Outlook

Market Review May 2019

-Darren Leavitt, CFA

Equity markets did an about-face in May with the S&P 500 inking its first monthly loss of 2109.  Investors fled risk assets for safe-haven US treasuries as trade negotiations between the US and China soured.  Trade uncertainties were further exacerbated by a late-month announcement from President Trump that the US would tax Mexican goods.  For the month, the S&P 500 lost -6.58%, the Dow fell -6.69%, the NASDAQ shed -7.93% and the Russell 2000 closed down -7.90%.  International equities also took a hit.  Japan was off -4.87% while German markets lost -6.53% and Chinese large caps fell -9.26%.  Cyclical issues were the hardest hit as evidenced by a nearly 16% loss in the Philadelphia Semiconductor Index and a 10% loss in the Transportation Index.  Real Estate was the only sector that saw a gain for the month.  Global yields fell as equities sold off.  The US 2-year note yield fell 33 basis points to close at 1.94% while the 10-year bond yield lost 37 basis points to close at 2.14%.

The German Bund fell to its lowest level since the financial crisis with a negative yield of -0.21%.  Negative rates in Germany and Japan along with relatively lower rates internationally likely helped push US yields lower as investors sought a relative value in treasuries.  Interestingly, the 3-month US T-bill and 10-year US Bond yield spread inverted to 23 basis points a level also not seen since the financial crisis.  Of note, an inversion in this relationship has been a harbinger of an impending recession.   Additionally, the Fed Funds futures markets have now priced in two rate cuts by the end of January 2020.  Oil was especially hard hit in May as growth concerns coupled with increased supply weighed on the commodity.  WTI lost just over -16% in the month to close at $53.48 a barrel.  The move in oil was also somewhat of a surprise given the increased tensions between the US and Iran- tensions in the Middle East generally put a bid into the commodity.  Despite its safe-haven status, gold was fairly muted and only gained ~$19 or 1% to close at $1305 an oz.

The month of May’s market action centered around increased trade tensions and the subsequent reset of expectations for economic and earnings growth on a more pessimistic outlook for a trade resolution.  Up until May, investors had felt pretty optimistic regarding trade negotiations between the US and China.  There were certainly some issues that remained, but generally, investors remained constructive that a deal could be reached.  However, negotiations came to an impasse in early May as President Trump announced that the US would increase tariffs to 25% from 10% on 200 billion in Chinese goods.  Additionally, he earmarked an additional 325 billion of potential goods that could also be taxed.   He cited a lack of progress in talks as the reason to boost the tariff rate.  As one might expect, the Chinese retaliated with increasing tariffs on some US goods.  Throughout the month the situation deteriorated as the US announced that it would no longer allow US companies to do business with Chinese telecom equipment, Huawei, due to concerns about the security interest of the US and its allies.

The announcement hit the US telecom equipment supply chain hard with semiconductor names taking the brunt of the sell-off.  Again, as one might expect, the Chinese were rumored to have produced their blacklist of US companies and rumored to have put a halt on further purchases of US soybeans.  President Trump and Chinese President Xi are both going to attend the G-20 meeting in late June, and recent reports suggest that it is likely the two leaders will meet, but currently the two sides continue to be far apart on any trade resolution, and it’s more likely that tensions will escalate in the near term.  All that said, more fuel was added to the fire with the late-month announcement that the US would impose an initial 5% tariff on all Mexican goods entering the US starting June 10th.   Additionally, the tariff will increase by 5% each subsequent month until October 1st when the tariff could be at 25%.  The decision to put a tariff on Mexican goods was made to encourage the Mexican government to do more to curb the flow of undocumented immigrants migrating to the US.  The announcement came as a surprise to most and will most likely induce some form of retaliation and perhaps shelve the recent USMCA trade deal that had been reached to replace NAFTA.  The announcement is odd given that the President, had in the prior week, recommended that Congress ratify the USMCA trade deal and then went on to further suggest that if the deal did not get ratified it would have a” significant negative impact on the economy.”  It’s no wonder trade remains the number one source of uncertainty for investors.

Technically, the market also looks vulnerable.  After making new highs in April, the S&P 500 has now fallen below key levels of support, specifically its 50 day moving average of 2870 and more importantly its 200 day moving average of 2775.  Additionally, some technicians have pointed to a chart formation referred to as a head and shoulders pattern which was formed last week as the index was unable to hold above 2805.  The pattern suggests we may have further room to the downside.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation.
Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

April 2019 Market Review and Outlook

Market Review April 2019

-Darren Leavitt, CFA

Global risk assets continued to rally in April.  First quarter earnings are coming in better than expected, Central banks around the globe remain accommodative, economic data saw improvement, US & China trade negotiations appeared to be going well, and the market fought through some key technical levels to find all-time highs.  The NASDAQ was the best performing US index in April with a gain of 4.74%.  The S&P 500 increased 3.93% in the month, while the Russell 2000 tacked on 3.34% and the Dow gained 2.56%.  International equities also did quite nicely in April- the MSCI Europe ex UK was up 4.2%, the MSCI Japan index gained 1.4%, and the MSCI Emerging markets increased by 2.1%.  The yield curve steepened over the course of the month as the 2-year note yield stayed put at 2.27% while the 10-year bond yield increased ten basis points to 2.51%.  Better than expected economic data coupled with supply concerns related to the expiration of Iranian oil waivers help lift crude along with the broader energy complex.  Oil rallied throughout the month, gaining nearly 6% to close at $63.80 a barrel.  Gold lost ground in the month, shedding $12 to close at 1286.2 an oz.

First quarter corporate earnings had been a source of concern for investors as analyst slashed earnings expectations for Q1 in the latter part of 2018.  These lower hurdles, on the margin, have been met with better than expected earnings in April which has helped push the markets higher.  Technology, industrials, transports, and financials have produced nice results.  Headlines on M&A and unicorn IPO’s also boosted market sentiment in the month.

Accommodative monetary policy has also bolstered the appetite for global risk assets.  There was no change to the Fed’s mantra in April- they continue to be data dependent and patient.  Chinese fiscal and monetary stimulus continues, and economic data suggest it has helped their economy improve.  Japan’s central bank indicated that would not change its current course of monetary policy and the ECB forecasted their rates to remain at the present level through 2019.  The ECB also announced a new form of QE to help foster bank lending conditions through a new series of Targeted Long Term refinancing operations.

Global economic data has helped policymakers keep rates low.  In the US we saw an excellent rebound in March employment figures- February figures were dismal (revised in March to 33k from 20K) but likely influenced by the government shutdown.  The March Non-Farm Payroll number came in at 196k versus an expectation of 160k, the unemployment rate stayed steady at 3.8%, and hourly earnings came in up 0.1% versus 0.2%.  Q1 GDP was also announced in April, it increased at an annual rate of 3.2%, well ahead of the consensus estimate of 1.4%.  The GDP Price Deflator indicated no signs of inflation, coming in at 0.9% versus the expectation of 1.4%.  Data was also better out of China with PMI manufacturing data indicating expansion again with a 50.5 reading- the prior reading had indicated contraction.  China also produced a better than expected GDP report which showed an increase of 1.4% growth quarter over quarter and an annualized growth rate of 6.4%.

Additionally, the Chinese ISM number came in better than expected and also indicated expansion in the services sector.  European data and some data out of some of the emerging markets have not been as constructive.  The German IFO Business Climate Index indicated it was still in decline and South Korean GDP and exports missed their marks.  The IMF also took down its global growth estimates.

Optimism surrounding trade negations between the US and China helped markets throughout the month.  Trade delegate rhetoric appeared to be constructive; however, enforcement mechanisms and technology transfer continued to be sticking points.  President Trump indicated in the early part of April that there would be a resolution within a month.  On the other side of the pond, the EU provided the UK with an extension on Brexit until the end of October 2019.  The avoidance of a hard Brexit coupled with some surprisingly strong economic data propelled the UK market higher by 2.3% for the month.

Technically the market was able to come through some critical areas of resistance in the month.  The 2900 level of the S&P held as resistance, but the market was able to overcome the level and then move to regain the highs seen last year (2929).  Once those levels were breached new all-time highs were forged for the S&P and the NASDAQ.

The markets have had an incredible run from the lows set on Christmas Eve 2018.  Accommodative central banks along with decent economic data, better than expected earnings, and a technical breakout to new highs on the S&P seem rather inviting to investors.  That said, the market may be in for a bit of a correction here which is likely to be viewed as healthy given the move we have had off the lows.  As always, we highly suggest that you review risk tolerance with your clients and their corresponding investments regularly.  We are here to help, and if you have any questions, please feel free to give us a call.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

March 2019 Market Review and Outlook

-Murray Titterington, CFP, CIMA

Most of the major U.S. equity indices rose in March, and all of the indices notched their biggest quarterly gains in nearly a decade. The rise in US equity markets was attributed to signs of progress on U.S. – China trade negotiations and indications that central banks would keep interest rates low as global growth slows. However, an inversion of the yield curve (when the yield of the 10-year bond falls below the yield of the 3-month Treasury bill) created a sell-off in the latter half of the month, as this phenomenon is considered an indication of a recession (see chart).

