Earnings Season Begins

Market volatility continues. Stocks slid on Friday, April 13, but still held on to gains for the week. The S&P 500 increased 1.99%, the Dow added 1.79%, and the NASDAQ was up 2.77%. International stocks in the MSCI EAFE also rose, gaining 1.45%.

Similar to recent weeks, international events continued to sway markets: Concerns about trade disputes affected investor behavior. Meanwhile, escalating conflict in Syria may have weighed on people’s minds.

As we track these developments, we want to share insight about another important occurrence from last week: the beginning of corporate earnings season.

1st Quarter Corporate Earnings Season

1. Expectations remain very high
Analysts anticipate a particularly strong earnings season. Thomson Reuters data predicts that S&P 500 companies’ profits were 18.6% higher in the 1st quarter of 2018 than in 2017. If accurate, this increase would be the largest since 2011.

So far, data seems on track. According to The Earnings Scout, 1st-quarter earnings growth is currently at 26.8%.

2. Banks outperform but stocks drop
On Friday, 3 major banks released their reports—and each beat projections for earnings and revenue. Despite this positive news, however, their stocks experienced sizable declines that contributed to overall market losses.

Why would strong quarterly results create stocks losses?

The markets anticipated this positive performance and had already priced it into the shares. As a result, any less-than-ideal news seemed to outweigh the expected earnings and revenue increases. In particular, 2 facts drove losses:
• 1 bank may have to pay a $1 billion penalty
• All 3 banks experienced slow loan growth

We are in the early stages of earnings season, and many major corporations still need to release their reports. In the coming weeks, we’ll continue monitoring these developments to better understand our economy. As always, please contact us if you have questions about how the data affects your finances and life.

Monday: Retail Sales, Housing Market Index
Tuesday: Housing Starts, Industrial Production
Thursday: Jobless Claims

DATA AS OF 4/13/2018 1 WEEK SINCE 1/1/18 1 YEAR 5 YEAR 10 YEAR
STANDARD & POOR’S 500 1.99% -0.65% 14.06% 10.83% 7.14%
DOW 1.79% -1.45% 19.10% 10.38% 7.05%
NASDAQ 2.77% 2.94% 22.42% 16.62% 11.99%
INTERNATIONAL 1.45% -0.41% 14.75% 3.55% -0.21%
TREASURY YIELDS (CMT) 1.64% 1.97% 2.12% 2.67% 2.82%

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

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Market Volatility Continues

Volatility continued last week as markets posted their 1st weekly loss in 3 weeks.[i] Despite some recovery on Friday, the S&P 500 dropped 2.04%, the NASDAQ slipped 1.12%, and the Dow lost 3.05% for the week.[ii] Internationally, the MSCI EAFE fell 2.91%.[iii]

Last week’s ups and downs began with continued questions over whether the Fed will raise interest rates. By the week’s end, however, rumors of an international trade war dominated the attention of investors.

Fed Suggests Raising Interest Rates

New Fed Chair Jerome Powell testified on Tuesday that inflation and a strong economy may lead to interest rate hikes sooner than expected.[iv] Whether the Fed will impose a 4th hike this year caused investor uncertainty and led to mid-week market drops.[v] Powell noted, however, that increased market volatility will not influence the Fed’s decisions regarding rate increases.[vi]

Trump Announces Tariffs on Imports

Investor attention shifted on Thursday as President Trump announced plans to impose a 25% tariff on steel and a 10% tariff on aluminum imports.[vii] While the move could protect American metal workers, some analysts worry it may also trigger a possible trade war.[viii]

Countries around the world reacted to the news, with some announcing their own plans for U.S. tariffs in response.[ix] Over the weekend, the President reacted by noting possible tariffs on imported autos, where the U.S. has a deficit. Some analysts worry this could further hurt an already negative trade gap in our Gross Domestic Product (GDP).[x]

Signs of Strength

Despite the developments with tariffs and rising interest rates, we did receive encouraging economic reports:

·       Strong Consumer Sentiment: Last month’s consumer sentiment report hit its 2nd highest recording in over 10 years. Upon the approved tax bill, companies gave nearly $30 billion in bonuses, boosting consumer incomes and attitudes.[xi]

·       Outstanding Jobless Claims: Last week’s reported jobless claims were the lowest in 49 years. A healthy demand for labor and few layoffs have helped keep unemployment numbers low.[xii]

What’s ahead?

