A Great First Half, But Where Do We Go From Here?

Posted on . Category | Newsletters

Market Alert July 4, 2017: A Great First Half, but Where Do We Go from Here?

  • Stocks have the best first half of the year since 2009.
  • Bonds were up in the first half of this year despite the Federal Reserve raising interest rates.
  • We expect the next three months to be flat or down for the stock market.
  • We see a strong finish for the market in the last quarter on renewed optimism for the Trump agenda.
  • Despite this view, we have reduced our fearless forecast of Dow 23,000 down to 22,250.
  • A strong word of caution despite our positive outlook for the second half of the year.

Stocks have the best first half of the year since 2009.

The stock market was off to the best start this year since 2009 according to CNBC. The economy remained steady as did confidence that the Trump agenda would stay on course.

The question we have to ask ourselves, of course, is “why?”

Coming out of the great recession one can see why the market would have risen as rapidly as it did. However, we have no such springboard today. Instead, we have a very slowly growing economy, massive national debt, and no real signs that the Trump stimulus package will even get through Congress.

We believe that the risk that we have today is different than anything we have had in history. The hundreds of trillions of dollars of global debt put a significant strain on government’s ability to do anything about the next recession. In fact, we see all of this debt exacerbating the effects of any economic slowdown. The worst recessions that we have had around the world, in our opinion, have all been the results of governments taking on too much debt.

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. (Source: Standard & Poor’s). Many of you participated in that bear and the one in Y2K.

2017.07.05 2

Source: Standard & Poor’s

Clients who followed our lead were out of the Stock market during the great market crash of 2008.

Over 50? Schedule a free retirement consultation with one of our financial advisors. The will help you to create your personalized retirement plan

We do not want to see crippling losses happen to anybody. It is why I write this email; it is why our advisory firm exists, it is why I do my radio show and why we have our seminars. I want to help as many people as possible not to become poor and to have peace of mind.

Bonds were up in the first half of this year despite the Federal Reserve raising interest rates.

Under normal circumstances, when the Federal Reserve is raising interest rates we should see bonds lose value. However, this year that has not been the case. Instead, we have seen bond prices go up which essentially means that long-term interest rates have been going down as the Fed has been raising short-term interest rates.

This dynamic is having the effect of flattening the yield curve. That is: making the long-term rates approximate those of short-term rates. According to Bloomberg, over the last 40 years, every time the yield curve has gone negative, meaning that long-term rates were lower than short-term rates, we have had a recession and a bear market. As we sit right now, the yield curve is almost flat, but if the current trend continues, it will go negative.

We expect the next three months to be flat or down for the stock market.

With tensions rising in North Korea, the prospects of additional rate hikes for the Federal Reserve, a barely growing economy, the Trump agenda seeming to be stalling out, and the general unease that the market is too high will all conspire to keep the market flat or down for the next quarter, in our opinion.

The stock market may be subject to only downward pressure for the next three months as there appears to be no encouraging economic data on the horizon to help it go higher.

 

We see a strong finish for the market in the last quarter on renewed optimism for the Trump agenda.

We continue to be optimistic about the possibility that tax reform, repatriation, and infrastructure spending plans will be presented to Congress before the end of this next quarter. Should this be the case, there will be renewed vigor in the market regarding these programs, and we see the fourth quarter as finishing strongly.

Despite this view, we have reduced our fearless forecast of Dow 23,000 down to 22,250.

While 22,250 does not seem very far from where the market closed on Friday, it would still represent a nice gain to finish the year off with.

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 the 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 properly?
  • How much can I afford to spend during my retirement?
  • What is the best investment I can use to fight inflation with?
  • 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 being taxed?
  • Should I rollover my 401(k)?
  • How do I reduce my income taxes in the future?

Click here to reserve your spot at the next free retirement planning seminar

A strong word of caution despite our positive outlook for the second half of the year.

We mentioned earlier in this email that the yield curve is flattening and that is not a good sign for the future state of the economy and therefore the state of the stock market.

There is another disturbing fact, and that is that the stock market has only seen valuations at the levels we have now in 1929 and in Y2K according to Robert Schiller, the Nobel prize-winning economist. We know all that in 1929 and in Y2K we had two of the worst bear markets in history. You may recall that Robert Schiller was the author of “Irrational Exuberance” where he warned investors that they were irrational and too exuberant in March 2000 right before the stock market crashed. We would do well to heed his warnings.

Look at the chart below:  what do you think is going to happen next?

2017.06.26 6

  • Do you know if you have enough money to retire on?
  • What are the 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 properly diversified?

We would love to review your entire financial plan, analyze what you have and see if we can help you. If we can, that's terrific, if not that's fine too. Either way, there is no charge or obligation, and we will part friends!

Over 50? Schedule a free retirement consultation with one of our financial advisors. They will help you to create your personalized retirement plan

 

Click here to listen to this week's podcast and hear the following topics:

  1. The Fed & Previous Financial Crises
  2. 7 Tips For Buying Long Term Care Insurance
  3. Why Waiting Until 70 To Collect Social Security May Make Sense
  4. ETFs May Be Creating The Biggest Bubble Ever
  5. Estate Tip: JTWROS vs. JTIC

There is nothing more important to us than that. 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 of the resources that we at Money Matters have to offer you.

We want to help you to achieve your financial goals.

Thank you for subscribing to this newsletter. I hope it finds you and yours in good health and spirits.

 

Ken Moraif, CFP®, MBA

 

P.S. If you have any friends that you would like to introduce to the Money Matters family, please send them our way. Friends do not let friends buy and hold!!

Click here to introduce a friend

Click on the link above to have us add them to our Market Alert Email list. They will appreciate you for it!

  • All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Information presented does not involve the rendering of personalized investment advice. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client's investment portfolio. All investment strategies have the potential for profit or loss.
  • Photos, videos, and images on this website are not past or present clients of Money Matters. They should not be construed as an endorsement of the advisor by any client.
  • This website is a publication of Money Matters. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change.
  • Information on this website does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information on products and services. A professional advisor should be consulted before implementing any of the options presented.
  • Information on this website is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Hyperlinks on this website are provided as a convenience and we disclaim any responsibility for information, services or products found on websites linked hereto.
  • Money Matters is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.
  • Investment Advisory Services offered through MMWKM Advisors, LLC. Investment advisor representatives of Money Matters may recommend the purchase of insurance-related products and may receive additional compensation for such transactions.
  • The tax and estate planning information provided is general in nature. It is provided for informational purposes only, and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
  • Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels.
  • All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio.
  • Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.
  • Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark.
  • References to performance arise from investment management services provided by Money Matters with Ken Moraif. MMWKM is the independent advisory firm created after Money Matters with Ken Moraif left Cambridge Investment Research. The persons who manage accounts at MMWKM are the same investment advisor representatives with that responsibility at Money Matters with Ken Moraif. MMWKM accounts are being managed now using the same strategy as was utilized at Money Matters With Ken Moraif.
  • Ken Moraif has worked in the financial services industry since 1988. He has been a Certified Financial Planner Professional since 1998.
  • Prior to 2003, the advisor was not using the exit strategy on which these videos are based and clients at that time may have experienced different results. Therefore, results prior to that date should not be viewed as indicative of the advisor’s skill. This exit strategy is currently being used with MMWKM’s existing clients’ accounts. Backtesting was used in creating illustrations prior to 2003. Backtested performance is purely hypothetical and does not reflect actual trading in clients’ accounts. Backtesting differs from actual performance, because it utilizes the retroactive application of a model that was designed with the benefit of hindsight.
  • Third-party ratings are no guarantee of future investment success. Working with a highly-rated advisor does not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Generally, ratings are based on information prepared and submitted by the advisor. A detailed explanation of how Five Star ratings are formulated is available at: https://www.fivestarprofessional.com/fiveStarAssets/pdfs/programOverviewManagers.pdf
  • Third-party rankings from Barron’s, Five Star Professional, and other organizations, are no guarantee of future investment success. Working with a highly-rated advisor does not ensure that a client or prospective client will experience a higher level of performance. These ratings should not be construed as an endorsement of the advisor by any client. Generally, rankings are based on information prepared and submitted by the advisor. The Barron’s rankings are based on the volume of assets managed by advisors and their teams, revenues generated, and the quality of the advisors’ practices. The quality of practice component of the ranking includes regulatory record, length of time in the industry, charitable and philanthropic work, and other factors. Investment performance is not an explicit criterion, because clients' investment goals differ. Please contact the advisor for a detailed explanation of how ratings were formulated. Barron’s “The Top 100 Independent Financial Advisors” was published Aug. 27, 2016, Aug. 22, 2015, Aug. 23, 2014, Aug. 24, 2013, and Aug. 27, 2012. Current rankings for Barron’s “The Top 100 Independent Financial Advisors” can be found at: http://www.barrons.com/report/top-financial-advisors/independent/2016
  • Statements saying that we told our clients to be out of the market in 2008 refer to recommendations made by MMWKM’s principals while employed at Eagle Strategies, LLC. The persons who manage accounts at MMWKM are the same individuals with that responsibility at Eagle Strategies and at Cambridge Investment Research Advisors, Inc. from 2009 to 2011. MMWKM was created in 2011 and uses the same exit strategy.