Schwartz Financial Weekly Commentary 6/18/18

The Markets

Deal or no deal?

Last week opened with heightened trade tensions between the United States and its allies. It closed with the United States imposing new tariffs on $50 billion of Chinese goods. The Chinese declared it was the start of a trade war, reported Financial Times.

U.S. markets largely ignored the potential impact of trade wars on multiple fronts. Barron’s reported the Dow Jones Industrial Average, which includes companies that are vulnerable to tariffs, moved slightly lower. However, the Standard & Poor’s 500 Index shrugged off the possibility of trade wars, and the NASDAQ Composite gained more than 1 percent.

While Barron’s has written the largest risk to the U.S. stock market is the possibility of global trade wars, it appears many investors believe tariffs are a negotiating tactic. Barron’s reported:

“The market’s apparent indifference suggests it doesn’t see these tariffs as the reincarnation of Smoot-Hawley, but just the latest in President Trump’s negotiating tactics. Moving away from his denunciation of Kim Jong-un as “Little Rocket Man” inviting “fire and fury” by missile launches, Trump last week declared the threat from North Korea neutralized. Similarly, many professional investors view the bluster on tariffs as part of Trump’s negotiating tactics, rather than the start of an actual trade war.”

News that monetary policy is becoming less accommodating in certain regions of the world didn’t have much impact on markets either. Reuters reported the Federal Reserve raised its benchmark rate 0.25 percent last week. The European Central Bank is ending its bond-buying program and gave notice it expects to begin raising rates next summer. The Bank of Japan is still easing.

There was a lot of red ink in Asian emerging markets. China’s Shanghai Composite finished the week lower, as well. However, stock markets in Canada and Mexico finished the week higher.

 

Data as of 6/15/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.0% 4.0% 14.3% 10.1% 11.1% 7.4%
Dow Jones Global ex-U.S. -1.0 -2.6 8.3 3.4 3.8 0.4
10-year Treasury Note (Yield Only) 2.9 NA 2.2 2.4 2.2 4.2
Gold (per ounce) -1.0 -0.9 2.5 2.9 -1.5 3.8
Bloomberg Commodity Index -2.5 -0.5 8.4 -4.4 -7.7 -9.1
DJ Equity All REIT Total Return Index -0.7 -2.0 0.3 7.5 7.9 6.9
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, djindexes.com, 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.

sorry America, you’re not in the tournament. If you’ve been watching the World Cup – the global soccer championship – you’ve probably seen the commercials entreating Americans to root for another country since we don’t have a team playing. The ads offer encouragements like, “Iceland could really use your support. We don’t have enough people to do the wave,” and “Cheer for Germany. We gave you the frankfurter!”

If you haven’t already chosen a favorite team, you may want to consider (or not) the insight of economists before making your choice. Since the demise of Paul, the octopus that successfully predicted winners during the 2010 final, various firms’ economists have offered opinions about this year’s possible winner. Financial Times reported:

  • Multinational analysts at a Japanese bank concluded “…using portfolio theory and the efficient-markets hypothesis as well as data on the value, form, and historical performance of players, that France will beat Spain in the final, with Brazil in third place.”
  • A German bank predicted Germany will win, and so did a Swiss bank that relied on unspecified econometric tools to determine that Germans have a 24 percent chance of victory.
  • A Dutch bank concluded Spain will be the big winner.

Perhaps the most interesting analysis was done by the Toulouse School of Economics, which employed automated face-reading software on World Cup sticker albums from the 1970s through the present. They found teams that did better in the group stage had players who looked happier or angrier on the stickers. Happiness showed confidence and anger led to fewer goals allowed.

Weekly Focus – Think About It

“Winning is great, sure, but if you are really going to do something in life, the secret is learning how to lose. Nobody goes undefeated all the time. If you can pick up after a crushing defeat, and go on to win again, you are going to be a champion someday.”

–Wilma Rudolph, American sprinter and Olympic champion

Value vs. Growth Investing (6/15/18)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market 0.15 5.41 3.04 2.14 16.98 12.12 13.57
US Core -0.27 1.16 1.90 0.48 10.97 10.84 12.73
US Growth 1.26 14.99 5.64 5.33 28.96 15.16 17.02
US Large Cap 0.04 5.28 2.78 1.60 17.16 12.65 13.76
US Large Core -0.27 0.58 1.48 -0.22 10.28 11.51 12.85
US Large Growth 1.10 15.23 5.38 4.74 29.56 16.11 17.96
US Large Val -0.86 -0.85 0.88 -0.80 10.65 9.86 10.16
US Mid Cap 0.48 5.20 3.44 2.73 15.95 10.74 13.22
US Mid Core 0.06 1.63 3.02 1.22 12.04 8.97 12.58
US Mid Growth 1.43 12.04 5.52 4.73 24.48 11.67 14.01
US Mid Val -0.17 1.89 1.61 2.12 11.19 11.42 12.97
US Small Cap 0.36 7.45 4.57 6.18 18.19 10.55 12.48
US Small Core -0.18 5.48 3.96 5.36 14.77 9.78 12.17
US Small Growth 1.82 14.47 5.57 7.25 28.27 12.75 14.32
US Small Val -0.67 2.58 4.12 5.87 11.79 8.94 10.83
US Value -0.70 -0.04 1.26 0.26 10.91 10.15 10.80
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:

This is an incredible #Fact” In 2016, roughly 12.8% of the American population was disabled. And roughly half of those people were working age. Do you have disability insurance and if you do is it enough?  If not contact my office. #disabilityinsurance

Here is a story you may have seen before in this column:

“barrel of bricks”

Consider this humorous accident report from someone who should have considered disability insurance sooner.

I am writing in response to your request for additional information on my accident report.  In block number three of the accident reporting form I wrote, “Trying to do the job alone,” as the cause of my accident.  You said in your letter that I should explain more fully and I trust the following details will be sufficient.

I am a bricklayer by trade.  On the day of the accident I was working alone on the roof of a new six-story building.  When I completed my work I discovered that I had about 500 pounds of brick left over.  Rather than carry the bricks down by hand, I decided to lower them in a barrel by using a pulley, which fortunately was attached to the side of the building at the sixth floor.

Securing the rope at ground level, I went up to the roof, swung the barrel out, and loaded the bricks into it.  Then I went back to the ground level and untied the rope, holding tightly to it to ensure a slow decent of the 500 pounds of brick.  You will note in block eleven of the accident report that I weigh 135 pounds.

Due to my surprise at being jerked off the ground so suddenly, I lost my presence of mind and forgot to let go of the rope.  Needless to say, I proceeded at a rather rapid rate up the side of the building.

In the vicinity of the third floor I met the barrel coming down.  This explains the fractured skull and broken collarbone.

Slowing down slightly, I continued my rapid ascent, not stopping until the fingers of my right hand were two knuckles deep into the pulley.  Fortunately, by this time I had regained my presence of mind and was able to hold tightly to the rope in spite of my pain.

At approximately the same time, however, the barrel of bricks hit the ground and the bottom fell out of the barrel.  Devoid of the weight of the bricks, the barrel now weighed approximately 50 pounds.  I refer you again to my weight in block eleven.  As you might imagine, I began a rapid decent down the side of the building.  In the vicinity of the third floor I met the barrel coming up.  This accounts for the two fractured ankles and the lacerations of my legs and lower body.

The encounter with the barrel slowed me enough to lessen my injuries when I fell onto a pile of bricks and, fortunately, only three vertebrae were cracked.

I am sorry to report, however, that as I lay there on the bricks in pain, unable to stand, and watching the empty barrel six stories above me I again lost my presence of mind.  I let go of the rope.

Moral of this tale: #It doesn’t pay to try to do the job alone.

Give our office a call at 215-886-2122 for more information or a second opinion quote.

PUB8547WEBP

Regards,

Mike

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 “mike@schwartzfinancial.com”.

 

Schwartz Financial Weekly Commentary 2/19/18

The Markets

As New York Fashion Week ended, inflation strutted its stuff.

Ever since the Federal Reserve began raising the Fed funds rate in 2015, analysts have been anticipating higher inflation. The fact that price increases remained relatively small was a perplexing mystery. Then, last week, inflation increased faster than expected.

The Bureau of Labor Statistics reported the Consumer Price Index (CPI), one measure of inflation, rose 0.5 percent in January. As you might expect, the cost of some items rose faster than others. For example, energy costs rose by 3.0 percent, while the cost of food was up 0.2 percent. In total, during the last 12 months, the all-items index rose 2.1 percent. When food and energy are excluded, the increase was 1.8 percent.

Barron’s reported, “Leaving aside the month-to-month squiggles, the real story is that inflation is closing in on the Fed’s 2 percent target…And even if January’s rise in the CPI was overstated, a real cyclical uptrend is under way…Deflation in the prices of consumer goods we like to buy is ending; the rate of increase in the cost of things we have to buy either is rising, as for food and energy, or remains high, as for services or rent.”

Higher prices are one side of the inflation coin; the other side is higher interest rates. Inflation is one of the data points the Federal Reserve considers when determining how well the economy is performing. Rising inflation signals a robust economy. That may encourage the Fed to raise rates more aggressively during 2018 to prevent the economy from overheating. The possibility of more concerted Fed tightening helped bump U.S. treasury rates higher last week.

Higher interest rates could become a boon for income-oriented investors. For years, persistently low rates have caused some investors to accept higher risk than they might have otherwise. As interest rates move higher, there may be opportunities to reduce portfolio risk and still generate attractive levels of income.

Despite inflation-inspired volatility mid-week, stock markets around the world moved higher. In the United States, major indices once again moved into positive territory for 2018.

