August 14th, 2017
Here are several highlights from last week's market activity, as well as developing stories the investment team is following this week. As always, we remain committed to helping you navigate the ever changing investment environment.
The following highlights should not be viewed as a recommendation, nor is this a notification of an impending change in asset allocation. For more information, please contact your advisor with any questions.
- In the markets… World equity markets fell as the U.S. and North Korea stepped up their bellicose rhetoric. The DJIA finished the week at 21858.32, down -1.06% on the week. The S&P 500 closed at 2441.32, down -1.43% on the week. The NASDAQ finished down -1.50% on the week. U.S. 10-year Treasury ended the week yielding 2.19%. In the energy markets, crude oil settled at $48.82. Year-to-date the S&P 500 is up +9.04%.
- The S&P 500 dropped -1.4%, its largest one-week decline since November 2016.
- Economist surveyed by the WSJ see a 22% chance of a government shutdown and a 17% chance of delays in Social Security payments later this year. (or from a positive perspective, 78% the government stays open and 83% chance people get their Social Security payments!)
- Disney announced it will launch online streaming services to compete with Netflix.
- U.S. household debt outstanding hit a record $12.7 trillion in the 1st quarter.
- Tesla plans to raise $1.8B worth of high yield bonds to help fuel an aggressive expansion.
- In other news… Washington Recap: "Fire and Fury", "Locked and Loaded" comments regarding North Korea, along with weak remarks regarding the violence in Virginia, came from the White House.
- In the markets… Last week's inflation data came in lower than expected, potentially effecting the Fed's outlook for future action, as inflation is one of the key metrics they follow. This week, retail sales numbers are released Tuesday, followed by the much-followed UM sentiment index late in the week.
- The Fed releases minutes from its July meeting.
- Fitch reviews Greece's credit rating.
- In other news… The President holds meetings in NYC, while the VP visits Columbia.
- Mexico, Canada and the U.S. begin talks to renegotiate the Nafta treaty.
- Investment Term of the Week: Inflation - Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.
Last week the world moved to the edge of their seats as two of the world's leaders engaged in some good old-fashioned saber-rattling. With U.S. - North Korea tensions escalating, most investors could talk (and worry) about little else. As of Monday, tensions seem to be cooling but many investors continue to express fears that the market may crash and wonder how to proceed. We understand investor concerns, and always advocate managing risk in your portfolio, but believe it to be a mistake for most portfolios to get too defensive at this stage. Andrew Adams, Senior Research Associate of Raymond James, offered the following advice, "We have a large, wide-ranging audience, which makes it tough to give strategy advice applicable to every investor and portfolio. While we do firmly believe that we remain in the middle of a secular bull market and that the market is going higher in the months and years ahead, investors who are more concerned with protecting what they have instead of growing their assets may decide to limit their risk more than the average portfolio. That is perfectly ok - risk management is arguably THE most critical aspect of portfolio management after all - but the investor must also understand that there is a definite trade-off between risk and reward. While getting overly defensive here will help prepare against a worst-case scenario, it also makes it more likely a portfolio will underperform should the worst-case not happen and all of this blows over."
We think Andrew hits the nail on the head with his comment. Economic and earnings data continue to look strong, which we believe should move the markets higher over the long-run. Can we envision a short-term pullback - sure. But attempting to time the market typically ends with investors missing opportunities that have real impacts on the performance of their portfolio in the long-run.
Back to North Korea. Right now, we don't know if we can put this news in the same category of past market shocks, but looking back at history, major market collapses generally occur because of economic and financial deterioration, not geopolitics. Possibly the closest parallel to what's going on right now is the Cuban Missile Crisis in 1962. The result of that was an 11% dip from mid-August into mid-October, but the S&P 500 then rallied 18% from there to close out the year higher than its August peak.
We will leave you with a chart we have shared with you many times to illustrate intra-year pullbacks and where the market ultimately closed at year-end. We all know markets move (up and down) but we believe there may still be plenty of gas in the tank (or life in the battery for you Tesla enthusiasts) to move equities higher for a little longer.
Note: The red-dot corresponds to the intra-year decline, while the dark bar is where the S&P 500 closed the year.
Source: Raymond James, FactSet, JP Morgan
If you have any questions, please do not hesitate to call your advisor. Until we speak again, have a wonderful week!
These highlights should not be viewed as a recommendation, nor is this a notification of an impending change in asset allocation. For more information, please contact your advisor with any questions.
Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory and financial planning services offered through McGee Wealth Management, Inc. McGee Wealth Management, Inc. is not a registered broker/dealer and is independent of Raymond James financial Services.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of McGee Wealth Management and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. . Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as "The Dow" is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results.