Schwartz Financial Weekly Commentary 8/28/17

The Markets

Hope floats.

Optimism about possible pro-growth economic policies, including tax reform and deregulation, helped U.S. stock indices finish higher last week, reported Barron’s. It wasn’t all smooth sailing, though. Stocks bobbed up and down as investors’ optimism was weighted by concerns about a possible debt-ceiling battle and government shutdown.

CNN offered some insight to the historic economic impact of government shutdowns on productivity:

“The last time the government was forced to close up shop – for 16 days in late 2013 – it cost taxpayers $2 billion in lost productivity, according to the Office of Management and Budget. Two earlier ones – in late 1995 and early 1996 – cost the country $1.4 billion.”

For investors, it’s important to distinguish between a shutdown’s potential effect on the U.S. economy and its possible impact on U.S. stock markets. A source cited by The New York Times reported:

“…during all 18 government shutdowns, starting in 1976…the Standard & Poor’s 500-stock index averaged just a 0.6 percent loss over the course of those closures. Early on in shutdown history, investors reacted very negatively. Closures in 1976 and 1977 coincided with 3 percent declines in the [S&P 500].

As investors grew more accustomed to shutdowns, they seemed to become more blasé about them. During the mid-1990s and the 2013 closure, for instance, stocks actually rose. They gained 3.1 percent during the 2013 stoppage.”

Bond investors were relatively calm last week, according to Financial Times. Although, there were signs of “debt ceiling jitters.” Yields on U.S. Treasuries that mature in October (when a shutdown may occur) rose on concerns investors might not be repaid in a timely way.

No matter what happens in September and October, keep your eyes on the horizon and your long-term goals.

Data as of 8/25/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.7% 9.1% 12.5% 6.9% 11.6% 5.2%
Dow Jones Global ex-U.S. 1.0 16.6 14.7 0.4 5.1 -0.4
10-year Treasury Note (Yield Only) 2.2 NA 1.6 2.4 1.7 4.6
Gold (per ounce) -0.8 10.9 -2.7 0.0 -5.1 6.8
Bloomberg Commodity Index 0.1 -4.8 -2.1 -12.8 -10.5 -6.6
DJ Equity All REIT Total Return Index 2.1 6.3 1.3 8.5 9.9 6.8
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s,, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

millennials are killing it! A recent article in Buzzfeed listed headlines announcing the various things Millennials have “killed” or are “killing.” The list included Big Oil, the NFL, the workday, the cereal industry, and bar soap.

Here’s another industry that is being undermined by millennials’ preferences: cable and satellite television. Millennials are leading a viewing revolution. They are unwilling to ante up for cable and satellite subscriptions, preferring less expensive Internet and streaming services that provide content via the World Wide Web.

A 2017 survey from Videology found more than half of millennial men (ages 18 to 34) have stopped paying for cable, and Forbes reported:

“…on average, the 30-and-under crowd’s primary means of consuming content is through mobile devices, streaming, and online. That’s in sharp contrast to the over-30 crowd who still rely on television for an average of more than 80 percent of their film and TV show viewing.”

The waning popularity of cable and satellite TV appears to have a lot to do with cost. The typical household paid more than $1,200 a year, on average, for cable and satellite television in 2016, according to Nerdwallet – and the cost increased in 2017. Consumer Reports wrote, “Most pay TV companies have announced modest price hikes, but there are also new hidden fees.”

Budget-minded millennials may be having an influence on older generations whose preferences appear to be changing, too. GfK, a market research company, reported:

“New findings…show that U.S. TV households are embracing alternatives to cable and satellite reception. Levels of broadcast-only reception [a.k.a. antenna reception] and Internet-only video subscriptions have both risen over the past year, with fully one-quarter (25 percent) of all U.S. TV households now going without cable and satellite reception.”

So, what kind of savings can be generated when you cut the cable? It all depends on what you currently pay, but it may be worth crunching the numbers.

Weekly Focus – Think About It

I find television very educating. Every time somebody turns on the set, I go into the other room and read a book.”

–Groucho Marx, American comedian

Value vs. Growth Investing (8/25/17)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market 0.84 10.09 -1.49 1.52 14.58 8.83 13.91
US Core 0.72 10.72 -1.28 1.33 15.30 9.93 15.00
US Growth 0.75 16.97 -1.95 1.65 16.78 9.31 13.90
US Large Cap 0.73 11.50 -0.85 2.06 15.81 9.40 13.90
US Large Core 0.58 12.73 -0.58 1.99 17.62 11.01 15.50
US Large Growth 0.61 18.64 -1.56 1.97 18.24 10.12 14.34
US Large Val 1.02 3.81 -0.34 2.17 11.72 7.07 11.95
US Mid Cap 1.07 7.82 -2.58 0.26 11.86 7.57 14.34
US Mid Core 0.99 7.81 -2.49 -0.04 10.10 7.54 14.16
US Mid Growth 1.14 13.46 -2.36 0.88 13.26 6.96 12.71
US Mid Val 1.09 2.36 -2.94 -0.11 12.22 8.14 16.19
US Small Cap 1.30 2.58 -4.88 -0.41 9.96 6.50 12.75
US Small Core 1.31 0.98 -4.57 -1.15 9.02 6.54 12.95
US Small Growth 1.08 9.74 -5.14 0.37 11.66 7.31 12.47
US Small Val 1.52 -2.71 -4.92 -0.46 8.90 5.56 12.74
US Value 1.06 3.06 -1.18 1.54 11.67 7.20 12.8
 ©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

 Office Happenings:

The Trump Bump

If I am or I am not currently your financial advisor, I recommend you read the following story:

A singing bird was confined in a cage which hung outside a window, and had a way of singing at night when all other birds were asleep.

One night, a bat came and clung to the bars of the cage. The bat asked the bird why she was silent by day and sang only at night.

“I have a very good reason for doing so,” said the bird.  “It was once when I was singing in the daytime that a fowler was attracted by my voice.  He set his nets for me and caught me.  Since then, I have never sung except by night.”

The bat replied, “It is no use your doing that now when you are a prisoner.  If only you had done so before you were caught, you might still have been free.”

What you just read is an old Aesop fable called The Caged Bird and the BatYou may have heard me quote from it before.  The reason I’m quoting it is because the moral, or lesson, behind the fable is something every investor needs to consider, especially right now.

What is the moral?  Here’s how I would put it:

Precautions are useless after a crisis! 

You probably know that the markets have enjoyed a very strong year.  As of this writing, the S&P 500® is up over 8% for the year.  The same is true for the Dow®.  In fact, the markets have been on a tear ever since the elections last November, in what many pundits are calling a “Trump Bump” or “Trump Rally.”

And that’s a good thing!  It’s always nice when the markets do well.

BUT.  (And there’s always a “but.”)

When speaking with investors, I often run into people who want to be extremely aggressive in chasing high gains.  “The markets are doing great!” they say.  “Now’s the time to make a lot of money!”

Unfortunately, the sad truth is that when the markets reach record highs, many investors become irrationally exuberant and make the classic mistake: instead of buying low and selling high, they do the opposite.  They become lulled into a false sense of security.

Make no mistake, it’s exciting when the markets do this well.  But that excitement is an emotion, and investing based off emotion is always a one-way ticket to trouble.

Now, before we go any further, let’s stop for a moment and agree on what I’m NOT saying.  I’m NOT saying you should feel worry, or fear, or any other negative emotion.  I’m NOT saying the markets are going to drop tomorrow.

Here’s what I am saying:

When’s the best time to buy a home-security system?  Before a break-in.  When’s the best time to check your blood pressure?  Before you start having chest pains.  When’s the best time to put your seat belt on?

You get the idea.

This whole philosophy of taking precautions before a crisis is especially important when it comes to finances, for one very good reason.  It’s relatively easy to figure out why the markets are doing well.  But it’s very hard to predict what will make the markets do poorlyTo see what I mean, let’s examine the current market euphoria.  More specifically, let’s ask ourselves, “Why are the markets doing so well?”

The answer is that it’s probably a combination of factors. Our country’s unemployment rate continues to do well, hitting a 10-year low of 4.4% back in April.  Many investors continue to be enthusiastic about the prospect of corporate tax cuts and deregulation, two policies that both President Trump and a Republican Congress have championed. In addition, many companies are reporting strong earnings, making them attractive for investors. Finally, sheer momentum could be playing a role. The fact is, we’ve enjoyed a long-running bull market for years now, interrupted by only the occasional bout of volatility.

See what I mean?  It’s easy to explain why things are going well in the present.

But what about predicting what will go wrong in the future?  That’s harder to do.  Sure, it’s easy to come up with possibilities.  Maybe Brexit will bring on the next bear market.  There are a lot of questions in the air about how the separation between the UK and the European Union will affect trade, scientific research, or currencies.

Speaking of trade, maybe it will be our own trade policies.  President Trump has repeatedly threatened to back out of or renegotiate trade deals (including NAFTA).  What if he goes too far, and a trade war breaks out?  Or maybe it will be Congress.  Maybe Republicans won’t be able to deliver on all the tax cuts and deregulation they’ve promised.  Maybe it will be a new housing bubble.  Our neighbors to the north, Canada, are currently stressing about a dramatic rise in housing prices, and what will happen if prices suddenly drop.  Could the same happen here?

The point is, it could be any of these things, or all of these things, or none of these things.  We won’t know until after it happens.  Pundits and politicians and analysts will all make educated guesses, and someone will probably be proven right.  But we can’t know.

And that’s why it’s so important to start preparing now.

So, what have we covered so far?

  • The markets are doing well, and that’s great.
  • At some point, however, volatility will return. Maybe it will be nothing more than a brief correction, or maybe it will be a full-blown bear market.
  • Since we know that precautions are useless after a crisis, we must start preparing now.

What do I mean by preparing?  Well, there are a few things both you and your advisor can do.  I don’t know what your current advisor’s plans are, but at least I can show what I’m currently doing.

Our philosophy is that taking on risk will always be a part of investing—but we can manage risk by allocating your assets properly.  Furthermore, we can diversify your investments within each asset class.  You see, even during market volatility, asset classes don’t behave the same.  For example, stocks and bonds don’t necessarily move in sync.  And even within an asset class, like stocks, individual investments don’t move in sync.  Domestic stocks could go up when international stocks go down, or vice versa.

This means that just because some investments might go down, that doesn’t mean all of them will.  You’ve heard the cliché of “not putting your eggs in one basket.”  It’s a cliché because it’s good advice.

So here’s what my team and I are currently doing for our clients:

  1. Monitoring Washington and the markets closely.
  2. Examining the current weighting of their portfolio to ensure it’s still a good fit for their needs, goals, and the economic climate. If we ever feel a change is needed, we let them know.

Here’s what you can do.

  1. Accept the fact that what goes up must come down. Perhaps this “Trump Bump” will last months or even years yet.  But eventually, significant market volatility will return.  Take some time to think about that.  How will you react to it, when it comes?  Coming to grips with the certainty of it can make it easier to handle when it comes.
  2. Consider creating a rainy-day fund if you haven’t already. When most people save, they tend to just throw everything into one savings account and withdraw money whenever they need or want it.  Instead, I suggest creating a separate type of savings account: one that can only be touched whenever the unexpected happens.  Every month, devote a set percentage of your income to the rainy-day fund in addition to your regular savings.  Then, when the unexpected happens (like a bear market, for example), you will find yourself in a better position to deal with it—because you’ve already set aside the funds to do so.

As a financial advisor, I consider it a major part of my job to help people prepare for the future.  The markets are doing fantastically well right now—which means now is the time to prepare for when they aren’t.  The point of this letter isn’t to cause alarm, but rather awareness.  By being constantly aware of potential bumps in the road, we can do a better job of handling them when they come—keeping you on a straight path toward your financial goals.

If you ever would like a second opinion on how your own portfolio is weighted (for both good markets and bad), or need help with preparing for the next bout of market volatility, please feel free to call me at 215-886-2122.  In the meantime, always remember my team and I are here – both when the sun is shining, and when it’s time to pull out an umbrella.


Michael L. Schwartz, RFC®, CWS®, CFS

P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Michael L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and advisory services through Independent Financial Group, LLC., a registered broker-dealer and investment advisor.  Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.


* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.


* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 


* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.


* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.


* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.


* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.


* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.


* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.


* Past performance does not guarantee future results.


* You cannot invest directly in an index.


* Consult your financial professional before making any investment decision.


* To unsubscribe from our “market commentary” please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at “”.

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