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The Week on Wall Street
Major U.S. stock benchmarks eked out slight gains last week, with corporate profit reports and news about U.S.-China trade negotiations vying for investor attention over five trading sessions.
The big three ended the week little changed from where they settled the previous Friday. The Dow Jones Industrials rose 0.17% percent, while the S&P 500 Index gained 0.05% percent. The NASDAQ Composite ended the week up 0.47%. Looking at international stocks, the MSCI EAFE index retreated 0.47%.1,2
As of last Friday, 66% of all S&P 500 companies had reported fourth-quarter earnings. So far, 71% of these firms have announced earnings exceeding estimates, and 62% have seen revenues top projections.3
Halfway through earnings season, 2019 future guidance has been a mixed bag for S&P 500 companies.3 For Wall Street, future earnings can be just as important as current earnings. We keep a close eye on both.
March 1 is the 90-day deadline set by President Trump for a trade deal with China. If no agreement is reached, the U.S. may consider a new round of tariffs. On Thursday, news that President Trump and Chinese President Xi may not meet before the March 1 deadline added to the market volatility.
The decision by the U.S. on new tariffs may hinge on how much progress has been made toward a new agreement. We don’t expect that to become clear until the deadline nears.
State of the Service Sector
Many indicators help economists take the pulse of the overall economy. The Institute for Supply Management keeps a critical, but not widely followed, index, which helps gauge the health of the service sector.
The January reading on this index came in at 56.7. Any reading above 50 shows that the service industry is seeing solid growth.4
Over the next several weeks, we’re expecting more volatility as the markets digest economic news, a new wave of corporate earnings, and twists and turns on the geopolitical front. We will be watching to see if anything changes our short-term and long-term view. If you have any questions, don’t hesitate to contact us.
THE WEEK AHEAD: KEY ECONOMIC DATA
Wednesday: January’s Consumer Price Index, which measures monthly and yearly inflation.
Thursday: December retail sales figures (a delayed release due to the government shutdown).
Friday: January’s preliminary University of Michigan consumer sentiment index, a gauge of consumer confidence levels.
Source: Econoday / MarketWatch Calendar, February 8, 2019
The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision. The release of data may be delayed without notice for a variety of reasons, including the shutdown of the government agency or change at the private institution that handles the material.
THE WEEK AHEAD: COMPANIES REPORTING EARNINGS
Monday: Loews Corp (L)
Tuesday: Activision Blizzard (ATVI), HubSpot (HUBS), Occidental Petroleum (OXY)
Wednesday: Cisco (CSCO), Hilton Worldwide Holdings (HLT), Yelp (YELP)
Thursday: Applied Materials (AMAT), CBS (CBS), Coca-Cola (KO)
Friday: Deere & Co. (DE), PepsiCo (PEP)
In sports, music, and politics, there are “great debates” that never seem to conclude. In the investment world, one great debate asks a thought-provoking question: which investment approach is better? Active or passive?
There is no pat answer, and equally intelligent, educated people can take distinctly opposite sides in this discussion, which may mean no definitive answer exists.
Passive pointers. The case for passive investment management is anchored in the evidence that the preponderance of money managers have failed consistently to beat their comparative index. Why is this? Adherents of passive investing cite two primary reasons:
One, markets are efficient, and all known information is already reflected in the price of the stock, making it difficult for managers to find companies that are expected to outperform. Over the 15 years ending in 2017, more than 90% of small-cap, mid-cap, and large-cap asset managers of active equity funds failed to beat their benchmarks. Some did for a particular year, but across successive market years, their ranks quickly thinned.[i],[ii]
Two, actively managed equity funds often have an elevated expense ratio. That presents a hurdle, which can make it hard to match or exceed the return of a low-expense index fund. In 2017, actively managed funds had an expense ratio averaging 0.79%, according to the Investment Company Institute (ICI), compared to 0.09% for the average equity index fund.2,[iii]
Even so, a studious investor has to decide if the potential cost savings of a passive investing approach outweigh the possible opportunity cost.
