Apple reaches $1 trillion as US stocks climb higher

Week in review written by FormulaFolio Investments

Just before noon Eastern Time, Apple became the first US company to reach a $1 trillion market capitalization (PetroChina, a state-controlled Chinese oil and gas company, briefly reached $1 trillion in 2007 before quickly falling below the mark). The milestone came just two days after Apple beat earnings expectations and delivered stronger than expected guidance for the remainder of 2018. Some analysts have become wary of the company’s lofty valuation, but many agree there is no discernible difference between Apple being valued at $999.9 billion and $1 trillion – this is just a nice looking round number (and people tend to put extra weight on nice round numbers).

While much of the market’s focus was on the race to $1 trillion, Friday’s employment report flew somewhat under the radar. Though it was a disappointing report on the surface, as the economy added only 157,000 jobs compared to the 190,000 expected, the overall labor market remains strong. Buried within the report, jobs numbers from the previous two months were revised higher by a total of 59,000 and average hourly earnings increased 2.7% over the same period from a year ago – matching expectations. The unemployment rate dropped from 4.0% to 3.9% while the labor force participation rate remained steady, illustrating a larger percent of the working population is finding full-time jobs. Despite the headline number missing expectations, the jobs picture continues to be a bright spot in the US economy.

Strong earnings and economic data reports have continued to offset geopolitical risks (namely tariffs) in recent weeks. However, it is still important to remember to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results, rather than chasing short-term returns. While the day-to-day noise can make it tempting to make knee-jerk decisions, as investors we need to stay committed to our long-term financial goals. Staying focused on our long-term investment objectives and maintaining a disciplined investment strategy can help reduce market noise and increase the odds of a successful outcome over time.

Chart of the week

Apple launched the initial public offering (IPO) of its stock on December 12, 1980 at a price of $22 per share. The stock has split four times since the company went public, bringing the split-adjusted price of the IPO down to $0.39 per share. Had someone invested $1,000 in Apple when the company went public, their investment would be worth $533,308 today (not including dividends). However, while this is an astounding figure, the chart below illustrates a majority of this growth has come only since 2001 – when Apple introduced the iPod.

*Chart created with Google Finance

Market Update

Equities

Broad equity markets finished the week mixed as large-cap US stocks experienced the largest gains and international stocks experienced losses. S&P 500 sectors were mixed with defensive sectors broadly outperforming cyclical sectors.

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

Commodities

Commodities were negative as oil prices fell 0.29%. This was the fifth straight week of oil price declines as trade concerns weighed on the market, causing anxieties about future demand. While oil prices have been trending higher since the OPEC-led output cuts in January 2017, the fear of rising production and falling demand has caused some investors to worry about oversupply in the near-term.

Gold prices were negative with a 0.69% loss as an upbeat assessment of the US economy by the Federal Reserve and new trade tensions between the US and China boosted the dollar. A generally stronger dollar has resulted in downward pressure for gold in recent months as it has made the metal more expensive for holders of other currencies.

Bonds

The 10-year Treasury yield fell slightly from 2.96% to 2.95%, resulting in positive performance for traditional US bond asset classes. Yields climbed above 3% during the week but slipped lower as trade tensions between the US and China escalated later in the week.

High-yield bonds were positive for the week as most riskier asset classes experienced gains. As long as the economy remains healthy, higher-yielding bonds are expected to continue outperforming traditional bonds in the long-run as the risk of default is moderately low.

Asset class indices are mixed so far in 2018, with small-cap US stocks leading the way and traditional bond categories lagging behind.

 

Lesson to be learned

The emotional burden of trading is substantial; on any given day, I could lose millions of dollars. If you personalize these losses, you can’t trade. “

– Bruce Kovner

Investing can trigger many emotions – even for the most seasoned professionals. However, if you want to be a successful investor, you have to disconnect your feelings from what’s happening in the market. By sticking to an emotion-free, disciplined investment strategy, you can increase the odds of success in the long-term.

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 66.67% 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 24.00, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 66.67% bullish – 33.33% neutral – 0.00% bearish. This means the indicator believes there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

The Week Ahead

The upcoming week will be somewhat light compared to recent weeks as earnings season begins to wind down and economic data releases are relatively minimal.

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post Apple reaches $1 trillion as US stocks climb higher appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

Labor market remains robust, sending stocks higher during holiday-shortened week

Week in Review written by FormulaFolio Investments

US equity markets were positive during the holiday-shortened week as the labor market remains robust. Well into the ninth year of expansion, employers added 213,000 jobs – beating the expectation of 195,000. This adds to the record streak of consecutive positive payroll gains, bringing the count to 93 months (the last negative month was September 2010). The unemployment rate ticked up from 3.8% to 4.0%, but this was for an encouraging reason as more potential workers came in from the sidelines and added to the labor force participation rate.

As the labor market continues to thrive, investors are gearing up for Q2 earnings season. Currently, the estimated earnings growth rate for the S&P 500 is 20.0%. If the Index can at least match this expectation, it would be the second consecutive quarter of earnings growth of 20% or above (the S&P 500 reported a blended earnings growth of 24.8% in Q1). Analysts have been mostly optimistic going into this earnings season, revising expectations up 0.8% – the second largest increase since 2010.

Despite the positive economic and fundamental data, tariff tensions have continued to cap gains. Many investors expect a heightened level of volatility to persist in the near-term as trade talks dominate headlines. The day-to-day noise can tempt even the most intelligent investors to make knee-jerk decisions. However, as investors we need to stay committed to our long-term financial goals. Staying focused on our long-term investment objectives and maintaining a disciplined investment strategy can help reduce market noise and increase the odds of a successful outcome over time.

Chart of the week

The S&P 500 finished positive for the week and remains within the broad range of the upward trend that begin in mid-February 2016. Shorter-term momentum has been somewhat negative and volatile, but support has held at the bottom of the trading range, helping push the Index off the low levels experienced in mid-February 2018. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a long-term bullish pattern for now despite the recent weakness.

*Chart created at StockCharts.com

Market Update

Equities

Broad equity markets finished the week positive as small-cap US stocks experienced the largest gains. S&P 500 sectors were mostly positive with defensive sectors broadly outperforming cyclical sectors.

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

Commodities

Commodities were negative as oil prices fell 0.47%. While oil prices experienced a strong rally, gaining almost 14% over the previous two weeks, prices slipped after data showed an unexpected increase in inventories on Thursday. Since the OPEC-led output cuts in January 2017, global inventories have been trending lower, supporting a positive long-term trend in oil prices.

Gold prices were positive with a 0.24% gain as the dollar softened. A generally stronger dollar has resulted in downward pressure for gold in recent months. However, the metal has been somewhat supported by geopolitical concerns, helping provide relief from further downside risk.

Bonds

The 10-year Treasury yield fell from 2.85% to 2.82%, resulting in positive performance for traditional US bond asset classes. Despite the Fed rate hike in June, longer-term yields have remained suppressed as trade war fears have caused investors to shift toward more safe-haven asset classes.

High-yield bonds were positive for the week as riskier asset classes experienced upward pressure. As long as the economy remains healthy, higher-yielding bonds are expected to continue outperforming traditional bonds in the long-run as the risk of default is moderately low.

 

Asset class indices are mixed so far in 2018, with small-cap US stocks leading the way and traditional bond categories lagging behind.

 

Lesson to be learned

The individual investor should act consistently as an investor and not as a speculator.”

– Benjamin Graham.

While it can be tempting to speculate – to put all of your money in the next Amazon or Apple – nobody can predict the future. If you guess correctly it can payoff greatly, but if you guess incorrectly it can be detrimental. This is why it is important to base your decisions on facts and analysis, rather than risky speculative predictions. By sticking to an emotion-free, disciplined investment strategy, you can increase the odds of success in the long-term without taking unnecessary risks.

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 66.67% 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 24.00, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 66.67% bullish – 33.33% neutral – 0.00% bearish. This means the indicator believes there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

The Week Ahead

A few major banks will unofficially kickoff Q2 earnings season as Wells Fargo, JPMorgan Chase, and Citigroup report results on Friday. Investors are hoping a strong earnings season can boost broad stock markets to new highs after a volatile first half of the year.

More to come soon.  Stay tuned.

Regards

Phil Calandra

The post Labor market remains robust, sending stocks higher during holiday-shortened week appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

Escalating trade tensions send broad equity markets lower

Week in Review

Equity markets were mostly negative for the week as trade tensions continued to intensify. Following China announcing it may retaliate with tariffs on US exports, President Trump announced the administration would look into higher tariffs on an additional $200 billion in Chinese imports. The back-and-forth dialogue between the US and China has raised some investors’ concerns about slowing global growth and higher than expected inflation.

Despite the recent escalation, big-name investors such as Warren Buffett, Paul Tudor Jones, and Lloyd Blankfein believe the current worries are somewhat overplayed. These successful investors largely believe this is part of a negotiating pattern and the US will eventually reach deals with other countries before any trade conflicts become too serious. Nonetheless, it is widely agreed these trade negotiations will continue to make headlines in upcoming weeks, resulting in heightened market volatility in the near-term.

While there are still many uncertainties surrounding global trade activity, market fundamentals remain mostly healthy. Corporate earnings are coming off their strongest quarter since 2010 and Real GDP is expected to come in around 4% for Q2 – a growth rate recently though unattainable.

Markets have been volatile since early February, highlighting the importance of remaining invested in a risk-appropriate, broadly diversified portfolio. The day-to-day noise can tempt even the most intelligent investors to make knee-jerk decisions. However, as investors we need to stay committed to our long-term financial goals. Staying focused on our long-term investment objectives and maintaining a disciplined investment strategy can help reduce market noise and increase the odds of a successful outcome over time.

We are currently in the second longest period in history in which large-cap growth stocks have outperformed large-cap value stocks. Measured by rolling 10-year returns, growth stocks have outperformed their value counterpart for 54 months (the longest such streak in history was 57 months from 1996 – 2000). While this trend has been persistent in recent years, history points to value stocks bouncing back. Historically, whenever growth has outperformed value by over 2% in a 10- year period, the next three years show value outperforming growth by 7.3%. The chart below shows the Russell 3000 Value Index (red line) and the Russell 3000 Growth Index (blue line) immediately following the 2008 financial crisis, with a clear divergence starting in mid-2014.

*Chart created at StockCharts.com

Market Update

Equities

Broad equity markets finished the week mostly negative as large-cap US stocks experienced the largest losses and small-cap US stocks were mostly flat. S&P 500 sectors were mixed with defensive sectors broadly outperforming cyclical sectors.

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

Commodities

Commodities were positive as oil prices jumped 5.41% – snapping a four-week losing streak. Oil prices surged on Friday as OPEC agreed to increase output by up to 1 million barrels per day, though many experts believe the real increase will only be around 700 thousand. While higher output generally pushes prices lower, the agreed increase was lower than expected (at one point, investors expected an increase of up to 1.8 million barrels per day). The OPEC-led production cuts have supported a positive longer-term trend, so the lower than expected production increase provided a relief to investors.

Gold prices were negative with a 0.56% loss. A generally stronger dollar has resulted in downward pressure for gold in recent months, but the metal has also been somewhat supported by geopolitical concerns, helping provide support from further downside risk.

Bonds

The 10-year Treasury yield fell from 2.93% to 2.90%, resulting in slightly positive performance for traditional US bond asset classes. Despite the recent Fed rate hike, yields have remained suppressed in recent weeks as trade war fears have caused investors to shift toward more safe-haven asset classes.

High-yield bonds were negative for the week as riskier asset classes experienced downward pressure. However, as long as the economy remains healthy, higher-yielding bonds are expected to continue outperforming traditional bonds in the long-run as the risk of default is moderately low.

Asset class indices are mixed so far in 2018, with small-cap US stocks leading the way and traditional bond categories lagging behind.

Lesson to be learned

All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.”

– Peter Lynch.

Nobody likes to lose money, but losses are an inevitable part of investing. The key is to control your losses and manage downside risk intelligently, so you are in the best position possible to take advantage of larger market upswings. By sticking to an emotion-free, disciplined investment strategy, you can increase the odds of success in the long-term by determining when it is most appropriate to take risk and when it is more appropriate to hedge risk.

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 23.07, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 50% bullish – 50% bearish. This means the indicator has a neutral outlook on stock market direction in the near term (within the next 18 months).

The Week Ahead

Consumer spending and consumer sentiment data will be released on Friday. Investors will be eyeing these reports to see how consumers have been reacting to the recent increase in global trade tensions.

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post Escalating trade tensions send broad equity markets lower appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

Markets finish holiday-shortened week mixed as politics dominate headlines

Week in Review

I am happy to present this weeks market update written by FormulaFolio Investments.  U.S. stock markets finished the holiday-shortened week mixed as politics dominated headlines, resulting in a choppy week of trading. The week started on a negative note with political turmoil in Italy as President Sergio Mattarella refused to accept the finance minister proposed by a coalition government. Following the refusal, it appeared Italy was moving toward another election this year, with the potential to move heavily toward anti-eurozone policies. This sent Italian government bond yields sharply higher and US government bond yields sharply lower as demand for traditional safe-haven asset classes increased.  However, a different finance minister was approved later in the week, alleviating the immediate concerns in Italy.

As tensions in Italy eased, President Trump imposed the steel and aluminum tariffs on the European Union, Mexico, and Canada as the temporary exemption expired and trade talks remain gridlocked. Immediately following the announcement, European Commission President Jean-Claude Juncker said the EU will take “countermeasures” against the US. This added to the volatility for the week as investors speculated about the increasing potential for a trade war.

Despite the geopolitical uncertainties, markets ended the week on a positive note as the economy added 223,000 jobs, beating expectations of 185,000 jobs added. With strong job gains, the unemployment rate fell to 3.8% – its lowest level since April 2000. A lower unemployment rate is starting to put upward pressure on wage growth as average hourly earnings are 2.7% higher than a year ago.

While corporate earnings and economic data have remained mostly positive, many geopolitical risks remain present. Markets have been fickle since early February, and economic data and market sentiment can change quickly, which 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.

As investors, we need to stay committed to our long-term financial goals. Staying focused on our long-term investment objectives and maintaining a disciplined investment strategy can help reduce market noise and increase the odds of a successful outcome over time.

Chart of the week

On Tuesday, the 10-year Treasury yield experienced its sharpest daily decline since the volatility spike in early February, falling to a low of 2.75%. However, yields rebounded back to 2.89% by the end of the week as investors became more confident about the prospects for further Fed rate hikes following the strong jobs report. Despite the recent drop in yields, the trend has been pointing mostly higher since mid-2016 (immediately following Brexit), though yields are still well off the recent high of 3.11% from May 17. Many experts believe the 10-year Treasury yield will end the year between 3.25% – 3.50% as the economy remains healthy and the Fed continues to gradually increase rates. This would represent a 12-21% increase from current levels.

*Chart created at StockCharts.com

Market Update

Equities

Broad equity markets finished the week mixed as small-cap US stocks experienced the largest gains and international stocks experienced losses. S&P 500 sectors were mixed with cyclical sectors broadly outperforming defensive sectors.

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

Commodities

Commodities were negative as oil prices fell 3.05%. This was the second consecutive weekly drop as US oil production has continued to rise. While the OPEC-led production cuts have largely supported a positive longer-term trend, Saudi Arabia and Russia have recently discussed boosting output, causing investors to fear a return to global over-supply.

Gold prices were negative with a 0.65% loss as higher Fed interest rate hike expectations pushed the metal lower. All things equal, higher US interest rates generally increase the value of the dollar, and a stronger dollar pushes gold prices down.

Bonds

The 10-year Treasury yield fell from 2.93% to 2.89%, resulting in positive performance for traditional US bond asset classes. Yields reached as low as 2.75% during the week as political tensions in Italy pushed investors toward more safe-haven asset classes. However, yields rebounded by week-end as the most recent jobs report showed US labor markets remain healthy, resulting in expectations for continued Fed rate hikes throughout 2018.

High-yield bonds were mostly flat for the week as rising credit spreads were offset by lower broad interest rates. As long as the economy remains healthy, higher-yielding bonds are expected to continue outperforming traditional bonds in the long-run as the risk of default is moderately low.

Asset class indices are mixed so far in 2018, with commodities leading the way and traditional bond categories lagging behind.

Lesson to be learned

All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.”

– Peter Lynch

Nobody likes to lose money, but losses are an inevitable part of investing. The key is to control your losses and manage downside risk intelligently, so you are in the best position possible to take advantage of larger market upswings. By sticking to an emotion-free, disciplined investment strategy, you can increase the odds of success in the long-term by determining when it is most appropriate to take risk and when it is more appropriate to hedge risk.

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 23.07, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 50% bullish – 50% bearish. This means the indicator has a neutral outlook on stock market direction in the near term (within the next 18 months).

The Week Ahead

Geopolitical concerns have injected further volatility into markets in recent weeks, but the most recent jobs report illustrates the US economy remains mostly healthy. It will be important to see how markets react to the recent noise in a light week of economic data.

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post Markets finish holiday-shortened week mixed as politics dominate headlines appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

Intra-Month Market Update, April 2018

As we move through what has been a strong (so far) earnings season, broad markets have remained volatile. While the blended Q1 2018 earnings growth rate for the S&P 500 currently stands at 18.3%, its highest level since Q1 2011, the Index remains below its most recent all-time-high reached on January 26. This recent pullback, which officially became a “market correction” after falling 10.16% from the all-time-highs on February 8, has now lasted 88 calendar days (52 trading days).

Though the past three months have proven wearisome, causing angst among many investors, the recent market environment has not been anything out of the ordinary. In the postwar period (since end of 1945), there have been 27 corrections of between 10% and 20%. The average decline for these is 13% and takes an average of four months to recover losses. However, the abruptness of this recent correction, combined with the historically low levels of volatility experienced through all of 2017, has made this pullback feel much more severe than it actually may be.

Even with all of the recent volatility and downward pressure, most indices (including bonds) are down only about 1 – 2% year-to-date; and some indices are even positive.

Despite the recent increase in volatility, longer-term momentum remains mostly intact and factors such as corporate earnings and economic fundamentals remain strong.

As investors, we need to stay committed to our long-term financial goals. Staying focused on our long-term investment objectives and maintaining a disciplined investment strategy can reduce daily market noise and increase the odds of a successful outcome over time.

 

Regards,

FormulaFolio Investments

The post Intra-Month Market Update, April 2018 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

Weekly Market Update – April 23, 2018

Strong earnings push stocks higher despite rising interest rates

Week in Review

Global equity markets were positive for the week as stronger-than-expected earnings reports and solid economic data supported gains. The strong start to Q1 earnings season was a welcome distraction from the recent whirlwind of geopolitical uncertainties, with the six largest US banks reporting growth of 24% compared to the 17% expectation.

While it was a positive week for stocks, gains were kept in check as interest rates climbed higher. After starting the year at 2.46%, the 10-year treasury yield flirted with the psychological 3% level, ending the week at 2.96%. Though a yield above 3% would not be discernibly different than the current 2.96%, there is a psychological aspect that could make investors anxious about seeing these levels.

Since the early 1980s, interest rates have been in a steady downward trend. A clean break above 3% may confirm we are in an official “rising rate” environment for the first time in over three decades, which could reignite fears that rates will continue to rise into the near future. Higher rates are generally a headwind to economic growth as they result in higher costs when borrowing money, and thus lower spending and economic activity. However, it is important to realize interest rates are still historically low on a relative basis despite the recent move higher (the 10-year treasury yield was above 15% when rates peaked in 1981).

As investors, we need to stay committed to our long-term financial goals. Staying focused on our long-term investment objectives and maintaining a disciplined investment strategy can reduce daily market noise and increase the odds of a successful outcome over time.

Chart of the week

The S&P 500 finished the week positive, but continued to trade within the triangle pattern that developed in early February. As illustrated in the chart below, the Index has been consolidating in recent weeks, reaching lower highs and higher lows. Generally, with these triangle patterns, markets continue to consolidate until there is a fresh breakout. If markets breakout above the upper trend line, it can indicate the start of a new bullish trend. However, if markets fall through the lower trend line, it can mark the start of a bearish trend. While shorter-term momentum has been volatile and inconclusive, longer-term momentum remains intact as the Index has held above the lower-bounds of the positive trend that began in early 2016. Due to the continued support near this level, there may be a continuation of the longer-term bull market despite the shorter-term weakness. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a long-term bullish pattern for now.

*Chart created at StockCharts.com

Market Update

Equities

Broad equity markets finished the week positive as small-cap US stocks experienced the largest gains. S&P 500 sectors were mixed with cyclical sectors outperforming defensive sectors.

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

Commodities

Commodities were positive as oil prices rose 1.47%. Oil prices reached a fresh three-year high during the week as strong demand resulted in a surprise drawdown in inventories. Along with increasing demand, OPEC-led production cuts and geopolitical tensions in Syria have supported prices in recent weeks.

Gold prices were negative with a 0.71% loss as the dollar index gained on rising interest rates and inflation expectations. While it was a negative week, a relatively weaker dollar combined with geopolitical uncertainties has resulted in slightly positive performance for the metal so far this year.

Bonds

The 10-year treasury yield increased sharply from 2.82% to 2.96%, resulting in negative performance for traditional US bond asset classes. Yields reached their highest levels since January 2014, largely driven by solid economic data and expectations of higher inflation, but remain relatively low on a historical basis.

High-yield bonds were also negative for the week as the increase in broad interest rates offset the positive impact of riskier asset gains. However, as long as the economy remains healthy, higher-yielding bonds are expected to continue outperforming traditional bonds in the long-run as the risk of default is moderately low.

Asset class indices are mixed so far in 2018, with commodities leading the way and traditional bond categories lagging behind.

Lesson to be learned:

“The investor’s chief problem – and even his worst enemy – is likely to be himself.”

– Benjamin Graham.

People are emotional, and possess many biases when it comes to investing. A couple examples of these biases include hindsight (looking back and thinking it was easy to predict how things actually played out) and illusion of control (the tendency for people to overestimate their ability to control events they cannot actually influence). Unfortunately, these biases make us more susceptible to short-term market noise and poor investment decision making. This is why it is important to maintain a disciplined, emotion-free, investment strategy.

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 21.60, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 83% 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).

The Week Ahead

While Q1 2018 earnings season is officially underway, more than one-third of companies in the S&P 500 report results in the upcoming week (including companies such as Microsoft, Google, Facebook, and Amazon), making this an important week of data releases. The first estimate of Q1 GDP will also be released on Friday, which should provide a better picture of total economic strength.

More to come soon.  Stay tuned.

Regards,

Phil Calandra

 

The post Weekly Market Update – April 23, 2018 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – April 2, 2018

I am happy to present this week’s market commentary written by FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less. After all, investing should be simple, not complicated. 

Market Update

Equities: Broad equity markets finished the holiday-shortened week positive as large-cap US stocks experienced the largest gains. All S&P 500 sectors were positive for the week with defensive sectors outperforming cyclical sectors.

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

Commodities: Commodities were negative as oil prices dropped 1.43%. Rising US production and a stronger dollar put pressure on oil prices during the week, but the longer-term trend remains positive as OPEC production cuts have supported prices since early 2016.

Gold prices were negative with a 2.09% loss as the dollar index increased for the fifth time in six weeks. While it was a negative week for gold, the metal is still positive in 2018 as the US dollar remains relatively weak and geopolitical uncertainties remain prevalent.

Bonds: The 10-year treasury yield fell from 2.82% to 2.74%, resulting in positive performance for traditional US bond asset classes. Yields had been trending higher in 2018, but despite the Fed hiking rates 0.25% following the March 21 meeting to a range of 1.50 – 1.75%, longer-term bond yields have fallen as demand for treasuries as a safe-haven asset class has increased in recent weeks.

