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The Northern Star 08/09/18 Stocks Up as Data Comes In


Message From Jon

Market Update:
This past earnings season, the market has really responded nicely. The majority of companies reporting this quarter significantly outperformed their earnings reports giving this market something to cheer and rally behind. We have gone from "the next recession is happening next year"(1) to "the next recession is nowhere in sight"(2) and it gives me a chuckle.
According to Eric Kuby, CIO for North Star Investment Management , "analysts increased expectations ahead of earnings this year and even then, for the first two quarters, over 75% of those reporting gave expectation-beating numbers"(3). For future expectations we are also seeing an increase that could further delay recessionary fears and encourage GDP numbers and continued Fed interest rate increases.
For those who are optimistic, do not let yourself get out over your skis and believe that the inevitable will not still come. For those who are pessimistic and unsure of the economy, it is looking a lot more durable and sustainable than once believed at this point. We still are cautiously optimistic and steady in our analysis and investment alignment efforts going into the fall where historically, we see some bad and good months for investing.
All things being what they are at the moment our opinion remains, investment in the markets is still a sound option. Eventually, that will not be the tune and when the music dies, you do not want to be the last one standing so it is wise to use this time for preparations.
Paying down debt, looking to possibly restructure any variable debt into a fixed position, evaluating what did well and what did not during the 2008-2010 market cycle and paring down your lifestyle are all good places to start. "If you want peace, you prepare for war" as the saying goes. I am not being pessimistic or a Debbie downer here. My experience over these past 18 years has been that when the market is good, people over-react and raise their lifestyle, upgrading their housing, phones, cars, equipment, and so on, and when the market is bad investors look bewildered and claim that they never saw it coming and regret their wouldda, couldda, shouldda feeling.
For now, we have time on the clock and it's best to use it as wisely as you can while it's there to be used.
Stormguard is registering 0.43% as of last night and is holding steady, but with this current earnings season and future earnings, it may rise more.
Until we speak again, enjoy your back to school week!

Stocks Up as Data Comes In

Domestic markets ended last week in positive territory, as the S&P gained 0.76%, the Dow was up 0.05%, and the NASDAQ increased 0.96%.[1] This performance marked the 5th week in a row that the S&P 500 and Dow posted gains.[2] Meanwhile, international stocks in the MSCI EAFE stumbled, losing 1.47% for the week.[3]
Once again, trade and corporate earnings were in the news last week. We learned that the U.S. is considering increasing tariffs on $200 billion of Chinese imports. In response, China announced their own tariffs ranging from 5%-25% on $60 billion of U.S. products.[4]  
Corporate earnings season also continued, and so far, more than 78% of S&P 500 companies have beaten estimates.[5] If the trend holds, the 2nd quarter will likely average more than 20% growth in earnings per share. Companies have also detailed positive perspectives for the rest of 2018, showing that this strong corporate performance should continue.[6]
Of course, last week's trade and earnings weren't the only topics on investors' minds. We also received a number of data reports that shaped our understanding of the economy's health.

Key Findings from Last Week
  • Consumers are earning and spending more. The latest data for personal consumption and personal income revealed both measures increased by 0.4% in June. In addition, the report included revised data from 2013-2017, which indicated that people earned $1.05 trillion more during that time period than initially thought.[7] 
  • Tariff concerns are affecting manufacturing. The manufacturing sector continues to expand at a faster rate than in 2017, but the pace of growth slowed more than anticipated in July. Respondents to the ISM Manufacturing Index survey shared concerns about tariffs, steel and aluminum disruptions, and transportation challenges.[8]  
  • The Federal Reserve is on track for a September rate hike. The Fed didn't raise rates this month, but projections show a 93.6% chance that it will do so in September.[9] The latest jobs report detailed steady wage increases, which helped ease Fed concerns about inflation.[10] 
This week is relatively light on economic data, but we will continue to analyze last week's reports and the remaining corporate earnings releases. If you have any questions about where the economy is today or what may lie ahead, we're here to talk.

Tuesday: JOLTS
Thursday: Jobless Claims
Friday: Consumer Price Index


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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