Data as of 2/16/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 4.3% 2.2% 16.4% 9.2% 12.3% 7.3%
Dow Jones Global ex-U.S. 4.2 1.4 19.4 5.3 4.5 0.9
10-year Treasury Note (Yield Only) 2.9 NA 2.5 2.1 2.0 3.9
Gold (per ounce) 2.9 4.3 9.0 3.2 -3.4 4.1
Bloomberg Commodity Index 3.0 0.0 -0.3 -5.3 -8.7 -6.3
DJ Equity All REIT Total Return Index 2.0 -7.8 -1.6 2.4 6.9 7.4
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, djindexes.com, 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.

ridiculous? silly? strange? some ideas may seem that way. Albert Einstein is famous for having said, “If at first the idea is not absurd, then there is no hope for it.” In recent weeks, Fast Company has reported on some “world-changing ideas,” including:

  • Teaching happiness in school. The mandate of a school being built in India will be teaching children how to be happy. One of the co-founders said, “It’s our view that happiness – or emotional intelligence, or balance, or confidence, or self-esteem, or any other word for feeling good about ourselves and our place in the world – is the foundation on which great lives and great achievements are built.”
  • Cancelling student debt. “Collectively, [Americans] owe nearly $1.4 trillion on outstanding student loan debt. Research shows that this level of debt hurts the U.S. economy in a variety of ways, holding back everything from small business formation to new home buying, and even marriage and reproduction,” according to a February report from the Levy Economics Institute at Bard College.

 The research estimates if the U.S. government purchased and cancelled student loan debt the U.S. economy would increase real gross domestic product – the value of all goods and services produced – by $861 billion to $1,083 billion over 10 years. Also, the step could lead to the creation of more than a million new jobs every year.

  • Revitalizing Haiti with blockchain. The details are still being hammered out, but the Blockchain Cotton Project hopes to use distributed digital ledgers (blockchain) to manage supply chains, making it easier and less expensive to source organic cotton. One member of the project said, “We’re still figuring out how the farmers do the live reporting. But we hope it will replace the normal organic or fair trade certification through a radical transparency approach.”

What do you think? Do they pass the absurdity test? Or are these ideas too tame?

Weekly Focus – Think About It

“The function of education is to teach one to think intensively and to think critically. Intelligence plus character – that is the goal of true education.”

–Martin Luther King, Jr., American Baptist minister and activist

Value vs. Growth Investing (2/16/18)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market 4.42 2.28 -1.38 6.00 18.10 11.16 14.54
US Core 4.21 0.83 -2.40 4.46 15.90 10.86 14.62
US Growth 4.90 5.70 0.85 8.13 28.10 12.41 16.25
US Large Cap 4.42 2.78 -1.24 6.36 19.87 11.83 14.96
US Large Core 4.35 1.12 -2.48 4.47 17.37 11.72 15.26
US Large Growth 4.71 6.58 1.16 8.98 30.61 13.41 17.30
US Large Val 4.18 0.58 -2.49 5.65 12.05 10.30 12.30
US Mid Cap 4.46 1.40 -1.46 5.43 14.82 9.65 13.85
US Mid Core 3.94 0.30 -1.89 4.48 13.70 8.76 13.38
US Mid Growth 5.31 3.62 -0.05 6.17 22.01 9.52 13.40
US Mid Val 4.08 0.23 -2.46 5.72 8.80 10.60 14.72
US Small Cap 4.31 -0.34 -2.61 3.84 9.89 8.63 12.04
US Small Core 3.48 -0.63 -3.00 4.40 8.78 8.79 12.17
US Small Growth 5.75 2.51 0.11 4.84 19.78 10.13 13.18
US Small Val 3.74 -2.81 -4.89 2.39 1.56 6.85 10.67
US Value 4.13 0.27 -2.65 5.46 10.68 10.14 12.70
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:

Random Acts of Kindness

Mahatma Gandhi once said,

“If we could change ourselves, the tendencies in the world would also change.

As a man changes his own nature, so does the attitude of the world change towards him.  We need not wait to see what others do.”

In recent years, it’s common to see his wisdom written in a slightly simpler way: “Be the change you want to see in the world.”

It’s an inspiring notion – that all human progress starts with us. Fortunately, February is the perfect month to “be the change we want to see.” That’s because February 11-17 is Random Acts of Kindness Week!

The definition of a random act of kindness is “a non-premeditated action designed to offer kindness towards the outside world”1 without any expectation of reward. It’s a simple, easy way to brighten someone’s day – and sometimes, it starts a chain reaction. A person who receives an act of kindness often feels inspired to pay that act forward to another person, and so on.

No one act can change the world on its own, of course. But when you pile one act on top of another, on and on and on, there’s no limit to what can be accomplished.

Here are some ideas on how to perform random acts of kindness:

  • Pay for the person behind you in the drive-thru
  • Let someone go ahead of you in line
  • Buy extra at the grocery store and donate it to a food pantry
  • Buy flowers for someone (postal worker, grocery store clerk, bus driver, )
  • Help someone change a flat tire
  1. Post anonymous sticky notes with validating or uplifting messages around for people to find
  2. Compliment a colleague on their work
  3. Send an encouraging text to someone
  4. Take muffins to work
  5. Let a car into traffic ahead of you
  6. Wash someone else’s car
  7. Take a gift to new neighbors and introduce yourself
  8. Pay the bus fare for the passenger behind you

Of course, there are hundreds, perhaps thousands of ways to show kindness to someone. The beautiful thing about this list is that each item is just so eminently doable. Most only take a few seconds or a few dollars.

This year, I’ve decided to participate in Random Acts of Kindness Week. My hope is that by doing so, I can begin to change my personal nature – and by extension, the nature of the world around me.

Have a great month!

Regards,

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 “mike@schwartzfinancial.com”.

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, djindexes.com, 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.

Regards,

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 “mike@schwartzfinancial.com”.

