What’s on Tap: Strong Jobs Data and Vigilant Fed

Strong Jobs Data and Vigilant Fed.png
  • One Rotten Apple Triggers Fear-Based Selling

  • Robust Employment Data Allays Recession Fears

  • Our Investment Strategies Seek Out Opportunities

  • Financial Planning Friday: Review Your 2019 Spending Plan 

  • Looking Ahead: Service Sector, Inflation, Jobs Data and More

Happy New Year!

A new culprit for fear-driven selling emerged yesterday, as traders let one bad Apple spoil the whole market’s bunch—only to find today’s robust jobs data and soothing comments from Federal Reserve Chair Jay Powell igniting a strong rebound. In sum: As we expected, market volatility was carried into 2019 on the wings of last year’s fears of slowing global growth, investigations into the current administration, and whether or not near-term negative momentum will overwhelm slow-growth-not-no-growth fundamentals.

We continue to believe that one should ignore the static surrounding these volatile markets, and recognize that every time twitchy traders panic or become exuberant (the latter being the case as we wrote this piece today), wealth-building opportunities emerge for those of us with long-term aspirations. Also, it’s worth repeating yet again that this “new” volatility is actually quite normal—we’ve simply been lulled into believing markets are placid ponds by the unnaturally low volatility experienced over the past seven years.

After two trading days, the Dow Jones Industrial Average has declined 2.7% year-to-date, while the broader S&P 500 has dropped 2.3%. The MSCI EAFE index, a measure of developed international stock markets, is down 0.6%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has slid to 3.18% from 3.28% at 2018’s end. On a total return basis, the U.S. bond market is up 0.7% for the first two days of the year.

One Rotten Apple Triggers Fear-Based Selling

Thursday’s market swoon was largely the result of Apple CEO Tim Cook’s letter to investors warning “economic deceleration” in China had hurt iPhone sales, which led the company to lower its estimated revenue for the first quarter of 2019. Traders’ concerns are whether the impact of trade tensions and slowing global growth on Apple’s business presages a similar pitfall for other multinational corporations attempting to navigate an uncertain business environment. Apple’s stock tumbled nearly 10% on the day, dragging the Dow and the S&P 500 indexes along with it.

Kneejerk market overreactions to single story moments are nothing new. Neither is the fact that fear-driven selling can get way ahead of fundamentals. Rest assured that we are looking closely at earnings updates, economic data and inflation gauges for signs of duress. And while headlines may have the say on any given day, we are steadfast in our view that earnings drive the markets; fourth-quarter earnings reports, which don’t begin appearing for a few weeks, will reflect where corporate executives say they’ve been and where they think they’re headed in 2019.

Robust Employment Data Allays Recession Fears

As far back as 2015, commentators (ourselves included) have concluded that the U.S. economy was at “full employment.” Well, today’s jobs data showed those calls to be premature, to say the least. This morning, we learned that employers created 312,000 new jobs in December, blowing past expectations and maintaining the momentum seen throughout 2018. In the last quarter, payrolls increased by 254,000 per month on average—hardly a recession indicator.

With more jobs and fewer workers to fill them, wages increased 3.2% last year. And though the unemployment rate ticked up to 3.9% from 3.7%, that merely reflects the fact that more people are entering the workforce; there is possibly even more room to run.

As goes the U.S. consumer, so goes the U.S. economy. And the well-employed U.S. consumer remains in fine financial shape, positioned to drive economic growth well through 2019.

Our Investment Strategies Seek Out Opportunities

We understand that market gyrations, particularly those to the downside, are nerve-wracking. As is typical (and understandable), we’re hearing more and more investors concerned that this decline feels different—the global outlook more dire, the politics more toxic, the technology-driven decision-making on Wall Street amplifying market declines. Are things different this time? A quick trip through The New York Times’ archive suggests that while history may not repeat, it certainly rhymes.

The economy looks bleak, corporate earnings are shrinking and the public mood is sour and nervous...

“It’s not a pretty picture out there,” said Louise Yamada, a veteran chartist and head of Louise Yamada Technical Research Advisors. “There has been some improvement, but we’ve been of the opinion that it’s a bear market rally. To this point every single rally has failed to get through primary resistance. We’ve had a series of lower peaks.”

Those comments were front and center in the paper’s February 13, 2009 edition—less than four weeks from the market’s post-financial-crisis bottom on March 9, 2009, from which the S&P 500 rose 426% (including dividends) at its September 27, 2018 height (it finished yesterday up 345% from that March 2009 nadir).

“There is something unholy about [high-frequency traders],” said Guy P. Wyser-Pratte, a prominent longtime Wall Street trader and investor. “That is what caused this tremendous volatility. They make a fortune whereas the public gets so whipsawed by this trading.”

Perhaps regulators’ biggest worry is over the unknown dynamics of the computerized stock market world that the firms are part of—and the risk that at any moment it could spin out of control.

So reported The New York Times on October 8, 2011, with the S&P nearly in a bear market (down 20%-plus from a prior high). What else was making news that month? Concerns about global growth, the S&P downgrading U.S. Treasurys from AAA to AA+, and Washington “Governing by Crisis,” according to the Times’ editorial board on September 27, 2011. One year later, the stock market was up 32%.

Myriad concerns and narratives loom over most falling stock markets. While pundits and headline writers are eager to point the finger at specific causes, our investment strategies continue to monitor the markets for opportunities.  

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We are ringing in 2019 with what we hope will be a series of useful tips, suggestions and reminders put together by our financial planning team. Throughout the year, we’ll be bringing you a bevy of timely and impactful thoughts and recommendations for your financial life.

 Financial Planning Friday

Review Your 2019 Spending Plan

With a new year comes a series of new (and sometimes old) resolutions. In our view, the turn of the calendar is a great time to reassess your financial goals and aspirations.

Are you planning any major expenses in the coming year—a home renovation or purchase, the start of college tuition, or maybe that ‘round-the-world cruise?

If so, it pays to plan in advance by building cash in your account ahead of your needs. Take the time today to evaluate your cash reserves and expected income over the next year. If you think you may need to bridge a gap, we recommend you contact your adviser.

If your answer to either of the following questions is “yes,” it may be a good time to call your adviser to review your spending plan for 2019:

  1. Are you planning a large expense in 2019?

  2. Are you concerned that your cash balance or income won’t meet your needs?

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Looking Ahead: Service Sector, Inflation, Jobs Data and More

Next week, we’ll get reads on the service sector, small businesses confidence, consumer credit, inflation, job openings and the minutes from last month’s Federal Reserve meeting (though some reports may be delayed by the government shutdown).

The absence of market-moving reports will leave traders more prone to being compelled by event-driven news rather than real-time data—a theme that we think will be as constant and even more vociferous and volatile this year compared to last year.

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, January 4, 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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