Darren's Blog

A resource for the thoughts and writings of Darren Brennan

October 2018 Market Commentary

 

 

Economic Outlook

 

President Trump’s economy continues to show the positive effects of his pro-growth policies and I think this trend could continue well into 2019. Some examples of the strong economy are unemployment numbers that continue to decline to historic lows, continued wage growth, and the rise in business owner’s optimism. However, some other issues could be a drag on economic growth in the form of higher energy prices and higher interest rates for mortgages and business loans. I seriously doubt that these would cause a recession, far from it, but would more likely cause the GDP numbers in the coming quarters to be affected negatively by about ½%, which would still leave GDP numbers in the 3-4% range. These types of GDP readings still indicate solid and consistent economic growth that President Obama could only dream of during his tenure. From an economic standpoint, I am very encouraged.     

Stock/Bond Report

 

The recent swings in stock values has caused concern for some investors, but not me. I think the stock market is still trying to adjust to the new normal of rising interest rates and this, combined with the S&P 500 and DOW recently hitting new record highs and the looming mid-term elections, caused some investors to take some money off the table. I still believe that investor patience will be the key until we see what the new make-up of Congress will be in 2019 as a result of next month’s elections. The good news is that regardless of the mid-term results, I fully expect President Trump to finish his first term in office and therefore his pro-growth policies should continue to produce a vibrant economy well into 2019. My outlook for stock values through the remainder of the year remains positive since I do think President Trump is here to stay.

 

As for bonds, the Fed has the green light to keep increasing interest rates, which causes me to be more and more bearish on bonds with each passing day. We have entered a period of rising interest rates, which means that we could see some sectors of the bond market average a net negative total return in the coming years. The good news is that I have been defensive in bonds within client portfolios by shortening maturities, using non-correlative bond sectors, and taking a tactical approach to bonds in general.

 

Since I am bearish on bonds, what am I recommending to clients to combat rising interest rates? During periods of rising interest rates, I think that conservative investors would be wise to consider tax-deferred fixed annuities. Fixed Annuities** are complex products and not all are created equal. There are many factors to consider such as the credit rating of the annuity company, different interest rates, and liquidity options, to name a few. In addition to these factors, there are many, many companies to choose from who offer Fixed Annuities**, so it is not just as easy as which one is paying you the highest interest rate since you may be tying your money up for long-surrender periods, which could limit access to your money. As a result, I continually research these companies and the different interest rates and options each company offer, and I would be happy to help you with any questions you may have if you are considering making a change.

 

When I first got into this business 23 years ago, my Dad had been utilizing Fixed Annuities** for many of his clients since they were paying competitive interest rates. Since then, interest rates slowly declined to nearly zero in 2011, so Dad recommended his clients consider bonds since the value of bonds generally rise when interest rates on Fixed Annuities** go down. Fast forward to today, many investors realize that interest rates are going to continue to rise, so they are now going back to the Fixed Annuities** that my Dad recommended many years ago. The investment world goes through cycles, and now it appears that Fixed Annuities** are coming back into favor with investors. The more things change, the more they stay the same, and it’s important to react to the cycles that the investment world goes through over time to ensure you portfolio is taking advantage of these changes.  

In addition, if you have a part of your portfolio that you want to remain conservative, but don’t want to put it in a low-yielding bank savings account, a tax-deferred Fixed Annuity** might be an option you could consider. My staff and I would be happy to discuss with you if Fixed Annuities** should play a role in your portfolio.

 

Just a Thought

 

“Don’t let mean, rude, or inconsiderate people rent space in your head.”

-Darren Brennan

 

 

 

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.

 

The S&P 500 Index cannot be invested in directly, and is unmanaged.

 

Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Depending upon the municipal bond offered, alternative minimum tax and state/local taxes could apply. Generally, municipal bonds generate tax-free income, and therefore pay lower interest rates than taxable bonds. Therefore, municipal bonds may not be suitable for all investors. Please see your tax professional prior to investing. High-yield bonds typically have lower credit ratings and carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal.

 

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.

 

These links are provided for informational purposes only and FSC Securities Corporation does not endorse or accept any responsibility for the content of these websites. FSC Securities Corporation does not guarantee the accuracy or completeness of the information appearing on the linked pages and does not assume any liability for any inaccuracies, errors or omissions in any information provided on the pages.

 

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.

 

 

September 2018 Market Commentary

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