Recently, stocks have delivered a wild ride. During Thanksgiving week, U.S. stock markets took investor uncertainty negatively, suffering a 3.8 percent decline, which was the worst performance in eight months. Then, last week, stocks reversed course. The Standard & Poor’s 500 Index and the Nasdaq Composite delivered their strongest weekly gains in seven years, reported Ben Levisohn of Barron’s.
Despite the volatility, November’s returns were positive.
So, what changed? Two things appear to have influenced investors last week:
⦁ The Federal Reserve may be becoming more dovish (less aggressive on raising) on interest rates. Comments made by Fed Chair Jerome Powell were interpreted to mean the Fed could stop raising the fed funds rate after December. Thomas Franck of CNBC reported:
“Powell on Wednesday said that rates were ‘just below’ the level that would be neutral for the economy – meaning they would neither speed up nor slow down economic growth. The comment diverged from a previous remark from Powell that rates were a ‘long way’ from the bank’s aimed neutral level.”
Some analysts have pondered whether recent rate hikes have been a mistake that will lead to
⦁ Trade tensions between the United States and China may be resolved. President Trump and President Xi Jinping announced a 90 day
“The best case that can be reasonably expected is for a truce to be declared between the United States and China, to allow talks to continue over the thorny issues of trade barriers and intellectual property. And, equally important, to avoid the consequences of the imposition of even more draconian tariffs on the world economy.”
There is little doubt volatility feels a lot better when share prices move higher than when they move lower. While uncertainty remains elevated, we may see additional jolts up and down. Holding diverse assets and investments won’t prevent losses during downturns but it can help minimize losses as investors pursue long-term financial goals.
U.S. economic data released last week shows inflation stagnating and consumer spending at the highest level it’s been in seven months. PCE core inflation, the Fed’s preferred inflation measure, rose 1.8 percent. It was the lowest level since February and is below the Fed’s target of 2 percent. Consumer spending increased by 0.6 percent in October, while wages rose by 0.3 percent. Both data points suggest the consumer remains a source of strength in the U.S. economy and may also allow for the Federal Reserve to skip the December rate hike (see next paragraph).
The lower inflation data reinforces other data indicating the economy is slowing. Investors worried the Fed would keep raising rates despite how low inflation has contributed to recent volatility. But, when the minutes from the Fed’s most recent meeting were released, the rate hike path for 2019 appeared less certain. While the minutes suggested the plan to raise rates in December is a foregone conclusion, the Fed indicated it would be more flexible and pay close attention to economic data and react accordingly. Fed Chair Jerome Powell stated interest rates were just below neutral, which is a level where interest rates neither speed nor slow economic growth. This soothed many investors’ concerns on whether interest rates would be raised too high and hurt economic growth.
THE INVESTING FOOD PYRAMID
I remember back in the early 90s, the U.S. Department of Agriculture unveiled the original food pyramid. The pyramid suggested a higher consumption of
Just like with the original food pyramid, you want to start from the bottom and work up. You should always start
After you have carefully thought out the goal and made an emotional connection to your values, beliefs
Next, you need to determine what mix of equities, bonds, cash, alternatives and other asset classes is best to meet your goal. The mix of assets will also be influenced by the timeframe for the goal. You also need to be aware of your risk tolerance and how much downside you can handle in your investments.
The next step is challenging, knowing your own behavior and personality. Some people are very averse to risk and will get concerned at every small decline in the stock market. Some people take too much risk by making speculative investments or being heavily concentrated in individual securities. Either way, you need to understand your behavior so that when markets are not going according to plan, that you are able to stick with your investing plan and ignore the noise.
Finally, the last two items of the pyramid. Once you have clearly defined the goal, decided on how much you will save, picked your appropriate mix of investments and determine your behavior, you will want to be as tax efficient as possible with your investments and make the actual investment selections. We often suggest to clients the benefits of holding certain asset classes in
Key points for the week
⦁ U.S. stocks rallied sharply last week.
⦁ Interest rates are not likely to rise as quickly as many investors feared.
⦁ The United States will delay an increase in tariffs on Chinese goods as part of trade negotiations.
What are we reading
Below are some articles we paid particularly close attention to this week. We encourage our readers to follow the links.
The World Isn’t as Bad as You Think.
Our primitive biases that allowed our ancestors to survive are now detriments in our
Customers were mistakenly given $100 bills instead of $20s from ATM
Christmas came early for some Bank of America customers in Texas last week when an ATM started spitting out $100 bills instead of $20s. After
Four Fabulous holiday gift ideas for your pet
If you’re a pet owner – and most Americans are – you may be looking for the perfect holiday gift for your dog, cat, bird, bunny, or reptile. Some pet owners will spring for a heated pet bed, a sparkling holiday sweater, or a new grooming set. Others may opt for a decadent pet treat.
Here are some of the indulgences available for today’s pets:
⦁ A stay at a luxury cat hotel. Why not give your favorite
⦁ A relaxing day at the guinea pig spa. The British really know how to spoil their pets. Guinea pigs who travel to the English countryside can receive, “…the full works: a body massage with oils; full shampoo, condition, and blow-dry; haircut and styling; feet and ear massage; nails trimmed and filed; and even a photo shoot of the transformed pet.”
⦁ A case of pooch hooch. Breweries and pubs around the world have begun to accommodate our desire to share all aspects of our lives with our faithful canine companions. Patrons can bring their pets to the bar and buy them a drink or a case of dog beer. According to VinePair.com, “Dog beer is non-alcoholic, un-carbonated, and doesn’t contain hops. It does contain malt extract, along with a bevy of other healthy-for-dogs ingredients, so you might think of it
⦁ A few bottles of feline wine. You know how it is. The hounds are happy with dog grog, but cats have more refined tastes. They may prefer a pack of ‘MosCATo’ or ‘Pinot Meow’ – and now they can have it. One animal wine provider described its mission this way: “Our cat wine and dog wine creations started like any other radical idea…a product designed to help bridge the social divide between humans and their pets.” What better way to ring in the New Year?
Don’t fret if you haven’t found just the right gift yet. Pets are usually appreciative of whatever you give them.
"The shifts of fortune test the reliability of friends."
~ Marcus Tullius Cicero, Roman statesman
"Success seems to be connected with action. Successful people keep moving. They make mistakes, but they don't quit."
~ Conrad Hilton, Hotelier
“When I stand before God at the end of my life, I would hope that I would not have a single bit of talent left, and could say, "I used up everything you gave me."
~ Erma Bombeck, writer
“Owners of dogs will have noticed that, if you provide them with food and water and shelter and affection, they will think you are a god. Whereas owners of cats are compelled to realize that, if you provide them with food and water and shelter and affection, they draw the conclusion that they are gods.”
~ Christopher Hitchens, author
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RJFS and SPC do not offer or provide legal or tax advice. Tax services and analysis are provided by the related firm, S&M through a separate engagement letter with clients. Portions of this newsletter were prepared by Carson Group Coaching. Carson Group Coaching is not affiliated with RJFS, SPC or S&M. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. This information is not intended as a solicitation of an offer to buy, hold or sell any security referred to herein. There is no assurance any of the trends mentioned will continue in the future. Any opinions are those of the author and not necessarily those of RJFS. Any expression of opinion is as of this date and is subject to change without notice.
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