Broker Check

September 10, 2018

| September 15, 2018
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Remember, volatility is normal.

Major U.S. stock market indices climbed into record territory during August. They gave back some gains last week. Peter Wells of Financial Times explained:

“Speculation about a fresh round of tariffs on Chinese imports from the Trump administration weighed on U.S. stocks, handing the S&P 500 its first four-day losing streak in a month. A strong jobs report only hardened expectations that the Federal Reserve views the U.S. economy as healthy enough to withstand a probable interest rate rise later this month.”

Strong economic growth and rising wages have the potential to push inflation – increases in prices of everyday goods – higher than the Fed’s 2 percent target. The Fed battles inflation and promotes financial stability by raising the Fed funds rate. Usually, higher rates make borrowing more expensive thereby slowing economic growth, reported Katherine Reynolds Lewis at Bankrate.com.

Rising rates in the United States have an effect on emerging markets, too. Colin Dwyer of National Public Radio reported higher interest rates in the United States have enticed investors and they have moved money out of riskier emerging markets investments.

Last week The Wall Street Journal reported, “Emerging markets tipped into bear territory…The MSCI Emerging Markets Index’s 0.3 percent decline Thursday, led by selloffs in Russia and the Philippines, pushed that gauge of stocks in poorer countries 20 percent below its recent peak, the common definition of a bear market.”

August’s jobs report was released last week displaying strong U.S. jobs growth with 201,000 jobs added and unemployment staying at a low 3.9 percent. As stated in previous weekly analyses, we have been watching wage growth closely as it is a major contributing factor to higher inflation. The jobs report showed year-over-year wage growth of 2.9 percent, the highest rate since 2009 and good news for workers. However, the strong data raised our expectations the Federal Reserve will hike rates in September and December.

President Trump stated last week tariffs on $267 billion worth of Chinese goods are “ready to go.” This would be on top of the $200 billion in Chinese goods already targeted. If all comes to fruition, more than $500 billion of Chinese goods would be affected by tariffs. The United States made progress in renegotiating trade deals with Europe and Mexico, which allows a more united front to be presented to the Chinese when seeking to resolve ownership rules and the forced transfer of technology.

KEY POINTS FOR THE WEEK

  • Stocks dropped on concerns about technology regulation, wage inflation, and trade disputes.
  • The U.S. jobs reports showed continued strong jobs growth and the highest wage gains since 2009.
  • The trade dispute with China escalated as President Trump announced another $267 billion in sanctions are “ready to go.” 

WHAT ARE WE READING?

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

Government Employment Hits Lowest Levels in the Last 61 Years

As the economy continues to grow and unemployment falls, the percentage of workers employed by local, state and federal government has declined and is near levels not seen since 1957.

Could We Be Experiencing an Economy Similar to the Mid 1990s?

There are similarities between the economic expansion we are currently experiencing and the economy of the mid 1990s. Key similarities include: technological advances, the previous recession began to fade from people’s memory and unemployment was declining to historic levels. In addition, the Federal Reserve was patiently increasing interest rates in order to avoid slowing the economy. 

Lion climbs into safari vehicle in Crimea

History doesn’t always repeat itself but, in this case, it did. Sort of. Just like Russia’s takeover of Crimea from Ukraine, a lion recently took over a safari tour bus. A safari park in Crimea was giving a tour in an open-air safari vehicle when a lion decided to hop in and cuddle the passengers. It must have been pretty tame. Luckily, the driver is known as the “lion whisperer” and appeared to have the situation under control.


WHY ARE NORDIC COUNTRIES AT THE TOP OF THE WORLD HAPPINESS REPORT?

It’s a question Freakonomics Radio explored in August. They asked Jeff Sachs, a professor at Columbia University, who is also a special adviser to the United Nations Secretary-General on the Sustainable Development Goals.

The World Happiness Report ranks 156 countries by the happiness of their citizens. The countries that top the list tend to have high scores in all six of the variables considered to measure well-being. These include income, healthy life expectancy, social support, freedom, trust, and generosity.

Currently, the happiest countries in the world are

  1. Finland
  2. Norway
  3. Denmark
  4. Iceland
  5. Switzerland
  6. Netherlands
  7. Canada
  8. New Zealand
  9. Sweden
  10. Australia

The United States is ranked number 18. That has something to do with our priorities, according to the interview with Sachs. “We have the paradox that income per person rises in the United States, but happiness does not…the United States is falling behind other countries, because we are not pursuing dimensions of happiness that are extremely important: our physical health, the mental health in our community, the social support, the honesty in government.”

Helen Russell, author of The Year of Living Danishly, also participated in the interview. She offered this example to illustrate a key difference between the United States and Denmark:

“…there was a story, in New York a few years ago, of a Danish woman who was there, who left her child sleeping outside in a pram, which is what you do in Denmark, and was arrested for child neglect. And lots of people in Denmark didn’t understand why it was such a fuss, because in Denmark people trust most people. And this plays into everything. You are not anxious if you trust the people around you, you’re not scared they’re going to rob you to put food on their table.”

What makes you happy?

WEEKLY FOCUS

“If I were to ask all of you to try and come up with a brand of coffee – a type of coffee, a brew – that made all of you happy, and then I asked you to rate that coffee, the average score in this room for coffee would be about 60 on a scale of 0 to 100. If, however, you allowed me to break you into coffee clusters, maybe three or four coffee clusters, and I could make coffee just for each of those individual clusters, your scores would go from 60 to 75 or 78. The difference between coffee at 60 and coffee at 78 is a difference between coffee that makes you wince and coffee that makes you deliriously happy. That is the final, and I think most beautiful lesson…that in embracing the diversity of human beings, we will find a surer way to true happiness.”

~ Malcolm Gladwell, Journalist and author

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.


https://www.marketwatch.com/story/the-divergence-between-us-stock-performanceup-19-trillion-in-2018and-foreign-markets-may-make-investors-uneasy-2018-08-25

https://www.ft.com/content/7628f254-b2d7-11e8-8d14-6f049d06439c

https://www.federalreserve.gov/faqs/money_12848.htm

https://www.bankrate.com/finance/mortgages/fed-affects-banks-rates-prices-and-jobs-1.aspx

https://www.npr.org/2018/09/05/644973465/turbulence-roils-emerging-markets-in-the-shadow-of-a-strengthened-u-s-dollar

https://www.wsj.com/articles/investors-weed-out-weakest-links-in-emerging-market-tumult-1536233901 

http://freakonomics.com/podcast/happiness/

http://worldhappiness.report/ed/2018/

https://s3.amazonaws.com/happiness-report/2018/WHR_web.pdf (Pages 20-21)

https://www.ted.com/talks/malcolm_gladwell_on_spaghetti_sauce/transcript?referrer=playlist-what_makes_you_happy

https://www.cnbc.com/2018/09/07/heres-where-the-jobs-are-in-one-chart-august-2018.html

RJ Approval # 2241193

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