Weekly Blog 2018

The close of the year provides an opportunity for investors to step back and consider the wider financial landscape. This week, we’re reviewing some key issues that defined 2018, as well as some factors that may influence financial markets in the coming year.

Year in Review

Wall Street began 2018 in rally mode, as enthusiasm for the 2017 Tax Cuts and Jobs Act spilled over into the New Year. Strong economic news encouraged investors, who put aside fears that rising inflation may lead to higher interest rates. What Wall Street did not see coming were the spring and summer trade disputes with China, Canada, Mexico, and the European Union. Fear of a global economic slowdown contributed to a sharp decline in stock prices in October. U.S. economic growth forecasts were tempered in November for 2019, with bull and bears engaged in a fierce tug-of-war as the year came to a close.[i]

Economic Growth

After expanding at a middling 2.2% pace in the first quarter, the Gross Domestic Product (GDP) rose 4.2% in Q2 and 3.4% in Q3.[ii] The Federal Reserve Bank of Atlanta forecasted a 2.7% increase for Q4, which will be released on January 30, 2019 by the Bureau of Economic Analysis.[iii]^,[iv] The Congressional Budget Office expects GDP growth in 2019 to slow to 2.4% “as growth in business investment and government purchases slows.”[v]

Interest Rates

At the close of its September 2018 meeting, the Federal Reserve raised the federal funds rate to 2.25%, a full percentage point higher than it was a year earlier. Federal Reserve Chair Jerome Powell appeared to change his stance on monetary policy, saying interest rates were “just below” a neutral level. Previously, he indicated rates were a “long way” from neutral.[vi]

Consumer Prices and Wage Growth

The number of future interest rate hikes by the Fed may largely depend on its reading of inflation. An uptick in consumer prices or an increase in wage growth may prompt the Fed to consider additional hikes in 2019.[vii]

Trade Talk Progress

Tariffs were a highlight of 2018 news. On July 10, the Trump administration announced a list of tariffs on $200 billion in Chinese goods.[viii] The escalating trade dispute between the U.S. and China is an enormous overhang on the financial markets. The continuing impasse may affect economic growth and push consumer prices higher.

2018 also was a year in which a major trade pact started to come together. The United States-Mexico-Canada Agreement (USMCA) was approved in principle in October. However, the agreement must be approved by Congress and the legislative bodies of Mexico and Canada before it can take effect.[ix]

U.S. Dollar

Rising interest rates and robust domestic growth in 2018 lead to a strengthening of the U.S. dollar. A strong U.S. dollar can negatively affect profits of U.S.-based multinational companies, since it can make their products more expensive to overseas buyers.[x] This will also be something to watch in the coming year.

Real Estate

The trend of higher interest rates in 2018 was also felt in the real estate market. The average rate on a 30-year conventional home loan stood at 3.95% in January 2018. At year’s end, it was hovering near 5% according to Freddie Mac.[xi]

We hope you enjoyed this look back at 2018! Next week, we’ll be back to covering the market numbers.

[i] https://www.cnbc.com/2018/11/20/jp-morgan-sees-a-slowdown-coming-with-economy-growing-at-less-than-2-percent-in-2019.html

[ii] https://tradingeconomics.com/united-states/gdp-growth

[iii] https://www.frbatlanta.org/cqer/research/gdpnow.aspx

[iv] https://www.bea.gov/news/schedule

[v] https://www.cnbc.com/2018/08/14/us-economy-seen-strong-in-2018-to-slow-in-2019-cbo.html

[vi] https://www.marketwatch.com/story/seemingly-dovish-powell-says-interest-rates-are-just-below-level-where-they-wont-stimulate-economy-2018-11-28

[vii] https://www.marketwatch.com/story/seemingly-dovish-powell-says-interest-rates-are-just-below-level-where-they-wont-stimulate-economy-2018-11-28

[viii] https://www.cnbc.com/2018/07/10/white-house-releases-list-of-goods-hit-by-200-billion-in-tariffs.html

