5-Minute Market Update – October 24, 2016

I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less. After all, finances should be simple, not complicated.

Market Update

Equities: Broad equity markets finished positive for the week with international stocks experiencing the largest gains. S&P 500 sectors finished the week mixed as cyclical sectors generally outperformed defensive sectors.

So far in 2016 energy, technology, and utilities are the strongest performers while healthcare is the only sector with negative performance year-to-date.

Commodities: Commodities were slightly positive for the week as oil gained 0.99%. This is the fifth straight week of gains for oil as traders continue to drive up prices on OPEC and Russia production cut speculations. Gold increased 1.02% and remains considerably positive (+19.39%) for the year.

Bonds: The 10-year treasury yield decreased slightly from 1.80% to 1.74%, leading to positive performance in treasury and aggregate bonds.

High yield bonds were positive as credit spreads continued to broadly decline.

All indices are currently positive (modestly) for 2016, with high yield bonds leading the way.

screen-shot-2016-10-24-at-9-17-43-am

Lesson to be learned: Benjamin Graham once said “In the short run, the market is a voting machine, but in the long run it is a weighing machine.” There is a lot of daily market “noise” that can cause unnerving volatility at times, but it is important not to let short-term speculations drive your investment decision making process. Instead, you should maintain a smart and disciplined investment strategy to improve your chances of long term portfolio success.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).  In future posts, I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to read least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) most recently increased from 22.76 to 25.46, which signaled a slightly negative shift in the US Economy. The Bull/Bear indicator is currently 33.33% bullish, 33.33% neutral, and 33.33% bearish (averaging 50% bullish and 50% bearish). This means our models remain neutral regarding the stock market direction in the near term (think <18 months).

screen-shot-2016-10-24-at-9-18-02-am

Weekly Comments & Charts

The S&P 500 finished positive for the week, but remains right at the support level that was set following the breakout in July. Prices stalled during the summer as there had not been a definitive move up or down since the S&P 500 broke through the ceiling set back in May 2015, but the past few weeks have seen an increase in price movement as markets continue to speculate over interest rates and the upcoming election. This could indicate an important inflection point in the equity markets. If the S&P 500 continues to use this old ceiling as a level of support, it could signal that markets are experiencing true positive momentum and are ready to continue making new all time highs. However, if the S&P 500 falls below the current level of support, it could signal a decline back into the sideways/downward trading pattern experienced earlier in the year. The coming weeks should give some valuable insight about the near-term direction of the S&P 500.

screen-shot-2016-10-24-at-9-17-05-am

The final presidential debate took place on Wednesday and the markets are turning their attention to the upcoming election on November 8.

Though Clinton seems to be the front-runner for now, there is still much uncertainty surrounding election day. Volatility is likely to remain slightly higher than normal over the coming weeks until the final vote is counted, but what can we expect the markets to do following the election?

If Clinton wins the election, the likely scenario is that equities will continue the recent positive trend into the near future. Clinton’s policies are more clear than Trump’s, as she is expected to continue Obama’s policies, so if Clinton wins there will be less uncertainty in the markets. Some investors fear significant increases to taxation could slow the economy if Clinton wins, but this would likely not be the case as long as Democrats do not control both the Senate and House of Representatives. The higher level of predictability suggests markets would take her victory in stride.

If Trump wins, it is likely that equities would experience an increase in near-term volatility. Trump’s policies are still unpredictable and he has stated there are many foreign and domestic matters he would like to change. Though Trump’s stance on taxes and business could further stimulate the economy in the longer-term, the lower level of predictability suggests market participants may shift towards more safe-haven investments in the near-term if he wins.

While market trends and history are useful for study, there’s always more to investing than just the charts and trends.

As investors, we need to stay committed to our long term financial goals. All the short term news and market movements can be the most debilitating of all when it comes to making sound investment decisions; especially if we allow them to influence knee-jerk decisions.

More to come soon.  Stay tuned.