Expect more market volatility going forward as investors follow the Fed’s interest rate plans to keep potential inflation in check. The President has also promised to announce specific details concerning the proposed new tariffs this week.[xiii] If you have questions concerning how these developing economic policies may impact your financial life, we are always here to help.


Monday: ISM Non-mfg Index

Tuesday: Factory Orders

Wednesday: ADP Employment Report

Thursday: Jobless Claims

If you want to learn how to customize your retirement portfolio into an allocation designed to manage volatility, Click Here to schedule a consultation!

[i] https://www.cnbc.com/2018/03/02/us-stock-futures-dow-data-earnings-fed-and-politics-on-the-agenda.html
[ii] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US


[iii] https://www.msci.com/end-of-day-data-search
[iv] https://www.usatoday.com/story/money/markets/2018/03/02/world-markets-fret-over-trade-war-after-trumps-tariff-vow/388182002/
[v] https://www.usatoday.com/story/money/markets/2018/02/28/fed-chiefs-rate-talk-puts-stocks-bind/378755002/
[vi] https://www.cnbc.com/2018/02/27/fed-chairman-powell-market-volatility-wont-stop-more-rate-hikes.html
[vii] https://www.usatoday.com/story/money/markets/2018/03/02/world-markets-fret-over-trade-war-after-trumps-tariff-vow/388182002/
[viii] https://www.cnbc.com/2018/03/01/forex-markets-focus-on-dollar-moves-after-trump-tariff-decision.html
[ix] https://www.reuters.com/article/us-usa-trade/trade-wars-are-good-trump-says-defying-global-concern-over-tariffs-idUSKCN1GE1PM

[x] https://www.bloomberg.com/news/articles/2018-03-02/trump-opens-door-to-trade-war-as-eu-threatens-iconic-u-s-brands

[xi] https://www.bloomberg.com/news/articles/2018-03-02/consumer-sentiment-in-u-s-at-second-highest-level-since-2004
[xii] http://wsj-us.econoday.com/byshoweventfull.asp?fid=485207&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
[xiii] https://www.reuters.com/article/us-usa-trade/trade-wars-are-good-trump-says-defying-global-concern-over-tariffs-idUSKCN1GE1PM

Why Is Healthcare So Expensive?

Healthcare costs are skyrocketing. Since the Affordable Care Act passed in 2010 health care costs have gone up by double digits each year. The health care bill did get more people insured and helped with issues like preexisting conditions, but the problem with the healthcare law isn’t what it tried to do, it’s what it failed to do: reduce costs. The solutions to the cost problem is with the free market and competition. Here are just three ideas that could make a huge difference.

Number 1: We can roll back the tax burden on insurance companies. The ACA added a $60 billion tax on health insurers, which made them have to charge more to consumers to cover their costs. Taxes roll downhill so a tax on insurers means higher costs for all of us.

Number 2: We can lower the regulations on health plans. The ACA has a lot of requirements that force insurance plans to cover an incredibly big list of benefits. If you want a bare-bones insurance plan that simply covers catastrophic events like a car accident or cancer you currently can’t get one. By boosting the benefits of every plan it restricts competition and drives up prices by forcing smaller health insurers out of the marketplace. Low-cost catastrophic plans that are normally purchased by younger, healthier people are no longer available because of the ACA requirements. Introducing as many health insurers to the marketplace as possible can drive down prices by encouraging businesses to compete to cut costs. The ACA did the exact opposite: Less competition and higher prices.

