On the top 10 list of things to worry about, volatility is the 11th

On the top 10 list of things to worry about, volatility is the 11th

For the past several months, US stocks whipsawed with each presidential tweet about whether Trump is adding tariffs or suspending tariffs, talking to the Chinese or ordering US companies out of China. We’ve seen some days where the Dow fell over 800 points, which once upon a time was a big deal, but amounts to a decline of only 3% in a year when the S&P 500 is up 20.6%. When the Dow fell 508 points in October 1987, that was a decline of 22.6% in a day!

Recently a client called with a very serious concern. He intends retire soon, is worried that Trump will drive the country into recession next year, and wanted us to put all his assets into bonds and cash.

I gently reminded him of the value of working with our firm – coaching you to ignore noise and focus on facts. Sure, the day to day fluctuations SEEM dramatic. However, since January 1st, 2018, US stocks are up 14.3%, which works out to an annualized gain of 8.3% over the last 7 quarters – right in line with long term averages. For curiosity, we ran a study calculating the total return of the last 7 presidents from Inauguration day through the equivalent of 9/6/2019, so approximately 700 trading days per president.


What we see is that stocks generally go up regardless of who the president is, regardless of politics, and probably would go up even if my dog was the president.

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Heron Wealth Mid-Year Commentary & Panel Discussion with Liz Clayman - Asset.TV

Heron Wealth Mid-Year Commentary & Panel Discussion with Liz Clayman - Asset.TV

In June, US stocks reversed May’s 6.4% decline and rallied 7% to new all time highs, with the S&P 500 up 18.5% on the year. Half the gain is a reversal of the 5.0% decline in 2018, while the rest is a full year’s gain delivered in 6 months.

World markets in general are having a good year, and US bonds have rallied substantially since January. Full report here:

Regrettably, once again we have that “walking on thin ice” sensation, which we had prior to last fall’s near 20% correction.

David Edwards appeared on a panel discussion recently to discuss his outlook for the rest of the year.

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Trump Tariffs Raise Recession Worries

Trump Tariffs Raise Recession Worries

After 6 months of steady gains that took the NASDAQ and S&P 500 to new record highs in late April , we’ve had two and half weeks of sharp declines.  Peak to yesterday’s trough was 5% in the S&P 500 and 7% in the NASDAQ.  Stocks are recovering somewhat today. YTD the S&P 500 is up 14.5% and the NASDAQ is up 17.3%.  Several clients have called or emailed to learn if there is reason for concern.

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After the Worst Week, Month, Quarter and Year in Over a Decade, Why Are We Suddenly Bullish on Stocks?

After the Worst Week, Month, Quarter and Year in Over a Decade, Why Are We Suddenly Bullish on Stocks?

A long time client writes, “No capital gifts this year. Seeing a Dow that is falling like a stone, day after day, does not inspire me. It is acting like 2008 and the economy could not be more polar opposite from 2008.”

Exactly! Yet, US and international stock market performance is the worst since 11 years ago during the 2008-9 financial crisis.

What we are doing right now?

  1. Any client that depends on their portfolio for their monthly draw will receive their regular payout January 2nd and throughout 2019. Clients with draws have a year’s worth of cash in money market securities, and 4 years of cash in bonds. These clients can survive a 5 year drought in equity market returns without a negative impact on their lifestyle, just as we saw back in 2008-9

  2. We are not selling ANYTHING this week. About 4 weeks ago, we harvested tax losses in any households with at least $50K in realized gains so far in 2018. Those funds are sitting in cash, and will be reinvested shortly as soon as the “wash sale” period expires.

  3. We also decided to eliminate the 5% allocation to commodities (oil and gas, metals, foodstuffs) that we have maintained for many years. Commodity prices could not stay up when the world economy was booming due to ever more efficient production, and with the world in a slump, prices only look down for a while. Those funds are still in cash.

  4. Of the many families who came on board since June, our general plan was to invest 1/3 of their stock allocation immediately, 1/3 if prices declined 10% and the remaining 1/3 if stock prices declined 20%. If prices did not decline, we would just scale in after 6 and 12 months. Following this plan we invested a lot of money on December 3rd, thinking stocks were already 5% undervalued and that the traditional “Santa” rally would soon be upon us. However, as December progressed, investors following events in Washington freaked out and dumped stocks wholesale.

  5. For clients whose retirement is still a few years in the future, don’t worry. Our “all-weather” investment strategy assumes that bear markets can and will occur, and yet your retirement will be fine. Indeed, if you have cash on the sidelines, now is a great time to put that cash to work

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If the US Economy Is Doing So Well, Why Is the Stock Market Doing So Badly?

If the US Economy Is Doing So Well, Why Is the Stock Market Doing So Badly?

A new client writes, “So . . . why should I not sell all the stocks I still have a profit in?”  

That is a reasonable question.  From the September 20th all-time high, the major averages have taken quite a pounding.  

The S&P 500 is down 10.5% from its record high, while the NASDAQ is down 14.7%.  The FAANG stocks are in bear market territory, down an average of 22.5%.

How can this be, when the US economy is doing so well?  For example, Consumer Confidence is at the highest level since right before the 9/11 terrorist attack, and at the second highest level since measurements began in 1967.

Business confidence is at the highest level since 1983.

The US Unemployment rate is at the lowest level since 1968, with a record 157 million Americans employed full-time.  The participation rate, at 62.9%, remains below the record level of 67.2%, which prevailed around 2000, which means that at least 10 million additional Americans could be working, but are not.  Despite relatively stagnant wage gains, US Real Median Household income is at a record $62K/year.

Company earnings for Q3 2018 were up 25.6% on an 8.4% increase of revenues (a record level.)  79% of companies beat estimates.  Thanks to the tax cut, US corporations are swamped with cash and have already used $1 trillion to buy back stock.

So nothing but good news, right?  Yet this is the second time this year we’ve seen a 10% or more sell off.  What do stock traders know that average Americans don’t know?

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