What’s on Tap: Slow-Growth Economy Trumps Politics

Slow-Growth Economy Trumps Politics.png
  • Stocks’ Best Decade: 10-Year Bull Market Anniversary

  • Financial Planning Friday: Financial-Aid Deadlines Approach

  • Looking Ahead to Jobs Data and Fed ‘Beige Book’

Nerve-wracking headlines haven’t unnerved investors. The news cycle this week included an abrupt end to a meeting between President Trump and North Korean leader Kim Jong Un, military action flaring between India and Pakistan and Michael Cohen’s tempestuous testimony before Congress.

On the flip side, trade talks between the U.S. and China continue to lend cautious optimism to investors as the administration has backed away from imposing another round of import tariffs this month. The current narrative is that negotiations are going well and a positive outcome is expected soon.

All of that headline static may have drowned out the news that fundamentals (earnings, interest rates and economic data) remain extremely bullish. This week, we got a fresh round of data on housing, consumer income, spending and savings, as well as information on the health and rate of our economy’s growth.

In particular, after a delay due to the government shutdown, the Bureau of Economic Analysis said the economy grew at an inflation-adjusted 2.6% pace in the fourth quarter. Pending a final revision, that means GDP expanded 3.1% in 2018, which is a bit better than the average annual 2.6% pace of growth we’ve seen over the past nearly four decades. We don’t expect growth to continue at that pace, since the catalyst of tax cuts will now be behind us, but that doesn’t mean the economy won’t continue expanding.

Our slow-growth, not no-growth economic view was echoed by Federal Reserve Chair Jerome Powell in his scheduled quarterly testimony on Capitol Hill. Powell reiterated the Fed’s view that the U.S. economy remains on solid ground while acknowledging near-term political crosscurrents as potential agitators, but not disruptors, of that slow-growth line.

For the year through Thursday, the Dow Jones Industrial Average has gained 11.6%, while the broader S&P 500 has returned 11.5%. The MSCI EAFE index, a measure of developed international stock markets, is up 9.3%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has dipped to 3.21% from 3.28% at 2018’s end. On a total return basis, the U.S. bond market has inched up 1.0% for the year.

Stocks’ Best Decade: 10-Year Bull Market Anniversary

With recollections of the 2008 financial crisis still vivid for many investors, it may seem unbelievable that we’re about to come upon a much happier occasion: The 10-year anniversary of the ongoing bull market is just five trading days away. 

It’s been a remarkable run. Stocks have compounded further and faster since the March 9, 2009 bottom than at any point since the dot-com boom. But be forewarned: Expect these high-teen 10-year returns to begin coming down over the next few weeks and months.

The chart below shows the S&P 500’s 10-year return, plotted daily, over the past 20-plus years. At last night’s close, the 10-year annualized return for the S&P was a whopping 16.7%. The last time the S&P generated that kind of number over a 10-year period was between February 1991 and February 2001.

We think the current 10-year return is likely to go higher by the end of next week—in the final few days leading up to the market’s March 9, 2009 bottom, the S&P dropped another 8%. That decline will no longer figure in the return calculation after March 9 (making it look even better), and the markets then steamed ahead through April 2009. Come May, as those early, rapid gains are no longer reflected in the 10-year numbers, they may come back down to Earth a little.

High-Teen Returns Don’t Last Forever

Source: S&P Dow Jones Indices.

Source: S&P Dow Jones Indices.

While we are thrilled to have experienced and profited from a decade-long run like this one, we need to keep our expectations for future returns in check, because whether it’s 16.7% or some other high-teens number, it should be viewed as a gift that only comes around, if we’re lucky, every 20 years or so.

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Financial Planning Friday

Financial-Aid Deadlines Approach

If you’ve got a prospective college student in your household, you’ve either heard, or know first-hand, how daunting the process of finding and applying for financial aid can be.

One crucial step that all prospective students should take is filling out a Free Application for Federal Student Aid (FAFSA).  

A FAFSA qualifies students for aid from Uncle Sam. And though the FAFSA is a federal form, most state governments and colleges also use it to calculate how much financial aid to award prospective students. Completing this one form will give you a much better picture of the kinds of grants, loans and work-study programs that may be open to you or your higher-ed-bound student.

Here’s the rub: You need to be aware of three important deadlines related to college, state and federal aid. Deadlines vary among institutions, but they may be approaching sooner than you think.

 For students enrolling in fall 2019, you’ll likely need to send a FAFSA… 

 …to your college by spring 2019. Most colleges require financial aid applications to be made well in advance of the next academic year, often by March for September enrollment. To find the deadline for your school, call the financial aid office or check the school’s website.   

…to your state aid office by spring/summer 2019. “State” here means the state you live in rather than the one where the school is located. You can find the deadline for your home state on the front page of the FAFSA website.

…to the federal government by June 30, 2020. This is standard for everyone, and it’s the latest of the three. (If you’re planning to begin classes in the spring or summer of this year, you can apply for federal aid as late as June 30, 2019.)

Our advice is to use the earliest of the three deadlines as your cutoff for completion. Many colleges and states offer aid on a first-come, first-served basis. While certain colleges do continue awarding financial aid after their deadline has passed, the chances of receiving it are reduced and procrastinators could see their payout diminished.

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Looking Ahead to Jobs Data and Fed ‘Beige Book’

Next week, jobs data is front and center with the ADP private sector report on Wednesday followed by the broader nonfarm payrolls and unemployment report for February on Friday. We’ll also get a read on consumer credit, data from both the manufacturing and service sides of our economy and the Fed’s “Beige Book” of anecdotal reports from around the nation.

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 1, 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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