5 Minute Market Update – December 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 mixed as large-cap US stocks experienced the largest gains and small-cap US stocks experienced losses. S&P 500 sectors finished the week mixed as cyclical sectors generally outperformed defensive sectors.

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

Commodities: Commodities were negative for the week as oil prices fell 1.71%, marking the largest weekly loss since early October. Oil prices have pulled back slightly from the recent two-year highs amid concerns that rising US production might offset the OPEC supply cuts which were extended through 2018. Gold prices fell 2.64% as the dollar firmed, though gold remains modestly positive with an 8.56% gain YTD. A stronger dollar makes dollar-denominated assets, such as gold, more expensive for holders of other currencies, pushing prices lower.

Bonds: The 10-year treasury yield increased slightly from 2.37% to 2.38%, resulting in mostly flat performance for treasury and aggregate bonds. Yields have been trending up since early September, but have subsided since President Trump nominated current Fed Governor Jerome Powell as the next Federal Reserve Chair in early November. While rates have somewhat leveled off in recent weeks, many experts expect a rate hike following the December Fed meeting scheduled for this week.

High-yield bonds were flat as credit spreads were little changed for the week. If the economy remains strong and healthy, higher-yielding bonds are expected to continue outperforming aggregate bonds as they offer higher interest payments and the risk of default is moderately low.

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

Lesson to be learned: “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” – George Soros. The image that most people have of investing is derived from movies and television shows – investors sitting at their computers, buying and selling every day, and hooting and hollering through the entire process. However, smart investing is much different and less exciting than this. While it can be tempting to chase the next hot trend and speculate with all of your savings, it is important to keep a smart and disciplined investment strategy. By maintaining a broadly diversified blend of assets and eliminating emotions from the investment process when making decisions, you can improve your probability of long-term success and minimize the negative impacts that extreme bear markets can have on your financial well-being.

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 21.10, 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 third consecutive week, following two weeks of small losses, as the Index remains firmly in the upward trend that began in mid-February 2016. Shorter-term momentum has picked back up in recent weeks as the Index has continued to reach new all-time highs throughout 2017, illustrating there may still be further gains ahead. While volatility and downward pressure have slightly increased, 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 368 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

Investors cheered another strong jobs report, but await the upcoming Fed meeting and further tax reform news as broad markets finished the week mixed.

November was another strong month for the US labor market as payrolls advanced by 228,000 jobs, beating the expected gain of 199,000. Contributing to the positive news, job gains seems to be broad-based across many major industries and the unemployment rate remained at 4.1%, the lowest level in 17 years. This data, which was released on Friday, helped lift markets as there had been a slight downward trend through the earlier part of the week.

As we close in on the end of the year, investors will be keeping an eye on the Fed as well as the tax reform process. The Federal Reserve Board will conclude its final meeting of 2017 on Wednesday, where the committee is widely expected to raise interest rates for the third time this year. While many experts view a rate hike announcement on December 13 as extremely likely, there is much more uncertainty surrounding the likelihood of tax reform passage before the end of 2017. The Senate and House are now working in a conference committee to nail down the key differences between the separately passed bills, with the hopes of securing an agreement on a final tax proposal before Christmas.

Though markets remain strong, it is important to remember the future is largely independent of the past. Broad US stocks have been experiencing strong gains with minimal volatility and virtually no drawdowns so far in 2017. In this environment, it can be easy to forget there are risks to investing. However, it was still less than two years ago (at the beginning of 2016) when the US stock market experienced the worst start to a year in recorded history. 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 “hot” 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 – December 11, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – December 5, 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 positive as large-cap US stocks experienced the largest gains and international stocks experienced losses. S&P 500 sectors finished the week mostly positive as cyclical sectors generally outperformed defensive sectors.

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

Commodities: Commodities were negative for the week as oil prices fell 1.00%. Though oil prices pulled back slightly from the recent two-year highs, sentiment remains somewhat positive as OPEC officially extended output cuts through the end of 2018 to further support prices. Gold prices fell 0.74%, though gold remains modestly positive with an 11.50% gain YTD.

Bonds: The 10-year treasury yield increased slightly from 2.34% to 2.37%, resulting in mostly flat performance for treasury and aggregate bonds. Yields have been trending up since early September, but have subsided since President Trump nominated current Fed Governor Jermoe Powell as the next Federal Reserve Chair in early November. While rates have somewhat leveled off in recent weeks, many experts expect a rate hike following the December Fed meeting.

