April Monthly Market Commentary

The month of April yielded positive returns for all major indices with international stock markets leading on the heels of the boost from the French elections. Emerging Markets are the best performing asset class now up 13.88% for 2017. A 60% stock and 40% bond balanced portfolio is up 4.10%.
 
 
April’s Economic Highlights
  •  Employment: The employment report for March showed job hirings slowed to 98,000 following gains of 219,000 in February and 216,000 in January, revised. Average hourly earnings increased by $0.05 to $26.14, following a $0.06 increase in February. Over the last 12 months ended in March, average hourly earnings have risen by $0.68, or 2.7%. 
 
  • Interest rates: The Federal Open Market Committee did not meet in April, but is scheduled to meet during the first week of May. While the FOMC anticipated raising interest rates three times during 2017, some members of the Committee will want to see solid economic growth before voting to increase rates at the next FOMC meeting in May. [Update: on 5/3/2017, After its two-day policy meeting, the Federal Open Market Committee unanimously voted to hold the federal funds rate between 0.75% and 1.00%, citing slowing economic growth.}
 
  • GDP: Expansion of the U.S. economy slowed over the first three months of 2017. According to the Bureau of Economic Analysis, the first-quarter 2017 gross domestic product grew at an annualized rate of 0.7% compared to the fourth-quarter 2016 GDP, which grew at an annual rate of 2.1%. 
 
  • Inflation: Consumer prices also retreated in March, slipping 0.3% from February. For the year, consumer prices are up 2.4%. Core prices, which exclude food and energy, dropped 0.1% for the month and have increased 2.0% since March 2016.
 
  • International markets: In France, the rise of Emmanuel Macron, a former investment banker, as the heavy favorite to win the May 7 presidential race sent stocks and the euro higher, as the eurozone continues to gain its economic footing following the financial crisis of 2008. Greece reached a budget surplus that's eight times higher than the 0.5% primary target set by its creditors. This bodes well for continued bailout support for the financially embattled country.
 
As always: stay disciplined, focus on those things you can control, and ignore the rest.
 
To Your Prosperity,
 
Kevin Kroskey, CFP®, MBA
 
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment.

March Monthly Market Commentary


The month of March was about a push for the U.S. Market with the SP 500 up 0.12%. International markets, however, were up more than 2.5%, as the U.S. dollar continued to give back some ground it gained in late 2016. The first quarter was most positive for Emerging Markets up 11.44%.



Key Monthly Economic News

  • Employment: February's employment report showed continued strengthening in the labor sector with 235,000 new jobs added in the month, on the heels of 238,000 new jobs added in January. Over the last 12 months ended in February, average hourly earnings have risen by $0.71, or 2.8%. This increase is a good sign for the economy but puts pressure on profit margins at companies.
  • Interest rates: Following its meeting in March, the Federal Open Market Committee raised the target range for the federal funds rate by 25 basis points to 0.75%-1.00%. This is the first interest rate change for 2017, although two more increases are expected this year per the FOMC.
  • Inflation: Inflation, as measured by personal consumption expenditures, reached the Fed's 2.0% annual target in February. Consumer prices are up 2.7% for the year, a mark that is not only well above the Fed's 2.0% target for inflation, but stands as the highest rate of growth in almost five years. Even the core rate, which excludes energy, is holding steady at 2.2% since February 2016.
  • International markets: The UK formally began the process of leaving the EU. This action now opens a two-year window for Britain to negotiate the terms of its exit. The bottom line is that nothing dramatic is likely to happen whether economically or in the investment markets as a result of this despite the initial reactions in June 2016.

Looking Ahead

Market pundits have been telling us that the market’s sudden rise that begin after the elections in November is the result of the so-called “Trump Trade.” This is shorthand for an expectation that companies and individuals will soon be paying fewer taxes and be burdened by fewer regulations, leading to higher profits and greater productivity. Add in promised infrastructure spending, and the expectation was an economic boom across virtually all sectors.
 
There is no sign just yet of that boom. Rather a continuation of the slow and steady recovery that the U.S. has experienced since 2009. The latest reports show that the U.S. gross domestic product grew just 1.6% last year although though the fourth quarter was more positive and recently revised to 2.1%.

The good news is that corporate profits have been increasing over the last quarters. This will likely need to continue to justify U.S. stock prices and plow through the negative news – much of which will likely be resulting from the sausage-making in Washington.

If employment remains strong and consumer prices trend higher, the Fed may raise the target rate another 0.25% in May, tentatively with at least one more rate increase likely before the end of the year.

As always: stay disciplined, focus on those things you can control, and ignore the rest.

To Your Prosperity,

Kevin Kroskey, CFP®, MBA

February Monthly Market Commentary

Markets continued their positive trend in February as each of the benchmark indexes listed in the table below posted monthly gains. Since the presidential election, investors have continued to pour money into stocks, likely in anticipation of tax cuts and policies intended to further boost corporate earnings.

Corporate earnings were key in driving more recent market growth. For Q4 2016, the earnings growth rate for the S&P 500 was 4.9%. The fourth quarter will mark the first time the index has seen year-over-year growth in earnings for two consecutive quarters since Q1 2015. Continued earnings per share growth is needed to help justify the relatively high valuation of the U.S. stock market. (See expected equity return building blocks here.) 
 

The corporate tax holiday proposed by President Trump is likely to help with the valuation problem as well. Under President Bush in 2004 a similar tax holiday was enacted. While the expected benefits were job creation, the real benefits were to shareholders as companies paid out dividends or bought back stock. Fewer shares of stock equates to a higher earnings per share figure.
 
“A tax holiday would bring substantial amount of cash back to the U.S. and paying that out to shareholders is good for the economy. But if you’re a politician claiming it will create a lot of jobs or new investment, it isn’t supported by the data.” This was said by Kristin Forbes, Economics Professor at MIT”s Sloan School and member of President Bush’s council of economic advisers in 2004.
 
February’s Economic Highlights  
  • Employment: Growth in the employment sector remained steady in January. According to the Bureau of Labor Statistics, there were 227,000 new jobs added in January, up from a revised December total of 157,000 and well above the 2016 average of 187,000.
  • Interest Rates: Continued strength in the labor market and consumer spending, which has sent inflation closer to the Fed target rate of 2.0%, will likely substantiate further rate increases in 2017 and 2018.
  • GDP: According to the "second" estimate of the GDP from the Bureau of Economic Analysis, fourth-quarter 2016 gross domestic product grew at an annualized rate of 1.9% (the same rate as the first estimate). The growth rate for the third-quarter GDP was 3.5%.
  • Inflation: Consumer spending increased in January as inflation continues to trend upward. The Producer Price Index, which measures the change in the prices companies receive for goods and services, increased 1.6% over the last year. The Consumer Price Index, which measures what consumers pay for both goods and services, increased 2.5% over the last year — the largest 12-month increase in nearly five years.
  • Housing: The median sales price for existing homes in January was $228,900--7.1% higher than the median sales price for January 2016.
  • International markets: Earnings reports from European companies have been positive for the most part, adding to the optimistic economic outlook in Europe.
 
To Your Prosperity,
 
Kevin Kroskey, CFP®, MBA
 
This article adapted with permission from Broadridge.
 
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.  
 
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment.

January Monthly Market Commentary

Despite political headlines dominating the news, the markets -- most notably international markets -- continued to provide positive returns in January.


 
 
The January Jobs Report

Depending on which survey you look at, economic experts predicted the economy would add an average of between 175,000 and 180,000 jobs in January.5 Instead, on Friday, the Bureau of Labor Statistics’ report showed the economy added 227,000 jobs last month—far higher than predicted.6 This increase means job growth has continued for 76 months in a row.7

You gain a much clearer picture, however, when you look beyond the big headlines and see what other data tells us. Here’s a quick rundown of what we found:

Hourly Earnings Increased, but by a Very Small Margin

Average hourly earnings grew by only 3 cents in January—and showed a 2.5% increase over last year.8 This monthly growth is less than a third of what we saw in December 2016.9 However, one industry in particular may have caused these slower gains, as a 1% decrease in financial industry earnings depressed overall wage growth.10

Unemployment Increased, but for a Potentially Positive Reason
 
When you hear that unemployment increased from 4.7% in December to 4.8% in January, this may sound like bad news.11 However, a major reason for this increase is that labor force participation grew by 0.2% in January, the first increase in months.12 In other words, after sitting on the sidelines, more people are now rejoining the labor force and creating additional opportunities for economic growth.13

Jobs Are Available, but Workers May Need Training or Relocation

While labor force participation increased last month, its 62.9% rate is still near the lowest level in decades.14According to Glassdoor Chief Economist Andrew Chamberlain, approximately 5.5 million jobs remain open in the U.S.—close to a record number.15  Some of these jobs, such as retail and food service, don’t require much training, but they aren’t always located near where unemployed workers live. Other jobs in the hot fields of healthcare and technology require training and skills that many workers simply do not have right now.16  As a result, closing the gap between open jobs and willing workers is a complex challenge for employers and job-searchers alike.

