5 Minute Market Update – October 17, 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 with international stocks experiencing the largest gains and small-cap US stocks experiencing the only 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 rose 4.38%, mostly recovering the 4.61% loss experienced in the previous week. Oil prices were supported by strong Chinese oil import data along with turmoil in the Middle East, as tensions have been building since the Kurdistan Regional Government voted for independence from Iraq in a recent referendum. Gold prices increased 2.33%, snapping a four-week streak of losses as gold remains positive with a 13.44% gain YTD.

Bonds: The 10-year treasury yield fell from 2.37% to 2.28%, resulting in positive performance for treasury and aggregate bonds.

High-yield bonds were slightly negative as an increase in credit spreads offset lower broad interest rates.

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 fifth 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 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 328 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 the third quarter’s earnings season kicked off.

Q3 2017 earnings season has officially begun. Only 6% of companies in the S&P 500 have reported actual earnings so far (most of which have been from the financial services sector), but initial results have been positive. While the blended S&P 500 earnings growth rate is only 2.1%, of the companies that have reported Q3 earnings so far, 81% have beat the average earnings estimate and 78% have beat the average sales estimate.

As earnings data remains mostly positive, consumer confidence remains high. Friday’s release of the University of Michigan Consumer Sentiment Survey showed a reading 101.1 – its highest level since January 2004 and rising above 100 for only the second time since 2000. The report showed consumers have become more confident in their current economic situation as well as more optimistic about future expectations. This positive sentiment has resulted in strong retail sales as consumers have an increasing ability and desire to spend money, helping support the broad economy. While stock market valuations remain above their averages (the S&P 500 Forward P/E ratio is currently 17.9 compared to the 10-year average of 14.1), the underlying data points imply the economy remains healthy and stable for now.

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 17, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

Tax Reform – Is it only a dream?

The Internal Revenue Code resembles an encyclopedia, it’s massive set of laws have grown by leaps and bounds over the years. There is a reason it takes CPAs and tax attorneys to decipher it’s complexity for their clients.

The American tax system has become so convoluted and complex that reforming it has been an ongoing issue in Congress and a frequent campaign promise for years. Suggestions for a flat tax, or at least a more simplified filing process that takes a page or two, have been principal goals. Reforming it to help stimulate the economy, help moderate income Americans and simplification are all current goals.

The last time major tax reform took place was when President Ronald Reagan signed the Tax Reform Act into law on October 22, 1986. At that time, the tax code was less than 30,000-pages long. It is more than twice that long today. Since 1986, there have been a number of changes to the profile of businesses, the economy and taxpayers that require change.

Knowing the complexity of the tax system, better than most, president Trump had made tax reform one of his primary campaign promises. The president’s tax reform goals also included corporate taxes, which have caused many U.S. firms to keep large sums of capital in other parts of the world. Repatriating that money would benefit the U.S.

Goals and Hopes for Tax Reform

Some provisions of the tax code overhaul being worked out in the Congress by Republican lawmakers include lowering the corporate tax rate, keeping the deductions for charitable giving and mortgages and doubling the standard deduction. The current proposal would also include a reduction in the number of marginal tax rates from seven to three; 10 percent, 25 percent, and 35 percent.

These changes are meant to help the average taxpayer while other proposals are aimed at corporate taxes. U.S. corporations pay the fourth highest tax rate in the world. In the “developed” world, the U.S. corporate tax rate is the highest. Competing in a global market is made more difficult for this reason.

The hope is that more capital is kept in the U.S. because companies do not have the incentive to relocate to other countries. There is currently no incentive to bring profits earned in other countries back to the U.S. because of current tax rates. The thought is that bringing these funds back to the U.S. would also offset any reduction in tax revenues. The goal of current tax reform would be to bring the corporate rate from 35 percent down to 20 percent or even 15 percent.

Not only would a lower corporate tax help repatriate dollars but it would also be a catalyst for creating more U.S. jobs

For tax reform to become a reality, it requires a meeting of the minds on Capitol Hill. Republicans are primarily in sync on this issue, including both the speaker of the House and the Senate majority chairman. Also, the White House is interested in accomplishing passage of a new law as well. Getting Democrats and their leadership on board would be the clincher. If a budget can be agreed on, then real tax reform is then possible.

