Market Alert September 4, 2017: Please Reelect Me!
- The economy grew at a 3% annualized rate last quarter, which was higher than expected (source: Bloomberg).
- Consumer spending, the biggest part of the economy, grew 3.3%, also higher than expected and that the fastest pace since the first quarter of 2016 (source: Bloomberg).
- Nonresidential fixed investment rose 6.9%, revised from initial increase of 5.2% (source: Bloomberg).
- Corporate earnings rose 7%, which was higher than expected (source: Bloomberg).
- We continue to stand by our fearless forecast of Dow 22,250.
- We believe that the risk that we have today is different than anything we have had in history.
The economy grew at a 3% annualized rate last quarter, which was higher than expected (source: Bloomberg).
At this late stage of the recovery, the fact that the economy grew at a 3% annualized rate is remarkable. It also shows that there is forward momentum and that bodes well for the stock market going forward.
It does give the Federal Reserve room to raise interest rates, and this may have a negative effect on the bond market, but we have seen over the last few years that the bond market has also been remarkably resilient.
Consumer spending, the biggest part of the economy, grew 3.3%, also higher than expected and that the fastest pace since the first quarter of 2016 (source: Bloomberg).
Two-thirds of our economy is driven by consumer spending, and the consumer seems to be reenergized, as consumer spending accelerated last quarter. In our opinion, this is a very good thing as the more consumers spend, the more it grows the economy, and the more the economy grows, the more likely the stock market is to go up.
Look at the chart below: what do you think is going to happen next?
- 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!
Nonresidential fixed investment rose 6.9%, revised from initial increase of 5.2% (source: Bloomberg).
This is a very important statistic because companies do not make fixed investments unless they have confidence in the future. Confidence is the magic ingredient that drives economic activity and if corporations are competent and investment that will create jobs.
Corporate earnings rose 7%, which was higher than expected (source: Bloomberg).
The net result of all of the economic data from last quarter that we have described above was that corporate earnings rose by a stronger rate than was expected.
In the end, the stock market is driven by profits. That is the bottom line, and the higher earnings are, the higher potential profits should be. Therefore, this is also a good sign looking forward.
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.
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.
Source S&P 500
Clients who followed our lead were out of the Stock market during the great market crash of 2008.
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.
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?
We continue to stand by our fearless forecast of Dow 22,250.
As of the close last Friday the Dow stands 353 points away from our fearless forecast.
As you know at the beginning of the year, we had our fearless forecast of Dow 21,000, which we thought was ambitious. We blew through that very quickly at the beginning of the year. So we revised our goal to Dow 23,000 on the assumption that the Republicans would make progress on Obama care and tax reform.
When Obama care repeal/replace did not get done it made us question the Republicans ability to get tax reform done this year. Since Dow 23,000 was predicated upon success in that realm and that appeared not to be in the cards for this year we revised our goal downward. We believe that we will get to our goal this year, but these last 400 points have been the most difficult to get.
We also think that the market is not fully pricing in tax reform. Should that come to pass, we believe the stock market will be spring boarded to new heights. We continue to get assurances from Secretary of Treasury Mnuchin that legislation will be passed this year. While we find that hard to believe, we still hold out hope that it will happen because the Republicans need something to run on in 2018. If this year goes by and they have had no successful legislation, the likelihood is that they will not survive the midterm elections. The one thing we all know politicians are by is getting reelected.
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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.
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
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