Selected short market stories

With no, in my opinion, major event or market news to comment upon this past week, I thought I’d simply offer my thoughts on four topics that did come up.

The market / It was only one month ago that we had just completed the “worst quarter since 2011”. Fast forward to now and, according to CNN money, both the Dow Industrials and the S&P500 had results for October up 9%! And it’s not just us. The German, UK and Japanese markets each were all up strongly for their best monthly results in years.

So, has anything really changed over the past month? I don’t see much that has. A prime example is that, even though we had this tremendous October, there are still a whole bunch of people who aren’t buying the longer-term view of a positive market. Based on information from the Investment Company Institute, over $100 Billion has been taken from US stock funds so far this year.

Looks as if, historically speaking, those folks may have gotten out just before the good part. Based on a 62 year study conducted by The Stock Trader’s Almanac, there are five months which produce significantly better returns than the others. It so happens that these months are November, December, January, March and April. Who knows? Hopefully, this great boost from October will help us repeat positive market history over these next few months.

Gross Domestic Product (GDP) / The first review of our third quarter economic came in pretty much as expected with annualized growth at just 1.5 percent. We will have two further revisions to these numbers so, as in the recent past, they’ll likely change.

Brain Wesbury, chief economist at FirstTrust, has a great insight. He suggests we look at what he terms the “core GDP.” He says this is “real GDP growth after excluding inventories, international trade and government purchases.” His reasoning is that none of these can be counted on to provide long-term growth. He adds that, “What’s left is consumer spending (which had strong growth in the quarter), business investment and home building. This core GDP grew at 3.2 percent in this third quarter and is up 3.3 percent from a year ago and up 3.4 percent in the past two years.”

I would suggest that anyone wondering about the potential of our market give these data a close look as they seem to me to reinforce the potential for further stock and market growth.

Da Fed / (Being from Chicago, I thought I’d take a little poetic license with this title.) Last Wednesday, the Federal Open Market Committee (FOMC), made up of the voting members of the Federal Reserve Board, issued their customary statement after their meeting.

To no one’s surprise, no action was taken on the rates. However, they did remove their previous meeting’s comment about global uncertainty. They also, in plain American, said a rate hike in December is on the table. They want to see better numbers from the jobs reports before going ahead. We have two of those reports out before their next meeting, one of which will be this coming Friday.

Please remember, we’re not saying or suggesting that this move would represent a tightening of monetary policy. I think calling it “less loose” is much more appropriate. We’re talking about a tiny one-quarter of one percent rise in rates. That’s almost no meaningful figure. For perspective, my friend Sam Stovall at S&P Capital Markets said that, since 1953, stocks have actually put up their best returns when the 10-year US Treasury Note is at around 4 percent. (It’s at 2.15 percent now.) Sam went to say that the stock market water gets kind of murky when you see that 10-year rate over 6 percent, as that’s when the Fed may step in to tighten.

Budget / Social Security strategies / We’re told we have a budget agreement so that topic will be put on the media’s back burner for a couple more years. One thing that came out of, I presume, the compromise meetings could potentially affect a couple higher profile claiming strategies. I provide this information strictly as background since it’s not official yet and, therefore, “subject to further review.”

Deemed as aggressive strategies by the current administration, both the Restricted Application Strategy (allows you to apply for benefits based on your spouse’s record, while delaying your own Social Security payments) and the Voluntary Suspension Strategy (better known as “file and suspend”, it maximizes the Social Security claiming options for many married couples by allowing spousal benefits and delayed retirement credits at the same time.)

Bloomberg reported this past week that initially these changes would directly affect three groups. Those who will reach their full retirement age (FA in Social Security code) in the next six months; those folks now between 66 and 70, as well as those people between 66 and 70 who’ve already used the Voluntary Suspension Strategy.

Bloomberg added that “the deal was amended so it affects only retirees who file for benefits in the future and that the change wouldn’t go into effect for six months.” The report also said, “That means older workers who want to use the strategy could still do so until early next year.”

Bottom line – changes are coming. Check with your advisor to determine how, when or if any of this will affect plans you have in place.

Conclusion / If/when we next see a correction, or worse, please remember a simple guideline. The only two days that matter to an investment are when you buy and when you sell

In that regard, in order to allow you to have the best opportunity to meet your goals, and unlike the previously mentioned former US stock fund owners, do not act on the noise that always exists in and around the daily market.

Cheers!
Mike

Securities and Investment Advisory Services offered through KMS Financial Services, Inc.

To get an overview of economic conditions, use this link. It’s updated monthly. http://www.russell.com/helping-advisors/EconomyMarkets/EconomicIndicatorsDashboard/EconomicIndicatorsDashboard.aspx

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