The Northern Star 11/05/18 Markets Bounce Back

Message form Jon

Market Update

I have mentioned to many that 2018 will look nothing like 2017, and IF we end the year with a 4-6% return, it would be a home-run. Well, after Red October's correction, we are back to square one again! To give you an idea of just how special October was, we saw the S&P 500 record the greatest number of down days in 50 years!  According to BTN Research, 192 stocks in the S&P 500 are down at least 10% YTD, while 103 are down at least 20% YTD. This makes over 50% of the S&P 500 index showing at least a 10% loss for the year. 3

The volatility Index has not yet settled itself below 20 for the past month, indicating that we are far from done with the mood swings in the markets.6 According to the Financial Times, 2018 has been the worst year since 2008 for investments, and the headwinds are still present.1

The StormGuard indicator has gone from a measurement of -0.10% on Oct 19th to a -1.94% measurement as of the close of business on Friday, Nov 2nd.7

As a result of the shifting landscape, we have also shifted investment allocations and positions to reflect a more defensive and cautious stance along the way. Time will prove whether we are seeing the beginning of a greater downside slide or the ending of a normal correction.

In my opinion, I am not seeing evidence that this is a sign of the beginnings of a greater crash at this point. Here is why:

• We have unemployment at the best levels since 1970 8
• We have a GDP of 3.5% last quarter 9 
• We have consumer confidence levels near All-Time Highs 5 

Normally, the data suggesting the potential for a Crash is different than what we have now. So, given what we are seeing unfold, the data seems to be suggesting that we are in the midst of a severe correction that has the potential (however unlikely) to grow into a more significant crash should the geopolitical atmosphere worsen, the Tariff and Trade discussion develop into a war, etc....2,4

For the time being, though, and without speculating on the future, we stay in the moment.

Till we speak again, enjoy the changing of the leaves and all the beauty mother nature has to offer!

Jon

Sources:

1. https://www.ft.com/content/f7753164-ed81-3426-a6a1-9abb09662cb5?emailId=5bdfbc925eaf2e00045da5e1&segmentId=22011ee7-896a-8c4c-22a0-7603348b7f22
2. https://www.marketwatch.com/story/why-falling-stock-prices-could-lead-to-a-long-deep-recession-2018-10-29
3. https://www.marketwatch.com/story/sp-500-on-the-brink-of-notching-this-nearly-50-year-record-as-stock-market-swoons-2018-10-30?siteid=yhoof2&yptr=yahoo
4. https://www.marketwatch.com/story/mondays-fading-stock-market-rally-is-evidence-that-the-worst-is-far-from-over-for-wall-street-2018-10-29
5. https://www.marketwatch.com/story/consumer-confidence-surges-in-september-to-18-year-high-near-all-time-peak-2018-09-25
6. https://elite.finviz.com/futures.ashx
7. http://alphadroid.com/InfoPages/Market-Sentiment2.aspx
8. https://www.washingtonpost.com/news/wonk/wp/2018/06/06/the-labor-market-is-the-best-its-been-since-1970-but-not-if-you-want-a-raise/?noredirect=on&utm_term=.289937a91bfe
9. https://www.wsj.com/articles/u-s-economy-grew-at-3-5-rate-in-third-quarter-1540557378

Markets posted strong gains last week after struggling for much of October. The S&P 500 had its best weekly performance since May, and the NASDAQ had its first positive week since September.[1] Despite domestic markets dropping on Friday, November 2, the S&P 500 added 2.42%, the Dow increased 2.36%, and the NASDAQ gained 2.65%.[2] International stocks in the MSCI EAFE were also up 3.34%.[3]

What drove market performance last week?

We received a fair amount of data and reports, with the following details holding particular weight for investors:

• U.S. - China trade updates were inconsistent.
  Stocks fluctuated widely on Friday, in large part because of contradictory updates on a potential trade deal between the U.S. and China. President Trump said the two countries are a lot closer to an agreement. Larry Kudlow, Trump's economic advisor, shared a different perspective, indicating the U.S. is not working out a trade deal with China. These conflicting reports contributed to volatility in the markets as investors tried to determine exactly where we stand. [4]  
• U.S. corporate earnings were strong but imperfect.
  So far, the 3rd quarter earnings season has been a strong one. Of the 74% of S&P 500 companies that have released their data, 78% have beaten their earnings-per-share estimates, and earnings have grown 24.9% year-over-year.[5] However, concerns for at least one major tech company's projections affected investor behavior.[6] In addition, analysts predict that in 2019, earnings growth will not match the double-digit results we've experienced this year. [7] 
• Labor market growth beat expectations.
  The economy added 250,000 jobs in October, a stronger increase than expected. Wages also rose, posting 3.1% growth over the prior year, the fastest annual growth since 2009.[8] Investors interpreted these results to mean that the Federal Reserve would continue raising interest rates at its projected pace.[9]

Where should you go from here?  

If you felt at all whipsawed by last week's price fluctuations, especially after October's declines, you weren't alone. Even if you know that market volatility is normal, it can feel intense in the moment. Right now, many investors are also jumping in and out of popular, crowded stocks, causing market levels to shift more quickly than many people are used to. To navigate these accelerated changes, you need to remove emotion from investing decisions and stick to your long-term vision even more.[10]

Rather than trying to predict what stocks will do in the immediate future, we are here to help you plan for the financial life and legacy you desire. Please let us know if you have any questions about where you are and how to pursue your future.

Economic Calendar

• Monday: ISM Non-Manufacturing Index
• Tuesday: JOLTS
• Thursday:Jobless Claims
• Friday: PPI-FD, Consumer Sentiment

Sources: