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Key Points for the Week
Barron’s Big Money Poll is an exclusive survey of market sentiment among professional investors. Last week, Nicholas Jasinski reported on 2021’s findings:
America’s money managers are optimistic about the long-term outlook for the economy, the financial markets, and the recovery from the [COVID-19] pandemic. It’s the short-term prognosis that concerns them. Monetary and fiscal policies are in flux. Supply-chain bottlenecks and labor shortages are igniting inflation and threatening corporate profit margins, and the economic recovery from 2020’s recession, so robust until now, is decelerating. Add pricey stock valuations and rising bond yields, and the immediate future suddenly looks more challenging than the recent past.
Nicholas Jasinski, Barron's
Among those surveyed by Barron’s, half are bullish about prospects for the next 12 months, down from 67 percent last spring. Twelve percent are bearish, up from seven percent last spring, and the rest are neutral. Fifty percent said stock markets are fairly valued at current levels, and 80 percent anticipate a stock market correction, a drop of about 10 percent from a recent high, during the next six months.
Market corrections are not all that unusual. The average correction lasts a few months, reported James Chen on Investopedia. That’s long enough, though, for loss aversion to kick in. Research has found that, psychologically, the pain from loss is twice as powerful as the pleasure from gain. As a result, when markets decline, loss aversion causes some investors to wonder whether they should make changes to their investment strategies and that can have a negative impact on long-term financial goals.
Corrections in the stock market happen and have not been correctly or accurately predicted ahead of time. There is no way to know whether a correction is ahead. If a potential stock market downturn has you wondering about your investment strategy, please get in touch. We can discuss whether changes should be made.
Three economic data points released last week indicated the economy continues to rebound despite lingering challenges from the Delta variant. Job openings, which lag other measures by one month, fell to 10.4 million. Declines in demand for leisure and hospitality jobs pulled the openings back from July’s all-time high. Workers are showing increased confidence in either their finances or their ability to find a new job, as a record 4 million people quit their jobs.
Consumer prices continue to moderate slowly. Core inflation rose 0.2%. Overall inflation rose 0.4% as food prices climbed 0.9% last month and energy prices surged 1.3%. Used car prices, which had been a major contributor to core inflation, dropped 0.7% in August after falling 1.5% in July.
Retail sales jumped 0.7% as a strong job market and healthy personal balance sheets supported additional spending. Purchases at hobby and sports stores contributed to strong gains. Spending at restaurants and bars rose just 0.3%, indicating the Delta variant depressed sales last month.
Markets seemed to like the news. The S&P 500 and MSCI ACWI both surged. The inflation data was viewed positively by the bond market. The Bloomberg U.S. Aggregate Bond Index added as well. Third quarter earnings announcements will be a major focus in addition to key Chinese economic data released this week.
Americans expect to spend more than $10 billion on Halloween this year, according to the National Retail Federation. That’s about $103 per consumer, although families with children spend well-above average.
Not all of them pay full price, though.
A purveyor of discounts dug deep into its data graveyard and unearthed the states that are most possessed by Halloween spirit.
The spookiest section of the United States is the South, where residents purchased 37 percent of the Halloween coupons sold across the land. Southerners jumped at the opportunity to buy costumes, ghost hunts, haunted house tickets and haunted tours at low, low prices. The epicenter of the devilry was Louisiana, which accounted for 29 percent of the company’s coupon sales. The Bayou State also is home to New Orleans, which is purported to be one of the most haunted cities in the world.
The South has a taste for spooky estates to rival that of the West. Californians howl for haunting, having purchased the majority discounted ghost tours sold in the western U.S. and one of every five sold in the entire nation. The Sunshine State is also home to the infamous Winchester Mystery House, an architectural wonder that was under construction from 1886 to 1922, when its owner, Sarah Winchester, died. Rumor has it, the firearms heiress expanded continuously to keep her fear of ghosts at bay.
Sarah Winchester was originally from the Northeast, a region with a frugal reputation, although its residents purchased less than a quarter of the Halloween coupons sold across the country. Of course, if you crack the code, you’ll discover the chilling truth…Northeasterners purchased the most coupons per capita over the last five years!
The real secret, though, is that a district, not a state, is the biggest consumer of Halloween discount offers. That’s right, on a per capita basis, Washington D.C. consumes more spooky coupons than any state in the country.
Notably, the Midwest had relatively little hunger for Halloween coupons. That may be because trick-or-treating isn’t quite the same when a costume must fit over, or be covered by, a winter coat.
Many of the challenges that investors face stem from emotional reactions to changing market conditions. Sometimes these changes are caused by outside events that are difficult to predict. Other times, the seeds that grow into emotional reactions are planted by the investor’s behavior during good times.
The current market environment can certainly be considered good times. The S&P 500 has rocketed 20.4% this year and is up more than 30% over the last 12 months. Those returns alone can entice investors into taking more risk by reducing bonds in favor of other investments with higher potential returns and higher risk. Bonds also have relatively low yields. Because the price of bonds moves inversely with changes in yield, any increase in bond yields would push prices lower.
Nothing in the previous paragraph is wrong, but the analysis misses four key points reviewed below.
Each investor’s circumstances are different, and the role bonds play in portfolios may vary. Regardless of the role, focusing on the risk characteristics of bonds rather than yield can help maintain the right risk level for a portfolio and not sow the seeds of future discontent.
October 18, 1867: U.S. Takes Possession of Alaska
On October 18, 1867, the U.S. formally took possession of Alaska after purchasing the territory from Russia for $7.2 million, or less than two cents an acre. The Alaska purchase comprised 586,412 square miles, about twice the size of Texas, and was championed by William Henry Seward, the enthusiastically expansionist secretary of state under President Andrew Johnson.
Russia wanted to sell its Alaska territory, which was remote and difficult to defend, to the U.S. rather than risk losing it in battle with a rival such as Great Britain. Negotiations between Seward and the Russian minister to the U.S., Eduard de Stoeckl, began in March 1867. However, the American public believed the land to be barren and worthless and dubbed the purchase “Seward’s Folly” and “Andrew Johnson’s Polar Bear Garden,” among other derogatory names.
Public opinion of the purchase turned more favorable when gold was discovered in a tributary of Alaska’s Klondike River in 1896, sparking a gold rush. Alaska became the 49th state on January 3, 1959, and is now recognized for its vast natural resources. Today, 25 percent of America’s oil and over 50 percent of its seafood come from Alaska. It is also the largest state in area, about one-fifth the size of the lower 48 states combined, though it remains sparsely populated. The name Alaska is derived from the Aleut word alyeska, which means “great land.” Alaska has two official state holidays to commemorate its origins: Seward’s Day, observed the last Monday in March, celebrates the March 30, 1867, signing of the land treaty between the U.S. and Russia, and Alaska Day, observed every October 18, marks the anniversary of the formal land transfer.
We make up horrors to help us cope with the real ones.
Stephen King, Author
If you cannot do great things, do small things in a great way.
Napoleon Hill, Author
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Portions of this newsletter were prepared by Carson Group Coaching. Carson Group Coaching is not affiliated with 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 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. Diversification and asset allocation do not ensure a profit or guarantee against loss. There is no assurance that any investment strategy will be successful.
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 used to measure the daily stock price movements of 30 large, publicly owned U.S. companies. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system.
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 Bloomberg Barclays US Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented.
Please note, direct investment in any index is not possible. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.
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