The Bottom Line

The labor market is continuing to improve, but the pace remains slower than what most people would prefer. Nonetheless, the Bureau of Labor Statistics’ latest revisions show that private-sector payrolls have increased for 83 straight months, the longest growth streak since the 1920s.17

 
To Your Prosperity,
 
Kevin Kroskey, CFP®, MBA
 
This article adapted with permission from Platinum Strategies.
 


2016 Investment Market Review

U.S. INVESTMENTS
 
You know you are deep into a longstanding bull market when “Dow 20,000” is a regular story on the evening news. (Read why the Dow is a terrible benchmark index for U.S. stocks.) Who would have imagined record market highs when 2016 got off to such a rocky start, tumbling 10% in the first two weeks—the worst start to a year since 1930?
 
The markets eventually bottomed in mid-February and began a long, slow recovery. Markets turning positive by the end of March but suffered a sharp but short setback when the U.K. decided to leave the Eurozone in June. Markets were sharply positive for July forward until enduring a pull back leading up to the elections, after which they resumed a strong climb.
 
The S&P 500 index finished up a respectable 11.96% in 2016. However, this was a year to remember for investors in small company and value-oriented stocks – both science-based factors that historically have added to investment returns.
 
  • The Russell 1000 Large Cap Value index returned 17.34%.
    • Russell 1000 Large Cap Growth index 7.08%.
    • Large Value – Large Growth = 10.26% Large Value outperformance
  • The Russell 2000 Small Cap index returned 21.31%.
    • Small – Large = 3.94% Small Cap outperformance
  • The Russell 2000 Small Cap Value index returned 31.74%.
    • Russell 2000 Small Cap Growth index 11.32%.
    • Small Value – Small Growth = 20.42% Small Value outperformance
 
INTERNATIONAL INVESTMENTS
 
International investments contributed mixed results to a diversified portfolio’s returns. The broad-based EAFE index (EAFE = Europe, Australasia and Far East) of companies in developed foreign economies posted a paltry 1% return in U.S. dollar terms. Yet, emerging markets stocks of less developed countries, as represented by the EAFE EM index, gained 11.19% for the year. Small and value portfolio tilts added value here as well. For example, the MSCI Emerging Market Valued Index returned 14.9%.
 
BONDS & ALTERNATIVE INVESTMENTS
 
In the bond markets, it is possible that the decades-long bond bull market (since the 1980s) has ended, which means declining interest rates no more. The fixed-income world is experiencing rate rises. The U.S. 10-year rate fell dramatically following BREXIT (June 2016) to record lows at ~1.3% and a few months later quickly increased and doubling to ~2.6%.
 
So any yield-based investment – bonds, real estate, and utility stocks for examples -- shined in the first half of the year and gave back in the second half. Recall: inverse relationship between increasing rates and prices of existing yield-based assets; think teeter-totter.
 
For commodities, in 2015 investors were wondering why they owned commodities in their portfolios, when the S&P GSCI index delivered a whopping 32.86% loss. In 2016, they may be wondering why they were not more committed to the asset class, as the index gained 27.77%. This was fueled largely by a 45.03% rise in the S&P crude oil index. Gold prices shot up 8.63% for the year and silver gained 15.84%.
 
As always, there were many unpredictable anomalies in the investment world. Anyone lucky enough to have speculated on the Brazilian Bovespa index—comparable to the U.S. S&P 500—would have reaped a gain of 68.9% this year despite all the headline drama around the Zika virus and political turmoil. Russian stocks were up 51% for the year despite Russia being Russia, Putin being Putin, recent sanctions from the U.S. government, and lingering international sanctions related to the invasion of the Crimean peninsula.
 