During March the NASDAQ gained 2.6%, the S&P 500 rose 1.8%, and the Dow Jones Industrial average was virtually flat, adding less than .01%, The Russell 2000 small cap index lost 2.6% during the month. For the quarter, all of the indices recorded double-digit returns, led by the NASDAQ (17.4%), Russell 2000 (13.8%), S&P 500 (14.0%), and Dow (12.4%). The indices have now recouped most of the losses suffered in the last quarter of 2018.

8 of the 11 S&P sectors had positive performance in March, led by Real Estate (4.6%), Information Technology (3.7%), and Consumer Discretionary (3.4%). Financials were the worst-performing sector (-3.1%), followed by Industrials (-2.2%), and Health Care (-0.8%). All 11 sectors ended higher for the quarter, for the first time since 2014. Technology shares appreciated the most, rising 18.2% amid signs of continuing profits from companies such as Facebook and Netflix. Real Estate (16.8%) and Energy (15.6%) also posted strong quarterly performance. Health Care (4.9%), Financials (7.6%), and Materials (8.9%) were the worst-performers.
West Texas Intermediate Crude closed at $60.14 a barrel, above the previous month close of $57.22. This was the strongest quarterly percentage change since Q2 2009. Potential sanctions on Venezuela, pressure on Iran to reduce exports, and a drop in U.S. oil rigs were contributed to the gains.

The yield on the 10-year fell 30 basis points last month, closing at about 2.4%. The decline followed the Fed’s signal at its March 18-19 meeting that it wasn’t likely to raise interest rates in 2019, a reversal from the two rate increases indicated in its December forecast. This caused the previously-mentioned inversion of the yield curve, a recession indicator that continues to be a source of economic growth concern.

Economic indicators were mixed last month. The Chicago PMI fell 60 basis points to a reading of 58.7, up from 64.7 in February, below consensus estimates of 61.0. However, any reading above 50 indicates improving conditions. The Consumer Sentiment Index for February increased to 98.4, above February’s reading of 93.8. The Consumer Confidence index dropped to 124.1 from 131.4 in February, its second-lowest rate in a year. The unemployment rate fell to 3.8% from 4.0%, probably partially due to furloughed government workers returning to their jobs. Gross domestic product (GDP) numbers were revised downward to show that the U.S. economy grew 2.2 in the 4th quarter of 2018. A recession can be defined as two consecutive quarters of negative GPD growth. The Consumer Price Index for All Urban Consumers (CPI-U) increased in February by 0.2% on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 1.5%.

With one quarter of the year behind us, we are cautiously optimistic about further market growth. However, risks remain as U.S. – China trade negotiations drag on, Brexit implications are assessed, and interest rates continue to be monitored. Additionally, with major indices above where many analysts expected them to end the year, investors are uncertain if there is a catalyst to push stocks higher. We believe that the economy is still healthy and the equity markets will provide long-term growth, but investors should carefully evaluate their risk tolerance when making investment decisions.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

February 2019 Market Review and Outlook

Murray Titterington, CFP, CIMA

The US equity markets rose again during the second month of the new year, with the Dow Jones Industrial Average and the S&P 500 both posting their best two-month start to a year in nearly three decades. The indices’ rise was aided by dovish comments from the Federal Reserve, thawing of China trade tensions, and better than expected corporate earnings. The gains are in sharp contrast to the melt-down last year, after the worst declines since the financial crisis.

The Dow and S&P 500 are both up 11% this year, their best starts since 1987 and 1991, respectively. The Dow added 7.2% and the S&P 500 gained 7.9% in February. The NASDAQ has gained 14% this year, its best performance since 2012. The tech-heavy index gained 9.7% last month. And the Russell 2000 small cap index posted a 11.2% return for February, notching a whopping 16.8% for the year.

All 11 S&P sectors had positive performance for the month of February. Information Technology was the best-performing sector, rising 6.6%. Industrials were a close second, gaining 6.1%, followed by Utilities, up 3.6%. The worst-performing sectors were Consumer Discretionary (0.6%), and Real Estate and Communication Services (both 0.8%). For the year, Industrials are up 18.2%, Technology has gained 14.8%, and Consumer Discretionary has risen 12.0%.

West Texas Intermediate Crude closed at $57.22 a barrel, a significant rise from the previous month close of $53.79. Prices are up 26% this year, yet are still 25% lower than last October’s peak of $76.41 a barrel. Prices were affected by an affirmation from Saudi Arabia regarding output reduction and an unexpected weekly drop in US crude supplies.

The yield on the 10-year rose 8 basis points last month, closing at about 2.7%. The yields of all of the main Treasurys rose after a gross domestic product report showed that the economy expanded at a 2.6% annual pace in the fourth quarter of 2018, the fastest rate since 2015 (see chart). The rate was higher than the anticipated 1.9% growth rate. Recent comments by the Fed now signal a 92% of no further rate increases this year, and the chances of a rate cut (6%) are now greater than the chances of a rate increase (2%).

Economic indicators were mixed last month. The Chicago PMI rose 8 points to a reading of 64.7, up from 56.7 in January, and the largest increase in a year. Any reading above 50 indicates improving conditions. The Consumer Sentiment Index for February increased to 93.8, above January’s reading of 91.2, yet lower than the anticipated 95.7 number. The unemployment rate remained at 4.0%, probably due to lingering effects of the government shutdown. The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in January on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 1.6%.

From a historical perspective, market gains in January and February have preceded significantly positive years.  Since 1938, when both January and February were positive, the year ended up on average more than 20%, and was positive 29 of 30 times. In 26 of the 30 years, the gains were double digits, and in 15 of the 30 years, the returns were greater than 20%.

Through two months, the equity indices are off to a great start for the year, but geopolitical risks remain. The status of US – China trade talks are still a cause for concern, as are a failed US – North Korea summit and yet-to-be determined Brexit repercussions. In general, it appears that the economy is fundamentally sound, but uncertainties remain that may negatively affect market performance. Investors should be prepared for further hiccups by ensuring that their equity exposure matches their risk profile. We maintain that a properly allocated portfolio based on one’s risk profile and a long-term investment horizon are the pillars to achieving investment goals.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

January 2019 Market Review and Outlook

January 2019 Market Review and Outlook

-Murray Titterington, CFP, CIMA

It’s déjà vu all over again. 2019 is off to a good start, just like January of 2018. Stocks climbed during the first month of the year, with the S&P 500 rising the most in January since 1987, and the Dow posting its strongest January since 1989. Investors may take comfort in a well-known market adage says that so goes January, so goes the year. And historical information going back to 1950 shows that this barometer has been wrong only ten times in those 68 years, for an 87% accuracy ratio. Unfortunately, 2018 was one of the exceptions, due to a late-year market selloff.

For January the Dow rose 7.2%, the S&P 500 climbed 7.9%, the NASDAQ gained 9.7%, and the Russell 2000 small cap index added more than 11%. The gains were attributed to the Fed’s decision to leave interest rates unchanged, positive corporate earnings reports, and optimistic developments regarding trade tariffs with China.

Just as a rising tide floats all boats, all 11 S&P 500 sectors finished the month of January in the black. As proof that sectors rotate, the Energy sector was the best-performing sector for the month, rising 13.1%, following a disastrous loss of more than -20% last year. Industrials were the 2nd best sector with an 11.6% gain, followed by Real Estate’s 10.0% rise.

Oil futures finished the month with an 18% gain, the strongest monthly rise in nearly three years. West Texas Intermediate Crude settled at $53.79 a barrel, rising from $45.41 the previous month.  The commodity’s rise was the result decreased supplies due to OPEC production cuts, sanctions against Venezuela’s state-owned PdVSA, and a decrease in exports to the US from Saudi Arabia.

The yield on the 10-year remained firmly below 3% at the close of the month. The Fed’s assertion that they will be “patient” on further rate increases has been interpreted to mean that there will be no further rate hikes until at least June. The Chicago Mercantile Exchange sees only a 15% chance of a rate increase between now and the end of the year. Depending on how economic and financial developments play out, the Fed may decide to decrease rates.

Economic indicators were mostly negative last month. The Chicago PMI fell sharply to 56.7 in January, down 7.1 points from December’s 63.8 due to a drop in new orders. Despite the fall, any reading above 50 indicates improving conditions. The Consumer Sentiment Index plunged during the month, ending at 91.2, below the December reading of 98.3, the worse since Trump’s election. The government shutdown rattled consumers and if the impasse over funding a border wall isn’t resolved, we could face another shutdown on February 15th. The shutdown also impacted the unemployment rate, as it rose to 4% with the addition of 175,000 new claims, most of them federal workers. The Consumer Price Index for All Urban Consumers (CPI-U) fell in December by 0.1% on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 1.9%.

It may be of some comfort to know that historically February tends to mimic January in the markets. Over the past 50 years, when January has been up, February has averaged a gain of 1.34% (see chart). It is also worth noting that if you are a follower of the pseudo-macroeconomic theory that the Super Bowl winner can predict the year’s market direction, then you will be cheering for the Los Angeles Rams on Sunday. This theory says that if a team from the American Football Conference(AFC) wins, then it will be a bear market, but if a team from the National Football Conference (NFC) or a team that was in the NFL before the NFL/AFL merger it will be a bull market. Then again, both of those “indicators” were wrong last year…

The equity indices are off to a great start for the year, but the volatility witnessed during the past few months serves as a sobering reminder that risks remain present for investors. In general, it appears that the economy is fundamentally sound, but uncertainties concerning the budget and trade issues may negatively affect market performance. Investors should be prepared for further hiccups by ensuring that their equity exposure matches their risk profile.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

December 2018 Market Review and Outlook

December 2018 Market Review and Outlook

-Murray Titterington, CFP, CIMA

Be careful what you wish for. Last month we hoped for a “Santa Claus” rally in the markets (defined as a rally beginning the day after Christmas and extends through the end of the year). Well, the Dow soared more than 1,000 points on December 26th, the largest 1 day increase in history. But this little post-Christmas gift was not enough to undo an ugly December and a brutal year in general for the markets.

Probably the best two adjectives to describe the markets in December are “historic” and “volatile”, and not in an endearing fashion. The NASDAQ dropped -9.5%, the S&P 500 fell -9.2%, and the Dow Jones Industrial Average lost -8.7%. For the S&P 500 and Dow, this was the worst December since 1931 – during the Great Depression.  For the year, the S&P 500, Dow, and NASDAQ plunged -6.2%, -5.6%, and -3.9%, the worst performance since 2008 – during the Great Recession.

The markets’ poor performance is nothing compared to the volatility witnessed during the year: the S&P 500 swung more than 1% in either direction 64 times, and the Dow swung more than 1,000 points five times – significant considering this has only occurred a total of eight times in history. And December provided a particularly wild sleigh ride, ranging from the 1,086 point gain to a -799 point loss (see chart). At its low price on December 24th, the S&P 500 was down more than 20% from its record high, briefly meeting the definition of a bear market.

For the month of December, all of the 11 S&P sectors finished in the red. The “best” performing sectors were Utilities (-4.3%), Materials (-7.2%), and Communication Services (-7.4%). The worst performers were Energy (-12.8%), Financials (-11.4%), and Industrials (-10.8%). For the year, the best-performing sectors were Health Care (4.7%), Utilities (.5%), and Consumer Discretionary (-.5%). The worst-performing sectors were Energy (-20.5%), and Materials and Communication Services (both -16.4%). The gap between Health Care and Energy was more than 25 points, well below the 41 point long-term average gap between top and bottom sectors, which has historically been a bullish signal in the stock market.

Oil continued to freefall, ending the year 40% below the four-year high reached in October. West Texas Intermediate Crude settled at $45.41 a barrel, falling from $50.93 the previous month.  Oil market participants will carefully monitor the effects of OPEC’s 1.2 million barrels a day production cut that begins in the new year. Analysts are concerned that the slump in crude demand may reflect a global economic slowdown.

The yield on the 10-year closed at 2.684%, retracing the years earlier rise. During the year, fears concerning wage inflation and fiscal stimulus were replaced by China-US trade concerns and a selloff in riskier assets, leading to a late-year rally in government paper. Recent market developments appear to have prompted a slowdown, if not complete postponement on Fed rate increases in 2019.

Economic indicators were mixed last month. The Chicago PMI fell to 65.4 in December, down 100 points from November’s 66.4. Despite the fall, any reading above 50 indicates improving conditions. The Consumer Sentiment Index rose during the month, ending at 98.3, above the November reading of 97.5. This index remains near historically high levels, indicating consumers still feel confident about income and job prospects, despite the stock market performance. The unemployment rate remained at 3.7%, a 49-year low. The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in November on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 2.2 percent.

2018 was a wild year in the markets, as the gains created by the corporate tax cuts at the beginning of the year gave way to the interest rate hikes and saber-rattling of potential trade wars. The volatility is unlikely to subside in 2019, as the government shut-down just adds one more worry for the markets.  We believe that the economy is still healthy and the equity markets will provide long-term growth, but investors should carefully evaluate their risk tolerance when making investment decisions.

The information in this Market Commentary is for general informational and educational purposes only. Unless otherwise stated, all information and opinion contained in these materials were produced by Foundations Investment Advisers, LLC (“FIA”) and other publicly available sources believed to be accurate and reliable.  No representations are made by FIA or its affiliates as to the informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. No party, including but not limited to, FIA and its affiliates, assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

The views and opinions expressed are those of the authors do not necessarily reflect the official policy or position of FIA or its affiliates.  Information presented is believed to be current, but may change at any time and without notice.  It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

October 2018 Market Review and Outlook

U.S. stock markets closed out the month of October with the largest monthly losses we’ve seen in more than six years. All of 2018’s gains were essentially wiped out over just a few days of trading. Bond markets have been hurt all year as interest rates have continued to rise precipitously on the back of strong employment numbers. Investors are now worried that the future costs to service debt will halt the demand side growth we finally began to see after the financial crisis. I wrote last week that it appeared market participants were positioning themselves for things to get worse, not better. I also explained that we had a huge batch of earnings coming in and the response to those might very well dictate the end of this bull market. I said the proof would be in whether investors bought or sold the inevitable bounce in stocks from deeply oversold conditions. We saw the bounce over the past few days and Friday investors sold into it. While one or two days, or even weeks, does not make or break the stock market, this fact is not a good sign. The 200-day moving averages are now acting as resistance for major indexes, just as they once offered support prior to being broken. The October pain is not over and a fourth quarter rally cannot occur until those important moving averages are reclaimed. I spoke at an adviser event early last week and pointed out that almost 80% of all U.S. stocks were trading below their 200-day moving averages. This has been the case all year for foreign equities and it is coming home to roost. This old bull market is not dead and earnings are good, but I believe the best is likely behind us. We have seasonality in our favor and a bounce may very well occur as we close in on the end of the year, but I am concerned, and at Cabana we are defensive. We remain cautiously bullish – very cautiously bullish

August 2018 Market Review and Outlook

The US equity markets closed the month of August with gains despite apprehension concerning trade policy. The S&P 500, NASDAQ, and Russell 2000 all reached new highs during the month. The S&P 500 had its best August performance since 2014, while the NASDAQ posted its best gain since 2000.

All of the major US stock indices are in solid positive territory for the year to date, after a shaky February. The Dow Jones Industrial Average is up about 5%, the S&P 500 has gained 8.5%, the Russell 2000 has risen more than 13%, and the NASDAQ has soared more than 17% this year.

All sectors except Energy (-3.48%) and Materials (-.77%) were positive for the month. Technology continues to shine, rising 6.60%. Consumer Discretionary was the runner-up, finishing up 5.10%, followed by Health Care’s 4.33% rise. Consumer Staples is the worst-performing sector this year, losing more than 5%. Technology stocks benefitted from strong performance from Advanced Micro Devices and Apple reaching one trillion in market cap. Amazon is likely to reach this milestone in the near future.

Oil prices continued to rise due to declines in US crude supplies and concerns of tighter global inventories resulting from sanctions on Iran. West Texas Intermediate crude settled at $69.80 a barrel after reaching $70 a barrel earlier in August.

The yield on the 10-year fell from 3.0% to 2.85% as trade tensions prevented the rate to breach the 3% level. Analysts expect rates to trade sideways going into the FOMC meeting later this month. Another rate increase this month is widely expected, but a December raise is uncertain, as the implementation of tariffs is assessed.

Economic indicators suggest a healthy economy. The Chicago PMI came in at 63.6, slightly below the estimates of 63.8. Any reading above 50 indicates improving conditions. The Consumer Confidence Index climbed to 133.4 in August, despite expectations that it would fall to 126.7.  This is the highest reading since October 2000, and should continue to support further consumer spending in the near term. The unemployment dipped to 3.9%, down from 4.0% the previous month. This is only the eighth time the monthly rate has fallen below 4.0% since 1970 – three of those months have occurred this year. Companies are struggling to find workers, with job openings higher than the number of unemployed for the first time in decades. (The 10% rate in October of 2009 seems a distant memory). The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2% in July on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 2.9 percent. But most importantly, gross domestic product increased at a 4.2% annualized rate in the second quarter, the fastest rate since the third quarter of 2014 (see chart below). The catalysts were increased business spending on software and a decrease in imported petroleum.

Although the indicators support further growth in the economy and markets, clouds remain on the horizon. In particular, the trade negotiations between the US and its international partners continue to weigh on the markets and provide continued volatility. The key to investment success is to maintain a long-term investment horizon with a diversified portfolio that matches an appropriate risk profile.

June 2018 Market Review and Outlook

The US stock markets gyrated between gains and losses during the month of June, as investors assessed the impact of proposed trade tariffs, political turmoil in the Eurozone, and signals of a slowing global economy.

