5 Minute Market Update – November 7, 2017

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

Market Update

 Equities: Broad equity markets finished the week mixed with international stocks experiencing the largest gains and small-cap US stocks experiencing the largest losses. S&P 500 sectors finished the week mixed though there was no discernable difference in the performance of cyclical sectors and defensive sectors.

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

Commodities: Commodities were positive for the week as oil prices increased 3.23%. Oil prices have reached their highest levels in nearly two years, supported by rising global demand and continuing expectations that OPEC and other producing countries will extend a deal to cut output. Gold prices fell 0.20%, marking the seventh week of losses in the last eight weeks, though gold remains positive with a 10.37% gain YTD.

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

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

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

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

FFI Indicators

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

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

The Recession Probability Index (RPI) has a current reading of 19.40, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished positive for the eighth consecutive week (its longest weekly winning streak since 2006) and remains firmly in the upward trend that began in mid-February 2016. Shorter-term momentum has picked back up in recent weeks as the Index has continued to reach new all-time highs, illustrating there may still be further gains ahead. While volatility and downward pressure had slightly increased in recent months, stock markets are still in a historically low risk and volatility environment as there has not been a 5%+ correction for the S&P 500 in 343 trading days – the fourth longest streak in the history of the Index. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

*Chart created at StockCharts.com

US markets finished mixed for the second consecutive week as President Trump nominated a new Federal Reserve Chair and the House of Representatives released details on tax reform.

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

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

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

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

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – November 7, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – Halloween Edition

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

Market Update

Equities: Broad equity markets finished the week mixed with large-cap US stocks experiencing the largest gains and international stocks experiencing the largest losses. S&P 500 sectors finished the week mixed as cyclical sectors generally outperformed defensive sectors.

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

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

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

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

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

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

FFI Indicators

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

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

The Recession Probability Index (RPI) has a current reading of 24.66, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished positive for the seventh consecutive week and remains firmly in the upward trend that began in mid-February 2016. Shorter-term momentum has picked back up in recent weeks as the Index has continued to reach new all-time highs, illustrating there may still be further gains ahead. While volatility and downward pressure had slightly increased in recent months, stock markets are still in a historically low risk and volatility environment as there has not been a 5%+ correction for the S&P 500 in 338 trading days – the fourth longest streak in the history of the Index. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

*Chart created at StockCharts.com

US markets finished the week mixed as the first reading of third quarter GDP beat expectations.

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

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

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

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

More to come soon.  Stay tuned.

Regards,

Phil Calandra

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

Source: Phil Calandara

5 Minute Market Update – October 24, 2017

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

Market Update

Equities: Broad equity markets finished the week mostly positive with large-cap US stocks experiencing the largest gains and international stocks experiencing the only losses. S&P 500 sectors finished the week mixed as cyclical sectors generally outperformed defensive sectors.

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

Commodities: Commodities were mostly flat for the week as oil prices gained only 0.04%. Oil prices have recently been supported by lower exports due to tensions in the Kurdistan region of Iraq, but weak US demand has capped gains. Gold prices fell 1.85%, marking the fifth week of losses in the last six weeks, though gold remains positive with an 11.35% gain YTD.

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

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

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

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

FFI Indicators

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

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

The Recession Probability Index (RPI) has a current reading of 24.66, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished positive for the sixth consecutive week and remains firmly in the upward trend that began in mid-February 2016. Shorter-term momentum has picked back up in recent weeks as the Index has continued to reach new all-time highs, illustrating there may still be further gains ahead. While volatility and downward pressure had slightly increased in recent months, stock markets are still in a historically low risk and volatility environment as there has not been a 5%+ correction for the S&P 500 in 333 trading days – the fourth longest streak in the history of the Index. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

*Chart created at StockCharts.com

US stocks continued to reach new all-time highs as Congress took an important step in the process of tax reform.

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

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

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

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

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – October 24, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – October 17, 2017

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

Market Update

Equities: Broad equity markets finished the week mostly positive with international stocks experiencing the largest gains and small-cap US stocks experiencing the only losses. S&P 500 sectors finished the week mixed as defensive sectors generally outperformed cyclical sectors.

