Market Alert October 22nd, 2018: Profits Don’t Look As Good As They Seem
As a firm that specializes in retirement planning, our two goals for you are:
- For you to have Financial Peace of Mind and
- For Your Money to Last As Long As You Do.
Our investment philosophy of Buy, Hold, and SELL! is designed to give us Unlimited Upside with a Tolerable Downside.
- Last Week Was an Up Week, but a Very Volatile One.
- Corporate Profits Are Good, but Misses Are Being Punished.
- Our Move to Government Bond Cash Equivalents Is Looking Like It Was a Good One.
- We Are Thankful That We Have a Sell Strategy.
If you are not a client of Money Matters, we want you to be! Let us worry about all this so that you don’t have to.
- Do you know if you have enough money to retire on?
- Do you have a plan for what to do when the next market crash comes?
- What are 5 strategies that you can use to reduce your income taxes?
- How do you plan for your retirement cash flow?
- What should you do to maximize your Social Security benefits?
- Are you diversified the way you should be?
We would love to review your retirement plan with you and see if we can help you. If we can help you, that’s terrific, if not that’s fine too. Either way, there is no charge, there is no obligation, and we will part friends!
Last Week Was an Up Week, but a Very Volatile One.
The Dow started the week lower, was up 548 points on Tuesday, dropped 327 points on Thursday, and couldn’t hold on to a 200-point-plus gain on Friday.
There were many reasons for the wild ride in our view. Italy is still an unresolved issue with the European Union. We have spoken before about the size of their debt and threat that it represents not only to the continuing viability of the European Union but to the global debt markets should there standoff not be resolved positively.
Also, the tariffs that President Trump put on China are having their effect. The Chinese economy is slowing down, and their stock market is falling. While we believe that the trade negotiations will result in an agreement, right now at least publicly, it appears that there is no movement and that is creating concern in the markets, in our opinion.
In addition, the Federal Reserve released its minutes which reaffirmed its intent to continue to raise interest rates later this year and next year as well. Higher interest rates are not a good thing for the real estate market, which represents 25% of our economy, and we are starting to see that sector slow down. Higher rates also increase the cost of money for businesses and governments and usually have a dampening effect on growth, which in turn could reduce stock prices.
At this time, we do not think that all of this volatility is a harbinger of a recession and bear market. We believe it is the stock market trying to adapt to the uncertainty that investors are facing and not a reason to panic.
Corporate Profits Are Good, but Misses Are Being Punished.
According to Barron’s, 72% of companies that have reported corporate profits so far have beaten their forecast, which is the highest rate in the last 20 years. However, of those companies, only 58% have beaten their revenue expectations, which is the weakest in one and a half years according to Bespoke Investment Group. If revenues (the top line) are not meeting expectations, but earnings (the bottom line) are, this tends to mean that companies are squeezing more profit out of less revenue. Better productivity and cost-cutting is generally a good thing, but if revenues continue to miss expectations, the bottom line will most likely be affected as well.
Because of this investors are very sensitive to any company that misses. According to Barron’s companies who missed earnings expectations saw their stock price drop an average of 5.7%!
Our Move to Government Bond Cash Equivalents Is Looking Like It Was a Good One.
As conservative investors, we know that each incremental increase in interest rates by the Federal Reserve means that we are getting a higher interest rate on Government Bond Cash Equivalents. Longer-term bonds and stocks, however, tend to be negatively affected by rate hikes.
So far we are very pleased with our decision to move half of our bond allocation into the Government Bond Cash Equivalents.
We Are Thankful That We Have a Sell Strategy.
Without a sell strategy, we would find it very difficult to justify investing in the stock market at this time. We believe there is still upside, but we also believe that when the downside comes, it could be very bad.
Our strategy enables us to participate in the upside as long as it lasts; it is also designed to get us out with tolerable losses when the trend changes.
And we all know that the trend can change quickly and precipitously.
I would like to invite you to come to one of our seminars. They are designed for those of you who are retired or retiring soon, and they are free.
At the free retirement seminar we will answer these burning questions:
- How do I protect my retirement from the next market crash?
- How do I avoid three basic “pitfalls” of retirement distribution planning?
- Am I on track to be able to retire?
- When should I take Social Security? 62? 66? 70?
- Am I diversified the way I should be?
- How much can I afford to spend during my retirement?
- How can I fight inflation?
- How do I determine how much risk is appropriate for me?
- Do I take my pension or a lump?
- How do I avoid having 85% of my social security taxed?
- Should I rollover my 401(k)?
- How do I reduce my income taxes in the future?
- Vision 100: Our Core Values
- You Are The Most Important Person In The World
- Our Noble Obligation
- How To Grow With Confidence
- Estate Tip: A Trust For Your Spouse
Look at the chart below:
With the market near all-time highs, this is no time to be complacent and assume that the market only goes up! The best time to plan ahead for the next market crisis is now!
As you can see in the chart below, the market can turn around very quickly and very unexpectedly. The 2008 bear market wiped out 12 years of gains in just 17 months. Many of you participated in that bear and the one in Y2K.
Clients who followed our lead were out of the Stock market during the great market crash of 2008.
It is our singular goal to keep our clients from becoming poor. Preserving the wealth that they have built is job number one for us. I encourage you to join the Money Matters family!
I believe that avoiding large losses is the single most important thing that we should be concerned about as investors.
Perhaps you were given a package by your employer. Perhaps you sold an asset and want to know how to properly invest the proceeds. Perhaps you inherited money and want to keep it safe and grow it if you can. Perhaps you just want a second opinion. These are all reasons for you to take advantage of all the resources that we at Money Matters have to offer you.
We want to help you to achieve your retirement goals.
Thank you for subscribing to this newsletter. I hope it finds you and yours in good health and spirits.
Ken Moraif, CFP®, MBA