[ix] https://www.businessinsider.com/us-canada-mexico-trade-deal-usmca-nafta-congress-vote-block-2018-10

[x] https://qz.com/1511247/the-us-dollars-unexpected-strength-stands-out-in-the-market-wreckage-of-2018/

https://m.benzinga.com/article/12500556

[xi] http://www.freddiemac.com/pmms/archive.html

We constantly hear how important it is to maintain a healthy lifestyle. That is not always easy, especially in the face of temptation or the easy option of procrastination. For some, the monetary benefits of maintaining a healthy lifestyle may provide an incentive.

Being healthy not only makes you feel good, it may also help you financially. For example, a recent Johns Hopkins Bloomberg School of Public Health study determined that a 40-year-old who simply moves from being obese to overweight could save an average of $18,262 in health care costs over the rest of his or her lifetime. If that person maintains a healthy weight, the average potential savings increase to $31,447.[i]

If you’re wondering how your health habits might be affecting your bottom line, consider the following:

Regular preventative care can help reduce potential healthcare costs. Even minor illnesses can lead to missed work, missed opportunities, and potentially lost wages. Serious illnesses often involve major costs like hospital stays, medical equipment, and doctor’s fees. Preventative dentistry may help you reduce dental costs as well.

In a way, staying healthy helps our potential to save for retirement. If your health declines to the point where you cannot work, that hurts your income and your ability to contribute to retirement accounts. The threat is real: the Social Security Administration notes that a quarter of us will become disabled at some point during our working years.[ii]

Overweight workers may be subjected to wage discrimination. A LinkedIn study of almost 4,000 full-time and part-time workers found that the workers whose weights were greater than normal earned an average of $2,512 less annually than the others.[iii]

Higher weight seems to be a factor in overall health care costs for many. Ask the Centers for Disease Control and Prevention. The CDC notes that per-year health care expenses are about 41% higher ($4,870) for an obese individual than for a person of normal weight ($3,400). The biggest factor in this difference: prescription drug costs.[iv]

Some habits that lead to poor health can be expensive in themselves. Smoking is the classic example. A pack of cigarettes costs anywhere from $5-14, which means ballpark expenses of $2,000-5,000 or more a year in expenses for a pack-a-day smoker. Smokers also pay higher premiums for health, disability, and life insurance.[v] 

By focusing on your health, eliminating harmful habits, and employing preventative care, you may be able to improve your self-confidence and quality of life. You may also be able to reduce expenses, enjoy more of your money, and boost your overall financial health.

[i] https://www.bankrate.com/banking/savings/healthier-lifestyle-can-save-you-money/

[ii] https://www.cnbc.com/2018/11/11/protect-yourself-from-a-career-derailment-that-trips-up-1-in-4-workers.html

[iii] https://www.foxbusiness.com/features/employers-pay-overweight-workers-less-new-study-reveals

[iv] https://abcnews.go.com/Health/Healthday/story?id=8184975&page=1

[v] https://money.usnews.com/money/personal-finance/family-finance/articles/the-real-cost-of-smoking

Last week, domestic markets had some of their worst performance in 10 years.[i] The S&P 500 lost 7.05%, the Dow declined 6.87%, and the NASDAQ dropped 8.36%. All three indexes have now lost at least 8% in 2018.[ii] On Friday, December 21, the NASDAQ entered a bear market, which means it’s at least 20% below its last record high. Meanwhile, the S&P 500 and Dow both finished the week close to bear markets, too.[iii] Internationally, stocks in the MSCI EAFE also struggled, posting a 2.67% weekly loss.[iv]

What happened to the markets?

Last week brought a number of economic updates, which gave mixed signals on the economy:

• Consumer spending increased in November.
• Business spending slowed down.
• Economic growth in the 3^rd quarter slightly missed projections.[v]

However, markets hardly focused on the data.[vi] Instead, two key headlines drove the week’s performance: 1) results from the Fed’s latest meeting and 2) the risk of a government shutdown.[vii]

Let’s look a bit more into what happened¾and how the markets reacted.

1. The Federal Reserve increased rates and shared its economic projections.

Markets expected the Fed’s 4^th interest rate increase for the year.[viii] In many ways, traders were trying to read between the lines of every Fed announcement last week to see how sensitive the agency would be to the markets. As a result, investors became concerned about the Fed’s statements that increases could continue in 2019, despite seeing a slowdown in economic growth. This reaction caused some of the sell-offs.[ix]  

1. A government shutdown loomed¾and then happened.

A disagreement between Congress and President Trump about government funding for a border wall continued throughout last week. While a deal had seemed imminent, by Friday afternoon, the political divide continued and a shutdown loomed. Stocks dropped significantly as a result. By Saturday morning, 9 of the 15 federal departments had closed due to the shutdown.[x]    

What should you do?

These challenging moments are when keeping perspective is most important. Sell-offs and uncertainty can feel worrisome¾and we cannot say for sure how long this market turbulence will continue.

In the weeks ahead, the government shutdown may continue, and we may not experience the strong “Santa rally” that investors hoped for.[xi] However, it’s important to remember that, historically, shutdowns are short and don’t typically create negative long-term effects on the economy.[xii]

However, when thinking about the current environment, we want to encourage you to consider airline turbulence: During a flight, turbulence can feel unsettling and downright scary. But, you don’t jump out of the plane just because it’s shaking. While you may worry about a crash, the pilots are using every available data point, measurement, and expert to find the safest path to your destination. The unpleasantness almost always calms¾and you arrive where you intended to go.

In this same manner, we’re tracking this current turbulence and how it relates to you. No matter what lies ahead, we’re here to pilot you through. If you want to discuss specifics about our economy, your goals, and current momentum, please contact us. We’re always ready to help you understand your financial life.

ECONOMIC CALENDAR

Monday: NYSE Early Close

Tuesday: Markets Closed for Christmas Day

Thursday: New Home Sales, Consumer Confidence, Jobless Claims

Friday: Pending Home Sales Index

[i] https://www.cnbc.com/2018/12/21/stocks-on-brink-of-bear-market-.html

[ii] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=%21DJI&region=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO

[iii] https://www.cnbc.com/2018/12/21/stocks-on-brink-of-bear-market-.html

[iv] https://www.msci.com/end-of-day-data-search

[v] https://www.reuters.com/article/us-usa-economy/u-s-third-quarter-growth-trimmed-business-spending-slowing-idUSKCN1OK1N9

[vi] https://www.reuters.com/article/us-usa-economy/u-s-third-quarter-growth-trimmed-business-spending-slowing-idUSKCN1OK1N9

[vii] https://www.cnbc.com/2018/12/20/us-futures-following-wednesdays-sell-off.html

[viii] https://www.cnbc.com/2018/12/19/fed-hikes-rates-by-a-quarter-point-.html

[ix] https://www.cnbc.com/2018/12/21/stocks-on-brink-of-bear-market-.html

[x] https://www.bloomberg.com/news/articles/2018-12-22/shutdown-begins-as-trump-and-democrats-negotiate-on-border-wall?srnd=premium

[xi] https://www.reuters.com/article/us-usa-congress-budget/with-no-deal-u-s-government-shutdown-likely-to-drag-on-past-christmas-idUSKCN1OL04C

https://www.cnbc.com/2018/12/21/stocks-on-brink-of-bear-market-.html

[xii] https://www.usatoday.com/story/money/2018/12/21/government-shutdown-impact-dow-jones-industrial-average/2386933002/

When you are planning for your future, what do you think about? You may think about your retirement, enjoying having the time and money to take trips and pursue your interests. Maybe you think about your home, and enjoying the feeling of stability that can come with home ownership. In making these plans, people often find that their long term view involves money, in some fashion.

That said, life also involves risk, and the unforeseen events that can change our plans in an instant. As an example, sudden injury or disability could leave you in a financial bind, unable to work for an extended period of time, if ever again. For this reason, among others, insurance can be an important tool in your pursuit to build and maintain your wealth and help protect it from unforeseen and destructive forces.

Did you know that:

1. Sixty-eight percent of  American workers have no long-term disability income protection,[i]
2. Roughly 70 million Americans aged 18-38 have no life insurance,[ii] and
3. About one in eight drivers is uninsured?[iii]

If you ask a homeowner, replacing a roof is probably the least satisfying expense he or she will ever face. While the value of such an investment is obvious, it doesn’t quite provide the satisfaction of new landscaping. Yet, when a heavy rain comes, ask that same owner if he or she would have preferred the nice flowers or a sturdy roof.

Insurance is a lot like that roof. It's not a terribly gratifying expenditure, but it may offer protection against the myriad of potential financial storms that can touch down in your life.

The uncertainties of life are wide ranging, and many of them can threaten the financial security of you and your family. We understand most of these risks — a home destroyed by a fire and a car accident are just two common risks that could subject you to outsized financial loss.

Similarly, your inability to earn a living to support yourself and your family due to death or disability can wreak long-term financial havoc on those closest to you.

Insurance exists to help protect you from these forms of wealth destruction.

Some insurance (e.g., home or car) may be required. When it isn't (e.g., life or disability), some individuals may be tempted to avoid the certain financial “loss” associated with insurance premiums and assume the risk of much larger losses that are less likely to happen.

But insurance premiums aren't a financial “loss;” they are designed to help protect you and your family as you build personal wealth. Keep that in mind as you consider your coverage options and make decisions about your future; it’s possible that you are making a decision that could affect the rest of your life.

[i] https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf

[ii] https://www.ajc.com/business/personal-finance/free-term-life-insurance-yep-thing-and-here-how-you-can-get/zzoBg0QQqRgjoBMAN1QfWM/

[iii] https://www.insurancejournal.com/news/national/2018/03/15/483414.htm

Last week brought more volatility to the markets. While domestic indexes had some rallies as positive trade news emerged earlier in the week, by Friday, December 14, they had erased any gains. The last time major U.S. indexes ended in correction territory was March 2016, meaning they are now at least 10% below their highs from the past year.[i]

For the week, the S&P 500 dropped 1.26%, the Dow lost 1.18%, and the NASDAQ declined 0.84%.[ii] International stocks in the MSCI EAFE also had a 0.89% weekly loss.[iii]

Why did markets struggle last week?

With last week’s declines, the S&P 500 was in the midst of its worst December since 2002.[iv] Concerns about global growth fueled much of the declines as China and Europe released economic data that missed projections.[v] The ongoing trade tension contributed to slower growth in China, which drove some investors to worry about U.S. growth, as well.

We did, however, receive solid domestic data last week, including a healthy retail sales report.[vi] But, through the week, investors seemed less interested in this data and positive trade updates, focusing instead on understanding the global economy’s standing.[vii]

What might be ahead?

This week presents a potentially significant event for domestic markets: the Federal Reserve’s commentary after its latest meeting. The Fed will likely raise interest rates during the meeting, which would be the 9^th increase since December 2015. Markets expect this hike, but what investors aren’t sure about is how the Fed will describe its plan for 2019. Some analysts believe that if the Fed indicates it will pause or slow rate hikes next year, we could see a sizable “Santa Claus rally” through the end of December.[viii]

For short-term traders, predicting whether 2018 will stay in negative territory or stocks will end the year on a surge is in many ways a guessing game. What we are here to do is help you manage your investments for the long term. We will follow this week’s developments closely and strive to determine how they may affect the economy going forward. Ultimately, we are focusing on your goals not just through the year, but for the rest of your life.

ECONOMIC CALENDAR

Monday: Housing Market Index

Tuesday: Housing Starts

Wednesday: Existing Home Sales, FOMC Meeting Announcement

Thursday: Jobless Claims

Friday: GDP, Durable Goods Orders, Consumer Sentiment

[i] https://www.cnbc.com/2018/12/14/us-stock-futures-dow-jones-sp-500-nasdaq-to-open-lower-on-friday.html

[ii] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=%21DJI&region=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO

[iii] https://www.msci.com/end-of-day-data-search

[iv] https://www.reuters.com/article/us-usa-stocks-weekahead/wall-st-looks-to-fed-outlook-wednesday-for-early-christmas-gift-idUSKBN1OD2E7

[v] https://www.cnbc.com/2018/12/14/us-stock-futures-dow-jones-sp-500-nasdaq-to-open-lower-on-friday.html

[vi] https://www.reuters.com/article/us-usa-stocks/wall-st-tumbles-on-global-growth-worries-jj-decline-idUSKBN1OD1HP

[vii] https://www.bloomberg.com/news/articles/2018-12-13/asia-stocks-to-dip-as-rally-stalls-dollar-climbs-markets-wrap?srnd=markets-vp

[viii] https://www.reuters.com/article/us-usa-stocks-weekahead/wall-st-looks-to-fed-outlook-wednesday-for-early-christmas-gift-idUSKBN1OD2E7

According to the global analytics firm Gallup, only about 44% of Americans have created a will.[i] This finding may not surprise you. After all, no one wants to be reminded of their mortality or dwell on what might happen upon their death, and writing a last will and testament is seldom on a Millennial or Gen Xer’s to-do list. What may surprise you is the statistic cited by personal finance website The Balance: around 35% of Americans 65 and older lack wills.[ii]

A Will Is an Instrument of Power.

By creating one, you gain control over the distribution of your assets. If you die without one, the state decides what becomes of your property, without regard to your priorities.

A will is a legal document by which an individual or a couple (known as “testator”) identifies their wishes regarding the distribution of their assets after death. A will can typically be broken down into four parts.

• Executors — Most wills begin by naming an executor. Executors are responsible for carrying out the wishes outlined in a will. This involves assessing the value of the estate, gathering the assets, paying inheritance tax and other debts (if necessary), and distributing assets among beneficiaries. It is recommended that you name an alternate executor in case your first choice is unable to fulfill the obligation. Some families name multiple children as co-executors, with the intention of thwarting sibling discord; this can introduce a logistical headache, as all the executors must act unanimously.[iii]
• Guardians — A will allows you to designate a guardian for your minor children. The designated guardian you appoint must be able to assume the responsibility. For many people, this is the most important part of a will, since if you die without naming a guardian, the courts will decide who takes care of your children.
• Gifts — This section enables you to identify people or organizations to whom you wish to give gifts of money or specific possessions, such as jewelry or a car. You can also specify conditional gifts, such as a sum of money to a young daughter, but only when she reaches a certain age.
• Estate — Your estate encompasses everything you own, including real property, financial investments, cash, and personal possessions. Once you have identified specific gifts you would like to distribute, you can apportion the rest of your estate in equal shares among your heirs, or you can split it into percentages. For example, you may decide to give 45% each to two children and the remaining 10% to your sibling.

A Do-It-Yourself Will May Be Acceptable, It May Not Be Advisable.

The law does not require that a will be drawn up by a professional, so you could create your own will, with or without using a template. The problem is that if you make a mistake, you will not be around to correct it. When you draft a will, consider enlisting the help of a legal, tax, or financial professional who may be able to offer you additional insight, especially if you have a large estate or a complex family situation.

Remember, A Will Puts Power In Your Hands.

You have worked hard to create a legacy for your loved ones. You deserve to decide how that legacy is sustained

[i] https://news.gallup.com/poll/191651/majority-not.aspx

[ii] https://www.thebalance.com/wills-4073967

[iii] https://www.nolo.com/legal-encyclopedia/naming-more-one-executor.html