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

Schwartz Financial Weekly Commentary 2/5/18

The Markets

It was not a good week for stocks.

Last week, stock markets around the world lost value. In the United States, the Standard & Poor’s 500 Index (S&P 500), Dow Jones Industrial Index (Dow), and NASDAQ all finished lower.

Some pundits have been drawing comparisons between the performance of the Dow last Friday and Black Monday, the memorable day in 1987 when the index shed 508 points in a single day.

They may be barking up the wrong tree.

Yes, the Dow lost more than 600 points on Friday. That was about 2.5 percent of its value. On Black Monday a lesser drop equated to a 22 percent loss for the Dow. In addition, Black Monday was widely attributed to program trading gone awry. The culprit behind last Friday’s fall is likely to be bonds, according to Barron’s.

Last week, the U.S. Treasury announced it would begin selling more short-term government bonds to fund the rising budget deficit. That sparked concerns about the impact of a bigger bond supply on interest rates. When bond supply exceeds demand, interest rates typically go up to attract investors. The United States already has ample bond supply since the Federal Reserve curtailed its bond buying program. Financial Times reported:

“Equity investing involves a delicate balance of three things: earnings, interest rates and valuation. Over the past decade, low long-term bond yields have played a crucial role in helping elevate equity valuations… ‘You have to consistently show economic and earnings growth to justify these valuations at higher rates,’ says Nicholas Colas, cofounder at DataTrek. ‘People forget how closely tied economic and profit growth is to rising rates – it is a horse race and profit growth has to win – even if just by a little.’”

News about employment and wage gains added fuel to the fire of investor worries. In January, the United States experienced its strongest wage growth since 2009. While that’s good news for workers, it may cause the Fed to raise rates more aggressively in an effort to keep inflation manageable.

Data as of 2/2/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -3.9% 3.3% 21.1% 11.0% 13.1% 7.2%
Dow Jones Global ex-U.S. -2.9 3.9 21.9 7.0 5.0 0.9
10-year Treasury Note (Yield Only) 2.9 NA 2.5 1.7 2.0 3.7
Gold (per ounce) -1.6 2.7 8.9 1.5 -4.4 4.1
Bloomberg Commodity Index -1.9 1.1 0.8 -4.2 -9.0 -7.4
DJ Equity All REIT Total Return Index -2.9 -5.7 2.5 2.7 7.7 6.9
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, djindexes.com, 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.

what does success mean to you? For some, having a big following on social media translates as success. NASA, which has more followers than any other government organization worldwide (28 million), may be considered successful. Of course, NASA doesn’t hold a candle to Katy Perry, who has close to 106 million followers.

It will surprise few to learn the U.S. Treasury, which manages the money resources of the United States, doesn’t have many followers (770,000); however, it has more than the Federal Reserve (446,000).

It’s almost enough to make you wonder whether Americans care about money. They do, but on a more personal level. A corporate survey, Making It in America, queried Americans about what it means to reach “…a level of success, comfort, and security that you find wholly satisfying.” As you might expect, there were a variety of answers.

One gauge of success is income, according to about two-thirds of the respondents. The group’s average income was $57,426 a year. They would know they’d ‘made it’ when they earned about $147,000 a year. According to CNBC, annual income of $150,000 would put many people in the middle class, depending on where they lived and the size of their households. It’s notable few people aspire to join the ranks of the wealthiest Americans. More than three-fourths said they would not want to earn more than one million dollars a year.

Of course, money is not the only measure of success. A Pew Research study found just 11 percent of those surveyed thought wealth was an essential part of the American dream. Far more important were:

  • Freedom of choice in how to live (77 percent)
  • Having a good family life (70 percent)
  • Retiring comfortably (60 percent)
  • Contributing to their communities (48 percent)
  • Owning a home (43 percent)
  • Having a successful career (43 percent)

One participant said, “Even though I truly believe that having money is freedom, money is really just a tool to make experiences in life possible.”

Weekly Focus – Think About It

“You can’t reach for anything new if your hands are still full of yesterday’s junk.”

–Louise Smith, NASCAR driver

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

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market -3.77 3.19 2.35 7.32 22.80 12.96 14.90
US Core -3.77 1.56 0.80 5.66 20.49 12.37 15.02
US Growth -3.21 6.22 5.10 9.92 32.50 14.30 16.46
US Large Cap -3.72 3.79 2.92 7.73 24.85 13.65 15.29
US Large Core -3.84 1.77 0.93 5.45 21.93 13.10 15.57
US Large Growth -3.11 7.20 6.01 11.00 35.27 15.34 17.53
US Large Val -4.25 2.34 1.76 6.71 17.72 12.46 12.74
US Mid Cap -3.90 1.96 1.19 6.78 18.62 11.34 14.24
US Mid Core -3.65 1.18 0.67 6.34 18.42 10.60 14.00
US Mid Growth -3.50 3.96 3.01 7.73 25.70 11.30 13.54
US Mid Val -4.55 0.71 -0.14 6.26 11.75 12.02 15.16
US Small Cap -3.85 0.56 -0.21 4.52 14.32 10.47 12.64
US Small Core -3.40 0.50 -0.21 5.88 13.45 10.68 12.84
US Small Growth -3.42 2.45 1.57 4.87 23.75 11.88 13.47
US Small Val -4.74 -1.23 -1.95 2.83 6.01 8.72 11.51
US Value -4.34 1.76 1.11 6.35 15.71 12.13 13.17
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:

Questions???