High-yield bonds were positive for the week as riskier asset classes performed well. If the economy remains healthy, higher-yielding bonds are expected to continue outperforming traditional bonds in the long-run as the risk of default is moderately low.

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

Lesson to be learned: “Bottoms in the investment world don’t end with four-year lows; they end with 10- or 15-year lows.” – Jim Rogers. Short-term market corrections can be unnerving, but they are an inevitable part of investing and are often short-lived in relation to a longer-term bull market trend. However, there are certain times where these market corrections can turn into a prolonged bear market (such as 2008). This is why it is important to maintain a disciplined investment strategy focused on longer-term market tendencies rather than focusing on the daily market noise.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to read least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) has a current reading of 21.12, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished the week positive, though equity markets remain choppy. While shorter-term momentum has pushed the S&P 500 lower, longer-term momentum remains intact as the Index is still within the trading range that has been in place over the past two years. The Index has tested the lower bounds of this trading range (which is inline with the 200-day simple moving average) in recent weeks, but has found support both times, indicating there may be a continuation of the longer-term bull market despite the shorter-term weakness. However, if the Index falls below this support threshold, it could result in further downward pressure as markets fall into a more bearish posture. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a long-term bullish pattern for now.

*Chart created at StockCharts.com

Q1 comes to a close as volatility returns to the markets.

The first quarter of 2018 has officially come to a close and one thing is certain: it is not 2017 anymore. While 2017 was one of the quietest years in history for broad stock markets (the S&P 500 set a record for the least severe drawdown in a calendar year ever), volatility has returned to the markets in 2018. So far in 2018 stocks have advanced or declined by more than 2% in nine of the first 13 weeks, with no such weeks in all of 2017. Furthermore, the CBOE Volatility Index (VIX), which measures the stock markets expectation for volatility based on options trading of the S&P 500 Index, has closed above 15 in eight weeks this year, compared to closing above 15 in only two weeks last year.

As market sentiment has continued to swing wildly between optimism and pessimism, market fundamentals have remained mostly positive. The most recent earnings season (Q4 2017, which was reported throughout the first quarter of this year) was the strongest quarter of corporate growth since Q3 2011, as the blended earnings growth rate for the S&P 500 was 14.8%. For the upcoming earnings season beginning in April, the estimated earnings growth rate is even higher at 17.3%. The labor market has also continued to soar in 2018 as employers added over 200,000 jobs in both January and February.

While the first quarter of the year has been volatile, and at times emotionally draining, it is important to stay focused on the bigger picture. Even with all of the recent volatility and downward pressure, most indices (including bonds) are down only about 1 – 2% year-to-date. This snaps a string of nine consecutive positive quarters for the S&P 500 and Dow Jones Industrial Average, but in reality the losses were somewhat minimal compared to how 2018 has felt.

Even in the strongest of bull markets, stocks will not rise every day / week / month / quarter, and periodic pullbacks should be expected. These pullbacks can even be considered healthy for the continuation of a longer-term bull market. Higher levels of volatility can be expected during short-term market corrections, but the longer-term prospects of 2018 remain mostly positive as corporate earnings and economic fundamentals remain strong.

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

As investors, we need to stay committed to our long-term financial goals. All the short-term news and market movements can be the most debilitating of all when it comes to making sound investment decisions; especially if we allow them to influence knee-jerk decisions.

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – April 2, 2018 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – March 26, 2018

I am happy to present this week’s market commentary written by FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less. After all, investing should be simple, not complicated.

Market Update

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

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

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

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

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

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

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

Lesson to be learned: “Bottoms in the investment world don’t end with four-year lows; they end with 10- or 15-year lows.” – Jim Rogers. Short-term market corrections can be unnerving, but they are an inevitable part of investing and are often short-lived in relation to a longer-term bull market trend. However, there are certain times where these market corrections can turn into a prolonged bear market (such as 2008). This is why it is important to maintain a disciplined investment strategy focused on longer-term market tendencies rather than focusing on the daily market noise.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to read least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) has a current reading of 21.12, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished the week sharply negative as equity markets remain choppy. While shorter-term momentum has pushed the S&P 500 lower, longer-term momentum remains intact as the Index is still within the trading range that has been in place over the past two years. The Index is currently re-testing the lower bounds of this trading range (which is inline with the 200-day simple moving average) similarly to early February. However, if the Index is able to find additional support at this level, it may illustrate a continuation of the longer-term bull market despite the shorter-term weakness. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a long-term bullish pattern for now.

*Chart created at StockCharts.com

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

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

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

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

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

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

As investors, we need to stay committed to our long-term financial goals. All the short-term news and market movements can be the most debilitating of all when it comes to making sound investment decisions; especially if we allow them to influence knee-jerk decisions.

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – March 26, 2018 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – March 19, 2018

I am happy to present this week’s market commentary from FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less. After all, investing should be simple, not complicated.

Market Update

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

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

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

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

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

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

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

Lesson to be learned: “Bottoms in the investment world don’t end with four-year lows; they end with 10- or 15-year lows.” – Jim Rogers. Short-term market corrections can be unnerving, but they are an inevitable part of investing and are often short-lived in relation to a longer-term bull market trend. However, there are certain times where these market corrections can turn into a prolonged bear market (such as 2008). This is why it is important to maintain a disciplined investment strategy focused on longer-term market tendencies rather than focusing on the daily market noise.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to read least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) has a current reading of 21.12, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished negative as equity markets remain choppy. While shorter-term momentum has pushed the S&P 500 lower, longer-term momentum remains intact as the Index is still within the trading range that has been in place over the past two years. The index tested the lower bounds of this trading range (which is inline with the 200-day simple moving average) in early February, but seemed to find support and has rallied off its lowest levels. This illustrates there may be support for a continued longer-term bull market despite the shorter-term weakness. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a long-term bullish pattern for now.

*Chart created at StockCharts.com

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

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

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

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

More to come soon.  Stay tuned.

Regards,

Phil Calandra

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

Source: Phil Calandara

5 Minute Market Update – March 13, 2018

I am happy to present this week’s market commentary written by FormulaFolio Investments. The goal is to give our clients and friends a simple way to see everything they need to know about the financial markets on a weekly basis, in 5 minutes or less. After all, investing should be simple, not complicated.

Market Update

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

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

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

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

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

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

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

Lesson to be learned: “Bottoms in the investment world don’t end with four-year lows; they end with 10- or 15-year lows.” – Jim Rogers. Short-term market corrections can be unnerving, but they are an inevitable part of investing and are often short-lived in relation to a longer-term bull market trend. However, there are certain times where these market corrections can turn into a prolonged bear market (such as 2008). This is why it is important to maintain a disciplined investment strategy focused on longer-term market tendencies rather than focusing on the daily market noise.

FFI Indicators

FormulaFolios has two simple indicators we share that help you see how the economy is doing (we call this the Recession Probability Index, or RPI), as well as if the US Stock Market is strong (bull) or weak (bear).

In a nutshell, we want the RPI to be low on the scale of 1 to 100.  For the US Equity Bull/Bear indicator, we want it to read least 67% bullish.  When those two things occur, our research shows market performance is strongest and least volatile.

The Recession Probability Index (RPI) has a current reading of 21.12, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished positive as the Index has now experienced a weekly move of 2% or more in six of the past seven weeks (for comparison, there was only one such week with over a 2% Index move in all of 2017). While shorter-term momentum has pushed the S&P 500 lower, longer-term momentum remains intact as the Index remains in the trading range that has been in place over the past two years. The index tested the lower bounds of this trading range (which is inline with the 200-day simple moving average) a few weeks ago, but seemed to find support and has rallied off its lowest levels. This illustrates there may be support for a continued longer-term bull market despite the shorter-term weakness. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a long-term bullish pattern for now.

*Chart created at StockCharts.com

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

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

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

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

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

As investors, we need to stay committed to our long-term financial goals. All the short-term news and market movements can be the most debilitating of all when it comes to making sound investment decisions; especially if we allow them to influence knee-jerk decisions.

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – March 13, 2018 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara