The Northern Star 06/11/18 Strength, Growth, and Tension
Message from Jon
"...the US stock market is expected to return a -2.10% per year over the next eight years."
With a headline like that, who wouldn't want to do a double take on the rest of the article, right? In an article published by GuruFocus, an online source for stocks and investment materials, claims that the Buffett Indicator has risen to a near all-time high giving us concern over the next period of market performance. In my opinion, only novices and fools take one indicator or source into account and consider it a doctrine to base all their investments upon.
What this is doing, however, is confirming a growing concern for the future of investment bullishness. I know I probably sound like a boy who cried wolf too many times and even I grow weary of sounding like a broken record. The Guggenheim investment chief also sees a reason for concern in the coming 18-24 months stating that, "the market is on a collision course with disaster."
Fortunately for us, there are numerous other markets around the world in which to invest in, giving investors opportunity to diversify their holdings to mute risks to principal. Our indicators and data are also set up for early warning and opportunity to address risks to capital as well giving our clients as much of a heads up as we possibly can. Regardless, this should not dull us into complacency.
Just because we have measures in place, this will not allow us to escape the painful observation of the daily onslaught of over-coverage and dramatizing of what is happening. "Part of survival will come from preparation, but the other part will come from not panicking when the worse happens."
Till we speak again, enjoy the week and make it a productive one!
Strength, Growth, and Tension
WEEKLY UPDATE - JUNE 11, 2018
As last week ended, tension between the U.S. and some of its greatest allies was on the rise. Trade remained a hot-button topic ahead of the G-7 meeting in Canada, but investors seemed largely unfazed by the drama. In fact, all 3 domestic indexes posted strong results: The S&P 500 added 1.62% and the NASDAQ gained 1.21%, with both indexes notching their 3rd week of gains in a row. The Dow ended Friday up 2.77% for the week - recording both its highest level and largest weekly gain since March.International stocks were also up, with the MSCI EAFE increasing by 0.91%.
While geopolitical headlines keep unfolding, new data continues to indicate that the U.S. economy is on solid ground. Let's examine a few updates we received last week:
1. The trade deficit decreased in April. The latest trade data was largely positive, with the trade deficit hitting a 7-month low and coming in nearly $3 billion lower than expected. In April, exports reached their highest level in history. The economists at First Trust believe that this strong performance could push the 2nd-quarter Gross Domestic Product (GDP) as high as 5%.
2. The labor market continues to tighten.The latest Job Openings and Labor Market Survey (JOLTS) gave an interesting perspective on our current labor market. Right now, more jobs are available than unemployed people looking for them. Since JOLTS began almost 20 years ago, this has never happened before. The data indicates that employers are struggling to hire people for open jobs - and that the economy is at full employment.
3. The services sector is expanding. May data from the ISM non-manufacturing index showed that the services sector has experienced its 2nd-best beginning of a year since the index launched in 1997. Business activity and new orders had very positive performance, which could contribute to continuing service-sector growth for the months ahead. The report also showed prices increasing and provided more data that employers are having a hard time filling jobs in this tight labor market.
What is ahead this week?
We will receive two major central bank reports this week - and the historic U.S.-North Korea summit is on the docket as well.
President Trump and North Korea's leader Kim Jong Un are meeting on Tuesday. The talks should cover North Korea's nuclear program, but no one can say for sure what market impact it may have.
On a more predictable note, most analysts expect the Federal Reserve to announce its latest interest rate hike on Wednesday. While the markets have likely priced in this increase already, the Fed's projections for the rest of 2018 could affect investor sentiment.
Meanwhile, on Thursday, experts expect the European Central Bank (ECB) will announce a plan to finally wind down its quantitative easing. If the ECB doesn't share a timeline for ending this recession-era program, investors may interpret the move as a sign that policymakers are concerned about the EU's economic outlook.
With a lot to consider this week, we encourage you to remember that many data updates indicate our economy is performing well. As the information unfolds, we're here to help you separate relevant reports from headline hype. Contact us any time if you have questions about how these details may affect your financial life.
ECONOMIC CALENDARTuesday: Consumer Price IndexWednesday: FOMC Meeting AnnouncementThursday: Jobless Claims, Retail SalesFriday: Industrial Production, Consumer Sentiment
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.
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