High-yield bonds were positive as credit spreads continued to level-off following the spike higher in recent weeks. If the economy remains strong and healthy, higher-yielding bonds are expected to continue outperforming aggregate bonds as they offer higher interest payments and the risk of default is moderately low.

All indices are currently positive in 2017, with equity markets leading the way while commodities and bonds lag behind.

Lesson to be learned: “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” – George Soros. The image that most people have of investing is derived from movies and television shows – investors sitting at their computers, buying and selling every day, and hooting and hollering through the entire process. However, smart investing is much different and less exciting than this. While it can be tempting to chase the next hot trend and speculate with all of your savings, it is important to keep a smart and disciplined investment strategy. By maintaining a broadly diversified blend of assets and eliminating emotions from the investment process when making decisions, you can improve your probability of long-term success and minimize the negative impacts that extreme bear markets can have on your financial well-being.

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 21.10, 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, following two consecutive weeks of small losses, as the Index remains firmly in the upward trend that began in mid-February 2016. Shorter-term momentum has picked back up in recent weeks as the Index has continued to reach new all-time highs throughout 2017, illustrating there may still be further gains ahead. While volatility and downward pressure have slightly increased, 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 363 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 ended the week higher amid tax reform optimism, despite late-week politically fueled volatility.

In the early hours Saturday morning, the Senate passed its version of a tax reform bill by a 51-49 margin. Though there is still much work to be done as the House of Representatives and Senate must now reconcile their versions of the bill, this was a major hurdle to clear in the tax reform process. The Senate and House will now likely go to a conference committee as lawmakers will aim to craft a joint bill that both chambers can pass. House Majority Leader Kevin McCarthy said the Senate’s passage of the tax bill on schedule proves the overhaul can be done this year.

While markets rallied through most of the week on tax reform optimism, gains were slightly eroded on Friday as it was announced Mike Flynn, President Trump’s former national security advisor, plead guilty to lying to the FBI and may testify regarding interference in the election. At one point during trading on Friday, the S&P 500 was down over 1.5% and small-cap US stocks were down over 3%. However, markets recouped a large portion of the losses and finished the day down only modestly as investors mostly shook off the seemingly bad news.

Investors will be keenly watching how the tax reform process plays-out through the rest of 2017 as it can be a major market mover, both positively and negatively.

Though markets remain strong, it is important to remember the future is largely independent of the past. Broad US stocks have been experiencing strong gains with minimal volatility and virtually no drawdowns so far in 2017. In this environment, it can be easy to forget there are risks to investing. However, it was still less than two years ago (at the beginning of 2016) when the US stock market experienced the worst start to a year in recorded history. 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 “hot” 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 – December 5, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – November 28, 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 as international stocks experienced the largest gains. S&P 500 sectors finished the week positive as cyclical 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 4.24%. Oil prices hit fresh two-year high levels on Friday as markets tightened due to a partial closure of the Keystone pipeline connecting Canadian oilfields with the United States following a spill. Gold prices fell 0.71%, though gold remains modestly positive with a 11.94% gain YTD.

Bonds: The 10-year treasury yield fell slightly from 2.35% to 2.34%, resulting in marginally positive performance for treasury and aggregate bonds. Yields have been trending up since early September, but have subsided since President Trump nominated current Fed Governor Jermoe Powell as the next Federal Reserve Chair in early November. Powell’s views on raising interest rates are similar to current Fed Chair Janet Yellen – investors expect a slow-and-steady path of rate increases over the coming year with the nomination.

High-yield bonds were positive as credit spreads continued to level-off following the spike higher in recent weeks. If the economy remains strong and healthy, higher-yielding bonds are expected to continue outperforming aggregate bonds as they offer higher interest payments and the risk of default is moderately low.

All indices are currently positive in 2017, with equity markets leading the way while commodities and bonds lag behind.

Lesson to be learned: “It takes twenty years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett. Sadly, the same can be said about your portfolio (see global stock markets in 2008). However, by keeping a smart and disciplined investment strategy and maintaining a broadly diversified blend of assets, you can improve your probability of long-term success and minimize the negative impacts that extreme bear markets can have on your financial well-being.

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 19.40, 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, following two consecutive weeks of small losses, as the Index remains firmly in the upward trend that began in mid-February 2016. Shorter-term momentum has continued in recent months as the Index has continued to reach new all-time highs throughout 2017, illustrating there may still be further gains ahead. While volatility and downward pressure had slightly increased, 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 358 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 were higher during the holiday-shortened week as earnings season wraps up.