Most of the major US stock indices had positive returns for the month of June. The S&P 500 rose 2.9%, the Dow Jones Industrial average gained about .7%, and the tech-heavy NASDAQ posted a 6.3% gain. The Russell 2000 small cap index fell .3%. The NASDAQ’s gain was particularly noteworthy, as the index overcame a slump early in the quarter and has outperformed the S&P 500 in every quarter since the beginning of 2017. Furthermore, the NASDAQ recorded a series of all-time highs during June.

Sectors had varied results, with about half posting gains and half recording losses for the month of June. Real Estate (5.2%), Consumer Staples (3.63%), and Utilities (3.4%) were the best-performers, while Industrials (-5.22%), Financials (-4.35%), and Materials (-1.46%) were the worst-performing. Industrials and Materials were impacted by the trade tension. Financials benefitted from announcements from several banks that they planed to return capital to investors on the heels of positive results from the Federal Reserve’s annual stress test. However, gains were reversed due to profit-taking on the last day of the month.

Oil prices rose during the month, recording a gain of more than 20% for the year-to-date. West Texas Intermediate crude settled at $74.15 a barrel, as declines in US crude supplies, output concerns linked to Venezuela, Libya, Canada, and Iran contributed to oil’s price gains.

The yield on the 10-year closed the month at 2.86% as weakness in US stocks and emerging markets equities contributed to a flight to quality. Trade tensions and month end buying by money managers to maintain the average maturity of portfolios contributed to the yield’s gain. Investors are now unsure if the Federal Reserve will proceed with four rate hikes this year, as trade tensions may slow the pace of monetary tightening.

Economic indicators showed mixed results. The Chicago PMI gained 1.4 points to 64.1, the highest reading since January and the highest level in six months. Any reading above 50 indicates improving conditions. Meanwhile, the Consumer Confidence Index decreased in June to 126.4, down from 128.8 in May. The unemployment ticked up by .1% to 3.9%, after tying the lowest level in 50 years last month. The low rate reflects the strong economy and a tight labor market. The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2% in May on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 2.8 percent. On the whole, these numbers reflect a healthy economy and support further interest rate increases.

With half of 2018 completed, investors may wonder which direction the markets will take in the remaining months. Small or no gains in the major indices have offered little reward for investors.  There are clearly many positive indicators for the markets and the economy, but trade tariffs, interest rates, and geopolitical instability are valid concerns. But a properly allocated portfolio based on one’s risk profile and a long-term investment horizon continue to be the time-tested determinants for investment success.

May 2018 Market Review and Outlook

The US stock markets had a roller-coaster ride during the month of May, as the month began with a rally after strong first quarter earnings were reports, trade war concerns subsided, emerging markets calmed, and political instability in Europe was shrugged off. Trade war concerns re-emerged late in the month curtailing gains.  Washington is trying to gain concessions to reduce the trade deficit. The possibility of political turmoil in Italy also negatively impacted the markets.

All of the major US stock indices had positive returns for the month of May. The S&P 500 rose 2.4%, the Dow Jones Industrial average gained about 1.4%, the NASDAQ posted a 5.68% gain, and Russell 2000 was up 6.07%. The Russell 2000 hit multiple record highs last month, largely due to strong earnings and tax cuts. Furthermore, small cap stocks are impacted less from trade tariffs, as they have less international exposure.

For the month, Consumer Staples (-1.57%), Utilities (-1.11%), and Financials (-.98%) were the only sectors in the red. Consumer Staples were negatively impacted by the proposed tariffs on items provided by Mexico. Technology was the best-performing sector, rising 6.78%. It was followed by Industrials 3.07% gain, and Energy’s 2.99% rise. Technology shares rose after Apple and Facebook announced plans for stock buybacks. Industrials may face increased pressure from steel and aluminum tariffs.

Oil prices fell during the month, with West Texas Intermediate crude settling at $68.47 a barrel, losing 2.2%. The fall was due to rising US production and the possibility that OPEC and its allies may boost output. As usual, the fall in crude prices has yet to affect gasoline prices, as anyone who has filled their tank recently can confirm. The national average price for regular gasoline is $2.96, compared to $2.38 a year ago, raising costs for summer travelers.

The yield on the 10-year fell 11.2 basis points during the month after diminished rate hike expectations and a bit of a flight to safety in government bonds. The yield was as high as 3.1% earlier in the month. 30-year fixed-rate mortgage rates fell 10 basis points during the last week of the month, to an average of 4.56%, providing some relief for home-buyers.

Economic indicators showed positive results. The Chicago PMI gained 5.1 points to 62.7, the highest reading since January. Any reading above 50 indicates improving conditions. Consumer confidence increased in May to 128, up from a revised 125.6 in April. The unemployment rate dropped to 3.8%, after stubbornly remaining at 4.1 for the prior 6 months. The unemployment rate is at the lowest reading since April 2000. The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2% in April on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 2.5 percent. On the whole, these numbers reflect a healthy economy and support further interest rate increases.

The question now is will the markets continue to grow, or will we face a “June swoon”. There are clearly many positive indicators for the markets and the economy, but trade tariffs, interest rates, and geopolitical concerns are a recipe for further volatility. As always, we maintain that a properly allocated portfolio based on one’s risk profile and a long-term investment horizon are the pillars to achieving investment goals.

April Market Review and Outlook

All of the major US stock indices had positive returns for the month of April, as strong earnings reports allowed the markets to regain some of the earlier losses due to proposed tariffs and interest rate increase concerns. During the month, concerns about a hawkish Fed and higher inflation expectations pushed the yield on the 10-year government bond above 3% for the first time in more than 4 years. The month ended with the yield on the 10-year bond at 2.96%.

During the month, both the Dow and the S&P 500 rose .3%, while the Nasdaq gained .1%. These relatively small moves are a big contrast to the volatile first few months of the year…

For the month, Consumer Staples (-1.53%) and Industrials (-.38%) were the only sectors in the red. Energy was the best-performing sector, gaining 9.64%, followed by Health Care’s 3.96% gain and Consumer Discretionary rising 2.96%. The Energy sector has made a big turnaround, after a relatively poor performance last year, while Technology has cooled from its meteoric 2017 rise.

Oil prices ended higher, with West Texas Intermediate crude settling at $68.47 a barrel, posting 5.6% monthly gain. The possibility that the US may reimpose sanctions on Iran is a bullish factor on oil prices. However, higher oil prices may translate into higher costs for corporations and consumers, in turn leading to a pullback in the current 9-year economic expansion.

Economic indicators showed mixed results. The Chicago PMI eked out a small gain from 57.4 in March to 57.6 in April. However, any reading above 50 indicates improving conditions. Consumer confidence increased in April to 128.7, up from 127.0 in March. Unemployment stubbornly remains at 4.1%, a 17-year low. The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1% in March on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 2.4 percent. On the whole, these numbers reflect a healthy economy and support further interest rate increases.

The markets seem directionless at times, and with the heightened volatility of the past few months, investors may be tempted to follow the old adage “sell in May and go away”. This saying refers to the seasonal decline in the markets for the six-month period from May thru October. (While there is historical backing to this phenomenon, the trend has not been supported in the last five years).

While we are unlikely to return to the historically low volatility we witnessed over the past few years, we believe that the economy is fundamentally strong, and positive earnings, GDP growth, and a strong labor market will outweigh the impact of rising interest rates, protectionist policies, and geopolitical threats. We maintain that a properly allocated portfolio based on one’s risk profile and a long-term investment horizon are the pillars to achieving investment goals.

March Market Review and Outlook

During the first quarter, investors wavered from euphoria to despair, as record market gains in January were followed by the first “corrections” (drops of 10% from record highs) in February in more than 2 years. The Dow and S&P 500 closed out the month of March and first quarter with declines, breaking a streak of nine consecutive winning quarters. Volatility, which had long been dormant, roared back to life during the quarter, as the VIX (commonly known as the “fear index”) posted its biggest quarterly rise – up 81%.

One of the primary drivers for the markets’ decline were concerns that wage growth may indicate a return of inflation, and subsequent further and more frequent interest rate hikes by the Federal Reserve. The Fed raised interest rates at its March meeting, and indicated at least two more hikes this year and more in 2019 and 2020. Additionally, trade war fears intensified after proposed tariffs and steel and aluminum imports from non-North American countries and technology tariffs targeted on China.

The market’s decline was widespread, as nine of the eleven S&P sectors posted negative returns for the quarter. The only two sectors that were positive were Technology (2.3%) and Consumer Discretionary (2.6%), sectors which benefited from the FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google). The worst performing sectors were Consumer Staples (-7.5%), Energy (-6.7%), and Materials (-5.9%).

During the quarter the bond market faced disaster, as prices for both short and long term issues tanked, sending yields soaring on the fear of re-emerging inflation. The yield on the 10-year hit a four-year intraday high of 2.95% in February. The concern over protectionist tariffs and subsequent market volatility drove investors to safe haven assets like bonds, which drove yields lower in March. The current yield on the 10-year is 2.74%.

Oil prices ended higher, with West Texas Intermediate crude settling at $64.64 a barrel, posting its third straight quarterly rise in a row. Geopolitical concerns and possible actions by OPEC countries to trigger higher prices may generate further increases.

