5 Minute Market Update – December 28, 2016

Trust Dale CFGI 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, investing should be simple, not complicated.

Market Update

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

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

Commodities: Commodities were negative for the week, though oil prices rose 2.16%. Oil prices have climbed over 18% since November 30th when OPEC announced that a decision was reached to cut output starting in January 2017. Gold fell 0.30%, marking the seventh consecutive week of losses as the US dollar continued to strengthen.

Bonds: The 10-year treasury yield decreased slightly from 2.60% to 2.55%, leading to positive performance in treasury and aggregate bonds. This is the first week since the election that rates have fallen, though the 10-year treasury yield remains about 55% higher than pre-election levels.

High yield bonds were positive as riskier assets performed well and credit spreads continued to fall.

All indices are currently positive (modestly) for 2016, with small-cap stocks leading the way.

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Lesson to be learned: Benjamin Graham once said “The individual investor should act consistently as an investor and not as a speculator.” Nobody can predict the future, but it can be difficult to avoid the urge of speculating about “hot” market topics. Markets often act in ways that are unforeseen which is why it is important to maintain a smart and disciplined investment strategy while avoiding knee-jerk reactions based on daily market noise.

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) has a current reading of 25.44, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

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Weekly Comments & Charts

The S&P 500 closed mostly flat for the second consecutive week, but remains well above the support level that was set following the breakout in July. Prior to the presidential election, the S&P 500 had closed negative in four of five weeks, but the market has rebounded sharply and has reached new all time highs multiple times in recent weeks. With the recent momentum and upward price pressure, it appears that US equity markets are currently in an intermediate-term upward trend. The coming weeks should continue to give valuable insight about the near-term direction of the S&P 500, but it seems the sideways/downward pattern experienced since mid-2015 has shifted to a more bullish pattern for now.

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US equity markets finished positive, but the Dow Jones Industrial Average (DJIA) fell just short of hitting 20,000 for the first time.

The DJIA is currently on a seven week winning streak, but what would the index reaching 20,000 mean for investors? To put things in better perspective, a reading of 20,000 is really only 5.26% higher than the last milestone of 19,000. The DJIA has experienced a monthly movement of over 5.26% on four separate monthly occasions since the beginning of 2015 (17% of the last 23 months, not including December 2016 which is currently up 4.45%), which means 20,000 seems to be just a “hot headline” for news outlets to use in order to attract attention.

Though 20,000 is not necessarily predictive, as it is not notably different than levels of 19,999 or 20,001, it does represent a psychological milestone. Humans tend to be attracted to clean, round numbers because they look nice and have a nice ring to them. Some investors expect that the DJIA reaching 20,000 could signal a continuation of the recent US stock rally. In reality, however, it is more important in the long-term to determine the underlying forces behind the price movements.

US stocks have experienced significant upward pressure since the election, but a major cause of the initial movement was due to speculation over President-elect Trump’s expected policies. Speculation can often cause short and intermediate-term market movements, but over the longer-term market fundamentals generally have more weight than speculation. So what do some of the fundamentals currently look like?

The final Q3 2016 GDP figure showed US economic growth of 3.5%, higher than the preliminary estimate of 2.9% and the second estimate of 3.2%. Consumer spending was the largest contributor as confidence continues to increase due to relatively stable labor market and wage growth. The US unemployment rate fell to 4.6%, the lowest reading since before the 2008 financial crisis. Total S&P 500 earnings (a broader market gauge than the 30 DJIA stocks) grew approximately 3.2% in Q3, marking the first quarter of positive year-over-year earnings growth since Q1 2015.

Though the above information only focuses on a small snapshot of economic data, it illustrates that the US economy appears to be stronger today than it has been over the past couple of years. The recent US economic growth is expected to continue into 2017, but higher interest rates may offset some of the upside potential. However, with the slow and steady path of expected rate hikes moving forward, there is still room for continued economic expansion.

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

5 Minute Market Commentary – Christmas Edition

Santa at NYSEI am happy to present this week’s Christmas Edition 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, investing should be simple, not complicated.

Market Update

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

So far in 2016 energy, financials, and industrials 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 prices rose 0.78%. Oil prices have climbed almost 15% since November 30th when OPEC announced that a decision was reached to cut output starting in January 2017. Gold fell 2.08%, marking the sixth consecutive week of losses as the US dollar continued to strengthen.

Bonds: Broad interest rates continued to rise for the sixth straight week as the 10-year treasury yield increased from 2.47% to 2.60%, leading to negative performance in treasury and aggregate bonds.

High yield bonds were negative as the increase in broad interest rates was offset the positive effect falling credit spreads.

All indices are currently positive (modestly) for 2016, with small-cap stocks leading the way.

screen-shot-2016-12-19-at-9-14-41-am

Lesson to be learned: Benjamin Graham once said “The individual investor should act consistently as an investor and not as a speculator.” Nobody can predict the future, but it can be difficult to avoid the urge of speculating about “hot” market topics. Markets often act in ways that are unforeseen which is why it is important to maintain a smart and disciplined investment strategy while avoiding knee-jerk reactions based on daily market noise.

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) has a current reading of 25.44, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

screen-shot-2016-12-19-at-9-14-53-am

Weekly Comments & Charts

The S&P 500 ended mostly flat last week but remains well above the support level that was set following the breakout in July. Prior to the presidential election, the S&P 500 had closed negative in four of five weeks, but the market has rebounded sharply and has reached new all time highs multiple times in recent weeks. With the recent momentum and upward price pressure, it appears that US equity markets are currently in an intermediate-term upward trend. The coming weeks should continue to give valuable insight about the near-term direction of the S&P 500, but it seems the sideways/downward pattern experienced since mid-2015 has shifted to a more bullish pattern for now.

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US equity markets finished mixed as major indices gave back some gains after hitting new all-time highs on Tuesday.

The Federal Open Market Committee (FOMC) announced on Wednesday that the Federal Fund Rates would be increased from a range of 0.25% – 0.50% to a range of 0.50% – 0.75%. This was the first rate hike since December 2015 and only the second time rates have been raised since the financial crisis of 2008, so what does this mean going into 2017?

Immediately following the rate hike announcement, US equities fell as interest rates continued to rise and the dollar continued to strengthen. As the economy appears to have strengthened in the second half of 2016 the Fed has become slightly more optimistic about further rate increases in 2017. Though the Fed remains cautions, the FOMC “Dot Plot” illustrates that committee participants forecast three rate hikes next year. It remains uncertain if the Fed will follow through with the new expected path of rate hikes, but it seems that we may be in a longer-term period of slow and measured monetary policy tightening after many years of monetary stimulus.

The recent US economic growth is expected to continue into 2017, but higher interest rates may offset some of the expected fiscal stimulus if Trump cuts taxes after taking office. However, with the slow and steady path of expected rate hikes moving forward, there is still room for continued economic expansion. It is reasonable to expect higher inflation and interest rates as well as moderately stronger earnings and a stronger dollar in 2017. Many experts believe this should lead to a continuation of the bull market in stocks (though there is still a large amount of global risk to be aware of) while bonds may reverse direction into a bearish trend as interest rates continue to rise.

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.  Merry Christmas!

Regards,

Phil Calandra

5 Minute Market Update – December 13, 2016

Trust Dale CFGI 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, investing should be simple, not complicated.

Market Update

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

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

Commodities: Commodities were positive for the week, though oil prices fell 0.35%. Oil prices have climbed almost 14%, however, since November 30th when OPEC announced that a decision was reached to cut output starting in January 2017. Gold fell 1.34%, marking the fifth consecutive week of losses as the US dollar continued to strengthen.

Bonds: Broad interest rates continued to rise as the 10-year treasury yield increased from 2.40% to 2.47%, leading to negative performance in treasury and aggregate bonds.

High yield bonds were positive as the increase in broad interest rates was negated by the positive effect of riskier asset gains. Credit spreads continued to fall as investors continued to show more confidence in the strength of the economy, which has a positive effect on high yield bonds.

All indices are currently positive (modestly) for 2016, with small-cap stocks leading the way.

