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Summer Sizzled!

2018-09-06
During the month of August, U.S stocks continued to rise, climbing the classic “wall of worry." 
We’ve experienced rising profits and record U.S. share prices despite trade concerns, tariff wars, submerging emerging markets, rising short rates, a strong dollar and November election uncertainty.   
Investors are putting America first as other world markets swoon;                        
Germany -8.4%, France -0.6% and UK -6.3%. Big Cap China -8.2%, Japan -2.9%, India -1.1%, 
Brazil -19.8%, Russia -5.6%, South Africa -21.6%, Australia -2.9% and Canada -2.8%. 
According to IBD, these countries were all down year to date through month's end. 

Interestingly, Mexico is +2.1% along with the SPX +8.5%. 
Leaves one with the impression that the trade war effects are one sided so far.

Diversification became "de worse ification" for many portfolios as the AGG, 
iShares U.S. Aggregate Bond Index, was -0.99% year to date along with most 
foreign market exposure. 

Second quarter S&P 500 earnings were up 25% the best growth since Q3 2010. 
The 2nd Q GDP was revised up to +4.3%, the best number in years.
Nearly double the 2.2% average since the Great Recession ended in 2009. 
New fiscal policies and less regulation have boosted production and lowered unemployment. 
Inflation remains low. 

Even as the Fed is expected to raise rates in September, December and possibly more in 2019.
September is typically a weak market month but old patterns don't seem to apply. 
Increasing levels of foreign flows into U.S. assets continue to provide a strong backdrop for rising
equity prices. Profits will be up over 20% in 2018 and we expect another double-digit gain in 2019.
Perhaps the election will cool down the pace of this record climb?
A strong Spring and Summer is a rare combination which often bodes well for positive for 
year-end price levels. 

If you would like a portfolio review to discuss a financial plan please let us know.


 
Disclaimer: These stock market observations are confidential and proprietary. They are for informational purposes only and are not intended to be used, and may not be used, as investment, legal, accounting, tax, or other advice. No express or implied representation or warranty is being made with respect to their accuracy or completeness. No obligation exists to inform the recipient when the information herein is no longer current or accurate. These observations do not constitute an offer to sell or a solicitation of an offer to buy any securities or interests in any investment vehicles managed by CFA or an associated person or entity, or to provide investment advisory services. 
 

— by Doug & John Coppola

Stock Market Observations:August, 2018

2018-08-14
Stock Market Observations:August, 2018
U.S. Earnings Shine 
The lazy, hazy, crazy days of summer are upon us. Stocks have meandered higher while bond yields have drifted lower. The SPX is now 2822 or 1.8% below it's all time January 26th high of 2872. The U.S. economy is strengthening despite the fact we are in the 10th year of economic expansion. Unemployment is near an 18-year low, credit is readily available, consumer confidence is high. No recession is on the horizon. 

Second quarter earnings season is wrapping up with 91% of the S&P 500 having reported quarterly results.

  • Second quarter EPS are up 25% with sales up 10%. Expectations were for 20% EPS growth with sales up 8.4% heading in to the reporting season, this is roughly in-line with the modest upside we typically see relative to Wall Street estimates.
  • Third quarter EPS are expected to grow 20% with sales up 7.2%, in-line with estimates one month ago. Estimates for the following quarter normally get pared down bit based on conservative guidance.
  • For the year, EPS are expected to grow 20.6% with sales up 8%, marginally higher than one month ago.

The clouds in this pretty picture include the effect of widening tariffs, the upcoming midterm elections, the Mueller probe continuing without solution and increasing tensions with Turkey, Iran, N. Korea, Russia and China.

Additionally, we have a narrowing difference in 2 and 10-year Treasury yield spread. The 2 yr. -2.61%, 10 year- 2.88%. The Fed is expected to raise rates 2 more times this year and next. This may lead to an inverted yield curve, signaling a future recession. 

The U.S. dollar has strengthened across the board hurting returns from foreign investments and slowing earnings growth from U.S. multinationals. $DXY the trade weighted U.S dollar index is up nearly 5% this year and at a 52-week high as tariffs exacted on foreign trading partners has driven investors to keep their investments closer to home.

As markets work their way through summer doldrums, U.S. stocks have advanced while foreign markets swoon, particularly in China.

