Would you let a groundhog invest on your behalf? That sounds silly, but at least Punxsutawney Phil has a track record. When he saw his shadow, stocks rose 72% of the time. Phil didn’t see his shadow this year. Does that mean sell? No. Stocks rise 73% of the time whether the groundhog sees his shadow or not.
Punxsutawney Phil is very clear about his strategy, just buy stocks. He doesn’t use language like “cautiously optimistic” to hedge his bets. The varmint is all in. Turning the investment desk over to a rodent doesn’t pass the smell test (in more than one way), however.
On December 20, 2019, the Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act was signed into law. This law affects most retirement savers, as well as employers who offer retirement plans to their employees. The law’s provisions are designed to promote a more secure retirement for individuals, primarily by allowing more flexibility and accessibility relating to retirement accounts. How does this law affect you? Below are some of the key highlights and other provisions:
To provide a little additional time for retirees to grow their retirement accounts, the required minimum distribution starting age has been increased from age 70½ to age 72 for individuals who were born on or after July 1, 1949. Under the old law, the first RMD was due on April 1 of the year after the individual turned 70½. Under the new law, the first RMD is due on April 1 of the year after the individual turns 72. Subsequent RMDs remain due by December 31st.
Some feared the near-bear drawdown of late 2018 was the beginning of the end of the bull market. Indeed, many market commentaries mention being “late in the market cycle”. Age will not signal the end of this bull, however. The S&P 500 gained 31.5% even as the largest drawdown for the year was 7%, about half of the annual historic average. Asset classes rose across the board with the Barclays Aggregate Bond Index up 8.7% and international stocks up 22%. A fairly conservative diversified portfolio might have returned “only” 15% last year.
We are still a long way from euphoria, though, as a December poll of likely US voters revealed that only 40% of them thought the stock market had increased in value in 2019. 42% thought the market was flat while 18% thought it had gone down. Rather than euphoria, this market is responding to chatter around politics, IPOs (ARAMCO and WeWork), and yield curve inversions with a shrug of the shoulders.
Thanksgiving is a time for turkey, pumpkin spice everything, and – most importantly – reflection on what we are thankful for. This is also the time of year for the cliché awkward family argument, whether it’s about politics, bitcoin, or jockeying for who still has to sit at the kids’ table. The most controversial topic at my house revolved around cranberry sauce, but in the world of financial advice, the active versus passive investment debate is still in full swing.
We at Fairway see the debate as settled: active management is hobbled by fees, performance generally lags benchmarks, and persistence of performance is minimal.
Fairway is looking to add to our wealth management staff. We’re seeking client-focused, career-oriented professionals who want to learn the wealth management business in support of our team of Wealth Managers. Strong people skills, a passion for helping people, and an accounting and/or finance education and background are key traits. See the attached job description for more information.
Saying the market hates uncertainty is cliché because uncertainty is the only constant in the market. Otherwise there would be no risk and returns would be miniscule. Lately, though, there have been three sources of outsized uncertainty: US/China trade, Brexit, and the Federal Reserve. October may have been the beginning of the end of these extended episodes of uncertainty, perhaps shifting markets back to normal sources of worry.
After almost two years of tit-for-tat and sometimes tweet-for-tweet sparring over trade, the United States and China may have stumbled upon a framework for resolving the dispute. Instead of one over-arching deal wrapping everything up, a series of agreements seems to be the way forward. Previous rumors of progress have fallen victim to a cycle of: announced progress -> markets rise -> no real progress is made -> one side announces increased tariffs on the other -> market sells off. However, by working in mini-deals perhaps progress can be locked in while the next phase is negotiated.
The S&P 500 is up over 20% through September 30th. Real estate is up almost 28%. Even the Barclays Aggregate Bond Index is up over 8%. Unemployment is incredibly low at 3.7% and wage growth is picking up. Inflation is tame at under 2%. The United States, particularly relative to the rest of the world, is doing well. So why is there so much bad news in the media?
Short-term uncertainties dominate today’s news cycle. These short-term fears are contagious and political. Trade war, Brexit, US elections, and the Middle East defy simple explanation. Even as it brushes new all-time highs, the stock market has only gained about 7% over the last 20 months. Should we be skeptical of the markets going forward?
Midway through August nearly every media outlet posted a RECESSION headline. Even the Cleveland Plain Dealer ran a front-page story. The yield curve had inverted (the yield on shorter maturity bonds was higher than longer maturities), leading some to jump to the conclusion that a recession was imminent. After all, the yield curve has “predicted” every recession since 1980.
Yield curve inversion is a leading indicator in a broad sense, though. The “predicted” recessions followed an inversion by an average of 22 months and the yield curve stayed inverted during most of that time. If the yield curve remains inverted for over a year, maybe it would be time to look for other signs of upcoming recession. According to the St. Louis Federal Reserve, our current situation does not fit this pattern.
With a trade war, the Fed’s rate cut, and election season ramping up (none of the challengers will say anything positive about the economy), you may be forgiven for thinking the investing environment is in shambles. However, even after the rough past week, the S&P 500 remains up nearly 15% year-to-date after being up over 20% through July 31. Inflation is low and money is cheap.
What did things look like in December of 2008, the last time the Federal Reserve cut rates, versus what they look like now?
The last time the Fed cut rates, we were heading into the teeth of the Great Financial Crisis. Unemployment was on its way up to 10%. Concerns over “peak oil” boosted oil prices to almost $150/barrel before crashing into the $30 range.
The stock market is either red-hot, extremely average, or still in recovery depending on your perspective. Let’s torture the data until it tells us what we want to hear.
The red-hot stock market
The S&P 500 is up 18.5% and we’re only halfway through 2019! Unemployment is incredibly low. Inflation can’t seem to stay above 2%. The market expects the Federal Reserve to cut rates and Chairman Powell’s dovish remarks encouraged bulls.
Silicon Valley’s unicorns are frolicking in the public markets. Pinterest, Zoom, and Uber are up from their debuts, but the real story is fake-meat. Beyond Meat, a plant-based meat substitute company has soared since its IPO.