The post Tax Reform – Is it only a dream? appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – October 9, 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 with larger-cap US stocks experiencing the largest gains and international stocks experiencing the only losses. S&P 500 sectors finished the week mostly positive 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 negative for the week as oil prices fell 4.61%, snapping a four-week streak of gains for oil. Oil prices had recently received support following an unexpected drop in US inventories, but last week the US hit a new record for crude oil exports, refueling the concern about continued global oversupply for oil. Gold prices fell 0.77% amid increasing interest rates and a stronger dollar, marking four consecutive weeks of price declines, but remain positive with a 10.86% gain YTD.

Bonds: The 10-year treasury yield increased from 2.33% to 2.37%, resulting in negative performance for treasury and aggregate bonds.

High-yield bonds were mostly flat as a decrease in credit spreads offset higher broad interest rates.

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 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 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 323 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 markets continued to reach new highs as investors shrugged-off a negative jobs report.

In a report released on Friday, US payroll employment declined by 33,000 jobs in September. This decline was directly related to Hurricanes Harvey and Irma, and would mark the first reported negative number since September 2010. However, many experts believe this number is likely to be revised up into positive territory next month based on the experience of previous major hurricanes in the US. The negative impact of the hurricanes should be temporary and the labor market may even receive a boost in the coming months due to recovery efforts.

While the employment data appears negative on the surface, there were some positive aspects to the overall report. Average hourly earnings increased 0.5% for the months, growing to a 2.9% increase year-over-year. Growing wages illustrates the labor market may be tightening, resulting in employers paying more to retain current talent. Furthermore, the unemployment rate fell to 4.2%, its lowest level since February 2001, and the labor force participation rate increased from 62.9% to 63.1% as there are fewer discouraged workers in the market.

Though markets remain healthy, it is important to remember every day is independent of the day before. Broad US stocks have been in an upward trend 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 9, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – October 3, 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 materials are the strongest performers while energy and telecommunications are the only sectors with negative performance year-to-date.

Commodities: Commodities were flat for the week as oil prices rose 1.99%, marking the fourth consecutive week of gains for oil. Oil received additional support this week following an unexpected drop in US inventories, furthering the gains experienced in the aftermath of Hurricanes Harvey and Irma. Gold prices fell 0.98% amid increasing interest rates and a stronger dollar, but remain positive with an 11.72% gain YTD.

Bonds: The 10-year treasury yield increased from 2.26% to 2.33%, resulting in negative performance for treasury and aggregate bonds.

High-yield bonds were positive as riskier asset classes performed well during the week.

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 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 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 318 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 equity markets climbed higher as investor focus turned toward tax reform, capping the least volatile September in history.

Republican leaders of the US House and Senate released a “unified framework” for tax reform on Wednesday. A statement from the House Committee indicates the framework “serves as a template for the tax-writing committees that will develop legislation through a transparent and inclusive committee process.” The framework does not include a significant level of technical detail, but one of the main proposals is the creation of three individual brackets at 12%, 25% and 35%, with a possibility for a fourth top bracket (simplifying from the current seven tax brackets). The framework also proposes eliminating many itemized deductions while increasing the standard deduction, and reducing the corporate tax rate to 20%.

While there are still many details to be finalized, the continued progress toward tax reform has created further optimism in the US stock markets. The month ended as the least volatile September on record (dating back to 1970 when reliable single-day data became available) as the average range between the S&P 500 Index’s daily highs and lows was only 0.39%. Further illustrating the historically low levels of volatility, the S&P 500 has gone 42 consecutive weeks without a weekly move greater than 2% in either direction. The only longer streaks were in the mid-1960’s and mid-1990’s.

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 – October 3, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

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

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

5 Minute Market Update – August 29, 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 positive with small-cap US stocks experiencing the largest gains. S&P 500 sectors finished the week mostly positive with no discernable difference between defensive and 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 negative for the week as oil prices fell 1.32%. 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 0.49% and remain moderately positive with a 12.82% gain YTD amid various political uncertainties.