Have questions about the new tax law or have questions about last week’s stock market then come join us Thursday, February 22nd for dinner and a presentation on the above.  Please RSVP no later than February 15th.

2018 Workshop1

Regards,

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 “mike@schwartzfinancial.com”.

Schwartz Financial Weekly Commentary 1/29/18

The Markets

The numbers are coming in.

Publicly-traded companies report their earnings and sales numbers for the previous quarter in the current quarter. For example, fourth quarter’s sales and earnings are reported during the first quarter of the year, and first quarter’s sales and earnings will be reported during the second quarter, and so on.

Through last week, about one-fourth of the companies in the Standard & Poor (S&P)’s 500 Index had reported actual sales and earnings for the fourth quarter of 2017. As far as sales go, a record number – 81 percent – of companies sold more than expected during the fourth quarter. That was quite an improvement. FactSet reported:

“During the past year (four quarters), 64 percent of the companies in the S&P 500 have reported sales above the mean estimate on average. During the past five years (20 quarters), 56 percent of companies in the S&P 500 have reported sales above the mean estimate on average.”

The mean is the average of a group of numbers.

The money a company makes through sales is called revenue. For instance, if a lemonade stand sells 100 glasses of lemonade for $1 each, then the proprietors have earned $100. That is the stand’s ‘revenue.’ Of course, as every parent who has financed a lemonade stand knows, revenue doesn’t include the cost of the product. ‘Earnings’ are what the company has left after expenses – the bottom line. If every glass of lemonade cost 50 cents, then the stand’s earnings are $50.

Companies in the S&P 500 are doing pretty well on earnings, too. About three out of four companies have reported earnings higher than expected. Overall, earnings are 4.5 percent above estimates.

Through Friday, annual earnings growth for S&P 500 companies was 10.1 percent. It’s still early in the fourth quarter earnings season, but the data so far seem likely to confirm that 2017 was a bright, sun-shiny year for U.S. companies.

Data as of 1/26/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 2.2% 7.5% 25.1% 11.8% 13.9% 7.8%
Dow Jones Global ex-U.S. 1.9 7.0 28.2 7.8 5.5 1.6
10-year Treasury Note (Yield Only) 2.7 NA 2.5 1.8 2.0 3.6
Gold (per ounce) 1.4 4.4 13.7 1.8 -4.0 3.9
Bloomberg Commodity Index 2.6 3.0 2.9 -3.4 -8.4 -7.1
DJ Equity All REIT Total Return Index 1.7 -2.8 4.6 2.8 8.2 7.4
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, djindexes.com, 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.

certain parts of the circular economy probably adapt to cities and towns better than they do to rural areas.

What is the circular economy?

It is “a system that reduces waste through the efficient use of resources. Businesses that are part of the circular economy seek to redesign the current take/make/dispose economy, a model which relies on access to cheap raw materials and mass production. For example, car sharing addresses the inefficiency of privately owned cars – which are typically used for less than one hour a day,” explains Morgan Stanley.

Imagine not owning a car.

Clearly, it’s not something that would work everywhere. However, if you live in a city or town that has public transportation, ride sharing, car rentals, and bicycles, it’s possible. If you’re retired and you can organize your days in the way you like, it may even be sensible because owning a car is expensive. Transportation costs are the second highest budget item for most households, reports U.S. News. Housing costs top the list.

Giving up a car could help households save a lot of money.

According to AAA, owning and operating a new car in 2017 cost about $8,469 annually, on average, or $706 a month. Small sedans are the least costly ($6,354 per year), on average, and pickup trucks are the most expensive ($10,054 per year), on average, of the vehicles in the study. The calculations include sales price, depreciation, maintenance, repair, and fuel costs.

AAA’s estimate does not include insurance. In 2017, the national average premium for a full-coverage policy was $1,318 annually, according to Insure.com. Auto insurance premiums are highest in Michigan ($2,394) and lowest in Maine ($864).

Combining the averages, the cost of auto ownership is almost $10,000 a year. It’s food for thought.

Weekly Focus – Think About It

“Conservation is a state of harmony between men and land.”

–Aldo Leopold, American author and conservationist

Value vs. Growth Investing (1/26/18)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market 2.09 7.23 6.99 12.30 26.71 13.74 15.94
US Core 1.20 5.53 5.31 9.88 24.75 12.90 16.07
US Growth 2.88 9.74 9.57 15.71 36.02 15.09 17.34
US Large Cap 2.31 7.80 7.56 12.88 28.85 14.37 16.33
US Large Core 1.26 5.83 5.57 9.88 26.62 13.52 16.66
US Large Growth 3.18 10.65 10.47 17.14 38.70 16.15 18.41
US Large Val 2.45 6.88 6.59 11.50 21.60 13.38 13.92
US Mid Cap 1.69 6.09 5.94 11.42 22.58 12.34 15.30
US Mid Core 1.18 5.00 4.91 10.26 22.04 11.52 14.98
US Mid Growth 2.22 7.73 7.70 12.64 29.60 12.08 14.40
US Mid Val 1.66 5.51 5.19 11.32 16.08 13.35 16.50
US Small Cap 0.90 4.59 4.20 8.77 17.33 11.21 13.63
US Small Core 0.55 4.04 3.78 8.86 15.74 11.18 13.68
US Small Growth 1.64 6.07 5.63 9.73 27.01 12.44 14.33
US Small Val 0.51 3.69 3.24 7.63 9.49 9.89 12.79
US Value 2.15 6.38 6.07 11.20 19.65 13.16 14.39
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:

