Now What: A Guide to Retirement During Volatile Times

Will a government shutdown harm the markets?

by ken | 08:12 in |


Will a government shutdown harm the markets?

Though stocks fell again last week, weighed down by worries about a budget impasse in Washington, the major indices are still up for the month and the quarter. Through Friday, September 27, the S&P 500 grew 5.32% for the quarter, while the Dow grew 2.33%, and the NASDAQ increased by 11.11%.[i] Despite significant volatility this summer, both the S&P and the Dow reached new highs in September, which is sometimes described as the worst month for stocks.[ii]

 

Markets have been volatile in the last weeks of the quarter, roiled by renewed budgetary debates in Washington as Congress struggles to approve a 2014 budget before the September 30 deadline. If Congressional Democrats and Republicans cannot come to an agreement, the U.S. government may shut down, causing many government services to grind to a halt – including the release of critical economic data. Even if a budgetary measure is passed, Congress will have to immediately turn its attention to the debt ceiling issue.

 

The debt ceiling – the Treasury Department’s authority to borrow money to meet government expenses - must be raised or the Treasury will reach its spending limit by mid-October.[iii] The federal government actually hit its spending limit in the spring, triggering a series of “extraordinary measures” that the Treasury has used to keep government spending under the ceiling. Unfortunately, there are no more extraordinary options left and lawmakers must raise the ceiling or risk defaulting on obligations to holders of U.S. Treasuries. While we don’t think its likely to happen, a debt default would have serious repercussions for U.S. international credibility and the credit rating on Treasuries.

 

In terms of economic data, the quarter was generally positive. Despite worries about the effect of rising interest rates on the housing sector, the housing recovery is continuing. Home prices are up nationwide – an average of 12.4% since 2012 – and home sales are still growing.[iv] The labor market continues to slowly improve, though not as quickly as we might like; while unemployment has dropped to 7.3%, hiring rates remain below healthy levels.[v] On the negative side, consumer sentiment slid in September to a five-month low as consumers worried about the effect high interest rates and debates in Washington will have on the economy.[vi]

 

For the last few months, markets have been heavily influenced by the expected tapering of Federal Reserve stimulus programs, which boost markets to the tune of $85 billion of bond purchases each month. Though Wall Street had been convinced of a September taper, after reviewing recent economic data during the FOMC meeting last week, the Fed decided to delay tapering until economic indicators looked more positive. While we believe the economy is strong enough to withstand a gradual removal of monetary support and that tapering is largely priced into equities, we’re happy that the Fed is taking a cautious, considered approach to the process.

 

Bottom line, despite some headwinds, economic trends remain largely positive, and we’re confident about the economy’s potential for growth in the fourth quarter. However, it’s important for investors to be prepared for more market volatility in the coming weeks and months as markets grapple with Fed tapering and fiscal issues in Washington. We still believe that additional market upside is possible. Inflation remains low, economic indicators are generally positive, corporate balance sheets are still healthy, and the Fed seems to be in no hurry to taper.

 

That being said, it’s never possible to predict the direction of market movements, and we caution our clients to prepare for additional bumps in the road ahead. While volatility can be stressful, it’s important to look beyond the headlines and focus on your long-term financial goals. One of the benefits of volatility is that it can provide opportunities to find quality investments at attractive prices. If you have any concerns about your portfolio or any questions about how these issues may affect your investments, please reach out to us. We are honored by your trust and are happy to be a source of information to you and your family.

 

ECONOMIC CALENDAR:

Monday: Chicago PMI, Dallas Fed Mfg. Survey

Tuesday: PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Wednesday: ADP Employment Report, EIA Petroleum Status Report, Ben Bernanke Speaks 3:00 PM ET

Thursday: Jobless Claims, Factory Orders, ISM Non-Mfg. Index

Friday: Employment Situation

 

.

 

HEADLINES:

Truck freight tonnage up. The tonnage of freight moved by trucks, an important indicator analysts use to gauge economic demand, increased by 1.4% in August, reversing a previous decline. While the number of loads remains flat, analysts hope that the tonnage increase foretells future demand for manufactured goods later in the year.[vii]

China’s central bank to push reforms. The Chinese central bank announced its intention to keep monetary policy steady while forging ahead with important interest rate and currency reforms. These reforms will make China more competitive in the long run and bring economic policies in line with international standards.[viii]

Jobless claims fall to near-six-year low. The number of Americans filing new unemployment claims fell significantly last week in a hopeful sign for the labor market. The drop was unexpected since analysts had expected claim numbers to be distorted by processing issues. The four-week average, a less volatile measure, fell to the lowest level since July 2007.[ix]

Oil prices fall as summer ends. Oil prices have fallen significantly from a two-year high of $110.53 reached earlier this month. A peaceful resolution to the Syria crisis and the end of the summer driving season drove a decrease in demand.[x]

 

 

“Every artist was first an amateur.” –

Ralph Waldo Emerson

 

 

 

 

 




 

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. Securities offered through Aurora Capital” Member FINRA/SIPC.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

 

. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

 

By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.

 

Ken’s appearance on the set of CNBC’s Closing Bell at the NYSE with Maria Bartiromo

by ken | 08:33 in |

Ken’s appearance on the set of CNBC’s Closing Bell at the NYSE with Maria Bartiromo


How will the debt ceiling debate affect stocks?

by ken | 08:33 in |


How will the debt ceiling debate affect stocks?

Ken’s appearance on the set of CNBC’s Closing Bell at the NYSE with Maria Bartiromo


Markets moved up last week on news that the Federal Reserve will delay tapering until economic data improves. Despite some end-of-week jitters about Washington’s debt ceiling debates, the major indices all closed in the black. For the week, the S&P 500 grew 1.3%, the Dow gained 0.5%, and the Nasdaq increased by 1.4%.[i]

Despite weeks of hints and rumors, the Federal Reserve did what few analysts expected at last week’s FOMC meeting and decided not to taper – at least for right now. There were a lot of reasons cited by Fed Chairman Ben Bernanke for his decision to postpone the taper. During his press conference after the FOMC meeting, Bernanke said that recent economic data has not been strong enough to justify scaling back the $85 billion in bond purchases ($40 billion in mortgage-backed securities and $45 billion in Treasuries) that the Fed makes each month. An important takeaway for investors: While the call to taper could come later this year, it depends entirely on economic progress.[ii]

Another factor that played into the Fed’s decision not to taper were headwinds from the debt ceiling debates in Washington. While Bernanke downplayed the importance of a political showdown on long-term economic growth, investor fears could cause markets to scale back the year’s rally.

The debt debates are getting a lot of press and we want to use this opportunity to dig a little deeper into what Act III of the debt ceiling issue may mean for markets.

For the third time in three years, Washington is facing a budget impasse that could force a federal government shutdown and a default on U.S. debt. Congress faces an Oct. 1 deadline (the current fiscal year ends on Sept. 30) to pass a budget or shut down the government the next day. If a 2014 budget is passed, the debt ceiling – the Treasury Department’s authority to borrow money to meet government expenses – must also be raised or the Treasury will reach its spending limit some time in mid-October.[iii] A common misconception is that the debt ceiling involves new spending; it actually doesn’t, it is designed to give the Treasury the ability to spend money that Congress has already authorized in their budget.

The federal government actually hit its spending limit in the spring, triggering a series of “extraordinary measures” that the Treasury has used to keep spending under the ceiling; these measures, along with an increase in government tax receipts, have kept the government funded. However, all these budgetary gimmicks have run out and Congress and the President must now deal with the issue or risk forcing the U.S. to default on its debt. While we don’t think it’s likely to happen, a debt default would have serious repercussions for U.S. international credibility and the credit rating on Treasuries.

Currently, a lot of maneuvering and politicking is going on in the House of Representatives, the Senate, and the White House as both sides stake out their positions. As was the case earlier in the year, Republicans are threatening to withhold approval of a debt ceiling increase unless the increase is accompanied by spending cuts. Most of the spending cuts demanded by Republican leaders are in “Obamacare,” the Patient Protection and Affordable Care Act, which will start rolling out insurance exchanges on Oct. 1.[iv] Democrats are completely opposed to defunding Obamacare and will reject any compromise that includes doing so.

Politically, both parties are split. The President’s relationship with Democrats in Congress has been frayed following disagreements over Syria and the nomination process for the new head of the Federal Reserve. Republicans are also deeply divided over their tactical approach: Some moderates want to avoid tying the debt ceiling showdown to Obamacare, angering their Tea Party colleagues.[v]

There are several bills being passed around the House and Senate that would temporarily fund the government through Dec. 15, thus avoiding a shutdown, but kicking the can down the road yet again. It’s unclear what effect these bills might have on sequestration or government services.

It’s also difficult to say what Washington will do: Take on the hard work of hammering out a budget and debt ceiling compromise now or keep procrastinating. We do expect a resolution to the issue before the end of the month, but we don’t know how permanent that decision will be.

How will these political maneuverings affect markets? It’s impossible to know for certain, but even going back to the government shutdown in the 1990s, these political battles have had little long-term effect on markets.[vi] While we do ultimately expect the debt ceiling issue to be resolved without a government shutdown or debt default, short-term volatility is likely as investors wait out the fractious political process.

When markets are volatile, it’s important to remind ourselves of how far we’ve come. So far, 2013 has been a fantastic year for stocks and multiple indices are near historic highs. Ultimately, short-term market gyrations don’t have lingering effects on long-term market performance and we always want to remain focused on our long-term goals. We hope you will agree that one of the benefits of working with our firm is the confidence in knowing that you have experienced professionals by your side. If you have any questions about how the debt ceiling debates or any other issue may affect your portfolio, please give us a call. We’re always happy to hear from you.

ECONOMIC CALENDAR:

Monday: PMI Manufacturing Index Flash

Tuesday: S&P Case-Shiller HPI, Consumer Confidence

Wednesday: Durable Goods Orders, New Home Sales, EIA Petroleum Status Report

Thursday: GDP, Jobless Claims, Corporate Profits, Bloomberg Consumer Comfort Index, Pending Home Sales Index

Friday: Personal Income and Outlays, Consumer Sentiment

 

.

HEADLINES

Industrial production jumps in August. U.S. factories increased output by the most in eight months, boosted by robust auto production. Automakers are stepping up production to meet demand, leading analysts to hope for a sustained increase in manufacturing production this fall.[vii]

Housing data mixed in August. Existing home sales hit a 6 ½ year high in August as buyers rushed to lock in low mortgage costs amid rising interest rates. However, housing starts – a measure of new construction – missed expectations, leading to worries that higher mortgage rates may take a bite out of homebuilder confidence and housing demand.[viii]

Jobless claims increase, but less than forecast. While fewer Americans sought unemployment benefits last week than expected, processing issues may have kept the number of applications artificially low. A significant number of claims have been delayed as two large states work through backlogged applications. This means that jobless claims may rise in the weeks to come as those delayed applications are processed.[ix]

China’s economic growth may be threatened. While recent economic data out of China has been positive, analysts warn that the pickup is due to a relatively narrow segment of the economy – state-led industry – that is unlikely to sustain its growth in the absence of continued central government support. As China seeks to normalize its economy and remove policy support from key industries, its economy may temporarily falter.[x]

 

 

“Wisdom begins in wonder.”

– Socrates

 

 

 

 

 

 

 

 

 

 

Share the Wealth of Knowledge!
Please share this market update with family, friends, or colleagues. If you would like us to add them to our list, simply click on the "Forward email" link below. We love being introduced!

 

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Securities offered through Aurora Capital Member FINRA/SIPC.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

 

. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

 

By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.

