Schwartz Financial ­Weekly Commentary 2/12/18

The Markets

Back to reality…

After months of eerie calm, stock market volatility has returned. The CBOE Volatility Index (VIX) – a measure of how turbulent investors expect stock markets to be during the next 30 days – appeared to fall asleep in November 2016. For more than a year, a level of serenity that is rarely associated with stock markets prevailed and U.S. share prices moved steadily higher.

It appears that time is behind us. Barron’s wrote:

“With February’s swift stock market correction, volatility has arrived and will probably stay awhile. The downturn last week ended a streak of 404 trading days without a 5 percent drop in stock prices from the previous high – the longest such streak in market history.

The last correction came in February 2016, when stocks dropped 15 percent. Investors then fretted that Chinese economic growth might be slowing, which turned out to be a false alarm. Long term, the latest nose dive might yet become just a bull speed bump, but there’s already been plenty of pain.”

So, is this a speed bump or is it the beginning of a bear market? A bear market, generally, is a decline of 20 percent or more, and it is normally accompanied by a recession, which is a significant decline in economic activity.

In general, financial firms and publications do not anticipate a recession in 2018, but forecasting recessions can be challenging.

No matter what happens, the key is keeping your head. At times like these, emotion grabs investors by the throat, and it can be difficult to recall markets and economies tend to move in cycles. Historically, bull markets lead to bear markets, which lead to bull markets. Likewise, economic expansions are followed by contractions (recessions), which are followed by expansions.

U.S. stock markets rallied on Friday, but the Standard & Poor’s 500 Index, Dow Jones Industrial Index, and NASDAQ all finished the week more than 5 percent lower.

Data as of 2/9/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -5.2% -2.0% 13.5% 8.6% 11.5% 6.9%
Dow Jones Global ex-U.S. -6.3 -2.7 16.0 4.4 3.7 0.9
10-year Treasury Note (Yield Only) 2.8 NA 2.4 2.0 2.0 3.6
Gold (per ounce) -1.3 1.4 6.3 2.0 -4.5 3.7
Bloomberg Commodity Index -3.9 -2.9 -3.3 -6.1 -9.4 -8.0
DJ Equity All REIT Total Return Index -4.2 -9.6 -2.9 1.9 6.7 7.3
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.

market downturns are not a destination. Markets and economies are cyclical. For instance, from 1945 through 2009 (the start of the current expansion), the United States experienced 11 economic cycles. The average recession lasted for about 11 months and the average expansion persisted for about 58 months, reported the National Bureau for Economic Research.

After the recent market decline, many people are concerned the bull market may have run its course, and a bear market may be ahead. Since bear markets usually mark the beginning of recessions, let’s take a look at what some leading financial companies and publications have to say about their expectations for 2018:

“The U.S. expansion is on course to become the longest on record, stirring concerns it is about to run out of steam. But is it? The recently enacted tax overhaul and higher federal spending could add 0.8 percentage point to U.S. GDP growth in 2018, we estimate. This could tip the balance toward accelerating growth. Such a boost could shorten the cycle’s expiration date to two or three years.”

–BlackRock Investment Institute, February 7, 2018

“Most analysts think that while profits are growing and the economy is healthy, the stock market will be supported. But there is scope for a lot more choppiness as investors await the Federal Reserve’s rate decisions and look for data to indicate whether inflationary pressures are rising.”

–The Economist, February 8, 2018

“Perhaps the over-arching risk is complacency. While the current conjuncture might appear to be a sweet spot for the global economy, prudent policymakers must look beyond the near term…The next recession may be closer than we think, and the ammunition with which to combat it is much more limited than a decade ago, notably because public debts are so much higher.”

–IMF Blog, January 22, 2018

“While we expect volatility will be higher this year than in 2017, with company fundamentals looking solid and synchronized global economic growth set to continue, it seems reasonable to expect that stocks will move higher over the coming year.”

–J.P. Morgan Asset Management, February 5, 2018

“An overheating global economy could mean a more rapid shift by central banks to rein in stimulus, often a precursor to recession. Yet, we still believe a recession is not on the near-term horizon.”

–Schwab market commentary, February 9, 2018

Forecasting is a difficult task. Time will tell.

Weekly Focus – Think About It

“Stock market goes up or down, and you can’t adjust your portfolio based on the whims of the market, so you have to have a strategy in a position and stay true to that strategy and not pay attention to noise that could surround any particular investment.”

–John Paulson, Investment manager

Value vs. Growth Investing (2/9/18)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market -5.08 -2.05 -4.74 1.74 15.04 10.49 13.60
US Core -4.73 -3.24 -5.55 0.20 13.39 10.14 13.81
US Growth -5.14 0.76 -3.32 3.63 23.72 11.85 15.08
US Large Cap -5.16 -1.57 -4.50 1.94 16.91 11.16 13.99
US Large Core -4.78 -3.10 -5.58 -0.31 14.81 10.87 14.39
US Large Growth -5.05 1.79 -2.73 4.53 26.59 12.92 16.13
US Large Val -5.66 -3.45 -5.25 1.59 9.69 9.61 11.44
US Mid Cap -4.79 -2.93 -5.21 1.50 11.40 8.99 12.97
US Mid Core -4.62 -3.50 -5.47 1.34 11.24 8.37 12.72
US Mid Growth -5.36 -1.61 -4.90 1.55 16.65 8.84 12.24
US Mid Val -4.38 -3.70 -5.28 1.64 6.22 9.67 13.92
US Small Cap -4.99 -4.46 -5.94 0.36 6.93 7.90 11.31
US Small Core -4.45 -3.97 -5.43 2.16 6.88 8.37 11.62
US Small Growth -5.38 -3.07 -4.92 0.17 14.91 9.07 12.04
US Small Val -5.15 -6.31 -7.48 -1.22 -0.85 6.14 10.16
US Value -5.36 -3.70 -5.41 1.42 8.27 9.40 11.88
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:

Do you make this common mistake with your investments?

Hello, Risk.

Last week I sent to clients a letter following the big gyrations in the market. The opening line was, “Hello volatility, my old friend.”

A cousin of volatility is risk.

Different people can tolerate different amounts. Someone who thoroughly understands long-term investing may have a relatively low “risk tolerance.”  By that, I mean they don’t stay awake at night if the market is jumping around.

For other people, if the market takes a 10% dive and a $500,000 portfolio is suddenly $50,000 leaner, they can’t sleep at night. They see retirement or legacy dreams going poof.

A common mistake many investors make, however, is paying no attention to their risk tolerance.

For a long time, there was no way for financial advisors to measure risk. If we could do that, we could design a portfolio that would enable someone to sleep better in virtually any market.

Well, I have good news.  Now we can.

That’s the reason for this article.

As volatility and its cousin, risk, play their endless games, let’s you and I get together, take a look at your investments, and find out if you are invested appropriately, given your personal risk tolerance.

We can, in my experience, measure that quite accurately.

Here’s how.

In an article from the New York Times, As Stocks Gyrate, It’s Time to Measure Your Risk Tolerance,[1] Robert Lieber listed several resources that offered help in analyzing an investor’s risk tolerance.

The one I subscribe to is Riskalyze.(click on the link to determine your risk number we will be happy to stress test your portfolio without obligation)

As Lieber pointed out, there are three broad steps in determining risk tolerance.

  • Find out what you want to do, by when, and how much risk that will require.
  • Find out your risk capacity. “Can your plan withstand major events that you may not expect, like a mentally ill adult child who requires expensive treatment, the death of a spouse or your own disability?”
  • “Risk tolerance is the third and final step, and it’s all about feelings and personality.”

Did the author ever get that one right!

So, what I would like to offer you, is a fresh look at you, your risk tolerance, and whether or not your investments are going to give you a wilder ride than you would like.

So, call me at 215-886-2122. There’s no cost or obligation. We will do the analysis, and if your risk tolerance and investment risk are the same order of magnitude, I will send you on your way. But if there is a disconnect between these, we should continue having a conversation.


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 “”.

[1] As Stocks Gyrate, It’s Time to Measure Your Risk Tolerance, NYTimes, Feb 12, 2016.

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