Market Commentary

Rising Yields and Impact for your Money

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rising yields

Treasury yields rose significantly over the course of last week. The rising rates spooked equity investors, reaching the highest levels since February 2020. And the highest one month gain since November 2016. Yields ended the week down from the high on Covid-19 vaccine optimism, a recovering U.S. economy, and massive stimulus deal near completion. For the week, major indexes finished down; Dow down 1.9%, S&P down 2.41%, and Nasdaq down 4.9%.

Rising Yields

The high yields lead to concern for inflation. With inflation, comes demand for higher yields. Higher yields are passed down to corporations by way of borrowing. If companies have debt or increase their debt, than in return, they will pay higher interest payments. Higher interest payments cut into their profits, therefore, companies report lower earnings and their overall valuation declines. Rising rates are not all doom and gloom. Fed Chairman Powell made this statement regarding higher yields last week, “statement of confidence on the part of the markets that we will have a robust and ultimate complete recovery.” Regardless, interest rates remain the focus of market stress going forward.

Week Ahead

Last week, U.S. jobless claims of 730K were lower than expected, and lower than the previous week. The Johnson & Johnson vaccination news helped travel stocks jump. The J&J vaccine approval increases the push to vaccinate 100m people in the U.S. by the end of June. Further supporting the recovery and investor perception of a likely economic boom. Housing report data was strong. The House passed President Biden’s $1.9T relief package over the weekend. Despite the rising rates, this is all positive news to support the market. For the year, Dow is up 1.06%, S&P up 1.47%, and Nasdaq up 2.36%.

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This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.

How Quickly Will the Economy Recover

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economic recovery

Now that the great short-squeeze has lost most of it’s air, it’s back to business as usual. The indexes shook off the weak job numbers and are looking ahead to the economy recovering and growing. Last week all indexes finished up.

Last Week

January jobs created less than 50,000 new jobs. On the positive side, unemployment fell from 6.7% to 6.3%. The number of Americans filing for unemployment also declined for the 3rd straight week. Most of the Nasdaq’s gains were attributed to good earnings reports, surpassing estimates. And the volatility index dropped back into the 20’s, calming the fears of an immediate 2021 correction. Readings from the ISM report were above 50, signaling expansion. This is good news when trying to grasp how quickly the economy will recover.

The Week Ahead

The economy is continuing to recover, both at home and abroad, as vaccination efforts spread. When a stumble comes, fiscal and monetary policy will undoubtedly offer an arm to stabilize or stand up. That remains supportive to equities, government bond yields, and credit markets. Roughly 59% of the S&P500 has reported earnings, and 81% have beaten EPS estimates. Per FactSet, the blended EPS growth rate is +1.7% y/y versus December 31’s estimate of -9.3%. For now, investors will continue economic implications of the race between widespread vaccination and virus mutation, the resumption of consumption, and the likelihood of higher prices or inflation across the economy.

Total after tax income was up 7.2% in 2020, the most in any year since 2000. Right now, there is plenty of demand for goods. Incomes and savings are up year-over-year. While production is not. It is supply that is hurting. The perfect recipe for inflation. A very real threat to the long-term health of the US economy. This we will keep an eye on. Year-to-date index performance; Dow up 1.77%, S&P up 3.48%, and Nasdaq up 7.51% through the close on Friday.

Have a safe week!

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This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.

Impeachment, Inauguration, and a Whole Lot More

jim Economy, Financial advisor, Market Brief, Market Commentary, Market Outlook, Market Review, Stock Market , , , , ,
biden

Last Week

Investors’ appetite for risk-on positions took a breather after disappointing December retail sales. Also, President elect Biden’s proposed $1.9 trillion fiscal stimulus plan fell short of expectations. Biden’s plan includes $1,400 stimulus checks to individuals, as well as, aid for state and local government. While President Trump’s impeachment in the House had little market impact. Friday’s January options expiration did exacerbate volatility ahead of the holiday weekend. Earnings season kicked off with better than expected results from financial giants J.P. Morgan, Citi, and Wells Fargo as they released loan loss reserves. The banks still warned of the economic recovery’s fragility.

On the data front, the notable miss was December retail sales falling 0.7% versus flat expectations. This registered the third consecutive monthly decline. Driven by the latest round of stimulus checks not delivered until the end of the month. Small business optimism cooled in December. As did consumer sentiment, dented by political uncertainty and feet shuffling on the fiscal stimulus front.

This Week

U.S. financial markets closed on Monday in observation of Dr. Martin Luther King Day. The 59th Presidential Inauguration on Wednesday will dominate news headlines, as President Elect Biden is sworn into office. His aim is for 100 million Americans to receive a COVID-19 vaccination in his first 100 days. Much of investors’ developing economic outlook hinges on his success.

The number of Americans filing for unemployment benefits anticipates recovery after last week’s bad figure. But still will remain uncomfortably elevated. Housing data is anticipates to come in mixed, but the sector remains strong. Friday is global PMI day, and nearly every region is anticipates a slide. Most significantly in the UK given the recently discovered mutated virus strain.

Year-to-date, the S&P 500 is up 0.32%, the Dow up 0.68% and Nasdaq up 0.86%.

Click here if you would like to learn more about your options and if we can assist you with your wealth management, investment, and retirement planning.

This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.

Market Brief – 2020 Mid-Year Review

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Market Brief 2020 Mid-Year Review

Dog days of summer have arrived. For 2020, it feels like the dog days arrived in March. From the moment the pandemic began to spread, to stay-at-home orders, to lock-downs, to protest rallies, to reopening phases, and back to more restrictions… what a year, and we are only halfway home. Didn’t even mentions the murder hornets! Let’s take a minute to catch our breath and see where we have been, where we are, and where we will go. Currently, we are in the midst of earnings season. Big name stocks will report second quarter earnings this week. Last week the main indexes finished mixed. The Dow up 2.3%, S&P up 1.25%, and Nasdaq down 1.1%. The S&P 500 outperformed the Nasdaq index by the widest margin since February 2016. The markets were mainly buoyed by progress of a virus vaccine.

What Happened?

The year started off strong through mid-February. Early cases and the fast spread of the coronavirus took hold in Asia and quickly jumped country borders to become a worldwide pandemic. Just about a month from the market peak in February came the market lows in March, a 33.9% drop for the S&P index. In just a few weeks, the U.S. economy erased 7 years of employment gains. 30 million Americans lost jobs, driving unemployment as high as 22% in April. By June, the unemployment rate hovered around 14%. Still extremely high, but significantly lower from 2 months prior.

In March, the Fed stepped in and provided a backstop to the equity markets. Stabilizing and possibly adding turbo to the economy via stimulus for individuals and businesses. The pandemic accelerated tech disruption. It changed how companies reach consumers, how supply chains work, how to deal with remote employees, and still build their brands.

Where Are We Today?

Year-to-date index performance; Dow down 6.54%, S&P down 0.2%, and Nasdaq up 17.0% through the close on Friday. Last week, Treasury Secretary Mnuchin said the Trump administration and Senate leadership are discussing a new stimulus bill. The end of July is the target time frame as the previous stimulus benefits are ending. The housing market reports are exceeding expectation. Current metrics show a shortage of existing home inventory, limited housing labor to build new homes, and a shortage of entry level homes for the first time home buyer. Historically low mortgage rates help boost the housing demand. Labor income across the board is surging and consumer spending is rebounding.

The markets are in fairly good position today. Much of the strength is attributed to the Fed and swift implementation of monetary policy. With interest rates near zero, investors are willing to pay for future earnings. Growth stocks have done well, value stocks have lagged. When the economy improves and interest rates rise, growth stocks will be challenged by high valuations. Communities have begun to re-open. The U.S. seems to have chosen independence over lock-down. This has led to a recent uptick in coronavirus cases. Deaths due to the virus have decreased as health care has gotten smarter about how to handle symptomatic cases. The resurgence of hiring and end of mass layoffs indicate the job market is recovering. While the decreasing layoffs and increasing hires offer hope, the reopening process has been trending in the wrong direction.

Where Are We Going?

It’s election season. From here on out, politics will headline media reports. Snippets and quotes from leadership on both sides will sway the markets. Bigger than the election is the Fed’s actions. Interest rates are low and likely to remain low for a very long time. This creates a scenario of easy lending and the opportunity for trillions of dollars to remain invested in the market. The future months will measured by the resurgence of the coronavirus, how quickly a vaccine can be developed, another round of monetary stimulus, and the upcoming election. If you thought the first half of 2020 was a roller coaster, the second half might be just as wild! Take care and be safe.

Market Brief’s are taking a summer hiatus, see you at the end of August!

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This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.

Portfolio Management Perspective

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Portfolio Management Perspective

Review of Benchmarks, Strategy, Risk, and Performance – Perspective from one of our Portfolio Manager’s – March 13, 2020

Whenever the topic of investing is discussed we are conditioned to think first of the New York Stock Exchange opening bell and Wall St. bankers in Brioni suits. And why shouldn’t we? Over the past 200 years, stocks have arguably been the most powerful generator of wealth.
 
That rosy conventional wisdom has the benefit of a perpetual time-horizon and an ambivalence towards risk. As we all know, stocks might be notorious for rising over time, but they also can produce nasty results if improperly managed. Very few of us are fortunate enough to be ambivalent towards risk or the trajectory of our investments – if we were, being 100% invested in the DOW or S&P 500 would be a fine strategy. That is where financial planning and asset management comes in.
 
As a conservative asset manager, we are tasked with two main objectives a) produce a rate of return that achieves an objective (generally retirement/self-sufficiency) and b) protect against downside and volatility.  Our definition of success in both goals is directly related to the specifics of your financial situation. 
 
Since the inception of our Total Return strategy in 2004, we’ve employed a mix of equities (stocks), commodities, fixed income, and cash to achieve the objectives stated above for clients. At any given point, we may be more dependent on one asset class or another to provide upside thrust or downside support for our clients’ portfolios. As you might expect, this asset mix is largely dependent on (among other things) the outlook for the economy, interest rates, and the inclination for risk in the markets.
 
In some environments, such as 2017, the stock market and high-quality individual equities genuinely are the best option for capital appreciation.  In other periods such as late 2018 and 2019, a choppy market and unclear fundamental prospects warranted a higher concentration in traditionally less economically sensitive asset classes like bonds, gold, and cash. No matter the environment, we are continually assessing our outlook and corresponding exposures.

In the client updates over the past week, we noted how our conservative positioning at the outset of this decline was yielding promising results. That remains the case, and when we evaluate client performance relative to equity benchmarks (DOW, S&P 500, NASDAQ), we are heartened by the fact that client accounts have a) declined substantially less than the benchmarks and b) exceeded the results previously experienced in similar periods of stress.
 
Since our inception, having a trained eye on risk management has allowed clients to generally experience asymmetric rates of upside and downside participation vs. equity benchmarks. In other words, we’ve consistently achieved more upside than downside through the course of market trends. 
 
Finally, we understand that the personal nature of the virus and the corresponding downside reaction in markets can be especially anxiety provoking.  And while this is everybody’s first time managing through a true pandemic, it is far from our first time managing through a panicked market.  We will get through this turbulent time and be prepared to deploy the capital we’ve preserved throughout the episode.

Click here if you would like to learn more about your options and if we can assist you with your wealth management, investment, and retirement planning.

This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.