Tax Season Has Started

The world is full of tax preparers who will complete all the right forms using the information from your W-2’s, 1099’s, etc. What you may not know is that, according to the General Accounting Office, approximately 8 out of 10 returns are filed with errors. Why is that the case? This is because the preparer that you hire generally does not really know your situation. What has your tax preparer done to make sure you get all the tax breaks you deserve? When was the last time they came to you and said “based on your plans in this area and your situation, here’s an idea I think will help you save money on your taxes”?

At Schwartz Financial, we believe proactive tax planning is the key to keeping more of what you make. We are a firm that specializes in helping clients to identify and explore opportunities to cut your tax bill. Proactive tax planning encompasses: looking at your personal and family information along with your income and expenses using “Tax Alpha” to take advantage of every available deduction, credit and tax planning opportunity. We will help you do just that!

Paying taxes once is your obligation, paying taxes twice is your fault! Call us, Schwartz Financial, at 215-886-2122 to set up a time to meet.

tax season

Regards,

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 “mike@schwartzfinancial.com”.

Schwartz Financial Weekly Commentary 1/22/18

The Markets

Last week, the United States government might as well have hung a sign on the front door of the Capitol that read, “Gone negotiating. We’ll be back in…however long it takes.”

In 2013, the U.S. government closed for 16 days. About 850,000 federal workers were furloughed and 6.6 million workdays lost. The shutdown affected private companies that worked with the government, too, and the U.S. economy took a hit.

The prospect of kicking off 2018 with a government shutdown didn’t appear to concern investors too much. Barron’s reported the Dow Jones Industrial, Standard & Poor’s 500, and NASDAQ indices all finished the week higher.

The lack of response from investors isn’t all that surprising. Geopolitical events – from the Brexit vote to the U.S. bombing Syria to the North Korean nuclear escalation – have had little lasting effect on markets. The president of a financial research firm told The New York Times, “geopolitical events may be widely feared, and there will often be a knee-jerk market reaction when they’re unexpected, but seldom do they have a lasting impact. Underlying economic trends and monetary policy are far more important.”

That has been the case with previous U.S. government shutdowns. However, Investor’s Business Daily (IBD) wrote this time might be different:

“Government shutdowns always have been primarily over government spending, but this one will be mostly over an ideological divide on immigration, with budget issues playing a secondary role. That raises the risk that the partial government shutdown could be a long one and have more serious economic consequences than investors expect.”

IBD suggested it wouldn’t be long before the negative economic effects of dysfunctional government consume any economic gains delivered by tax reform. That may provide an incentive for our elected officials.

Data as of 1/19/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.9% 5.1% 24.2% 11.6% 13.5% 7.9%
Dow Jones Global ex-U.S. 1.3 5.1 27.7 7.9 5.2 1.9
10-year Treasury Note (Yield Only) 2.6 NA 2.5 1.8 1.8 3.5
Gold (per ounce) 0.2 3.0 11.6 1.6 -4.6 4.4
Bloomberg Commodity Index -0.3 0.4 0.4 -4.5 -9.0 -7.1
DJ Equity All REIT Total Return Index 0.7 -4.5 3.7 3.1 7.9 8.1
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, djindexes.com, 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.

i’ll have an order of purchasing power parity, please! Purchasing power parity, or PPP, is a simple idea with a tongue twister of a name. When two countries have PPP, a basket of goods costs the same amount in both countries after the exchange rate has been factored in.

The Economist developed an entertaining measure of PPP. It’s called ‘The Big Mac Index.’ The index doesn’t measure a basket of goods. It simply considers the cost of a hamburger in 120 countries around the world. The index was updated for January 2018 and showed burger costs varied when translated into U.S. dollars. For example:

In Switzerland, a burger costs $6.26

In United States, a burger costs $5.28

In the Euro area, a burger costs $4.84

In Britain, a burger costs $4.41

In China, a burger costs $3.17

In Russia, a burger cost $2.29

The Economist reported:

“If the local cost of a [hamburger] converted into dollars is above $5.28, the price in America, a currency is dear; if it is below the benchmark, it is cheap. The average cost of a [hamburger] in the Euro area is €3.95, or $4.84 at the current exchange rate. That implies the euro is undervalued by 8.4 percent against the dollar.”

Overall, PPP is better aligned across the globe. One reason is the improving health of world economies. China remains the most undervalued currency among wealthier nations. In emerging markets, like Russia, currencies remain undervalued relative to the United States.

PPP provides economists with an apples-to-apples measure for comparing the wellbeing of countries and consumers.

Weekly Focus – Think About It

“For anything worth having one must pay the price; and the price is always work, patience, love, self-sacrifice – no paper currency, no promises to pay, but the gold of real service.

–John Burroughs, American naturalist and essayist

Value vs. Growth Investing (1/19/18)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market 0.84 5.04 4.87 9.94 26.06 13.73 15.76
US Core 0.47 4.29 3.92 8.54 24.69 13.01 16.17
US Growth 1.21 6.67 6.33 12.10 34.25 15.21 16.86
US Large Cap 0.98 5.37 4.96 10.27 27.68 14.23 16.05
US Large Core 0.39 4.51 3.90 8.51 26.00 13.48 16.76
US Large Growth 1.39 7.24 6.73 12.94 36.44 16.18 17.72
US Large Val 1.15 4.33 4.23 9.25 20.89 12.98 13.68
US Mid Cap 0.58 4.32 4.80 9.57 22.94 12.63 15.35
US Mid Core 0.92 3.78 3.97 8.90 22.90 11.96 15.02
US Mid Growth 0.77 5.39 5.54 10.42 28.93 12.42 14.54
US Mid Val 0.06 3.79 4.86 9.34 16.94 13.42 16.45
US Small Cap 0.18 3.66 4.07 7.59 18.83 11.78 13.82
US Small Core 0.04 3.46 4.02 8.01 17.92 11.87 13.95
US Small Growth 0.62 4.36 4.32 8.10 27.00 12.83 14.30
US Small Val -0.12 3.16 3.86 6.53 11.65 10.52 13.11
US Value 0.83 4.14 4.34 9.10 19.47 12.93 14.23
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:

2017 The Year In Review

Every January, it’s customary to look back at the year that was.  What were the highlights?  What were the “lowlights”?  What were the events we’ll always remember?  Most importantly, what did we learn?

Rather than write a long recap of the entire year, let’s first look at this chart:

Month Notable Events S&P 5001
January Donald Trump is sworn in as president. Up 1.79%
February North Korea fires a ballistic missile over Japan. Up 3.72%
March The U.K. starts negotiations over leaving the European Union (Brexit). Down 0.04%
May A massive “ransomware” cyberattack strikes computers around the world. Up 1.16%
July More tension as North Korea fires its first intercontinental ballistic missile. Up 1.93%
August Hurricane Harvey strikes, the costliest natural disaster in U.S. history. Up 0.05%
September Hurricane Irma hits, one of the strongest hurricanes ever recorded.  Hurricane Maria follows soon after.  Equifax announces a massive data breach.  In politics, Republicans fail to repeal Obamacare. Up 1.93%
October Fifty-eight people are killed in the deadliest mass shooting in U.S. history. In Europe, Catalonia declares independence from Spain. Up 2.22%
December Republicans in Congress pass the Tax Cuts and Jobs Act, the most significant tax reform in over 30 years. Up 0.98%
     

Obviously, this is hardly a full summary of everything that happened last year.  And it doesn’t even mention any terrorist attacks or the ongoing investigations into different government officials.

It doesn’t mention the tidal wave of sexual harassment allegations that swept across Hollywood, the opioid epidemic, or any of a dozen other stories that dominated the news.

But let’s look closely at what it does mention.  On the chart, you’ll see:

  • National politics
  • Geopolitics
  • International incidents
  • Natural disasters
  • Cybersecurity

These were all major developments, many of them affecting hundreds of countries and millions of people.  Of course, some items weren’t necessarily bad, but each was significant in its own way.

And month after month, the markets kept chugging up the hill.  In fact, the S&P 500 rose over 19% for the year.2

What Can We Learn from This?

Politically, culturally, meteorologically, 2017 was a volatile year – but not for the markets.  As a result, 2017 taught us a valuable lesson about investing, which is that:

Major news stories don’t drive the markets.

Or at least, they’re far from the only thing that drives the markets.  Time and again, pundits predicted the latest natural disaster, story about gridlock in Washington, or geopolitical incident would bring the markets down.  In 2017, that never really happened.  That’s not to say such events don’t ever affect the markets; just that they often don’t have the impact one would expect.

Earlier in the year, I wrote an article about the historical lack of correlation between major events and market performance.  Take the Cuban Missile Crisis.  The world has probably never been closer to nuclear war than during those nerve-wracking thirteen days in 1962, yet during that time, the Dow only fell 1.2%.  By the end of the year, the Dow was up 10%.3

More recently, look at Brexit.  When the UK voted to leave the European Union, it took most analysts by surprise, and many predicted it would lead to a major drop in the markets.  At first, it did.  The vote took place on a Thursday.  The next day, the Dow fell over 600 points, and then another 250 points the Monday after.4

But less than a month later, the Dow climbed to a new record high.5

In 2017, the same thing occurred, with major events failing to impact the markets to any great degree.

What’s the Explanation?

In a sense, the markets are like baking a cake.  If you’ve ever made a cake from scratch, you know the list of ingredients is fairly long.  Flour and sugar.  Baking soda and salt.  Eggs and milk, oil and vanilla, and any of a half-dozen other things.

That’s complicated enough, but as any chemist would tell you, we’ve only just scratched the surface.  Here’s what really goes into a cake: hydrogen, carbon, oxygen, nitrogen, sulfur, sodium, potassium, magnesium, molybdenum, manganese and more – all in the correct proportions, too, or else you just get a mess.

The markets are like that cake – formed by hundreds, perhaps thousands of moving parts, decisions, stories, and most of all, people.  So, in this analogy, the major news events that occur in any given year aren’t even the sugar or the salt.  They’re the sulfur and selenium.  Just a few elements in a giant bowl filled to the brim with them.

Why the Markets Went Up in 2017

So, what are some of the major elements that did move the markets in 2017?

Expectation is one.  From the beginning of the year, the expectation of fewer regulations and lower taxes has been a major source of enthusiasm.  (Both expectations were rewarded.)

Economic growth is another.  The economy has been growing slowly but steadily over the past several years, and progress continued in 2017.  The unemployment rate ended at 4.1% for the year, a 17-year low.2  Wages increased for many workers.2  And many corporations reported strong earnings throughout the year, causing valuations in most sectors to climb.

Sheer momentum was also likely a factor.  FOMO, or the fear of missing out, is always a strong motivator, and as the markets climb, more and more people want to hop on board.

So What’s the Takeaway from All This?

2017 showed us that the markets aren’t a weather vane for any set of morals, political views, philosophies, or breaking news.  History has repeatedly demonstrated that the markets are relatively unaffected by who the president is, which political party is in power, or how the winds of cultural change blow.  In a more modern sense, the markets are far too large to be moved by anyone’s tweets or which YouTube video went viral.  In a way, that’s a comforting thought.  And it’s a further example of why we must avoid assigning narratives to the markets, and then making decisions based on those narratives.

Throughout 2017, many pundits kept trying to pick this event or that event as the straw that would break the camel’s back.  I imagine many investors spent a lot of time searching for clues as to when the next correction would occur, and so missed out on opportunities for growth.  That’s certainly been the case for this entire bull market, one of the longest in history.  It’s a bull market that many investors have failed to take advantage of.  (Per a survey by Gallup, only 52% of Americans report owning stock today, compared to 65% back in 2007.)6

Of course, it’s also possible to make the opposite mistake: assume that good news, whether political or economic, will continue to drive the markets up.  Nothing lasts forever, including bull markets, and it’s crucial that we avoid becoming irrationally exuberant, taking on more and more risk to chase higher returns.  Investors who do that often make simplistic decisions based on specific news stories or trends that maybe aren’t as important as they appear.

Which brings us to the final part of this letter:

2018 Market Outlook

There’s no crystal ball to investing, and it’s impossible to truly know which “elements” will affect the markets most in 2018.  Still, here are some of the trends we’ll be keeping an eye on:

  • Will lower taxes mean corporate earnings continue to grow?
  • Will the Mueller probe into President Trump’s campaign lead to any executive shakeup in the White House? (This only matters if it leads to policy changes that could impact the markets.)
  • Who will control Congress after the 2018 midterm elections? (Again, this only matters so far as it affects policy down the road.)
  • Many states are set to raise minimum wages in 2018.2 Will this lead to a rise in consumer spending?

At the moment, it seems reasonable to expect a kind of “Goldilocks economy” in 2018, in which economic growth is neither hot nor cold, but moderate.  But again, we’re not going to make investment bets based on any storylines, nor are we going to react emotionally to future developments.  Instead, we’ll continue to remember that the markets are large, complex institutions.  We’ll continue to remember why we invest, which is to help you reach the specific goals you’ve set for your finances and your life.  And we’ll continue to stick to our long-term strategy, which is designed to look beyond the headlines.

Have a Happy New Year!

One last thing, as you know, there’s no better time to plan your year than now.  To that end, I’d love to sit down with you and plan for the months ahead.  We can review your current strategy and portfolio.  Do we need to make changes?  Are you still on track to reach your goals? This is the only storyline that matters.

So please give me a call at 215-886-2122.  We’ll set up a time to talk, and together, we’ll make 2018 exactly what you want it to be.

On behalf of all of us here at Schwartz Financial, we hope you had a great 2017!  Here’s to an even better year to come.

Sources

1 “S&P 500 Historical Data,” https://www.investing.com/indices/us-spx-500-historical-data
2 Danielle Wiener-Bronner, “Market experts hopeful for another strong year for stocks,” CNN Money, http://money.cnn.com/2017/12/31/investing/stocks-week-ahead-2018-predictions/index.html.
3 Ben Carlson, “How markets reacted to geopolitical crises,” The Economic Times, April 13, 2017.  http://economictimes.indiatimes.com/markets/stocks/news/how-markets-reacted-to-geopolitical-crises/articleshow/58158842.cms
4 Jethro Mullen, Ivana Kottsaova, Patrick Gillespie, “Dow plunges over 600 points as U.K. ‘earthquake’ crushes global markets,” CNN Money, June 24, 2016.  http://money.cnn.com/2016/06/23/investing/eu-referendum-markets/index.html?iid=EL
5 Matt Egan, “Stocks have never been higher,” CNN Money, July 12, 2016.  http://money.cnn.com/2016/07/12/investing/dow-stock-new-high-record/index.html
6 “Just over half of Americans own stocks, matching record low,” Gallup, April 20, 2016.  http://news.gallup.com/poll/190883/half-americans-own-stocks-matching-record-low.aspx

Regards,

 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.

 

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