5 Minute Market Update – September 26, 2017

I am happy to present this week’s market commentary written by 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 the week positive with small-cap US stocks experiencing the largest gains. S&P 500 sectors finished the week mixed as cyclical sectors generally outperformed defensive sectors.

So far in 2017 technology, healthcare, and materials are the strongest performers while energy and telecommunications are the only sectors with negative performance year-to-date.

Commodities: Commodities were positive for the week as oil prices rose 1.54%, marking the third consecutive week of gains. Oil prices have experienced strong upward pressure in recent weeks as Hurricane Irma was less devastating than initially anticipated, resulting in higher near-term demand expectations. Gold prices fell 2.09% amid increasing interest rates and a stronger dollar, but remain positive with a 12.83% gain YTD.

Bonds: The 10-year treasury yield increased from 2.20% to 2.26% as the Fed announced it will begin unwinding its balance sheet in October, resulting in negative performance for treasury and aggregate bonds.

High-yield bonds were flat as the positive performance in riskier asset classes was mostly offset by higher interest rates.

Indices are mostly positive for 2017, with equity markets leading the way while commodities and bonds lag behind.

Lesson to be learned: “Remember that the stock market is a manic depressive.” –  Warren Buffett. Sometimes the market is sensible and prices are based on economic and business developments. However, at other times the market can be emotionally unstable, swinging from euphoria to pessimism in an instant. By sticking to a disciplined investment strategy you can minimize the effect that emotions can have on your portfolio, improving your chances for 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 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 22.06, 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).

Weekly Comments & Charts

The S&P 500 finished flat for the week and remains firmly in the upward trend that began in mid-February 2016. While shorter-term momentum has slowed in recent months, the Index has continued to reach new all-time highs throughout the year and recently closed above 2,500 for the first time in history, illustrating there may still be further gains ahead. While volatility and downward pressure has slightly increased in recent months, stock markets are still in a historically low risk and volatility environment as there has not been a 5%+ correction for the S&P 500 in 313 trading days – the fourth longest streak in the history of the Index. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

*Chart created at StockCharts.com

Broad equity markets, led by small-cap stocks, climbed higher as the Fed announced its plan to begin unwinding its balance sheet in October.

Following the conclusion of its most recent meeting, the Federal Reserve announced it will begin unwinding its balance sheet next month. This balance sheet normalization path is the same as what was stated in previous communications by the Fed – the selling and non-reinvestment of $10 billion every month starting in October, increasing in $10 billion increments each quarter until the value reaches $50 billion per month next year. While this seems like a large value on the surface, the unwinding will be relatively gradual as the Fed will have sold just $450 billion of assets by the end of 2018 compared to the current $ 4.5 trillion total balance sheet.

Additionally, though the Fed announced it would keep the target federal funds rate at 1.00% – 1.25%, expectations for one more rate hike before the end of 2017 increased from a 57% probability to a 73% probability according to the CME Group’s 30-Day Fed Fund futures prices. This increase in rate hike expectations resulted from a somewhat hawkish “dot plot” released by the Federal Open Market Committee as members anticipate one more rate hike by year-end. Similar to the unwinding of the balance sheet, future rate hikes are expected to be gradual and should have a minimal impact on broad equity markets through 2018 as corporate earnings and labor markets remain strong. However, the sustained upward pressure on interest rates may result in moderated bond returns over the coming years.

While markets remain healthy, it is important to remember every day is independent of the day before. Long-term market movements are based on forward guidance, not on what happened over the past week/month/year. This is why it is important to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results. Individual stocks, sectors, and indices can go from periods of over-performance to under-performance without a moments notice.

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

The post 5 Minute Market Update – September 26, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

Women, Wine & Wealth

5 Minute Market Update – September 18, 2017

I am happy to present this week’s market commentary written by 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 the week positive with small-cap US stocks experiencing the largest gains. S&P 500 sectors finished the week mostly positive as cyclical sectors generally outperformed defensive sectors.

So far in 2017 technology, healthcare, and utilities are the strongest performers while energy and telecommunications are the only sectors with negative performance year-to-date.

Commodities: Commodities were positive for the week as oil prices rose 5.08%. Oil prices experienced strong upward pressure through the week as Hurricane Irma was less devastating than initially anticipated, resulting in higher near-term demand expectations. Gold prices fell 1.92% amid increasing interest rates and a stronger dollar, but remain positive with a 15.23% gain YTD.

Bonds: The 10-year treasury yield increased from 2.06% to 2.20% as recent geopolitical concerns eased, resulting in negative performance for treasury and aggregate bonds.

High-yield bonds were positive as credit spreads fell and riskier asset classes performed well for the week.

Indices are mostly positive for 2017, with equity markets leading the way while commodities and bonds lag behind.

Lesson to be learned: “Remember that the stock market is a manic depressive.” –  Warren Buffett. Sometimes the market is sensible and prices are based on economic and business developments. However, at other times the market can be emotionally unstable, swinging from euphoria to pessimism in an instant. By sticking to a disciplined investment strategy you can minimize the effect that emotions can have on your portfolio, improving your chances for 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 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 22.06, 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).

Weekly Comments & Charts

The S&P 500 finished positive for the week and remains firmly in the upward trend that began in mid-February 2016. While shorter-term momentum has slowed in recent months, the Index reached a new all-time high and closed above 2,500 for the first time in history, illustrating there may still be further gains ahead. While volatility and downward pressure has slightly increased in recent months, stock markets are still in a historically low risk and volatility environment as there has not been a 5%+ correction for the S&P 500 in 308 trading days – the fourth longest streak in the history of the Index.  The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

*Chart created at StockCharts.com

US stocks reached new highs as concerns surrounding Hurricane Irma dissipated and optimism regarding tax reform took center stage.

The S&P 500 reached 2,500 for the first time as the Index recorded its strongest week since early January. Helping push the Index to new highs, US House Speaker Paul Ryan said an outline on tax reform legislation would be released during the week of September 25. While it is still unclear how detailed the outline will be, many investors are becoming more optimistic regarding the prospects for tax reform by the end of 2017.

As US stocks pushed higher, the S&P 500 is on track to do something it hasn’t done since 1959. If the Index finishes positive for the month of September, it will mark the 11th consecutive month in which there was either an increase in prices or a decrease of less than 0.1% (the only negative month over this time period has been a 0.04% decrease in March). Going back to 1928, the S&P 500 has only seen four such streaks in history. This streak helps exemplify the abnormally low levels of volatility in broad stock markets over the past year.

While markets remain healthy, it is important to remember every day is independent of the day before. Long-term market movements are based on forward guidance, not on what happened over the past week/month/year. This is why it is important to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results. Individual stocks, sectors, and indices can go from periods of over-performance to under-performance without a moments notice.

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

The post 5 Minute Market Update – September 18, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – September 11, 2017

I am happy to present this week’s market commentary written by 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 the week mostly negative with small-cap US stocks experiencing the largest losses and international stocks experiencing the only gains. S&P 500 sectors finished the week mostly negative as defensive sectors generally outperformed cyclical sectors.

So far in 2017 technology, healthcare, and utilities are the strongest performers while energy and telecommunications are the only sectors with negative performance year-to-date.

Commodities: Commodities were mostly flat for the week as oil prices rose 0.40%. Oil prices had experienced six consecutive days of increases, but fell sharply (over 3%) on Friday as Hurricane Irma continued its path toward Florida, sending a bearish sentiment through investors believing demand may edge lower in the near-term while production remains unaffected. Gold prices rose 1.56% for the third consecutive week of gains and remain positive with a 16.91% gain YTD amid various political uncertainties.

Bonds: The 10-year treasury yield fell from 2.16% to 2.06%, resulting in positive performance for treasury and aggregate bonds. This marks the lowest level longer-term bond yields have reached since the election last November, even though there have been three Fed rate hikes over this period (illustrating a significant flattening of the yield curve in recent months).

High-yield bonds were negative as credit spreads slightly increased and riskier asset classes were mostly negative for the week.

Indices are mostly positive for 2017, with equity markets leading the way while commodities and bonds lag behind.

Lesson to be learned: “Remember that the stock market is a manic depressive.” –  Warren Buffett. Sometimes the market is sensible and prices are based on economic and business developments. However, at other times the market can be emotionally unstable, swinging from euphoria to pessimism in an instant. By sticking to a disciplined investment strategy you can minimize the effect that emotions can have on your portfolio, improving your chances for 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 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 22.06, 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).

Weekly Comments & Charts

The S&P 500 finished negative for the week, but remains firmly in the upward trend that began in mid-February 2016. While intermediate and long-term momentum remains positive, shorter-term momentum has slowed. Many indices have reached new all time highs multiple times this year, illustrating there may still be further gains ahead, but volatility and downward pressure has slightly increased in recent months. However, stock markets are still in a historically low risk and volatility environment as there has not been a 5%+ correction for the S&P 500 in 303 trading days – the fourth longest streak in the history of the Index.  The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

*Chart created at StockCharts.com

Broad US stock markets finished negative for the week as concerns surrounding Hurricane Irma and political headlines weighed on investor sentiment.

US equity markets, and specifically insurance companies, were dragged down last week as Hurricane Irma headed toward Florida. Hurricane Irma had ripped through the Caribbean and was expected to result in catastrophic losses throughout a large part of Florida. While damages throughout the weekend were severe and will impact many lives, the hurricane was less damaging than the “worst-case” scenario many investors expected, resulting in a more-positive sentiment for insurance companies and broad markets to start this week. Although there is a sense of relief in the markets, it is still important to note JPMorgan believes this may be among the top 5 costliest hurricanes in US history.

Adding to the negative sentiment for the week, President Trump agreed to a deal to increase the debt ceiling and provide funding for the government for an additional three months. While the short-term bill was easily approved by the House and Senate, there has been open criticism from notable Republicans such as John McCain and Speaker of the House Paul Ryan. Many investors fear this adds to the narrative of deteriorating relations between President Trump and other members of the Republican party, which could lead to complications in tax-reform negotiations. Trump has traveled to multiple states speaking about tax reform in recent weeks, so it will be important to keep an eye out for further specific details as more information becomes available.

While markets remain healthy, the recent increase in volatility and political risks reminds us why it is important to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results. Individual stocks, sectors, and indices can go from periods of over-performance to under-performance without a moments notice.

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

The post 5 Minute Market Update – September 11, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – September 7, 2017

I am happy to present this week’s market commentary written by 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 the week positive with small-cap US stocks experiencing the largest gains. S&P 500 sectors finished the week mostly positive as cyclical sectors generally outperformed defensive sectors.

So far in 2017 technology, healthcare, and utilities are the strongest performers while energy and telecommunications are the only sectors with negative performance year-to-date.

Commodities: Commodities were positive for the week, though oil prices fell 1.21%. Oil prices have been volatile so far in 2017 as the positive effects of strengthening demand have been conflicting with the negative effects of high global supply. Recent sentiment towards oil remains bearish amid fears the OPEC supply cuts may fall apart as countries continue to fall short of the pledged reductions. Gold prices rose 2.50% and remain positive with a 15.34% gain YTD amid various political uncertainties.

 Bonds: The 10-year treasury yield fell slightly from 2.17% to 2.16%, resulting in mostly flat performance for treasury and aggregate bonds.

High-yield bonds were positive as credit spreads tightened and riskier asset classes performed well for the week.

Indices are mostly positive for 2017, with equity markets leading the way while commodities and bonds lag behind.

Lesson to be learned: “Remember that the stock market is a manic depressive.” –  Warren Buffett. Sometimes the market is sensible and prices are based on economic and business developments. However, at other times the market can be emotionally unstable, swinging from euphoria to pessimism in an instant. By sticking to a disciplined investment strategy you can minimize the effect that emotions can have on your portfolio, improving your chances for 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 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 22.06, 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).

Weekly Comments & Charts

The S&P 500 finished positive for the second consecutive week and remains firmly in the upward trend that began in mid-February 2016. While intermediate and long-term momentum remains positive, shorter-term momentum has slowed, though the Index is back above its three-month moving average after recently closing below it for the first time since April. Many indices have reached new all time highs multiple times this year, illustrating there may still be further gains ahead, but volatility and downward pressure has slightly increased in recent months. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

*Chart created at StockCharts.com

Broad US stock markets finished positive for the second consecutive week as economic data remains mostly positive and a renewed optimism for tax reform remains in place.

The second estimate of Q2 2017 GDP revealed the US economy grew by an estimated 3.0% on an annualized basis – a notable acceleration from the lethargic 1.2% reported in Q1 earlier this year. This number was upwardly revised from the initial growth estimate of 2.6% and represents the strongest quarterly expansion since Q2 2015. A major contributor to the stronger economic growth was an increase in consumer spending as consumers are benefiting from a strong job market and credit remains easily accessible.

While job growth in August was slightly disappointing, with a payroll increase of only 156,000 compared to the estimate of 185,000, the labor market remains healthy. Unemployment is still near its lowest level since 2001 (currently sitting at 4.4%) and the labor force participation rate remained steady. Also, August payroll numbers are often revised higher due to a relatively low response rate by employers taking vacations before the school year starts, so the weakness may be temporary and the data could be shifted higher next month.

The mostly positive economic data, combined with the rejuvenated optimism regarding tax reform, helped offset geopolitical concerns for the moment. Relations between the US and North Korea remain tense as North Korea fired a missile over Japan into the Pacific Ocean early Tuesday morning. This test was seen as a direct challenge to President Trump, similar to when North Korea launched rockets over Japan at the beginning of the Obama administration in 2009. While it still seems unlikely anything will actually materialize from the recent events, the persistent political tensions have introduced a higher level of volatility into US stock markets and pushed US treasury yields lower as investors have increased exposure to safe-haven asset classes. However, history shows us that geopolitical risks generally dissipate after short periods of time while broader fundamentals drive the markets over the longer term, so these trends may reverse if tensions ease over the coming months.

While markets remain healthy, the recent increase in volatility and political risks reminds us why it is important to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results. Individual stocks, sectors, and indices can go from periods of over-performance to under-performance without a moments notice.

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

The post 5 Minute Market Update – September 7, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara