Message from Jon
The signs are there, if you know where to look....
As the market has now rebounded from their Feb 11th lows, many are touting a rally being underway and how remaining cautious is foolish and harmful for the long-term success of the investments. Well, I guess time will tell as it always does. All I know is what I am reading daily and researching, and my research is telling me a vastly different story.
Last Wednesday, I traveled to Kentwood, Michigan, to sit on our national investment committee board and weigh in on the markets, conditions, portfolio analysis, etc., with several professionals from the industry. Some were investment managers and some investment advisors, while others were back office support and financial planners. As always, the discussions ranged from light banter to heated and passionate opinions on the intricacies of the various topics at hand. On my way home, I had an interesting reflection and insight as to the approaches held by the different experts when discussing markets and the proper approach to management and investment.
One side was championed by a science approach while the other side, an historical approach.
The science argument was based solely on the technical merits of managing risk with the by-product being good returns. This side touted charts, risk analysis, simple moving averages and the like. The counter party was represented by the historical slant, whose approach was that of buy low-sell high. When the markets dip, the dip may not have impacted said "value or condition of the company" being examined. So while the dip occurs, one is better off to buy more shares of the stock while it's on sale and hold it until a point in the future when it is selling at a premium, and then take the profit.
Value in both approaches.
Today, I can see the value in both approaches, because having both will add an additional layer of diversity to your portfolio and as a result, a better outcome potential. The historical slant is claiming that we should buy on the dips while companies are a good price and selling at a discount. The scientific approach is saying that we are seeing signs (technical indications) that demonstrate a weakening in the demand and a strengthening in the supply side of equities, concluding in the potential danger for another leg down.
Sorry for this being a bit long-winded, but occasionally I like to mix it up a bit.
Have a delightful week!
Till we speak again,
BTW: I will be out of the country from Tuesday for a week but my staff and our back office will be available should you need them.
Q4 GDP Revised Upward by Strong Consumer Spending
WEEKLY UPDATE - MARCH 28, 2016
Stocks ended the holiday-shortened week down, snapping their five-week winning streak. However, losses were mild amid low trading volume before the Easter weekend. For the week, the S&P 500 lost 0.67%, the Dow fell 0.49%, and the NASDAQ dropped 0.46%.
Last week's economic calendar was highlighted by the third estimate of fourth-quarter 2015 economic growth. The report showed that Gross Domestic Product grew much faster than originally thought- by a 1.4% annualized rate instead of 1.0%. For all of 2015, the economy grew by a respectable 2.4%- not too shabby considering the headwinds the country faced down last year.
The revision reflected much stronger consumer spending than originally thought, which is a relief to recession-watchers and could bode well for the economy in 2016. Spending is being supported by a strong labor market and low gas prices. However, the news isn't all rosy. Business inventories were revised lower, showing that companies are reluctant to tie up cash in the face of uncertain demand. Since stockpiles are still high, it's possible that weak business spending will eat into economic growth in the first quarter.
Can we trust GDP estimates? That interesting question was recently brought up by a CNBC report, which found that GDP growth estimates could be off by as much as 1.3%. When growth rates are already low, such a large margin of error (if it exists) could have serious business and policy implications.
A large part of the problem may be that many reports used by federal economists to calculate GDP arrive months-even a year-after the initial reports on economic growth go out, forcing them to use estimates. As these reports come in, economists revise the data, long after the relevant quarter matters to investors and policy makers. It's often a question of trading accuracy for timeliness. That's one of the reasons why we look at many different indicators and must understand the limitations of each one when we create models.
A vicious bombing attack on Tuesday killed at least 30 people in Brussels, putting the European Union capital on lockdown. Major cities around the world are bolstering security around transportation hubs in response. The attack brings attention to the ongoing threat of terrorism and highlights the problems Europe is having in sharing intelligence and tracking suspected terrorists. Our thoughts are with the victims and their families.
Looking at the week ahead, we can expect some volatility as investors react to last week's GDP report, which was released during Friday's market holiday. While investors may react positively to the better-than-expected growth, we may also see some market turmoil ahead of the end of the quarter. The question is: Did the first quarter of 2016 deliver on expectations?
Monday: International Trade in Goods, Personal Income and Outlays, Pending Home Sales Index, Dallas Fed Mfg. Survey
Tuesday: S&P Case-Shiller HPI, Consumer Confidence, Janet Yellen Speaks 11:30 AM ET
Wednesday: ADP Employment Report, EIA Petroleum Status Report
Thursday: Jobless Claims, Chicago PMI
Friday: Motor Vehicle Sales, Employment Situation, PMI Manufacturing Index, ISM Mfg. Index, Consumer Sentiment, Construction Spending
Durable goods orders fall. Orders for long-lasting factory goods like appliances and vehicles fell in February by 2.8%. The data shows that the manufacturing sector is still struggling with falling demand.
Weekly jobless claims rise modestly. The number of Americans filing new claims for unemployment benefits rose by 6,000, though revisions to prior week claims show that the labor market was stronger than expected.
Q4 corporate profits down 3.2%. A measure of after-tax corporate profits shows that the overall bottom line for U.S. companies declined 3.2% over the previous year, held down by results from petroleum and chemical industries.
New home sales rise in February. Sales of newly built homes rose last month; however, the increase was concentrated in a single region, suggesting the growth is not widespread as the busy Spring season takes off.
What You Should Know About Bartering and Taxes
Even if you don't own a business, you may occasionally trade products or services with someone else instead of paying cash. If you barter, the value of the goods or services you trade is considered taxable income. Here are some things to keep in mind:
Both parties in a trade must report the fair market value of the products or services they receive as income on their tax returns
Barter exchanges, organized marketplaces where members trade goods or services, are required to issue Form 1099-B, "Proceeds from Broker and Barter Exchange Transactions". You must include the amount earned on your tax return
Bartering is taxable in the year the trade occurs. Depending on your individual situation, you may owe income taxes, self-employment taxes, employment taxes or excise taxes on your bartering income
If you have questions about how to handle income from bartering or other sources, contact a tax professional.
Tip courtesy of IRS.gov
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.
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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.
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