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.  
 
 
By

October Monthly Market Commentary

At first glance, last week’s headlines may lead you to think that the markets are fluctuating more than they actually are. Major indexes stuck to similar range-bound performance we have seen for the past three months. For October, only emerging market equities were positive out of the broad indices shown below.



Recent Key Events 

FBI Announces Renewed Look at Hillary Clinton’s Emails 

On Friday, October 28, FBI Director James Comey sent a letter to Congress alerting them that the agency would be reviewing new Hillary Clinton emails discovered during their investigation of former Congressman Anthony Weiner.[1] When news of Comey’s letter broke, the major indexes responded quickly—and negatively. For example, the Dow, which had been up 75 points, reacted with a nearly 150-point swing before closing about 10 points lower.[2]

The announcement threw a wrench in an already contentious and exhausting presidential race. Recently, polls showed that Clinton held a solid lead over Trump, and the markets had priced in her win.[3] However, Friday’s news calls this assumption into question, creating greater uncertainty for the next two weeks. 

If there is one thing the markets hate, it is uncertainty. Moreover, while big headlines rarely affect long-term performance, the markets may react to them in the short run. Yet, you should not change your investments, speculating about short-term market moves.

Gross Domestic Product (GDP) Has Biggest Gain in Two Years

Last Friday, the government announced that GDP — essentially, the economy’s scorecard—had 2.9% growth, beating the expectations of 2.5%. Not only is this rate the best we’ve seen in two years, but it also shows far faster economic expansion than the first two quarters of 2016, when U.S. growth averaged just over 1%.[4]

With the economy is growing faster prior expectations, a December interest-rate increase seems more likely. On Friday, traders showed an 83% likelihood that the Federal Reserve would raise rates at their last meeting of the year.[5]

Keep in mind that if the Fed raises rates, they would not be doing so to temper the economy’s growth. Instead, they would be using this positive GDP report as further evidence that the economy is strong enough to handle a move toward more normal interest rates.

Eye on the Month Ahead

November should be an interesting month for the economy in general and the stock market in particular. Of course, the big news focuses on the results of the November 8 presidential election. Once the dust settles from the election, and presuming interest rates are not increased in November, equities markets may begin to focus on what is left of earnings season as well as the jobs and inflation data.

To Your Prosperity,

Kevin Kroskey, CFP®, MBA
 
By

2016 Third Quarter Market Review

About three months after the Brexit scare and nine months after the most recent Fed rate hike, the markets once again confounded the instincts of nervous investors. Markets have gone up instead of down with emerging market equities doing far better than any other asset class.  
 
See the table below for performance on common market indices.


On the bond side, the interest rate story is essentially unchanged: rates are still low and have trended downward over the last year. This again has been contrary to most ‘experts’ who have been expecting significant rate rises for more than half a decade now. 10-year U.S. government bonds are currently yielding 1.59%; 2.32% for a 30-year bond.
 
Commodities, as measured by the S&P GSCI index, lost 4.15% of their value in the third quarter, but are still sitting on gains of 5.30% for the year so far, largely due to the rebound in energy prices.  
 
A deeper look at the U.S. economy suggests that the economic picture is not nearly as gloomy as it is sometimes reported in the press.   
  • Economic growth for the second quarter has been revised upwards from 1.1% to 1.4%, due to higher corporate spending in general and increasing corporate investments in research and development specifically.  
  • Average hourly earnings for American workers have risen 2.4% so far this year.
  • Consumer spending, which makes up more than two-thirds of U.S. economic activity, rose a robust 4.3% for the quarter, perhaps partly due to higher take-home wages this year.
  • America’s trade deficit shrank in August. 
Economists at the Federal Reserve Bank of Cleveland have pegged the chances of a recession this time next year at a low 11.25%. They predict GDP growth of 1.5% for this election year, which, while below targets, is comfortably ahead of the negative numbers that would signal an economic downturn.
 
The U.S. returns have been so good for so long that many investors are wondering: why are we bothering with foreign stocks? A recent Forbes column suggested the answer: historically, since 1970, domestic stocks have outperformed international stocks almost exactly 50% of the time. The long trend we have become accustomed to could reverse itself at any time.
 
Nobody would dispute that the economic statistics are weak tea leaves for trying to predict the market’s next move, and it is certainly possible that the U.S. and global economy are weaker than they appear. Nevertheless, the slow, steady growth we have experienced since 2008 is showing no visible signs of ending, and it is hard to find the usual euphoria and reckless investing that normally accompanies a market top and subsequent collapse of share prices. At the current pace, we might look back on 2016 as another pretty good year to be invested, which is really all we ask for.
 
To Your Prosperity,
  
Kevin Kroskey, CFP®, MBA
True Wealth Design, LLC
  
This article adapted with permission from BobVeres.com.  
Sources : 
 
By

August Monthly Market Commentary

With no Federal Open Market Committee meeting and little news to jar the markets, the lazy, hazy days of August seemed to lull investors into a state of lethargy. Trading was light and volatility, limited. The month's end saw mixed results, with U.S. large caps losing whatever momentum they had gained, while U.S. small caps and emerging market stocks posted more sizable monthly gains. Long-term bond yields also showed limited movement over the month, ending 13 basis points higher than where they started.

See below for data table with various index performance.
 
  • Employment: The Bureau of Labor Statistics reported that 255,000 new jobs were added in July, while the unemployment rate remained at a relatively low 4.9% (7.8 million unemployed). For the month, job gains occurred in professional and business services, health care, and financial activities. Average hourly earnings for all employees on private nonfarm payrolls increased by $0.08 to $25.69 in July. Over the year, average hourly earnings have risen by 2.6%.
  • FOMC/interest rates: Since there was no FOMC meeting in August, investors carefully scrutinized Fed Chair Janet Yellen's remarks at a late-month event in Jackson Hole, Wyoming. The highlight of her presentation was the statement that, "in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months."
  • Oil: After rising sharply throughout the month on speculation that oil-producing countries would agree to cut production, oil prices fell back at month's end due to both a strong dollar and reports that U.S. reserves had increased more than expected, to a record high.
  • GDP/budget: According to the second estimate released by the Bureau of Economic Analysis, the gross domestic product increased at an annual rate of 1.1% in the second quarter of 2016. July's advance estimate had the second-quarter GDP increasing by 1.2%. The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE or consumer spending) and exports that were partly offset by negative contributions from private inventory investment, residential fixed investment, state and local government spending, and nonresidential fixed investment. Imports (a subtraction in the calculation of GDP) increased. The budget deficit through the first 10 months of the fiscal year totaled $513.7 billion--about 10% higher than the deficit over the same period last year ($465.5 billion).
  • Inflation: Following a mundane report showing that producer prices fell 0.4% in July, the Consumer Price Index remained unchanged in July after rising each of the previous 4 months. Over the prior 12 months, the CPI rose 0.8%. Energy prices dropped 1.6% from June after advancing each of the previous 4 months. The index for all items less food and energy increased a scant 0.1%--the smallest increase since March 2016.
  • Housing: The housing market continued to show momentum during the heat of the summer. The Census Bureau reported sales of new single-family homes increased 12.4% compared to June, and were 31.3% above July 2015. The median sales price of new houses sold in July 2016 was $294,600; the average sales price was $355,800. The seasonally adjusted estimate of new houses for sale at the end of July was 233,000, representing a supply of 4.3 months at the current sales rate. On the other hand, lack of inventory in many parts of the country has been curtailing the sale of existing homes, reported the National Association of Realtors®. Total existing home sales fell 3.2% to a seasonally adjusted annual rate of 5.39 million in July, down from 5.57 million in June. For only the second time in the last 21 months, sales are now below (1.6%) a year ago (5.48 million). With inventory at a premium, the lack of affordable homes for sale is discouraging prospective buyers despite low mortgage rates. The Census Bureau also reported that housing starts were up 2.1% in July, while building permits and privately owned completions were down 0.1% and 8.3%, respectively.
  • International markets: Early in the month, Japan approved a $274 billion stimulus package, which included a payment of approximately $147 to each of about 22 million low-income workers. Also, in the wake of the Brexit vote, the Bank of England cut interest rates to 0.25% and introduced a series of new measures designed to stimulate growth, citing as rationale a potentially faster rise in inflation due to the drop in the pound. Later in the month, the UK reported an uptick in retail sales due to its weak currency, which seemed to be attracting foreign consumers. In China, further evidence of an economic slowdown was reported in weakening industrial production and retail sales.
  • Consumer sentiment: The Conference Board Consumer Confidence Index® improved to 101.1 in August from 96.7 in July, the highest level in nearly a year. "Consumers' assessment of both current business and labor market conditions was considerably more favorable than last month," said Lynn Franco, Director of Economic Indicators at The Conference Board, in the August 30 news release.