 


Can the Market breakout to new record highs?

by ken | 07:53 in |


Can the Market breakout to new record highs?

Markets closed out a solid week, boosted by a diplomatic solution in Syria and hopes that a big tapering move by the Fed may be avoided. For the week, the S&P 500 gained 1.98%, the Dow rose 3.04%, and the Nasdaq grew 1.70%.[i]

Tensions over Syria have decreased significantly as the U.S. and Russia agreed on a proposal to eliminate Syria’s chemical weapons arsenal, avoiding the immediate need for military intervention. While there are many technical issues to explore, investors reacted with relief to the news that military action may be unnecessary.[ii]

Economic data was a mixed bag last week. Consumer sentiment dropped sharply to a five-month low in September as higher interest rates took a bite out of confidence. Americans are worried that rising rates will put a damper on the housing market and cool economic growth. Respondents were also apprehensive about the Fed’s fiscal policy and the effect it will have on the job market.[iii] Although demand for big-ticket items expanded, retail sales rose less than expected in August as Americans cut back on purchases of clothing, sports equipment, and other items. Retail sales grew only 0.2% instead of the 0.4% that economists had expected. This report captured part of the back-to-school shopping season, the second largest of the year, and shows that third quarter economic growth may be slowing down.[iv] On the other hand, the fact that Americans are still making major purchases of automobiles and appliances suggests that there is still hope for the all-important holiday shopping season.

Months of anticipation will finally come to a head this week at the Fed FOMC meeting on Tuesday and Wednesday. The Fed will make its formal announcement on Wednesday afternoon and Fed Chairman Ben Bernanke will give additional details in his follow-up speech. The Fed has telegraphed its intentions to taper, but investors have convinced themselves that we’re looking at “tapering light,” i.e. a cut of $10 billion or so in Treasury purchases and this is already priced into the market. Recent economic data has been mixed, leading analysts to believe that any tapering will be modest in scope. However, stocks are already close to historic highs and volatility is currently low, meaning that any surprises could spook markets into a selloff. As always, we’ll continue to monitor the situation and keep you informed.

ECONOMIC CALENDAR:

 

Monday: Empire State Mfg. Survey, Industrial Production

Tuesday: Consumer Price Index, Treasury International Capital, Housing Market Index

Wednesday: Housing Starts, EIA Petroleum Status Report, FOMC Meeting Announcement, FOMC Forecasts, Chairman Press Conference

Thursday: Jobless Claims, Existing Home Sales, Philadelphia Fed Survey

 

 

HEADLINES:

Oil prices fall on Syria deal. After fears of an imminent crisis pushed crude oil prices above $117, news of a diplomatic solution brought prices back down to earth. Weak global demand also exerted a downward pull on prices, bringing them near $108.[v]

California approves $10 minimum wage. In a move supported by low-wage workers, lawmakers approved a measure that would raise the state’s minimum wage from $8 to $9 in July 2014, and to $10 by 2016. The current highest state minimum wage is $9.19 in Washington state.[vi]

China data points to economic rebound. Industrial output, investment, and retail sales all strengthened in August in the world’s second-largest economy. These new results suggest that the Chinese economy has rebounded after a shaky first half of 2013. However, too much reliance on domestic investment and debt could threaten long-term prosperity.[vii]

Fewer homes enter foreclosure in August. The number of houses entering foreclosure proceedings fell to the lowest level in eight years in August, down 44% from the year before. The national slowdown in foreclosures reflects an improving housing market, steady job growth, and fewer defaulted loans.[viii]

 

 

 

“You must do the things you think you cannot do.”

- Eleanor Roosevelt

 

Share the Wealth of Knowledge!
Please share this market update with family, friends, or colleagues. If you would like us to add them to our list, simply click on the "Forward email" link below. We love being introduced!

 

 

 

If you would like to opt-out of future emails, please reply to this email with UNSUBSCRIBE in the subject line.

i.e. Securities offered through Aurora Capital” Member FINRA/SIPC.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

 

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

 

By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.

 

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