Northern Star Newsletter 1/14/2016
Message from Jon
This past several days in the markets have been less than fun. Fears have run amuck and the speculations have soared. "I hear that 2016 is going to be like 2008!" or "I hear that the election year is going to be a tough year in the markets?" have all been expressed to me over the past several days. Each time I hear it, it just reaffirms the fact that most investors say they are investing for the long-term but tend to behave like day traders.
Will you remember?
Let me ask you something here, can you remember what happened from Mar. 1st of '02 to Apr. 1st of '02? How about from Jan. 1st of '03 to Feb. 1st of '03? What about Oct. 1st of '08 to Nov. 1st of '08, or Sept. 1st of '10 to Oct 1st of '10? What about the month from Oct. 1st of 2015 to Nov 1st of 2015 which was equally important, can you remember that week? I know I couldn't and I look at the markets daily.
March to April of 2002 the S&P 500 rose 3.7% and from Jan. of 2003 to Feb. of 2003, the S&P 500 fell 4.3%. October of 2008 to November of that same year, we had a loss of 16.83% and all the world said it was the end and it would never come back. September of 2010 to October of 2010 the S&P 500 rose 8.96% and did it again just last year from October to November showing a positive of 8.39%.
2015, a tough, tough year!
2015 was THE most difficult year to make money in the markets since 1937, yes 1937 according to Larry McDonald of Societe Generale. Warren Buffett, David Einhorn and Carlos Slim all had bad years. Buffett's Berkshire Hathaway shares where down more than 11% for 2015.
Remember this!
I say all that to say this, sit back, relax and realize that there will be years where your investments will do VERY WELL and years where they won't. There has NEVER been a 20 yr period where the markets have ever shown a negative return so keep your focus on the long-term, it will be better in the future.
Stay warm and well-
Jon
Markets Tumble on China Fears
WEEKLY UPDATE - JANUARY 11, 2016
U.S. equities experienced a brutal tumble last week after more bad news emerged from China. For the week, the S&P 500 lost 5.96%, the Dow dropped 6.19%, and the NASDAQ fell 7.26%.[1]
China's ongoing economic woes are causing major turmoil in stock markets around the world. Disappointing data from China included reports that factory activity dropped for the 10th consecutive month, squashing hopes of a 2016 resurgence.[2]
In this week's update, we've compiled a list of questions and answers to help you make sense of last week's turmoil:
What do China's stock market problems mean for U.S. investors?
In short: not much. China's stock market halted twice last week when emergency "circuit breakers" kicked in to limit volatility.[3] However, most U.S. investors are not directly invested in Chinese stocks and are not affected by their markets. Chinese stocks are notoriously volatile and have experienced flash crashes in the past.
Why did U.S. markets react badly to news from China?
We live in an interconnected world where information is transmitted instantly and market overreactions are common. Thursday's selloff came after the Chinese central bank announced yet another devaluation of the yuan, adding to investor fears about the health of the world's second-largest economy.[4] The move could also spark a global currency war as other countries devalue their currencies to compete with cheaper Chinese goods.[5]
The question on everyone's minds: How will China's slowdown affect the rest of the world? Investors see weakness in China and fear how it will affect U.S. corporations and our domestic economy. With the 2016 growth picture already modest, investors are poised to react negatively to any news that seems even slightly threatening.
Should I be worried about the U.S. economy?
Probably not. China is our third-largest export market but accounts for just 0.8% of our GDP.[6] While a severe slowdown in China won't be good for global growth, the U.S. economy is on track for modest growth this year. We'll know more about how our economy fared last quarter at the end of the month.
What we do know is that the labor market continues to improve, adding 292,000 jobs in December. October and November numbers were also revised upward, indicating that growth is sustained.[7] Since domestic consumption accounts for two-thirds of U.S. economic activity, we can hope that these improvements will translate into higher consumer spending.
It's not clear yet whether China is moving into a recession. Exports have largely fueled its past economic growth, and political leaders are struggling to wean the country off foreign demand.[8] Will leaders be successful in transitioning to a more consumer-led economy? We'll see.
What should I do as an investor?
For now, stay calm and focused on your personal goals. Regardless of what you might be hearing on the news, last week's drop was not panic selling. Investors are caught up in global growth worries as they have been for months.
We cannot predict when markets will return to positive growth, and it's possible that volatility and weakness may persist in the weeks to come. What we know is that historically, markets have not usually entered bear territory (sustained drops of 20% or more) unless accompanied by a recession.[9] Though we cannot rule out prolonged market weakness, a severe drop would be a historical anomaly.
Fourth-quarter earnings season will move into high gear in the coming weeks and investors will have plenty of other news to digest. We are closely monitoring markets and taking a hard look at fundamental factors. If we believe that changes need to be made to your portfolio, we will contact you directly. If you have experienced any life changes or shifts in your perspectives on risk, please let us know.
As always, if you have any questions about markets or concerns about your personal situation, please give us a call.
ECONOMIC CALENDAR:
Tuesday: JOLTS
Wednesday: EIA Petroleum Status Report, Beige Book, Treasury Budget
Thursday: Jobless Claims, Import and Export Prices
Friday: PPI-FD, Retail Sales, Empire State Mfg. Survey, Industrial Production, Consumer Sentiment, Business Inventories
HEADLINES:
Motor vehicle sales ride wave to blockbuster December. Auto manufacturers ended a record year last month, selling 17.47 million new vehicles and beating the previous record in 2000. Cheaper gas and pent-up demand contributed to improved sales.[10]
Factory orders slip in November. Orders for manufactured goods dropped 0.2% in November, pointing to continued weakness in the manufacturing sector.[11]
Construction spending falls in November. Spending on construction projects fell for the first time in 17 months, dipping 0.4% in November. While home construction was up, non-residential categories fell.[12]
Manufacturing activity slumps. A gauge of manufacturing activity dropped for the second month in a row in November as global weakness weighs on U.S. manufacturers.[13]
Tax Tips
IRS Gets New Power to Revoke Passports
Owe the IRS more than $50,000? You might want to cancel that vacation. Starting this month, the IRS will have the power to revoke the passport of any taxpayer owing $50,000 or more, including penalties and interest. While the details of the law are still being analyzed by legal experts, it marks a serious increase in the IRS's enforcement powers.
Notably, if you are currently paying off the debt or are contesting a tax bill in court, you should not be affected. However, anyone under an IRS tax lien could find their ability to travel hampered.
If you have any questions about tax debts or other complex tax issues, contact a qualified attorney or tax specialist.
Tip courtesy of Fox Business[15]
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 Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.
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://finance.yahoo.com/q/hp?s=%5EGSPC&a=11&b=28&c=2015&d=11&e=31&f=2015&g=d
http://finance.yahoo.com/q/hp?a=11&b=28&c=2015&d=11&e=31&f=2015&g=d&s=%5EDJI%2C+&ql=1
http://finance.yahoo.com/q/hp?a=11&b=28&c=2015&d=11&e=31&f=2015&g=d&s=%5EIXIC%2C+&ql=1
2 http://www.businesstoday.in/markets/global-markets/asian-markets-on-january-4-trade-china-factory-data-slips/story/227697.html
3 http://www.reuters.com/article/us-china-markets-idUSKBN0UM02K20160108
4 http://www.reuters.com/article/us-usa-stocks-idUSKBN0UL1BD20160108
5 http://www.cnbc.com/2016/01/09/sp-500-in-a-world-of-pain-so-sell-any-rally-technician.html
6 https://www.uschina.org/china-hub/exports-china-share-gdp
7 http://www.foxbusiness.com/economy-policy/2016/01/08/december-jobs-report/
8 http://blogs.wsj.com/economics/2016/01/04/imf-chief-economists-2016-warning-watch-out-for-china-and-emerging-market-volatility/
9 http://www.businessinsider.com/sp-500-bear-markets-and-recessions-2015-8
10 http://www.foxbusiness.com/industries/2016/01/05/fiat-chrysler-december-vehicle-sales//
11 http://www.marketwatch.com/story/factory-orders-slip-02-in-november-2016-01-06
12 http://www.myfoxboston.com/news/us-construction-spending-falls-04-percent-in-november/12998889
13 http://www.foxbusiness.com/economy-policy/2016/01/04/us-manufacturing-falls-deeper-into-contraction-territory/
14 http://www.realsimple.com/food-recipes/browse-all-recipes/kale-salad-sweet-potato-apple#comments
15 http://www.foxbusiness.com/economy-policy/2016/01/05/irs-gets-new-powers-to-revoke-passports/
16 https://www.youtube.com/watch?v=licL8ONrfP4
17 http://www.aarp.org/health/drugs-supplements/info-2015/food-drug-interactions-photo.html?intcmp=HEA-HLLV-FLXSLDR-SLIDE2-MAIN#slide3
18 http://www.goodhousekeeping.com/home/a18573/ways-to-go-green/