Active arguments. Active investment managers counter that while the markets may be generally efficient, there are windows of inefficiency created by the time it takes for information to be properly reflected in a stock’s price.
Active managers further argue that performance is not just about relative return, but also, about managing risk. Since the performance of an actively managed account or fund is not tracked to an index, that freedom allows the manager more leeway and options to hedge or reduce exposure to disappointing sectors of the market.
Unlock the combination. Ultimately, the active vs. passive decision comes down to preference. Do you prefer the approach taken by index funds or the strategy behind active management? For some, the combination of both methods represents a strategy that takes no sides, but seeks to tap into the distinctive potential benefits of each method. Some investors choose to have a portion of their invested assets actively managed, and another, passively managed. Perhaps this is not indecision so much as experimentation.
As a reminder, equity funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this information and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
Last week closed out one of stocks’ top January performances in years. In fact, both the S&P 500 and Dow posted their best January results in at least 3 decades.[i] For the week, major domestic indexes were also up. The S&P 500 gained 1.57%, the Dow added 1.32%, and the NASDAQ increased 1.38%.[ii] The Dow’s performance marked its 6th week of gains in a row.[iii] Internationally, MSCI EAFE stocks also posted growth, rising 0.91%.[iv]
What drove stock results last week?
As discussed in our previous market update, last week provided a number of details for investors to focus on. Here are some key items that contributed to market performance:
The Fed’s signal that additional rate hikes may not be imminent helped improve market confidence.[vi]
With worries of disappointing results calmed, some investors are feeling relieved by earnings season so far.[viii]
The January job growth was much higher than investors expected and implied the partial government shutdown minimally affected the U.S. economy. These perspectives helped drive stock gains on Friday.[x]
This week, we will continue to monitor corporate earnings season and will follow any developments in the U.S.–China trade negotiations. We will also watch for new data releases, especially those previously delayed by the government shutdown. If you have any questions, we’re here for you.
Monday: Motor Vehicle Sales, Factory Orders
Tuesday: PMI Services Index, ISM Non-Mfg Index
Wednesday: Jerome Powell Speaks
Thursday: Jobless Claims
*The federal government shutdown may delay some data releases.
Most parents want to give their children the best opportunity for success and getting into the right college may help open doors. According to the latest income-per-education-level data available from the Bureau of Labor Statistics, American adults who have a bachelor's degree had median weekly earnings of $1,173 and a jobless rate of 2.5% in 2017, compared with median earnings of $712 and unemployment of 4.6% for those with just a high school diploma.[i]
Unfortunately, being accepted to the college of one’s choice may not be as easy as it once was. These days, preparing for college means setting goals, staying focused, and tackling a few key milestones along the way.
Before High School
The road to college begins even before high school. As early as elementary and middle school foster your child’s love for learning. Encourage good study habits and get them dreaming about college. A trip to a nearby university or your alma mater may help plant the seed in their minds. When your child reaches middle school, take the time to find out which prerequisite courses may set the right track for math and science in high school.
The earlier you consider how you expect to pay for college costs, the better. The average student loan borrower owes $32,731 in education debt, which amounts to between 65-111% of first-year salary.[ii]
Before the school year begins, consider meeting with your child’s guidance counselor. Discuss college goals and make sure your child is enrolled in classes that are structured to help them pursue those goals. Also, encourage your child to choose challenging classes. Many universities look for students who push themselves when it comes to learning. At the same time, keep a close eye on grades. Every year on the transcript counts. If your child is struggling in a subject, don’t wait to get a tutor. One-on-one instruction can be a huge benefit when mastering difficult material.
In addition to academic performance, many colleges want prospective students to be well rounded, so encourage your child to engage in extracurricular activities, such as sports, music, art, community service, and social clubs.
During their sophomore year, some students may have the opportunity to take a practice SAT. A practice exam is a good way to give your child a feel for what the test entails as well as any possible areas improvement they may have. If your child is enrolled in advanced placement (AP) courses, encourage good performance on AP exams. High exam scores show universities your child can succeed at a higher level of learning.