Broad US markets traded on lighter volume than normal as markets were closed on Thursday and only open for a partial day on Friday. However, that did not stop stocks from experiencing modest gains as investor confidence remains high and economic data remains mostly positive.

With markets continuing to trend higher, Q3 2017 earnings season is wrapping up as 98% of companies in the S&P 500 have already reported results. Of the companies that have already reported, 74% have beat the average earnings estimate and 66% have beat the average sales estimate. The blended S&P 500 earnings growth rate is now at 6.3% year-over-year, higher than the initial 3.1% estimate in September when earnings season began.

Though markets remain strong, it is important to remember the future is largely independent of the past. Broad US stocks have been experiencing strong gains with minimal volatility and virtually no drawdowns so far in 2017. In this environment, it can be easy to forget there are risks to investing. However, it was still less than two years ago (at the beginning of 2016) when the US stock market experienced the worst start to a year in recorded history. 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 “hot” 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 – November 28, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – November 21, 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 mixed as small-cap US stocks experienced the largest gains and international stocks experienced the largest losses. S&P 500 sectors finished the week mixed with no discernable difference between cyclical and 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 negative for the week as oil prices fell 0.33%, marking the first decline in six weeks. While oil prices remain near the recent two-year high levels, concerns have been growing over Russia’s support for extending production cuts. Gold prices increased 1.75% as the US dollar weakened for the second consecutive week, helping gold to remain modestly positive with a 12.74% gain YTD.

Bonds: The 10-year treasury yield fell from 2.40% to 2.35%, resulting in positive performance for treasury and aggregate bonds. Yields have been trending up since early September, but have subsided since President Trump nominated current Fed Governor Jermoe Powell as the next Federal Reserve Chair in early November. Powell’s views on raising interest rates are similar to current Fed Chair Janet Yellen – investors expect a slow-and-steady path of rate increases over the coming year with the nomination.

High-yield bonds were positive as credit spreads leveled-off following the spike higher in recent weeks. If the economy remains strong and healthy, higher-yielding bonds are expected to continue outperforming aggregate bonds as they offer higher interest payments and the risk of default is moderately low.

All indices are currently positive in 2017, with equity markets leading the way while commodities and bonds lag behind.

 

Lesson to be learned: “It takes twenty years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett. Sadly, the same can be said about your portfolio (see global stock markets in 2008). However, by keeping a smart and disciplined investment strategy and maintaining a broadly diversified blend of assets, you can improve your probability of long-term success and minimize the negative impacts that extreme bear markets can have on your financial well-being.

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 19.40, 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 slightly negative for the second consecutive week, following a streak of eight consecutive weeks of gains (the longest weekly winning streak since 2006). However, the Index remains firmly in the upward trend that began in mid-February 2016. Shorter-term momentum has continued in recent months as the Index has continued to reach new all-time highs, illustrating there may still be further gains ahead. While volatility and downward pressure had slightly increased, 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 353 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 finished the week mixed as investors look forward to the holiday season.

Large-cap US stock indices were slightly negative for the week while smaller-cap US stock indices experienced modest gains. While there were no major movements throughout the week, the S&P 500 broke a 50-day streak of avoiding a daily decline of greater than 0.50% (the Index fell just 0.55% on Wednesday). This was the longest stretch without a 0.50% daily loss since 1965, reaffirming the trend of extremely low volatility in the US stock markets so far in 2017.

As broad markets were somewhat mixed, US retail sales data was stronger than expected for October and revised upward for September. Though the 0.2% growth rate experienced was not much higher than the 0.1% expectation, the recent string of positive sales data could bode well for retailers heading into the holiday shopping season. With the labor market remaining healthy and consumer sentiment strong, sales could increase through the end of the year as shoppers feel comfortable and confident about spending their money. All things equal, higher sales and consumer spending would help boost broad US economic growth.

Though markets remain in an upward trend, it is important to remember the future is largely independent of the past. Broad US stocks have been experiencing strong gains with minimal volatility and virtually no drawdowns so far in 2017. In this environment, it can be easy to forget there are risks to investing. However, it was less than two years ago (at the beginning of 2016) when the US stock market experienced the worst start to a year in recorded history. 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 “hot” 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 – November 21, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – November 13, 2017

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 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 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 increased 1.98%. Oil prices remained at the highest levels in over two years, largely supported by continuing expectations that OPEC and other producing countries will extend a deal to cut output. Gold prices increased 0.39%, snapping a three week losing streak and helping gold to remain modestly positive with a 10.80% gain YTD.

Bonds: The 10-year treasury yield rose from 2.34% to 2.40%, resulting in negative performance for treasury and aggregate bonds. Yields have been trending up since early September, but have subsided since President Trump nominated current Fed Governor Jermoe Powell as the next Federal Reserve Chair. Powell’s views on raising interest rates are similar to current Fed Chair Janet Yellen – investors expect a slow-and-steady path of rate increases over the coming year with the nomination.

High-yield bonds were negative as the renewed uncertainty surrounding tax reform caused riskier asset classes to falter and credit spreads to increase. However, if the economy remains strong and healthy, higher-yielding bonds are expected to continue outperforming aggregate bonds as they offer higher interest payments and the risk of default is moderately low.

All indices are currently positive in 2017, with equity markets leading the way while commodities and bonds lag behind.

Lesson to be learned: “It takes twenty years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett. Sadly, the same can be said about your portfolio (see global stock markets in 2008). However, by keeping a smart and disciplined investment strategy and maintaining a broadly diversified blend of assets, you can improve your probability of long-term success and minimize the negative impacts that extreme bear markets can have on your financial well-being.

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 19.40, 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 slightly negative, snapping a streak of eight consecutive weeks of gains (the longest weekly winning streak since 2006). However, the Index remains firmly in the upward trend that began in mid-February 2016. Shorter-term momentum has continued in recent weeks as the Index has continued to reach new all-time highs, illustrating there may still be further gains ahead. While volatility and downward pressure had 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 348 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 stock and bond markets ended the week negative on tax reform uncertainties as investors reflect on the one-year anniversary of the US presidential election.

Last week marked the one-year anniversary of the US presidential election. While there was a large amount of uncertainty leading up to (and immediately following) the election, the US stock market has experienced a steady rally since early November 2016. The S&P 500 has returned over 23% since the election and is in the midst of the fourth longest streak without a 5% correction in history. During this run, the Index has recorded 59 new record highs so far in 2017, as investor confidence has been on the rise and earnings growth has been modestly strong. Sector performance has also reflected this trend as cyclical sectors have been outperforming defensive sectors significantly over the past year.

Broad economic growth has also gained some traction as GDP has averaged 2.4% in the first three quarters of 2017, including two consecutive quarters of 3% or higher growth for the first time since 2014. The labor market has continued to strengthen as the unemployment rate has fallen to a 17-year low of 4.1%. As the economy has remained healthy, the Federal Reserve has raised rates three times in the past year – the most rate hikes in a 12-month period since 2004 – 2005.

While this positive market performance cannot singularly be credited to the outcome of the election, there are some underlying political reasons behind the past 1-year market trends. Generally speaking, consumer confidence has been rising on the prospects of deregulation and tax reform, helping boost the prospects of continued economic expansion and leading to higher household spending (the largest contributor to GDP growth). As the past week illustrated there is still much uncertainty surrounding tax reform, but the coming weeks should provide more clarity about this major topic.

Though markets remain in an upward trend, it is important to remember the future is largely independent of the past. Broad US stocks have been experiencing strong gains with minimal volatility and virtually no drawdowns so far in 2017. In this environment, it can be easy to forget there are risks to investing. However, it was less than two years ago (at the beginning of 2016) when the US stock market experienced the worst start to a year in recorded history. 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 “hot” 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 – November 13, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – November 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 mixed with international stocks experiencing the largest gains and small-cap US stocks experiencing the largest losses. S&P 500 sectors finished the week mixed though there was no discernable difference in the performance of cyclical sectors and 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 increased 3.23%. Oil prices have reached their highest levels in nearly two years, supported by rising global demand and continuing expectations that OPEC and other producing countries will extend a deal to cut output. Gold prices fell 0.20%, marking the seventh week of losses in the last eight weeks, though gold remains positive with a 10.37% gain YTD.

Bonds: The 10-year treasury yield fell from 2.42% to 2.34%, resulting in positive performance for treasury and aggregate bonds. Yields had been trending up since early September, but subsided through the week as President Trump nominated current Fed Governor Jermoe Powell as the next Federal Reserve Chair. Powell’s views on raising interest rates are similar to current Fed Chair Janet Yellen – investors expect a slow-and-steady path of rate increases over the coming year with the nomination.

High-yield bonds were slightly negative as an increase in credit spreads offset lower broad interest rates. However, if the economy remains strong and healthy, higher-yielding bonds are expected to continue outperforming aggregate bonds as they offer higher interest payments and the risk of default is moderately low.

All indices are currently positive in 2017, with equity markets leading the way while commodities and bonds lag behind.

Lesson to be learned: “It takes twenty years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett. Sadly, the same can be said about your portfolio (see global stock markets in 2008). However, by keeping a smart and disciplined investment strategy and maintaining a broadly diversified blend of assets, you can improve your probability of long-term success and minimize the negative impacts that extreme bear markets can have on your financial well-being.

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 19.40, 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 eighth consecutive week (its longest weekly winning streak since 2006) and remains firmly in the upward trend that began in mid-February 2016. Shorter-term momentum has picked back up in recent weeks as the Index has continued to reach new all-time highs, illustrating there may still be further gains ahead. While volatility and downward pressure had 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 343 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 markets finished mixed for the second consecutive week as President Trump nominated a new Federal Reserve Chair and the House of Representatives released details on tax reform.

On Thursday, President Trump nominated current Fed Governor Jermoe Powell as the next Federal Reserve Chair. Powell has served on the Fed’s board of governors since 2012 and will replace Janet Yellen, pending approval from the US Senate, in February 2018. While other candidates were in contention for the position, Powell became the favorite in recent weeks and was expected to receive the nomination. Historically, Powell has voted in the majority (lead by Janet Yellen) regarding interest rates, so the change in leadership should not have a significant on the macroeconomic environment as Powell is expected to maintain a consistent approach to monetary policy.

House of Representatives Republicans also unveiled a tax reform bill on Thursday, titled the Tax Cuts and Jobs Act. The bill looks to simplify the tax code by cutting down the number of income tax brackets and slashing itemized deductions, while raising standard deductions for individuals. For businesses, the major modification would be to reduce the maximum federal corporate tax rate to 20% from its current level of 35%. House Speaker Paul Ryan has stated the goal is to have a final bill passed and signed by the end of the year, though there are still many steps to take and there may still be further adjustments to the bill before it is considered final.

Though markets remain in an upward trend, it is important to remember every day is independent of the day before. Broad US stocks have been experiencing strong gains with minimal volatility and virtually no drawdowns so far in 2017. In this environment, it can be easy to forget there are risks to investing. However, it was less than two years ago (at the beginning of 2016) when the US stock market experienced the worst start to a year in recorded history. 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 “hot” 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 – November 7, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – Halloween Edition

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 mixed with large-cap US stocks experiencing the largest gains and international stocks experiencing the largest losses. 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 increased 4.72%. Oil prices have recently been supported by lower exports due to tensions in the Kurdistan region of Iraq, and prices were boosted last week as the Saudi Arabian Crown Prince stated the current OPEC production cut agreement should be extended. Gold prices fell 0.68%, marking the sixth week of losses in the last seven weeks, though gold remains positive with an 10.59% gain YTD.

Bonds: The 10-year treasury yield increased from 2.39% to 2.42%, resulting in slightly negative performance for treasury and aggregate bonds. Yields have been trending up since early September as investors have been speculating about the nomination for the next Fed Chair. President Donald Trump is expected to make a decision before his trip to Asia in early November. The two front-runners as of now are Stanford University economist John Taylor (views on raising interest rates are more aggressive) and Fed Governor Jermoe Powell (views on raising interest rates are more conservative; similar to current Fed Chair Janet Yellen).

High-yield bonds were negative as an increase in credit spreads added to the downward pressure of higher broad interest rates. However, if the economy remains strong and healthy, higher-yielding bonds are expected to continue outperforming aggregate bonds as they offer higher interest payments and the risk of default is moderately low.

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

Lesson to be learned: “It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” –  Robert Kiyosaki. If you save a million dollars by the time you’re 30, but blow it all by age 40, you’ve gained nothing in the long-run. Grow and protect your investment portfolio by carefully diversifying it and sticking to a disciplined investment strategy, and you may find yourself funding many generations to come.

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 24.66, 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 seventh consecutive week and remains firmly in the upward trend that began in mid-February 2016. Shorter-term momentum has picked back up in recent weeks as the Index has continued to reach new all-time highs, illustrating there may still be further gains ahead. While volatility and downward pressure had 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 338 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 markets finished the week mixed as the first reading of third quarter GDP beat expectations.