Eye on the Month Ahead

As U.S. investors arise from their summer snooze, eyes will focus on the jobs report, followed by the Federal Open Market Committee meeting later this month, and the final second-quarter GDP figures coming at month's end. Have economic conditions improved enough to warrant a tightening? Time will tell. International investors will also keep watchful eyes on monetary policy, as the Bank of Japan, the Bank of England, and the European Central Bank all hold meetings this month. Finally, OPEC and non-OPEC oil producers are scheduled to meet in Algeria toward month's end, the outcome of which may influence both oil prices and energy stocks.
  
To Your Prosperity,
  
Kevin Kroskey, CFP®, MBA
True Wealth Design, LLC
 
Data sources:
 
Portions of the content above adapted with permission from Broadridge Investor Communication Solutions, Inc. 
 
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.

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Market Commentary for the Week of August 1, 2016

Stocks broke their four-week winning streak, closing mixed after the release of a surprisingly low estimate of second-quarter economic growth. For the week, the S&P 500 lost 0.07% and the MSCI EAFE (International Developed Stocks) added 2.36%.[i] Emerging Market stocks continued their winning ways, now up 11.77% for 2016 through July.
 


 
 
 
 
 
 

 
 
 
The preliminary estimate of Q2 Gross Domestic Product (GDP) growth showed that the economy grew a paltry 1.2% last quarter versus the 2.6% growth expected.[ii] Investors were understandably disappointed as they had hoped for a resurgence after a slow first quarter. Professional economists were also surprised. The New York Fed had forecasted GDP growth of 2.1% and the Atlanta Fed had predicted 2.3% growth.[iii]

During last week’s Federal Open Market Committee meeting, the Federal Reserve’s monetary policy makers voted to hold rates steady, surprising no one. Citing recent economic data, the central bank said that “near-term risks to the economic outlook have diminished,” setting the stage for the next rate hike.[v] 

Will rates increase in September? December? Or will the Fed wait until 2017? We don’t know. Wall Street bets on future rate hikes suggest that most traders don’t think the Fed will move until December if they don’t wait until 2017.[vi]

On the positive side, the Fed seems confident enough in economic growth to cut back on stimulus. On the negative side, speculation around the timing of future rate hikes will continue to be a major market theme this year and may stoke additional volatility.

HEADLINES: 

Weekly jobless claims rise. The number of Americans filing claims for new unemployment benefits rose by 14,000, but the underlying trend still shows strength in the labor market.[vii]

Consumer sentiment drops in July. A measure of how consumers feel about the U.S. economy slipped as worries about the Brexit and the presidential election weighed on Americans.[viii]

June new home sales surge. Sales of new single-family homes rose to the highest levels in nearly 8-1/2 years. Sales were up 25.4% over June 2015, indicating that the housing market may be gaining momentum.[ix]

Durable goods plunge in June. Orders for long-lasting manufactured goods dropped, indicating weak overseas demand is affecting U.S. factories. Economists had predicted a 1.4% decline over June, but orders for goods like aircraft, appliances, and machinery actually fell 4.0%.[x]

To Your Prosperity,

Kevin Kroskey, CFP®, MBA 

This article adapted with permission from Platinum Advisor Marketing Strategies, LLC
 
[i] http://finance.yahoo.com/quote/%5EGSPC/history?period1=1469160000&period2=1469764800&interval=1d&filter=history&frequency=1d http://finance.yahoo.com/quote/%5EDJI/history?period1=1469160000&period2=1469764800&interval=1d&filter=history&frequency=1d http://finance.yahoo.com/quote/%5EIXIC/history?period1=1469160000&period2=1469764800&interval=1d&filter=history&frequency=1d https://www.msci.com/end-of-day-data-search
[ii] http://www.cnbc.com/2016/07/29/us-advance-q2-2016-gross-domestic-product.html
[iii] https://www.newyorkfed.org/medialibrary/media/research/policy/nowcast/nowcast_2016_0729.pdf?la=en https://ww.frbatlanta.org/-/media/Documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf
[iv] http://www.cnbc.com/2016/07/29/us-advance-q2-2016-gross-domestic-product.html
[v] http://www.bloomberg.com/news/articles/2016-07-27/fed-begins-crawl-toward-rate-hike-as-near-term-risks-diminish
[vi] http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html [Accessed July 31, 2016]
[vii] http://www.foxbusiness.com/markets/2016/07/28/weekly-jobless-claims-rise-by-14000.html
[viii] http://www.foxbusiness.com/markets/2016/07/29/consumer-sentiment-slips-in-july.html
[ix] http://www.foxbusiness.com/markets/2016/07/26/june-new-home-sales-jump-3-5.html
[x] http://www.foxbusiness.com/markets/2016/07/27/june-durable-goods-orders-plunge.html 

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2016 Second Quarter Report: The Shadow of Brexit

It certainly feels like we are in a bear market with starting the year off so terribly, now the surprising “Brexit” vote in the UK, and increased volatility across the board. Therefore, it may come as a surprise that the second quarter of 2016 and year-to-date market indices generally show positive total returns. 
 
When you look at the global markets, you realize that the U.S. has been a haven of stability in a very messy world. The S&P 500 was up 2.46% over the second quarter and 3.84% on the year. 
 
Surprisingly to some, emerging markets stocks of less developed countries, as represented by the MSCI EM index, has held up quite well, returning 4% in the month of June and 6.41% YTD. 
 
The broad-based MSCI EAFE index of developed foreign economies – about half of which is in Euro-area markets – lost -3.36% in June and -4.42% YTD. 
 
Meanwhile, interest rates have trended lower, once again confounding many prognosticators who have been expecting significant rate rises for more than half a decade now. The phrase ‘lower for longer’ is now being commonly used to describe a likely continuing period of low rates. 
 
The recent slide in rates has been positive for bond returns in 2016 with the Barclay’s U.S. Aggregate Bond Index returning 5.31%. Yet, as prices increased, yields have lowered damping the expected returns for bond assets going forward. U.S. Treasury yields are stuck near the bottom of historical rates. Going out to ten years, you can get a 1.47% yield and a whopping 2.3% for thirty years. Compared with rates abroad, these yields are positively generous. If you are buying the German Bund 10-year government securities, you are receiving a -0.13% yield. The 5-year yield is actually worse: -0.57%. Japanese government bonds are also yielding -0.3% (2-year) to -0.23% (10-year).
 
Looking over the other investment categories, the decline in interest rates was very positive for real estate, which has been a haven in our low-yielding world. Commodities, as measured by the S&P GSCI index, gained 12.67% in the second quarter, giving the index a 9.86% gain for the year so far. The biggest mover, unsurprisingly, is Brent Crude Oil, which has risen more than 15% in price over the quarter.
 
