Market Alert August 6th, 2017: Not Too Hot, Not Too Cold
- Consumer confidence rises to the highest level since 2007.
- The US economy added 209,000 jobs in July.
- The Federal Reserve will probably raise interest rates again before year end.
- We continue to stand by our fearless forecast of Dow 22,250.
- A strong word of caution despite our positive outlook for the second half of the year: the risk that we have today is different than anything we have had in history.
Consumer confidence rises to the highest level since 2007.
The Bloomberg consumer comfort survey gave us some very good news regarding the future direction of the economy and therefore the stock market. Consumer confidence, the gauge of the national economy, the index of personal finances, the index of buying climate, all rose for the month of July.
This is all good news because increased confidence is the magic elixir that drives investing in consumption. Since 70% of our economy is based on consumption, we want people to feel confident and to be out consuming.
The US economy added 209,000 jobs in July.
The U.S. has created nearly 450,000 new jobs in the past two months, knocking the unemployment rate back down to a 16-year low of 4.3%.
As you know, we put more stock in the labor participation rate than we do the unemployment rate. The unemployment rate reflects the number of people who are looking for a job and do not have one. The labor participation rate tells us how many people that could work are actually working. The labor participation rate continues to be at lows we haven’t seen in four years according to the Labor Department.
Because of this, we see that there continues to be a large number of people who could be working that are not and, therefore, there is still quite a bit of upside for the economy if these people find their way back into the economy.
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The Federal Reserve will probably raise interest rates again before year-end.
Given the positive data that the economy is putting out, we believe the Federal Reserve will most likely raise interest rates again before the end of this year. We also believe that just like the first three interest rate rises it will be so well telegraphed as to be a non-event from a market perspective.
We continue to stand by our fearless forecast of Dow 22,250.
The improvements in the economy that we are seeing are enough to keep the stock market afloat for the next few months. We continue to have guarded confidence that there will be additional stimulus for the economy coming from the Trump administration with tax reform and deregulation.
Should we see positive movement in those areas, we may not only see our fearless forecast come to fruition, but we made market beyond it. The reverse is also true if the tax reform agenda goes as Obamacare repeal and replace has, we could see the market have an attention-getting pullback.
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 have all been the results of governments taking on too much debt.
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!
Clients who followed our lead were out of the Stock market during the great market crash of 2008.
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?
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.
Source S&P 500
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.
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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.
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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
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