What Trump under fire means for the markets?
His inauguration was a mixed day of emotion. Some were eager to celebrate the hope of a brighter future, while others continued their disdain and disgust. Voting against the leader of your country somehow just doesn't make sense to me, regardless of your vote, but then again, there are a lot of things that are beginning to not make much sense any more, but I digress.
The markets are now beginning to shift back from speculation and emotion to more alignment with earnings and economic data. This helps to explain why the markets have taken a bit of a breather these past few days and why they may continue to do so for a bit longer. It would be appropriate to keep one's hopes of a significant rally in check at this point since there are no signs of one on the horizon. However, there are also no signs of a correction either, so it is prudent to simply stay the course.
"Since secular bull markets are driven mostly by P/E increasing, the required doubling or tripling of P/E from its current level is implausible." This was a quote Monday from Crestmont Research on the latest updates to their data. Does this mean that one cannot expect to have an increase? Not at all. It merely means that we would be remiss if we did not help to establish rational expectations of modest gains at best and more likely below average gains.
Asking when it's going to change is like asking "are we there yet?" at 10 min intervals on an 8 hr car ride...save your breath. We have to see a SIGNIFICANT reduction to P/E ratios resulting in a significant market correction to formally and officially move from secular bear market to bull market conditions. Until this happens, we are simply rowing our way to the future and not sailing our way.
Till we speak again, I hope your week is productive!
Markets Pause in Search for Clarity
WEEKLY UPDATE - JANUARY 23, 2017
A new presidential era began last Friday with Donald Trump's inauguration, and the market reaction was far more restrained than its response to his election. For weeks after the presidential election, we saw markets defy expectations and post significant gains. In fact, the Dow grew by over 1,500 points between November 8 and December 12.
In the four days of trading last week, major U.S. indexes continued the sideways performance we've seen since December. For the week, the S&P 500 was down 0.15%, the Dow lost 0.29%, and the NASDAQ gave back 0.34%.
International stocks in the MSCI EAFE also declined by 0.48%.
Despite these weekly losses, Friday's market performance marked one milestone not seen since John F. Kennedy's election: index gains on inauguration day. Nonetheless, we still see a market that has been in a holding pattern for weeks. The S&P 500 has barely moved since the day before the Fed raised rates on December 14. And if you analyze this graph of the Dow's performance, you see a similar scenario. The index grew sharply after the election, but the red box shows performance stalling since December.
Why has the Trump Bump paused?
The markets are incredibly complex and multifaceted, so one answer cannot fully explain their performance. However, after rallying in anticipation of Trump's promises for lower taxes, decreased regulation, and increased government spending, investors are now waiting to see which policies will come to fruition.
No one knows for sure what policy changes or political developments lay ahead. We must look closely at fundamentals to see beyond the headlines and find a clearer view of where the U.S. economy stands today.
What are the fundamentals telling us?
During the current corporate earnings season, 63 companies have reported their fourth-quarter results so far. Of these companies, 63% beat earnings-per-share estimates and 46% exceeded their sales estimates.
Last week, we also saw:
- The Consumer Price Index increase by 0.3% for December
- Industrial production increase by 0.8% for December, erasing its November decline
- Housing starts rebound by 11.3% for December after dropping 39.4% in November
This week, three factors will give us a deeper view of economic performance: 1) fourth-quarter GDP reports, 2) consumer sentiment data, and 3) home sales figures. By analyzing data rather than focusing on hype and predictions, we remain committed to your long-term financial health.
What should you focus on?
No matter your political perspectives, moments of change can elicit emotional reactions from even the most rational investors. As always, emotions have no place in investing.
Consider this: After former President Barack Obama's election in 2008, the S&P 500 dropped 15.5% by inauguration day, as his transition period coincided with the deepening financial crisis. Investors who allowed emotions to take over at that point and left the markets could have missed the S&P 500's 12% average annual growth each year Obama was in office.
We believe now is the time to continue focusing on your unique risk tolerance, your long-term goals, and the economic fundamentals, not who is in office.
We will continue to monitor economic and market evolution as it occurs, and we will closely watch the political division that seems to grip our country. In the meantime, we are here to answer any questions you may have and help you find the clarity you need.
Tuesday: Existing Home Sales
Thursday: New Home Sales, International Trade in Goods
Friday: GDP, Durable Goods Orders, Consumer Sentiment
Keep Informed With IRS Online & Social Media Tax Help
Navigating the confusing world of taxes can leave one spinning circles. Fortunately, the IRS has resources available across its online and social media presence. For answers to tax questions, consider checking out the IRS through some of these channels:
Twitter: The IRS tweets tax tips in English and Spanish through different Twitter accounts. Follow these IRS handles: @IRSnews, @IRStaxpro and @IRSenEspanol. Follow the IRS Taxpayer Advocate Service at @YourVoiceAtIRS.
Facebook: Whether you need help as a taxpayer or tax return preparer, you can keep up with the IRS Facebook accounts to find helpful tips. Follow @IRS for taxpayers, @IRSTaxPros for tax preparers, and @YourVoiceAtIRS for the Taxpayer Advocate Service.
Articles & Videos
Tumblr:The IRS publishes a Tumblr blog that provides readers with the latest tax news, accessible from a smartphone, tablet, or computer. Follow them for updated information.
YouTube: You can follow the IRS on their YouTube channel where they provide short videos on a variety of tax topics. You can view the videos in English, Spanish, and American Sign Language.
The IRS only uses social media channels to share public information and will not answer personal tax or account questions. Remember to never post your Social Security number or any other personally identifying information on its social media sites.
Tip courtesy of IRS.gov
Fix Your Putting Alignment
A good putting game is critical and can mean the difference between birdies and bogeys. However, many golfers struggle with improper alignment and compensate by cutting across the ball when coming through for contact.
Unfortunately, the cut-across move does nothing but mess up your play - and you pay the price in extra strokes. This technique causes the ball to roll with sidespin, which makes sinking putts much harder. Good contact and accurate shots require a square putter face at impact.
To support this move, you should feel like you're hitting draws with your putter.
Through impact, the putter will track from slightly inside the line to straight along it. You can practice this putt by doing the following:
- Lay down alignment sticks (or golf clubs) slightly wider than the width of your putter head and aimed at the hole around six feet away.
- To allow for an in-to-out stroke path, place the front end of the stick furthest away from you at the ball, and the back end of the stick closer to you at the ball with the front end pointing at the hole.
- Hit putts from this station without bumping into either alignment rod to groove an inside-to-straight stroke.
Tip courtesy of Darren May | Golf Digest
Avoid Getting Sick With Proper Food Handling
The winter season is a common time for coming down with the cold, flu, and other sicknesses. An additional way you can find yourself under the weather is from improperly handling your food. While most food-borne infections don't become life-threatening illnesses, some can turn into serious medical problems, such as kidney failure and meningitis. You can decrease your chances of introducing new microbes at home and increase your ability to kill microbes in the foods you buy with these simple tips:
- Wash your hands with soap and water both before and after handling any raw meat.
- Rinse all meat, poultry, fish, fruits, and vegetables under running water before cooking or serving them.
- Separate raw foods from any cooked foods; never let them cross-contaminate.
- Do not leave foods out on a counter, table, or other open space to defrost. Only defrost foods in the refrigerator or in the microwave.
- Wash all utensils and cutting boards used to prepare raw meat before reusing them.
- Cook foods thoroughly and test temperatures with a meat thermometer. Cook whole poultry to 180° F, roasts and steaks to 145° F, ground meats to 160° F, and fish until it is opaque.
Tip courtesy of Harvard Health
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International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
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