On the first day of July, the S&P 500 index was higher than before the Brexit vote took investors by surprise, which suggests that, yet again, the people who let panic make their decisions lost money while those who kept their heads did better. There will be plenty of other opportunities for panic in a future where terrorism, a continuing mess in the Middle East, a refugee crisis in Europe and premature announcements of the demise of the European Union will deflect attention away from what is actually a decent economic story in the U.S. 
 
How decent? The American economy is on track to grow at a 2.0% rate this year, which is hardly dramatic, but it is sustainable and not likely to overheat different sectors and lead to a recession. Manufacturing activity is expected to grow 2.6% for the year based on the numbers so far, and the unemployment rate has fallen to 4.7%, which is actually below the Federal Reserve target. Inflation is also low: running around 1.4% this year. The unemployment statistics are almost certainly misleading in the sense that many people are underemployed, and a sizable number of working-age men are no longer participating in the labor force, but for many Americans, there is work if you want it. Historically low oil prices and high domestic production have lowered the cost of doing business and the cost of living across the American economic landscape. 
 
Despite all this good news, the market is struggling to keep its head above water this year and is not threatening the record highs set in May of last year.  
 
Questions remain. The biggest one in many peoples’ minds is: will the European Union break up now that its second-largest economy has voted to exit. There is already renewed talk of a Grexit, along with clever names like the dePartugal, the Czechout, the Big Finnish and even discussion about Texas leaving the U.S. With active political movements in at least a dozen Eurozone countries agitating for an exit, it is possible that someday we will view the UK as the first domino.

A recent report by Thomas Friedman of Geopolitical Futures suggests that the EU, at the very least, is going to have to reform itself, and the vote in Britain could be the wake-up call it needs to make structural changes. The Eurozone has been struggling economically since the common currency was adopted. It is still dealing with the Greek sovereign debt crisis, a potential banking crisis in Italy, economic troubles in Finland, political issues in Poland and, in general, a huge wealth disparity between its northern and southern members. 
 
Friedman thinks the UK will be just fine, because Europe needs it to be a strong trading partner. Britain is Germany’s third-largest export market and France’s fifth largest. Would it be wise for those countries to stop selling to Britain or impose tariffs on British exports? More broadly, with the political turmoil in the UK, is it possible that there will be a re-vote, particularly if the European Union decides to make reforms that result in a less-stifling regulatory regime.
 
You will continue to see dire headlines, if not about Brexit or the Middle East, then about China’s debt situation and the Fed either deciding or not deciding to raise rates in the U.S. economy. Oil prices are going to bounce around unpredictably. Another unforeseen crisis du jour may appear as well. 
 
The remarkable thing to notice is that with all the wild headlines we have experienced so far, plus the worst start to the year in U.S. market history, the markets are up slightly here in the U.S., and the economy is still growing. 
 
You should expect continued volatility and will need to stay disciplined.

To Your Prosperity,

Kevin Kroskey, CFP®, MBA 

This article adapted with permission from BobVeres.com.
Sources :
Wilshire index data.  http://www.wilshire.com/Indexes/calculator/
Russell index data: http://indexcalculator.russell.com/
S&P index data: http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf--p-us-l--
Nasdaq index data: http://quicktake.morningstar.com/Index/IndexCharts.aspx?Symbol=COMP
International indices: http://www.mscibarra.com/products/indices/international_equity_indices/performance.html
Commodities index data: http://us.spindices.com/index-family/commodities/sp-gsci
Treasury market rates: http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/
Aggregate corporate bond rates: https://indices.barcap.com/show?url=Benchmark_Indices/Aggregate/Bond_Indices
Aggregate corporate bond rates: http://www.bloomberg.com/markets/rates-bonds/corporate-bonds/
http://useconomy.about.com/od/criticalssues/a/US-Economic-Outlook.htm
http://www.marketwatch.com/story/first-quarter-us-gdp-raised-to-11-2016-06-28?siteid=bulletrss

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Market Commentary for the Week of June 6, 2016

What Did the May Jobs Report Show Us?

Stocks closed the holiday-shortened week mixed, with some sectors losing ground while others gained after a disappointing May jobs report signaled that the economy may not be strong enough for the Federal Reserve to raise rates this month. For the week, the S&P 500 ended flat, the Dow lost 0.37%, the NASDAQ increased 0.18%, and the MSCI EAFE added 0.13%.[1]



On Friday, we got a look at how the labor market did in May. Analysts looked to the report to see whether the labor market would give the Fed the ammunition it needed to move at the June meeting. Here are a few things we took away:

Job growth disappoints…but it has happened before

The economy created just 38,000 new jobs last month, the worst showing since September 2010. The number of new jobs sharply missed expectations, which called for around 160,000 new jobs.[2] However, seasonal factors, like a massive Verizon worker strike, which took 34,000 workers out of the count, were at play and may have affected hiring numbers.[3]

The labor market has suffered temporary setbacks before. For example, in December 2013, the economy added a paltry 45,000 jobs; four months later, the economy gained 310,000 jobs. In March 2015, the labor market added just 84,000 jobs; in July, 277,000 new jobs were created.[4]

 

 Labor market trends may slow job creation

The jobs report showed that the unemployment rate fell to 4.7%, the lowest since November 2007. However, much of the decrease occurred when jobseekers dropped out of the job search. As we approach full employment (some may argue that we’re already there), the effects of having fewer jobseekers begin to be felt by employers.

Employers who are hiring may struggle to find qualified candidates due to skill mismatches, a problem that’s likely to continue to affect certain industries.[5] These issues affect job creation in a “mature” labor market recovery.

Can the slower pace of hiring support the consumer spending the economy needs to grow? Perhaps, if wages continue to grow. Wages were up 2.5% in May as compared to a year ago, which is a better pace of growth than we have seen.[8] Another measure of wage growth favored by economists, the Employment Cost Index (ECI), shows that wages were up 2.4% (year-over-year) in the first quarter.[9] A third measure calculated by the Atlanta Fed shows a rosier 3.4% annual increase in hourly wages in April.[10] You can bet that the Fed will be looking at all three measures when deciding if wage growth is strong enough to support consumer spending this year.

The Fed may not raise rates in June

The weak report also may have reduced the odds of a June interest hike by the Federal Reserve, though some analysts think that other positive economic indicators might give the Fed the confidence to act. Right now, the market is pretty convinced the Fed won’t raise rates in June; one measure shows that the current market probability of a June hike is just 3.8%, while the probability of a July hike is 31.3%.[11]

Our view

Overall, does the weak May jobs report signal weakness in the U.S. economy?

Perhaps, though it’s far to soon to sound the alarm. Since other economic indicators like Gross Domestic Product growth, housing market activity, and personal spending all point to positive growth, it’s not likely that one weak report spells disaster for the economy.[12] Rather than fixate on a single piece of data, it’s more important to look at overall economic trends.

Looking ahead, we’re expecting investors to take stock of the dismal jobs report and perhaps hit the brakes on the three-month rally we’ve experienced. Summer tends to be a slow season for markets as many traders take time off and stocks can overreact to headlines. A small pullback in the weeks to come wouldn’t surprise us, though traders could also shrug off the report. While weak data always sidelines some investors, long-term investors should focus more on their goals and less on short-term market swings. As always, we’ll keep you
updated.

ECONOMIC CALENDAR:

Monday: Janet Yellen Speaks 12:30 PM ET, Janet Yellen Speaks 2:00 PM ET
Tuesday: Productivity and Costs
Wednesday: JOLTS, EIA Petroleum Status Report
Thursday: Jobless Claims
Friday: Consumer Sentiment, Treasury Budget

HEADLINES:

Motor vehicle sales slump in May. The latest data shows that fewer selling days and lower foot traffic hurt U.S. auto sales last month.[13]

Construction spending falls in April. Spending by construction firms on residential, government, and nonresidential projects declined, surprising economists who had expected a slight overall increase.[14]

Factory orders beat expectations. April orders for U.S. manufactured goods grew by the largest amount in six months, though much of the growth came from volatile commercial aircraft orders.[15]

Personal spending surges in April. Spending by American consumers grew more than expected while personal income increased in line with expectations, showing that consumer spending is off to a good start in the second quarter.[16]
 
 To Your Prosperity,

Kevin Kroskey, CFP®, MBA

This article adapted with permission from Platinum Advisor Marketing Strategies, LLC

[i] http://www.foxbusiness.com/markets/2016/06/01/u-s-auto-sales-slumped-in-may.html
[2] http://www.foxnews.com/us/2016/06/01/us-construction-spending-tumbled-in-april.html
[3] http://www.foxcarolina.com/story/32132329/us-factory-orders-up-19-percent-in-april-best-in-6-months
[4] http://www.businessinsider.com/personal-income-and-spending-april-2016-5  [5] https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1 http://money.cnn.com/2016/05/25/investing/housing-market-economy-stocks/ http://www.cnbc.com/2016/05/31/us-personal-income-april-2016.html
[6] http://www.usatoday.com/story/money/business/2016/06/04/dismal-jobs-report-blamed-weather-trump-and-more/85364144/
[7] http://www.usatoday.com/story/money/business/2016/06/04/dismal-jobs-report-blamed-weather-trump-and-more/85364144/
[8] https://research.stlouisfed.org/fred2/graph/?g=4Dic
[9] http://www.businessinsider.com/average-hourly-earnings-growth-may-2016-2016-6
[10] https://research.stlouisfed.org/fred2/graph/?g=4DsD
[11] https://www.frbatlanta.org/chcs/wage-growth-tracker.aspx?panel=1 [Accessed June 4, 2016]
[12] http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
[13] http://finance.yahoo.com/q/hp?s=%5EGSPC&a=04&b=31&c=2016&d=05&e=3&f=2016&g=d
http://finance.yahoo.com/q/hp?a=04&b=31&c=2016&d=05&e=3&f=2016&g=d&s=%5EDJI%2C+&ql=1 http://finance.yahoo.com/q/hp?a=04&b=31&c=2016&d=05&e=3&f=2016&g=d&s=%5EIXIC%2C+&ql=1 https://www.msci.com/end-of-day-data-search
[14] http://www.cnbc.com/2016/06/03/the-us-may-have-actually-lost-jobs-in-may-economist-says.html
[15] http://www.businessinsider.com/verizon-strike-jobs-report-2016-6
[16] https://research.stlouisfed.org/fred2/graph/?g=4Dic
By

Market Commentary for the Week of May 2, 2016

As of Friday, the S&P 500 is on the second-longest bull market run in history, surpassing the 1949-1956 bull market that lasted 2,607 days. The longest bull market in history ran between 1987 and 2000, lasting nearly 4,500 days.[1]
 

After months of volatility and challenges on the horizon, can the bulls keep running?
 

In the pro-bull column, we have a few major points to consider:

Bull markets don’t just die of old age. History shows us that bull markets ended because of a variety of shocks like oil price spikes, recessions, bursting asset bubbles, geopolitical issues, and extreme leveraging.[2] While the past doesn’t predict the future, we should evaluate threats to market performance instead of worrying about birthdays.

Economic indicators support growth. Recessions have accompanied or presaged many previous bear markets. Currently, economic indicators like a growing job market, low gas prices, and a healthy housing market point to sustainable—though moderate—economic growth. Even when recession risks are higher this year, most economists don’t see an economic downturn in the short-term future.[3]

We have experienced healthy pullbacks. One of the markers of a bull market top is elevated investor optimism and unsustainably high stock valuations. Since the last S&P 500 market high in May of 2015, markets have retrenched several times as investors have taken stock of global risks to growth. We haven’t seen the irrational exuberance that often foreshadows a bear market turn.

In the pro-bear column, we also have some points to weigh in our thinking:

Threats to economic growth from China and Europe may prove too much for markets. We don’t know that we have seen the worst out of China, and a hard landing of the world’s second-largest economy would send ripples throughout the global economy that could threaten markets. Europe is grappling with political, economic, and security issues that could threaten the EU.

The Federal Reserve may bungle monetary policy. The Fed is performing a very delicate dance to bring interest rates closer to historic levels. Raise rates too fast and the economy could stumble; raise them too slowly and the Fed could leave itself unable to fight off another economic slowdown. A monetary policy misstep could trigger a market downturn.

Corporate profits may continue to fall. U.S. companies are struggling to find growth amid challenging global conditions; earnings declined year-over-year for the fifth quarter in a row last quarter, and continued weakness could cause investors to become bearish about U.S. stocks.[4]

Our view
The simple truth is that no one can predict market tops or bottoms; plenty of people say they can, but it’s all a matter of educated (or uneducated) guesswork. Instead of trying to call markets, what we do is take a look at expected returns for a multitude of asset classes and create portfolio strategies that align with our clients’ goals. We can assume that the current bull market will come to an end someday; to reach the #1 spot it would have to continue through 2021, and that’s a pretty big stretch.[5] Rather than worrying about when the end might come, we’ll adjust portfolio strategies as needed and prudently position our clients to meet the cash flows they need to meet their while managing risk.

If you have any questions about market strategies for volatile times, please give our office a call. We’d be happy to speak to you.
 
ECONOMIC CALENDAR:

Monday: PMI Manufacturing Index, ISM Mfg. Index, Construction Spending
Tuesday: Motor Vehicle Sales
Wednesday: ADP Employment Report, International Trade, Productivity and Costs, Factory Orders, ISM Non-Mfg. Index, EIA Petroleum Status Report
Thursday: Jobless Claims
Friday: Employment Situation

HEADLINES:

Durable goods orders rise. March orders for long-lasting factory goods like airplanes, appliances, and electronics rebounded but grew less than expected, indicating the manufacturing slump isn’t over.[6]

Economy grew 0.5% in first quarter. Gross Domestic Product (GDP), the primary measure of overall economic growth, grew just 0.5% on an inflation-adjusted basis, showing that the economy slowed after the fourth quarter of 2015. GDP growth estimates will be adjusted as new data arrives.[7]

Consumer sentiment falls in April. One measure of consumer sentiment shows that Americans were less optimistic about their financial prospects last month. Falling sentiment could mean less consumer spending this quarter.[8]

Federal Reserve holds interest rates steady. The Fed’s Open Market Committee voted to keep rates where they are out of concern about slowing economic growth. Though rates could increase this summer, some think that the Fed will wait until December to hike.[9]

 To Your Prosperity,

Kevin Kroskey, CFP®, MBA

This article adapted with permission from Platinum Advisor Marketing Strategies, LLC [1] http://money.cnn.com/2016/04/29/investing/stocks-2nd-longest-bull-market-ever/
[2] http://www.bloombergview.com/articles/2015-10-08/some-perspective-on-bear-markets
[3] http://money.cnn.com/2016/04/29/investing/stocks-2nd-longest-bull-market-ever/
[4] http://www.cnbc.com/2016/03/30/get-ready-for-a-rough-corporate-earnings-season.html
[5] http://money.cnn.com/2016/04/29/investing/stocks-2nd-longest-bull-market-ever/
 
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Future Posts at www.TrueWealthDesign.com

Any future blog posts will be done at www.TrueWealthDesign.com . Thank you, Kevin Kroskey, CFP, MBA

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