Darren's Blog

A resource for the thoughts and writings of Darren Brennan

September 2018 Market Commentary

 

Economic Outlook

The American economy continues to impress me as the positive data continues to pour in. The economy is performing quite well with low unemployment, rebounding wages, and lower tax rates, but the rise in oil prices and inflation numbers are becoming a small headwind for the economy. The good news is that we have a very strong economy so I think any negative consequences of higher energy prices and even rising interest rates can be absorbed without tipping the economy into a recession. I know there has been talk in the media about a recession, but I think it is the anti-Trump media trying to will the economy into a recession in order to hurt Trump politically. To put it simply, the data does not point to a looming recession, not even close to it, but Bill Maher and other outspoken persons in the media would rather have millions of Americans suffer through a recession as long as it gets Trump out of the White House. It is amazing and sad to watch fellow Americans wish harm on most Americans for political gain, but it is the world we live in today. In the meantime, I expect the economy to continue to accelerate through the end of the year and into 2019. By this time next year, I think the economy can do something that Obama could never achieve: four quarters in a row of 3% or better GDP. It has been an amazing turnaround in the economy especially given the fact that Obama and company said it could not be done and that Obama’s weak economy was touted as the “new normal”. They could not have been more wrong.     

Stock/Bond Report

Patience remains the theme until we get to the mid-term elections in early November. After that, we will see the new make-up of Congress and that could dictate if the economy continues to grow through 2019 or if it begins to level off. There are three possible outcomes to the elections and 2 out of 3 of them are favorable for investors. First, the worst, and the most unlikely possible outcome: the Dems get both houses of Congress, and they impeach Trump and remove him from office. If this happens, all bets are off and it would be anybody’s guess as to how the stock markets would respond to this event. The second option, which I think is the most likely outcome, is we have a split Congress with the GOP retaining control of the Senate. Under this scenario, I think Trump will be impeached for just about anything, including jaywalking, but he will not be removed from office much like Bill Clinton in the late 1990’s. In this case, Trump and his policies would remain in office and the stock markets should continue to respond favorably to the growing economy. If however, there is another November electoral surprise and the Republicans maintain their current grip, which is the third possible outcome, then I think the stock market may surprise to the upside through the end of the year and into 2019. So how do I read the stock market fluctuations leading up to the elections as a way to predict the election outcome? If the first worst-case scenario looks like it is going to occur, I would expect the stock market to decline leading into early November. If the stock market is still in a trading range, much like it is today, then I think the mid-terms will be favorable to keeping Trump in office until 2021. Historically, the stock market is a great predictor and I think it is telling me that Trump will finish out his first term, at least.

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. I think we have entered a prolonged 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 more bearish on bonds, what are clients to do to combat rising interest rates? I am having more discussions with clients regarding tax-deferred Fixed Annuities, which can allow investors to benefit from rising interest rates. As interest rates rise and the value of bonds fall, Fixed Annuities** can be a more conservative option. Many of these types of annuities are now paying over 3% a year for 5 years guaranteed. 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.

Just a Thought

 

 

 

“You build on failure. You use it as a stepping-stone. Close the door on the past. You don’t try to forget the mistakes, but you don’t dwell on it. You don’t let it have any of your energy, or any of your time, or any of your space.”

 

-the great Johnny Cash

 

 

 

 

 

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.

 

 

 

 

 

Just a Thought

 

“You build on failure. You use it as a stepping-stone. Close the door on the past. You don’t try to forget the mistakes, but you don’t dwell on it. You don’t let it have any of your energy, or any of your time, or any of your space.”

-the great Johnny Cash

October 2018 Market Commentary
February 2018 Market Commentary

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