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

Commodities: Commodities were positive for the week as oil prices rose 4.38%, mostly recovering the 4.61% loss experienced in the previous week. Oil prices were supported by strong Chinese oil import data along with turmoil in the Middle East, as tensions have been building since the Kurdistan Regional Government voted for independence from Iraq in a recent referendum. Gold prices increased 2.33%, snapping a four-week streak of losses as gold remains positive with a 13.44% gain YTD.

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

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

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

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

FFI Indicators

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

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

The Recession Probability Index (RPI) has a current reading of 24.66, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished positive for the fifth consecutive week and remains firmly in the upward trend that began in mid-February 2016. Shorter-term momentum has picked back up in recent weeks as the Index has continued to reach new all-time highs, illustrating there may still be further gains ahead. While volatility and downward pressure has slightly increased in recent months, stock markets are still in a historically low risk and volatility environment as there has not been a 5%+ correction for the S&P 500 in 328 trading days – the fourth longest streak in the history of the Index. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

*Chart created at StockCharts.com

US stocks finished the week mixed as the third quarter’s earnings season kicked off.

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

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

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

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

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – October 17, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

Tax Reform – Is it only a dream?

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

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

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

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

Goals and Hopes for Tax Reform

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

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

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

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

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

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

Source: Phil Calandara

5 Minute Market Update – October 9, 2017

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

Market Update

Equities: Broad equity markets finished the week mostly positive with larger-cap US stocks experiencing the largest gains and international stocks experiencing the only losses. S&P 500 sectors finished the week mostly positive as cyclical sectors generally outperformed defensive sectors.

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

Commodities: Commodities were negative for the week as oil prices fell 4.61%, snapping a four-week streak of gains for oil. Oil prices had recently received support following an unexpected drop in US inventories, but last week the US hit a new record for crude oil exports, refueling the concern about continued global oversupply for oil. Gold prices fell 0.77% amid increasing interest rates and a stronger dollar, marking four consecutive weeks of price declines, but remain positive with a 10.86% gain YTD.

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

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

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

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

FFI Indicators

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

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

The Recession Probability Index (RPI) has a current reading of 24.66, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished positive for the week and remains firmly in the upward trend that began in mid-February 2016. Shorter-term momentum has picked back up in recent weeks as the Index has continued to reach new all-time highs, illustrating there may still be further gains ahead. While volatility and downward pressure has slightly increased in recent months, stock markets are still in a historically low risk and volatility environment as there has not been a 5%+ correction for the S&P 500 in 323 trading days – the fourth longest streak in the history of the Index. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

*Chart created at StockCharts.com

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

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

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

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

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

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – October 9, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – October 3, 2017

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

Market Update

Equities: Broad equity markets finished the week positive with small-cap US stocks experiencing the largest gains. S&P 500 sectors finished the week mostly positive as cyclical sectors generally outperformed defensive sectors.

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

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

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

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

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

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

FFI Indicators

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

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

The Recession Probability Index (RPI) has a current reading of 24.66, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished positive for the week and remains firmly in the upward trend that began in mid-February 2016. Shorter-term momentum has picked back up in recent weeks as the Index has continued to reach new all-time highs, illustrating there may still be further gains ahead. While volatility and downward pressure has slightly increased in recent months, stock markets are still in a historically low risk and volatility environment as there has not been a 5%+ correction for the S&P 500 in 318 trading days – the fourth longest streak in the history of the Index. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

*Chart created at StockCharts.com

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

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

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

While markets remain healthy, it is important to remember every day is independent of the day before. Long-term market movements are based on forward guidance, not on what happened over the past week/month/year. This is why it is important to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results. Individual stocks, sectors, and indices can go from periods of over-performance to under-performance without a moments notice.

