Market & Economic Outlook | July 2019

by | Jul 16, 2019 | Monthly Market Update, Newsletters

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In the Market & Economic Outlook, we separate the relevant from the noise, to bring you timely content that helps you on the path to and through retirement! 

 STATE OF THE MARKETS

STATE OF THE MARKETS (S&P 500 +19.85% YTD through 7/16/2019)

The S&P 500 Index was up 6.9% in June, the best in 64 years, propelling stocks to new all-time highs and the strongest first half since 1997. Fueling these gains was the Federal Reserve which switched from tightening (raising rates 9-times since 2015, 4-times just last year) to easing – possibly cutting rates in July. Also contributing to the strong market are efforts by Central Banks around the world also easing in order to stop the slow-down in the global economy.

Stocks are becoming scarcer (and more valuable) due to share buybacks and mergers & acquisitions. These account for approximately $2.1 trillion of a $23.7 trillion market – that’s 9% of total stock value being eliminated.This reduction provides a cushion to existing investors and offers an incentive to own stocks in this low interest rate environment. If these trends continue, one-third of stocks will be retired over the next few years.

We can’t recall any time in the last few decades that investors have been so bearish with stocks at or near all-time highs. We believe these conditions set the market up for a solid second half.  According to Jim Paulsen of Leuthold’s Group, the combination of increasing money growth, accommodating Federal Reserve, and bond vigilante’s pushing down yields, stocks have risen 18% (annually). Our best advice: the trend is your friend. The market is telling you economic conditions are solid and the future is bright, but the prudent investor will use these new highs to lower their allocation to stocks.

ECONOMIC UPDATE

The Federal Reserve raising rates 9-times since 2015 has helped push up short-term money market and CD rates. This was possible because our economy is one of the strongest in the developed world. However, a worldwide slow down has caused $13 trillion in negative interest (investors are paying the banks to hold their money). This has attracted savers to our comparatively high-yielding Treasuries and other instruments – pushing rates down below 2%. With our economy slowing and no inflation in sight, the Fed is likely to lower rates several times this year. We recommend that you use this low rate environment to refinance your mortgage if you can achieve meaningful savings.

For almost every investor, rising dividend stocks should represent a cornerstone of your portfolio. According to Ned Davis Research, companies listed on the S&P 500 Index that have initiated or consistently grown their dividends have been the best performers from 1972 – 2016. These companies have also delivered this performance with less risk. Rising dividends are important because they not only provide a growing stream of income but are also a sign of a company’s profitability and management’s confidence in the future. According to Ned Davis research – dividend stocks enter the potential easing cycle, the most attractively valued in years, versus other stocks and bonds.

INVESTMENT THEMES

In addition to opportunities that exist broadly in the current economic and market climate, there are several areas we are emphasizing in client portfolios: 

  1. Rising Dividends

For almost every investor, rising dividend stocks should represent a cornerstone of your portfolio. According to Ned Davis Research, companies listed on the S&P 500 Index that have initiated or consistently grown their dividends have been the best performers from 1972 – 2016.

These companies have also delivered this performance with less risk. Rising dividends are important because they not only provide a growing stream of income but are also a sign of a company’s profitability and management’s confidence in the future.

  1. Rebalance Your Portfolio

Given the fact stocks are close to all-time highs, it makes sense to rebalance your portfolio now. Say your appropriate allocation is 60% stocks and 40% bonds and because of the strong market this year, your allocation has increased to 63/37. “Take some cream off the top” and lower your allocation back down to 60/40 or even lower to 55/45 if you believe more caution is warranted. Just last Christmas stocks plunged 20% in just a few weeks. That would have been a great opportunity to move fixed income (cash, CD’s or bonds) back into stocks at this low point – adjusting your allocation back up to its appropriate level and even raising it 5% higher to say 65/35 given such an extreme oversold condition.

Bottom Line

In practice it is very hard to pull the trigger because the psychological fear of losing and the stomach churning that happens the moment you commit more money into stocks. Likewise, greed has the same affect- when everything seems so rosy and the skies are clear – that’s when you need to be the most concerned. Do you have the right mix of stocks & bonds?


The future financial advisors (aka grandkids) of True North were in the office assisting with white board decorating, snack research and employee team building… including renditions of My Little Pony performed by Keegan, Ashley’s oldest!

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Disclosure: 

The views outlined in this newsletter are those of True North Retirement Advisors (TNRA) and should not be construed as individualized or personalized investment advice. Any economic and/or performance information cited is historical and not indicative of future results. Economic forecasts set forth may not develop as predicted.

Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for a given client or portfolio.

Investing in stocks includes numerous specific risks including the fluctuation of dividend, loss of entire principal and potential illiquidity of the investment in a declining market. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond and bond mutual fund values and yields will decline as interest rates rise and bonds are subject to availability and change in price.

Any questions regarding the applicability of any specific issue discussed above should be addressed with TNRA. All information, including that used to compile charts and/or tables, is obtained from sources believed to be reliable, but TNRA has not verified its accuracy and does not guarantee its reliability.

Moreover, you should not assume that any discussion or information contained in the newsletter serves as the receipt of, or as a substitute for, personalized investment advice from TNRA or from any other investment professional. To the extent that you have any questions regarding the applicability of any specific issue discussed above to your individual situation, you are encouraged to consult with TNRA or the professional advisor of your choosing. All information, including that used to compile charts, is obtained from sources believed to be reliable, but TNRA has not verified its accuracy and does not guarantee its reliability. 

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ABOUT THE AUTHOR

David Wilson
DAVID G. WILSON, JR., MBA

David specializes in working with families and business owners as their personal “CFO” by creating and implementing a financial roadmap designed to help them pursue their goals. He is proud that he still works with clients from the very start of his career (in 1982!).

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