Darren's Blog

A resource for the thoughts and writings of Darren Brennan

February 2018 Market Commentary

 

 

 

Economic Outlook

 

The American economy appears to be primed for a remarkable turnaround. After years of slow growth and a President who claimed that “those manufacturing jobs are never coming back”, the economy is creating more manufacturing jobs and GDP is accelerating. If anyone is serious about growing the economy, it is simple: lower taxes and reduce government regulations, and Trump has done both. For the remainder of the year, I would expect that the data should support my belief that the economy is going to be getting stronger and the unemployment rate going lower. The next big issue that could help the economy would be a major infrastructure bill that would repair roads and bridges and put more Americans to work. I am hopeful that even some Democrats would vote for such a bill to help rebuild America and put Americans to work, but I am not going to count on it since not one Democrat voted for the recent tax cuts.  

 

 

Stock/Bond Report

 

Stocks are making quite a bit of investors nervous after a record point sell-off on the Dow and the volatility that followed. However, the record point drop was not a record percentage decline for that index, which is something to remember as the Dow has risen to over 26,000. With higher valuations today, the Dow would have to decline by over 2,500 points in order to meet the minimum requirement of being in a correction, and we would need to see a decline of over 5,000 points to be in a bear market. While the recent point drops of the Dow certainly gets your attention, it is a good reminder that the sky is not falling when you look at the decline in terms of percentage. If the underlying economic data was poor, I would be worried over the market’s recent decline, but the data is showing that the economy is improving and that is why I think the stock markets should continue to improve as well. However, the Fed has been talking more and more about inflation and higher interest rates in the future, both of which are creating concern for stock investors. In addition, ever since Trump was elected, the stock market has been on a tear, so a short-term “breather” for the market was not a surprise. In the near term, I do expect stock market volatility to continue, but I do think that we should see higher valuations by year’s end. In my opinion, the Trump trade is not over yet and the current volatility can provide investors a buying opportunity that we have not seen in over 16 months.

 

 As for bonds, the Fed should begin to raise rates on a more regular basis as the strength of the economy should be able to withstand the Fed normalizing interest rates. Rising interest rates will be the negative side effect of a strong Trump economy. However, I have been cautious on bonds for a few years now so I have been positioning client portfolios to be more defensive in fixed income assets. I still favor the floating rate and municipal sectors as well as high-yield corporate bonds while keeping a focus on lowering duration.    


Just a Thought

“Adventure is becoming a lost art in that you can now comfort your way out of it. Don’t just travel, have an adventure! It can reset all your clocks. Through the challenge, the discomfort, the euphoria, the glory and the sense of accomplishment, there is a new sense of self that is refreshing and ready to take on the world in a whole new way.” -Chauncey Locklear

 

 

 

The views expressed are not necessarily the opinion of FSC Securities Corporation, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investing is subject to risks including loss of principal invested. Past performance is not indicative of future results.   This material contains forward looking statements and projections.  There are no guarantees that these results will be achieved. No investment professional or strategy can accurately predict market performance. The bond market involves risk. In general, when interest rates go up, bond values go down and vice versa, and this effect is usually more pronounced for longer-term securities. No investment strategy can guarantee a profit or protect against loss. **Guarantees are subject to the claims paying ability of the insurance company.

 

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There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. The price of commodities, such as gold, is subject to substantial price fluctuations over short periods of time and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated and concentrated investing may lead to higher price volatility. Sales of CD's prior to maturity may result in loss of principal invested. Federal deposit insurance generally covers deposits of up to $250,000 in the aggregate for each depositor in each bank, thrift, or credit union. A customer should ensure that purchasing any insured CD will not bring his or her aggregate deposit over $250,000 FDIC insurance limit. Investors should be aware that there is no FDIC insurance coverage for any principal losses that may be incurred.

 

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There are no guarantees that dividend-paying stocks will continue to pay dividends. Companies may reduce or eliminate the payment of dividends at any given time.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock/Bond Report

Stocks are making quite a bit of investors nervous after a record point sell-off on the Dow and the volatility that followed. However, the record point drop was not a record percentage decline for that index, which is something to remember as the Dow has risen to over 26,000. With higher valuations today, the Dow would have to decline by over 2,500 points in order to meet the minimum requirement of being in a correction, and we would need to see a decline of over 5,000 points to be in a bear market. While the recent point drops of the Dow certainly gets your attention, it is a good reminder that the sky is not falling when you look at the decline in terms of percentage. If the underlying economic data was poor, I would be worried over the market’s recent decline, but the data is showing that the economy is improving and that is why I think the stock markets should continue to improve as well. However, the Fed has been talking more and more about inflation and higher interest rates in the future, both of which are creating concern for stock investors. In addition, ever since Trump was elected, the stock market has been on a tear, so a short-term “breather” for the market was not a surprise. In the near term, I do expect stock market volatility to continue, but I do think that we should see higher valuations by year’s end. In my opinion, the Trump trade is not over yet and the current volatility can provide investors a buying opportunity that we have not seen in over 16 months.

 

As for bonds, the Fed should begin to raise rates on a more regular basis as the strength of the economy should be able to withstand the Fed normalizing interest rates. Rising interest rates will be the negative side effect of a strong Trump economy. However, I have been cautious on bonds for a few years now so I have been positioning client portfolios to be more defensive in fixed income assets. I still favor the floating rate and municipal sectors as well as high-yield corporate bonds while keeping a focus on lowering duration.    

January 2018 Market Commentary

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