Broker Check

January 2, 2019

| January 09, 2019
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The Standard & Poor’s 500 Index, which has gotten off to its best start since 1987, ended last week with a slight loss, while the Dow Jones Industrial Average and Nasdaq Composite finished slightly higher, reported Ben Levisohn of Barron’s.

News the U.S. government shutdown would end, albeit temporarily, appeared to be of little interest to investors. Barron’s suggested the markets’ muted response to the government reopening was in balance with its response to the shutdown – there wasn’t much of one. In fact, the S&P 500 has gained 10 percent since the federal government closed.

Despite apparent disinterest, the shutdown could negatively affect sentiment, according to Sam Fleming and Brooke Fox of Financial Times. They reported:

“The record-breaking US government shutdown is triggering ripple effects across the US economy and risks denting confidence among companies that have already been fretting about trade disputes and stock market turbulence. Shutdowns have historically had only fleeting economic effects, but Jay Powell, the Federal Reserve chairman, warned last week that a dispute that outlasts past impasses could begin to change the picture for the worse.”

Last week, stock investors weren’t all that impressed by earnings, either. Earnings indicate how profitable companies were in the previous quarter. At the end of last week, 22 percent of companies in the S&P 500 had reported earnings and, overall, they were 3 percent above estimates, according to John Butters at FactSet.

However, indications the Federal Reserve may decide to keep more Treasuries on its balance sheet than originally anticipated gave U.S. stocks a boost late in the week, reported Nick Timiraos of The Wall Street Journal. The Fed began shrinking its balance sheet in 2017 by letting Treasury and mortgage bonds mature. We’ll know more after this week’s Fed meeting.


Markets rallied on Friday on reports the Federal Reserve may end its regular bond sales sooner than expected. Investors worry these sales pressure interest rates higher and may slow the economy more than expected.This week, investors will hear from the Federal Reserve, a large number of companies will report earnings, and Chinese and American officials will continue trade negotiations. It should be an interesting week.

2019, like 2018, is starting off with a bang. Last January, the S&P 500 rose 5.7 percent. This year, the S&P 500 is up 6.4 percent with four days of trading left in the month. As we write this, in the four weeks that ended January 26, the S&P 500 increased more than 10 percent.

Given the similarity in returns and the rapid move higher, two separate questions come to mind. First, when markets rise rapidly, how do subsequent returns compare to average performance? Second, how similar are the fundamentals between the two strong Januaries?

Subsequent Returns

Going back to the early 1990s, the S&P 500 averaged just under 2.6 percent per 13-week period (roughly one quarter). In periods when the market has risen more than 5 percent the previous four weeks, the next 13 weeks averaged around 2.3 percent. Lower, but still quite positive. If the rebound followed a large decline of more than 10 percent, like the one in the fourth quarter of 2018, returns edged even lower but remained positive.

These averages hide a lot of variability. There are periods with very strong returns and ones when the market moves sharply lower. The statistics don’t suggest sharp recoveries should lead to portfolio changes.



The fundamentals now, compared to last January, have changed. The steep rise and subsequent decline in 2018 followed the unnervingly calm 2017. But the months leading into 2019 were anything but calm.

In 2018, valuations on U.S. stocks seemed a bit high, the Federal Reserve was concerned about inflation, and the tax cut had just taken effect. In 2019, risk seems slightly lower, we’ve experienced a decline, and valuations are more attractive. The Fed also seems aligned with the market on rates, so the risk of an extreme overshoot or uncontrolled inflation seems low. Trade risk appears about the same, while the risk of slowing growth is higher.

For investors, this research reinforces something even more important: Don’t let market moves disrupt your plan. Whether the market has gone up or down recently, sticking with a plan designed for your circumstances is key, even when it gets a little uncomfortable or feels like you are missing out.


  • Big rallies don’t mean future returns will be lower.
  • 2019’s January rally has key differences from 2018’s January rally
  • Earnings are weaker than last quarter but beating reduced expectations.


Below are some articles we paid particularly close attention to this week. We encourage our readers to follow the links.

10 Income Tax Changes that Effect most 2018 Individual Income Tax Returns

The Tax Cuts and Jobs Act impacted tax rates, standard/itemized deductions, deductions for state and local taxes, new limits on deducting home mortgage interest, alternative minimum tax, doubling the child tax credit, new dependent tax credit and eliminated miscellaneous itemized deductions. There are many other changes but many taxpayers will be impacted by these changes.

Missing Dog Returns Home to Worried Owner with Two Animal Friends

Kyle and Laura Krier were upset when their black Labrador retriever, Bo, ran away recently. After searching all day, a tip came in. A dog that looked like Bo was spotted with two other animals in a field about six miles from their home. Kyle caught the reunion on film; turns out Bo had an adventure with his friends: a dog and goat that lived next door.


Last November, BBC commentator Chris Mason reflected the frustration of a nation with his report on the rapidly approaching deadline for the British exit from the European Union (EU). He said:

“So, where are we in all of this Brexit process…people like me are paid, aren’t we, to have insights and foresights and hindsight about these things, to be able to project where we’re going to go. To be quite honest, looking at things right now, I haven’t got the foggiest idea what is going to happen in the coming weeks. Is the prime minister going to get a deal with the EU? Dunno. Is she going to be able to get it through the Commons? Don’t know about that, either.”

The report went viral. Since then, we’ve gotten some answers. The Prime Minister did indeed negotiate a deal with the EU and, on January 15, the British Parliament soundly rejected it. Heather Stewart of The Guardian reported it was, “…the heaviest parliamentary defeat of any British prime minister in the democratic era.”

The lack of an agreement in combination with a looming Brexit deadline – it’s just 9 weeks out – has created tremendous uncertainty about the future of British trade with the EU. One response has been stockpiling goods. Last week, Sarah Butler of The Guardian reported three-fourths of warehouse space in the United Kingdom is at capacity.

One intrepid entrepreneur has been marketing Brexit survival kits that provide 30 days of food rations for £295 ($380). Reuters reported the kit includes, “…60 portions of freeze-dried British favorites: Chicken Tikka, Chili Con Carne, Macaroni Cheese and Chicken Fajitas, 48 portions of dried mince and chicken, firelighter liquid, and an emergency water filter.”


“Courage is like – it’s a habitus, a habit, a virtue: you get it by courageous acts. It’s like you learn to swim by swimming. You learn courage by couraging.”

~ Marie M. Daly, Chemist

"The best way to get a good idea is to get a lot of ideas." 

                 ~ Linus Pauling, Chemist 

“There is no sadder sight than a young pessimist."

         ~ Mark Twain, Writer

"Try not to become a person of success, but rather try to become a person of value." 

                ~ Albert Einstein, Physicist

Links & Disclaimers

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. 

Opinions expressed are not intended as investment advice or to predict future performance.  Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.  Past performance does not guarantee future results.  Investing involves risk, including loss of principal.  Keep in mind that there is no assurance that any strategy, including diversification and asset allocation, will ultimately be successful or profitable nor protect against a loss. Consult your financial professional before making any investment decision.  Stock investing involves risk including loss of principal.  The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.  The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock companies maintained and reviewed by the editors of the Wall Street Journal.  Please note direct investment in any index is not possible.

The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index's three largest industries are materials, energy, and banks.  Investing in emerging markets can be riskier than investing in well-established foreign markets.

The MSCI ACWI (All Country World Index) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of June 2007, the MSCI ACWI consisted of 48 country indices comprising 23 developed and 25 emerging market country indices. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise.

The Barclays Capital Aggregate Index measures changes in the fixed-rate debt issues rated investment grade or higher by Moody's Investors Service, Standard & Poor's, or Fitch Investors Service, in that order. The Aggregate Index is comprised of the Government/Corporate, the Mortgage-Backed Securities and the Asset-Backed Securities indices.  

Links are being provided for information purposes only.  RJFS, SPC and S&M are not affiliated with and do not endorse, authorize or sponsor any of the listed websites or their respective sponsors, and they are not responsible for the content of any website, or the collection or use of information regarding any website's users and/or members. (watch brief video)

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