Stock Markets Meander Near Record Highs

  • Fed Wastes Another Bullet on Rate-Cut Decision

  • Getting a Handle on ‘World Uncertainty Index’

  • When Should You File for Social Security?

  • Looking Ahead to Consumer Confidence and GDP

With a whimper rather than a bang, volatility has left the building as stock market indexes hover near record highs. In the meantime, Treasury bond yields have begun rising, though they remain extremely low by historical standards.

It’s not that the risks facing investors have abated. In fact, Middle East tensions are ratcheting up after a drone strike on Saudi Arabian oil facilities appeared to come from Iran, which is denying culpability. Heightened political pressure on the West Wing, tepid global growth, lack of concrete progress in U.S.-China trade talks and a stymied Brexit remain constants, as does the U.S.’s slow but apparently steady economic growth. So long as consumers remain employed, any calls for recession remain premature in our view.

For the year through Thursday, the Dow Jones Industrial Average and the broader S&P 500 have returned 18.3% and 21.7%, respectively. The MSCI EAFE index, a measure of developed international stock markets, is up 14.0%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has dropped to 2.36% from 3.28% at 2018’s end. On a total return basis, the U.S. bond market has gained 7.9% for the year.

Fed Wastes Another Bullet on Rate-Cut Decision

The Federal Reserve’s two-day meeting this week ended with a decision to lower the benchmark fed funds interest rate by 0.25% to a 1.75%–2.00% range, the second rate cut of 2019. However, policymakers, who are generally unanimous in their decisions, were divided: Two Fed governors recommended no cut and one suggested even greater stimulus was called for.

We think the two dissenters arguing for no further cuts were right.

“We’d rather see policymakers wait until there is greater evidence of an economic slowdown before wasting recession-fighting bullets.”

While U.S. economic growth may be slowing, rebounding retail sales data suggests that the slow-growth-not-no-growth trend is intact.

Getting a Handle on ‘World Uncertainty Index’

Uncertainty. We’re seeing this word crop up more and more lately. Fed Chairman Jay Powell and Vanguard chief economist Joe Davis have used it in remarks this week. A recent column in The Wall Street Journal claims executives see uncertainty as omnipresent (and a positive as much as a negative) and a Barron’s article asserts that it will make upcoming Fed policy decisions even more difficult (and harder to predict). It all points to a greater focus on uncertainty seemingly taking hold on Wall Street. That isn’t necessarily bad, though. If investors take advantage of uncertain periods, as Warren Buffett suggests, they will reap rewards when uncertainty wanes.  

Vanguard’s Davis argues that uncertainty has already had an impact on global growth and is increasingly weighing on it. The trouble is that his preferred measure, the World Uncertainty Index, hasn’t predicted global stock market drops in the past—the index never gave a warning spike before the market crash in 2000 nor in 2008—and has generally been rising over the more than two decades it’s been calculated, so why should we pay attention to it now?

To see what we mean, the chart below shows that the World Uncertainty Index has been rising at a 2.8% annualized rate over the 23-plus years it’s been measured. Meanwhile, Vanguard’s 500 Index, a stand-in for the U.S. stock market, had an 8.6% annualized total return (which includes reinvested dividends) and the U.S. economy (not shown) has grown at a 4.4% annual rate over that same stretch of time—all in a period of allegedly rising uncertainty.

Note: Chart shows quarterly levels of the World Uncertainty Index (Global simple average) and growth of a hypothetical investment in Vanguard 500 Index based on total returns from 4/1/1996 through 6/30/2019.  Sources: Economic Policy Uncertainty, Morningstar.

Note: Chart shows quarterly levels of the World Uncertainty Index (Global simple average) and growth of a hypothetical investment in Vanguard 500 Index based on total returns from 4/1/1996 through 6/30/2019.

Sources: Economic Policy Uncertainty, Morningstar.

If anything, we should probably step back and admit that uncertainty can essentially be thought of as “risk”—the risk of one unknown outcome versus another. That’s something to keep in mind when you hear “uncertainty,” as you undoubtably will—a word that we, too, have also been guilty of using indiscriminately at times.

 Hey, maybe uncertainty really is a good thing!

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When Should You File for Social Security?

Questions about Social Security come up frequently in financial planning conversations with clients. It’s a complex issue with many angles to consider, but we’d like to look at four key factors you might evaluate in deciding when to file for your Social Security benefits.

1. Your Full Retirement Age (FRA). Your FRA is the age when you are eligible to receive your full Social Security benefits. Your birth year determines your FRA. If you were born between 1943 and 1954, it is age 66. For those born between 1955 and 1960, FRA increases by two months a year (so for someone born in 1956, it would be 66 and four months) up to age 67 for people born in 1960 or after (see the “Age to Receive Full Social Security Benefits” table for a full breakdown).

You want to know your FRA because benefits are reduced or increased if you file before or after reaching it. Age 62 is the earliest you can file, and benefits top out at age 70 (there is no advantage to filing after age 70). If you file before your FRA, your benefits will be permanently reduced by 8% per year. On the other hand, every year that you wait to file beyond your FRA results in an increased benefit of 8% per year—and that amount lasts for the rest of your life and that of a surviving spouse. Use this tool to determine your FRA.

2. Your Benefits. The Social Security Administration (SSA) mails a statement to all workers three months before their 60th birthday that shows what their estimated monthly benefits are likely to be. (The SSA once sent a statement to all taxpayers every year, but they stopped in an attempt to cut costs.) And you can also create an account at to review your benefits at your convenience. We suggest doing this sooner rather than later to help you with your retirement-income planning.

3. Your Career Plans. If you are still working and file for benefits, you may see those benefits reduced, particularly if you haven’t reached your FRA. Believe it or not, they could be cut by as much as $1 for every $2 you earn above $17,640 per year. So if you plan to continue working and you haven’t hit your FRA yet, you may want to hold off claiming any benefits for now.

4. Your Family Health History. Life expectancy plays a large role in calculating your optimal filing time. While you get an 8% increase in your benefits for every year after your FRA that you delay, the sum of all benefits received by waiting until age 70 often won’t exceed what you’d tally by filing earlier unless you live into your late 70s or early 80s. However, delaying benefits to lock in that yearly increase does provide a form of longevity insurance for those who anticipate a long, healthy retirement.

There is much more to say on Social Security that you’ll see in future FPF posts. You can also read our parent company Adviser Investments’ special report, Social Security’s Role in Your Retirement, and listen to their “When Should I File for Social Security?” podcast episode on the question of when to file. 

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Looking Ahead to Consumer Confidence and GDP

Next week, we look forward to reads on manufacturing and the service sector, consumer confidence and sentiment, durable goods orders, personal income/spending/savings and a revised estimate of second-quarter economic growth.

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

Please note: This update was prepared on Friday, September 20, 2019, prior to the market’s close.

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