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Northern Star Newsletter 4/12/2016


Northern Star Newsletter 4/12/2016
Message From Jon

Market Conditions Update: Bear Quiet

We are seeing the markets seemingly climb, yet the underlying current is not following suit. As a matter of fact, we have seen the market decline since it's high back in May of 2015 when we reference a point-to-point consideration. Many in the media claim the recent 12+% rally off the lows in February as a mitigating action that would-and should-reverse the pessimistic views of a bear market settling in. We, however, follow the evidence and the evidence says something entirely different.

The market indexes measurement in 2015-2016:

  • S&P 500 Index Adjusted Close on Apr 11th of 2016: 2041.9
    • Adjusted Close on May 21st of 2015: 2130.82
      • -4.17% (including dividends)
    • Average stock is down over 20% from their highs in the following sectors:
      • Consumer Non-Cyclical
      • Utilities
      • Finance
      • Telecoms
      • Consumer Cyclical
      • Industrials
      • Information Technology
      • Basic Materials
      • Healthcare
      • Energy
  • Dow Jones Industrial Avg. adjusted close on Apr 11th of 2016: 17,556.41
    • Adjusted close on May 19th of 2015: 18,312.39
      • -4.13% (including dividends)
  • NASDAQ adjusted close on Apr 11th of 2016: 4833.40
    • Adjusted close on July 20th of 2015: 5218.86
      • --7.39% (including dividends)


This brings to mind the oddity of percentage gains & losses in investing: IF you invest $100.00 and lose 50% of your investment, what do you have left? You guessed it! $50.00! If your investment then rallies back 50%, what do you now have? You guessed it again! $75.00! So, why didn't your investment gain back all that it lost? Simply because on the rally it is working with less money than it had before the loss. You would have to gain back 100% to replace what you had originally lost in value in order to return to where you once belonged.

This is exactly WHY you don't leave the offense on the field when the conditions of the game have changed.

As I pointed out above, the indexes may only be down 4-7%. However, IF the index is cap weighted (meaning the largest stocks get the most consideration) it would certainly make sense that the indexes could be down less than 10%, but your account could be down much more than that amount. This is because the average stock in the index is down over 20% from it's 52-week high the year before, and this is still not the worst that can happen.

The worst that happens is that investors don't invest, they trade. Then, when there are losses in their account, instead of buying more they sell indiscriminately, causing more damage than if they had simply applied patience and done nothing. Sometimes, the stock changes and it becomes necessary to sell, but in most cases that is not the correct move at all!

The other problem is not recognizing when it's time to put the defense on the field. They end up playing the wrong players at the wrong time! Conditions tend to change LONG before the price reflects the change. Many wait until it feels good or bad enough to warrant making a change and by then, it is way too late.

We have been playing defense for some time now and it has definitely benefited our clientele, but it also has come at a forfeit of some gains. The game is not over yet and frankly, I am focused and concerned on the end score rather than the middle of the 2nd quarter.

Till we speak again, have a delightful week!

Jon

Stocks Post Worst Week Since February

WEEKLY UPDATE - APRIL 11, 2016

Stocks tumbled last week on downward revisions to U.S. economic growth and worries about global growth.[1] For the week, the S&P 500 fell 1.21%, the Dow lost 1.21%, and the NASDAQ gave up 1.30%.[2]

After a rosier-than-expected fourth quarter, economic forecasts suggest that the economy barely grew in the first three months of 2016. A report showing that wholesale inventories declined in February caused estimates of Q1 real economic growth to plummet from 0.7% to just 0.1%. In mid-March, the estimate was as high as 2.3%, but forecasts are dropping fast.[3]

A couple of things to keep in mind: 1) these are very early estimates that are missing a lot of data; 2) early forecasts are very sensitive to updates to the data. Other economists think that the seasonal bias against first-quarter results could be pushing down estimates and that underlying economic growth could be closer to 2.0%. We'll know more when the first estimate of Q1 Gross Domestic Product (GDP) growth comes out on April 25.[4]

Last week, attention turned to the upcoming Fed meeting at the end of April. Minutes from the March meeting show that opinions among voting members of the Open Market Committee are running against an April rate hike.[5] Other economists seem to agree; currently, just 1.0% think the Fed will raise rates in April. 75.0% think a June hike is likely.[6]

In a public session with three other former Federal Reserve chairs last week, current Chair Janet Yellen reiterated her upbeat stance on the economy and stated that the Fed is on a "reasonable path" to future rate hikes. Her predecessor, former chair Ben Bernanke, supported her position by saying he doesn't believe that recession risk is much higher in 2016 than in other years, which could pave the way for more hikes later this year.[7] Given that the Fed has little room to lower rates again if economic growth slows, and plenty of room to raise rates if growth surprises, Yellen seems determined to be cautious.

The next few weeks are packed with earnings results, which will likely mean more market volatility. We know that the growth picture is weak and that the earnings outlook is negative.[8] However, we also know that managers like to sandbag expectations so that they can post better-than-expected results. Will we see positive surprises next week? We'll let you know.

 

ECONOMIC CALENDAR:

Tuesday: Import and Export Prices, Treasury Budget

Wednesday: Retail Sales, PPI-FD, Business Inventories, EIA Petroleum Status Report, Beige Book

Thursday: Consumer Price Index, Jobless Claims

Friday: Empire State Mfg. Survey, Industrial Production, Consumer Sentiment, Treasury International Capital 

 

HEADLINES: 

Factory orders fall in February. Orders for manufactured goods fell in February for the third time in four months, showing that the manufacturing sector is still struggling.[9]

 

Trade deficit widens more than expected. The difference between imports and exports increased in February as an increase in exports was offset by growth in imports. However, a weakened dollar could mean that the increase in exports is sustainable.[10]

 

Jobless claims fall more than expected. Weekly claims for new unemployment benefits dropped by 9,000, indicating that the labor market continues to gain strength despite modest economic growth.[11]

 

Tesla receives over 325,000 deposits for $35,000 electric car. The Tesla Model 3 launch blew away expectations as fans placed $1,000 deposits for the automaker's mass-market electric car. The success leads analysts to wonder: Can Tesla successfully make the transition from niche manufacturer to major automaker?.[12]

Tax Tips

Rules for Home Office Deductions

If you have a business and work out of your home, the IRS allows you to deduct certain expenses on your return. Here are a few key things to keep in mind:

  • The IRS requires you to use your office (or a part of your home) for "regular and exclusive use." The part of the house should be your principal place of business, a place where you meet customers, or a separate structure dedicated to the business, like a garage or studio.
  • To calculate your deduction, you can use two methods:
    • The simplified option allows you to multiply the allowable square footage of your office by $5 up to a maximum of 300 square feet.
    • The regular method allows you to specifically calculate the actual expenses like rent, mortgage interest, taxes, repairs, depreciation, and utilities you pay for the portion of your home used for the business. If you use only part of a space for your business, you'll need to figure out the percentage devoted to business activities.

For more information, speak to a qualified tax professional or read Publication 587, "Business Use of Your Home."

Tip courtesy of IRS.gov[14]

 

 

 

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The S&P U.S. Investment Grade Corporate Bond Index contains U.S.- and foreign-issued investment-grade corporate bonds denominated in U.S. dollars.

The SPUSCIG launched on April 09, 2013. All information for an index prior to its Launch Date is back-tested, based on the methodology that was in effect on the Launch Date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back-tested returns.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

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1 http://www.cnbc.com/2016/03/31/us-markets.html

2 http://finance.yahoo.com/q/hp?s=%5EGSPC&a=03&b=4&c=2016&d=03&e=8&f=2016&g=d

http://finance.yahoo.com/q/hp?a=03&b=4&c=2016&d=03&e=8&f=2016&g=d&s=%5EDJI%2C+&ql=1

http://finance.yahoo.com/q/hp?a=03&b=4&c=2016&d=03&e=8&f=2016&g=d&s=%5EIXIC%2C+&ql=1

3 http://blogs.barrons.com/incomeinvesting/2016/04/08/the-incredible-shrinking-gdpnow-forecast-could-it-be-right/

https://www.frbatlanta.org/-/media/Documents/cqer/researchcq/gdpnow/GDPTrackingModelDataAndForecasts.xlsx?la=en

4 http://blogs.barrons.com/incomeinvesting/2016/04/08/the-incredible-shrinking-gdpnow-forecast-could-it-be-right/

5 https://www.morningstar.com/news/market-watch/TDJNMW_20160406471/update-sentiment-on-fed-runs-against-april-rate-hike-minutes-show.html

6 http://on.wsj.com/1RRA6GY

7 http://blogs.marketwatch.com/capitolreport/2016/04/07/live-blog-and-video-of-yellen-with-past-fed-chiefs-bernanke-greenspan-and-volcker/

8 http://www.zacks.com/commentary/77323/what-will-q1-earnings-season-bring

9 http://www.foxnews.com/us/2016/04/04/us-factory-orders-contracted-in-february.html

10 http://www.foxbusiness.com/markets/2016/04/05/february-trade-deficit-widened-to-47-6b.html

11 http://www.foxbusiness.com/markets/2016/04/07/weekly-jobless-claims-fall-by-9000.html

12 http://www.cnbc.com/2016/04/07/tesla-motors-reports-325k-deposits-for-model-3.html

13 http://www.realsimple.com/food-recipes/browse-all-recipes/spring-vegetable-frittata

14 https://www.irs.gov/uac/Must-Know-Tips-about-the-Home-Office-Deduction

15 http://www.golftipsmag.com/instruction/short-game/visualization/

16 http://www.aarp.org/health/healthy-living/info-02-2013/happiness-makeover-photos.html#slide5

17 http://www.seattlepi.com/news/article/52-tips-for-living-green-1269861.php