Bonds: The 10-year treasury yield fell from 2.19% to 2.17%, resulting in positive performance for treasury and aggregate bonds.

High-yield bonds were positive as credit spreads tightened and most 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 24.69, 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 second consecutive week, but remains in the upward trend that began in mid-February 2016. While intermediate and long-term momentum remains positive, shorter-term momentum has slowed as the Index closed below its three-month moving average 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 weeks. 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 snapped their recent losing streak to finish the week positive on renewed optimism for tax reform.

Stocks received a boost as chief economic advisor Gary Cohn announced President Trump will start publicly campaigning for tax reform in the upcoming week. According to Cohn, “starting next week, the president’s agenda and calendar is going to revolve around tax reform… He will start being on the road making major addresses justifying the reasoning for tax reform and why we need it in the U.S.” Cohn mentioned the administration does not have a fixed / detailed tax reform plan, but they do expect it to include a one-time corporate tax repatriation on overseas profits as well as include protections for personal charitable, mortgage, and retirement savings deductions while taking away other deductions for individuals.

Further illustrating the renewed optimism regarding tax reform, small-cap US stocks markedly outperformed large-cap US stocks for the first week since June 26 – 30. Small-cap stocks surged immediately following the election with the idea lower corporate tax rates coupled with rising bond yields would drive investor cash to smaller companies. However, year-to-date the large-cap S&P 500 (SPY) is up 10.42% compared to only a 2.24% gain for the small-cap Russell 2000 (IWM) as interest rates remained suppressed and talks about tax reform seemed to have stalled. While it remains to be seen, if US growth continues to improve and tax reform gets pushed forward, it could lead to a resurgence of the smaller-cap US stock rally.

The recent divergences in stocks and increased volatility 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 – August 29, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – August 22, 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 mostly negative with small-cap US stocks experiencing the largest losses. 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 negative for the week as oil prices fell 0.63%. 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. The most recent large move was to the positive side four weeks ago as reports showed US oil and gasoline inventories fell more than expected and Saudi Arabia announced it would further reduce output. Gold prices fell 0.19%, but remain moderately positive with a 12.32% gain YTD.

Bonds: The 10-year treasury yield remained at 2.19%, resulting in mostly flat performance for treasury and aggregate bonds.

High-yield bonds were slightly positive as the negative impact of riskier asset classes experiencing losses was offset by lower credit spreads.

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 24.69, 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 second consecutive week, but remains in the upward trend that began in mid-February 2016. While intermediate and long-term momentum remains positive, shorter-term momentum has slowed as the Index closed below its three-month moving average 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 weeks. 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 broadly negative for the second consecutive week as political tensions continued to drive markets lower.

Since reaching record-low levels of volatility in July, the S&P 500 has recorded two of its three worst trading days over the past two weeks. The most recent pullback follows heightened concerns that focus is being diverted from President Trump’s agenda with other political distractions. However, there have been similar short-term pullbacks in 2017 that markets have quickly shrugged-off (a 1.8% drop in March as the initial health care reform bill failed to find support and a 1.9% drop in May following the controversy with former FBI Director James Comey).

While political worries have pushed stocks lower in recent weeks, market fundamentals seem to remain healthy for now. Q2 2017 earnings have been strong as the blended S&P 500 earnings growth rate currently stands at 10.2%, compared to the initial estimate of 6.5% on June 30 before earnings season started. The labor market also remains strong as the economy continues to add jobs at a resilient pace and unemployment is at its lowest level since 2001.

Though healthy economic data cannot protect markets against normal levels of volatility, history shows fundamentals drive longer-term market performance a majority of the time. Generally, as long as there are no further clear reasons for a sell-off (such as an economic slowdown or a war), political tensions are short-lived and end up just becoming a bump in the road. With earnings and job growth remaining strong, the economy seems to remain on solid footing for now.

The recent spike in volatility 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 – August 22, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara