January 2018 Monthly Summary

January took a page from 2017 and continued the momentum with another strong month for stocks. The Dow Jones rose 5.79% and the Nasdaq Composite gained 7.36%, making January the best stock month since March 20161. Meanwhile, interest rates were climbing, which caused the Barclays Aggregate Bond Index to begin 2018 down 1.22%. The precipitous rise in stocks was soon met with panic at the end of January that continued into the first full week of February. At the time of this writing, almost all of these January gains have been given back.

In our newsletter that we published last month, we highlighted that 2017 was an abnormal year. It was strong month after month with very little volatility. I noted that the largest drawdown was a very docile 3%. Unfortunately, 2018’s late January-early February antics have already given us a 7% drawdown with a 4% loss on February 5th alone.2 2018 will not be for the faint of heart investors.

These big swings in the market have been absent for long enough that we might have forgotten that stocks can (and often will) behave erratically. The chart [to the left] is a chart I revisit every once in a while. It shows the milestones that the Dow Jones has hit since we emerged from the Great Recession. The first thing to realize is that as we continue to follow the Dow’s climb upward, the milestones become less relevant in terms of percentage increase. The seven trading days it took for the Dow to climb 1,000 points doesn’t seem so incredible when you see that the percentage change from 25,000 to 26,000 is only 4%. As painful as it is, we shouldn’t be too panicked to see the Dow drop 1,000 points at these levels either.

Another important detail to take from the chart is that the market often moves in stages, not necessarily in a predictive pattern, but rarely in a straight line. You can see that the trek from Dow 14,000 to 18,000 took less time (98 weeks) than the 1,000 point trek from Dow 18,000 to 19,000 (100 weeks). I am not suggesting we are going to take another 100 week pause in stock growth. However, when the market has been up for 15 consecutive months, a pull back was bound to happen eventually.

Here we are today, contemplating if a new correction is upon us. Volatility surrounds us, so we resort to taking note of the fundamentals. GDP for the fourth quarter is estimated to be a healthy 2.6%.1 Corporate earnings are still reporting strong and the tax reform passed in December should help strengthen earnings going forward. Although the Fed won’t admit to “listening” to the stock market, they seem to hear what Wall Street is telling them. The market is nervous about interest rates rising too quickly and the Fed won’t want to rock an already shaky boat.

We encourage our clients to be patient and diligent with their personal stock maximums. We believe higher returns are around the bend.

 

1PMC Weekly Market Review, February 2nd, 2018

2Thomson Financial

 

IMPORTANT DISCLOSURES
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Securities and investment advice offered through Investment Planners, Inc. (Member FINRA/SIPC) and IPI Wealth Management, Inc., 226 W. Eldorado Street, Decatur, IL 62522. 217-425-6340.

November 2017 Monthly Summary

We have said it many times this year, 2017 has been a very good year for investors. The year has had its drawbacks politically and socially, but most investors should be happy seeing their account statements through November. With the latest GDP data showing a growth rate of 3.3%1 and unemployment at full employment levels, it is not surprising that stocks have responded. For November, the S&P 500 was up another 3.1% while the NASDAQ was up 2.3%. With investors taking on more risk, the traditionally safer bonds were slightly down for the month. The Barclays Aggregate Bond Index is up a very unimpressive 3.23% so far in 2017.2

Although stocks are up across the board, there are stark differences in performance again between growth and value. This is the third such year in a row where growth and value have traded significant performance variations. Looking back over the past fifteen years, this kind of phenomenon happens more often than you might think. Even though 2010 through 2014 large cap growth and value tracked each other very closely, the chart below shows 2004 through 2009 had four years with variations of 10% or more. If your portfolio has an emphasis on value this year, your performance might be lagging behind a little. It isn’t necessarily anything to be concerned with and is par for the course with stock investing.

In regards to interest rates, we fully expect short term rates to rise when the FOMC meets in mid-December. This shouldn’t affect too much, but will help nudge CD rates up a little bit. The Fed has been pretty transparent about its intentions with rate changes and the market appreciates not having any surprises. Tax reform success or failure will be the main potential catalyst that could significantly impact the profits investors have garnered this year. We have two versions of tax reform developed and the market is expecting some morphed combination of the legislation to actually be signed by the President before year end.