Sophomore year is also a good time to get some depth in extracurricular activities. Help your child identify passions and stick to them. Encourage your child to read as much as possible. Whether they read Crime and Punishment or Sports Illustrated, they will expand their vocabulary and critical thinking skills. Summer may be a good time for sophomores to get a job, do an internship, or travel to help fill their quiver of experiences.
Near the beginning of junior year, your child can take the Preliminary SAT (PSAT), also known as the National Merit Scholarship Qualifying Test (NMSQT). Even if they won’t need to take the SAT for college, taking the PSAT could open doors for scholarship money. Junior year may be the most challenging in terms of course load. It is also a critical year for showing good grades in difficult classes.
Top colleges look for applicants who are future leaders. Encourage your child to take a leadership role in an extracurricular activity. This doesn’t mean they have to be drum major or captain of the football team. Leading may involve helping an organization with fundraising, marketing, or community outreach.
In the spring of junior year, your child will want to take the SAT or ACT. An early test date may allow time for taking the test again in senior year, if necessary. No matter how many times your child takes the test, colleges will only look at the best score.
For many students, senior year is the most exciting time of high school. They will finally begin to reap the benefits of all their efforts during the previous years. Once your child has decided to which schools they wish to apply, make sure you keep on top of deadlines. Applying early can increase your student’s chance of acceptance.
Now is also the time to apply for scholarships. Your child’s guidance counselor can help you identify scholarships within reach. Also, find out about financial aid and be thorough. According to research by NerdWallet.com, well over $2 billion in free federal grant money is going unclaimed each year simply because students are failing to fill out the free application.[iii]
Finally, talk to your child about living away from home. Help make sure they know how to manage money wisely and pay bills on time. You may also want to talk about social pressures some college freshmen face for the first time when they move away from home.
For many people, college sets the stage for life. Making sure your children have options when it comes to choosing a university can help shape their future. Work with them today to make goals and develop habits that will help ensure their success.
For the first time in months, U.S. markets experienced little movement last week.[i] The Dow and NASDAQ did have their 5th week of gains in a row, but their increases were small: 0.12% and 0.11%, respectively. Meanwhile, the S&P 500 broke its 4-week winning streak with a 0.22% loss. [ii] Internationally, the MSCI EAFE also posted modest returns, gaining 0.47% for the week. [iii]
What topics were on investors’ minds?
Despite the relative lack of market drama last week, investors still had plenty to consider. For example, the following details emerged:
In addition, the longest Federal government shutdown in history ended. After 35 days, the House and Senate voted unanimously to reopen the partially closed government. President Trump signed the bill, which includes funding through February 15.[v]
This week could provide far more action in the markets when a number of key details emerge.[vi]
What’s ahead this week?
These last days of January provide several noteworthy updates, including:
One data point we may not receive this week is the initial reading of 4th quarter 2018 Gross Domestic Product.[xii] This report is one of many affected by the Federal government shutdown. Although the government has reopened, we have yet to receive the latest data on retail sales, new home sales, durable goods orders, and more.[xiii]
As the week unfolds, we will analyze all of the information that does come out—and continue to look for ways to pursue our clients’ long-term goals in the current economic environment. If you have any questions about how these details affect your financial life, we’re here to talk.
Tuesday: Consumer Confidence
Wednesday: ADP Employment Report, GDP
Friday: Motor Vehicle Sales, PMI Manufacturing Index, ISM Mfg Index, Construction Spending, Consumer Sentiment
*The Federal government shutdown may delay some data releases.
Have you ever had one of those months? The water heater stops heating, the dishwasher stops washing and your family ends up on a first-name basis with the nurse at urgent care. Then, as you’re driving to work, giving yourself your best, “You can make it!” pep talk, you see smoke seeping out from under your hood.
Bad things happen to the best of us, and instead of conveniently spacing themselves out, they almost always come in waves. The important thing is to have a financial life preserver, in the form of an emergency cash fund, at the ready.
Although many people agree that an emergency fund is an important resource, they’re not sure how much to save or where to keep the money. Others wonder how they can find any extra cash to sock away. One recent survey found that 29% of Americans lack any emergency savings whatsoever.[i]
How Much Money?
When starting an emergency fund, you’ll want to set a target amount. But how much is enough? Unfortunately, there is no “one-size-fits-all” answer. The ideal amount for your emergency fund may depend on your financial situation and lifestyle. For example, if you own your home or provide for a number of dependents, you may be more likely to face financial emergencies. And if the crisis you face is a job loss or injury that affects your income, you may need to depend on your emergency fund for an extended period of time.
Coming Up with Cash
If saving several months of income seems an unreasonable goal, don’t despair. Start with a more modest target, such as saving $1,000. Build your savings at regular intervals, a bit at a time. It may help to treat the transaction like a bill you pay each month. Consider setting up an automatic monthly transfer to make self-discipline a matter of course. You may want to consider paying off any credit card debt before you begin saving.
Once you see your savings begin to build, you may be tempted to use the account for something other than an emergency. Try to budget and prepare separately for bigger expenses you know are coming. Keep your emergency money separate from your checking account so that it’s harder to dip into.
Where Do I Put It?
An emergency fund should be easily accessible, which is why many people choose traditional bank savings accounts. Savings accounts typically offer modest rates of return. Certificates of Deposit may provide slightly higher returns than savings accounts, but your money will be locked away until the CD matures, which could be several months to several years.
The Federal Deposit Insurance Corporation insures bank accounts and certificates of deposit (CDs) up to $250,000 per depositor, per institution in principal and interest. CDs are time deposits offered by banks, thrift institutions, and credit unions. CDs offer a slightly higher return than a traditional bank savings account, but they also may require a higher amount of deposit. If you sell before the CD reaches maturity, you may be subject to penalties.[ii]
Some individuals turn to money market accounts for their emergency savings. Money market funds are considered low-risk securities, but they’re not backed by the federal government like CDs, so it is possible to lose money. Depending on your particular goals and the amount you have saved, some combination of lower-risk investments may be your best choice.2
Money held in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund. Money market mutual funds are sold by prospectus.2
Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
The only thing you can know about unexpected expenses is that they’re coming—for everyone. But having an emergency fund may help alleviate the stress and worry associated with a financial crisis. If your emergency savings are not where they should be, consider taking steps today to create a cushion for the future.
U.S. markets were up again last week, as major domestic indexes posted their 4th weekly gains in a row.[i] In fact, the S&P 500 was no longer in correction territory at Friday’s close—and was in the middle of its best yearly start since 1987.[ii]
For the week, the S&P 500 gained 2.87%, the Dow added 2.96%, and the NASDAQ increased by 2.66%. So far, all three indexes are up more than 5% in 2019.[iii] Internationally, the MSCI EAFE also ended the week in positive territory, posting a 1.06% gain.[iv]
What is driving the rally?
Once again, developments in our ongoing trade negotiations with China contributed to the performance. On Thursday, a report emerged that the U.S. was weighing whether to lift tariffs on Chinese imports. However, the Treasury Department said Secretary Steve Mnuchin had not recommended this action.[v] Then, on Friday, Bloomberg released news that China may raise its imports to a level that would close the trade deficit by 2024.[vi] This potential sign of progress contributed to the day’s market gains.[vii]
While these trade updates significantly affected stock performance last week, the following details are also worth noting.
So far, 11% of S&P 500 companies have released their earnings reports for the 4th quarter of 2018. As expected, growth is not as fast as in the last year’s previous quarters, but total earnings are still up 16.9% over the same period in 2017. We are very early in earnings season but anticipate data from another 56 companies coming out this week.[viii]
The latest consumer sentiment reading fell to its lowest level since 2016, yet it still remains relatively high. This decline could signal that the current impasse over border-wall funding and the volatile markets are negatively affecting the economy.[ix]
The latest data showed that U.S. manufacturing output increased by 1.1% in December. This rate exceeded expectations and may help calm concerns that factory production is slowing.[x]
Since December 22, parts of the Federal government have been closed, marking the longest shutdown in U.S. history. Economists estimate that each week the shutdown continues could reduce our quarterly growth of Gross Domestic Product by up to 0.2%.[xi]
Looking ahead, we will not only have earnings data to consider in this shortened trading week, but also information on home sales and durable goods orders. We’ll continue to monitor economic reports—and geopolitical developments—as we support each client’s long-term goals. As always, if you have questions or concerns, we’re here for you.
Monday: Markets Closed for Martin Luther King Jr. Day
Tuesday: Existing Home Sales
Friday: Durable Goods Orders, New Home Sales
Did you know that nearly $10 trillion in assets are benchmarked to the Standard & Poor’s 500 Composite Index, including about $3.5 trillion in index assets?[i]
The S&P 500 is ubiquitous. It is constantly referenced in financial and non-financial media, and we may compare the return of our own investments to its performance. As the index represents approximately 80% of the value of the U.S. equity market (or in financialese, about 80% of market capitalization), it may be worthwhile to gain a better understanding of its structure and workings.1
Breaking down the benchmark. The S&P 500, as we know it today, was introduced in March 1957. It tracks the market value of about 500 large firms that are listed on the Nasdaq Composite and the New York Stock Exchange. The S&P is structured to include companies from across the sectors of the business community, in an effort to represent the breadth of the U.S. economy.1,[ii]
There are a number of criteria a company must meet to be considered for inclusion in the index. A firm must be a U.S. company publicly listed on a major equity market exchange, have a market capitalization of $6.1 billion or more, and have at least 250,000 of its shares traded in each of the six months prior to its consideration for index membership by Standard & Poor’s. A company must also be financially viable: the ratio of its annual dollar value traded to its float-adjusted market cap must be greater than 1.0.[iii]
The S&P has changed over time. Companies have been gradually removed and added over the past 60-odd years. At the benchmark’s fiftieth anniversary in 2007, just 86 of the original components remained. Subsequent mergers and acquisitions have reduced that number further.3
Right now, about 20% of the weight of the S&P is held in ten companies, and the performance of tech shares influences the benchmark’s return, perhaps more than any other factor.3
The index has been altered through the years in response to changes in the economy. Across several decades, the makeup of the index’s various sectors has differed, along with their weightings. This leads to frequent updates for the equity funds that aim to replicate the index; in order to maintain that replication, they may quickly need to buy or sell shares of corporations that are being added or removed.3
Keep in mind that amounts in mutual funds and ETFs are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost. Equity funds are sold only by prospectus, so please consider their charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
It should also be noted that investors cannot invest directly in an index. Also, index performance is not indicative of the past performance of a particular investment, and past performance does not guarantee future results. Investment choices designed to replicate any index may not perfectly track it, and their returns will be reduced by fees and expenses.
After months of volatility, markets relaxed a bit last week. For the first time since October, the S&P 500 went 5 days without a 1% gain or loss.[i] The Cboe Volatility Index, or VIX, also fell to lower than 20—in December, it spiked above 35.[ii]
For the week, the S&P 500 added 2.54%, the Dow gained 2.40%, and the NASDAQ increased 3.45%. All three indexes are in positive territory for 2019.[iii] International stocks in the MSCI EAFE grew as well, with a 2.85% weekly gain.[iv]
What drove last week’s gains?
Updates on trade and monetary policy contributed to investor decisions, yet again.[v]
Last week, multiple Fed officials gave speeches indicating our central bank would carefully approach its interest rate decisions in 2019. Fed Chairman Jerome Powell described the policies as “flexible” and “patient.”[vi]
Many investors believe that efforts to resolve trade tension between the U.S. and China made progress last week. On Wednesday, January 9, talks concluded in Beijing after three days of negotiations, and China said the “in-depth” meetings made a resolution possible.[vii] The next day, U.S. Treasury Secretary Steve Mnuchin announced that a high-level Chinese policy advisor is coming to D.C. later this month for further talks.[viii]
What is ahead?
Last week’s trade and policy headlines seemed to ease some of the risks on investors’ minds.[ix] However, both challenges and opportunities remain.
This week marks the beginning of U.S. corporate earnings season. Analysts have low expectations for companies’ 4th-quarter performance, especially after a number of large corporations released warnings about their results. However, analysts still predict that S&P 500 companies experienced 14.5% profit growth. In addition, the generally sour, pessimistic mood surrounding earnings could support equities in two ways: 1) Investors may not react strongly if companies miss projections, and 2) any companies that have surprisingly good results could see stock price jumps.[x]
Along with earnings results, investors will be paying close attention to companies’ commentary on business in China.[xi] Some experts believe Chinese economic growth is slowing, which is already affecting market performance. On Friday, markets stumbled a bit as analysts considered data and commentary on China’s economy. These details will remain important to watch—and see how they relate to trade.[xii]
In addition, while the U.S. federal government shutdown has not yet had a large market impact, if it continues for too long, it could sizably affect the economy.[xiii]
We will continue to monitor these and other financial perspectives as we determine where the markets are—and what may be on the horizon. If you have any questions, we’re here to talk and listen.
Wednesday: Retail Sales, Housing Market Index
Thursday: Housing Starts, Jobless Claims
Friday: Industrial Production, Consumer Sentiment
IRAs can be an important tool in your retirement savings belt, and whichever you choose to open could have a significant impact on how those accounts might grow.
IRAs, or Individual Retirement Accounts, are tax-advantaged accounts used to help save money for retirement. There are two different types of IRAs: traditional and Roth. Traditional IRAs, created in 1974, are owned by roughly 35.1 million U.S. households. Roth IRAs, created as part of the Taxpayer Relief Act in 1997, are owned by nearly 24.9 million households.[i]
Both kinds of IRAs share many similarities, and yet, each is quite different. Let's take a closer look.
Up to certain limits, traditional IRAs allow individuals to make tax-deductible contributions into the retirement account. Distributions from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. For individuals covered by a retirement plan at work, the deduction for a traditional IRA in 2019 has been phased out for incomes between $103,000 and $123,000 for married couples filing jointly and between $64,000 and $74,000 for single filers.[ii],[iii]
Also, within certain limits, individuals can make contributions to a Roth IRA with after-tax dollars. To qualify for a tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Like a traditional IRA, contributions to a Roth IRA are limited based on income. For 2019, contributions to a Roth IRA are phased out between $193,000 and $203,000 for married couples filing jointly and between $122,000 and $137,000 for single filers.2,3
In addition to contribution and distribution rules, there are limits on how much can be contributed to either IRA. In fact, these limits apply to any combination of IRAs; that is, workers cannot put more than $6,000 per year into their Roth and traditional IRAs combined. So, if a worker contributed $3,500 in a given year into a traditional IRA, contributions to a Roth IRA would be limited to $2,500 in that same year.[iv]
Individuals who reach age 50 or older by the end of the tax year can qualify for annual “catch-up” contributions of up to $1,000. So, for these IRA owners, the 2019 IRA contribution limit is $7,000.4
If you meet the income requirements, both traditional and Roth IRAs can play a part in your retirement plans. And once you’ve figured out which will work better for you, only one task remains: opening an account.
U.S. markets experienced more wild sessions last week before ending in positive territory as the recent turbulence continued. In fact, we are currently in the middle of some of the most volatile market performance in more than eight years.[i] For the week, the S&P 500 gained 1.86%, the Dow added 1.61%, and the NASDAQ increased 2.34%.[ii] MSCI EAFE stocks also increased, posting a 1.42% weekly gain.[iii]
While the results may not seem especially dramatic, the path to get there certainly was. On Thursday, January 3, domestic stocks plunged, as factory data and a tech warning spooked investors.[iv] Then, the next day, the S&P 500, Dow, and NASDAQ each gained at least 3.3%.[v] Friday’s performance marked one of the largest rallies since the beginning of this bull market.[vi]
What drove the market rally?
Two key events contributed to the huge jumps on Friday: 1) the latest labor report and 2) comments from the Federal Reserve Chairman.[vii]
Many people expected that the economy would add around 176,000 jobs last month. Instead, the latest data revealed that the increase was actually 312,000 new jobs in December—drastically beating expectations.[viii] Not only did last month’s labor report show more jobs added than anticipated, but wage growth and labor market participation also increased.[ix]
Why does this data matter?
Investors have been very concerned that economic growth is slowing. This data helped quell worries that a recession is ahead.[x]
Fed Chair Jerome Powell told the American Economic Association that the Federal Reserve understands the market’s worries and hasn’t predetermined its future interest rate hikes.[xi]
Why does this update matter?
Some of the uneasiness the markets have shown recently are a result of concerns that the Fed is tightening monetary policy too quickly. Powell’s comments indicate the Fed is sensitive to economic conditions, an update that many investors wanted to hear.[xii]
What is on the horizon?
A number of unresolved situations remain for the markets and economy. The government shutdown continues, and a solution doesn’t appear imminent at the moment. Trade dynamics are also still an important consideration, especially since corporations are now issuing warnings that trade is affecting their profits. Meanwhile, U.S. officials will be meeting with China this week to talk once again.[xiii]
For now, the volatility we are experiencing may continue.[xiv] Remember, we’re closely tracking developments to see how they may affect your financial life. If you have questions about how to weather these ups and downs, we are here for you.
Monday: Factory Orders, ISM Non-Mfg Index
Wednesday: FOMC Minutes
If you arrange a mortgage, your lender will want you to have homeowners insurance. This coverage is critical for protecting your home and personal property against various potential liabilities.
A homeowners insurance policy is actually a package of coverages. These policies commonly offer the following forms of protection:
*Dwelling coverage insures your house and any attached structures, including fixtures such as plumbing and electrical and HVAC systems, against damages.[i]
*Other Structures coverage is included to compensate you for damage to structures unattached to the main dwelling on your property, such as a detached garage, tool shed, or fence.1
*Personal Property coverage addresses damage to your personal possessions, such as your appliances, furniture, electronics, and clothes.1
*Loss of Use coverage reimburses you for additional living expenses if you are unable to live in your home due to damages suffered.1
*Personal Liability coverage is designed to pay out claims if you are found liable for injuries or damages to another party. As an example, say someone attends a barbeque held in your backyard, then stumbles over a tree root and breaks a wrist or an ankle.1
*Medical Payments coverage pays the medical bills incurred by people who are hurt on your property, or hurt by your pets. This is no-fault coverage. If someone is hurt at your house, any resulting medical bills may be sent by that person to your insurer.1
These coverages pertain only to losses caused by a peril covered by your policy. For instance, if your policy doesn’t cover earthquake damage, then losses will not be reimbursed.1
The types of covered perils will depend on the type of policy you buy. Special Form policies are the most popular, since they insure against all perils, except those specifically named in the policy. Common exclusions include earthquakes and floods. Typically, flood insurance is obtained through the National Flood Insurance Program, while earthquake coverage may be obtained through an endorsement or a separate policy. Some homeowners are reluctant to buy flood or earthquake coverage; they think it is too expensive and may never be needed. The thing is, the future cannot always be guessed by looking at the past.[ii]
Your policy will of course limit the amount of covered losses. If you have a valuable art collection or jewelry, you may want to secure additional insurance on those items.
When you scrutinize a policy, see if it insures your residence for replacement cost or actual cash value. Actual cash value is less preferable: it may not cover all your losses, as the value of your personal property can be affected by wear and tear, and your home’s value can be affected by housing market fluctuations. If your home is insured for replacement cost, then the insurance carrier will pay the expenses of using materials of similar kind and quality to rebuild or repair your home.[iii]
As a last note, you may also want Umbrella Liability coverage. Do you consider yourself wealthy? You may find the liability limits on your current homeowners policy inadequate. For a greater degree of coverage, you might elect to complement it with an umbrella policy.[iv]