 

Regards,

Phil Calandra

How Elections May Affect the Economy

The 2016 presidential election has been a roller coaster unlike any in recent memory. Amidst the drama, you might be wondering how the outcome will affect the economy and your financial future.

You’re not alone.

In a recent Bankrate poll, 61% of Americans said they think the election is the greatest threat to our economy over the next six months[i]. That number is more than double the number of people concerned about terrorism, struggling overseas economies, and stock market decline — combined.

We recognize that you and other people may be concerned or confused, so we wanted to share some perspective and historical information to help you better understand where we stand. Of course, no one can predict the future. But, we think that by looking back, you will gain a better view of what may be on the horizon.

What does history tell us about presidential elections?

Generally speaking, the markets perform well in election years. Since 1960, 12 of 14 presidential election years have ended with the S&P 500 delivering positive returns. The only two that didn’t were 2000 and 2008, where the dot-com crash and beginning of the Great Recession, respectively, drove markets down[ii].

Although election years almost always provide positive returns, determining which party is better for investments is a challenge. Looking at S&P 500 returns since John F. Kennedy’s term began in 1961, returns averaged 13.29% with a Democratic president and 8.71% with a Republican. But, the highest 4-year returns happened under Gerald Ford, a Republican[iii].

The reality is that no president operates in a vacuum, or controls market behavior. An incredibly complex mix of geopolitical and economic forces combine to affect market performance during each president’s term. Ultimately, no one can predict how an individual election will affect the economy. But no president is able to single-handedly drive or destroy the economy. No matter what happens on November 8th, we are all part of an interconnected global marketplace, where many factors beyond the American president determine what the future holds.

So what can you do?

  •  Tune out noise from the media.

Scary headlines screaming about doomsday can be unnerving to even the most even-keeled investor. But, the media — and in particular television — can benefit by fueling people’s concern. In fact, if you look at CNBC, viewership peaks when the markets are low and wanes when they perform well[iv]. Headlines might attract your attention, but they don’t predict market behavior.

  • Keep a long-term view.

The markets may experience some turbulence in the coming months. But, these short-term fluctuations shouldn’t affect your ability to achieve your lifelong goals.

  •  Call us when you want to talk.

You don’t have to face your uncertainty alone. If you have questions and concerns we want to help you make sense of this environment.

Ultimately, nothing lasts forever — and the climate surrounding our presidential election will soon fade. Remember, we’re all in this together. And we’re always here to offer the support and guidance you need throughout your financial life.

[i] http://www.usnews.com/news/articles/2016-09-13/presidential-election-biggest-threat-to-us-economy-for-most-americans
[ii] https://www.hartfordfunds.com/dam/en/docs/pub/funddocuments/brochures/MAI040.pdf
[iii] https://www.hartfordfunds.com/dam/en/docs/pub/funddocuments/brochures/MAI040.pdf
[iv] https://www.hartfordfunds.com/dam/en/docs/pub/funddocuments/brochures/mf916.pdf

Q3 2016 Earnings Season Kicks Off

Trust Dale CFG5-Minute Market Update  |  October 17, 2016

I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less. After all, finances should be simple, not complicated.

Market Update

Equities: Broad equity markets finished negative for the week with small cap US stocks experiencing the largest losses. S&P 500 sectors finished the week mixed as defensive sectors generally outperformed cyclical sectors.

So far in 2016 energy, technology, and utilities are the strongest performers while healthcare is the only sector with negative performance year-to-date.

Commodities: Commodities were positive for the week as oil gained 1.08%. This is the fourth straight week of gains for oil as traders continue to drive up prices on OPEC and Russia production cut speculations. Gold increased 0.34% and remains considerably positive (+18.18%) for the year.

Bonds: The 10-year treasury yield increased from 1.73% to 1.80%, leading to negative performance in treasury and aggregate bonds.

High yield bonds were negative as broad interest rate increases added to losses experienced from the negative performance in riskier assets.

All indices are currently positive (modestly) for 2016, with high yield bonds leading the way.

screen-shot-2016-10-17-at-11-09-37-am

Lesson to be learned: Benjamin Graham once said “In the short run, the market is a voting machine, but in the long run it is a weighing machine.” There is a lot of daily market “noise” that can cause unnerving volatility at times, but it is important not to let short-term speculations drive your investment decision making process. Instead, you should maintain a smart and disciplined investment strategy to improve your chances of long term portfolio success.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).  In future posts, I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to read least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) most recently increased from 22.76 to 25.46, which signaled a slightly negative shift in the US Economy. The Bull/Bear indicator is currently 33.33% bullish, 33.33% neutral, and 33.33% bearish (averaging 50% bullish and 50% bearish). This means our models remain neutral regarding the stock market direction in the near term (think <18 months).

screen-shot-2016-10-10-at-11-00-31-am

Weekly Comments & Charts

The S&P 500 finished negative for the second straight week and sits right at the support level that was set following the breakout in July. Prices stalled during the summer as there had not been a definitive move up or down since the S&P 500 broke through the ceiling set back in May 2015, but the past few weeks have seen an increase in price movement as markets continue to speculate over interest rates and the upcoming election. This could indicate an important inflection point in the equity markets. If the S&P 500 continues to use this old ceiling as a level of support, it could signal that markets are experiencing true positive momentum and are ready to continue making new all time highs. However, if the S&P 500 falls below the ceiling, it could signal a decline back into the sideways/downward trading pattern experienced earlier in the year. The coming weeks should give some valuable insight about the near-term direction of the S&P 500.

screen-shot-2016-10-17-at-9-20-38-am

Broad equity markets ended negative for the week as markets gear-up for the Q3 2016 earnings season.

The forward 12-month price-to-earnings (P/E) ratio of the S&P 500 currently stands at 16.4, higher than the 5-year and 10-year averages of 14.9 and 14.3. Though there is no exact signal level, an inflated P/E ratio can indicate an overvalued market. To fall back to the average P/E ratios, we would need to see an increase in earnings or a decrease in prices.

The S&P 500 is currently in an earning slump as the last five quarters have experienced year-over-year earnings declines. This is the first time the index has recorded five consecutive quarters of year-over-year earnings declines since Q3 2008 through Q3 2009. Weaker than expected earnings announcements from some of the major initial reporting companies weighed on stocks this week and analysts are expecting blended S&P 500 earnings to decline 1.8% for the quarter.

Analysts expect positive earnings growth to return in Q4 2016, with a current growth rate estimate of 5.6%. For all of 2017, analysts are projecting earnings growth of 12.8% as oil prices have stabilized through 2016. This could provide support for higher equity prices over the next year, but there are still many global uncertainties facing the markets to be conscious of.

While market trends and history are useful for study, there’s always more to investing than just the charts and trends. We need to be a little cautious about increasing global uncertainties and the election that is right around the corner.

Most importantly, as investors we need to stay committed to our long term financial goals. All the short term news and market movements can be the most debilitating of all when it comes to making sound investment decisions; especially if we allow them to influence knee-jerk decisions.

More to come soon.  Stay tuned.

Regards,

Phil Calandra

FormulaFolios Portfolio Recap – October 2016

In this recap, we cover the prior month and YTD performance, touch on current asset allocation of our tactical models, as well as the most up to date economic analysis of our proprietary economic model – the Recession Probability Index.

Warmest Regards,

Phil Calandra & Jason Wenk
Chief Investment Strategist

US Jobs Report Misses Expectations

Trust Dale CFG5-Minute Market Update  |  October 10, 2016

I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less. After all, finances should be simple, not complicated.

Market Update

Equities: Broad equity markets finished negative for the week with small cap US stocks experiencing the largest losses. Financials was the only S&P 500 sector to finish the week positive.

So far in 2016 energy, technology, and telecommunications are the strongest performers while healthcare is the only sector with negative performance year-to-date.

Commodities: Commodities were positive for the week as oil gained 3.25%. This is the third straight week of gains for oil as traders continue to drive up prices on OPEC and Russia production cut speculations. Gold fell sharply, losing 4.90%, but remains considerably positive (+17.79%) for the year.

Bonds: The 10-year treasury yield increased from 1.60% to 1.73%, leading to negative performance in treasury and aggregate bonds.

High yield bonds were positive as credit spreads fell sharply, negating the downward pressure from higher broad interest rates.

All indices are currently positive (modestly) for 2016, with high yield bonds leading the way.

screen-shot-2016-10-10-at-8-41-52-am

Lesson to be learned: Benjamin Graham once said “In the short run, the market is a voting machine, but in the long run it is a weighing machine.” There is a lot of daily market “noise” that can cause unnerving volatility at times, but it is important not to let short-term speculations drive your investment decision making process. Instead, you should maintain a smart and disciplined investment strategy to improve your chances of long term portfolio success.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).  In future posts, I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to read least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) most recently increased from 22.76 to 25.46, which signaled a slightly negative shift in the US Economy. The Bull/Bear indicator is currently 33.33% bullish, 33.33% neutral, and 33.33% bearish (averaging 50% bullish and 50% bearish). This means our models remain neutral regarding the stock market direction in the near term (think <18 months).

screen-shot-2016-10-10-at-11-00-31-am

Weekly Comments & Charts

The S&P 500 finished negative for the first time in four weeks as the index failed to continue its recent positive momentum. Prices stalled during the summer as there had not been a definitive move up or down since the S&P 500 broke through the ceiling set back in May 2015, but the past few weeks have seen an increase in price movement as markets continue to speculate over interest rates and the upcoming election. This could indicate an important inflection point in the equity markets. If the S&P 500 continues to use this old ceiling as a level of support, it could signal that markets are experiencing true positive momentum and are ready to continue making new all time highs. However, if the S&P 500 falls below the ceiling, it could signal a decline back into the sideways/downward trading pattern experienced earlier in the year. The coming weeks should give some valuable insight about the near-term direction of the S&P 500.

screen-shot-2016-10-10-at-8-48-39-am

Broad equity markets ended negative for the week as a weaker than expected jobs report created some downward pressure.

The US economy added 156,000 jobs in September, less than the expected figure of 170,000. Though this was lower than expected, the third quarter of 2016 experienced a much higher level of job gains compared to the second quarter. The labor market is currently in its seventh year of expansion and slower pace of job growth moving forward is expected, but the US labor market remains relatively healthy for the time being.

Further adding to the downward pressure, British Prime Minister Theresa May announced the UK will trigger Article 50 by the end of March 2017. Article 50 sets the process for the exit of a country from the European Union. Once this is invoked, the UK will have two years to negotiate new terms with EU countries before officially severing ties with the Union. This provides more clarity about when negotiations will begin, but the revamped uncertainty of how European businesses will respond moving forward could add to near-term volatility.

While market trends and history are useful for study, there’s always more to investing than just the charts and trends. We need to be a little cautious about increasing global uncertainties and the election that is right around the corner.

Most importantly, as investors we need to stay committed to our long term financial goals. All the short term news and market movements can be the most debilitating of all when it comes to making sound investment decisions; especially if we allow them to influence knee-jerk decisions.

More to come soon.  Stay tuned.

Regards,

Phil Calandra

Investors Eye Presidential Debate, S&P 500 Finishes Week Positive

Trust Dale CFG5-Minute Market Update  |  October 3, 2016

I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less. After all, finances should be simple, not complicated.

Market Update

Equities: Broad equity markets finished mixed for the week with large cap US stocks experiencing the largest gains. S&P 500 sectors finished the week mixed as well with cyclical sectors generally outperforming defensive sectors.

So far in 2016 energy, telecommunications, and utilities are the strongest performers while financials is the only sector with negative performance year-to-date.

Commodities: Commodities were positive for the week as oil gained 8.45%. The Organization of the Petroleum Exporting Countries (OPEC) agreed to cut output from 33.5 million barrels per day to 32.5 – 33 million barrels per day. Details of this agreement will be finalized in OPEC’s November policy meeting. Gold fell 1.79%, but remains considerably positive for the year.

Bonds: The 10-year treasury yield decreased slightly from 1.62% to 1.60%, leading to positive performance in treasury and aggregate bonds.

High yield bonds were positive as broad interest rate decreases and narrower credit spreads furthered the gains experienced from the positive performance in riskier assets.

All indices are currently positive (modestly) for 2016, with high yield bonds leading the way.

screen-shot-2016-10-03-at-8-49-00-am

Lesson to be learned: Benjamin Graham once said “In the short run, the market is a voting machine, but in the long run it is a weighing machine.” There is a lot of daily market “noise” that can cause unnerving volatility at times, but it is important not to let short-term speculations drive your investment decision making process. Instead, you should maintain a smart and disciplined investment strategy to improve your chances of long term portfolio success.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).  In future posts, I’ll write more about how these indicators are built and why we feel they are important.

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to read least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) most recently decreased from 25.33 to 22.76, which signaled a slightly positive shift in the US Economy. The Bull/Bear indicator is currently 33.33% bullish, 33.33% neutral, and 33.33% bearish (averaging 50% bullish and 50% bearish). This means our models remain neutral regarding the stock market direction in the near term (think <18 months).

screen-shot-2016-10-03-at-8-49-07-am

Weekly Comments & Charts

The S&P 500 finished positive for the third straight week as the index continues its attempt to regain positive momentum. Prices stalled during the summer as there had not been a definitive move up or down since the S&P 500 broke through the ceiling set back in May 2015, but the past couple of weeks have seen an increase in price movement as markets continue to speculate over interest rates and the upcoming election. This could indicate an important inflection point in the equity markets. If the S&P 500 continues to use this old ceiling as a level of support, it could signal that markets are experiencing true positive momentum and are ready to continue making new all time highs. However, if the S&P 500 falls below the ceiling, it could signal a decline back into the sideways/downward trading pattern experienced earlier in the year. The coming weeks should give some valuable insight about the near-term direction of the S&P 500.

screen-shot-2016-10-03-at-8-49-54-am

Equity markets ended mixed for the week as investors eyed the presidential debate, oil prices, and the Deutsche Bank fine.

Investor attention will remain on the campaign trail over the next month as the election draws near. Candidates had their first debate on Monday and will continue to trade blows until November 8. A higher level of market volatility is likely to remain until the next president is selected as there is still a high degree of uncertainty surrounding the election, and markets dislike uncertainty.

Oil prices experienced a significant increase as OPEC announced an agreement to reduce production, though specific details will not be finalized until OPEC’s November policy meeting. The persistent supply glut helped bring oil prices down from over $100/bbl in mid-2014 to under $30/bbl in early-2016. Lower oil prices have had an adverse impact on market earnings with the S&P 500 energy sector EPS declining approximately 80% over the past year. If OPEC countries cut production, it could help support higher oil prices which would generate higher broad earnings growth over the near-term.

Deutsche Bank recently announced it is in negotiations with the US Justice Department regarding a $14 billion fine for selling misleading mortgage-backed securities before the 2008 financial crisis. Markets had feared that a fine of this magnitude could lead to a failure of the bank, which could have an impact on other large world banks, but it was reported on Friday that the fine may be closer to $5.4 billion. The news of this reduced fine sent Deutsche Bank shares and markets higher to end the week.

While market trends and history are useful for study, there’s always more to investing than just the charts and trends. We need to be a little cautious about increasing global uncertainties and the election that is right around the corner.

Most importantly, as investors we need to stay committed to our long term financial goals. All the short term news and market movements can be the most debilitating of all when it comes to making sound investment decisions; especially if we allow them to influence knee-jerk decisions.

More to come soon.  Stay tuned.

Regards,

Phil Calandra