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Northern Star Newsletter 8/15/2016

Message from Jon

Beauty of Technical Analysis:

In 2001, I was instructed to obtain my 65 license allowing me to manage money for clients on a discretionary basis. That same week, it was suggested that I learn about technical analysis and its merit.

Technical analysis helps to weed out the noise of the moment. The goal is to see past the "what should be or could be" to what is happening. I refer to it as the scientific approach to money management vs. the theoretical approach that is fundamental analysis. Over the years, I have learned to combine the two approaches for an even better and more complete analysis of the investments we are examining, but I still revert back to the technical analysis as the backbone of what we do.

The beauty of technical analysis is that it tends to recognize favored asset classes long before it becomes obvious to the general public. This allows us to reposition portfolios to ensure we are always in the best performing asset classes.

For Example

Back in January, relative strength demonstrated the rising favor of bonds and the declining favor of stocks. Two weeks later, we had a sell-off in the equities market of over 12%. Bonds continued to rally and eventually overtook stocks as the favored asset class, giving way to the highest performing asset class YTD. Many were not invested heavily in bonds but we were!

Weeks later we saw a shift in the rise of commodities just before Gold took off and allowed us time to take new positions and add to existing positions in Gold.

Last week, we saw yet another shift from favoring bonds and commodities to commodities and stocks. This allowed us to rebalance all our JNL accounts and reduce our concentration in bonds. This morning, we saw yet another shift to favoring stocks over commodities as the top asset class...a week after we made our moves in JNL, and about 3-4 weeks after we reduced our cash positions in our University models.

How long will this shift last before yet another change gets underway...not our concern. Our concern is to place money in the best possible position for success, and technical analysis allows us to do just that.

Till we speak again, enjoy the rain we are getting, because we sorely needed it!

Jon

S&P 500, Dow, and NASDAQ Post
New Records

WEEKLY UPDATE - August 15, 2016

Stocks ended last week mostly flat, falling slightly on Friday after the major U.S. indexes set new record highs on Thursday on positive earnings surprises. The NASDAQ also notched a seventh week of gains, its longest winning streak since 2012.[1] For the week, the S&P 500 gained 0.05%, the Dow grew 0.18%, the NASDAQ added 0.23%, and the MSCI EAFE grew 2.73%.[2]

Earnings season is mostly behind us, and, with nearly all of the S&P 500 companies having reported in, we have a good overall picture of last quarter's performance. Total earnings for the index so far were down 3.7% on -0.7% lower revenues relative to Q2 2015. However, 71.1% have managed to beat profit expectations, which has given stocks a boost in recent weeks.[3]

Here's what we can take away from the second quarter:

Though earnings growth is still negative, it's a vast improvement over what we saw in the first quarter from the same group of companies. Results are also better than the 4-quarter moving average. Revenue growth is also negative, showing that many companies are still (seven-plus years into the economic recovery) struggling with slow demand.[4]

The energy sector is still a drag on overall earnings. Excluding Energy, earnings for remaining S&P 500 companies would be slightly up 0.1% on 2.4% higher revenues. Though that's a rosier picture, it's still not a stellar performance.[5]

Third-quarter earnings growth estimates are steadily coming down, indicating that business leaders are not expecting standout performance. Are companies sandbagging expectations to improve the odds of a positive surprise? That's highly possible. However, we're not expecting to see meaningful growth pick up this quarter.

Next week, we'll get a look at notes from the last Federal Reserve Open Market Committee meeting. Analysts use these meeting minutes to get a sense of what the Fed is thinking about the economy and see how different members of the committee are voting. The rest of the week is also full of important economic releases, which could stoke volatility if we see negative surprises. When markets experienced a sustained rally over a period of weeks, it's not surprising when investors pause for a breather to reevaluate the data.

ECONOMIC CALENDAR:

Monday: Empire State Manufacturing Survey, Housing Market Index, Treasury International Capital

Tuesday: Consumer Price Index, Housing Starts, Industrial Production
Wednesday:EIA Petroleum Status Report, FOMC Minutes
Thursday:Jobless Claims, Philadelphia Fed Business Outlook Survey

HEADLINES:

Consumer sentiment increases in August. A measure of American optimism about the economy increased this month, hopefully supporting future consumer spending.[6]

Retail sales remain flat in July. Sales of retail goods remained surprisingly unchanged last month as Americans cut back on purchases, moderating expectations of a surge in consumer spending this quarter.[7]

Business inventories rise slightly in June. Business stockpiles edged higher in June as sales surged, suggesting U.S. firms are having an easier time moving products off shelves.[8]

Job openings edge higher in June. The number of available jobs rose slightly over May, suggesting moderate growth. An increased number of factory job postings could indicate movement in the manufacturing sector.[9]

Making Money with Your Hobby

Most Americans have hobbies that they enjoy, but some use hobbies to make some side income. For example, eBaying, coin collecting, stamp collecting, antiquing, and many other pursuits can often bring in some extra cash. The IRS requires you to report all income on your taxes, but the rules on deductions and income depend on whether it's a hobby or a business. Here's what the IRS says:

  • The easiest way to determine whether your hobby is a business or not, is to think about whether you treat it as a way to make a profit and whether you depend on the income. Consult a qualified tax professional if you have questions.
  • You can generally deduct accepted expenses for your hobby, such as the cost of stamps or supplies. However, you can only deduct expenses up to the limit of the income earned by the hobby.

For information on how to itemize your hobby deductions, consult a tax expert or read Publication 535, "Business Expenses," on IRS.gov.

Tip courtesy of IRS.gov[11]

Assess Putts From Behind the Ball

When you're scoping out the lie for a putt, always do it from directly behind your ball. With your eyes, track along the entire route the ball will take to the hole and make sure that you can see the entire break. If you have a breaking putt, also assess the break from behind the apex of the shot where you can see an overall view of the putt.

Tip courtesy of Glenn Deck, PGA | Golf Tips Mag[12]

Foods That Promote Brain Function

Research shows that what you eat can have a major effect on the healthy function of your brain as you get older. Here are several foods that can help boost brain function:

  • Beans and green peas are full of B-complex vitamins that can help protect against shrinkage of brain matter.
  • Citrus fruits have Vitamin C, which plays an important role in preventing the formation of dementia-related brain plaque.
  • Almonds have Vitamin E, which support blood vessel function and may slow the development of Alzheimer's.

Tip courtesy of AARP[13]

Avoid Unnecessary Packaging

Your household produces a lot of waste in the form of plastic packaging, bottles, and refill containers on common household products. Reduce unnecessary waste with these easy tips: