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The Northern Star 09/17/18 Stocks Up as Milestone Passes

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Message from Jon

Tariffs, Trade Wars, and What Next?

 

With the recent news that President Trump has elected to tag a 10% tariff on $200B worth of Chinese Goods, China is promising to retaliate.1 This was not un-expected though. The media has been focused on Hurricane Florence as of late, which has given a bit of a reprieve from forcing everyone to react to the news on the tariff discussion.

Our concerns are: foreign investments remain given that the tariff discussion COULD grow into something more before it is solved. As such, we have taken a defensive stance on foreign risk exposure and especially emerging markets for the time being. We are expecting this discussion/dispute to ultimately impact US companies for the better; we are just not sure of the when and how much as of yet. Over the near-term, our opinion is that we could probably see an escalation of volatility and turbulence, but it is expected and not an issue that worries us long-term.

Until there is evidence that we should change our approach and move to higher ground, we stay the course! 

There will be those investors that get wrapped up in the media and headlines and ultimately choose to exit too early-and that mistake will cost them. It is similar mistake to overstaying your welcome and getting hit by the next market crash. Both behaviors are made with emotion and not evidence or logic. This is the reason that the 20-year annualized S&P 500 have earned an average of 7.68% while the average investor was only 4.79%. 2

Ray Dalio of Bridgewater Associates, a $160B hedge fund outlined 3 recommendations for millennials, and the 3rd bullet point was the most profound... "do the opposite of what your instincts are."3 I think this should also apply to the common investor!

In today's world, it is getting more and more divided and difficult to discern truth through all the crap and crud you have to wade through in the media. I now have to use the BBC, NPR, Financial Times, and Bloomberg if I want to get to the truth in as unbiased a manner as I can. Of course, my own experience has taught me that having multiple sources, cross-referencing and dissecting, and being skeptical of all that you hear and read is a requirement these days.

Till we speak again...enjoy this beautiful fall weather!

Jon

Sources:

1: https://www.ft.com/content/a12104b6-bb14-11e8-94b2-17176fbf93f5

2: https://www.marketwatch.com/story/americans-are-still-terrible-at-investing-annual-study-once-again-shows-2017-10-19

3: http://onetradex.com/news/ray-dalio-of-bridgewater-associates-offers-advice-for-millennials/

Stocks Up as Milestone Passes

WEEKLY UPDATE - SEPTEMBER 17, 2018

Last week, the East Coast prepared for Hurricane Florence, which roared through the Carolinas and Georgia. As investors kept their eyes on the weather and its potential for destruction, estimates emerged of up to $27 billion in hurricane damage. This potential for damage contributed to insurance companies in the S&P 500 declining last week.[1] While the hurricane likely won't have a large effect on our economy, its destruction could influence data for months to come.[2]

Meanwhile, last week brought another milestone in our economy: the 10th anniversary of Lehman Brothers' bankruptcy.

For 158 years, the Wall Street firm weathered the markets' changes. By 2008, however, various challenges, including excessive risk taking, led to its demise. The firm's unexpected bankruptcy announcement shocked investors and triggered market panic, leading what was a simmering financial crisis to become the Great Recession. A decade later, the markets are on more solid ground, and banks hold more capital and have stronger regulation. While some professionals or analysts warn of a potential looming recession, current market performance and economic data indicate just how far we've come.[3] Let's examine last week's data to understand examples of where we are today: Domestic indexes rebounded to post healthy gains for the week, with the S&P 500 adding 1.16%, the Dow gaining 0.92%, and the NASDAQ increasing 1.36%.[4] International stocks in the MSCI EAFE were also up, gaining 1.76%.[5] In addition, we received the following updates, which support a picture of a more robust economy:

  • Consumer sentiment jumped: The September reading was at its 2nd-highest point since 2004. The data reveals that consumers expect the economy to grow and create more jobs.[6]
  • Retail sales stalled but are primed for growth: Spending barely increased in August, after months of strong growth. However, analysts believe this data is "a blip" rather than an emerging trend, as tax cuts and a healthy labor market leave Americans with money in their pockets.[7] 
  • Industrial production rose for the 3rd-straight month: Auto manufacturing contributed to higher than expected industrial production in August. For now, trade tensions have not yet hurt this sector.[8]  
These data reports may not show blockbuster growth, but together they indicate our economy is doing well. In fact, they were strong enough to lead many economists and analysts to increase their projections of how fast the economy expanded during the 3rd quarter.[9]  Looking back, the markets have come far from where they were 10 years ago. But risks will always remain, as Hurricane Florence and Lehman Brothers remind us. Today and in the future, we are here to help you understand where you are and plan for whatever may lie ahead.  Also, for those affected by the hurricane, we're ready to support your recovery and provide the financial guidance you seek.  

ECONOMIC CALENDAR
Tuesday: Housing Market Index  
Wednesday: Housing Starts
Thursday: Existing Home Sales, Jobless Claims
Gray

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Sources:

[1]fortune.com/2018/09/11/hurricane-florence-stock-market/

[2] www.bloomberg.com/news/articles/2018-09-12/florence-to-batter-u-s-data-but-harm-to-economy-likely-small 

[3] money.cnn.com/2018/09/14/investing/lehman-brothers-2008-crisis/index.html

[4] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI®ion=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO

[5] www.msci.com/end-of-day-data-search

[6] www.cnbc.com/2018/09/14/september-consumer-sentiment.html

[7] www.marketwatch.com/story/retail-sales-grow-by-smallest-amount-in-six-months-but-spending-primed-to-rebound-2018-09-14 

[8] www.marketwatch.com/story/us-industrial-production-up-for-third-straight-month-on-strength-in-autos-2018-09-14[9] www.bloomberg.com/news/articles/2018-09-14/retail-sales-factory-output-signal-steady-u-s-economic-growth?srnd=markets-vp