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.Read More
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?
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
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.
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.
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.
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
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?
US stocks celebrated the 30th anniversary of the 1987 stock market crash by making yet another all time high. US stocks as represented by the S&P 500 are up 16.9% YTD, double our forecast at the start of the year. The S&P 500 made 51 new records so far this year - 25% of trading days.Read More
After 107 days of the Trump Presidency, we believe that this administration is determined to be the wildest reality TV show of all time. People say, "War is God's way of teaching us geography." Perhaps Donald Trump is God's way of teaching us about the Federal Government?Read More
In April 2014, we wrote:With 0.0% of precincts reporting, CNN declares Hillary Clinton CNN the next president of the United States. Really? We haven't even gotten through the 2014 mid-term elections yet, yet campaigns (and the media circus that lives for campaigns) are already gearing up for 2016.Read More
FiveThirtyEight.com was the most conservative, forecasting an electoral split of 272-268 in favor of Clinton with a 66% probability of success. The mood among Republican operatives, even the candidate himself, was despondent. No candidate in modern electoral history who polled so badly post Labor Day had ever won.Read More
At this point, everything that can possibly be said about this election has been said. Whether you dislike Trump more than Clinton, or dislike Clinton more than Trump, the horrible, miserable conclusion is just days away.Read More
We last wrote a market commentary July 11th. Since then, we've had nothing to say as investors focus on the last stage of the US presidential election, excluding any other data points including the US employment situation, US corporate earnings, and US Fed Policy.Read More
After 11 Republican, 6 Democratic debates, caucuses and primaries in 18 states, the delegate count for Republicans and Democrats is as follows: Trump 329 (1,237 needed to win nomination), Cruz 231, Rubio 110, Kasich 25, Clinton 1058 (including 458 super delegates, 2,383 needed to win nomination), Sanders 431 (including 22 super delegates).Read More