Gold trades at a new 52 week low. EEM-$42.48, the emerging markets ETF is not far off 52-week lows and 18% off its Jan 26 highs.

Value stocks have underperformed again in 2018. Growth stocks have far outperformed Value this entire market cycle.

U.S. stocks continue to outperform bonds. AGG -$106.29, the iShares Core U.S. Aggregate Bond fund is down 1.12% year to date, IVV -$284.11, iShares Core S&P 500 ETF is up 5.7%.

We shall see what the balance of 2018 has in store. It takes time to unravel a long bull run and time is always on the side of long term investors. With low inflation, low interest rates and rising earnings the bull trend has the support to continue. If the trade wars worsen however, the positive economic climate will change across the globe. If this trade war ends and leads to lower tariffs stock markets everywhere will likely rise.

We are pleased to now be offering Financial Plans for our clients who desire one. Financial Planning is about more than assets, investments and net worth. Together we can work to better identify your concerns, expectations and goals. Retired or Employed we are ready to help you understand your financial situation and plan for a more secure future.
 
Disclaimer: These stock market observations are confidential and proprietary. They are for informational purposes only and are not intended to be used, and may not be used, as investment, legal, accounting, tax, or other advice. No express or implied representation or warranty is being made with respect to their accuracy or completeness. No obligation exists to inform the recipient when the information herein is no longer current or accurate. These observations do not constitute an offer to sell or a solicitation of an offer to buy any securities or interests in any investment vehicles managed by CFA or an associated person or entity, or to provide investment advisory services. 
 

— by Doug and John Coppola

Stock Market Observations: Interesting Times Happy July 4th!

2018-07-06
Stock Market Observations: Interesting Times
Happy July 4th

We saw lots of disparate movement in financial markets during the first half of 2018. After the January jump, the last five months saw returns of +1 for the NASDAQ, -4% for the S&P 500 and -7% for the DJIA.

The first month of the year began with a 6.7 %+ surge. U.S. stock prices then followed with a swift 10% correction. On Jan. 26, the S&P 500 peaked at 2872.87 with the low of 2533 on Feb. 9.

Year to date, the SPX closed at 2726, up +1.7%, while the DJIA closed down 1.8%.

Small caps led the positive parade along with Energy and Technology. Nasdaq made all-time highs on June 20th. Oil prices surged with WTI closing at $74.1/ bbl. The U.S. is now the leading world producer and has become an exporter of energy as well.

Consumer Staples, Financials, Telecom and Transports were all down in the first half.  
Emerging markets dropped 6.6% and EFA which represents developed non-U.S. 
markets dropped 2.4%.
Source: Bloomberg
AGG, the Aggregate iShares U.S. Bond index was down 1.66% along with the 20-year plus 
U.S. Treasury Bond ETF-TLT -2.98%.

The 10-year Treasury note closed with a 2.84% yield. The difference in yield between the 2-year 
and 10-year Treasury notes has narrowed to 31 basis points as the Fed pushes up short term rates. 
By year end we may see a flat yield curve unless long dated bond yields increase or the Fed slows
its rate rises.

The most powerful bull market theme has been growth in a slow growth world.

Recent tax cuts pushed U.S. profits higher and some economists see 3%+ GDP growth for the remainder of the year. Profits will rise about 20% quarter over quarter during the balance of 2018 and should continue to rise in 2019. Share buybacks were $433.6 billion in Q1 doubling the previous record of $242.1 billion. At the same time investors sold $23.7 billion of stock market funds in June, a new record. 

Despite gruff trade talk from Washington, economic policies have been very good for corporate profits and the unemployment reached 50-year lows at 3.8% in May with little inflationary impact. 

A tug of war in financial markets continues with fears of a trade war combined with tighter Fed 
policy and looming Congressional elections seen as possible negatives. Positives include 
higher profits, lower P/E ratios plus higher capital spending.

Global growth depends on trading partners negotiating rather than imposing unilateral tariffs. 
The ultimate goal of this confrontation is to lower all tariffs, not precipitate a trade war.

A tariff is simply a tax on goods coming from another country. Tariffs cause higher prices for 
consumers and therefore slower demand for affected products.

While we wait to see how this chess match unfolds stock markets stall or worse yet, decline. 
This concern has brought global net equity outflows to $20.2 billion last quarter, the worst since Q3 2016.

If this issue is resolved in a positive way the U.S. and global economies will improve and fears of an impending recession will fade. If not, slowing trade will hamper growth, profits will peak and markets will likely head lower.

Ed Yardeni, a well know market maven recently stated, "this bull market will last as long as the economy expands." Recession is not yet in the forecast for the next 18 months. 

We have been in economic expansion since 2009, the second longest on record in the U.S. 
Markets, however do not die of old age, we will be alert for changes in vital signs as facts on 
the ground begin to change.

Happy July 4th & Happy Birthday America!

Disclaimer: These stock market observations are confidential and proprietary. They are for informational purposes only and are not intended to be used, and may not be used, as investment, legal, accounting, tax, or other advice. No express or implied representation or warranty is being made with respect to their accuracy or completeness. No obligation exists to inform the recipient when the information herein is no longer current or accurate. These observations do not constitute an offer to sell or a solicitation of an offer to buy any securities or interests in any investment vehicles managed by CFA or an associated person or entity, or to provide investment advisory services. 

June is Finally Here and so is Summer!

2018-06-06
Stock Market Observations: 
June is Finally Here and so is Summer!

The SPX was up 2.2% in May but only 1.2% for 2018, while the DJIA is down 1.2% through May, 31, 2018. Volatile markets continue to be a feature this year compared to a placid 2017. 

The trade weighted U.S. dollar index DXY has rallied from 89.18 in April to 94.11 at month's end. The dollar rallied 1.7% in May alone. It has taken a toll on returns from Emerging Markets and the EU investments.

Growth stocks continue to lead the way in 2018 and the divergence between growth and value sectors 
is as wide as it has been in many, many years.
Rising rates and trade tariffs are headwinds to further stock price gains. Stocks generally like a strong economy, the recent unemployment rate of 3.8% is the lowest since 1969, plus rising earnings. 
First quarter earnings were up more than 24% according to FactSet. Our forward P/E ratio 
for the S&P 500 is now 16.5 times a $165 estimate. The P/E ratio is above the 5-year average of 16.2 and the 10-year average of 14.3, however interest rates are lower than the averages over that time frame.

Share buy backs are on the rise as are dividend payments by corporations are at record levels.

The U.S. 20-year Treasury Bond ETF, TLT, is down 5.19% year to date, despite a recent rally on Euro breakup concerns. MUB which is the iShares National MuniBond ETF is down 1.65% in 2018.

Our assessment continues to be that we remain in a long term bull market. Stocks will likely
outperform bonds this year once again. Wage inflation and core CPI will remain muted and the 
FED will continue to raise the Fed funds rate but not aggressively. Barring a full-blown trade war, 
stocks will remain in an uptrend. 

At 2747 on the SPX we have rallied 51.8% off the 1810 low in February 2016. We have already had 
a 10% drop from the 2872 highs in January 2018, far more volatility than 2017 with a steady diet 
of Fed interest rate hikes. 

Despite all this, stocks continue to rise having touched critical support lines several times this
year and bounced higher. If earnings continue to move up and the economy expands share 
prices will likely rise further.  
 
If you bought stocks in Sept, 2007, held on for 10 years through a scary period of two wars, a 
major recession, financial meltdown, a 50% market decline and three different presidents, 
stocks still retuned +7.2% annually through Sept 2107. Cash was +0.4%, 10-year treasuries +4.6% 
with a CPI of +1.7%. Gold managed a +5.7% gain while oil lost -4.3% and home prices were down -1.0%.
Stocks did even better over the past 90-year period with the SPX up 9.8% on average. 
As Yogi Berra once said, ‘It ain’t over till it’s over.”


Disclaimer: These stock market observations are confidential and proprietary. They are for informational purposes only and are not intended to be used, and may not be used, as investment, legal, accounting, tax, or other advice. No express or implied representation or warranty is being made with respect to their accuracy or completeness. No obligation exists to inform the recipient when the information herein is no longer current or accurate. These observations do not constitute an offer to sell or a solicitation of an offer to buy any securities or interests in any investment vehicles managed by CFA or an associated person or entity, or to provide investment advisory services. 
 

— by Doug & John Coppola

Sell in May & Go Away!

2018-05-02
Sell in May & Go Away!
May 1, 2018
With all This Good News What's up With the Market Volatility and Directionless Trading?


The S&P 500 closed the month of April on a down note at 2648.05. 
Down from the last day of December, 2017 which closed at 2674.
Ten-year U.S. government bond yields finished the month at 2.95%. 
German Bunds of the same duration yield 0.56%. 
We touched the much anticipated 3.03% level on April 25, 2018.
With 53% of companies in the index reporting, 
79% beat earning expectations and 74% beat revenue expectations according to FactSet.
This metric was last reached in Q3-2008. 
Earnings this past quarter are up 23.2%, the best rise since Q3-2010.
The forward P/E on the index is now 16.3x earnings against the 5-year average of 16.1x, 
the 10-year average is 14.3x.
So, with all this good news what's up with the market volatility and directionless trading?
The U.S. Treasury had to raise $488 Billion in Q1-2018 for budgetary purposes, 
which is a massive amount of supply. 
Mortgage backed bond purchases along with Fed buying of Treasury notes is coming to an end.
The Fed decides on Wednesday, May 3 on the course of future rate hikes.
Oil prices are up to $68.41 but the index of oil stocks is only slightly higher than where the year began. The same lethargy exists for Gold.
Concerns about trade wars and real wars abound but both are low probability outcomes. 
The U.S. dollar is now rising off its February, 2016 lows, 
a change in direction from its downward trend all of last year.
The President's approval rating is 42% and the Muller probe continues unabated after more 
than one year of looking with no significant findings of collusion with Russia.
Concern over peak earnings in 2018 appear misplaced as 2019 earnings estimates are 
for higher levels once again. 
We could see another rise as much as 10% in 2019.
A recession generally appears on the horizon with an inverted yield curve, 
but the current 2-10 Year U.S. Treasury spread sits at 46 basis points.
Widening spreads between junk bonds and government debt predict concern 
for the economy or recession. 
Indeed, we now enjoy a steady economy, rising profits, low inflation, 
and a slow but steady rise in interest rates. 
We are now digesting the big run up in stock prices that began in November, 2016 
and peaked in January, 2018 at 2872.87.
That was a top to bottom rise of 37% and we now sit 7.8% below that peak.
Short term interest rates have gone over 2% on bills and 3% on 10-year notes, 
but 30-year bonds sit at 3.12%.
At $155 in S&P 500 earnings for 2018, we derive an earnings yield of 5.85%.
A trade war or military conflict with Iran or North Korea would hurt stock prices. 
An impeachment attempt by Democrats, 
should they win the House of Representatives in November will likely cause a selloff.
We have no crystal ball, however, the economic and profit back drop may well lead to 
more market gains once this period of indigestion has passed.
A final thought, in 1973 when I began in the investing business, 
I soon learned about a 4-year cycle to stock market bottoms. 
They occurred with regularity and were referred to as the " Presidential" cycle. 
It went back to the 1940's.
For the sake of brevity, the midterm cyclical lows happened in 1966, 1970, 1974, 
1978, 1982, 1990, 1994, 1998 & 2002. 
Exceptions occurred with the "Crash of 1987" and after the 9-11 attack on America,
the 2006 low never happened. 
The Fed after 9/11 altered its patterns of easing and tightening, 
then after the financial crisis in 2008 we began "Quantitative Easing" which led to powerful 
new influence on the pricing of bonds and stocks.
It is worth remembering, mid-term election years in the "Presidential Cycle” are often 
volatile and tend not to overcome their angst until late in that year. 
This year's volatility may prove to be a lot of sound and fury signifying nothing, 
2017 was an exceptional year in many ways and this year looks more like a reversion to the 
mean or what used to be normal.
In the long run, the U.S. stock market appreciates about 10% on average per year with 
pauses and infrequent but sometimes steep corrections along the way.
Patience is required to capture these gains. 
Bonds will not get you there given the current level of rates.
Happy May!


Disclaimer: These stock market observations are confidential and proprietary. They are for informational purposes only and are not intended to be used, and may not be used, as investment, legal, accounting, tax, or other advice. No express or implied representation or warranty is being made with respect to their accuracy or completeness. No obligation exists to inform the recipient when the information herein is no longer current or accurate. These observations do not constitute an offer to sell or a solicitation of an offer to buy any securities or interests in any investment vehicles managed by CFA or an associated person or entity, or to provide investment advisory services. 
 

— by Doug & John Coppola

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