5 Minute Market Update – March 6, 2018

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

Market Update

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

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

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

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

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

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

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

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

FFI Indicators

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

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

The Recession Probability Index (RPI) has a current reading of 21.35, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

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

 

*Chart created at StockCharts.com

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

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

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

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

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

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

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – March 6, 2018 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – February 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 mostly positive as large-cap US stocks experienced the largest gains and international stocks experienced small losses. S&P 500 sectors were mixed for the week with cyclical sectors outperforming defensive sectors.

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

Commodities: Commodities were positive as oil prices rose 3.03%. This was the second consecutive strong week for oil as a dip in Libyan production and positive comments from Saudi Arabia regarding the OPEC production cuts helped push prices higher. While US production is expected to rise for the foreseeable future, which could cap gains in oil, the OPEC production cuts have supported a longer-term positive trend.

Gold prices fell 1.91% for the week as the dollar strengthened. While this was the worst week for gold since early December, the metal is still positive in 2018 as the US dollar remains relatively weak.

Bonds: The 10-year treasury yield increased slightly from 2.87% to 2.88%, remaining near the highest level since the beginning of 2014. As yields remained mostly steady, aggregate US bonds were mostly flat amid continued speculation the Fed may hike rates faster than expected in 2018. Bond prices and interest rates move inversely, so higher rates generally lead to lower prices.

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

FFI Indicators

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

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

The Recession Probability Index (RPI) has a current reading of 21.35, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished positive for the second consecutive week immediately following its first 10% correction since early 2016. While shorter-term momentum has pushed the Index lower, longer-term momentum remains intact as the Index remains in the trading range that has been in place over the past two years. The index tested the lower bounds of this trading range (which is inline with the 200-day simple moving average) three 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

US stocks pushed modestly higher as volatility persisted through the holiday-shortened week.

After essentially moving only up and to the right in 2017, stocks have been much more volatile this year. Though volatility has somewhat subsided since its rapid spike higher in early February, markets have continued to swing up and down. Last week saw this to a smaller extent as the S&P 500 was down over 1% by mid-week before rallying to end the week with modest gains. The average daily price movement for the Index in February has been 1.3%, compared to an average daily movement of 0.3% for all of 2017. While intra-week volatility was still present, this week broke the wild ride in which the S&P 500 experienced its worst week in two years directly followed by its best week in five years.

Many investors expect this higher volatility environment to persist in the near-term as market participants continue to speculate about economic growth and interest rates. Rates have been moving higher recently for the same reason the stock market had been rising (a strong economy), and the fear of higher rates removing momentum from the bull market is what sparked the recent market correction and higher levels of volatility in the first place.

However, it is important to remember interest rates are still historically low. While the 10-year treasury yield has sharply increased from 2.05% to 2.88% since early September, this is not as severe as the move from 1.66% to 3.04% back in 2013 – and that move did not kill the bull market as stocks have continued higher, though not without a few short-term corrections along the way. The Fed is expected to raise rates three times in 2018, but considering the relatively low level of current rates, this should be considered more like letting the foot off the accelerator rather than slamming the brakes on the markets and economy.

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

Source: Phil Calandara

5 Minute Market Update – January 29, 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 positive as large-cap US stocks experienced the largest gains. All S&P 500 sectors finished the week positive as cyclical sectors slightly outperformed defensive sectors.

So far in 2018 healthcare, consumer discretionary, and technology are the strongest performers while utilities and real estate are the only sectors with negative performance year-to-date.

Commodities: Commodities were positive as oil prices increased 4.37%. US crude oil prices reached $65 a barrel for the first time since December 2014, setting a new 3-year high following the 10th consecutive weekly drop in US inventories.

Gold prices rose 1.43% as the dollar continued to slide. A weaker dollar makes dollar-denominated assets, such as gold, less expensive for holders of other currencies, pushing prices higher.

Bonds: The 10-year treasury yield rose slightly from 2.64% to 2.66%, resulting in mostly flat performance for treasury and aggregate bonds. Yields have continued to trend higher recently on expectations that the Fed may hike rates faster than originally anticipated amid stronger economic growth and fiscal stimulus in 2018.

High-yield bonds were positive as riskier asset classes performed well and credit spreads fell during the week. If the economy remains strong and healthy, higher-yielding bonds are expected to continue outperforming aggregate bonds as they offer higher interest payments and the risk of default is moderately low.

All riskier asset class indices are currently positive in 2018, but treasury and US aggregate bonds are currently negative.

Lesson to be learned: “The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” – Seth Klarman. Markets tend to move in broad cycles. However, when crisis seems to strike (or even when things appear too good to be true), a herd mentality can form as investors copy the behavior of others because they are influenced to act and think in a certain way. By maintaining a broadly diversified blend of asset classes and eliminating emotions from the investment process when making decisions, you can look to take advantage of the major trends caused from the herd mentality, improving your probability of long-term 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 19.28, 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 ninth time in ten weeks as the Index has started 2018 on a strong note and remains firmly in the upward trend that began in mid-February 2016. Since February 12, 2016, the S&P 500 is up 57.07%. Shorter-term momentum has continued as the Index recorded fresh all-time highs and remained above the upper trading range that has been in place over the past two years, illustrating there may still be further gains ahead. 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 399 trading days – the 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

Stocks continued to soar, and the S&P 500 is trading in a way it hasn’t seen in decades.

Through the end of last week, the S&P 500 has closed at a record-high 14 times since the beginning of the new year, marking the most records in any month since June 1955. Furthermore, the 7.45% gain so far in January has put the S&P 500 on track for its strongest first month since 1989. There have been 13 years where the S&P 500 has risen by more than 5% in January – in those years, the Index has averaged an additional 11% gain for remainder of the year and has never finished the year negative (though this does not guarantee gains through the remainder of 2018).

While some economists may attribute this recent performance to the “January effect”, which is the hypothesis that stock prices increase more in January than any other individual month, the strong start to 2018 seems to have supportive data behind it. January’s gains reflect recent positive economic conditions and encouraging corporate earnings announcements, which are in part benefiting from the optimism around tax reform. With strong employment, the prospects of rising wages, high consumer confidence, a healthy housing market, and strong corporate earnings, the broad economy looks healthy. However, it would not be unreasonable to expect higher volatility and downside risk than what has been experienced in the past couple years.

Though the prospects of 2018 remain positive as we start the year, 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 – January 29, 2018 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – January 23, 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 large-cap US stocks experienced the largest gains. S&P 500 sectors finished the week mixed as there was no discernable difference in the performance between cyclical sectors and defensive sectors.

So far in 2018 consumer discretionary, healthcare, and technology are the strongest performers while utilities, real estate, and telecommunications are the only sectors with negative performance year-to-date.

Commodities: Commodities were negative for the first time in five weeks as oil prices fell 1.45%. While the OPEC-led output cuts have been supporting oil in recent weeks, the International Energy Agency warned rapidly increasing production in the United States could threaten market balancing, pushing prices slightly lower.

Gold prices fell 0.13%, snapping a streak of five consecutive weeks of gains for the metal.

Bonds: The 10-year treasury yield rose from 2.55% to 2.64%, resulting in negative performance for treasury and aggregate bonds. Yields have continued to trend higher recently on expectations that the Fed may hike rates faster than originally anticipated amid stronger economic growth and fiscal stimulus in 2018.

High-yield bonds were mostly flat as the negative impact of higher interest rates was largely offset by the positive performance in riskier asset classes. If the economy remains strong and healthy, higher-yielding bonds are expected to continue outperforming aggregate bonds as they offer higher interest payments and the risk of default is moderately low.

All riskier asset class indices are currently positive in 2018, but treasury and US aggregate bonds are currently negative.

Lesson to be learned: “The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” – Seth Klarman. Markets tend to move in broad cycles. However, when crisis seems to strike (or even when things appear too good to be true), a herd mentality can form as investors copy the behavior of others because they are influenced to act and think in a certain way. By maintaining a broadly diversified blend of asset classes and eliminating emotions from the investment process when making decisions, you can look to take advantage of the major trends caused from the herd mentality, improving your probability of long-term 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 19.28, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished positive for the eighth time in nine weeks as the Index has started 2018 on a strong note and remains firmly in the upward trend that began in mid-February 2016. Since February 12, 2016, the S&P 500 is up 53.65%. Shorter-term momentum has continued as the Index recorded fresh all-time highs and remained above the upper trading range that has been in place over the past two years, illustrating there may still be further gains ahead. 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 394 trading days – the third 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 logged another positive week in spite of rising concerns surrounding a government shutdown.

As of Friday afternoon, the Senate had failed to pass a new budget deal. Without a deal in place the government shuts down and many federal employees stop receiving their paychecks until a new funding deal is reached. The last time this happened was in 2013, where approximately 800,000 federal employees were furloughed between October 1 – October 17. Though the true impact of a government shutdown depends on the unique scenario in which it happens, historically, for each week a deal is not reached it reduces GDP by 0.20% for the quarter in which the shutdown occurred.

However, once the government re-opens, federal workers receive back pay for the time they missed—meaning that GDP growth typically rebounds in the following quarter. Due to this typical rebound, financial markets tend to shrug off the anxieties of a shutdown, treating the news as normal market noise and not something that will shift the fundamentals of the underlying economy in the long-term. This mindset, coupled with another strong week of earnings reports helped push equity markets higher, even in the face of the growing negative press at the end of the week.

*As of Monday evening president Trump signed a bill to fund the government through February 8.

Though the prospects of 2018 appear positive as we start the year, 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 – January 23, 2018 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – January 16, 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. S&P 500 sectors finished the week mixed as cyclical sectors generally outperformed defensive sectors.

So far in 2018 energy, consumer discretionary, and industrials are the strongest performers while utilities, real estate, consumer staples, and telecommunications are the only sectors with negative performance year-to-date.

Commodities: Commodities were positive for the fourth consecutive week as oil prices increased 4.65%. Comments from Russia’s oil minister stating global supplies are not yet balanced helped alleviate concerns about a wind-down of the OPEC-led output cuts, further supporting the recent streak of gains in oil.

Gold prices rose 0.95% as the dollar continued to declined, marking the fifth straight week of gains for the metal. A weaker dollar makes dollar-denominated assets, such as gold, less expensive for holders of other currencies, pushing prices higher.

Bonds: The 10-year treasury yield rose from 2.47% to 2.55%, resulting in negative performance for treasury and aggregate bonds. Yields have continued to trend higher recently on expectations that the Fed may hike rates faster than originally anticipated amid stronger economic growth and fiscal stimulus in 2018.

High-yield bonds were negative as credit spreads slightly increased during the week. However, if the economy remains strong and healthy, higher-yielding bonds are expected to continue outperforming aggregate bonds as they offer higher interest payments and the risk of default is moderately low.

All riskier asset class indices are currently positive in 2018, but treasury and US aggregate bonds are currently negative.

Lesson to be learned: “The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” – Seth Klarman. Markets tend to move in broad cycles. However, when crisis seems to strike (or even when things appear too good to be true), a herd mentality can form as investors copy the behavior of others because they are influenced to act and think in a certain way. By maintaining a broadly diversified blend of asset classes and eliminating emotions from the investment process when making decisions, you can look to take advantage of the major trends caused from the herd mentality, improving your probability of long-term 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 19.28, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished positive for the seventh time in eight weeks as the Index has started 2018 on a strong note and remains firmly in the upward trend that began in mid-February 2016. Since February 12, 2016, the S&P 500 is up 52.33%. Shorter-term momentum has increased as the Index recorded fresh all-time highs and broke through the upper trading range that has been in place over the past two years, illustrating there may still be further gains ahead. 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 390 trading days – the third 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

The S&P 500 just experienced its best start to a year since 1987 as investors remained optimistic about equity markets heading into earnings season.

With Q4 earnings season kicking off, broad stock markets remained strong as many investors expect positive news from corporations. The expected blended earnings growth rate for the S&P 500 is 10.2%, and all sectors are expected to report positive earnings growth for the quarter. While it will be important to track current earnings reports, experts are looking for guidance through 2018 as many companies have made positive comments about the potential benefits of tax reform since its passage in late December.

Contributing to the positive market movement for the week, there was more strong economic data released as retail sales rose a solid 0.4% in December, which was particularly positive following the 0.9% gain in November. Core CPI also continued to firm as there was a 0.3% increase in December, illustrating there may be some positive inflationary pressure after being mostly lackluster since the 2008 financial crisis.

Though the prospects of 2018 appear positive as we start the year, 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 – January 16, 2018 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – January 9, 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 international stocks experienced the largest gains. S&P 500 sectors finished the week mixed as cyclical sectors generally outperformed defensive sectors.

So far in 2018 technology, materials, and energy are the strongest performers while utilities, real estate, and telecommunications are the only sectors with negative performance year-to-date.

Commodities: Commodities were positive for the third consecutive week as oil prices increased 1.69%. Oil prices are near three-year highs as a decline in the number of US rigs drilling for new production and sustained OPEC output cuts have recently supported prices.

Gold prices rose 0.99% as the dollar declined, marking the fourth straight week of gains for the metal. A weaker dollar makes dollar-denominated assets, such as gold, less expensive for holders of other currencies, pushing prices higher.

Bonds: The 10-year treasury yield rose from 2.40% to 2.47%, resulting in negative performance for treasury and aggregate bonds. Yields have continued to trend higher recently on expectations that the Fed may hike rates faster than originally anticipated amid stronger economic growth and fiscal stimulus in 2018.

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

All riskier asset class indices are currently positive in 2018, but treasury and US aggregate bonds are currently negative.

Lesson to be learned: “The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” – Seth Klarman. Markets tend to move in broad cycles. However, when crisis seems to strike (or even when things appear too good to be true), a herd mentality can form as investors copy the behavior of others because they are influenced to act and think in a certain way. By maintaining a broadly diversified blend of asset classes and eliminating emotions from the investment process when making decisions, you can look to take advantage of the major trends caused from the herd mentality, improving your probability of long-term 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 19.28, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished positive for the sixth time in seven weeks as the Index started 2018 on a strong note and remains firmly in the upward trend that began in mid-February 2016. Since February 12, 2016, the S&P 500 is up 49.97%. Shorter-term momentum has increased as the Index recorded fresh all-time highs and experienced its strongest week of gains in over a year, illustrating there may still be further gains ahead. 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 385 trading days – the third 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

While the past week started a new year, it appeared to be a continuation of 2017 as major US indices recorded new all-time highs and volatility reached new all-time lows.

US markets started the year strong as the Dow Jones Industrial Average reached 25,000 for the first time and the S&P 500 recorded its best weekly performance in over a year. As stocks continued to push higher, the CBOE Volatility Index (VIX) reached a new record low during the week, falling to 9.01.

Many economic data points – including US manufacturing, construction spending, and auto sales – surprised on the upside. However, the heavily watched jobs report on Friday was somewhat disappointing as payroll employment increased by only 148,000 compared to the expected 188,000 increase. Though this was lower than expected, the trailing three-month average remained above 200,000 and the unemployment rate remained unchanged at 4.1%, indicating the overall labor market remains healthy.

The mostly positive economic data, as well two consecutive quarters of GDP growth above 3%, has provided a strong foundation to support the markets in 2018.

Though the prospects of 2018 appear positive as we start the year, 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 – January 9, 2018 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

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

Technology, consumer discretionary, and materials were the strongest performers in 2017 while energy and telecommunications were the only sectors with negative performance for the year.

Commodities: Commodities were positive for the second consecutive week as oil prices increased 3.34%. US crude oil rose above $60 a barrel for the first time since June 2015 on the finial trading day of the year as an unexpected fall in American output pushed prices higher. Oil prices have closed the year with strong gains as there are signs the global supply glut that started in 2014 is finally shrinking.

Gold prices rose 2.39% as the dollar declined, helping push gold to a 13.85% gain for the year (its strongest annual gain since 2010). A weaker dollar makes dollar-denominated assets, such as gold, less expensive for holders of other currencies, pushing prices higher.

Bonds: The 10-year treasury yield fell from 2.48% to 2.40%, resulting in positive performance for treasury and aggregate bonds. Yields have retreated from the highs experienced immediately following the passage of tax reform, but expectations that the Fed may hike rates faster than originally anticipated amid stronger economic growth remain.

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

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

Lesson to be learned: “The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” – Seth Klarman. Markets tend to move in broad cycles. However, when crisis seems to strike (or even when things appear too good to be true), a herd mentality can form as investors copy the behavior of others because they are influenced to act and think in a certain way. By maintaining a broadly diversified blend of asset classes and eliminating emotions from the investment process when making decisions, you can look to take advantage of the major trends caused from the herd mentality, improving your probability of long-term 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 21.10, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished slightly negative for the week, snapping a streak of five consecutive weeks of gains. However, the Index experienced strong gains in 2017 and remains firmly in the upward trend that began in mid-February 2016. Shorter-term momentum has slowed in recent weeks, but the Index closed at a new all-time high 62 times in 2017, representing the second highest tally of new highs in history (behind the 77 all-times highs recorded in 1995) and illustrating there may still be further gains ahead. While volatility and downward pressure have slightly increased, stock markets are still in a historically low risk and volatility environment as there has not been a 5%+ correction for the S&P 500 in 381 trading days – the third 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

With 2017 in the books, what can we expect going into the new year?

2017 started on a positive note for broad equity markets and never looked back. US stocks experienced their strongest year since 2013 while international stocks saw their strongest gains since 2009. As equity markets soared, volatility and downside risk were all but non-existent for most of the year as any “pullback” seemed to offer further buying opportunities for investors. Even geopolitical fears such as tensions between the US and North Korea and tax reform uncertainty did not derail stocks. In fact, the largest drawdown for the S&P 500 based on daily closing values was only 2.86% in mid-April, marking the least severe drawdown in a calendar year ever (the previous record was a 3.3% peak-to-trough drawdown in 1995).

As stock markets moved higher with little resistance, other asset classes experienced more headwinds. Commodities were sharply negative at the midway point of 2017 before rebounding sharply to finish the year positive overall. Bonds also experienced some resistance as the expectations of higher interest rates persisted through the year, though broad bonds experienced modest gains.

Moving into 2018, many experts expect a similar story to 2017, though maybe to a lesser extent than the past year. With improving economic growth and rising corporate earnings, along with a potential boost from tax reform, stocks seem to still have room to run higher. However, investors should prepare for higher volatility at some point as it is unrealistic we will see the same low levels volatility and essentially no drawdowns through the upcoming year.

If economic growth continues to improve, interest rates may continue to rise at a gradual pace as the Fed currently has plans for three rate hikes in 2018. With potentially higher interest rates, bonds may experience another year of steady, but suppressed gains as bond prices move inversely to interest rates.

Though the prospects of 2018 appear positive as we start the year, 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 – January 2, 2018 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – Holiday Edition

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

Market Update

Equities: Broad equity markets finished the week positive with international 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, consumer discretionary, and materials are the strongest performers while energy and telecommunications are the only sectors with negative performance year-to-date.

Commodities: Commodities snapped a three-week losing streak as oil prices increased 1.94%. Oil prices continued to be supported by an outage of a North Sea pipeline (which is expected to be operational again by early January) and OPEC production cuts. Gold prices rose 1.72% as the dollar remained suppressed (but steady) following the passage of the new tax bill, helping gold to remain modestly positive with an 11.22% gain YTD. A weaker dollar makes dollar-denominated assets, such as gold, less expensive for holders of other currencies, pushing prices higher.

Bonds: The 10-year treasury yield increased from 2.35% to 2.48%, resulting in negative performance for treasury and aggregate bonds. Yields sharply increased early in the week as tax reform was passed by Congress, resulting in expectations the Fed may hike rates faster than originally anticipated amid stronger economic growth, but steadied to end the week as they neared the psychological level of 2.50%.

High-yield bonds were positive as riskier asset classes performed well during the week. If the economy remains strong and healthy, higher-yielding bonds are expected to continue outperforming aggregate bonds as they offer higher interest payments and the risk of default is moderately low.

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

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

FFI Indicators

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

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

The Recession Probability Index (RPI) has a current reading of 21.10, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished positive for the fifth consecutive week as the Index remains firmly in the upward trend that began in mid-February 2016. Shorter-term momentum has accelerated in recent weeks as the Index has closed at a new all-time high 62 times in 2017, representing the second highest tally of new highs in history (behind the 77 all-times highs recorded in 1995) and illustrating there may still be further gains ahead. While volatility and downward pressure have slightly increased, stock markets are still in a historically low risk and volatility environment as there has not been a 5%+ correction for the S&P 500 in 378 trading days – the third 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 were positive for the week as the new US tax bill was signed into law.

President Trump signed the new tax bill into law early Friday morning, marking the largest tax reform experienced in the US in over three decades. While there have been mixed opinions regarding the new tax bill, it is broadly expected to provide a lift to household disposable income and corporate profitability. This is expected to result in stronger US economic growth as corporate earnings should receive a boost from lower tax liabilities. Furthermore, companies may have an incentive to bring cash held overseas back to the US with lower repatriation rates, adding to potential economic growth (companies in the S&P 500 currently hold over $1 trillion in cash overseas).

As investors and companies cheered the news of tax reform, with many companies announcing bonuses and raises for employees as well as committing to increasing company investments, a large amount of economic data was overlooked during the week. Most notably, the final estimate of Q3 2017 GDP showed economic growth of 3.2% on an annualized basis. While this was slightly lower than the 3.3% reported last month, it was still the fastest pace of growth since Q1 2015 and marks the first time since 2014 with two consecutive quarters of 3% or higher GDP growth.

Though markets remain strong, it is important to remember the future is largely independent of the past. Broad US stocks have been experiencing strong gains with minimal volatility and virtually no drawdowns so far in 2017. In this environment, it can be easy to forget there are risks to investing. However, it was still less than two years ago (at the beginning of 2016) when the US stock market experienced the worst start to a year in recorded history. This is why it is still important to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results, rather than chasing “hot” short-term returns.

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

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – Holiday Edition appeared first on The Blog of Phil Calandra.

Source: Phil Calandara