Number 3: Encourage medical innovation. The cost to bring a new drug to market already exceeds two and half billion dollars. And the ACA places an additional twenty-two billion dollar tax burden on innovator drug companies, the same businesses that produce lifesaving medications and cures for those in need. Punishing drug producers forces them to charge even higher prices to make up for the lost money in research, development, and taxes. If we encourage, not punish drug makers it will lead to more breakthroughs and lower costs–a win, win for all of us. As healthcare costs skyrocket, don’t forget that the free market is our best chance to rein them in.

It’s All About Risk Management!

At Asset Guidance Group, we believe our colleagues have developed a better plan for risk management. We have a less expensive option that pays because our risk pool is optimized and watched! Our plans are accepted by every major health care provider in metro-Atlanta (Georgia and the Nation). They are $0 deductible and pay expected benefits!

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Stocks Mixed, Data Up–Weekly Update for November 20, 2017

Domestic stock performance varied last week, with the S&P 500 and Dow losing ground for the 2nd straight week, while the NASDAQ posted gains. By Friday, the S&P 500 had dropped 0.13%, the Dow gave back 0.27%, and the NASDAQ gained 0.47%. International stocks in the MSCI EAFE stumbled, dropping 0.67%.

Tax reform remained a key focus in the markets, as investors questioned whether changes will happen by the end of 2017. The markets have largely priced in expectations that tax reform will move forward, a belief that has helped drive this year’s record prices. Treasury Secretary Mnuchin expects the President to receive a bill by Christmas, but despite his update, concerns about meeting this deadline remain. This uncertainty—combined with questions about differences between the House and Senate plans—has contributed to the market volatility we’ve seen in recent weeks.

While tax reform may be impacting stocks right now, going beyond the geopolitical debate reveals various positive economic updates.

An Overview of Last Week’s Economic Insight

From housing to industrial production, last week gave us a variety of economic updates for October. Overall, the data indicates that the economy is on solid ground.

• Retail sales grew
Hurricanes are still affecting retail sales, but October’s reading shows decent performance—and analysts expect the holiday season to drive strong results through year’s end.

• Consumer prices increased slightly
Inflation remains relatively low and slow, yet this month’s report shows it moving in the right direction toward the Fed’s goal of a 2% level.

• Industrial production surged
A large jump in manufacturing helped drive industrial growth and indicates a strengthening sector—good news for our economy.

• Housing starts beat expectations
The housing industry experienced strong growth in new permits, construction starts, and completed homes.

What Is Ahead
Tax reform will likely continue to be a hot topic in Washington and the markets. We will follow any changes or updates as they occur, and understanding the economy’s underlying strength will remain our key focus.

As a reminder, with Thanksgiving on Thursday, the markets will only be open for 4 days this week. During this season of gratefulness, we want to thank you for your ongoing trust and reinforce that we are always here to support you on your financial journey.

Tuesday: Existing Home Sales
Wednesday: Durable Goods Orders, Consumer Sentiment
Thursday: Markets Closed for Thanksgiving
Friday: PMI Composite Flash

Health Insurance Simply Unaffordable–New Study of 50 US Metro Areas by eHealth.com

According to a study released in September, 2017 by eHealth, Inc.(NASDAQ:EHTH), which operates eHealth.com, the average family of three earning slightly too much to qualify for subsidies in 2018 would need to increase its household income by nearly $29,000 before health insurance became “affordable” based on Obamacare criteria.
The Affordable Care Act (ACA or Obamacare) considers health insurance to be “unaffordable” when annual premiums for the lowest-priced plan in a market cost more than 8.16% of a household’s modified adjusted gross income (or MAGI). When health insurance is unaffordable by this standard, individuals and families may qualify for an exemption from Obamacare’s individual mandate to buy health insurance.
Government subsidies are available to people earning up to 400% of the federal poverty level, but middle-income households earning 401% or more of the federal poverty level are not eligible for subsidy assistance. If you fall into this group that isn’t eligible for government subsidies, we can help you.
In preparing its analysis, eHealth reviewed the lowest-price 2017 plan available for families of three comprised of two adults age 35 and one child. The same family model was analyzed using data from Healthcare.gov in 40 cities, data from eHealth.com in 9 cities not utilizing Healthcare.gov, and data from the New York state exchange for New York City.
After applying a relatively modest annual rate increase of 10% to 2017 rates to project 2018 rates, eHealth discovered the following:
In 47 of 50 cities surveyed, the lowest-priced plan would be officially unaffordable under Obamacare affordability standards for families earning 401% of the federal poverty level (about $82,000 per year in the contiguous US, making them ineligible for Obamacare subsidies).
Among these, the average three-person household would need to earn an additional $28,939 per year before the lowest-cost plan becomes affordable according to Obamacare rules.
These figures are based on a uniform, conservative 10% increase in health insurance premiums between 2017 and 2018. In fact, some independent projections for 2018 have estimated that premiums may increase 20% or more on average. There will likely be significant variability in the actual rate increase in 2018 for each plan and each market.
Specific findings for surveyed cities are found below. A detailed analysis providing additional context may also be reviewed as an appendix prepared by eHealth which pairs the findings here with demographic data describing each city’s median age, median household size, and median income.
“Coverage under the Affordable Care Act is becoming seriously unaffordable for many families, even by Obamacare’s own rules,” said eHealth CEO Scott Flanders. “I find it hard to believe that the framers of the law ever intended the cost of family health insurance to rival that of a second mortgage. Without the introduction of lower-cost options into the market or expanded government subsidies, many middle-income Americans are in danger of being priced out of the health insurance market entirely.”

We offer affordable health insurance with $0 deductibles.
Our plans pay defined benefits up-front up to $1million/year up to a $5million/maximum lifetime total. Our plan are accepted everywhere, because they pay at least 200% of the approved medicare rate for each treatment class. So, you choose providers. Alternatively, you can stay In-Network and get an average 43% discount on providers rates. We also have a rider that provides Critical Event protection of $50,000 lump sum cash benefit for diagnosis of cancer, heart attack, stroke, kidney failure, etc. Our plans are for middle-income individuals and families who don't qualify for ACA subsidies.
So stop wasting money on insurance that doesn't pay! Stop self-insuring! Schedule a 15-minute conversation to see if one of our alternatives is right for you and your family.

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Stocks End Up After Busy Week

Weekly Update – November 6, 2017
Once again, the markets ended the week in positive territory—and all 3 major domestic indexes hit new record highs. The S&P 500 added 0.26%, and the Dow was up 0.45%, with both indexes notching their 8th straight week of growth. The NASDAQ was up for the 6th week in a row with a 0.94% gain. International stocks in the MSCI EAFE joined in the growth, posting a 0.90% increase.

Why did markets continue to perform well last week? In part, economic data, political developments, and policy decisions gave investors a variety of details to digest.

Perspectives We Gained Last Week

1. Tax Reform
The House of Representatives released a long-awaited tax-reform bill on November 2, which included a number of changes to current laws. If passed, this legislation would reduce the corporate tax rate to 20% while cutting in half the mortgage-interest deduction. The markets responded positively to the bill, in part because of the level of detail it included.

Key Takeaway: This tax reform could be significant, but it must pass through several steps ahead before becoming law.

2. Monetary Policy
The Federal Reserve opted to keep interest rates at their current level for now. In addition, President Trump nominated Jerome Powell to be the new Fed Chair when Janet Yellen’s term ends next February.

Key Takeaway: Many people expect one more interest rate increase this year. And if the Senate confirms Powell’s nomination, the Fed may stay with the same centrist approach to monetary policy as in recent years.

3. Jobs
After hurricanes contributed to disappointing jobs data for September, the most recent reading showed improvements in hiring. October saw the economy add 261,000 new jobs—below the predicted 313,000—but positive growth, nonetheless. In addition, we received revised data for September, which indicated the economy gained 18,000 jobs during that month, rather than losing the previously reported 33,000.

Key Takeaway: Hurricanes continue to affect jobs data, but unemployment is now lower than it has been since 2001.

4. Business
The most recent ISM non-manufacturing data shows that many businesses in the service sector are growing. In October, these industries—which range from construction to agriculture—grew at the fastest rate since 2005.

Key Takeaway: With business activity and new orders on the rise, we may expect to see service-sector expansion continue in future months.

After last week’s wealth of data and developments, this week’s schedule is relatively quiet. We will continue to monitor incoming details and determine how they may affect our clients’ financial lives. In the meantime, if you have any questions, we are always here to talk.

Economic Calendar
Tuesday: JOLTS
Wednesday: EIA Petroleum Status Report
Thursday: Jobless Claims
Friday: Consumer Sentiment

DATA AS OF 11/3/2017 1 WEEK SINCE 1/1/17 1 YEAR 5 YEAR 10 YEAR
STANDARD & POOR’S 500 0.26% 15.59% 23.90% 12.85% 5.54%
DOW 0.45% 19.11% 31.28% 12.45% 5.64%
NASDAQ 0.94% 25.66% 33.73% 17.80% 9.18%
INTERNATIONAL 0.90% 19.27% 21.54% 5.58% -1.54%
TREASURY YIELDS (CMT) 1.02% 1.31% 1.49% 1.99% 2.34%

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.


Another Banner Week for Markets

Last week, all 3 major U.S. markets hit record highs once again.[i] The Dow added 2.00% to notch both intraday and closing records, the S&P 500 rose 0.86%, and the NASDAQ gained 0.35%.[ii] International stocks in the MSCI EAFE dipped by 0.32% for the week.[iii]

On Thursday evening, the senate passed the blueprint for a $4 trillion budget.[iv] The vote sets the stage for a tax overhaul that could lower taxes for many families and businesses.[v] In addition, some investors believe the promise of tax cuts could push market valuations even higher.[vi]

Other investors, however, have expressed concern about the continuing market highs. Although the economy is growing and corporate earnings are up, they fear a potential market correction.[vii]

Against this backdrop, last week marked a key milestone in financial history: the 30th anniversary of Black Monday¾the largest single-day market percentage drop in history. Remembering the over 22% loss the Dow experienced that day, some investors may worry about whether the same type of precipitous drop is possible today.[viii]

Why Today Is Different

In the wake of the 1987 crash, regulators implemented a series of “circuit breakers” to avoid anxiety-induced sell-offs.[ix] These rules required a pause in trading if the Dow dropped by 10, 20, or 30%. Since implementing the circuit breakers, only one market-wide pause has occurred¾in 1997.[x]

Over the years, regulators have updated the circuit breakers and connected them to S&P 500 performance rather than the Dow. But their function remains the same: to allow time to help understand and react coolly to dramatic market declines. These rules help prevent unnecessary fear and instability from taking over the markets.[xi]

Putting Performance in Perspective

While the recent market performance is impressive, it is not unprecedented. Hitting record highs doesn’t have to mean that a correction is ahead. In fact, a year after reaching a new peak, the S&P 500 has had positive growth 72% of the time. Rather than allowing fear or euphoria to drive choices, focusing on data and strategy remains important in every market.[xii]

Looking ahead, this week will give us a clearer picture of our economic growth as the first readings of third quarter GDP come out on Friday.[xiii] Many economists are predicting that the data will show another quarter of strong growth.[xiv]

We encourage you to contact us if you have any questions about how market highs may affect your portfolio or long-term strategy. We are here to focus on your financial goals and investments, so you can focus on what truly matters to you.


Tuesday: PMI Composite Flash
Wednesday: Durable Goods Orders, FHFA House Price Index, New Home Sales

Thursday: Jobless Claims, Pending Home Sales Index

Friday: GDP, Consumer Sentiment

DATA AS OF 10/20/2017 1 WEEK SINCE 1/1/17 1 YEAR 5 YEAR 10 YEAR
STANDARD & POOR’S 500 0.86% 15.02% 20.26% 12.44% 5.55%
DOW 2.00% 18.04% 28.45% 11.82% 5.61%
NASDAQ 0.35% 23.15% 26.46% 17.14% 9.30%
INTERNATIONAL -0.32% 18.63% 18.92% 5.20% -1.46%
DATA AS OF 10/20/2017 1  MONTH 6  MONTHS 1  YEAR 5  YEAR 10  YEAR
TREASURY YIELDS (CMT) 0.99% 1.27% 1.43% 2.03% 2.39%

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

“Do you want to know who you are? Don’t ask. Act!  Action will delineate and define you.”

Thomas Jefferson

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Securities offered through “First American National Advisors, RIA” Member FINRA/SIPC. Wallace R Nichos, IAR. Past performance does not guarantee future results.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative,

Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

By clicking on these links, you will leave our server, as the links are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.

[i] https://www.cnbc.com/2017/10/20/us-stocks-tax-reform-senate-budget.html

[ii] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=%21DJI&region=usa&culture=en-US




[iii] https://www.msci.com/end-of-day-data-search

[iv] https://www.cnbc.com/2017/10/19/senate-passes-a-budget-moving-the-gop-closer-to-tax-reform.html

[v] https://www.cnbc.com/2017/09/27/read-the-full-gop-tax-proposal-here.html

[vi] https://www.forbes.com/sites/adamsarhan/2017/09/28/will-the-tax-cut-send-stocks-higher/#53857bd249bb

[vii] https://finance.yahoo.com/news/could-1987-stock-market-crash-050919703.html

[viii] http://www.npr.org/2017/10/19/558625600/the-30th-anniversary-of-black-monday-a-day-that-made-wall-street-quake

[ix] http://www.npr.org/2017/10/19/558625600/the-30th-anniversary-of-black-monday-a-day-that-made-wall-street-quake

[x] https://finance.yahoo.com/news/could-1987-stock-market-crash-050919703.html

[xi] https://finance.yahoo.com/news/could-1987-stock-market-crash-050919703.html

[xii] https://www.bloomberg.com/news/articles/2017-10-20/a-record-in-records-for-u-s-stocks-rallying-sixth-straight-week

[xiii] http://wsj-us.econoday.com/byshoweventfull.asp?fid=477656&cust=wsj-us&year=2017&lid=0&prev=/byweek.asp#top


[xiv] https://finance.yahoo.com/news/amazon-alphabet-gdp-need-know-week-ahead-162749555.html

S&P 500 Could Fall 60%: Hussman

Citing fundamentals, cash distribution, and valuation as the source of stock market gains, Wall Street analyst and fund manager John P. Hussman points out that, while historically high, all are drastically slowing to what many would call a point of no return. “Consider these drivers today. Combining depressed growth prospects with an S&P 500 dividend yield of just 2.0%, the likelihood is that over the coming 10-12 years, even a run-of-the-mill reversion of valuations will wipe out the entire contribution of growth and dividend income, resulting in zero or negative total returns in the S&P 500 Index on that horizon, with an estimated interim market loss on the order of -60%,” Hussman said in his post.

How Expensive Is the S&P 500?
The S&P 500 traded at a record high Monday, trading to within a few ticks of 2500. With this, it dragged the forward 12-month EPS to a record high and the 12-month price to earnings ratio to levels not seen since the pre-Dotcom era. But even these stretched levels don’t uncover the extent of the over-valuation. “Notice that the distinction between today and the 2000 peak is in the breadth of overvaluation across individual stock,” Hussman said in an August post.
“As of last week, with the exception of the richest decile of stocks, where median valuations were higher only during the January 2000-March 2001 period (followed by median losses exceeding -80% for those stocks), every decile of S&P 500 components is currently at or within 2% of its most extreme valuation in history.”
Arguments for a stock market correction clutter financial publications every morning. All will be correct at some point, but as Keynes said, in the long-run we’ll all be dead. But what’s different about this one is not just the magnitude of the correction, but where it begins. “During the journey of Empress Catherine II to Crimea, Prince Grigory Potemkin, the governor of the region, erected fabricated villages along the Dnieper river” That’s Wall Street analyst and fund manager John P. Hussman whose outlook is dire than any Wall Street bear going around. (See also: Bear Market Ahead: What 5 Big Investors Forecast)
Citing fundamentals, cash distribution, and valuation as the source of stock market gains, Hussman points out that, while historically high, all are drastically slowing to what many would call a point of no return. “Consider these drivers today. Combining depressed growth prospects with an S&P 500 dividend yield of just 2.0%, the likelihood is that over the coming 10-12 years, even a run-of-the-mill reversion of valuations will wipe out the entire contribution of growth and dividend income, resulting in zero or negative total returns in the S&P 500 Index on that horizon, with an estimated interim market loss on the order of -60%,” Hussman said in his post.

Hussman Isn’t the Only Doom-Sayer
While the extent of Hussman’s call is frightening, he is not alone in calling for a stock market correction. Deutsche Bank said recently that the probability of a recession is at the highest level in ten years saying a flattening yield curve means investors are bracing for tough times ahead by investing in longer term Treasuries, which has pushed the yield curve to levels last seen before the Great Recession.
The Number of Nay-Sayers Who Have Been Wrong Increases, But…
September 4 marked the 300th consecutive trading day the S&P 500 has been above its 200-day moving average, which is the 15th longest since 1923, and while valuations continue to stretch and the number of people calling for a correction grow, so does the number of those who have been wrong.
However, if Hussman is correct, then the Potemkin villages will, in fact, be as valuable as those pieces of paper representing the S&P 500: “temporarily glorious and impressive on the surface, but backed by much less than investors had imagined was there.”

Contact us to see what you can do to traverse these uncertain markets.

Investopedia.com; HussmanFunds.com

Markets Keep Screaming North, Euphoria Sets In–Are You Protecting Your Retirement Income?

Am I being overly paranoid to worry about the stock market during a week when the Dow finally reached the 22,000 mark. Even the fact that the move was largely on the shoulders of Apple’s jump higher after it released great earnings news shouldn’t make much of a difference. The trend is the trend, and it is still to the upside. So, is there no end in sight? Euphoria, etc., we’ve seen this before. Make money on the up moves while you can, it’s fun! But don’t gamble with your Retirement Money by leaving everything “on the table.”

Red Flags
While the Dow and other major market indices soar, danger signs and red flags abound, as technical analyst Michael Kahn points out in his Barron’s column. August typically has relatively low trading volume, Kahn writes, and this means that a slight change in mood among a relatively small number of traders on the margin can produce big market swings. He notes that the flash crash of 2015, when the Dow shed 1,100 points in just 4 minutes, took place on August 24 of that year.

Worries about narrow market leadership by, and high valuations on, big tech stocks are one potential trigger for a correction that Kahn mentions. Others that he does not mention include: potential international crises involving North Korea and Russia; political controversies swirling around president Trump, such as the Russia investigations; Trump’s threats to launch trade wars; and the anemic U.S. economy.

Other predictions from five well-known market gurus, all trend bearish. Overvalued stocks were a chief concern of: Tom Forester, the founder of Forester Capital Management; Marc Faber, a consistently bearish newsletter author; and Rob Arnott, a pioneer of smart beta investing and the CEO of investment advisory firm Research Affiliates LLC. For his part, Forester added that the last two general market crashes were touched off by a collapse of investor confidence in a single sector. In the year 2000 it was tech stocks, and in 2008 it was financials. Faber also worried about narrow market leadership, with small numbers of stocks driving the major indexes upward.

Jim Rogers, who co-founded the Quantum Fund with George Soros, expressed concern over debt loads that are higher than prior to the financial crisis in 2008. Legendary bond fund manager Bill Gross, formerly of PIMCO and now with Janus Capital Group LLC, also worried about high indebtedness, weak productivity growth in the real economy, and an oversized financial economy. Earlier this year, Gross issued warnings similar to those made by Greenspan recently: that is, central banks’ massive infusions of liquidity since the financial crisis have created huge economic and financial distortions that will unwind with unpleasant market outcomes. (For more, see also: Bear Market Ahead: What 5 Big Investors Forecast.)

Bond Bubble?

For yet another source of worry, former Federal Reserve Chairman Alan Greenspan is warning of a bond market collapse that would bring down stocks. Greebspan says this is likely to happen after interest rates shoot up much faster than many people anticipate. (For more, see also: Stocks’ Big Threat Is a Bond Collapse: Greenspan.)

Unsustainable Interest Rates

“By any measure, real long-term interest rates are much too low and therefore unsustainable. When they move higher they are likely to move reasonably fast. We are experiencing a bubble, not in stock prices but in bond prices. This is not discounted in the marketplace,” Greenspan comments to Bloomberg.

When central banks start withdrawing liquidity from the financial system in earnest by selling their bond holdings, Greenspan believes that long term interest rates will spring sharply upwards. Thus, bond prices will collapse. Greenspan says that would lead to the worst bout of stagflation since the 1970s, a period when inflation accelerated amid a stagnating U.S. economy. This environment would spark a nosedive in stock prices, Greenspan continues, because sharply higher bond yields could spur a massive movement of investor capital from equities to fixed income instruments. (For more, see also: Bill Gross: QE is “Financial Methadone.”)

The Fed Model

The so-called Fed Model consulted by Greenspan, as explained by Bloomberg, compares the yields on 10-year U.S. Treasury Inflation Protected Securities (TIPS) to the earnings yield on the S&P 500 Index (SPX). The current figures are 0.47% and 4.7%, respectively, per Bloomberg, which notes that the gap between the two measures is 21% greater than its 20-year average. For those who subscribe to this analytical framework, high valuations for stocks are justified for now. However, another spin on this analysis, per Bloomberg, is that investors are justified in buying the less inflated asset. If bond prices rapidly deflate, as Greenspan foresees, stock prices will soon follow.

Your Money

My question to you is, “If market experts are worried about rapid reallocations occurring in the macro scale, why aren’t you concerned about the impact on your IRA/401k, and other retirement assets?” Contact me now to schedule a discussion and review options available for your family’s security.

Read more: Stocks’ Big Threat Is a Bond Collapse: Greenspan | Investopedia

Read more: What to Do When the Bubble Bursts: 3 Takes | Investopedia

Read more: Stocks Surge 20% Under Trump Amid Warning Signals | Investopedia

Cattle Livestock Futures Zoom While Summer BBQ Feasts Loom; Equities Flat Overall for the Week; Treasuries Await This Week’s News

Meat packers were scrambling to cover forward sold beef contracts last week as new weight for carcass weights continue to come in an average of 30# shy of last year’s weights. Chinese demand for beef is ever increasing as they’ve purchased technology for safe handling of beef from US leaders for years and are now ramping up to handle beef on their own at US tech levels. Add summertime on the horizon and BBQ pits everywhere cleaning up as the weather stays warmer and the demand has exceeded supply: cattle livestock futures soared. Read more here and here.

Sector performance in equities fell out pretty much like this: Information Tech up about 0.33%; Healthcare up about 0.24%; Energy up about 0.13%; Utilities Real Estate and Materials all down from 0.44%, 0.60% and 0.71%, respectively.  Also down 0.43% each were the Industrials and Consumer Discretionary Sectors. The Financials Sector pared 0.94%, while the Consumer Staples Sector stayed flat (0.00%).  Source.

In fixed income, US Govt 5 year yields are 1.81% on a 1.88% Coupon; 10 year 2.28% on a 2.25% Coupon; and 30 year 2.95% on a 3.00% Coupon.  Source. The Bonds markets are awaiting inflation news Monday May 1, 2017 while April payroll news is due at the end of the week, with the Fed to announce its policy on May 3. Plus, Congress still has to keep the government open next week by passing a stop-gap funding bill. Source.