Market volatility is a part of the investment experience and seasoned investors understand that acting emotionally can be more harmful than helpful. It is always appropriate to understand and prepare for market volatility and downturns, even when markets are going up. Investors should not let market movements force them to lose focus. A knowledgeable investor understands that markets go up but they also can go down.

Volatility is a statistical measure of the distribution of returns for a given security or market index. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a “volatile” market.

The U.S. economy is not supposed to be highly volatile, but equity markets are a different story. Market volatility doesn’t mean that stocks are headed for a down or bear market. Even if there are market corrections along the way an investor can still potentially experience reasonable returns over a long period of time.

What is stock market volatility?

Stock market volatility is a measure of how much the stock market’s overall value fluctuates up and down. Just like equity markets, individual stocks can also experience volatility. An investor can calculate volatility by looking at how much an asset’s price varies from its average price. Standard deviation is the statistical measure commonly used to represent volatility.

Some stocks are more volatile than others. Shares of an established large blue-chip company may not make very big price swings, while shares of a high flying and newer tech company may do so often. Stock market volatility can occur, especially when external events create uncertainty.

Why is volatility important?

By understanding how volatility works, you can put yourself in a better position to evaluate stock market conditions as a whole. You can then analyze the risk involved with any particular security and construct a stock portfolio that is a great fit for your growth objectives and risk tolerance.

It’s important for investors to be aware that volatility and risk are not the same thing. For stock traders who look to buy low and sell high every trading day, volatility and risk are deeply intertwined. Volatility also matters for those who may need to sell their equities in a short timeframe, such as those who are older and closer to retirement.

For long-term investors who tend to hold equities for many years, the day-to-day movements of those equities need to be understood. Volatility is part of the noise that could come while you are allowing your investments to compound long into the future.

Long-term investing still involves risks, but those risks are usually related to being wrong about a company’s growth prospects or paying too high a price for that growth – not volatility.

A quick review of some market terms.

Oftentimes, we hear the wrong words used in the wrong context. For educational purposes, we feel it is important to clarify some stock market words and their definitions.

“Dip” – a short-lived downturn from a sustained longerterm uptrend.

Example: Equity markets increased by 5% and maintained that level and then dipped back down to 3% all within a few days or weeks.

“Correction” – a 10% drop in the market from recent highs. Historically corrections occur an average of about every eight to 12 months and last about 54 days. (thebalance.com 3/9/20)

Example: On December 17, 2018, both the DJIA and the S&P 500 dropped over 10% and declines continued into early January.

“Bear Market” – a long, sustained decline in the stock market. If the market declines 20% from its recent high, this is considered the start of a bear market.

Example: On Wednesday, March 11, 2020, The DJIA dropped 5.9%, for a total decline of 20.2% from a record high on February 12, 2020.

“Crash” – a sudden and dramatic drop in stock prices, often on a single day of week. Crashes are rare, but typically happen after a long-term uptrend in the market.

Example: In 1929 the market crashed when it lost 48% in less than two months, ushering in the Great Depression.

Position yourself to best navigate market volatility.

No matter what equity markets are doing, your plan should align itself with these three items.

1. Your investing goals,
2. Your financial timeline; and
3. Your risk tolerance.

Your Investing Goals

Every investor has unique goals they would like to attain. Knowing what your goals are is the first step to creating a path to achieve them. Your goals will determine your time horizon and risk tolerance.

Your Financial Timeline

Focus on your personal timeline instead of trying to time the market. During downturns, it may be tempting to pull out of the market, but you may miss out on a healthy recovery. Try to plan for your equity investments to maintain a long-term horizon and ignore the short-term fluctuations.

Remember, short-term movements of the market are unpredictable and do not abide by any average. For many long-term investors there is no reason to even subject themselves to daily market headlines. If you have a long term investment horizon for your equity holdings of at least five years, chances are the current volatility will pass – possibly in a couple of weeks, months or at the most, a few years.

According to a JP Morgan analysis, even missing a few days of a market recovery can be costly. This analysis looked at the S&P 500 over a 20-year period (January 2000 to December 2019). Investors who stayed fully invested would have earned more than 6% annually. However, those investors who missed just 10 of the days with the highest daily returns would have earned only 3% annually. During those 20 years, six out of the 10 best days occurred within two weeks of one of the worst 10 days.

Your Risk Tolerance

Risk tolerance is the level of uncertainty you are willing to accept in order to reap potentially greater rewards. Knowing what your risk tolerance is, or risk awareness, should be part of your financial plan. As your financial professional, one of our primary goals is to help you create a plan that considers your risk tolerance. If you are not quite sure what your risk tolerance is, call us and we can help assess and determine this for you.

What should an investor do in a volatile market?

First, make sure you know what not to do: and that is panic. In times of market volatility, investors tend to become unnerved and anxious. This is usually not the best mindset to make rational decisions.

When equity markets experience unsettling fluctuations, we suggest you ask yourself three questions:

1. Have my financial timelines changed?
2. Have my financial goals changed?
3. Has my risk tolerance changed?

If you can answer “YES” to any of these questions, we highly suggest that you discuss these changes with us. As an investor, you need a plan that includes risk awareness. One of our primary responsibilities as your financial professional is to help create a plan with risk awareness. We know that an integral part of this is to consistently keep in touch with you and monitor your situation.

If you have concerns, some questions to ask us include:

Regardless of whether or not equities are rising or falling, investors should always put their main focus on their own personal objectives. This includes:

1. Making sure you are comfortable with your time horizons.
2. Re-assessing your risk tolerance.
3. Re-confirming your investments are compatible with both your time horizon and risk tolerance.
4. Maintaining liquidity for all short-term and near-term needs.

Even when equities are performing well, investors still need to be prepared. Market volatility should cause concern, but panic is not a plan. Market downturns do happen and so do recoveries. It is always healthy to confirm that you fully understand your time horizons, goals and risk tolerances. Looking at your entire picture can be a useful exercise in determining your strategy.

It is always helpful to make sure you are comfortable with your investments. Equity markets will always have the potential to move up and down. Even if your time horizons are long, you could see some short-term downward movements in your portfolios. Make sure your investing plan is centered on your personal goals and timelines. Peaks and valleys have always been a part of financial markets and it is highly likely that trend will continue.

Discuss any concerns with us!

We are always available to revisit your financial holdings to make sure they are still congruent with your timeline goals and risk tolerance.

As a reminder, please keep us apprised of any changes (such as health issues or changes in your retirement goals). The more knowledge we have about your unique financial situation the better equipped we will be to best advise you.

We pride ourselves in offering:

• Consistent and strong communication,
• A schedule of regular client meetings, and
• Continuing education for every member of our team on the issues that affect our clients.

Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA/SIPC. Financial 1 Wealth and IFG are unaffiliated entities.

This article is for informational purposes only. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer, tax or financial professional. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

Sources: JPMorgan.com; thebalance.com; Contents provided by the Academy of Preferred Financial Advisors, Inc.

The post Market Volatility: A Part of the Investment Experience appeared first on Financial 1 Tax.

Investors have now experienced their first disruption of the year: The Coronavirus. The investing experience is no stranger to unexpected surprises and on Monday, February 24th, all three major equity indexes fell over 3%. The -3.35% return for the S&P 500 was the worst daily performance since February 2018.

While this downdraft was unexpected, it certainly was not unprecedented. If you look back to the beginning of 1928 till Monday February 24th (a period of 23,146 trading sessions), Monday’s change for the S&P 500 and its predecessor indices was the 235th worst performance in percentile terms on record. That means that almost 99% of all days over that time period were better than February 24th. If you broaden this time period slightly to include all trading days where the S&P fell more than 3%, there were 326 occasions. A return of -3% or worse occurred on roughly 1.4% of all trading sessions. If all returns were normally distributed, you should expect a day as bad as Monday (2/24/20) to occur about 3.5 times per year. Historically, some of the worst market performance days tend to cluster in weak economic environments.

Long term investors cannot and should not try to predict if this is the start of a longer trend or an isolated time period. The only other 1,000-point drops for the Dow Jones Industrial Average (DJIA) were on February 5th and 8th of 2018. Since then, the DJIA went on to make many new highs.

The Coronavirus is serious and there is no surprise that its spread is affecting some companies’ potential earnings. If this flu-like virus worsens, some corporate earnings in some specific sectors could be heavily impacted, and the stock market may continue to sell off. If this is like the SARS scare or other epidemics, it could prove to be only temporary. In fact, if the market sells off, behavioral finance teaches us that investors with cash could be looking at good entry points to buy high quality stocks. Economic and stock market crises are frightening when they happen, but they can also provide entry points for investors that actually want to “buy equities at lower prices”.

We are watching this and all other events carefully and want to take a moment to remind you that long term investors will experience volatility and periods of uncertainty. Our goal is to help clients invest and not speculate on their way towards meeting their financial goals. Thank you for having confidence in our firm representing you. We are here if you are concerned and need to talk. For the next few weeks, as always, please try to avoid making any emotional decisions based on media magnification. Remember, investing is a long-term attempt to achieve results that are satisfactory towards your specific goals.

As always, we appreciate your business.

Tatyana Bunich

Questions? Contact us

Learn more about Wealth Management Group

Get updates on the Coronavirus at CDC

Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker dealer and a registered investment adviser. Member FINRA/SIPC. Financial 1 Wealth Management Group and IFG are unaffiliated entities. Note: The views stated in this letter are not necessarily the opinion of Independent Financial Group, and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. All indices referenced are unmanaged and cannot be invested into directly. The S&P 500 is an unmanaged index of 500 widely held stocks that is general considered representative of the U.S. Stock market. Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Past performance is no guarantee of future results. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Sources: Seeking Alpha 2/24/2020, 2/25/2020, © The Academy of Preferred Financial Advisors.

Coronavirus market-sell off in February 2020

The post The Market Sell-Off and Coronavirus: An Investor’s Perspective appeared first on Financial 1 Tax.

As we look back and reflect on what was predicted by many to be a year of worry and concern, equity markets advanced heavily in 2019 and investors were rewarded. The final month of the year brought several new highs for both the S&P 500 and the Dow Jones Industrial Average (DJIA). In the fourth quarter of 2019, the S&P 500 rose over 9% and for the year it turned in its best annual performance since 2013. The DJIA also had a strong quarter rising 6.7%. (Source: RWBaird.com 1/1/2020)

If someone had told you on January 1st of 2019 that the year would start off with talk of a global economic recession that might take the U.S. economy down with it, add to that, that the U.S. would be in a trade war with China, and the President would get impeached, you might have wondered how much equity markets would retreat. Some feared that 2019 was going to be a challenging year for stocks with volatility taking center stage.

Well, there was no Bear Market in 2019, and for that matter, there wasn’t even a correction. A correction or 10% drawdown isn’t uncommon for the stock market. In a year that had no shortage of headwinds, the maximum pullback was less than 7%. The continual advancement of equities has kept the longest bull market of all-time intact. Both the S&P 500 and the DJIA posted many new highs in 2019 and all throughout the fourth quarter. Optimism about the U.S. economy improved and investors saw potential trade developments. During the fourth quarter, the U.S. reported that the economy grew just above 2% in the previous quarter, driven by healthy consumer spending.

Employment numbers continued to impress analysts with an average addition of 205,000 jobs per month in the quarter. Unemployment closed the year under 3.5% with limited wage pressure. On a negative note, businesses were reluctant to invest in 2019 and manufacturing contracted in December to its lowest level since 2009.

2019 ended on a high note for investors, unlike 2018, where just about everybody was questioning the stability and the possible end of the Bull Market. After this year of strong returns, analysts are still mostly bullish, but they are predicting modest gains for 2020.  Schedule an Appointment

Global Economic Fears

While the U.S. economy did not experience a recession in 2019, the global economy showed signs of weakness. Global growth for the year recorded its weakest pace since the global financial crisis a decade ago, reflecting common influences across countries and country-specific factors.

According to the International Money Fund (IMF), rising trade barriers and associated uncertainty weighed on business sentiment and activity globally. In some cases (advanced economies and China), these developments magnified the cyclical and structural slowdowns that were already under way. Further pressures came from country-specific weakness in large emerging market economies such as Brazil, India, Mexico, and Russia. Worsening macroeconomic stress related to tighter financial conditions (Argentina), geopolitical tensions (Iran), and social unrest (Venezuela, Libya, Yemen) rounded out the difficult picture. (Source: IMF.org 1/1/2020)

One of the more talked about international topics of quarter four was Brexit. After Boris Johnson was elected Prime Minister, on December 20th, the United Kingdom’s parliament voted 358 to 234 in favor of his plan to leave the European Union on January 31. Brexit clarity is hopeful to have a positive effect on the UK economy, where investment expenditures in particular have been weak due to muted business confidence levels.

Central European banks have reacted aggressively to the weaker economic activity. To end the year, several banks, including the European Central Bank (ECB), cut interest rates and the ECB also restarted asset purchases. A lackluster global economy and further slowdown can affect investors. In 2020, this is an area that needs to be monitored.

Interest Rates are Still Crucial

In 2019, many types of bonds have delivered some of their best returns in more than a decade. Bond prices rose because the Federal Reserve cut interest rates three times, after raising them in 2018 (bond prices rise when rates fall).

The fourth quarter saw a third rate cut in October and then the Federal Reserve held interest rates steady at 1.50% – 1.75% during its December meeting. In its statement explaining the decision, the committee indicated that monetary policy is likely to stay where it is for an unspecified time, though officials will continue to monitor conditions as they develop. (Source: CNBC.com 12/11/2019)

There was much talk earlier in the year about an inverted yield curve (which meant that short-term rates were higher than long-term ones). Headlines pointed to the fact that before the last 7 recessions, the 3-month to 10-year yield curve inverted and then the recession followed 4 to 21 months later. Currently, the yield curve is no longer inverted. Historians also remind us that this inversion also happened in 1966 and 1998 without a recession afterward.

Interest rates are still near all-time lows, but clarity with the direction of interest rates can be a positive for investors. For 2020, interest rates will continue to be on the forefront of our “watch” list.

Trade Wars and Political Concerns

The Trump administration continued the trade dispute with China during 2019, in an attempt to address practices they said put U.S. companies at a disadvantage. After a year of struggle, in December 2019, the two sides agreed to pause and work on a trade agreement. As of the writing of this report, the two sides are on track to sign a “phase one” deal in early 2020. (Source: BusinessInsider.com 12/30/2019)

The new year also brings a Presidential election in the United States. In December, Donald J. Trump became the third President to be impeached as the House of Representatives approved two articles of impeachment. The uncertainty around the timing of a Senate hearing and the U. S. political scene is concerning for investors. While the impeachment should not have any negative impacts on fiscal or monetary policy, any disruption of this magnitude can affect emotions and behaviors.

Also, as of the writing of this report, tensions with Iran were flaring. Politically speaking, there are still a lot of unknowns in the market. For 2020, we will continue to watch how political and geopolitical events unfold.

Where are Markets Headed?

Investors are still enjoying the longest bull market ever, but there are two directions of thought to consider. One is the fact that based on historical numbers, like price earnings, that equities continue to be overvalued and overpriced. The other thought process insists that we are still in a “TINA” market, meaning, There Is No Alternative to stocks. There are investors that look for growth and others that look for yield. With low to limited yield from fixed rates, some investors feel that there could be more upside in the current market. Equities are not cheap and even the savviest of investors need to have a watchful eye on risk. As financial professionals, we assist clients by providing ideas and suggestions based on their personal circumstances.

As seen on the chart of the S&P 500 performance from 1997 to 2019, in 16 of the 23 years the market ended the year with a positive return. However, those who took on significant equity exposure in 2007 or 1999 might not have fared well the following year. On the other side, if an investor was scared after 2008 or 2002 and avoided equities, they might have missed a great opportunity to grow their portfolio. Currently, short-term interest rates and cash equivalent yields are still historically low. Investors seeking returns need to consider owning equities. That could lead to volatility in 2020.

When creating a long-term plan, it can require you to avoid emotional decisions that may trigger you to make impulsive moves. Our goal is to focus on each client’s timeframes and goals.

2020 Outlook

What a difference a year makes. In December of 2018, for 2019, analysts feared rising interest rates, an aging bull market, recession fears and trade wars. Equity markets proved these fears to be wrong, as they delivered record breaking highs and very positive results. Many analyst are being cautious with their 2020 forecasts. As we have already noted, they too feel interest rates are very low. They also acknowledge that there are old and new risks for investors on the horizon. They maintain that stock valuations are currently challenging and are looking for a “more muted outlook for 2020”, according to the 10 strategists Barron’s surveyed. They forecasted, “an average rise of 4% for the S&P 500 in 2020. Add to that a roughly 2% dividend yield, and stocks could deliver a total return of about 6% next year.” (Source: Barron’s 12/19/2019)

“The stock market still has room to run,” says Stephen Auth, Chief Investment Officer of Federated Investors. He adds that, “much of the uncertainty that has been problematic for the economy has dropped away.” He shares that with low interest rates and high corporate earnings, the S&P 500 still has room to advance. (Source: Seeking Alpha 1/9/2020)

Geopolitical uncertainties, headlines from the upcoming U.S. elections and trade tensions between the U.S. and China might continue to grab an investors attention. Once again in 2020, we are suggesting that when you experience confusing times it is usually best to proceed with caution.

Questions for Investors

With the start of a new year we think it could be helpful to repeat some questions for investors to consider annually.

• Is there a change in your financial goals or objectives?
• Has your risk tolerance changed?
• Are any of your time frames different?

Investors should always put their primary focus on their own personal goals and objectives. If you have a change in your answer to any of these questions then contact us and we will be happy to discuss this with you.

We are here for you!

Our advice is not one-size-fits-all. We will always consider your feelings about risk and the markets and review your unique financial situation when making recommendations. If you would like to revisit your specific holdings or risk tolerance, please call our office or bring it up at our next scheduled meeting. If you ever have any concerns or questions, please contact us!

We pride ourselves in offering:

• consistent and strong communication,
• a schedule of regular client meetings, and
• continuing education for every member of our team on the issues that affect our clients.

A skilled financial advisor can help make your journey easier. Our goal is to understand our clients’ needs and then try to create a plan to address those needs.

Call our office today to discuss your unique situation: (410) 908-9293

Need a help with your portfolio or retirement account?  Visit here for Financial 1 Wealth Management

Registered Representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker dealer and a registered investment adviser. Member FINRA/SIPC. Financial 1 Wealth Management Group and IFG are unaffiliated entities. The views expressed are not necessarily the opinion of Independent Financial Group and should not be construed, directly or indirectly, as an offer to buy or sell securities mentioned herein. All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. This article is for informational purposes only. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional. Past performance is no guarantee of future results. Sources: Barron’s, Businessinsider.com, IMF.org, CNBC.com, RWBaird.com, SeekingAlpha.com. Contents provided by the Academy of Preferred Financial Advisors, 2020.

The post Quarterly Economic Update: Fourth Quarter 2019 appeared first on Financial 1 Tax.

After some concerns and declines during the summer, major equity markets showed advances in the month of September and finished positive for the third quarter of 2019. The S&P 500 ended the month about 1.7% higher, and up by 1.2% for the quarter. The Dow ended 1.9% and 1.2% higher for the month and quarter, respectively. (Source: Yahoo Finance 9/30/2019)

Some prominent investment themes from earlier in the year continued to surface in the third quarter producing volatile trading, but at the quarter’s end had no real impact. The U.S.-China trade conflict continued to capture investors’ attentions and fluctuated equity markets. The quarter also included the Federal Reserve’s lowering of rates in September for the second time this year. The combination of these events with slowing global economic growth and interest rates produced an inverted yield curve, which is a sign for some of economic downturns. Despite all of this, equity markets still rewarded patient investors. (Source: Morningstar.com 9/30/2019)

In a quarter ending news release, the NASDAQ stated that, “As investors prepare for U.S. corporations to report financial results next month, they could look past recent sluggish growth and find comfort as earnings look set to rebound after the third quarter.” Some strategists argue that just a small amount of economic growth should be enough to support better profit growth, which could help justify high market valuations. “People are overestimating the negative from trade and underestimating the lagged response from a lot of policy easing,” said Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis. “It could affect what corporations say when they look ahead,” he said. Recent economic data has been mixed, with reports on U.S. labor and housing upbeat, but others disappointing. (Source: NASDAQ.com 9/30/2019)

Investors are still enjoying the longest bull market ever, but two camps of thought still continue to exist. One camp points to the fact that based on historical numbers, like price earnings, that equities are highly overvalued and overpriced. The other camp insists that we are still in a “TINA” market, meaning, There Is No Alternative to stocks. This group feels that until rates rise significantly, this will remain true and that means there could be significant upside in the current market. Equities are not cheap and even the savviest of investors need to have a watchful eye on risk. As financial professionals, we assist clients by providing ideas and suggestions based on their personal circumstances. Short-term interest rates and cash equivalent yields are still historically low. Our goal is to focus on each client’s timeframes and goals.