LOOKING FORWARD
 
What is going to happen in 2017? Short-term market traders seem to be expecting a robust economic stimulus combined with lower taxes and deregulatory policies that would boost the short-term profits of American corporations. However, it is helpful to remember that:
  • We are entering the ninth year of economic expansion--the fourth longest since 1900.
  • Over the expansion since 2009 stock prices have risen dramatically. They are arguably expensive (but have been for some time).
  • We have seen six consecutive quarters of negative earnings growth through much of 2015 and 2016 before turning slightly positive in the second half of 2016.
  • If U.S. markets are going to continue to do well and justify their higher prices, we need even more earnings growth. It is difficult to see where else within the equity return building blocks strongly positive returns will come from.
It is clear that the new President-elect wants to accelerate America’s economic growth, but actual policy is very different from election cycle rhetoric. At the same time, there are many unknowns around the globe (and there always will be).
 
With the January downturn and so much uncertainty at this time last year, nobody could have predicted double-digit returns on U.S. stocks at year-end. Next year could bring more of the same or not. In either case, “Dow 20,000” is essentially meaningless.
 
What investors should have learned over the past few years is that the markets have a way of surprising us. Trying to time the market and get out in anticipation of a downturn is a loser’s game. The history of the markets has been a general upward trend that benefits long-term investors. Looking out over the long-term and planning for a few hard bumps along the way is probably the best outcome to expect. Constructing your financial life plan to deal with both of these – long-term growth and short-term bumps – is necessary.
 
Focus on what you can control and ignore the rest.
 
To Your Prosperity,
 
Kevin Kroskey, CFP®, MBA
 
This article adapted with permission from Bob Veres.

Sources:
Nasdaq index data:
Aggregate corporate bond rates:
 

November Monthly Market Commentary

After a three-week run following the election where major U.S. indexes posted significant gains, we saw more mixed results last week. For the month of November, U.S. equities were positive – especially ‘small’ and ‘value’ oriented equities. International equities faired less well. Emerging markets now seem likely to have an overhang of uncertainty for some time, given trade threats made by President Elect Trump. We see it as unlikely these threats will become policy despite campaign trail promises. [i]
 
Perhaps the most interesting occurrence following the election was the rapid increase in interest rates with the 10 year U.S. Treasury note increasing about one-half percent. So when you hear the FED raises rates in December, remember the market has already moved before them.
 

Positive News This Week
 
Positive economic news for the U.S. continued to come in this week, including reports that:

  • Unemployment dropped again to 4.6%—hitting its lowest level since August 2007.[ii]
  • Manufacturing increased for the third straight month.[iii]
  • Personal income increased 0.6% in October.[iv]
  • Q3 GDP was 10% higher than previously thought.[v]  

Despite indications that our economy is doing well, everything of course isn’t perfect in the U.S. Growth remains positive but slow, and while unemployment is low, the measure of people who are underemployed is still high at 9.3%.[vi]
 
Overall, we continue to see signs that our plow-horse economy may be picking up speed and building greater strength in the process.
  
Italian Referendum 
 
On December 4, Italians voted against Prime Minister Matteo Renzi’s constitutional amendment that would have reduced their Senate’s size and power while limiting the regional governments’ strength. From Renzi’s party perspective, this move would stop the gridlock so common in Italy’s government while helping to stabilize the country, improve investor confidence, and speed economic recovery.[vii]
 
As 2016 has shown us with the unexpected victories of Brexit and Donald Trump, populist sentiments are on the rise worldwide -- even in developed countries where populism tends to be more commonly found in developing nations. The Italian “No” vote is another general pushback against the incumbent party and status quo.
  
No one knows what the long-term outcomes of this vote will be for Italy or Europe. Additional elections and referendum will be had in several other countries that may cause further instability, uncertainty, and market volatility. Yet, today the markets are up despite the outcome of this referendum.
 
Emotional Considerations
  
From January’s severely negative stock market to a number of surprising votes, this year has presented many opportunities for emotions to enter investing. Despite the turmoil, markets are up around the world so far this year. Let 2016 provide a good reminder demonstrating that emotions have no place in investing.  
 
Stay disciplined and remember to focus on only what you can control. Hint: it’s not the outcomes of elections or what the market is doing on any given day, week, month, or year. Rather, it's your spending, saving, and selecting a proper investment allocation to meet your goals.
 
To Your Prosperity,

Kevin Kroskey, CFP®, MBA
President & Sr. Wealth Advisor
www.TrueWealthDesign.com
 
This article adapted with permission from Platinum Marketing.  
 
 

April Monthly Market Commentary

The month of April yielded positive returns for all major indices with international stock markets leading on the heels of the boost from ...