Economic indicators showed mixed results. The Chicago PMI slipped to 57.1 from 61.9 in February, showing continued softening in business sentiment. However, any reading above 50 indicates improving conditions. Consumer confidence fell to 127.7 in March from 130.0 in February, which was an 18-year high. Unemployment remains at 4.1%, a 17-year low. The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2% in February on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 2.2 percent. On the whole, these numbers reflect a healthy economy and support further interest rate increases.

The quarter certainly showed that risks are still present in the markets. But if it is of any comfort to know, according to the Stock Trader’s Almanac, April has historically been the strongest month for the Dow, with average gains of 1.9%, based on data going back to 1950. April has been the third best month for the S&P 500 and Russell 2000, with average gains of 1.5% for both indices (see chart).

While those average returns would be much-welcomed, they would not bring the indices back to the record territories we witnessed earlier this year. Investors should remain focused on the long-term, and confirm that their risk tolerance matches the potential volatility we may see ahead.

February Market Review and Outlook

What a difference a month makes! 2018 began with strong gains, only to see much of those gains evaporate as volatility returned to the markets amid concerns of continued interest rate hikes by the Fed. The conundrum is that interest rates are rising because of positive economic data: GDP grew 2.5% in the last quarter; unemployment is at a 17-year low; consumer confidence is high; and corporate earnings are up over 15% this quarter. Apparently interest rate hikes trump positive economic data.

The month of February took investors on a wild ride, alternating between large gains and losses. The Dow posted intraday swings of more than 500 points in six sessions, including four days with swings greater than 1,000 points. So far this year we have seen the worst week in two years, as well as the best week in five years.

For the month of February, the S&P 500 fell -3.9%, breaking an unprecedented 15-month streak of gains stretching back to October 2016. On February 8th the markets briefly slipped into correction territory, defined as a drop of 10% from a previous high, although they quickly rebounded. The Dow finished the month down -4.3%, the Russell 2000 fell -4%, and the NASDAQ lost 1.9%.

Interest rates on the 10-year have risen from 2.04% to 2.95% in the past several months, although they are still not back to the highest levels of this bull market. In 2013 rates nearly doubled from 1.63% to 3.0% yet the market gained 32% in 2013 and 14% in 2014. Furthermore, although the Fed has signaled their intent to raise rates several times this year, the increases are starting from historically low levels.

In terms of sectors, Technology was the only sector to finish the month in positive territory. So far this year, the best performing sectors have been Technology (+8.5%), Consumer Discretionary (+5.8%), and Health Care (+3.4%). All three sectors continue their momentum from last year. The worst performing sectors are Utilities (-6.9%), Energy (-6.8%), and Real Estate (-6.5%). The worst performers continue their underperformance from 2017.

West Texas Intermediate crude settled at $61.64 a barrel, posting its first monthly loss since last August. Domestic crude supplies rose by 3 million barrels and record domestic production contributed to the commodity’s decline. The stronger dollar also pressured oil prices, as commodities have an inverse relationship to the dollar.

Economic indicators showed mostly positive results. The Chicago PMI slipped to 61.9 from 65.7 in January, a six-month low, showing a softening in business sentiment. However, any reading above 50 indicates improving conditions. Consumer confidence rose to 130.8 in February from 124.3 in January, the highest level since November 2000. Unemployment remains at 4.1%, a 17-year low. The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.5% in December on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 2.1 percent. On the whole, these numbers reflect a healthy economy and justify further interest rate increases.

The S&P 500 and Dow remain positive for the year, but the volatility witnessed during February serves as a sobering reminder that risks remain present for investors. In general, it appears that the economy is fundamentally sound and the markets should be able to withstand further interest rate hikes from the current relatively low levels. Nonetheless, investors should be prepared for further hiccups by ensuring that their equity exposure matches their risk profile.

January Market Review and Outlook

2018 is off to a good start, as during the month of January the major indices were setting records on a daily basis. Worldwide markets are off to their best start in over 30 years. A well-known market adage says that so goes January, so goes the year. And historical information going back to 1950 shows that this barometer has been wrong only nine times in those 68 years, for an 87% accuracy ratio. The catalysts for the rise have been positive corporate earnings, strong global economic growth, and tax reform.

US stocks finished January with yet another consecutive monthly gain. The Dow rose 5.8% and the S&P 500 added 5.6% – the longest monthly winning streaks for these indices in nearly 60 years. The Russell 2000 small cap index gained 2.6%, and the technology-heavy NASDAQ continued the gains from last year, gaining 7.4%.

So far this year, the best performing sectors have been Consumer Discretionary (+9.6%), Health Care (+8.1%), and Financials (+6.3%). Consumer Discretionary stocks benefit from the tax reform, as Americans find themselves with more disposable income. The worst performing sectors are Utilities (-4.2%), Real Estate (-3.9%), and Consumer Staples (+2.1%). Utilities lose value as rising interest rates add to interest expenses, hurting profitability. Analysts believe that based on relative strength, Technology, Financials, and Materials are poised for a good year. On the other hand, Consumer Staples, Telecom, and Real Estate may face some headwinds.

West Texas Intermediate crude settled at $64.50 a barrel. During the month oil prices hit a 3-year high due to strong demand, the weaker dollar, and OPEC production cuts. Higher prices motivated US shale producers to increase production, raising stockpiles. Analysts now worry that an oversupply may limit upside price potential.

During the month the yield on the 10-year rose to 2.7%, its highest level since April of 2014. The rise came after a sell-off due to a government report showing GDP expanded at a 2.6% rate in the 4th quarter. The report signaled the strength of the economy, but also raised the likelihood of more aggressive rate hikes from the Fed. Rising interest rates can negatively impact the stock market if government fixed income can offer better yields than equities. Another interest rate hike in March seems likely, when new Federal Reserve chairman Jerome Powell takes the reins.

Economic indicators showed mixed monthly results. The Chicago PMI slipped to 65.7 from 67.8 in December, showing a softening in business sentiment. However, any reading above 50 indicates improving conditions. Consumer confidence rose to 125.4 in January from 123.1 at the end of the year. Employers added 234,000 jobs this year, keeping the unemployment rate at historic lows. Both consumer spending and personal income increased .04% in December. The University of Michigan’s consumer-sentiment gauge unexpectedly fell to 94.4 from 95.5 in December. The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1% in December on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 2.1 percent. On the whole, these numbers reflect a healthy economy and justify further interest rate increases.

While we are off to a good start to the year, the January barometer is not infallible. It merely indicates that if January is positive, we will end the year positive. It doesn’t predict what will occur in the next 11 months, during which we can experience significant volatility. In fact, during January the VIX index (sometimes referred to as the fear index) rose to its highest level since last August. While the index is below historic averages, its recent rise suggests volatility ahead. We believe the markets still have room to run, but investors should consider their risk tolerance when making investment decisions.

December Market Review and Outlook

While the year didn’t officially end until December 31st, the markets broke out the party hats early to celebrate at the market close on Friday, December 29th. And deservedly so, as they shattered records left and right during 2017 – despite political gridlock, North Korea’s military overtures, and several highly destructive hurricanes. The markets didn’t seem to mind these events as they had little or no impact on corporate profits – the real driver of the momentum.

Both the Dow and S&P ended December with monthly gains, setting or extending some notable records. The Dow closed higher for the ninth month in a row, the longest streak in nearly 60 years. The Dow closed at new highs 71 times in 2017, a new record, The S&P 500 also posted a ninth monthly gain, last accomplished in 1983. On a total return basis (reinvested dividends), the S&P 500 closed higher for the 14th month in a row – another new record.

All of the major US indices ended the year significantly higher. The S&P gained 19.4%, the Dow added 25.1%, and the Nasdaq rose 28.2%. All three indices posted their best year since 2013, and the Nasdaq rose for its sixth straight year. The Russell 2000 small cap index was the laggard, rising “only” 13.3% – yet a second straight annual gain.

For the year, the Technology sector far outperformed the other sectors, rising 36%. Materials were the next-best sector, up 21%, followed by Consumer Discretionary, which gained 20%. Telecom fared the worst, dropping -6%, followed by Energy’s -4% loss and Real Estate’s 9% rise.

Although the Energy sector remains in the red for the year, West Texas Intermediate ended the year above $60 a barrel, the highest close in more than two and a half years. Concerns of oversupply have abated, and rising demand and the OPEC production limit extension thru 2018 contributed to the commodity’s strength.

The Fed raised interest rates by a quarter of a percent in December, a move that had been clearly telegraphed for months. Despite the three interest rate hikes in 2017, yields on the 10-year remain roughly where they were a year ago. The Fed has made clear that it intends to raise rates in 2018 and reduce its balance sheet. Goldman Sachs predicts 4 hikes in 2018.

As the year wound down, economic indicators continued to show mostly positive monthly results. The Chicago PMI rose from 63.9 in November to 67.6 in December, closing the year at the highest level since March of 2011. (Any reading above 50 indicates improving conditions). However, the Consumer Confidence Index decreased to 122.1, after reaching a 17 year high of 128.6 in November. While this decline shows a less optimistic outlook for business and job prospects in the coming months, the expectations remain at high levels, suggesting further growth in 2018. GDP grew at a 3.3% annualized rate in the 3rd quarter, the fastest in three years. Jobless claims remain at their lowest levels in 45 years, a sign of a very strong labor market. The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.14% in November on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 2.2 percent.

2017 will go in the books as a banner year for the markets. The market has gained 376% since the March 2009 lows, for a whopping 19% annual return. And 2018 may be a great year as well, as the recently enacted tax cuts should help the profitability of US companies. Furthermore, expectations that $1 trillion in infrastructure spending may become a reality also provide a potential economic boost.

Despite the rosy scenario for the new  year, market risks remain. This bull market is long in the tooth, and the S&P 500 hasn’t experienced a 2% decline since two months prior to last year’s election and the last correction of 10% was more than 2 years ago. Further turmoil from political and geopolitical sources continues to weigh on the markets.

Investors should be very pleased with the markets’ performance in 2017, but be aware that this was an anomaly. By reassessing market expectations and re-evaluating risk profiles investors can prepare for future performance and volatility. We maintain that proper risk management with a long-term investment horizon is the best way for individuals to fulfill their financial goals in 2018 and beyond.

November Market Review and Outlook

Back in February, the Dow Jones Industrial Average crossed and maintained the psychological 20,000 level milestone. In November the index broke 24,000 and shows no sign of slowing. The Dow ended November with a gain of 3.2%, an eighth consecutive monthly gain – the longest streak in more than 20 years. The S&P 500 rose 2.6%, another 8-month streak, the longest since 2007. The Nasdaq added 2.4% in November, a fifth monthly rise, and the Russell 2000 posted a 3.2% gain. The markets’ rise is attributed to economic expansion, positive corporate earnings, and optimism for tax reform.

Real Estate was the best-performing sector for the month, rising 4.3%. It was followed by Consumer Discretionary, up 4%, and Consumer Staples’ 3.2% gain. Financials were the worst-performing sector, falling -2.2%, followed by Industrials and Materials, which both lost about 1%. For the year, Technology still leads all sectors, with a more than 30% rise. Technology suffered a large loss on the second to last trading day, with the FANG (Facebook, Amazon, Netflix, Google) index losing 3.7%. That decline equated to a $60 billion loss – the largest single daily loss recorded. Energy remains the only sector in the red for the year to date, having lost close to -10% this year.

During November Treasury yields crept up to 2.428% during the least turbulent month in nearly 40 years. Bank stocks benefit from a rise in yields, which increases lending profitability. Early in the month, the Federal Open Market Committee concluded its two-day policy meeting, voting unanimously to hold its benchmark federal funds rate between 1.00% and 1.25% and to continue the process of balance sheet normalization. The Fed delivered a positive, yet cautious view of the economy that casts a bit of doubt on another interest rate hike in December.

West Texas Intermediate for January rose over 5% for the month, as OPEC members agreed in principle to keep production cuts in place through the end of next year. Oil has risen more than 17% since producers met back in May.

Yet again, economic indicators showed mostly positive monthly results. The Chicago PMI fell from 66.2 in October to 63.9 in November, showing a slight decrease in private sector activity. However, any reading above 50 indicates improving conditions. The Consumer Confidence Index rose to 129.5, the highest mark since the index hit 132.6 in November 2000. This was a 5th consecutive monthly gain, and a 17-year high. GDP grew at a 3.3% annualized rate in the 3rd quarter, the fastest in three years. Consumer spending rose 0.3% in October, slightly above the 0.2% forecast. Incomes grew 0.4% for a second month, jobless claims were less than

anticipated, and unemployment remained near 45-year lows. The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1% in October on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 2.0 percent.

As we enter the final month of the year, it seems that nothing can derail the markets. The economy appears healthy and geopolitical concerns seem to have little impact on the market’s momentum. Tax reform seems attainable. But investors should be wary as it has been over 500 days since the last 5% sell-off, and the last correction of 10% was nearly two years ago. The VIX has been well below its average, and recently reached its lowest reading in existence. Investors are unlikely to complain, given the market’s nearly 20% rise this year. However, low volatility can create complacency that can cause investors to over-react when a downturn occurs. As a result, it is prudent to re-evaluate risk and reasonable market expectations for the new year.

October Market Review and Outlook

October has often been a spooky month for the markets. This past month we marked the 30th anniversary of “Black Monday”, which occurred on October 19, 1987, when the US stock market crashed and the Dow lost more than 22% in a single day. The S&P 500 also dropped nearly 17% during the month of October in 2008. Yet this year, the uncanny bull run-up in stocks that began last year continued to roar through the month, with the S&P 500 gaining 2.2%. The Dow rose 4.3% and the Nasdaq climbed 3.6%. All three indices posted their biggest monthly percentage rise since February. In addition, the Dow and S&P 500 both marked their seventh consecutive monthly gains – a feat last accomplished more than four years ago. The primary catalysts to the markets rise were positive earnings reports, greater-than-expected GDP growth in the 3rd quarter, and continued optimism for tax reform.

Eight of the eleven S&P sectors posted positive returns over the month. Technology shares rose the most, gaining 6%, primarily due to strong earnings from Amazon and Google. Technology still leads the sectors for the year thru October, rising over 26%. Utilities were the runner-up for the month, with a 3.8% gain, followed by Materials, with a 6.59% rise.  Consumer Staples again was the worst-performing sector for the month, losing -2.5%, while Energy lost -1.2% and Health Care declined -.58%. Energy remains the only sector in the red for the year to date, having lost more than -10% this year.

During October the yield on the 10-year Treasury rose about 5 basis points – a relative benign monthly movement. Investors are awaiting the conclusion of a two-day Federal Reserve policy meeting that many provide clues about monetary policy and possible interest rate hikes. The probability of a rate increase in December has risen to more than 97%, having been as low as 86% a few weeks ago.

West Texas Intermediate for December rose 23 cents, or 0.4%, to settle at $54.38 a barrel, lifting the contract’s monthly gain to roughly 4.7%. Based on the front-month November contract at the end of September, prices climbed 5.2% for the month. A drop in US crude supplies by more than 5 million barrels, a decline of more than 7 million barrels of gasoline stockpiles, and continued extension of production cuts by OPEC through 2018 contributed to the gains.

Once again, economic indicators showed mostly positive monthly results. The Chicago PMI jumped to 66.2 in October from 65.2 in September, showing an acceleration in private sector activity. Any reading above 50 indicates improving conditions. The consumer confidence index climbed to a 17 year high in October to 125.9, the best reading since December 2000. US employment costs rose 0.7% in the third quarter, and the Case/Shiller home price index rose a seasonally adjusted 0.5% during the 3-month period ending in August – stronger than expected. The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.5% in September on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 2.2 percent.

 

With two months remaining in 2017, it appears that despite geopolitical concerns and a lack of substance to budget and tax law changes, we are on course to end 2017 in the black. But the rising bullishness in the markets may be a contrarian signal. The legendary investor John Templeton once said that bull markets are “born on pessimism, grown on skepticism, mature on optimism, and die on euphoria”. Without the ability to accurately predict the market’s top or bottom, the most prudent course is to remain properly allocated and diversified to achieve your long-term investment goals.

September Market Review and Outlook

September has historically been the worst month for the stock market, but this year was an exception.  US stocks finished the week, month, and quarter on a high note, with the S&P 500, Nasdaq, and Russell 2000 reaching all-time highs on the last day of the quarter. The S&P 500 gained 1.9% for the month and 3.9% for the quarter – its eighth consecutive quarterly gain. The Dow rose 2.1% during September (its 6th monthly gain in a row) and 2.1% over the quarter. The Russell 2000 closed at a record 21st time, rising 6.1% for the month and up 5.4% for the quarter. The possibility of tax cuts provided momentum to the small cap index, as smaller companies typically pay higher taxes than large companies. And the Nasdaq posted a 1% gain over the month marking its 50th record for the year, and providing a 5.8% rise for the quarter. Strong earnings and fundamentals were cited for the impressive gains this quarter. Investors were also encouraged by the release of a more detailed outline of a tax reform plan.

Nine of the eleven S&P sectors posted positive returns over the month. Technology shares rose the most, gaining 8.3%, primarily due to the strength of the FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google). Technology has exhibited hurricane-like strength for the year, rising nearly 26%. Energy was the runner-up, with a 6% gain, reversing the 2017 loss of 9%. Energy remains the only sector to remain in the red this year. Telecommunications was the third-best performing sector for the month, rising 5.6%. Consumer Staples was the worst-performing sector for the month, losing -2%, while Consumer Discretionary and Real Estate declined slightly dropping -.5% and .1%, respectively.

During September the yield on the 10-year Treasury increased more than 20 basis points for the largest one-month rise since last November. The selloff was due to hawkish comments from the Fed last week that indicated another rate hike in December (the current probability is above 70%) and concerns that a tax overhaul could significantly increase government spending. The Federal Reserve announced that they intend to keep the federal funds target rate between 1% – 1.25% due to the strong labor market and inflation remaining below 2%. Of more significance, they also said they plan to reduce their balance sheet. During the financial crisis, the Fed engaged in “quantitative easing” by purchasing Treasury bonds and mortgage-backed securities to add liquidity to the financial system. This grew the balance sheet from under $1 trillion to about $4.5 trillion today. The balance sheet reduction will take place in “baby steps”, by letting holdings mature, rather than through sales. This gradual reduction of the balance sheet and the fact that interest rates are still way below historical averages should not have a significant impact on the market.

