What’s on Tap: Recurring Concerns No Match for Fundamental Economic Strengths

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  • Brexit Befuddlement: British Pound Rallies Against Euro

  • More to the Stock Market Than Indexes

  • Big Apple Going Under? Not Likely

  • Taking Advantage of Medicare Advantage Plans

  • Looking Ahead to Housing Market and Manufacturing Data

Stocks rebounded this week, though the gains have, for the most part, simply recovered last week’s losses. It’s hard to point to a single cause for the mood change: Federal Reserve Chair Jerome Powell said on “60 Minutes” that the likelihood of recession was small; House Speaker Nancy Pelosi remarked that impeachment would be fruitless without “compelling evidence;” retail sales rose after two months of declines; and President Donald Trump requested $200 billion in infrastructure funds in his 2020 budget.

Despite a light reporting week, the hard-data reports bolstered the case for confidence in the American economy. Durable goods orders continue to reflect healthy spending and business investment trends; small-business confidence remains elevated and optimistic; inflation by any measure is low and, together with low prices at the pump, boosts consumers’ purchasing power.

We’re mindful, however, that next week’s lack of fundamental data and economic reports may create the kind of vacuum that spurs market volatility. 

For all its ups and downs, 2019 is off to a strong start. For the year through Thursday, the Dow Jones Industrial Average and the broader S&P 500 have returned 10.9% and 12.5%, respectively. The MSCI EAFE index, a measure of developed international stock markets, is up 9.5%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has dipped to 3.14% from 3.28% at 2018’s end. On a total return basis, the U.S. bond market has gained 1.5% for the year.

Brexit Befuddlement: British Pound Rallies Against Euro

It’s been nearly three years since the U.K. voted to leave the European Union and there is still no agreement on how this separation will work or when it will occur. This past week provided much news but little progress toward a resolution that many voters now wish they had not supported in the first place. The U.K. Parliament voted down Prime Minister Theresa May’s latest Brexit deal (again), but also voted to reject leaving the union without a deal at the March-end deadline. 

Signs that the muddle will continue to drag on were enough to rally the British pound against the euro. It’s hard to conjure a sure-fire Brexit-related investment trade given that neither economic nor market impacts can be quantified at this point—and there is no way to sort through theory and fact about immediate consequences once/if a Brexit deal transpires. We’re content to watch from the sidelines and let our tactical strategies identify any developing trends.

More to the Stock Market Than Indexes

The Dow Jones Industrial Average and the S&P 500 index are used interchangeably as barometers for “the stock market.” So, what are we to make of days like Tuesday, when the Dow fell 0.4% and the S&P gained 0.3%? Did the stock market rise or fall… or both?

As long-term investors, we can safely consider this type of day-to-day benchmark disagreement as noise, but it does demonstrate that not all indexes are created equal. 

The Dow holds just 30 stocks and each stock’s weight (or allocation) in the index is based on its price alone. Compare that to the S&P, which weights its 500 (or so) stocks based on market capitalization (or stock price times the number of shares outstanding). 

That may seem like a technicality—price-weighted vs. market cap—but it can lead to some material differences. And this week, Boeing was a large cause for the divergence in performance between the two market measuring sticks. 

Boeing, which fell about 11% on Monday and Tuesday following the tragic plane crash over the weekend, was trading at just over $422 a share on Friday, March 8—making it the top holding in the Dow (around 11% of the index). Boeing’s market cap on Friday was around $235 billion, giving it a much smaller 1% weighting in the S&P 500 index. 

Clearly, Boeing’s performance is critical to investors tracking the Dow, but it’s trivial for someone following the S&P 500 index. When Boeing was soaring—it gained 66.5% in 2017 and 34.5% in 2018—it was a boon for the Dow, which rose 25.1% in 2017, for instance, while the S&P gained 19.4%. This year, well, the tables have turned. 

So, was the market up or down Tuesday? It depends on the lens you look through.

Big Apple Going Under? Not Likely

New York, the largest city in the U.S., twice made debt-related headlines in recent weeks.

Last week, a story in the New York Post fretted about the level of debt the city carries as the mayor is preparing his next budget. The official report (released by the New York City Comptroller’s office) states that per-capita debt totaled $10,399 in fiscal year 2018. The Post proclaimed those numbers left New York “edging toward financial disaster” if a recession were to develop .

On the flip side, bond-rater Moody’s raised the city’s credit rating to Aa1 earlier this month—the second-highest rating the company assigns. Moody’s, while noting the city’s $38 billion in outstanding debt, stated that a strengthening and diversified economy has made the Big Apple less reliant on the volatile financial services industry, specifically mentioning employment gains in health care and education. The credit-rating upgrade came after Amazon’s decision to back away from building a second headquarters there. 

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Financial Planning Friday

Taking Advantage of Medicare Advantage Plans

Are you happy with your retirement health care plan? If not, there may still be a chance to change it: Enrollees in Medicare Advantage plans have until March 31 to select a different insurance provider.

Medicare Advantage plans, also known as Medicare Part C, are privately run health care plans that generally offer broader coverage than traditional Medicare (Parts A and B). More than one third of all Medicare beneficiaries opt for Medicare Advantage plans, and it’s easy to see why: Many of these plans offer options like low- or no-cost prescription-drug coverage, vision and dental care, items that typically aren’t covered by traditional Medicare. 

The variety of benefits on offer—and the costs—vary considerably from plan to plan, though. Depending on your specific needs, you may find some of the options aren’t necessary for you. Taking the time to review your plan to determine if it’s a good personal fit is well worth your while. In many parts of the country, retirees eligible for Medicare Advantage have several dozen plans to pick among.

The good news is, if you’re unhappy with your current plan, you’re not locked in. The open enrollment period for Medicare Advantage, when new people can join the plans, runs annually from October 15 to December 7. But if you are a current member of a Medicare Advantage plan, you have more time. A special “disenrollment period” allows existing members to change their Medicare Advantage plan until March 31 each year. 

Figuring out your best option for health care in retirement is no easy task, particularly when it comes to Medicare. One resource to draw on is your state’s Senior Health Insurance Program (SHIP), a free counselling service that provides individualized help with Medicare decisions. Find your state’s SHIP

 

Our parent company, Adviser Investments, also has resources that can help. A recent episode of The Adviser You Can Talk To Podcast details the different enrollment periods for a range of Medicare plans as well as some of the pros and cons of each to consider. 

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Looking Ahead to Housing Market and Manufacturing Data

Next week will bring us reports on the housing market (builders’ confidence, new construction, existing home sales), factory orders and manufacturing surveys, leading economic indicators and a report on the service sector. However, coverage of the Fed’s Open Market Committee meeting is likely to dominate the week. Though no rate hike is expected, market-watchers will still be glued to Chair Powell’s live press conference on Wednesday afternoon.

If you’d like to learn more about our tactical or fundamental strategies, please contact Steve Johnson at 844-587-7393 or info@bravercapital.com


Please note: This update was prepared on Friday, March 15, 2019, prior to the market’s close.

This material is distributed for informational purposes only. The investment ideas and expressions of opinion may contain certain forward-looking statements and should not be viewed as recommendations or personal investment advice, or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. 

Past performance is not an indication of future returns. The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. We do not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. 

Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be seen as a recommendation to buy, sell or hold any of them.

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