5 Minute Market Update – March 26, 2018

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 sharply negative as large-cap US stocks experienced the largest losses. All S&P 500 sectors were negative for the week with cyclical sectors underperforming defensive sectors.

So far in 2018 technology and consumer discretionary are the only sectors with positive performance, while all other sectors are displaying negative performance year-to-date. Telecommunications, consumer staples, and real estate have been the worst performing sectors so far this year.

Commodities: Commodities were positive as oil prices rose 5.68%. Oil prices surged on Friday after the Saudi Arabia energy minister said OPEC, as well as non-OPEC countries such as Russia, may need to extend the current production cuts into 2019. The longer-term trend of oil prices has been positive since early-2016, largely supported by these OPEC-led production cuts.

Gold prices were positive with a 2.87% gain as the dollar index fell for the first time in five weeks. The metal was largely supported by fear of a global trade war, sending investors toward more safe-haven asset classes.

Bonds: The 10-year treasury yield fell slightly from 2.85% to 2.82%, resulting in somewhat flat performance for traditional US bond asset classes. Yields had been trending higher in 2018, but despite the Fed hiking rates 0.25% following the March 21 meeting to a range of 1.50 – 1.75%, longer-term bond yields fell as demand for treasuries as a safe-haven asset class increased.

High-yield bonds were negative for the week as broad riskier asset classes experienced downward pressure, offsetting the positive impact of lower interest rates. However, if the economy remains healthy, higher-yielding bonds are expected to continue outperforming traditional bonds longer-term as the risk of default is moderately low.

All asset class indices, with the exception of commodities, are currently negative in 2018.

Lesson to be learned: “Bottoms in the investment world don’t end with four-year lows; they end with 10- or 15-year lows.” – Jim Rogers. Short-term market corrections can be unnerving, but they are an inevitable part of investing and are often short-lived in relation to a longer-term bull market trend. However, there are certain times where these market corrections can turn into a prolonged bear market (such as 2008). This is why it is important to maintain a disciplined investment strategy focused on longer-term market tendencies rather than focusing on the 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 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 21.12, 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 the week sharply negative as equity markets remain choppy. While shorter-term momentum has pushed the S&P 500 lower, longer-term momentum remains intact as the Index is still within the trading range that has been in place over the past two years. The Index is currently re-testing the lower bounds of this trading range (which is inline with the 200-day simple moving average) similarly to early February. However, if the Index is able to find additional support at this level, it may illustrate a continuation of the longer-term bull market despite the shorter-term weakness. 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 long-term bullish pattern for now.

*Chart created at StockCharts.com

Broad equity markets moved sharply lower on the week as investors fear global trade war.

On Thursday, President Trump announced plans to impose tariff increases on up to $60 billion of Chinese imports, following a seven-month investigation into intellectual property theft. The president directed US Trade Representative Robert Lighthizer to produce a proposed list of Chinese products to be hit with higher tariffs within 15 days, after which a finalized list will be made public. China’s commerce ministry revealed a list of 128 US products as potential targets for tariffs on Friday, in a retaliation to Trumps statement. This sent the S&P 500 tumbling almost 6% lower as the concerns of a global trade war heightened, marking the worst week for the Index since January 2016.

With the sharp move lower, stocks have now advanced or declined by more than 1% in 10 of the first 12 weeks in 2018, compared to only 13 such weeks in all of 2017. Furthermore, there have already been eight weeks this year in which markets have advanced or declined by more than 2%, with no such weeks in all of 2017. So with the continued volatility and recent downward pressure, is it time to worry about a more pronounced bear market or are we just experiencing a continued normal market correction?

As stated in our blog post from February 12, immediately following the sudden 10% drop in the S&P 500, a correction in the US stock market happens approximately once every year. Generally, less than 20% of market corrections turn into more pronounced bear markets, but even the average bull market correction takes around four months to recover back to new all-time-highs. While volatility has seemed high over the past couple of months, higher volatility can be expected during these pull-backs as investors recalibrate their portfolios. Though shorter-term market momentum has been volatile and somewhat negative, the longer-term prospects of 2018 remain mostly positive as corporate earnings and economic fundamentals remain strong.

Even in the strongest of bull markets, stocks will not rise every day / week / month, and periodic pullbacks should be expected. These pullbacks can even be considered healthy for the continuation of a longer-term bull market.

Short-term market corrections are only a small blip on the radar for long-term investors. However, economic data and market sentiment can change quickly. This is why it is still important to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results, rather than chasing short-term returns.

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 – March 26, 2018 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – March 19, 2018

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, investing should be simple, not complicated.

Market Update

Equities: Broad equity markets finished the week negative as large-cap US stocks experienced the largest losses. S&P 500 sectors were mostly negative for the week with defensive sectors outperforming cyclical sectors.

So far in 2018 technology, consumer discretionary, and financials are the strongest performers while telecommunications, energy, and consumer staples have been the worst performing sectors.

Commodities: Commodities were flat as oil prices fell 0.22%. While the longer-term trend of oil prices has been positive, largely supported by OPEC production cuts, momentum has slowed in recent weeks due to concerns about rising US output.

Gold prices were negative with a 0.88% loss as the dollar index rose for the fourth consecutive week. The metal has experienced some downward pressure in recent weeks, but is still flat for the year.

Bonds: The 10-year treasury yield decreased from 2.90% to 2.85%, but remains near its highest level since the beginning of 2014. As yields fell, traditional US bond asset classes were positive. Bond prices and interest rates move inversely, so lower rates generally lead to higher prices.

High-yield bonds were negative for the week as broad riskier asset classes experienced downward pressure, offsetting the positive impact of lower interest rates. However, if the economy remains healthy, higher-yielding bonds are expected to continue outperforming traditional bonds as the risk of default is moderately low.

All equity asset class indices are currently positive in 2018 while bonds asset class indices are currently negative.

Lesson to be learned: “Bottoms in the investment world don’t end with four-year lows; they end with 10- or 15-year lows.” – Jim Rogers. Short-term market corrections can be unnerving, but they are an inevitable part of investing and are often short-lived in relation to a longer-term bull market trend. However, there are certain times where these market corrections can turn into a prolonged bear market (such as 2008). This is why it is important to maintain a disciplined investment strategy focused on longer-term market tendencies rather than focusing on the 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 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 21.12, 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 as equity markets remain choppy. While shorter-term momentum has pushed the S&P 500 lower, longer-term momentum remains intact as the Index is still within the trading range that has been in place over the past two years. The index tested the lower bounds of this trading range (which is inline with the 200-day simple moving average) in early February, but seemed to find support and has rallied off its lowest levels. This illustrates there may be support for a continued longer-term bull market despite the shorter-term weakness. 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 long-term bullish pattern for now.

*Chart created at StockCharts.com

Broad equity markets experienced another volatile week of trading as March Madness is officially underway.

When it comes to surprises and thrills in the world of sports, the NCAA basketball tournament, dubbed March Madness, is second to none. Every year there is a plethora of upsets, with lower-ranked teams beating the heavily-favored teams. However, while many people get caught-up in the excitement of the buzzer beaters and Cinderella stories from the tournament, these low-ranked teams rarely advance past the first weekend, and the higher-ranked teams are generally crowned champions when all is said and done. In fact, there have only been three teams lower than a number four seed to win the entire tournament, while a number one seed wins about 61% of the time. So if you are looking to have the best odds of winning your bracket pool, it generally pays to favor the highest ranked teams winning in the long-term.

The same can be said for investing in financial markets. There are periods of time, such as the past few months, when markets are volatile and unpredictable in the short-term. In times like these, it can be easy to let emotions take over and to make investment decisions based on daily new headlines. However, in the longer-term it is important to ignore the daily noise and focus on the main drivers behind investment performance, such as the health of the economy and corporate earnings, rather than making knee-jerk decisions based on what is hot right now. As investors, we need to stay committed to our game plan, focusing on our long-term financial goals.

Though shorter-term market momentum has been volatile and somewhat negative, the longer-term prospects of 2018 remain mostly positive as corporate earnings and economic fundamentals remain strong.

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – March 19, 2018 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – March 13, 2018

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 as small-cap US stocks experienced the largest gains. All S&P 500 sectors were positive for the week with with cyclical sectors outperforming defensive sectors.

So far in 2018 technology, consumer discretionary, and financials are the strongest performers while real estate, energy, and utilities have been the worst performing sectors.

Commodities: Commodities were positive as oil prices rose 1.29%. Oil prices have been in an upward trend since mid-2017, largely supported by falling US inventories and continued OPEC production cuts.

Gold prices were mostly flat with a 0.05% gain for the week as the dollar index steadied. The metal has experienced some downward pressure in recent weeks, but is still positive for the year.

Bonds: The 10-year treasury yield increased from 2.86% to 2.90%, remaining near its highest level since the beginning of 2014. As yields increased, traditional US bond asset classes were slightly negative. Bond prices and interest rates move inversely, so higher rates generally lead to lower prices.

High-yield bonds were positive for the week as broad riskier asset classes experienced upward pressure, offsetting the negative impact of higher interest rates. If the economy remains healthy, higher-yielding bonds are expected to continue outperforming traditional bonds as the risk of default is moderately low.

All equity asset class indices are currently positive in 2018 while bonds asset class indices are currently negative.

Lesson to be learned: “Bottoms in the investment world don’t end with four-year lows; they end with 10- or 15-year lows.” – Jim Rogers. Short-term market corrections can be unnerving, but they are an inevitable part of investing and are often short-lived in relation to a longer-term bull market trend. However, there are certain times where these market corrections can turn into a prolonged bear market (such as 2008). This is why it is important to maintain a disciplined investment strategy focused on longer-term market tendencies rather than focusing on the 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 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 21.12, 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 as the Index has now experienced a weekly move of 2% or more in six of the past seven weeks (for comparison, there was only one such week with over a 2% Index move in all of 2017). While shorter-term momentum has pushed the S&P 500 lower, longer-term momentum remains intact as the Index remains in the trading range that has been in place over the past two years. The index tested the lower bounds of this trading range (which is inline with the 200-day simple moving average) a few weeks ago, but seemed to find support and has rallied off its lowest levels. This illustrates there may be support for a continued longer-term bull market despite the shorter-term weakness. 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 long-term bullish pattern for now.

*Chart created at StockCharts.com

Broad equity markets rallied as tariff jitters eased and job growth surged.

On Thursday, President Trump stated the recently announced steel and aluminum tariffs would exclude imports from Canada and Mexico. Trump said he is also open to negotiations with other countries and regions in which the US has a strong relationship – specifically the European Union. This sent stocks higher as tensions surrounding the tariffs somewhat decreased. The newly enacted tariffs, which essentially impose a 25% tax on steel and a 10% tax on aluminum imported to the US, are to go into effect on March 23.

As the positive news regarding the tariffs pushed markets higher on Thursday, the rally continued on Friday following a strong employment report. According to the report, payrolls soared in February as the labor market added 313,000 jobs compared to the expected gain of 200,000. This huge gain in jobs illustrates even though the labor market is in its ninth year of steady expansion, there is still room to grow before “full employment” is reached. The unemployment rate remained at 4.1%, its lowest level since December 2000, while the labor force participation rate increased from 62.7% to 63%.

Though shorter-term market momentum has been volatile and somewhat negative, the longer-term prospects of 2018 remain mostly positive as corporate earnings and economic fundamentals remain strong. Even in the strongest of bull markets, stocks will not rise every day / week / month, and periodic pullbacks should be expected. These shorter-term pullbacks can even be considered healthy for the continuation of a longer-term bull market.

Short-term market corrections are only a small blip on the radar for long-term investors. However, economic data and market sentiment can change quickly. This is why it is still important to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results, rather than chasing short-term returns.

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 – March 13, 2018 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – March 6, 2018

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 negative as large-cap US stocks experienced the largest losses. All S&P 500 sectors were negative for the week with no discernable difference between cyclical and defensive sectors.

So far in 2018 technology, consumer discretionary, financials, and healthcare are the strongest performers while all other sectors are negative.

Commodities: Commodities were negative as oil prices fell 3.62%. While the longer-term positive trend of oil prices has been supported by OPEC production cuts, prices dropped during the week on pressure from a stronger dollar and surging US output.

Gold prices fell 0.52% for the week as the dollar index strengthened to a near six-week high level. This was the second consecutive week of losses for gold, but the metal is still positive in 2018 as the US dollar remains relatively weak despite the recent support.

Bonds: The 10-year treasury yield decreased slightly from 2.88% to 2.86%, remaining near the highest level since the beginning of 2014. As yields remained mostly steady, aggregate US bonds were mostly flat amid continued speculation the Fed may hike rates faster than expected in 2018. Bond prices and interest rates move inversely, so higher rates generally lead to lower prices.

High-yield bonds were slightly negative for the week as broad riskier asset classes experienced downward pressure. However, if the economy remains healthy, higher-yielding bonds are expected to continue performing well as the risk of default is moderately low.

Most asset class indices are negative so far in 2018, with intermediate treasury bonds experiencing the largest losses.

Lesson to be learned: “If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.” – John Bogle, founder of Vanguard. As frustrating as it can be at times, the stock market has its ups and downs. The risks of investing in stocks goes hand-in-hand with the higher return potential compared to safer investments such as bonds or bank CDs. While it may be tempting make knee-jerk decisions when markets move quickly, we need to stay focused on our long-term investment objectives. Keeping a disciplined investment strategy can reduce daily market noise and increase the odds of a successful outcome over time.

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 21.35, 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 following two consecutive weeks of gains. While shorter-term momentum has pushed the Index lower, longer-term momentum remains intact as the Index remains in the trading range that has been in place over the past two years. The index tested the lower bounds of this trading range (which is inline with the 200-day simple moving average) a few weeks ago, but seemed to find support and has rallied off its lowest levels. This illustrates there may be support for a continued longer-term bull market despite the shorter-term weakness. 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 long-term bullish pattern for now.

 

*Chart created at StockCharts.com

Stocks moved lower on tariff jitters, though corporate earnings remain strong.

After gains in the previous two weeks, stocks moved lower as President Trump announced a plan to introduce tariffs on steel and aluminum. These tariffs would effectively add an additional tax of 25% on steel and 10% on aluminum imported to the US. While this may be mildly positive for the trade balance in these materials, steel and aluminum account for less than 3% of total US imports, so the net economic impact will likely be fairly small if the tariffs remain in place longer-term. However, many investors fear the retaliation risk from other countries spanning across other industries. Immediately following the announcement on Thursday, US companies that supply these raw materials soared while US companies that purchase large amounts of steel and aluminum fell sharply.

While investors speculated about the impact these tariffs could have on broad financial markets, Q4 2017 earnings season has started to wind-down. With 97% of the companies in the S&P 500 having already reported results, 74% of companies have beat earnings expectations. The blended S&P 500 earnings growth rate currently stands at 14.8%, compared to the initial expectation of 11% before the earnings season began. If this growth rate holds, it will mark the highest level of earnings growth since Q3 2011. Furthermore, the first couple of months in 2018 has seen the largest number of upward earnings revisions to start the year since FactSet began tracking the data in 2002, illustrating many analysts expect continued strong corporate earnings through 2018.

Though shorter-term market momentum has been volatile and somewhat negative, the longer-term prospects of 2018 remain mostly positive as corporate earnings and economic fundamentals remain strong. Even in the strongest of bull markets, stocks will not rise every day / week / month, and periodic pullbacks should be expected. These shorter-term pullbacks can even be considered healthy for the continuation of a longer-term bull market.

Short-term market corrections are only a small blip on the radar for long-term investors. However, economic data and market sentiment can change quickly. This is why it is still important to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results, rather than chasing short-term returns.

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 – March 6, 2018 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara