What’s on Tap: Enduring Investor Concerns, Fundamental Economic Strengths

Enduring Investor Concerns, Fundamental Economic Strengths.png
  • Jobs Numbers Surprise: Employment Report Misses Expectations

  • Time to 'Lock In' 2019 Stock Market Gains?

  • Financial Planning Friday: 2018 Retirement Account Contributions

  • Looking Ahead to Retail Sales, Small Business Confidence and More

Today marks the 10-year anniversary of the bull market that began its post-Great Recession run on March 9, 2009, a milestone we previewed last week. In some respects, this 10-year charge is ending with a bit of a gasp. Renewed concern about slowing global growth is again influencing the markets, and the S&P 500 is on pace for its worst week of 2019.

Among the issues worrying traders: The European Central Bank revealed plans to deploy additional stimulus to preclude a euro-zone slowdown. The potential U.S.-China trade deal isn’t enough to forestall falling estimates of China’s future growth. Plus, uncertainty over the course of congressional investigations into President Trump and his administration is rising. 

Not one of those issues is new news. At times they will weigh on investors, but, barring a new significant positive or negative catalyst in the fundamentals that matter (earnings, economic data and interest rates), our outlook remains one of slow growth.

For the year through Thursday, the Dow Jones Industrial Average and the broader S&P 500 have returned 9.7% and 10.1%, respectively. The MSCI EAFE index, a measure of developed international stock markets, is up 8.5%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has fallen to 3.15% from 3.28% at 2018’s end. On a total return basis, the U.S. bond market has gained 1.4% for the year.

Jobs Numbers Surprise: Employment Report Misses Expectations

This morning, the Labor Department released its monthly employment report, which showed the economy adding just 20,000 new jobs in February, well shy of the 180,000 economists expected. The figure marked the 101st consecutive month of gains—extending a record run—but it was the lowest monthly tally since September 2017. You might wonder: Is this the end of the road for our robust job market and the consumers it employs?

We don’t think so. You may remember the blowout January jobs number, which was revised up even further today to 311,000 new jobs. December’s number increased to 227,000. The lackluster February numbers may simply be employers taking a breather and reassessing their growth plans. Or it could be that qualified workers are harder to find as the labor market gets more competitive and the pool of available employees dwindles. (Indeed, February’s headline unemployment rate dropped to 3.8% from 4.0% in January.) It also could simply be that economic data can be noisy from month to month.

As you can see in the chart below showing the number of jobs added to the economy each month since December 2010, we’ve seen single months of weak job creation followed by months of increased hiring activity. 

 Jobs Data is Noisy Month-to-Month

Source: Bureau of Labor Statistics.

Source: Bureau of Labor Statistics.

The plus side of a tight job market, at least from the workers’ perspective, is that employers need to pay more to hire and retain their labor force. Wages rose 3.4% in February from the same time a year ago, the fastest pace in nearly a decade. That’s more money in the pockets of consumers already enjoying robust household balance sheets, which should increase consumption.

One lesson from today’s jobs report is that economic forecasts can be far off the mark. Just look at the incredibly bad estimates that Wall Street’s economists were churning out this week, including a Thursday call for an increase of 190,000 jobs from one prominent market strategist. We take forward-looking estimates with a large grain of salt. Our philosophy, and one we’ve repeated often, is to view any predictions about the economy or the direction of investment markets with a skeptical eye.

Time to ‘Lock In’ 2019 Stock Market Gains?

With the S&P 500 up more than 10% through the first two months of 2019, you may have heard some speculation about whether it’s time for investors to sell, take their gains and wait until the next “buying opportunity” emerges. Have we already seen all, or at least most, of 2019’s returns?

The short answer is that there is no relationship between the stock market’s performance in the first two months of a year and the next 10. Using a soft statistic like this to try timing this market, or any other, is likely to be a losing proposition, and something we’d suggest avoiding.

It’s true that stocks came out of the gate in 2019 at a remarkably fast pace. The S&P 500 (including dividends) gained 11.5% through the end of February—only the seventh time since 1926 that large-cap U.S. stocks gained more than 10% over the January-February period.

Here’s a look at those years and how the market performed over the following 10 months: 

Source: Morningstar-Ibbotson’s SBBI.

Source: Morningstar-Ibbotson’s SBBI.

Looking at these rare strong starts together, no clear pattern emerges. Of the seven years that kicked off with double-digit returns in the first two months, outcomes for the market over the ensuing 10 months ranged from a gain of 16.7% to a loss of 51.8%. However, the median return over the final 10 months following a double-digit start (11.1%) is about even with the median return for the March–December period across all 93 years we looked at.

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Financial Planning Friday

2018 Retirement Account Contributions Still Open

April 15—Tax Day—always looms large, especially so for the millions who scramble to file their taxes at the last minute.

However, what’s often lost in the rush to file is that Tax Day is also the last day on which you can make retirement account contributions for 2018 (that’s not a typo). The government gives you until April 15 to top off your prior-year contributions to individual retirement accounts (IRAs), simplified employee pensions (SEPs) and other retirement accounts like health savings accounts (HSAs).

So, before you begin making 2019 contributions to your retirement accounts, review what you’ve already contributed for 2018. If you are eligible to put money into any of the accounts listed in the table below and are under your 2018 contribution limit, it’s a great opportunity to continue building your retirement account while potentially lowering your taxes. 

Source: Internal Revenue Service.

Source: Internal Revenue Service.

Ideally, you’ll have maxed out your retirement contributions as early as possible in a calendar year. That’s our longstanding advice given the fact that the more time your money is invested, the greater the potential for compounding. We also know that’s not always financially feasible. The most important thing is to contribute as much as you are able as soon and as often as you can. If you are making 2018 contributions this month, make sure your contributions count towards the appropriate year, and make sure you’ve contributed everything possible for 2018 before beginning to contribute for the current year. 

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Looking Ahead to Retail Sales, Small Business Confidence and More

Next week brings reads on retail sales, small business confidence, inflation, durable goods, job openings and consumer sentiment. We are not expecting economic or inflation data to veer from the economy’s slow-growth trajectory, but rest assured that if we see so much as a spark against it, we’ll be checking for fire.

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

Please note: This update was prepared on Friday, March 8, 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.

© 2019 Braver Capital Management, an Adviser Investments, LLC company. All Rights Reserved.