Oil prices marked their first quarterly gain of 2017, with WTI closing at $51.67 a barrel. Oil rose 7.7% for the month and had a quarterly rise of 10.5%. of the month and 10.5% for the quarter. The possibility of a disruption of Kurdish oil exported though Turkey was offset by continuing growth from US shale.

Once again, economic indicators showed mostly positive monthly results. The Chicago PMI jumped to 65.2 from 58.9 in August, showing an acceleration in private sector activity. Any reading above 50 indicates improving conditions. Consumer spending rose 0.1% last month, after a .3% rise in August, in line with expectations. Personal income was up .2%, versus a forecast of .1%. The University of Michigan’s consumer-sentiment gauge slipped from 96.8 in August to .95.1 in September.  The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4% in August on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 1.9 percent.

The fourth quarter is historically the market’s strongest, with the holiday months usually providing strong performance (see chart below). Since 1950, the S&P 500 has gained 3.9% on average during the fourth quarter, advancing nearly 80% of the time. Furthermore, when the S&P 500 has been up more than 10% year to date and posted a new high in the month of September fourth quarter returns have been close to 6% in 11 out of 12 years. However, as always, past performance is not indicative of future results.

August Market Review and Outlook

Volatility returned to the markets in August, as a mid-month slump led the S&P 500 down from yet another all-time record high close on August 7th. Concerns about North Korea’s missile launch and the impact of hurricane Harvey eclipsed worries about the impending debt ceiling limit and the necessity of a new budget approval from Congress. The Dow broke above the psychological milestone of 22,000 yet failed to maintain that level.
The market closed the month of August with mixed results. The Russell 2000 was flat, the Dow squeaked out a .3% gain, the S&P 500 was less than .1% higher, and the Nasdaq added to its gains this year, up 1.3%. Both the S&P 500 and the Dow have notched five consecutive months of gains.

Only three S&P sectors gained during the month: Utilities were up 3.62%, Technology gained 1.81%, and Real Estate posted a slight rise of .37%. The other sectors all fell, led by Energy losing -5.72%, Consumer Discretionary falling -2.35%, and Materials declining -.74%. For the year, Technology still maintains the lead, with a 20.93% gain, followed by Health Care rising 15.94%, and Utilities posting a 13.16% gain. Energy remains the only sector in the red, with nearly a -17% loss year to date.

Geopolitical tensions caused a flight to safe-haven assets during the month. As a result, the yield on the 10-year Treasury fell 0.10% in August, to close at 2.12%. Gold gained about 4% for the month to finish at an 11-month high. And the price of bitcoin continued it’s meteoric climb, rising above $4700.

Oil prices declined over 6% during the month, to $47.23 a barrel for West Texas Intermediate crude, but gasoline rose to its highest level in more than 2 years. Production disruptions from hurricane Harvey caused concerns that refiners will remain closed and demand less oil, which may lead to higher stockpiles of oil but less supply of gasoline. The US Energy Department released a million barrels of oil to help boost gasoline supplies, but the impact will be minimal.

Once again, economic indicators showed positive monthly results. The Chicago PMI held steady at 58.9 in August, after having pulled back from a 3-year high in June. However, any reading above 50 indicates improving conditions. Consumer spending rose 0.3% last month, helped by higher incomes and low inflation. Initial jobless claims were still close to a post-recession low, suggesting the labor market remains strong. The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1% in July on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 1.7 percent. This low inflation environment diminishes the likelihood of further interest rate hikes this year.

September has historically been the worst month for the stock market, and potentially disruptive fiscal events, including a possible government shutdown later this month, may be a catalyst for a market pullback. So far, this year there have been only seven days when the market has moved by more than 1%, compared to an average of 73 days per year over the past 20 years. With this lack of volatility, market declines may cause an emotional response from investors. However, with positive GDP growth, rising corporate earnings, and a favorable interest rate environment, any sell-off could provide a buying opportunity for stocks that may be currently overvalued.

July Market Review and Outlook

During July, the markets yet again continued their march to record territories. The Dow inched closer to 22,000, yet another psychological milestone. When, not if, this level is attained, it will mark the third 1,000-point milestone within a year. The Dow and other indices gained despite further doubts about the Trump administration’s ability to implement the promised pro-growth policies. As the second-longest bull market in history continues, it seems that few events can stop its momentum.

The market closed the month of July with mixed results. The Russell 2000 lost about .11% during the month, the S&P 500 finished the month with a 2.0% gain, the Dow had a 2.6% gain, and the Nasdaq finished the month with a 3.4% gain.  The Dow, S&P, and Nasdaq have all risen in eight of the past nine months.

Significant domestic and international events could have provided catalysts for a market correction, but failed to make an impact. Turmoil in the administration and Senate questioning regarding possible Russian meddling in the Presidential election took front and center stage. The failure of the repeal of the Affordable Health Care Act accentuated the ineptitude of Washington and confirmed doubts of any progress for the remainder of the year. North Korea remained as defiant as ever, and Russian sanctions went into effect.

All S&P sectors except for Consumer Staples and Health Care gained during the month. The top performers for the month were Energy with a gain of 3.07%, followed by Technology at 2.99%, and Materials at 1.64%. The laggards were Consumer Staples and Health Care, which each lost about .15%, and Real Estate, which eked out just a .28% gain. For the year to date, Technology remains the leader, with close to a 19% gain, followed by Health Care with a 16% gain, and Consumer Discretionary with a 12% gain. Energy is the only sector in the red, with nearly a 12% loss year to date.

The yield on the 10-year Treasury fell 0.6% in July, its largest slide since May. Low inflation and questions regarding economic growth have dulled the allure of the safe-haven instrument. Further interest rate hikes this year now seem doubtful.

Oil finally ended the month above $50 a barrel, its largest close since May 24th. For the month, it rose 9%. The rise was due to the possibility of supply shortages resulting from the combination of declining US inventories, renewed production curb promises from OPEC members, and the possibility of sanctions against Venezuela.

Economic indicators generally showed positive results in July. The Chicago PMI for July slipped to 58.9 from a three year high of 65.7 in June, breaking a string of five consecutive increases. However, any reading above 50 indicates improving conditions. Meanwhile, the unemployment rate remains near a 16 year low of 4.4%. Companies continued strong hiring in July, with 40% of companies raising pay between 1-2% to attract or retain employees.  The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in June on a seasonally adjusted basis. Over the last 12 months, the all-items index rose 1.6 percent.

It seems that this bull market is getting long in the tooth. Washington’s inability to get anything done raises warning flags for September, as the debt ceiling approaches and a budget needs to be crafted. International tensions mount as North Korea continues to push boundaries by launching further-ranging missiles. Nonetheless, we are cautiously optimistic that the markets will continue to provide growth for the long-term horizon investor.

June Market Review and Outlook

If you “sold in May and went away”, as the saying goes, you would have missed out on another positive month, albeit a minor one. The market proves to be resilient, and political turmoil in Washington and global uncertainty appear to be the only obstacles to continued growth. We witnessed a one-day Dow decline of 373 points mid-month as a result of concern regarding the fate of tax reforms and stimulus. But this single day drop – the worst since last September – was quickly erased.  Another negative factor in the market’s performance was attributed to the leaked memo from FBI Director Comey, in which President Trump apparently requested the FBI drop the investigation of former Directory Flynn.

The market closed the month of May with mixed results. The Nasdaq rose 2.07%, the S&P increased .99%, the Dow finished up .24%, while the Russell 2000 lost -1.46. Volatility appears to have returned to the markets, as witnessed by large swings and a heightened VIX.

During the month, President Trump took his show on the road, with his first international trips as Commander-in-Chief to Saudi Arabia, Israel, Vatican City, Brussels and Italy. While he was generally well-received, the results of the trip were mixed: the meeting with Saudi Arabia appeared constructive, but the meeting NATO and G7 members seemed confrontational. In any event, he now has returned home to face allegations of Russian interactions, while continuing work on the pre-election promises including tax reform and infrastructure spending.

International events continue to impact the markets. Macron’s French presidential victory provided relief that his county would remain in the Eurozone. China was downgraded by Moody’s for the first time in nearly 30 years, due to rising debt levels. (China responded with cries of “inappropriate methodology”). And North Korea continues to rattle its saber, firing a missile into the Sea of Japan and warning the US of further surprises.

In terms of sectors, every sector except Energy and Financials posted monthly gains. The top-performers for the month were Technology (4.12%), Utilities (3.62%), and Consumer Staples (2.36%). The worst-performing sectors were Energy (-3.13%), Financials (-.34%), and Materials (-.28%). For the year, Technology leads the pack, with over a 17% gain, and Energy is the laggard, almost 13%.

The yield on the 10-year Treasury fell — basis points in May to 2.21, the largest one month yield decline in seven months. The FOMC met during May and reiterated the strength of the economy and the likelihood of further rate increases this year and a reduction in the Fed’s balance sheet. The odds of a 25 basis point increase in June now stand at 83%. We still maintain that a pullback in equities will result in a flight to quality and safe haven assets. We don’t expect a huge move in yields – somewhere between 50 basis points to a maximum of 3% by the end of August.

Oil ended the month again below $50, marking its third straight monthly loss. While major oil producers have agreed to extend crude outputs through March of 2018, many economists now fear an oversupply of oil once the deal expires. Some now believe that prices need to stay below $50 a barrel to dissuade US shale companies from investing further in production.

Economic indicators showed mostly positive results in May. Economic data showed the pace of growth in the first quarter wasn’t as bad as an initial read: The estimates were raised from .07% to 1.2%. The April employment report showed steady hiring, with an average 185,000 jobs added monthly this year, and the unemployment rate fell to 4.4% – the lowest since May 2001. The University of Michigan’s consumer sentiment indicator inched up from 97 in April to 97.1 in May. And the Chicago Purchasing Managers Index rose to 59.4 from 58.3 – its highest level in 2 ½ years (any reading above 50 indicates improving conditions). The latest monthly inflation rate as measured by the Consumer Price Index (CPI-U) increased 0.2% for the month of April, as reported by the Bureau of Labor Statistics (BLS). This rise occurred after a .03% fall in March. Over the last 12 months, the all-items index rose 2.2% before seasonal adjustment.

There appears to be the right conditions for economic growth, but we expect continuing obstacles to government action this summer, with domestic and international distractions in the forefront. Nonetheless, the markets are fundamentally sound for the long-term horizon investor.

May Market Review and Outlook

The end of April coincided with the completion of President Trump’s first 100 days in office. Many of the President’s campaign promises, such as the replacement of Obamacare, have yet to transpire, and the tax proposal unveiled last week appeared to lack substance. Nonetheless, the markets have held steady and maintained the gains that began last November.

The market closed the month of April with modest gains. The Nasdaq rose 2.3%, the Dow finished up 1.3%, the Russell 2000 gained 1.05%, and the S&P 500 squeaked out a .91% increase.  Investors largely ignored weak economic data and instead focused on corporate earnings. With nearly 300 companies in the S&P 500 having reported, first-quarter earnings are on track to rise 12% last year. That’s above the first-quarter earnings growth of 9.1% that analysts estimated as of March 31.

The last week of the month began with a relief rally, as the Dow jumped 216 points on Monday following the positive results from the first round of the French presidential election. The results were positive because only one anti-EU candidate made it through to the second round of the elections. A victory for Le Pen may trigger a domino-like exodus from the European Union, a scenario set in motion last year with Brexit.

But last week ended on a bit of a down note: The US economy grew just 0.7% during the first quarter, below the consensus of 1%. This is a blow to the Trump administration, which vowed to boost the growth rate to 3% or more during its reign. It may also be a warning shot to the Republicans, who need to resolve their differences and actually get something done, whether it is health care reform or tax changes.

It is important to note that the sluggish GDP may have been the result of seasonal factors, and traditionally the first quarter has been weak, as the economy picks up steam in the Spring and Summer. Most economists expect growth to be between 3-4% this quarter, and then settle back in to the 2% range that has been the norm since 2000.

In terms of sectors, every sector except Energy posted monthly gains. The top-performers for the month were Consumer Discretionary (4.50%), Industrials (3.65%), and Materials (3.38%). The worst-performing sectors were Energy (-0.66%), Utilities (0.50%), and Consumer Staples (1.01%). For the year, Technology leads the pack, with over a 12% gain, and Energy is the laggard, down 10%.

The yield on the 10-year Treasury fell 11.4 basis points in April to 2.28, the largest one month yield decline in seven months. We still maintain that a pullback in equities will result in a flight to quality and safe haven assets. We don’t expect a huge move in yields – somewhere between 50 basis points to a maximum of 3% by the end of August.

Oil ended the month below $50, marking its second straight monthly loss. There is now concern that OPEC may not extend their production cuts during the second half of the year. In addition, large US inventories coupled with strong production will also pressure oil prices. We expect oil to remain in a $50 – $55 per barrel price range.

Economic indicators showed mixed results in March. US wages and benefits rose at the fastest pace since 2007 during the first quarter, signaling a tightening labor market. The University of Michigan’s consumer sentiment indicator edged down from 98 in March to 97 in April. And the Chicago Purchasing Managers Index eked out a small gain to 58.3 in April from 57.7 in March (any reading above 50 indicates improving conditions). The unemployment rate continued to remain below 5%, an important factor in the Fed’s interest rate decisions.

The latest monthly inflation rate as measured by the Consumer Price Index (CPI-U) decreased 0.3% for the month of March, as reported by the Bureau of Labor Statistics (BLS). This decline was the first monthly decrease in the index since February 2016. The CPI-U rose 2.4% before seasonal adjustment for the 12-month period ending in March, its biggest jump since Spring of 2011.

There is likely to be continued political gridlock in Washington in the months to come, as evidenced by the postponement of the budget talks in order to avoid a shutdown. Further inaction and a possible government shutdown may cause market ripples and volatility. Furthermore, global political and economic events such as the French elections and North Korea’s saber-rattling warrant a cautious outlook. But the markets and economy appear fundamentally sound for the long-term horizon investor.

April Market Review and Outlook

The markets in March performed like the adage “in like a lion, out like a lamb”, as we finally saw a negative month for both the Dow and S&P 500, the first since last October. The Dow finished down -1.63% and the S&P 500 declined -.86%. On March 21st the Dow tumbled 237 for its first correction of more than one percent since last September. This decline was a contributor to an eight-day losing streak in the Dow, last witnessed in 2011.

While March’s performance slowed the melt-up that started last November, the major indices managed to produce gains for the quarter. The NASDAQ gained 9.8%; the S&P 500 was up 5.5%; the Dow was up 4.6%; and the Russell 2000 gained 2.3%.

In terms of sectors, the top-performers for the month were Technology (2.02%), Consumer Discretionary (1.82%), and Materials (.33%). The worst-performing sectors were Financials (-2.49%), Real Estate (-2.12%), and Energy (-1.74%). Sector rotation continues, as Technology soars 12% for the quarter and uncertainty regarding changes to industry regulations and tax cuts takes down the Financials sector.

The cancellation of the GOP healthcare plan vote led to concerns that Trump’s promises of deregulation, infrastructure spending, and tax cuts may be delayed, if not abandoned. The difficulty over the healthcare bill is likely to serve as a wake-up call for investors who had flocked to stocks in anticipation of more business-friendly and pro-growth policies from Trump. The market rally has been based on expectations that Trump and the Republicans would be successful in enacting change. That hope has been the primary driver for the market’s movement, but it is now fading as political gridlock hinders any action from Washington.

The much-anticipated interest rate hike occurred on March 15th. This is just the third rate increase since the financial crisis, and confirms the Fed’s commitment to gradually tighten the money supply to ward off the threat of inflation, while raising costs for indebted households. Additional interest rate hikes are priced into the market, with the consensus predicting another two increases this year. Any possible moves by the Fed continue to be broadcast well in advance to avoid any surprises.

The yield on the 10-year Treasury was close to its two-year high at 2.6% following the Fed’s interest rate hike. But the yield sank to 2.38 by the end of the month. We still maintain that a pullback in equities will result in a flight to quality and safe haven assets. We don’t expect a huge move in yields – somewhere between 50 basis points to a maximum of 3% by the end of August.

Oil traded below $50 for much of the month, but rallied to finish above $50 per barrel of WTI. Larger-than-expected drawdowns in U.S. petroleum-product stockpiles and gains in refinery activity raised expectations of stronger demand for crude. Growing expectations that OPEC would agree to extend its production-cut agreement also contributed to oil’s price climb. We expect oil to remain in a $50 – $55 per barrel price range.

Economic indicators showed positive results in March. The Consumer Confidence reading jumped from 116.1 in February to 125.6 in March – the highest level since 2000.  Economists thought it would slip to 114. The Chicago PMI inched up by .3 points to 57.7, the highest reading in 2 years (any reading above 50 indicates improving conditions). The unemployment rate continued to remain below 5%, a factor in the Fed’s interest rate decision.

The latest monthly inflation rate as measured by the Consumer Price Index (CPI-U) was .1% for the month of February, as reported by the Bureau of Labor Statistics (BLS). This was the smallest monthly rise since July of last year. The CPI-U rose 2.7% before seasonal adjustment for the 12-month period ending in February, the strongest annual gain since March 2012. This also was a factor in the interest rate hike decision.

The political gridlock exposed by the scrapping of the healthcare vote does not bode well for the government funding deadline at the end of April. Further inaction and a possible government shutdown may cause market ripples and volatility. Furthermore, global political and economic events such as Brexit and European elections warrant a cautious outlook. Nonetheless, we believe that any market weakness will be offset though a long-term investment horizon.