Market Commentary September 19, 2017“In theory, there is no difference between theory and practice, in practice there is.”Yogi Berra was talking about baseball, but the concept also applies to diversification, according to the GMO White Paper, The S&P 500: Just Say No. From the title, you might think the authors – Matt Kadnar and James Montier – don’t like U.S. stocks. They do:“Being a U.S. equity investor over the past several years has felt glorious. The S&P 500 has trounced the competition provided by other major developed and emerging equity markets. Over the last 7 years, the S&P is up 173 percent (15 percent annualized in nominal terms) versus MSCI EAFE (in USD terms), which is up 71 percent (8 percent annualized), and poor MSCI Emerging, which is up only 30 percent (4 percent annualized). Every dollar invested in the S&P has compounded into $2.72 versus MSCI EAFE’s $1.70 and MSCI Emerging’s $1.30.”The authors’ concern is U.S. markets have performed so well, investors may be tempted to abandon diversification and concentrate their portfolios in indexed U.S. stocks. Kadnar and Montier wrote, “Human nature is to extrapolate the recent past. It is easy to see, given the strong performance of U.S. equities in both absolute and relative terms, why many are suggesting they are the only asset you need to own.”Focusing assets in the United States, according to GMO, ignores the most important determinant of long-term returns: valuation. “From our perspective, one has to make some fairly heroic assumptions to believe that the S&P is even remotely close to fair value.”High valuations haven’t dulled the appeal of U.S. stocks for investors, though. Last week, the S&P 500 closed at a record high, and the Dow Jones Industrial Average posted its biggest gain since last December, reported CNBC.com. Read more here.September 11, 2017Last week, the aftermath of Hurricane Harvey and potency of Hurricane Irma dominated hearts and minds, but there were some diversions and some welcome news, too.The NFL kicked off its 2017 season with the Chiefs’ win over the Patriots. The men’s U.S. soccer team tied Honduras to stay in the running for a World Cup spot. And, Sloane Stephens made the jump from 957th best on the women’s tennis tour to U.S. Open Champion.Also, last week, President Trump signed a bipartisan bill authorizing relief for victims of Hurricane Harvey. The damage from Harvey has been estimated at about $50 billion, reported Yahoo! Finance, and the damage from Hurricane Irma may be even greater.The signed bill also raised the debt ceiling, avoided a U.S. Treasury default, and funded the government for three months. These aspects of the legislation may have been more important to stock markets, according to a source cited by Barron’s:“Dubravko Lakos-Bujas, head of U.S. equity strategy and global quantitative research at JPMorgan, observes that the S&P 500 has dropped about 2 percent when hurricanes make landfall, as sectors that get slammed – think insurance companies, hotels, and cruise lines – are offset by ones that benefit, like autos, energy and equipment services, and basic materials for construction. A failure to raise the debt ceiling or pass a budget, though, has typically caused the market to drop 3 percent to 5 percent. ‘In essence, the market risk associated with the failure of passing the budget and addressing the debt ceiling has been pushed out for now…’”Major U.S. stock markets finished the week slightly lower. The Standard & Poor’s 500 Index remains less than 1 percent below its all-time high. Read more here.September 5, 2017When it comes to economic growth, the government doesn’t measure twice. It measures three times.Last week, the Bureau of Economic Analysis revised its initial estimate that the gross domestic product (GDP), which is the value of all goods and services produced by a country or region, grew by 2.6 percent during the second quarter of 2017. The second estimate indicated the economy grew by 3.0 percent from April through June. The third and final GDP estimate for the second quarter will become available near the end of September.The New York Times reported:“If the economy were to sustain the current pace of expansion, it would be a significant uptick from the 2 percent annual growth rate that has mostly prevailed since the recovery began. A difference of a single percentage point may not sound like much, but the stakes are huge in a $19 trillion economy. The acceleration could also help lift wage growth, which has been frustratingly slow for years despite steady hiring, a surging stock market, and rising home prices.”While second quarter’s growth spurt was welcome news, it was overshadowed by the devastation wrought by Hurricane Harvey in Texas and across a swath of the Gulf Coast. Initial estimates of the property damage inflicted by the storm stand between $30 and $40 billion, reported Yahoo! Finance.Historically, hurricanes have impacted U.S. economic growth and Harvey is likely to be no different. An economist from Goldman Sachs explained the usual progression of economic consequences to Yahoo! Finance:“…major hurricanes in the past have been associated with a temporary slowdown in retail sales, construction spending, and industrial production, as well as a pickup in jobless claims…However, GDP effects are ambiguous, as the level of economic activity typically returns to its previous trend – or even somewhat above – reflecting a boost from rebuilding efforts and a catch-up in economic activity displaced during the hurricane.”We send our thoughts and prayers to all of those affected by Hurricane Harvey. Read more here.August 18, 2017Hope floats.Optimism about possible pro-growth economic policies, including tax reform and deregulation, helped U.S. stock indices finish higher last week, reported Barron’s. It wasn’t all smooth sailing, though. Stocks bobbed up and down as investors’ optimism was weighted by concerns about a possible debt-ceiling battle and government shutdown.CNN offered some insight to the historic economic impact of government shutdowns on productivity:“The last time the government was forced to close up shop – for 16 days in late 2013 – it cost taxpayers $2 billion in lost productivity, according to the Office of Management and Budget. Two earlier ones – in late 1995 and early 1996 – cost the country $1.4 billion.”For investors, it’s important to distinguish between a shutdown’s potential effect on the U.S. economy and its possible impact on U.S. stock markets. A source cited by The New York Times reported:“…during all 18 government shutdowns, starting in 1976…the Standard & Poor’s 500-stock index averaged just a 0.6 percent loss over the course of those closures. Early on in shutdown history, investors reacted very negatively. Closures in 1976 and 1977 coincided with 3 percent declines in the [S&P 500].As investors grew more accustomed to shutdowns, they seemed to become more blasé about them. During the mid-1990s and the 2013 closure, for instance, stocks actually rose. They gained 3.1 percent during the 2013 stoppage.”Bond investors were relatively calm last week, according to Financial Times. Although, there were signs of “debt ceiling jitters.” Yields on U.S. Treasuries that mature in October (when a shutdown may occur) rose on concerns investors might not be repaid in a timely way.No matter what happens in September and October, keep your eyes on the horizon and your long-term goals. Read more here.July 11, 2017 Things you may want to know…Last Friday, Financial Times (FT) published, ‘Five markets charts that matter for investors.’ Among the issues addressed in the charts were:• The bond market bear watch. The yield on 10-year German Bunds (Germany’s government bonds) reached an 18-month high of 0.58 percent recently. Yields rose after the European Central Bank’s Mario Draghi indicated its stimulus efforts would end at some point.When bond yields rise, bond values fall, and that makes rising interest rates quite a significant event for anyone who holds lower yielding bonds. In the United States, 10-year U.S. Treasuries moved to a seven-week high last week and then dipped lower following the release of the Federal Open Market Committee meeting minutes, reported CNBC.com.• Financial companies gaining favor. During the past month, U.S. stock markets have seen a sector rotation. FT reported:“…S&P financials have gained some 6 percent, with tech sliding almost 4 percent. That still leaves financials lagging behind the S&P 500 for the year and well behind the roughly 17 percent gain for tech. A similar story has unfolded in Europe between banks and tech.”Investors’ appetite for financial companies may reflect the belief higher interest rates are ahead. Banks and other financial firms generally benefit when interest rates rise. Investor’s Business Daily reported“Several Wall Street giants have warned of weak trading revenue in Q2, continuing the lackluster trend in 2017…Still, bank stocks large and small have been leading in recent weeks, helped by higher bond yields and massive buyback and dividend plans.”Last week, the unemployment rate in the United States rose from 4.3 to 4.4 percent. It was good news according to an expert cited by Barron’s, “…the rise in labor force participation indicates slack remains in the labor market.” That may be the reason wages showed little improvement. Read more here.June 12, 2017 Stock market historians may dub 2017 the Xanax year. Traditional historians will probably choose a different moniker.Stock markets in many advanced economies have been unusually calm during 2017, reported Schwab’s Jeffrey Kleintop in a May 15, 2017 commentary. The CBOE Volatility Index, a.k.a. the Fear Gauge, which measures how volatile investors believe the S&P 500 Index will be over the next few months, has fallen below 10 on just 15 days since the index was introduced in 1990. Six of the 15 occurred during 2017. The average daily closing value for the VIX was 19.7 from 1990 through 2016. For 2017, the average has been 11.8.Investors’ calm is remarkable because 2017 has not been a particularly calm year. We’ve experienced significant geopolitical events. For example, the U.S. launched a military strike on Syria, and dropped its biggest non-nuclear bomb on Afghanistan. There have been terrorist attacks in Europe, along with discord in the Middle East. The European Union has been unraveling. The U.S. government has shown unusual levels of disarray, and the U.S. President’s passion for Tweets has stirred the pot.Just last week, the future of Brexit was thrown into question when Britain’s snap elections produced a hung Parliament (no political party has a majority). How did investors react? Barron’s reported the European markets shrugged off Thursday’s election results and moved higher on Friday, offsetting some losses from earlier in the week.In the United States, Former FBI Director James Comey’s testimony didn’t have much effect on stock markets last week, according to Barron’s. However, comments from Goldman Sachs cautioned the trade in big technology stocks, which have accounted for about 40 percent of the Standard & Poor’s 500 Index’s gains this year, was too crowded. The ensuing clamor resulted in the NASDAQ losing 1.6 percent for the week and the S&P 500 finishing slightly lower.Geopolitical events do not appear to have the impact they may once have had. The Fear Gauge finished Friday at 10.7. Read more here.May 30, 2017 Is preparing for the future more important than enjoying the present?There is a lot to enjoy today. Last week, Financial Times wrote:“Wall Street ended an impressive week on a steady note – eking out a tiny gain to a fresh record close – as oil prices recouped some of the previous day’s steep losses and the latest U.S. Gross Domestic Product data reinforced expectations for a June rate rise.”In fact, U.S. equities have been performing well for some time. The Standard & Poor’s (S&P) 500 Index achieved new highs 18 times during 2016 and, so far in 2017, we’ve scored 20 closing highs, including three last week.While it’s important to enjoy current gains in U.S. stock markets, it’s equally important to prepare for the future. Bull markets don’t continue forever. They often experience corrections. A correction during a bull market is a 10 percent decline in the value of a stock, bond, or another investment. Often, corrections are temporary adjustments followed by additional market gains, but they can be a signal a bear market or recession is ahead.One investment professional cited by CNBC believes a correction may occur soon. “Gundlach expects the 10-year Treasury yield to move higher, and a summer interest rate rise should ‘go along with a correction in the stock market.’”Barron’s cautioned strong employment numbers also may signal a downturn is ahead:“Think about it: Jobs are a classic lagging indicator, and bouts of high unemployment and economic distress are often accompanied by falling stocks. By the time the economy improves enough to enjoy full employment, share prices will reflect that rosier outlook. That’s not to say stocks can’t do well following periods of full employment…Unemployment was 2.5 percent in 1953, and yet the market delivered big gains over the next seven years. But stocks happened to be very cheap in 1953, with a cyclically adjusted price-to-earnings ratio of just 11.6 times…That valuation is now pushing 29 times.”There is no way to know when a correction or market downturn may occur, but if history proves out, one is likely at some point in the future. Read more here.May 15, 2017 Does performance tell the whole story?American stock markets have delivered some exceptional performance in recent years. Just look at the Standard & Poor’s 500 (S&P 500) Index. Barron’s reported the S&P 500, including reinvested dividends, has returned 215 percent since April 30, 2009. The index is currently trading 50 percent above its 2007 high.The rest of the world’s stocks, as measured by the MSCI EAFE Index, which includes stocks from developed countries in Europe, Australia, and the Far East, returned 97 percent in U.S. dollars during the same period. At the end of April, the MSCI EAFE Index was 20 percent below its 2007 high.If you subscribe to the ‘buy low, sell high’ philosophy of investing then these performance numbers may have you thinking about portfolio reallocation. However, performance doesn’t tell the full story.For example, there’s a significant