Northern Star Newsletter 2/9/2016
Message from Jon
You can still win with a good defense and mediocre offense...just look at the Broncos in the super bowl!
These past few weeks have simply been difficult. With the disappointing jobs report Friday, followed by the down day we had yesterday, here are the YTD Returns for the 3 indexes;
S&P 500: -8.02%
The recent amount of negativity has resulted in numerous conditional changes in the markets. According to J2 Capital, we have now officially entered into a bear market. We also have seen our mid-term indicator make a change over night from favoring stocks to favoring bonds. This could reverse back but for the time being, it suggests we take a defensive stance as well.
This opens up the cup half empty vs. cup half full discussion. If you examine the charts, you can see the majority of sectors have continued to drift into the oversold status as you'll notice in the picture below.
This alignment demonstrates that somewhere (soon I hope) we can expect the risk to be low enough in the majority of sectors pictured that buying them would almost constitute a "no-brainer". The only issue (and potentially a significant one at that) would be the time frame to see our investment pay-off. It might be 6 weeks, 6 months or 6 years and if we knew the answer to this, we would be in the clear with our decision to invest.
With the VIX pointing to continued volatility and fear, the most favorable approach is defense and principal preservation at this point. I am NOT saying it is time to cash out and do anything irrational since there is no evidence of a crash anywhere. I am merely saying that playing defense is an equal skill to playing offense. With good defense, one can still win but with good offense and poor defense, the same cannot be said.
Till we speak again....have a blessed week!
sources: J2capital, dorsey/wright, finviz
Is This What Full Employment Looks Like?
WEEKLY UPDATE - FEBRUARY 8, 2016
Markets dropped last week on mixed economic data and a big selloff in the tech sector amid weak earnings. For the week, the S&P 500 lost 3.10%, the Dow fell 1.59%, and the NASDAQ dropped 5.44%.
In this week's update, we wanted to dig deeper into a major economic indicator that drives market analysis and activity: the monthly jobs report. On Friday, investors got a look at January's jobs report, which showed that the economy gained 151,000 jobs last month. The gains pushed the headline unemployment rate down to 4.9%, the lowest it has been since February 2008.
At 4.9% unemployment, the economy is now in the range of what economists call "full employment," defined as a point at which the economy no longer faces demand-related job scarcity. At full employment, most (not all) job seekers can find and keep the jobs they want and employers can find the workers they need. This point should represent an ideal state for the labor market and a victory for the Federal Reserve.
While progress is great news, is the economy really at full employment?
One problem with "big picture" indicators is that they leave out a lot of detail and don't capture the full complexity of the economy. The jobs market has been a riddle for some time; though we've seen consistent job creation since 2010, wage gains have been weak and the quality of jobs created is worse than that of previous post-recession periods.
The jobs created after the 2001 recession were well-distributed among lower- and higher-wage industries; in contrast, the recent job recovery has been largely driven by lower-wage industries. For example, bars, restaurants, and retailers picked up 105,000 new workers last month, while white-collar jobs grew by just 9,000, the smallest gain in over two years. Another problem is that we have about 6 million people who want jobs and haven't found them. Another 6 million are working part-time for economic reasons. Details like these matter to Americans and help explain some of the anxieties that remain about the labor market recovery.
Now - that's not to say that the labor market hasn't made significant progress over the last year. Wages increased by 2.5% over the last 12 months, which is consistent with growing demand for workers. Unemployment is down across the board, and job gains continue.
Bottom line: The January jobs report was basically positive, but we're not ready to believe that the labor market is completely recovered. Though it's clear structural issues remain, the data also doesn't indicate that a recession is on the horizon.
This week, Fed Chair Janet Yellen's testimony before Congress will be the highlight of the economic calendar. Analysts are expecting the House and Senate to grill her over the December rate hike and the Fed's plans for further interest rate increases this year. Realistically, it's not likely that Yellen will reveal much beyond the Fed's intention to carefully weigh data, but it promises to be an interesting Q&A.
Wednesday: Janet Yellen Speaks 10:00 AM ET, EIA Petroleum Status Report, Treasury Budget
Thursday: Jobless Claims, Janet Yellen Speaks 10:00 AM ET
Friday: Retail Sales, Import and Export Prices, Business Inventories, Consumer Sentiment
Cold weather freezes motor vehicle sales. U.S. automakers posted modest sales numbers in January as winter weather kept car shoppers out of car lots. However, underlying trends are still positive, indicating that Americans are still spending on big-ticket items.
Consumer spending fell flat in December, but savings increase. Spending by U.S. consumers remained unchanged in December. However, a three-year high in savings growth could spell higher spending in the months to come.
Construction spending rises slightly. Spending on new construction barely rose in December, though it increased significantly in 2015 - growing 10.5% versus 9.6% in 2014.
Global factory activity muted. Weak global demand is still affecting factory activity around the world as manufacturers struggle to find orders.
Missing Your W-2? Here's What to Do.
Most employees receive their W-2s by the end of January so that they can file their taxes in a timely manner. However, if you haven't received yours by mid-February, here's what to do:
- Contact the employer and ask for an update. Confirm that they have your correct mailing address on file.
- Call the IRS at 800-829-1040 after February 23rd. If your employer isn't responsive to your request, you can enlist the IRS to send a letter on your behalf.
- Still file on time. Even if you don't have your W-2, it's still important to file your taxes (and pay your taxes) on time. Use Form 4852, "Substitute for Form W-2, Wage and Tax Statement," if you don't get your W-2 in time to file. Estimate your wages and taxes withheld as best you can.
- Correct your return. If you receive your W-2 and need to make a correction, you can file an amended return using Form 1040X, "Amended U.S. Individual Income Tax Return."
For more information about filing your taxes, consult a qualified tax expert.
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 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.
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Past performance does not guarantee future results.
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