December 2019 Client Letter

December 3, 2019

Dear Valued Investor:

Hindsight is 20/20, but finding clarity in future uncertainty can be fuzzy. 2019 has been a very rewarding year for investors. One year ago after publishing Outlook 2019 we were all tested with market volatility, and that’s a reminder that we need to continue to be prepared for uncertainty in the markets.

As we look forward to the year 2020 and a new decade, some key trends and market signals will be important to watch. These include progress on U.S.-China trade discussions, slowing global growth, an encouraging outlook from corporate America, and continued strength in consumer spending. To help keep it all in focus, LPL Research Outlook 2020: Bringing Markets Into Focus offers investment insights and market guidance through the end of 2020.

As Outlook 2020 explains, progress on trade remains central to growth projections. LPL Research expects 1.75% U.S. gross domestic product (GDP) growth in 2020, which reflects the potential for continued trade and geopolitical uncertainties amid the expected gradual slowing of the economy at this point in the economic cycle.

The bond market also is expected to show a modest increase in longer-term yields, supported by continued flexibility by the Federal Reserve in setting interest rates. LPL Research’s year-end 2020 forecast for the 10-year U.S. Treasury yield is a range of 2–2.25%.

Expectations for better corporate earnings growth in 2020, along with continued economic growth in the United States, could support stocks at current valuations. After the strong market gains thus far in 2019, corporate earnings may be the primary driver for stocks next year. The LPL Research team calculates that the S&P 500 could increase by mid-single-digits, consistent with profit gains, by the end of 2020, and they believe mild inflation and still-low interest rates will support these valuations. At the same time, we are mindful of our position in this extended business cycle, and we’ll be on the lookout for signs of moderation.

Together we will continue to monitor the impact of trade negotiations, the upcoming elections, and keep an eye on developments around the world. The LPL Research Outlook 2020 is here to help, bringing some clarity to a complex investing environment and providing insightful commentary to support investment decisions during the year ahead.

If you have any questions, please feel free to contact me.

Sincerely,

Wayne Rigney

 

 

IMPORTANT DISCLOSURES

 

Our 2020 year-end fair value target range for the S&P 500 is 3,250–3,300. We base this year-end target on a trailing price-to-earnings ratio (P/E) of 18.75, which we multiply by our 2020 S&P 500 EPS forecast of $175. We believe mild inflation and still-low interest rates support these valuations. Please see the full Outlook 2020 publication for additional description and disclosure.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth may not develop as predicted.

The Standard & Poor’s (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization US stocks. All indexes are unmanaged and cannot be invested into directly.

The PE ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher PE ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower PE ratio.

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.

Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

This research material has been prepared by LPL Financial LLC.  Tracking # 1-921238

 

Outlook 2020

November 2019 Client Letter

November 7, 2019

Dear Valued Investor:

Turning the calendar from October to November brought more than trick-or-treaters, pumpkins, and leaves to rake. It also brought a wave of important economic updates that delivered more treats than tricks and helped the stock markets reach new highs.

Those new highs may be causing you to feel a bit wary, however, wondering if the end is nearing for what is now the longest bull market ever recorded. Should new highs be feared or embraced? Since 1980 the S&P 500 Index historically has generated above-average returns one year after reaching a new high. New highs have been a normal by-product of bull markets, and we should expect to see more.

There are several reasons to expect this bull market may deliver more new highs in the months ahead. Overall, the U.S. economy remains on solid ground with no sign of imminent recession. Gross domestic product for the third quarter came in better than expected despite businesses’ weak capital investment related to the U.S.-China trade conflict. The consumer remains the anchor of the U.S. economy, as shown in recent strong consumer spending data. Job growth in October was solid, even when considering the General Motors strike (which is over), and wages continued to rise.

Recent trade headlines also reflect encouraging progress. President Trump and China President Xi likely will sign a preliminary trade agreement within the next month or so. The most contentious issues will need to be worked out in future negotiations, but any de-escalation of the current trade tensions will be welcome. Resolving the trade dispute may encourage companies to invest more, which could drive stronger economic growth and corporate profits and help push stocks higher.

Doing its part, the Federal Reserve (Fed) gave investors what they were hoping for and cut interest rates for the third time this year. Stocks historically have responded well one year after cuts that were also characterized as a “gradual mid-cycle rate adjustment.”

We are entering what historically has been the best performing six months of the year for stocks. When we add that positive seasonal factor to the overall good health of the U.S. economy, support from the Fed, and progress on a trade agreement, it appears this bull market may have more left in the tank. At the same time, we cannot dismiss potential risks to markets, most notably the possible unraveling of the U.S.-China trade pact, lackluster economic growth in Europe and Japan, stalled corporate profit growth, and the potentially contentious upcoming U.S. presidential election campaign. After a relatively calm and steady stock market advance this year, a pickup in market volatility would be totally normal.

We should continue to watch for signs of excesses in the economy that could lead to a recession and bring this record bull market to an end. For now, there don’t appear to be any worrisome cracks in a strong economic foundation, and the backdrop for stocks appears to remain favorable.

Please contact me if you have any questions, and have a very happy Thanksgiving.

Sincerely,

Wayne Rigney

 

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Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

The use of Stocks and Markets herein are referencing corresponding indexes, unless otherwise noted. All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Economic forecasts set forth may not develop as predicted.

All data is provided as of November 1, 2019.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

October 2019 Client Letter

October 3, 2019

Dear Valued Investor:

Summer has turned to fall, and there’s already a little chill in the air. Three-quarters of the year is behind us now, and both stock and bond markets have had a strong year so far, although we expect to see regular—but normal— bouts of volatility as we progress through the fourth quarter. In its first week October has lived up to its reputation as a volatile month, but it’s important to keep in mind that October actually has been the third strongest month on average for the S&P 500 Index for the past 20 years. There are several key factors to watch the rest of the year as the weather continues to cool and end-of-the year activities heat up.

Trade and impeachment have garnered a lot of the headlines recently, but behind the scenes the U.S. economy has remained resilient. Economic data has been increasingly beating expectations. The most recent data points to third-quarter economic growth that’s consistent with the long-term trend of the current expansion, which is now more than a decade long.

Trade headlines have improved in recent weeks. U.S. and China negotiators are scheduled to meet October 10, and the Chinese recently began purchasing U.S. soybeans and pork products again. Reports that the United States would curb U.S. investment in China surfaced and were quickly refuted by the White House. Finally, with the 70th anniversary of the People’s Republic of China behind us, China’s leadership may be in a better position to strike some sort of a trade deal. Even a limited agreement could help shore up business and investor confidence.

While the impeachment process will receive a lot of press attention, it is not expected to have much impact on the economy or markets. The main risk is that the political discourse may harm investor confidence.

Recession fears have heightened recently following a soft September report on U.S. manufacturing from the Institute for Supply Management. Domestic manufacturers continue to struggle with slowing international growth, tariffs, and a strong U.S. dollar. It’s important to note, however, that manufacturing comprises just 12% of the U.S. economy based on gross domestic product, while consumer spending contributes nearly 70%. U.S. consumer spending remains in good shape with low unemployment and rising wages.

Overall, fundamentals for the U.S. economy remain favorable despite trade uncertainty and increasing political risk in Washington, D.C. U.S. economic data has been exceeding expectations, and consumers continue to benefit from a solid labor market. With further progress on trade possible in the months ahead and more Federal Reserve rate cuts anticipated, this bull market may have room to run.

Please contact me if you have any questions, and enjoy the autumn weather.

Sincerely,

Wayne Rigney

 

 

______________________________________

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Economic forecasts set forth may not develop as predicted.

All data is provided as of October 1, 2019.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Trusteed IRA: Vol 2

Trusteed IRA: Vol. 1

Quick Market Update: Episode 1

Quick Market Update Episode 2

September 2019 Client Letter

September 4, 2019

Dear Valued Investor:

The Dog Days of Summer were on full display this past month, as a variety of concerns pushed stocks and bond yields lower. After reaching new record highs in late July, the S&P 500 Index dropped approximately three percent in August as trade concerns pressured investor sentiment around the world. Impacts of U.S.–China trade tensions reverberated throughout the economy and financial markets in recent weeks, including weakening global manufacturing data and plunging sovereign interest rates. As a result, safe-haven assets like gold, government bonds, and utilities outperformed in August.

Escalating trade tensions early last month dashed hopes of a quick resolution.  Both sides need to show strength as China is dealing with protests in Hong Kong and preparing for the 70thanniversary of the People’s Republic of China this October, while President Trump is gearing up for the U.S. presidential election.  While global manufacturing has borne the brunt of the trade damage, the latest round of tariffs will impact more consumer goods.

Fortunately, the U.S. consumer remains in good shape, bolstering the economy. The unemployment rate is low, wages are rising, and debt as a percentage of disposable income remains near four-decade lows. Personal spending has driven U.S. output, which during the first half of 2019 remained slightly above the average for the economic expansion.  We believe the key to sustaining growth is renewed strength in business investment, which likely requires progress on trade.

The inverted U.S. Treasury yield curve reflects these uncertainties. An inversion occurs when short-term interest rates exceed longer-term rates and typically indicates pending economic weakness, or recession. Considering the relative strength of the U.S. economy and expected interest rate cuts from the Federal Reserve (Fed), we’re not convinced recession is imminent. Instead, we believe the shape of the yield curve reflects a run on U.S. Treasuries based on the global search for yield. More than $17 trillion in global sovereign debt offers negative yields, where lenders pay borrowers for the “privilege” of loaning them money.

Another message sent by the yield curve is that monetary policy is too tight given trade uncertainty, so the Fed needs to respond promptly with lower interest rates. Of course, we will have a recession someday, and now that we’re in the longest expansion ever, anticipation is high. Yet reviewing fundamentals, even with trade, we’re hard pressed to project contraction soon. It is conceivable, though, that a variety of global events, including the uncertainty of trade and the U.S. election, may cause businesses and consumers to “sit this one out” in the fourth quarter of 2020 and the first quarter of 2021. We assign odds of that recessionary scenario at 1 in 3.

In conclusion, fundamentals of the U.S. economy remain solid even as trade uncertainty weighs on investor sentiment. We would interpret the yield curve inversion as a signal that the Fed is too tight, not of imminent recession. Also keep in mind that stocks have historically performed well in the 12 to 18 months following inversions. We recommend suitable investors continue to focus on economic and market fundamentals while maintaining diversified portfolios. If you have any questions, please contact your trusted financial advisor.

Sincerely,

Wayne Rigney

 

 

 

 

IMPORTANT INFORMATION

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

All performance referenced is historical and is no guarantee of future results.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Economic forecasts set forth may not develop as predicted.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

U.S. Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. They are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, geopolitical events, and regulatory developments. The gold market is subject to speculation and volatility as are other markets.

Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market. Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

Tracking #1-819896 (Exp. 09/20)

August 2019 Client Letter

August 1, 2019

Dear Valued Investor:

This summer has been interesting. Thus far, temperatures have been at a maximum for much of the country, while typical summer storms have been at a minimum. A parallel can be drawn for the financial markets: Major stock indexes are hovering near record levels, while other asset classes like bonds and gold have also participated in gains with little volatility in recent weeks.

In a normal economic environment, stocks, bonds and gold typically do not experience simultaneous growth. But, these are not normal times:  Domestic economic growth is steady, global demand is weakening, trade uncertainty prevails, and central banks around the world are once again lowering interest rates—more than 10 years after the economic and financial crisis!

Indeed, the U.S. economy has exhibited trend-like growth around 2.5% for the first half of 2019. Despite weaker business investment due to trade uncertainty, growth has been supported by a fully employed consumer. These trends have led activity in the developed world, where Europe struggles with Brexit, and Japan, where demand is wobbly ahead of the looming consumption tax. Yet global investors have found favor with risk assets. Is this a sign of confidence in global economic activity? Or is it reflective of a mindset that believes the world’s central banks will come to the rescue again, lowering rates to boost global demand and support asset prices?

While we’d like to believe it is due to confidence, we suspect it is more of a mindset. For example, the U.S. Federal Reserve just reduced interest rates by one quarter of a percentage point (0.25%), and indications are that at least one more rate cut is coming before year-end. The European Central Bank and the Bank of Japan also have committed to more accommodative policy actions. Lower interest rates can boost economic activity by reducing financing costs for home and auto loans, while also factoring into improved valuations of financial assets.

Unfortunately, the uncertain international trade situation has caused businesses to limit investment, pressuring global growth. Until clarity on trade emerges, markets will probably focus on decreasing interest rates, rather than increasing activity. This may lead to temporary bouts of volatility, potentially weighing on asset prices and investor sentiment.

It’s important to continue to focus efforts on the underlying fundamentals supporting economic activity—and remember that while the economy is slowing, it is still growing. Solid economic prospects can help keep corporate profits afloat, especially if there is progress in U.S.-China trade talks and rebounding global activity.

Please contact me if you have any questions, and enjoy the rest of the summer.

 

Sincerely,

Wayne Rigney

 

 

Important Information

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

Economic forecasts set forth may not develop as predicted.

All data is provided as of August 1, 2019.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

Tracking #1-878588 (Exp. 08/20)