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September 17 2019 Market Update

By on Sep 25 in Economics, Finance, Financial advisors, Market Update, Worth sharing

A Rise in Volatility

The Wall Street Journal described August as “head-spinning” for stocks, and we can’t disagree.[1] The month brought ever-changing news on trade and global economic prospects, and the S&P 500 feel at least 2.5% on three different days as investors grappled with what might come next. With fears growing, the yield on the 30-year Treasury bond fell to the lowest record ever.

That said, the S&P 500 is still up 17 percent for 2019, but we’re still just short of the record close the index experienced in July.[2]

In this month’s newsletter, we’ll cover one current area of concern, namely the state of the manufacturing industry, and some of the possible directions we could go from here. Of course, we aren’t able to tell you what’s going to happen next, but we can offer some lessons from history and our own experiences with volatility.

Warning Signs in Manufacturing

Manufacturing activity fell in August. The Institute for Supply Management’s purchasing managers index fell below 50 in August, a signal of a contraction in manufacturing. New orders dropped to levels not seen in seven years. According to Federal Reserve measure of manufacturing output, the sector is in a recession after declining for two consecutive quarters.[3]

How Critical is this for the Broader Economy?

On that point there is some debate. Manufacturing only accounts for about 12 percent of US economic activity,[4] and the services sector seems to be hiring and growing well.[5]

Click to view full size.

Overall, the US added 130,000 non-farm jobs in August, though this was boosted in part by the government’s hiring of 25,000 temporary Census Bureau workers. Monthly job growth for the past three months averaged 156,000. Over the past eight years, the US economy added an average of 190,000 jobs per month.[6]

Where We Go From Here

In other words, growth looks to be slowing, and it’s largely accepted that the Fed will cut rates again at its next meeting.[7] Fed Chairman Jerome Powell stated recently that the Fed isn’t expecting a recession, considering growth, the labor market, and inflation nearing the Fed’s target.[8]

He did, however, point to “significant risks” for the economy, which the Fed is monitoring. These include threats to global growth, trade policy uncertainty, and low inflation.

Those worries have spilled over into consumer perceptions: while it’s still high, an index measuring consumer sentiment fell in August at the steepest rate since 2012. Approximately one-third of survey participants mentioned tariffs in their responses.[9]

Among S&P 500 companies, mentions of tariffs on earnings conference calls rose 40% in the second quarter, with 124 companies mentioning the issue. Year-over-year earnings have fallen for the past two quarters, and earnings estimates for the rest of 2019 have declined.[10]

Additional escalations of the trade dispute between the US and China could contribute more to volatility and negative perceptions, and this could begin to affect hiring and corporate earnings more broadly.[11]

The Lesson for Investors

We are no strangers to volatility, and to some degree we expect more. Volatility in the S&P 500 spiked in August, with three days that saw declines of over 2 percent and seven days that saw 1 percent or more in gains.[12] It can feel like whiplash to watch these moves as an investor, but in our experience volatility tends to beget volatility – in other words, both upswings and downswings could be on the horizon.

We believe it is imperative to keep a broader view. If trade worries had prompted you to pull out of equity markets at the beginning of this year, you would have missed out on participating in the nearly 17 percent growth in the S&P 500 through August 2019.[13]

Making those calls is pretty much impossible to do consistently and accurately, which is why we so strongly believe in the power of diversification. Sometimes the result may limit your upside potential for gains but it may limit your downside loss by averaging out risk and volatility: if and when markets fall – and it is our experience that at some point, they will and do – being appropriately diversified and risk-managed may help  shielding your savings from the worst of the downside.

Naturally, the specific strategy that we recommend for your portfolio is unique and dependent on the many risk factors, objectives, and other financial and personal realities that you face. We are always happy to talk about your risk exposures and the potential impact that geopolitical and economic factors could have on your portfolio.

Volatility can be stressful, but having a clear sense of your strategy and the path through it can make a huge difference. To that end, please don’t hesitate to reach out if you’d like to talk about current events and how they relate to your portfolio. We’re always here for you!

JSF Financial

 


Securities are offered through Mid Atlantic Capital Corporation (“MACC”) a registered broker dealer, Member FINRA/SIPC.
Investment advice is offered through JSF Financial, LLC, which is not a subsidiary or control affiliate of MACC.Confidentiality Note: This email communication including all attachments transmitted with it may contain confidential information intended solely for the use of the addressee. If the reader or recipient of this communication is not the intended recipient, or you believe that you have received this communication in error, please notify the sender immediately by return email or by telephone at (323) 866-0833 and PROMPTLY delete this email including all attachments without reading them or saving them in any manner. The unauthorized use, dissemination, distribution, or reproduction of this email, including attachments, is strictly prohibited and may be unlawful.

The information expressed herein are those of JSF Financial, LLC, it does not necessarily reflect the views of Mid Atlantic Capital Corporation (MACC). Neither JSF Financial LLC nor MACC gives tax or legal advice.  All opinions are subject to change without notice.  Neither the information provided, nor any opinion expressed constitutes a solicitation or recommendation for the purchase or sale of any security.  Investing involves risk, including possible loss of principal.  Indexes are unmanaged and cannot be invested in directly.

Historical data shown represents past performance and does not guarantee comparable future results.  The information and statistical data contained herein were obtained from sources believed to be reliable but in no way are guaranteed by JSF Financial, LLC or MACC as to accuracy or completeness. The information provided is not intended to be a complete analysis of every material fact respecting any strategy.  The examples presented do not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy. Diversification does not ensure a profit or guarantee against loss. Carefully consider the investment objectives, risks, charges and expenses of the trades referenced in this material before investing.

Asset Allocation and Diversification do not guarantee a profit or protect against a loss.

The S&P 500 Index is an unmanaged, market value-weighted index of 500 stocks generally representative of the broad stock market.

3-, 5-, and 10-year treasury notes are a debt obligation issued by the United States government that mature in 3-, 5-, or 10 years, respectively. Treasury notes pay interest at a fixed rate once every six months and pay the face value to the holder at maturity.

The Bloomberg Barclays U.S. Aggregate Bond Index measures the performance of the total U.S. investment-grade bond market. The index includes investment-grade U.S. Treasury bonds, government-related bonds, corporate bonds, mortgage-backed pass-through securities, commercial mortgage-backed securities and asset-backed securities that are publicly offered for sale in the United States.

The MSCI Emerging Markets Index consists of 24 countries representing 10% of world market capitalization.  The Index is available for a number of regions, market segments/sizes and covers approximately 85% of the free float-adjusted market capitalization in each of the 24 countries.

The MSCI Europe Index is part of the Modern Index Strategy and represents the performance of large and mid-cap equities across 15 developed countries in Europe. The Index has a number of sub-Indexes which cover various sub-regions market segments/sizes, sectors and covers approximately 85% of the free float-adjusted market capitalization in each country.

The MSCI World Index which is part of The Modern Index Strategy, is a broad global equity index that represents large and mid-cap equity performance across 23 developed markets countries. It covers approximately 85% of the free float-adjusted market capitalization in each country and MSCI World Index does not offer exposure to emerging markets.

 

Sources:

[1] https://www.wsj.com/articles/global-stocks-gain-ahead-of-tariff-deadline-11567152245

[2] https://www.wsj.com/articles/global-stocks-gain-ahead-of-tariff-deadline-11567152245

[3] https://www.bloomberg.com/news/articles/2019-09-03/u-s-manufacturing-contracts-for-first-time-in-three-years

[4] https://finance.yahoo.com/news/what-manufacturing-doesnt-tell-you-about-the-us-economy-morning-brief-102833913.html

[5] https://nytimes.com/2019/09/06/upshot/jobs-report-economic-outlook-2020-election.html

[6] https://www.wsj.com/articles/u-s-employers-added-130-000-nonfarm-payrolls-in-august-11567773225

[7] https://www.wsj.com/articles/u-s-employers-added-130-000-nonfarm-payrolls-in-august-11567773225

[8] https://www.wsj.com/video/jerome-powell-the-fed-isnt-forecasting-a-recession/6DB1520F-2E6C-4DCC-9A07-EB641D12A026.html?mod=trending_now_video_2

[9] https://www.wsj.com/articles/u-s-consumer-sentiment-declined-at-end-of-august-11567180682?mod=searchresults&page=1&pos=1&mod=article_inline&mod=article_inline

[10] https://www.nasdaq.com/article/august-2019-review-and-outlook-cm1206910

[11] https://www.wsj.com/articles/global-stocks-gain-ahead-of-tariff-deadline-11567152245

[12] https://www.nasdaq.com/article/august-2019-review-and-outlook-cm1206910

[13] https://www.nasdaq.com/article/august-2019-review-and-outlook-cm1206910

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