What’s on Tap: Recession Fears Overblown as Economic Growth Continues

  • Recession Fears Overblown as Economic Growth Continues 

  • 3M Dip Drives Dow Divergence Despite Strong Earnings Season

  • Quarterly Webinar—Is the Bond Market Signaling Recession?

  • Financial Planning Friday: What Can You Spend in Retirement?

  • Looking Ahead to Earnings, Consumer-Related Data, Car Sales & More

The U.S. economy grew at a 3.2% pace in the first quarter according to the Bureau of Economic Analysis’ first estimate, released this morning. The pace of growth exceeded analysts’ expectations and capped a week in which both the S&P 500 index and the NASDAQ Composite index hit record highs.

The economic expansion was driven by a sharp increase in exports, which rose 3.7%, as well as boosts to state and local government spending and higher private inventory investment. This more than made up for consumer spending, which was up 1.2% in the first quarter, but slower than the 2.5% surge at the end of 2018.

For the year through Thursday, the Dow Jones Industrial Average and the broader S&P 500 index have returned 14.2% and 17.4%, respectively. The MSCI EAFE index, a measure of developed international stock markets, is up 12.4%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has declined to 3.00% from 3.28% at 2018’s end. On a total return basis, the U.S. bond market has gained 2.8% for the year.

Recession Fears Overblown as Economic Growth Continues

Along with the U.S. economy’s continued expansion, corporate profit growth has exceeded analysts’ expectations in recent weeks. Despite the good news, many investors still fear a recession looms. While the current economic cycle has been one of the longest on record, expansions don’t die of old age.

Further, expansions don’t turn to recessions because talking heads predict it.

With the sharp increase in recession predictions from all manner of pundits, it’s important to remember that very few have been able to make a successful recession call in the past, and even fewer admit to all the wrong calls they’ve made over the years. At Braver Capital, we focus on the facts (earnings, interest rates, economic data) rather than fear-mongering headlines. In our view, there are no signs of impending U.S. recession.

Of course, a macro shock that harms our economic system is always possible. But we believe it is more probable that the next recession will follow the path of slowing growth, consistently negative profit growth and inflationary pressures.

3M Dip Drives Dow Divergence Despite Strong Earnings Season

More than 89% of the time (89.4% since March 1957, to be exact) when the Dow Jones Industrials Average is up on any given day, so is the S&P 500, and vice versa. But this week provided a salient example of how one bad earnings report can drive a divergence in the indexes.

On Thursday, the Dow finished the day down 0.5% while the S&P 500 was flat. The big fly in the Dow’s ointment? Industrial giant 3M, a stable, diversified company that not only reported weak first-quarter earnings Thursday morning, but also said future earnings would not be as strong as expected and that they’d be cutting thousands of jobs.

The stock tumbled 12.9% on the news—enough to drive the two indexes apart. Incidents like these remind us that we invest in a “market of stocks, not a stock market,” as the old cliché goes. Whatever the overall performance of broad market indexes, it’s your (and your funds’) specific holdings that drive your returns.

Despite 3M’s troubles, as we noted, earnings season has been noticeably better than analysts expected even one week ago. More than 200 of the S&P 500’s constituent companies have reported in so far.

Quarterly Webinar: Is the Bond Market Signaling Recession

We’re looking forward to hosting our quarterly webinar next week, Is the Bond Market Signaling Recession? Portfolio Manager Steve Johnson and Chief Investment Strategist Charlie Toole will offer their insights on the triumphs and tribulations that have hit the markets so far in 2019. The event goes live on Tuesday, April 30 at 4:30 p.m., EST.

Please click here to register—and if you can’t make it on Tuesday, an on-demand replay will be available following the event. We hope you can join us!

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Financial Planning Friday: What Can You Spend in Retirement?

 Whether your dream retirement consists of tending your climbing roses or climbing Mount Kilimanjaro, you’re probably wondering how to make sure you can reach those dreams without tapping out your hard-earned savings.

It’s a tricky question; many of the most important factors are entirely personal, including your lifestyle, your age at retirement and your appetite for risk. (Jeff DeMaso, director of research for our parent company, Adviser Investments, recently spent some time discussing some of these broader retirement spending concerns with the Washington Post.)

The investment industry has come up with some standard but simplistic approaches for calculating how much you can safely withdraw from savings each year without depleting your nest egg. Here’s a quick overview of some of the most common approaches.

The 4% Rule. The strategy suggests withdrawing 4% from your retirement accounts to cover your annual expenses in your first year of retirement and adjusting that initial amount by the rate of inflation each year thereafter.

The Bucket Strategy. You divide your retirement funds into three buckets (cash/CDs, bonds, stocks). Withdraw from the cash first, then use the bond bucket. When cash and bonds are depleted, sell stocks.

The Constant Percentage Method. Simply withdraw a flat percentage of your portfolio’s value every year.

“Monte Carlo” Analysis. Using desired withdrawal rates, life expectancy and portfolio allocations as well as historical return data, a computer program predicts the probability of running out of money. (Note that we recommend consulting with a professional if using a tool like this, as your results can vary greatly depending on what information you enter.)

All of these strategies have their pluses and minuses. If you want a little more detail on these and other approaches, Adviser Investment’s financial planning team has put together an exclusive, in-depth report on the subject, Retirement Spending Solutions, that should give you some good food for thought when it comes to figuring out how to have a comfortable and worry-free retirement.

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Looking Ahead to Earnings, Consumer-Related Data, Car Sales & More

Next week, in addition to more first quarter earnings, we can expect a bevy of reports to provide fresh data on the economy, including: Consumer income, spending, savings and confidence; inflation gauges; manufacturing and service sector indexes and surveys; car sales, factory orders, housing prices and pending home sales; ADP private sector and the broader based non-farm payrolls jobs reports; as well as an announcement from the Federal Reserve following their two-day meeting on Wednesday.

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, April 26, 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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