There are two main goals of the tax changes: 1) Cut taxes for corporations to encourage companies to come back to the US and 2) Simplify the tax code. Although campaign promises might have implied this would be a tax cut for all mankind, it doesn’t appear to be the case. Tax reform is not the same as a tax cut, but hopefully we will see an end product that accomplishes the goals and helps put a little bit of extra money in our bank accounts when it’s all over.

In other news, we just held our client appreciation banquet and had our biggest event ever! We will have more on this in the newsletter. We are truly honored to work with all of our wonderful clients and value the trust you place with us. May we all have a very blessed Christmas and Happy New Year to come!

 

1Bureau of Economic Analysis

2Thomson Financial

 

IMPORTANT DISCLOSURES
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Securities and investment advice offered through Investment Planners, Inc. (Member FINRA/SIPC) and IPI Wealth Management, Inc., 226 W. Eldorado Street, Decatur, IL 62522. 217-425-6340.

October 2017 Monthly Summary

The S&P finished up over 2.3% for the month of October as we continue to break stock market records on almost a weekly basis.1 Those who would have heeded the theory of “Sell in May” would have missed out on 7.5% market gains over the last five months. Corporate earnings have been strong for the most part, but probably most of the optimism in the equity markets had to do with more specifics coming to light on how tax reform legislation will be taking shape. In particular, the tax legislation is geared to reduce the corporate tax rate and allow corporations to repatriate cash sitting in foreign banks.

Investors continue to be blessed with a great 2017. Our economy is never perfect, but we have much to be thankful for. Unemployment dipped down to 4.1%, a level not seen since 2000 and GDP estimates are coming in pretty strong.2 Fittingly, we find ourselves in November, a time to count our blessings and give thanks.

I just returned from my family’s routine trip to Phoenix, where we act like kids for a weekend playing baseball on the Major League spring training fields. Our team played great, I’m sure we will have details in a newsletter article soon. The real news is that I’ve finally wised up and realized the true purpose and meaning of it all. What a ruse I have been a part of! Until now, Phoenix has always been about playing baseball and trying to get that championship ring. It has also been a great time to reconnect with my Minnesota brother and his family, and now that my son has been out of the house at college, it has become a great opportunity to catch up with him as well.

This year the light went on. We all work hard and play hard, but families often don’t take the necessary time to just be together. During one of our ball games I was playing third base and thought to myself, “I have a 73 year old father playing first base right now and my son is pitching on the mound. How lucky am I?” Definitely a memorable moment, but the special times come afterwards while talking over dinner, eating pizza by the hot tub of our hotel, or having long talks while waiting on our plane at the airport.

Make no mistake, I want that championship ring next year, but the family time is what I will truly cherish. Enjoy this month of Thanksgiving. May it be full of blessings and good cheer with your loved ones.

 

1 Thomson Financial

Bureau of Labor Statistics

 

IMPORTANT DISCLOSURES
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Securities and investment advice offered through Investment Planners, Inc. (Member FINRA/SIPC) and IPI Wealth Management, Inc., 226 W. Eldorado Street, Decatur, IL 62522. 217-425-6340.

August 2017 Monthly Summary

 

August gave us hurricanes and missile launches, but the streak of positive returns for the S&P 500 index continued. This large cap index was up a meager 0.31% while most small, mid, and international equities were actually negative for the month.1 Euphoria in the markets was absent, so the nervous money went into treasuries. The 10 Year Treasury rate dropped from 2.30% down to 2.12% as a result2, helping the Barclays Aggregate Bond Index jump 0.93% in August.

We had second quarter GDP revised to 3%, up from 2.6% and unemployment still hovers near decade lows at 4.4%.3 However, inflation has been coming in below the Fed target. Some wonder if the Fed will have enough reason to make a third rate increase this year with all the conflicting evidence regarding the economy’s health.

This will all be figured out in time. What is really weighing on our hearts and minds right now is the onslaught of hurricanes hitting the southern states. Gas prices have risen particularly since roughly one third of the US refineries are located in Texas and Louisiana. The cleanup of Hurricane Harvey in Houston and adjoining areas are still ongoing, but is expected to be one of the most expensive hurricanes in history. The total costs haven’t been quantified yet and we already have Hurricane Irma anticipated to hit southern Florida in just a few days with potentially even stronger forces.

From an investing perspective, these types of events can affect stocks in a variety of ways. Some insurance company stocks will suffer from the high flood related claims coming down the chute. Some oil stocks will drop if their production capability is hindered, while others will cash in on the higher energy prices. Home improvement stocks have already seen a jump in anticipation of increased revenue.

Our primary concern right now is for the people in the path of these hurricanes. This is obviously a stressful time for those living, or who have friends and family living, in the Texas, Louisiana, and Florida areas. We hope everyone remains safe and out of harm’s way.

1 Thomson Financial

2 www.treasury.gov

3 PMC Weekly Market Review, September 1, 2017

 

IMPORTANT DISCLOSURES
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Securities and investment advice offered through Investment Planners, Inc. (Member FINRA/SIPC) and IPI Wealth Management, Inc., 226 W. Eldorado Street, Decatur, IL 62522. 217-425-6340.

July 2017 Monthly Summary

All-time highs continue to be surpassed with stocks as the S&P 500 was up another 2% in July.  Interest rates held steady while the Barclays Aggregate gained another 0.46% last month.1  The pattern of positive economic data continues, although there hasn’t been a catalyst of tax reform or legislative changes to justify a continuation of the Trump Bull Run.  We aren’t concerned just yet.

From a fundamental analysis of the markets, we believe that prices are a little above fair value.  Unless we have a large increase in corporate earnings, our economic models might indicate that the market is over-valued if we see another 10% jump in the markets.  To put this in perspective, our economic model hasn’t declared stocks being over valued since the dot-com markets of the early 2000s.  Rest assured, we will continue to evaluate market conditions and suggest changes based on your personal risk tolerance and circumstances.  Remember, those “animal spirits” we discussed in the April Summary could keep this market moving well beyond what any analysis can predict.

It is hard to pinpoint when the indicator will turn from stock maximum to minimum because there are a lot of moving parts when analyzing valuations at the macro level.  Interest rate movements in today’s environment will be a strong influence, but with the US Dollar showing weakness, corporate earnings will be just as important.  One disturbing trend with interest rates is how bond values have increased in interest sensitivity.  The chart below shows that the Barclays Aggregate has averaged a 4.8 duration, but is currently at 6.  This means that an increase in interest rates will have a more profound negative effect on bond values than we have seen in decades.  This makes for quite a challenging investment quandary as we look for non-stock investment alternatives.  Bonds may not be the safe haven they were once thought to be.

As I sent the kids off to begin another year of school, I was reminded that summer is nearing its end.  Before we know it we’ll be surrounded by fall colors and holiday decorations.  If you haven’t taken the opportunity to get a vacation in this year, consider doing it now.  Just a quick weekend trip to recharge your batteries can do wonders!  We have had great markets and a solid economy. Seize the opportunity before the dark and dreary temperatures fall upon us!

Enjoy the moments!

 

1 Thomson Financial 

IMPORTANT DISCLOSURES
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Securities and investment advice offered through Investment Planners, Inc. (Member FINRA/SIPC) and IPI Wealth Management, Inc., 226 W. Eldorado Street, Decatur, IL 62522. 217-425-6340.

May 2017 Monthly Summary

This is beginning to sound like a broken record. The S&P 500 was up for the seventh consecutive month. In May, it was up 1.41% with technology continuing to lead the way. Energy was the worst performing sector, plagued with more concerns of a supply glut. On the bond side of the equation, the Barclays US Aggregate Bond index was up 0.77% in May and up an uninspired 2.38% so far in 2017. (1)

Around this time of year, we take stock in what the markets have provided thus far. It is interesting to note that since 1950, any time the S&P 500 has been up over 7.5% after the first 100 trading days of the year, the market has always ended the year positive. In fact, the average annual return of the 23 times this has happened is 23.4%. (2) Although the past can’t predict the future, this is somewhat optimistic that we may hold onto the gains achieved.

Although politically, little has been accomplished, I believe the markets are hopeful of stock-friendly policies down the road like tax reform. After all, this latest bull-run coincides directly with the election results of November. Whether we see increases in earnings or progress in policy changes, there are reasons for the markets to continue rising.

Speaking of policy changes, there are some regulatory rules put in place this June by the Department of Labor (DOL) that will soon change the landscape of financial advisory services. We will update you more as the rules become more defined, but the general intent of the changes are to better protect investors (our clients). In true regulatory fashion, the government-endorsed methods to ensure investors are protected are akin to shooting a housefly with a shotgun. However, we welcome the challenge with our clients’ best interests always in mind.

Our firm has always made recommendations for our clients with their goals and investment objectives as the primary determining factor, so we don’t anticipate significant changes in how we determine which investments or strategies are appropriate for our clients. “Fiduciary” is a term that will be more commonly used after the regulatory changes take place. With the term fiduciary comes greater responsibility for advisors, so we may need to change the way we implement investment strategies going forward. We are looking at solutions that provide better transparency for our clients and continue to allow us to provide the great service that you expect.

There are changes coming, but changes are what keep us young! We will continue updating you in future newsletters or summaries. Of course, call us with any questions or concerns. Until then, don’t forget it is summertime!

1 Thomson Financial

2 First Trust, Talking Points, May 2017

April 2017 Monthly Summary

As strange as it may sound, if you watch enough news about the stock market, you will sometimes hear about “animal spirits”. This is not to be confused with the practice of introspective self-identification. My lightning-fast 11 year old daughter associates the cheetah as her spirit animal, but animal spirits are different. In 1936, John Maynard Keynes referred to animal spirits as a way to explain why humans make decisions toward the economy and the markets in light of, or in spite of, quantitative information. Animal spirits are important to acknowledge because investor fear or confidence in the economy can often have a greater impact on short term market moves than the real economic data has.

In April, the NASDAQ broke through the 6,000 mark while gaining over 2% for the month. The composite was helped mostly by its large technology exposure as that sector has led all sectors in April, the year 2017, and the last 12 months.1 The more broadly diverse S&P 500 composite was up 1% for the month. 2 The animal spirits have been strong for a long time, apparently fueled off the hope of change.

The charts above emphasize how 2017 has shown some peculiar things some associate with animal spirits. Stocks with high earnings growth rates and expensive P/E ratios have done better in 2017 than stocks with slow earnings growth or stocks that are cheaper. We also see this year that larger companies have done better than smaller companies and investing for dividends hasn’t paid off lately. This isn’t to say that there is cause for concern. Animal spirits really tell us that investors are optimistic about the things to come and, not so coincidentally, comes at a time when the Consumer Confidence index is near a 16 year high.3

Although, we may feel more comfortable with the markets moving at a more predictable tortoise pace, these rabbit leaps from one month to the next have been exciting. We will wait to see if there is substance behind these gains. GDP, corporate earnings, and unemployment need to remain positive. If not, the next animal spirit we may encounter may be a bear!

Have a great May as we finally leave the dreary weather behind us!

 

1 Eaton Vance Monthly Market Monitor

2 Thomson Financial

3 http://www.businessinsider.com/consumer-confidence-conference-board-march-2017-2017-3

February 2017 Monthly Summary

February was another strong month for investors, as the bull market continued. The S&P 500 finished up nearly 4%, while the Barclays Aggregate Bond was up 0.69%.1 Even better news, some of the stocks that were holding back performance in 2016 are leading the pack so far this year. In this sense, we are seeing many of our mutual fund and individual stock holdings participating in the 2017 leg of this rally.

This is the fourth consecutive month of positive gains for the S&P 500 with 11 of the last 12 months being winners. This eventually leads to the question of whether we are due for a “reversion to the mean” with a period of losses for stocks. For long term investors, I would argue: does it matter? As long as we don’t see evidence that the market is overheating, then we would not typically encourage younger investors to sell stocks just because they’ve done well. With our retired client base, we still don’t currently see a reason to scale back target stock exposure. It isn’t just because of the market fundamentals either.

The chart below shows how frequent new highs have been for the S&P 500. Bearing in mind, there are around 250 trading days in any given year, you can see that hitting new highs can be a pretty common phenomenon. Of course, the 2000 to 2012 leg of the Mega Bear that included the Dot-com bust as well as the Financial Crisis allowed only a paltry number of all-time S&P 500 highs. We have seen these ice age stock markets happen once every 40 years or so. If you look beyond that era, we shouldn’t be too concerned with hitting new highs time and time again.

There are always countless numbers of things that can steer the markets off its present course. Our main concern in the immediate future continues to be monetary policy. The Fed is giving hints that they might be raising rates a little faster than they originally expected. Although this would only happen if our economy has shown signs of strength, investors might see rising rates as a headwind toward future growth. Stocks could suffer as a result.

Just about every time President Trump tweets or gives a speech, his naturally controversial tone strikes a nerve. So far, his remarks haven’t had any negative impact on stock movements and his rhetoric has been pro-business. If we don’t eventually see results from promises made, there could be backlash, especially if recessionary fears aren’t squashed.

We don’t expect stocks to continue having such a direct route upward with month after month of positive returns. However, we could take on more traditional market movements and still see many more all-time highs in our future. Patience will be rewarded!

1Thomson Financial


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January 2017 Monthly Summary

I often refer to the John Maynard Keynes quote “The market can stay irrational longer than you can stay solvent” as a way of qualifying why stocks do what they do. It helps explain how fear can overshadow fundamentals and your portfolio values could drop from one month to the next without justification. January, was not one of these irrational months.

The S&P 500 gained 1.90% and the Dow Jones Industrial finally ascended through the psychological 20,000 barrier.1 The Trump rally continued through the inauguration and seemed to inch higher with every new executive order that was signed. Although there is great concern for our country in social, economic, and political circles, fear does not seem to be present in investing circles.

Corporate earnings are still strong (overall) and from a fundamental perspective, I believe stocks are still fairly valued. In fact, I would say we are far from seeing fear’s counterpart, greed, take the market irrationally higher than fundamentals would justify.

Bonds and interest rates can behave irrationally also. Although the Barclay’s Aggregate Bond index was up 0.21% in January2, interest rates are still much higher since the election and the Fed is pointing toward more rate hikes this year. Some of Trump’s policies will surely have an influence on trade and if inflation stays relatively tame, we could see interest rates of longer maturities rise. Rates go up, bond values go down, so bond investors would appear to be in a predicament.

That is, unless interest rates don’t actually go up. The Fed has been loosening the grip they have on intermediate rates with the conclusion of all the QE programs, so their impact is somewhat limited to the short term bonds and CDs. New executive policies and economic improvements are the real threat to rising rates, but there is still one overwhelming concept that could keep rates low.

America has had its weak moments and still has trillions in debt, but I don’t think I will sound too biased when I proclaim America the greatest and most stable country on Earth. All things being equal, you would expect our government bonds to have relatively low rates compared with other developed countries that aren’t quite as stable. However, what we see today is that our Treasury bonds are higher than the Europe and Asia equivalents. You can bet our bonds will continue to be a very popular place for foreign investment for years to come. This alone will add immense pressure forcing rates to remain low.

It will take some time to see how the new administration policies and the economy will flesh out pushing interest rates up or down. For now, we will enjoy what the markets have provided and hope 2017 remains rational.

1Thomson Financial

2Wall Street Journal

 

 

Index information is used to represent market performance, but you cannot invest directly in an index. Past performance is not indicative of future results.
Advisory services provided through IPI Wealth Management, Inc. Securities offered through Investment Planners, Inc., member FINRA/SIPC.
The Volkers Group, LLC is not affiliated with Investment Planners, Inc. or IPI Wealth Management, Inc.
Investment Planners, Inc., IPI Wealth Management, Inc. and The Volkers Group, LLC do not provide tax advice.
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Your 1099 and Tax Filing

With the start of a new year, many of us are anxious to get rid of anything having to do with the year past. Filing our taxes as soon as possible usually rates at the top of the todo list. I would like to offer some New Year advice, to anyone that has a brokerage account or mutual funds that are not part of an IRA, and recommend moving them from the top of the list to the bottom (or at least the middle). Doing so may help you avoid the hassle and headache of having to file an amended return.

Certain investment types, such as non-traded Real Estate Investment Trusts (REITs), mutual funds invested in REITs, tax exempt municipal bonds, or dividend paying stocks are likely to experience income reclassification and other adjustments made by the issuers after the original tax statements are mailed. Income reclassification means that some or all of the income that was distributed to investors during the year has changed tax character or tax treatment. This typically involves changing a dividend from qualified to non-qualified, or vice versa. In some cases, a company may have paid out more in distributions than it earned during the year resulting in a reclassification that causes a taxable dividend to become a non-taxable return of principle. These are just a few of the things that take place behind the scenes and depending on when the companies report, corrected 1099s can be issued as late as April 7th.

I have attached a chart that shows the expected tax form mailing dates. If you have an account that may result in a Revised 1099, you should have a footnote that reads something similar to: THIS MAY NOT BE YOUR FINAL TAX INFORMATION SUMMARY. Please heed the warning and wait for your final summary before filing your taxes.

As always, please call your financial advisor with any questions or concerns.

 

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