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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) has a current reading of 25.44, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

screen-shot-2016-12-11-at-1-29-25-pm

Weekly Comments & Charts

The S&P 500 experienced its strongest week of gains since election week and remains well above the support level that was set following the breakout in July. Prior to the presidential election, the S&P 500 had closed negative in four of five weeks, but the market has rebounded sharply and has reached new all time highs multiple times in recent weeks. With the recent momentum and upward price pressure, it appears that US equity markets are currently in an intermediate-term upward trend. The coming weeks should continue to give valuable insight about the near-term direction of the S&P 500, but it seems the sideways/downward pattern experienced since mid-2015 has shifted to a more bullish pattern for now.

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US equity markets finished positive as stocks resumed the recent post-election rally that began in early November.

Small-cap stocks have experienced the largest gains over the past month as smaller companies stand to benefit the most from President Elect Trump’s anticipated policies, but the recent stock rally has been mostly all-inclusive. Last week marked the first time in almost 20 years that the Dow Jones Industrial Average, Dow Jones Transportation Average, S&P 500, NASDAQ, and Russell 2000 indices all reached new highs at the same time.

The broad span of companies hitting new highs illustrates there is a wide level of positive market breadth, which may be a good sign that this rally could continue in the near-term. Some analysts have even started to increase earnings expectations for 2017, projecting stronger US economic growth than in recent years, which could add momentum to the current rally. However, it is important not to throw caution to the wind and lose sight of sound risk-management practices. It was only earlier this year that we experienced the worst start to a year in US stock market history.

With the end of the year approaching, the main focus of the markets has turned to the next Fed rate decision on December 14. According to the CME Group, there is a 95% implied probability that the Fed will decide to increase interest rates following the upcoming meeting.

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

FormulaFolios Portfolio Recap – December 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.

Regards,

Phil Calandra

5 Minute Market Update – December 6, 2016

small CFG logoI 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, investing should be simple, not complicated.

Market Update

Equities: Broad equity markets finished mostly negative for the week with small-cap stocks experiencing the largest losses. S&P 500 sectors finished the week mixed with no discernible difference between cyclical and defensive sectors.

So far in 2016 energy, industrials, and financials are the strongest performers while healthcare and consumer staples are the only sectors with negative performance year-to-date.

Commodities: Commodities were positive for the week as oil gained 12.20%. Oil prices spiked following OPEC’s announcement that a decision was reached to cut output starting in January 2017. Gold fell 0.26% but remains considerably positive at +10.83% for the year.

Bonds: The 10-year treasury yield increased slightly from 2.36% to 2.40%, but treasury and aggregate bonds ended the week mostly flat after experiencing three straight weeks of losses.

High yield bonds were flat as well due to a decline in credit spreads offsetting rising broad interest rates.

Most indices remain positive (modestly) for 2016, with small-cap stocks leading the way.

screen-shot-2016-12-04-at-9-42-36-pm

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 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

screen-shot-2016-12-04-at-9-45-18-pm

Weekly Comments & Charts

The S&P 500 finished negative for the first time since the election, but remains well above the support level that was set following the breakout in July. Prior to the presidential election, the S&P 500 had closed negative in four of five weeks, but the market has rebounded sharply and has reached new all time highs. With the recent momentum and upward price pressure, it appears that US equity markets are currently in an intermediate-term upward trend. The coming weeks should continue to give valuable insight about the near-term direction of the S&P 500, but it seems the sideways/downward pattern experienced since mid-2015 has shifted to a more bullish pattern for now.

screen-shot-2016-12-04-at-9-42-01-pm

US equity markets finished mostly negative as stocks took a break from the recent rally we have experienced following the election. Though the past week did not see positive market returns, there was some positive economic data released throughout the week.

The US labor market continued to expand at a strong pace and the unemployment rate dropped to 4.6%, its lowest level since August 2007. This is a generally positive sign for the US economy, though there is some cause for concern within the unemployment number. The participation rate in the labor force fell slightly as more workers have become discouraged and stopped looking for jobs, but all-in-all November was still a positive month for employment data.

US GDP grew by an estimated 3.2% during the third quarter of 2016 which is the fastest pace in two years. This estimate is higher than the initial 2.9% preliminary estimate released in October as consumer spending was revised upward.

These economic indicators illustrate there may be more gains ahead for the US equity markets, though the investment landscape can change quickly. With the presidential election past, the main focus of the markets will turn to the next Fed rate decision on December 14. According to the Chicago Board of Trade, there is a 93% implied probability that the Fed will decide to increase interest rates before the end of 2016.

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