Broker Check

November 12, 2018

| December 18, 2018
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Some votes are still being counted but investors appeared initially to be happy with the outcome of last week’s mid-term elections. Major U.S. stock indices in the United States moved higher last week, and the American Association of Individual Investors (AAII) Sentiment Survey reported:

“Optimism among individual investors about the short-term direction of stock prices is above average for just the second time in nine weeks…Bullish sentiment, expectations that stock prices will rise over the next six months, rose 3.4 percentage points to 41.3 percent. This is a five-week high. The historical average is 38.5 percent.”

Before you get too excited about the rise in optimism, you should know pessimism also remains at historically high levels. According to AAII:

“Bearish sentiment, expectations that stock prices will fall over the next six months, fell 3.3 percentage points to 31.2 percent. The drop was not steep enough to prevent pessimism from remaining above its historical average of 30.5 percent for the eighth time in nine weeks.”

While changes in sentiment are interesting market measurements, they should not be the only factor that influences investment decision-making. We believe the most important gauge of an individual’s financial success is his or her progress toward achieving personal life goals and goals change over time. It is important, therefore, to focus on the next five years and not the next five weeks.

The S&P 500 rallied for the second consecutive week as markets have recovered nearly half of the losses since late September. From October 30, the S&P 500 has returned 5.3 percent through November 9th. This follows a rocky October where the S&P 500 dropped more than 10 percent from its previous high. The recovery was driven by three key factors:

Earnings - In spite of some high-profile misses, earnings have been very strong. As of November 2, 78 percent of companies in the S&P 500 have beaten their earnings estimates and have beaten estimates by 6.8 percent, both above the 5-year averages. The trend continues when looking at sales estimates. 61 percent of companies have beaten sales estimates by an average of 1 percent. Both above the 5-year averages. Overall, year-over-year earnings growth rate is at 24.9 percent, way above the 19.3 percent estimate.

Valuations - When earnings rise and prices drop, valuations get more attractive. October’s sell-off paired with companies’ strong earnings reports have given investors reason to believe stocks are undervalued. As the nearby chart shows, the combination of the decline and improved earnings pushed the price-to-earnings ratio low enough for investors to see stocks as attractively priced, adding to the market rally.

Midterm Elections - Investors hate uncertainty. The election results were largely as expected, removing uncertainty and boosting confidence in investor’s ability to predict elections. The S&P 500 climbed 2.1 percent the day after the midterm elections. It was the largest gain after a midterm election since 1982.

We feel that these three factors can potentially buffer any downside in the market.

Key points for the week

⦁ The S&P 500 rallied for the second consecutive week.
⦁ A decline in prices and strong earnings made valuations more attractive.
⦁ Mid-term elections contained no major surprises.

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

Amazon picks Crystal City and New York City for HQ2
The long awaited decision of where Amazon will locate their 2nd headquarters has been decided. However, rather than 1 location, Amazon has decided to split the expansion to 2 locations. Locally, Arlington’s Crystal City neighborhood will plan to house an estimated 25,000 employees. There stands to be impact on housing, traffic, schools, etc. in the area. Additional details are expected to be released this week.

Curious Gecko Makes Dozens of Prank Phone Calls
A veteran in Hawaii started receiving silent phone calls from The Marine Mammal Center’s Ke Kai Ola Hawaiian Monk Seal Hospital one morning, nine to be exact, which made her think an emergency was upon her. As she arrived at the hospital, she discovered a gecko was using the touchscreen phone to make prank calls.

Weekly Focus

"Imagination will often carry us to worlds that never were. But without it we go nowhere."

~ Carl Sagan, Astronomer

"Find a purpose in life so big it will challenge every capacity to be at your best."

~ David O. McKay

“Continuous effort - not strength or intelligence - is the key to unlocking our potential."

~ Sir Winston Churchill, Former British Prime Minister

“In his learnings under his brother Mahmoud, he had discovered that long human words rarely changed their meanings, but short words were slippery, changing without a pattern…Short human words were like trying to lift water with a knife.”

~ Robert Heinlein, American science fiction writer

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.  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.

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.


RJ Approval # 2317701


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