Now that the Olympics are over, the markets have very little to shield them in the way of news coverage-that is, until the election campaign takes over once again. I was asked what my thoughts were for the remaining part of the year, and my response was, "Well, I can be relatively certain that with the impending election, comes the raise in volatility. Dependant upon how hot and heavy it gets, we may see a bit of a pullback but nothing that would have us overly concerned...at least at this point in time. However, the FED and their decision to raise rates in and around the election may be enough to cause yet another correction."
As far as putting cash to work, the best way to do that is cautiously and with a fair amount of concern for your principal at this point. Even though there is no evidence that we should be overly conservative, we are seeing signs that institutional investors are shying away from continued buying of stocks in favor of increasingly more selectivity with both sectors and stocks.
We are going through our screens and our indicators daily to ensure the proper alignment as well as to be diligent in what we own and what we want to buy. We are seeing signs of an exhaustive bull market, and this certainly confirms a transition from bullish to bearish condition we have been witnessed to since May of 2015. It does not mean that there is nothing to buy or that we cannot make money with investments, it simply means that we would use different tools and a different approach in selection of such tools going forward.
Until we have further evidence to the contrary, slow and steady wins the race, and staying the course is apart of that philosophy.
Next week I will be out of the office, so there will not be any newsletter until I return the following week.
Have a splendid weekend!
NASDAQ Posts Eighth Week of Gains
WEEKLY UPDATE - August 22, 2016
The S&P 500 and Dow ended last week slightly lower, but the NASDAQ posted an eighth straight week of gains for the first time since 2010. For the week, the S&P 500 lost 0.01%, the Dow fell 0.13%, the NASDAQ gained 0.10%,and the MSCI EAFE lost 0.64%.
What is the Fed thinking? Minutes from the July Federal Reserve Open Market Committee meeting showed that officials are split about the economic outlook and when to raise interest rates. Hawkish rhetoric from Fed members who favor a rate hike soon could push the central bank into raising rates as early as September. More dovish officials aren't convinced that tepid inflation will rise to the Fed's 2.0% objective and favor a wait-and-see approach to raising interest rates.
After several months of strong labor market gains, some economists think the economy is close to full employment and central bankers should move soon to put on the brakes by raising interest rates. If the economy gets overheated, prices could rise too much and push the economy into a boom/bust cycle that federal officials are anxious to avoid.
While a few years of outsized growth might sound nice after the years of slow expansion we've experienced, the economic hangover that might follow wouldn't be pleasant at all. That's why central banks like the Fed act to smooth out these economic cycles by lowering interest rates when times are tough (boosting investment through cheap credit) and raising them when growth picks up again (curbing excessive optimism by making credit more expensive).
The timing of rate increases is tricky, and the macroeconomic relationships that govern these decisions are complex and open to interpretation. Hence why some of the best economists in the world can't agree on when to pull the trigger.
Which group will win out at the Fed? Since the Fed has been reluctant to jump the gun on interest rates, we don't see a rate hike coming next month. However, the Fed might decide to surprise us.
Currently, Wall Street traders judge the odds of a September hike at just 18.0%. However, traders think the Fed is likely to raise interest rates in 2016, judging by December's rate probabilities. Will the Fed move soon? We'll keep you informed.
This week is packed with economic data that will show us how the housing and manufacturing sectors are doing. We'll also get a second look at second-quarter economic growth in Friday's Gross Domestic Product report. Stay tuned for next week's update.
Tuesday: New Home Sales
Wednesday:PMI Manufacturing Index Flash, Existing Home Sales, EIA Petroleum Status Report
Thursday:Durable Goods Orders, Jobless Claims
Friday:GDP, International Trade in Goods, Corporate Profits, PMI Services Flash, Consumer Sentiment
Inflation remains flat. Consumer prices remained unchanged in July as gasoline prices fell for the first time in months. Modest inflation may reduce the chances of future interest rate increases by the Fed.
Housing starts surge to five-month high. Groundbreaking on new residential projects rose in July, potentially boosting second-quarter economic growth numbers.
Weekly jobless claims fall. The number of Americans filing new claims for unemployment benefits dropped last week, suggesting the labor market continues to strengthen and approach full employment.
Industrial production rises more than expected. A measure of industrial sector production (including hard industries like mining, manufacturing, and utilities) increased by 0.7% versus the 0.3% rise expected.
Back-to-College Tax Tips
If you, your spouse, or a dependent is heading off to college, there are some important tax-saving tips you should know about. Here's what the IRS says:
- You can claim only one type of education credit per student on your tax return each year. If you have multiple eligible students, you could claim a different credit for each student.
- To qualify, education expenses must be for tuition, fees, and "related expenses" for an eligible student. Expenses must be paid for attendance at eligible higher education institutions, including most colleges and universities. Ask the school whether they are an eligible institution or check the school's accreditation status in the U.S. Department of Education's Accreditation Database.
- The American Opportunity Tax Credit: The AOTC is worth up to $2,500 per year, per eligible student. You may claim this credit only for the first four years of higher education. 40% of the AOTC is refundable, which means if you are eligible, you can get up to $1,000 of the credit as a refund, even if you do not owe any taxes.
- The Lifetime Learning Credit: The LLC is worth up to $2,000 on your tax return. There is no limit on the number of years that you can claim the LLC for an eligible student.
For more information about education tax credits and other college-related tax issues, consult a qualified tax expert or check out Publication 970, "Tax Benefits for Education," on IRS.gov.
Tip courtesy of IRS.gov
Keep Your Head Steady for Better Putting
According to a pro instructor, averaging fewer than 30 putts per round puts you at the top of your short game. If you're having trouble getting there, you might be making the mistake of "steering" your putts with your eyes, instead of keeping your body square and your head still during the shot. Practice staying in posture during your putts instead of opening yourself up as you do when making other shots.
Tip courtesy of Paige MacKenzie, LPGA | Golf Tips Mag
Take Control of Your Blood Pressure
Two recent studies have found that patients who were able to monitor their own blood pressure at home had better health results after one year than those who only relied on doctor's visits. Under a doctor's guidance, consider the following home remedies to lower blood pressure:
- Drinking hibiscus tea has been found to lower blood pressure. A Tufts University research team discovered that participants who drank three cups of tea per day had significantly lower blood pressure than the control group.
- Check sodium levels when eating out. Restaurant meals can contain very high levels of sodium, so be sure to ask the kitchen for recommendations for a low-sodium diet.
- High-cocoa dark chocolate, specifically in the 50%-70% cocoa range, can help lower blood pressure. Just a square a day was found by a Harvard Medical School study to particularly benefit patients with hypertension.
Tip courtesy of AARP
Green Up Your BBQ
Backyard barbecues are a wonderful way to enjoy the weather and change up the dinner party scene. Here are a few ways to keep your next grillout green and waste-free:
- Use greener fuel options. Whenever possible, stick to propane or cleaner-burning natural lump charcoal. Briquettes are full of additives and petroleum products that come with a hefty carbon footprint.
- Use locally raised vegetables and meats. Consider heading to your local farmer's market or grocery to find local options and reduce the distance your food has to travel to your plate.
- Forget disposable dishes. While picnics and barbecues can seem like a great excuse to skip dish duty, disposables add a lot of waste to your local landfill. If you won't part from one-use dishware, consider using a brand made from recycled or low-impact materials.
Tip courtesy of The Nature Conservancy
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.
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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.
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.
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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.
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