The first reading of Q3 GDP showed the economy growing at 3% on an annualized basis, beating expectations of a 2.6% growth rate. This marks the first time the US economy has recorded back-to-back quarters of 3% or higher GDP growth since 2014. The Bureau of Economic Analysis noted that Hurricanes Harvey and Irma impacted the data by disrupting production, including energy and agricultural production in several states, and increasing activity of emergency services and rebuilding, but the overall impact was not quantified.

As GDP growth remains strong, other economic data releases during the week beat forecasts as well. Orders for durable goods (aircraft, computer equipment, and other big ticket items) jumped 2.2% compared to a 1.0% expectation. New-home sales soared 18.9%, marking the fastest pace in 10 years and illustrating new-home sales may resume an upward trend despite leveling off over the past year. Overall, the economy’s growth seems to be broad-based and is expected to continue through the end of 2017 and into 2018.

Though markets remain in an upward trend, it is important to remember every day is independent of the day before. Broad US stocks have been experiencing strong gains with minimal volatility and virtually no drawdowns so far in 2017. In this environment, it can be easy to forget there are risks to investing. However, it was less than two years ago (at the beginning of 2016) when the US stock market experienced the worst start to a year in recorded history. 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 “hot” 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 – Halloween Edition appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – October 24, 2017

I am happy to present this week’s market commentary written by our partners at 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 positive with large-cap US stocks experiencing the largest gains and international stocks experiencing the only losses. 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 mostly flat for the week as oil prices gained only 0.04%. Oil prices have recently been supported by lower exports due to tensions in the Kurdistan region of Iraq, but weak US demand has capped gains. Gold prices fell 1.85%, marking the fifth week of losses in the last six weeks, though gold remains positive with an 11.35% gain YTD.

Bonds: The 10-year treasury yield increased from 2.28% to 2.39%, resulting in negative performance for treasury and aggregate bonds. Yields have been trending up since early September as investors have been speculating about the nomination for the next Fed Chair. In a recent interview, President Donald Trump indicated he would likely make a decision before his trip to Asia in early November. The two front-runners as of now are Stanford University economist John Taylor (views on raising interest rates are more aggressive) and Fed Governor Jermoe Powell (views on raising interest rates are more conservative; similar to current Fed Chair Janet Yellen).

High-yield bonds were positive as a decrease in credit spreads offset higher broad interest rates. If the economy remains strong and healthy, higher-yielding bonds are expected to continue outperforming aggregate bonds as they offer higher interest payments and the risk of default is moderately low.

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

Lesson to be learned: “It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” –  Robert Kiyosaki. If you save a million dollars by the time you’re 30, but blow it all by age 40, you’ve gained nothing in the long-run. Grow and protect your investment portfolio by carefully diversifying it and sticking to a disciplined investment strategy, and you may find yourself funding many generations to come.

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 24.66, 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 sixth consecutive week and remains firmly in the upward trend that began in mid-February 2016. Shorter-term momentum has picked back up in recent weeks as the Index has continued to reach new all-time highs, illustrating there may still be further gains ahead. While volatility and downward pressure had 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 333 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 continued to reach new all-time highs as Congress took an important step in the process of tax reform.

Political developments helped sway the markets in a positive direction as the Senate passed a $4 trillion budget blueprint late Thursday, with a narrow vote of 51 – 49. The budget resolution does include proposed spending cuts and entitlement overhauls, but it is largely seen as a shortcut to reforming the tax code. The measure contains language that would allow a tax reform bill to avoid a Democratic filibuster.

This means a bill could be passed with a simple 51-vote majority in the Senate, a critical piece to getting tax reform done. While Republicans have yet to introduce a concrete tax bill, the continued progress toward tax reform has created further optimism in the US stock markets. Amid the many challenges faced in 2017, President Trump and Senate Majority Leader Mitch McConnell have stated they are still looking to pass a tax plan before the end of the year.

Though markets remain in an upward trend, it is important to remember every day is independent of the day before. Broad US stocks have been experiencing strong gains with minimal volatility and virtually no drawdowns so far in 2017. In this environment, it can be easy to forget there are risks to investing. However, it was less than two years ago (at the beginning of 2016) when the US stock market experienced the worst start to a year in recorded history. 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 “hot” 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 – October 24, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara