DIASTOLE ECONOMIC AND MARKET COMMENT
October 29, 2018
The markets had a rough time last week, with strong volatility both up and down. For the week in total, the U.S. markets dropped by 3-4%. But it’s important to put that in context. Markets are still up almost 300% in the current bull market, which began after the Great Recession. Stocks need to test their prices - in other words, sometimes they must sell-off until buyers enter the market, so that investors know where “support” is. When there aren’t enough buyers, stocks go on sale!
It is also important to remember that the trend of stock prices is ever upward, even though short-term results may be poor. That’s why we so strongly discourage selling in a rocky market. Those prices WILL recover, and if you leave the market, will you have the courage to get back in?
Factors causing investor nervousness these days include rising interest rates, rising federal deficits and debt, and geopolitical uncertainty (Brexit, tariffs, trade wars, slowing global economies). One factor directly affecting stock prices is the blackout period before earnings are reported (during which companies cannot buy back their own stock). It is a timely reminder that the current phase of our bull market rests substantially on the corporate tax cut from last year, which has funded companies buying their own stock on the open market. Those tax-cut savings have not been used to increase wages, but to increase stock prices.
Companies reporting earnings for the third quarter last week include several manufacturing firms, whose complaints about tariff-induced headwinds caused Wednesday’s market tumble, and tech stocks like Amazon and Alphabet (parent company of Google), whose good-but-not-good-enough reports caused Friday’s decline.
Last year was a stellar one in the markets, and they can’t all be that good. The Standard and Poor’s 500 rose by almost 22% in 2017. If markets remain flat this year, the average of the two years will still be above average. Right?
The first print of third quarter GDP was released at 3.5% (annualized, versus the same period last year). This figure will be revised at least twice more in coming weeks/months. Second quarter GDP now stands at 4.2% (annualized growth rate). The Federal Reserve Board is predicting that GDP growth will slow in the rest of this year and years to come. The Fed expects 2019 GDP to be 2.5%, 2020 GDP to be 2.0%, and 2021 GDP to be 1.8%. The main drag on the economy moving forward is rising interest rates fueled by the increasing federal debt. (As the government needs to sell more bonds to fund our budget deficits, we must increase the yields we pay in order to attract more buyers, especially when we are in trade wars with many of our usual investors.)
Speaking of which, India is poised to impose tariffs on $241 million in U.S. imported goods in response to American tariffs on steel and aluminum, and also pressure from the U.S. for India to stop importing Iranian oil. Affected products will include almonds and apples.
Got a lot of student loan debt? Enjoy cold beaches? The state of Maine has a deal for you! If you move to Maine, the state will let you deduct the cost of repaying your student loans from your state income tax. If you are a STEM major (science/technology/engineering/math) they may even pay you back the difference if your loan payments exceed your tax owed. Even if every Mainer college graduate stays and works there, there are still not enough people in the state to fill their available jobs.
The 27 richest people in the world own as much wealth (about $1.4 trillion) as the bottom HALF of the entire global population. But over the past two years, the gap has stopped widening in many countries, including the U.S., and even shrunk in some places, like Britain and Germany. Still, income inequality is an enormous problem. The median family-of-four income here in America is now $59,039. Jeff Bezos, head of Amazon, makes that much money every 19 seconds. His workers’ median pay is $28,000 per year.
Now hear this! We are in the annual enrollment period for Medicare Supplemental plans, which runs from October 15th through December 7th. All insurance companies which sell “medigap” insurance must use the same letter labels so that plans can be compared. A is the least expensive and offers the least coverage, while B through N offer various benefits to fill different gaps in your Medicare coverage. K and L are higher-deductible plans for healthy seniors.
We are also approaching the annual Affordable Care Act enrollment period, which runs from November 1st through December 15th. Information and contact information on state plans can be accessed through healthcare.gov.
Moving on to more delicious topics…. Have you eaten candy corn yet this year? You had better get on it, because Halloween is Wednesday. 70% of all candy corn is consumed at Halloween, and the other 30% is consumed in secret after it goes stale. Like Peeps, but weirdly tooth-shaped.
An exact replica of the Titanic is being built. Well, maybe there are a couple of improvements being made, like more lifeboats, and a welded, rather than riveted, hull… sonar, radar, stuff like that. The ship will begin its maiden voyage in Dubai in 2022, and will sail to Southampton, England and then on to New York, following the route of the original Titanic, which sank in the North Atlantic in 1912 after hitting an iceberg. The new ship will boast the same decor and three classes of travel. Are you up for steerage? Or is that down? Can a Dwayne Johnson movie be far behind?
For the week ending October 26th, the S&P 500 finished at 2,658, the Dow Jones Industrials at 24,688, and the Nasdaq Composite Index at 7,167. The yield on the ten-year Treasury Note ended the week lower at 3.08%. Crude oil cost $67.59 per barrel, gold cost $1,232.50 per ounce, and one Euro was worth $1.1407.
Elizabeth E. Cook
News and information presented here was gathered from sources believed, but not guaranteed, to be accurate, including The Wall Street Journal, The New York Times, Barron’s, Bloomberg, The Economist, businessinsider.com, CNBC, Reuters, and the Associated Press. If you have questions, please call us at 203.458.5220 or reply to this email. Thank you for reading!