Key Points

1. Volatility continued to be elevated in Q3 and looks to remain for Q4.

2. Interest rates are still in the spotlight as Fed cuts rates twice in Q3.

3. Consumer confidence remains strong but tariffs bring caution and concern.

4. Trade war and tariffs between China and the U.S. bring market anxieties.

5. U.S. and global political uncertainty remain a key item to watch.

6. Now is the ideal time to revisit your personal objectives and the strategies to achieve them.

Interest Rates Are Still in the Spotlight

On Wednesday, September 18, the Federal Reserve lowered interest rates for the second time in the third quarter by 25 basis points down to a range of 1.75-2%. This reduction was after a similar rate cut as a result of their July session. Prior to July, the Fed had raised rates over nine times since December 2015. The reasoning for this most recent rate cut was weakening exports and low inflation. This quarter’s two rate cuts were the first time in over a decade that the Fed lowered interest rates.

Despite low unemployment rates, robust job gains and strong household spending, the central bank’s monetary policy committee stated, “…business fixed investment and exports have weakened. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent.” (foxbusiness.com 9.18.2019)

Fed Chairman Jerome Powell reaffirmed that the Fed will, “act as appropriate to ensure that the expansion remains on track.” It appears that the Fed made this recent rate cut as a proactive move toward ensuring the economy remains on the road to recovery.

Interest rates will continue to be on the forefront of our “watch” list.

Consumer Confidence

A notable point for the third quarter is that in September, U.S. consumer confidence fell to 125.1, down from 134.2 in August. This drop was the biggest in nine months. Lynn Franco, Senior Director of Economic Indicators at the Conference Board stated, “The escalation in trade and tariff tensions in late August appears to have rattled consumers.” He continued, “However, this pattern of uncertainty and volatility has persisted for much of the year and it appears confidence is plateauing.” Franco continued, “Consumers were less positive in their assessment of current conditions and their expectations regarding the short-term outlook also weakened. While confidence could continue hovering around current levels for months to come, at some point this continued uncertainty will begin to diminish consumers’ confidence in the expansion.” (CNBC.com; 9/24/19; Bloomberg.com 9/24/19)

Despite the dip in consumer confidence, the trend still appears to be that the consumer will support the current U.S. expansion, although spending may be more moderate.

Media Magnification and The Inverted Yield Curve

A quick way to spook many investors is to utter these three words, “inverted yield curve.” The third quarter of 2019 experienced the demonized inverted yield curve, sparking fears of a recession.

In brief, a “normal” yield curve has an upward arc. An inverted yield curve is just that, a curve that slopes downward. This shows that interest rates on short-term bonds is higher than some longer-term bonds.

In August, for the first since 2007, the spread between the 2-year and 10-year treasury yields turned negative. The 30-year treasury bond yield dropped below 2%. Historically, this has transpired prior to every U.S. recession in the last 50 years. (foxbusiness.com 9.18.2019)

This inverted yield curve lasted briefly but the theory behind what it potentially hails has resonated in the minds of many investors. The media is doing an excellent part in keeping the fear of a recession at the forefront of many investor’s thoughts. With talks of economic slowdowns and future concerns, investors need to prepare and proceed with caution.

Global Economy and Political Concerns

The third quarter of 2019 opened with the yuan, China’s currency, falling below 7 yuan to the U.S. dollar. This was the first time since 2008. This drop was as a result of President Trump threatening to add an additional 10% tariff on over $300 billion worth of Chinese imports. This set the stock market into a fast plunge of over 950 points on August 5, the steepest drop yet in 2019. This dive also marked the sixth biggest point drop in the DJIA’s 123-year history. (nypost.com, 8/2019)

Then in September, the President excluded hundreds of items from the 25% duty imposed on Chinese imported goods. This brought a calmer response from traders. (Bloomberg.com 9/30/19)

Tariffs and trade issues could affect equities, so investors should continue to monitor them. The U.S. and China are the world’s largest economies and a disruption in their symbiotic relationship could affect economies globally.

In addition to the ongoing trade wars, the United Kingdom is set to leave the European Union (EU) on October 31. How Brexit may affect global markets is still of concern and an item that needs to be carefully watched.

Political uncertainty, including the 2020 elections, also need to be watched. As financial professionals, our primary focus is on how the political landscape affects investment markets. We will be keeping an eye on global activities and how it may affect you.

Corporate Earnings

Corporate earnings are still a key factor in stock market performance. Stock prices typically rise when quarterly earnings reports meet or exceed market expectations and conversely, tends to lower prices when reports show unrealized expectations in earnings.

Weak corporate profits could be what finally convince investors to start pulling back on stocks, especially if companies start to lower their outlooks for the fourth quarter and 2020. The ripple effect of the trade war and tariffs is seeping into U.S. corporate earnings and therefore they need to be watched carefully. (CNN Business 9/30/2019)

Market Outlook for Q4

The month of October has seen five of the stock market’s worst 10 days, including 1987’s more-than 20% single day drop. However, overall, October typically ends as an average month for the market.

What will the last quarter of 2019 bring?

As shown in the chart of monthly market volatility, which tracks the standard deviation of daily returns of the S&P 500 dating back to 1928, October has historically been the most volatile month for U.S. equity markets. November is also one of the most volatile months. Seasoned investors understand that volatility is a part of the investment experience. They also understand that more important than the volatility is an investor’s response to that volatility. Sometimes volatility is a sign of heightened risk, but at other times volatility is just a normal part of investing. Market volatility is possibly one of the most misunderstood concepts in investing. Simply put, market volatility is a statistical measure of when the equity markets rise or fall sharper than usual within a short period of time.

Once again, we are suggesting that in these confusing times it is best to proceed with caution.

Strategies for Investors During Market Volatility

With fall being a historically volatile time period, we think it could be helpful to continue our theme of sharing strategies to consider during volatile times.

Revisit your financial goals and objectives.

Always allocate your investments to match your risk tolerance.

• If possible, add money to your investments regularly and try to increase your additions during downfalls.
• It’s nearly impossible to time the market right (sell when you think the markets at its peak), so have a strategy.
• Accept that volatility is inherent to investing.
• Consider avoiding or ignoring daily financial news.
• Always try not to make any emotional decisions.
• Don’t obsessively check your investments. Much like opening the refrigerator over and over again isn’t going to change what’s inside it, checking your investments obsessively isn’t going to alter whether or not your stocks are going up or down.

During volatile times, it is always wise to have realistic time horizons and return expectations for your own personal situation and to adjust your investments accordingly.

Now is the time to make sure you are confident, comfortable and consistent with your plan.

A financial plan is only as good as your ability to consistently follow it.

We are here for you!

Our advice is not one-size-fits-all. We will always consider your feelings about risk and the markets and review your unique financial situation when making recommendations. If you would like to revisit your specific holdings or risk tolerance, please call our office or bring it up at our next scheduled meeting. If you ever have any concerns or questions, please contact us!

Call 410-908-9293.

Note: The views stated in this letter are not necessarily the opinion of Independent Financial Group and should not be construed, directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. This material contains forward looking statements and projections. There are no guarantees that these results will be achieved. All indices referenced are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. The S&P 500 is an unmanaged index of 500 widely held stocks that is general considered representative of the U.S. Stock market. Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Past performance is no guarantee of future results. CD’s are FDIC Insured and offer a fixed rate of return if held to maturity. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Sources: yahoofinance.com; Morningstar.com; Barron’s; bigcharts.com; marketwatch.com; foxbusiness.com; Bloomberg.com; cnbc.com; CNNBusiness.com. Contents provided by the Academy of Preferred Financial Advisors, 2019©

The post Quarterly Economic Update: Third Quarter 2019 appeared first on Financial 1 Tax.