difference between the types of companies included in the two indices. At the end of April, Information Technology stocks comprised 22.5 percent of the S&P 500 Index and just 5.7 percent of the MSCI EAFE Index. Financial stocks accounted for 14.1 percent of the S&P 500 and 21.4 percent of MSCI EAFE.It’s important to dig beneath the surface and understand the drivers behind performance before making assumptions or changing portfolio allocations.Even so, European stocks have the potential to deliver decent performance this year, according to Barron’s. “The case for a revival in European stocks, particularly the Continent’s many multinationals, rests in large part on expectations for improving global growth…This year Europe’s GDP is expected to increase by about 2 percent, after growing 1.7 percent in 2016 – better than the U.S.’s 1.6 percent.” Read more here.May 1, 2017 It was a good week to own stocks.Not all financial news was good news last week, but that didn’t prevent U.S. stock markets from moving higher. Barron’s reported on the good news:“This past week, welcome political news from Europe, a batch of stellar corporate-earnings reports, and a concrete tax proposal to cut corporate and some personal rates sharply gave the bull even more reasons to rally. By Friday’s close, the Dow Jones industrials and other market measures were standing near all-time highs.”Overall, corporate earnings were quite strong during the first quarter of 2017, according to FactSet. With 58 percent of the companies in the Standard & Poor’s 500 Index reporting in, earnings are showing double-digit growth for the first time since 2011.That’s exhilarating news for investors.Economists had less to celebrate. The Commerce Department’s first estimate indicated the U.S. economy got off to a slow start during 2017. Gross domestic product (GDP), which measures the value of all goods and services produced, came in below expectations and grew at the slowest rate in three years. Bloomberg reported:“The GDP slowdown owes partly to transitory forces such as warm weather and volatility in inventories, which supports forecasts for a rebound as high confidence among companies and consumers and a solid job market underpin growth. Even so, the weakness at car dealers could weigh on expansion, and further gains in business investment could depend on the extent of policy support such as tax cuts.”Keep an eye on Congress and the Federal Reserve. Changing fiscal and monetary policies are expected to have a significant influence on markets and the economy. Read more here.April 24, 2017 Last week, investors multi-tasked, pushing both U.S. bond and stock markets higher.In March, the Federal Reserve raised the Fed funds rates for the second time in three months. Typically, we would expect interest rates to rise and bond prices to fall, but interest rates have been falling and bond prices have been moving higher. Barron’s reported yields on 10-year Treasuries hit their lowest levels since the election last week.Reuters explained there has been a shift in expectations:“Bonds prices have been boosted in recent weeks by reduced expectations that the Federal Reserve will raise interest rates two more times this year, following disappointing economic data releases. Still, Fed Vice Chair Stanley Fischer said on Friday that two more U.S. rate increases this year remain an appropriate plan for the Federal Reserve despite some weak recent economic data.”Geopolitical anxiety continued to play a role in market performance, too, causing investors to flee to safe havens, which contributed to bond market strength.Geopolitics didn’t cause U.S. stock markets to swoon, though. Barron’s reported:“Stocks’ on-again, off-again rally was on again last week, and it took the Standard & Poor’s 500 index to within sniffing distance of its March 1 record. Climbing in the face of geopolitical anxiety from Paris to Pyongyang is bullish, as is preserving the upward slope of the index’s 200-day average. But there are signs of wavering conviction…”That wavering conviction is found in investors’ preference for a small group of tech stocks, as well as more defensive sectors of the market. Through mid-April, just 10 stocks accounted for one-half of the S&P 500’s gain during 2017.A possible motto for 2017: Expect the unexpected. Read more here.April 17, 2017 U.S. stock markets are sending mixed signals.If you look at the performance of the CBOE Volatility Index (a.k.a. the VIX or fear gauge), which is a measure of market expectations for volatility in the near future, it appears all is well and investors expect no unexpected events. Barron’s explained:“…which brings us back to a central fact: the absence of volatility. The first quarter was historic for the CBOE Volatility Index...It ranged from 10.6 to 13.1, and its average level was 11.69, the lowest in an initial quarter since the VIX was born in 1990 and the second-lowest quarterly average since the 11.3 of 2006’s final three months...”The VIX remained stubbornly low last week, too, despite weaker than expected employment news, wage news, and generally flat economic data.If you turn your eyes to the number of companies whose shares have reached new highs, you might form a different opinion about the steadiness of stock markets. Barron’s wrote:“…the squadron of stocks pushing 52-week highs at the New York Stock Exchange has shrunk from 338 on March 1 to 72 late last week…But, if the planet really is enjoying a synchronized economic recovery, why are we lunging at these stocks as if they were the only game in town?” Read more here.April 10, 2017 U.S. stock markets are sending mixed signals.If you look at the performance of the CBOE Volatility Index (a.k.a. the VIX or fear gauge), which is a measure of market expectations for volatility in the near future, it appears all is well and investors expect no unexpected events. Barron’s explained:“…which brings us back to a central fact: the absence of volatility. The first quarter was historic for the CBOE Volatility Index...It ranged from 10.6 to 13.1, and its average level was 11.69, the lowest in an initial quarter since the VIX was born in 1990 and the second-lowest quarterly average since the 11.3 of 2006’s final three months...”The VIX remained stubbornly low last week, too, despite weaker than expected employment news, wage news, and generally flat economic data.If you turn your eyes to the number of companies whose shares have reached new highs, you might form a different opinion about the steadiness of stock markets. Barron’s wrote:“…the squadron of stocks pushing 52-week highs at the New York Stock Exchange has shrunk from 338 on March 1 to 72 late last week…But, if the planet really is enjoying a synchronized economic recovery, why are we lunging at these stocks as if they were the only game in town?”It’s difficult to know how to factor in last week’s air strikes against Syria, which registered as a tiny blip on the U.S. stock market radar. Some analysts say that’s as it should be. The real drivers of market performance in 2017 will be tax reform and global monetary policy. Others are concerned involvement in Syria could lead to a reshuffling of political priorities and delay progress on domestic legislation.In times like these, diversification is critical. Read more here.March 27, 2017 You’ve read it before – and it’s true. Markets hate uncertainty.Failure to pass the American Healthcare Act, which was supported by Republican leaders in Congress and President Trump, may have spooked U.S. stock markets last week.In an article titled, “How To Make Investing Decisions Based On Politics: Don't,” Nasdaq.com reported controversy over the bill was “raising questions about [Republicans’] ability to focus on and pass policies that the market has been eagerly anticipating, such as tax reform and infrastructure spending.” Financial Times concurred:“The post-election stock market rally has been largely powered by hopes Donald Trump’s administration would swiftly launch a bevy of aggressive economic stimulus measures, including tax cuts, deregulation, and infrastructure spending. However, Mr. Trump’s difficulty in Congress over the government’s healthcare plan has prompted some reappraisal by investors of the prospect of significant stimulus arriving later this year.”Financial Times pointed out it’s likely other factors played a role in investors’ decision-making, as well. Some professionals have become concerned about market valuations. About 34 percent of fund managers believe global equity markets are overvalued and 81 percent say U.S. equities are the most expensive in the world, reported Fortune Magazine citing Bank of America Merrill Lynch’s survey of fund managers.In addition, estimates for corporate earnings have been revised lower for the first quarter of 2017. Take that with a grain of salt, though. FactSet wrote, “In terms of estimate revisions for companies in the S&P 500, analysts have made smaller cuts than average to earnings estimates for Q1 2017 to date…”Politics is one factor affecting markets, and partisanship may be affecting consumer sentiment. Richard Curtin, chief economist of University of Michigan Surveys of Consumers, said consumers’ expectations about future economic growth were split along party lines in March. “…among Democrats, the Expectations Index at 55.3 signaled that a deep recession was imminent, while among Republicans the Index at 122.4 indicated a new era of robust economic growth was ahead.”We live in interesting times! Read more here.March 20, 2017 Three steps and no stumble…Technical analyst Edson Gould developed a market rule of thumb known as ‘three steps and a stumble.’ It states stock prices may fall after the Federal Reserve (Fed) raises the Fed funds rate three times in a row without a decline, according to Market Technicians Association. The idea is three increases show the Fed is serious about keeping rates at a relatively high level for a significant length of time. Higher interest rates could potentially mean higher costs and lower profits for businesses. As a result, stock investors may sell shares and share prices may fall. Last week, with employment and inflation data approaching Fed targets, the Federal Open Market Committee raised rates for the third time, pushing the Fed funds target rate into the 0.75 percent to 1 percent range, reported Financial Times: “Fed policymakers’ forecasts for growth and inflation remained little changed, with growth tipped to be 2.1 percent this year and next year, slipping to 1.9 percent in 2019. Core inflation is set to be 1.9 percent in 2017 and 2 percent in the two following years. The possibility of looser fiscal policy emerging from Congress has triggered speculation that the central bank will have to further accelerate its rate-rising campaign, but a number of policymakers are insistent that they want to see firmer plans emerging from Congress before making a call on the impact of possible tax cuts on the economy.” Read more here.March 6, 2017 It was a grand slam.Major U.S. stock markets were positively euphoric following President Trump’s speech on February 28. Optimism about the new administration’s pro-growth policies propelled the four major U.S. stock indices to record highs, despite a dearth of policy details, reported Financial Times.It’s hard to pinpoint exactly why stocks have moved so far, so quickly. However, it appears that mom-and-pop investors have become quite enthusiastic about the asset class according to data from JPMorgan Chase cited by Bloomberg. While institutional investors (pensions, insurance companies, etc.) have been reducing exposure to stocks, smaller investors have been loading up on shares. Read more here.December 19, 2016The Federal Reserve put a hitch in the markets’ giddy-up last week.It wasn’t the Fed’s second interest rate hike in a decade that caused markets to stumble. December’s rate hike was old news before it happened. In mid-December, Reuters reported Fed funds futures indicated there was a 97 percent probability the Fed would raise rates one-quarter percent at its December Federal Open Market Committee (FOMC) meeting. In addition, all 120 economists polled by Reuters agreed rates were headed higher.It was the dot plot – a chart showing FOMC members’ assessments of appropriate monetary policy going forward – that unsettled investors. Barron’s explained:“The market, however, was surprised when the Fed turned ever-so more hawkish, with its “dot plot” indicating three rate hikes next year, up from two. Still, stocks handled the news better than might be expected, with the Standard & Poor’s 500 index dropping 0.8 percent immediately following the announcement but still finishing the week down just 0.1 percent to 2258.07. The NASDAQ Composite fell 0.1 percent to 5437.16, while the Dow Jones Industrial Average gained 86.56 points, or 0.4 percent, to 19843.41, its sixth consecutive winning week.” Read more here.November 21, 2016This time it’s the end. Really. Possibly.It seems like experts have been forecasting the end of the bull market in bonds for years – and they have been doing so. In July 2010, bond guru Bill Gross predicted the 28-year bull market in bonds was near an end and, as interest rates moved higher, bond values would move lower. The Federal Reserve’s first round of quantitative easing had ended in March 2010, and he couldn’t know a second round, which would keep interest rates low, would begin in November 2010.Since the U.S. election, investors have begun to favor stocks over bonds. Barron’s explained:“BofA ML [Bank of America Merrill Lynch] said the weekly influx was the biggest into equities since December 2014. The outflows from bonds, meanwhile, was the largest since the taper tantrum of June 2013...The flight from bonds made for the biggest two-week loss in more than a quarter-century in the Bloomberg Barclays Global Aggregate Index, which fell some 4 percent, Bloomberg reports. The outflows from municipal and emerging market bond funds were especially acute, about $3 billion and $6.6 billion, respectively.” Read more here.November 14, 2016Surprise!Markets were remarkably sanguine following the election of Donald Trump to the presidency of the United States.There was a moment of panic. As election results rolled in on Tuesday, Gold prices rose and Treasury yields fell, as investors sought safe havens. Dow Futures, a measure of overnight sentiment, fell by 4 percent, and Standard & Poor’s 500 futures dropped 5 percent. (When index futures trade lower before the market opens, it is an indication investors expect the actual index to trade lower when the market opens.)The losses triggered market circuit breakers, forcing investors to take a moment. They listened to President-elect Trump’s conciliatory acceptance speech, reassessed the political and economic landscape, and liked what they saw, according to Barron’s. Financial Times offered this assessment:“Fear and loathing was the overriding sentiment of fund managers and analysts contemplating the market implications of an unlikely Donald Trump presidency…But when confronted by the reality of his election win, stock investors swiftly switched back to their more natural state of optimism, focusing on the prospect of growth-boosting stimulus, tax cuts and tax reform, and the rollback of industry-inhibiting regulation. Simultaneously, bad policies were dismissed as campaign rhetoric.” Read more here.November 7, 2016Markets hate uncertainty – and that may create opportunities.Last week, investors experienced another bout of election jitters, and the Standard & Poor’s 500 (S&P 500) Index fell for the ninth straight session.The CBOE Volatility Index (VIX), a.k.a. the fear gauge, which measures the expected volatility of the S&P 500 during the next 30 days, was up more than 40 percent for the week. The shift in the VIX reflected investors’ concerns about stock market performance after the election. Many think the next four weeks will offer a rough ride.That may prove to be the case; however, all of the election hoopla and hyperbole has obscured some positive news. So far, the third quarter earnings season has been going well. According to FactSet, 85 percent of companies in the S&P 500 Index have reported earnings and the blended earnings growth rate for the Index is 2.7 percent. That means the S&P 500 Index is on track to experience its first quarter of earnings growth after five quarters of falling earnings. Read more here.October 31, 2016It’s almost over…During July 2016, Pew Research reported almost 60 percent of Americans were suffering from election fatigue. They weren’t uninterested in the election. They were just worn out by never-ending news coverage that focused on candidates’ comments, personal lives, and standing in the polls rather than their moral character, experience, and stance on issues.Last week, U.S. election news overshadowed positive economic data causing U.S. stocks to lose value as investors shifted assets into safe havens. Early on Friday, the Bureau of Economic Analysis released gross domestic product data, which reflects the value of all goods and services produced in the United States during the period. Initial estimates suggest the U.S. economy grew at an annual rate of 2.9 percent in the third quarter of 2016, an improvement on second quarter’s 1.4 percent growth. Consumer spending continued to be the primary driver of growth in the United States. Read more here.July 25, 2016Like a cool breeze on a hot day, the post-Brexit market rally has soothed investors.The CBOE Volatility Index (VIX), also known as the fear gauge, fell significantly during the past few weeks, according to CNBC.com. The VIX measures investors’ concerns about future volatility. The lower the Index is; the calmer investors are about the future. In late June, the VIX rose as high as 25.76. Last week, it hovered around 12.Barron’s reported the latest advisory sentiment readings from Investors Intelligence showed bullishness at 54.4 percent, up two percentage points from last week. That’s the highest reading since April 2015 (just before the S&P 500 hit its previous record).The relative serenity of investors has been good for markets. By the middle of last week, the Dow Jones Industrial Average (Dow) and the Standard & Poor’s 500 Index (S&P 500) were at record highs. Not everyone is convinced investor positivity is a good sign, however. Barron’s explained: Read more here.July 18, 2016“Start your engines,” was not in the Department of Labor (DOL)’s June Employment Report Summary, but it may as well have been. A positive jobs report revved investor optimism and sent U.S. stock markets sprinting higher last week.Job growth was strong in June with 287,000 new jobs created. That helped soothe worries raised by a less than stellar May jobs report. The Wall Street Journal wrote:“A powerful rebound in hiring last month eased fears about an economic downturn as the U.S. expansion enters its eighth year, putting the nation on solid footing to absorb global shocks and market turbulence.” Read more here.July 11, 2016When the yield on 10-year Treasuries finished last week at 1.37 percent, a record closing low, Barron’s called it a Kübler-Ross rally.Elizabeth Kübler-Ross was a Swiss psychiatrist whose research identified the five stages of grief: denial, anger, bargaining, depression, and acceptance. According to Barron’s, institutional money managers have reached the final stage of grief and accepted that bond yields may remain low for some time:“Far from irrational exuberance, many institutional investors voice resignation (or worse) to the fact that they are forced to put money to work at record low yields – 1.366 percent for the benchmark 10-year Treasury note – since that’s better than nothing, which literally is what they earn on the estimated $11.7 trillion of global debt securities with negative yields.” Read more Here.July 5, 2016Second quarter ended with a spectacular finale of Brexit-inspired market volatility.Investors typically welcome sharp market movements with about the same level of enthusiasm that canines show for fireworks. However, recent market agitations highlighted a key tenet of investing: Volatility often creates opportunity. Following an initial Brexit sell-off, global markets rebounded. Last Friday, Financial Times reported:“Global equity indices continued their stunning post-Brexit vote recovery, “core” government bond yields hovered near record lows, and sterling stayed in sight of a three-decade trough against the dollar as a tumultuous week in the markets drew to a close. The dollar finished the week on a broadly softer note, helping gold stay in sight of the two-year high it struck five days earlier. Oil prices were volatile but Brent regained the $50 a barrel mark in late trade.” Read More Here.June 27, 2016Surprise! Britain is leaving the European Union (EU) after 40 years of membership.Last Thursday, almost three-fourths of voters in Britain – about 30 million people, according to the BBC – cast ballots to determine whether the United Kingdom would remain in the EU. By a slim margin, the British people opted out. Read More Here.April 4, 2016Are corporations in the United States struggling?In its cover article last week, The Economist (a British publication), suggested there is not enough competition among American companies. It pointed out:“Aggregate domestic profits are at near-record levels relative to GDP… High profits might be a sign of brilliant innovations or wise long-term investments were it not for the fact that they are also suspiciously persistent. A very profitable American firm has an 80 percent chance of being that way 10 years later. In the 1990s the odds were only about 50 percent.” Read More Here.March 14, 2016Stim-u-late mar-kets! Come on! It's monetary easing.The European Central Bank (ECB) was singing a tune that invigorated financial markets last week. The Wall Street Journal explained:"The fresh measures included cuts to all three of the ECB's main interest rates, €20 billion a month of additional bond purchases atop the ECB’s current €60 billion ($67 billion) program, and an expansion of its quantitative easing program to highly rated corporate bonds – all more aggressive steps than analysts had anticipated. The central bank also announced a series of ultracheap four-year loans to banks, some of which could be paid to borrow from the ECB.” Read More Here.March 7, 2016When Mark Twain's death was reported in the United States, he was alive and well in London. He responded to news accounts with a note saying, "The report of my death was an exaggeration."Last week's jobs data suggest the same is true of reports that a recession is imminent in the United States. Barron's explained:"Thank goodness the mid-February fears of recession that brought markets to their knees - and the 10-year Treasury yield to a low of 1.53 percent - were overblown. Friday's nonfarm payrolls report was the latest confirmation. It showed that 242,000 jobs were created last month, far more than expected and up from teh previous month's reading, which was itself revised higher." Read More Here.February 16, 2016Are markets suffering from excessive worry?Last week, markets headed south because investors were concerned about the possibility of negative interest rates in the United States - even though the U.S. Federal Reserve has been tightening monetary policy (i.e., they've been raising interest rates).The worries appear to have taken root after the House Financial Services Committee asked Fed Chair Janet Yellen whether the Federal Reserve was opposed to reducing its target rate below zero should economic conditions warrant it (e.g., if the U.S. economy deteriorated in a significant way). Barron's reported on the confab between the House and the Fed:"Another, equally remote scenario also gave markets the willies last week: that the Federal Reserve could potentially push its key interest-rate targets below zero, as its central-bank counterparts in Europe and Japan already have. Not that anybody imagined it was on the agenda of the U.S. central bank, which, after all, had just embarked on raising short-term interest rates in December and marching to a different drummer than virtually all other central banks, which are in rate-cutting mode." Read More Here.February 8, 2016There was bad news and good news in last Friday's unemployment report.In the negative column, fewer jobs were created in the United States than economists had predicted, and January's jobs gains were not as strong as December's had been. In addition, the December jobs increase was revised downward from 292,000 to 252,000, according to Barron's.On the positive side of the ledger, more than 150,000 new jobs were added in January. The unemployment rate fell below 5 percent for the first time since February of 2008 and earnings increased. In total, average hourly earnings have moved 2.5 percent higher during the past 12 months. Read More Here.February 1, 2016How low can you go?The Bank of Japan (BOJ) dove into the negative interest rate rabbit hole last week when it dropped its benchmark interest rate to minus 0.1 percent. If you've been following Japan's story, then you know the country has been struggling with deflation for almost two decades. The BOJ's goal is to push inflation up to 2 percent. MarketWatch explained the idea behind negative interest rates:"Central banks use their deposit to influence how banks handle their reserves. In the case of negative rates, central banks want to dissuade lenders from parking cash with them. The hope is that they will use that money to lend to individuals and businesses which, in turn, will spend the money and boost the economy and contribute to inlation." Read More Here.January 25, 2016Investors breathed a sigh of relief last week when U.S. stock markets recovered from a tumble toward bear market territory with the grace of a Cirque du Soleil performer. Many stock markets around the world finished the week with gains, although national indices in Europe and the United States fared better, generally, than those in Asia.BloombergBusiness reported global stocks experienced their biggest gains in more than three years, while safe haven markets, including Treasuries, retreated*. Stocks moved higher on speculation the European Central Bank (ECB) will expand stimulus measures, the U.S. Federal Reserve may revise its rate hike intentions, and Japan and Asia also may take steps to support their markets. Read More Here.January 19, 2016We all have our pet peeves, and if there is one thing markets do NOT like, it is uncertainty. Unfortunately, we entered 2016 with a lot of unanswered questions:How much has China's growth slowed? How will the country's slower growth affect companies and investments around the globe?How will the Federal Reserve's changing monetary policy affect the U.S. economy? How many times will it raise rates during 2016? Will the Fed change course?Will oil prices continue to move lower? Will they move higher? How could changing oil prices affect economic growth?How is the sharing economy (renting rooms in a home, offering rides for a price, sharing goods like automobiles and bikes) affecting economic growth in the United States?How will demographics - particularly the changing ratio of working people to retired people - affect economic growth?How will geopolitical risks affect markets during 2016? Read More Here.January 11, 2016The People's Bank of China (PBOC) started the New Year with a downward currency adjustment and fireworks followed.Last week, three distinct issues affected China's stock market. First, the PBOC's devaluation of the yuan (a.k.a. the renminbi), along with the knowlege the central bank had been spending heavily to prop up its currency in recent months, led many analysts and investors to the conclusion China's economy might not be as robust as official reports indicated, according to the Financial Times.Not everyone was surprised by this revelation. During the fourth quarter of 2015, The Conference Board's working paper entitled Global Growth Projections for The Conference Board Global Economic Outlook 2016 reported:"China's economy grew much slower than the official estimates suggest in the recent years. During the last five years, our estimates suggest an average growth of 4.3 percent, which is substantially lower than the official estimate of 7.8 percent. In 2015, we project China to see an average growth of 3.7 percent, which is indeed lower than the official target of 7 percent." Read More Here.January 4, 2016Investing in U.S. stock markets during 2015 was a bit like riding a mechanical bull. Markets jolted up and down but, once the year ended, investors were almost where they had started.The Standard & Poor's 500 Index (S&P 500) entered 2015 at a bout 2,058. It rose as high as 2,130 during May and fell to about 1,867 in August. As the year ended, the index was almost at 2,044. It would have finished in negative territory if it weren't for dividends. With diveidends included, the S&P 500 was up 1.4 percent for the yar, according to Barron's. Without dividends, it was down 0.7 percent. Read More Here.December 14, 2015It's not like it's a suprise!Last week, investors didn't appear to be thrilled wih the possibility the Federal Reserve might raise rates this week. They also weren't too impressed by another drop in oil prices. There was red ink everywhere as markets from Australia to Hong Kong, across the Eurozone, and throughout the Americas moved lower last week.Bloomberg reported there was a 74 percent probability of a Fed rate hike at the December Federal Open Market Committee meeting. The Wall Street Journal's survey of business and academic economists put the chance at 97 percent. More than 80 percent of those surveyed said the Fed would lose credibility if it doesn't act in December.It's important to remember the Fed doesn't actually set interest rates. It takes actions designed to influence financial behaviors. Even if the Fed does push to increase interest rates, it remains to be seen whehter its efforst will bear fruit. The Financial Times wrote:"...As "lift-off" has drawn closer some analysts have begun to highlight just how experimental this interest rate rise will be. The Fed's bloated balance sheet - swelled by its quantitative easing program - prevents it from using its traditional interest rate tools, so it has unveiled and has been testing new ones. The main new levers are known as the "interest on overnight reserves: and the "overnight reverse repo program," and central bank officials are confident that they will be able to lift the Fed funds rate, which is the main target. Bust some analysts caution that it could be a choppy take-off." Read More Here.December 7, 2015Anyone looking at U.S. stock market performance last week might assume it was a pretty quiet week. They would be wrong. It was a very bouncy week. U.S. stock markets moved lower on Monday, rebounded on Tuesday, and then appeared to suffer a one-two punch mid-week that knocked indices lower.On Wednesday, the benchmark U.S. oil price sank below $40 a barrel as supply continued to exceed demand, according to The Wall Street Journal (WSJ). Analysts had expected stockpiles of crude oil, gasonline, and other fuels to decline. Instead, stores increased to more than 1.3 billion barrels. The glut of fuel drove energy stock values down and energy stocks led the broader market lower, according to WSJ. Read More Here.November 23, 2015Financial markets were remarkably calm last week.Many stock markets in the United States, Europe, and Asia moved higher as investors chose to focus their attention on the minutes of the October 27-28, 2015 Federal Open Market Committee (FOMC) meeting, which were released on Wednesday, rather than recent terrorist attacks in Paris, Labanon, Mali, and against Russia.The FOMC minutes captured attention because they suggested even if the Federal Reserve does begin to tighten monetary policy in December, rate increases may be incremental and the target rate may not be as high as many imagined. Bloomberg reported:"Fed officials received a staff briefing on the equilibrium real interest rate, or the policy rate that would keep the economy running at full employment with stable prices, accoording to the minutes. Fed officials discussed the possibility that the short-run equilibrium rate "would likely remain below levels that were normal during previous business cycle expansions," the minutes said." Read More Here.November 16, 2015Attacks on Paris by the Islamic State were an appaling exclamation point at the end of a difficult week for stock markets.World stock markets tumbled as investors braced for a possible rate hike by the Federal Reserve in December. Many national indices across the United States, Europe, and Asia experienced downturns of more than 2 percent. The Dow Jones Industrial Average lost 3.7 percent and the Standard & Poor's 500 Index gave back 3.6 percent. The exception was Japan's Nikkei 225, which gained 1.7 percent, largely because its weakening currency benefitted Japanese exporters.The chances are pretty good the Federal Reserve will lift rates during December. A Reuters' poll of 80 economists asserted there is a "70 percent median chance by U.S. central bank would raise its short-term lending rate at its final meeting of the year..." A survey taken by The Wall Street Journal found 92 percent of academic and business economists expect Fed liftoff in December. Read More Here.November 9, 2015And, the Bureau of Labor Statistics (BLS) said...U.S. job growth surpassed expectations in October. About 271,000 jobs were created across diverse industries: professional and business services, health care, retail, construction, and others. That was a significantly higher number than predicted by economists who participated in a survey conducted by The Wall Street Journal. The expected to see 183,000 new jobs for October.The BLS revised August and September jobs numbers higher overall and reported improvement on the wage front, too. Average hourly earnings increased by nine cents during October. For the year, hourly earnings are up 2.5 percent. Rising wages and a 5 percent unemployment rate "appear to indicate the labor market has reached full employment," reported Barron's. Read More Here.November 2, 2015Keep your eyes on the data.There was much to be said for U.S. stock markets' performance during October. Both the Dow Jones Industrial Average and the Standard & Poor's 500 Index delivered their best monthly performance in four years, according to Barron's.Any celebration of strong market performance was cut short when the Commerce Department's estimate of third quarter U.S. gross domestic product (GDP) growth was released last week. GDP was in positive territory, up 1.5 percent for the period, but growth fell short of second quarter's 3.9 percent, according to the BBC. Read More Here.October 27, 2015Central banks were at it again - and markets loved it.Last week, European Central Bank (ECB) President Mario Draghi surprised markets when he indicated the ECB's governing council was considering cutting interest rates and engaging in another round of quantitative easing. The Economist explained European monetary policy was heavily tilted toward growth before the announcement:"The ECB is already delivering a hefty stimulus to the Euro area, following decisions taken between June 2014 and early 2015. It has introduced a negative interest rate, of minus 0.2%, which is charged on deposits left by banks with the ECB. It has also been providing ultra-cheap, long-term funding to banks provided that they improve their lending record to the private sector. And, most important of all, in January it announced a full-blooded program of quantitative easing (QE) - creating money to buy financial assets - which got under way in March with purchases of $68 billion of mainly public debt each month until at least September 2016." Read More Here.October 19, 2015How quickly emotions have changed since August. Worry? Angst? It's already priced into the markets, according to some experts.Last week, Barron's published the results of its Big Money Poll, a biannual survey of professional investors and money managers. A majority of those surveyed (55 percent) were bullish about U.S. markets' prospects through June 2016, 29 percent were neutral, and 16 percent were bearish. That's a big shift. Last spring, just 45 percent of those polled were bullish and nearly one-half were neutral. This time around, things are different:"After a wild and crazy summer for U.S. stocks, marked by an 11 percent corrections in August, Wall Street's bulls are showing conviction again...the pros expect stocks to rise by as much as 7 percent through the middle of 2016, propelled by a growing economy and gains in corporate profit. The Big Money investors see fresh value in beaten-up energy stocks and financials, as well as dividend-paying blue chips. And, they don't expect a likely interest-rate hike - when it comes - to break the bull's stride for long." Read More Here.October 12, 2015They're investors. They're allowed to change their minds.Just a few weeks ago, on September 17, the Federal Reserve Open Market Committee (FOMC) decided to leave the fed funds rate unchanged. In part, this was because, "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term."The next day, September 18, stock markets tumbled. By the time September was over, many markets had closed on their worst quarter in four years, according to the BBC. The Dow Jones Industrial Average fell by almost 8 percent, Britain's FTSE was down 7 percent, Germany's Dax was off by almost 12 percent, and the Shanghai Composite lost more than 24 percent. Read More Here.October 5, 2015Well, the third quarter was a humdinger.It began with the first International Monetary Fund (IMF) default by a developed country (Greece) and finished with Hurricane Joaquin possibly headed toward the east coast. In between, China's stock market tumbled, the Federal Reserve tried to interpret conflicting signals, and trade growth slowed globally. After such a stressful quarter, we may see an uptick in the quantity of alcoholic beverages consumed per person around the world. The number had declined (along with economic growth in China) between 2012 and 2014, according to The Economist. Read More Here.September 28, 2015Oh, the uncertainty!Investors are keeping one eye on the Federal Reserve and the other on politicians trying to determine what may happen during the last quarter of the year.The Fed, which is the central bank of the United States, is responsible for conducting monetary policy with an eye toward full employment and stable prices. If, as St. Louis Fed President James bullard told Reuters, the economy is near full employment and inflation is sure to rise, then why didn't the Fed raise rates in September? Read More Here.September 21, 2015As Tom Petty often said, "The waiting is the hardest part." Whether it's waiting for college acceptance letters, medical test results, employment offers, or Federal Reserve monetary policy changes, waiting can produce a lot of anxiety. A 2012 research paper written by Associate Professor Kate Sweeney and Graduate Fellow Sara Andrews of the University of California, Riverside, explained it like this:"...Although waiting for inevitable events such as the arrival of a bus or one's turn in line may be irritating...the combination of uncertainty about the outcome and waiting for that outcome can be particularly excruciating. In fact, waiting may be more anxiety provoking than actually facing the worst case scenario..." Read More Here.September 14, 2015The market is as streaky as a slice of bacon.U.S. stock markets have been sliding higher. They've been sliding lower.Barron's reported the Standard & Poor's 500 Index has tumbled from gains to losses and back again for 10 weeks in a row. The Dow Jones Industrial Index has tagged along with nine weeks of flip-flops. You'd almost think they were running for office. Read More Here.September 7, 2015Who's the culprit?Speculating on who or what is to blame for recent market weakness is a popular pastime right now. Last week, Barron's said the search for someone to blame is a lot like a game of Clue. So far, the most common conclusions are "the People's Bank of China with a devalued currency in Beijing," and "Janet Yellen with a potential interest-rate hike in Washington." Read More Here.August 31, 2015U.S. stock markets finished last week higher than they started it, but the five-day ride was awfully bumpy.Concerns about China's slowing growth, shifting currency valuations, and falling stock markets, coupled with uncertainty about the Federal Reserve's next monetary policy move, contributed to malaise in world markets early last week. Read More Here.August 24, 2015Correction!The Dow Jones Industrial Average lost about 6 percent last week. That puts the benchmark index about 10 percent below its record high on May 19, 2015, according to Barron's. Read More Here.August 10, 2015Back to school...back to higher interst rates?After a solid July jobs report arrived on Friday - 215,000 new jobs were created and unemployment remained at 5.3 percent - analysts were pretty confident there would be ample support for a Federal Reserve rate increase (a.k.a. liftoff) in September. Bloomberg reported the odds of a September liftoff shot from 38 percent to 52 percent just last week. Read More Here.August 3, 2015The market is flat.That's right. It's a rare occurrence - something that has happened just 12 times since 1926, according to Fortune - but the Standard & Poor's 500 Index (S&P 500) has remained in a narrow trading range for seven months. For every sector that has delivered performance gains (for instance, energy, materials, and industrials). Read More Here.July 20, 2015No It's been a wild, wild quarter. Investors around the world breathed a sigh of relief last week.It wafted markets higher. The NASDAQ jumped by more than 4 percent. The Standard & Poor's 500 Index gained 2.4 percent. France's national benchmark index rose 4.5 percent, Germany's was up 3.2 percent, Italy's increased by 3.6 percent, and China's Shanghai Composite was up 2.1 percent. So, what happened? Read More Here.July 13, 2015It's a cautionary tale...Many Chinese investors were so optimistic about the prospects for Chinese stock markets they bought on margin, meaning they borrowed money to buy stocks. Borrowing to invest has been so popular that the amount of margin loans doubled in just six months to about $320 billion, according to Barron's. Experts cited in the article said, "...margin financing in China is equal in size to Indonesia's entire stock market valuation and as high a portion as it has been in any market at any time..." Read More Here.July 6, 2015No It's been a wild, wild quarter.In early April, stock markets were doing so well (14 of 47 national benchmark indices hit all-time highs) that global market capitalization -- the value of stocks trading on exchanges throughout the world -- pushed past $70 trillion, according to Bloomberg Business. The publication attributed the climb to stimulus programs. About two-dozen countries' central banks were either engaged in quantitative easing or had committed to lower interest rates. Read More Here.