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

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – October 3, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara

5 Minute Market Update – September 26, 2017

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

Market Update

Equities: Broad equity markets finished the week positive with small-cap US stocks experiencing the largest gains. S&P 500 sectors finished the week mixed as cyclical sectors generally outperformed defensive sectors.

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

Commodities: Commodities were positive for the week as oil prices rose 1.54%, marking the third consecutive week of gains. Oil prices have experienced strong upward pressure in recent weeks as Hurricane Irma was less devastating than initially anticipated, resulting in higher near-term demand expectations. Gold prices fell 2.09% amid increasing interest rates and a stronger dollar, but remain positive with a 12.83% gain YTD.

Bonds: The 10-year treasury yield increased from 2.20% to 2.26% as the Fed announced it will begin unwinding its balance sheet in October, resulting in negative performance for treasury and aggregate bonds.

High-yield bonds were flat as the positive performance in riskier asset classes was mostly offset by higher interest rates.

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

Lesson to be learned: “Remember that the stock market is a manic depressive.” –  Warren Buffett. Sometimes the market is sensible and prices are based on economic and business developments. However, at other times the market can be emotionally unstable, swinging from euphoria to pessimism in an instant. By sticking to a disciplined investment strategy you can minimize the effect that emotions can have on your portfolio, improving your chances for long-term portfolio success.

FFI Indicators

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

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

The Recession Probability Index (RPI) has a current reading of 22.06, forecasting further economic growth and not warning of a recession at this time. The Bull/Bear indicator is currently 100% bullish. This means our models believe there is a slightly higher than average likelihood of stock market increases in the near term (within the next 18 months).

Weekly Comments & Charts

The S&P 500 finished flat for the week and remains firmly in the upward trend that began in mid-February 2016. While shorter-term momentum has slowed in recent months, the Index has continued to reach new all-time highs throughout the year and recently closed above 2,500 for the first time in history, illustrating there may still be further gains ahead. While volatility and downward pressure has slightly increased in recent months, stock markets are still in a historically low risk and volatility environment as there has not been a 5%+ correction for the S&P 500 in 313 trading days – the fourth longest streak in the history of the Index. The coming weeks should continue to provide valuable insight about the near-term direction of the S&P 500, but it seems to remain in a bullish pattern for now.

*Chart created at StockCharts.com

Broad equity markets, led by small-cap stocks, climbed higher as the Fed announced its plan to begin unwinding its balance sheet in October.

Following the conclusion of its most recent meeting, the Federal Reserve announced it will begin unwinding its balance sheet next month. This balance sheet normalization path is the same as what was stated in previous communications by the Fed – the selling and non-reinvestment of $10 billion every month starting in October, increasing in $10 billion increments each quarter until the value reaches $50 billion per month next year. While this seems like a large value on the surface, the unwinding will be relatively gradual as the Fed will have sold just $450 billion of assets by the end of 2018 compared to the current $ 4.5 trillion total balance sheet.

Additionally, though the Fed announced it would keep the target federal funds rate at 1.00% – 1.25%, expectations for one more rate hike before the end of 2017 increased from a 57% probability to a 73% probability according to the CME Group’s 30-Day Fed Fund futures prices. This increase in rate hike expectations resulted from a somewhat hawkish “dot plot” released by the Federal Open Market Committee as members anticipate one more rate hike by year-end. Similar to the unwinding of the balance sheet, future rate hikes are expected to be gradual and should have a minimal impact on broad equity markets through 2018 as corporate earnings and labor markets remain strong. However, the sustained upward pressure on interest rates may result in moderated bond returns over the coming years.

While markets remain healthy, it is important to remember every day is independent of the day before. Long-term market movements are based on forward guidance, not on what happened over the past week/month/year. This is why it is important to include a broad range of asset classes in your portfolio for more consistent and more stable longer-term results. Individual stocks, sectors, and indices can go from periods of over-performance to under-performance without a moments notice.

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

More to come soon.  Stay tuned.

Regards,

Phil Calandra

The post 5 Minute Market Update – September 26, 2017 appeared first on The Blog of Phil Calandra.

Source: Phil Calandara