As we have mentioned here and here, November and December are historically the best times for markets, with the latter having pole position.
While no one knows for certain, and we are watching a ton of different indicators, here are three items of note, worth reviewing.
Before we begin, earnings – one of the most important part of capital markets future, are still positive and this year looks to be one of the best on record!
Three Grinch items to review
Inversion Watch – 10 year treasury yield
We have spoken tons of time about the inverted yield curve and a major part of that curve as well as the inversion, is the current rate of the 10 year yield. This chart shows the recent movement of the 10 year yield moving down – this could be expectations of a slower future economy/growth OR it could be just some big money buying bonds – either way, a Grinch twinge to the capital markets.
Technical testing of markets
Oddly, even as we mention in this post the Grinch – in reality the capital market participants are taking their sweet time to test and re-test their levels – ignoring the happy months of November and December – Whatever makes you happy guys!
Is Sentiment Grinchy? – Worth Watching
With 2/3rds of GDP (Gross Domestic Product) being consumer spending, consumer confidence is one of the most important parts of the economy – No Grinch here!
Capital Markets have forecasted many more bad times than have occurred – but in so doing they have also accurately forecasted “Bad Times!” – For now, we are doing our “No Grinch” dance, but watching closely and respecting all!
This week a funny thing happened … on the yield curve that is, garnering a lot of attention. Those following our writings, here, here, and here, know we are watching for an inverted yield curve since it has a good predictive nature for recessions – a topic for another discussion. Heck, even Kent Smetters, the Wharton co-host professor mentioned the yield curve had inverted.
Inverted Yield Curve? Kinda!
Here is a good picture of a normal yield curve
Inversion occurs when the short term rate goes higher than the long term rate i.e. the 2 year greater than the 10 or even more clearly, the 90 day rate greater than the 10 year…
What happened this week were the 2 and 5 year yields, slightly inverting –
Does this count?
Maybe? BUT the real predictability is from the afore mentioned short and long, not short and slightly longer short…
Here is the 2 and 10’s, followed by the 90 day and 10’s
It may invert, and we will let you know when it happens, if it happens, but for now, in our minds ….
Hello and Welcome to our November 2018 Financial Planning and Capital Market Update!
If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast format as well as Video!
Newbies – We like to articulate our thoughts and review on a Monthly basis our Financial Planning Tips, Capital Markets and current events!
November – 2018 Video
Financial Planning Tip (s) –
Clump – Maximizing the new standard deduction
With a $12k individual standard deduction and double that for joint filers it takes work to maximize the standard deduction threshold… Add the fact that SALT State and Local Tax deductions are now limited to $10k annually, clumping expenses into one year as mentioned here in our post and visually below may be the only way to get above the standard deductions for many …
Capital Market Comments –
Powell Signals a Slower Rate Increase
Current FOMC (Federal Open Market Committee) chairman Jerome Powell signaled the rate increases may be closer to over than just was stated just a month earlier… where a December increase, which is still almost certain, but three additional increases were promised in 2019 – not any more.
Given the long/lower rates of the last decade, it is not a surprise that the new normal may be lower –
Market Participants cheered this statement!
Have a Great Day – Talk to you at the end of December!
In addition to the above Unemployment level, average hourly earnings were also released and they were up 3.1% year over year — breathing a much needed pay increase to many ….
The bad news for many is that they believe these good numbers will give the Federal Open Market Committee (FOMC) ammunition for continued rate increases.
Currently FOMC members are on record saying they will raise rates in December and three more times next year (2019).
The worry is an eventual inverted yield curve – which we have mentioned many times is a very good precursor to a recession!
By looking at this chart, we are far from an inverted yield curve at this time- leading us to believe this “Good News = Bad News” may be very unwarranted…
In our explanative post here, we overview the RMD season items …. and remind those in the first year of their chose to defer or take …
RMD $$ mandated amounts are determined by the value of applicable accounts on the last day of the prior year
Current year age is a necessary factor included in calculating the RMD – see below next, first time exception – each year of seasoning (getting older) we are forced to take more out of the applicable accounts – hey the IRS has never taxed us on these in many cases – it’s their time!
After tax contributions to a qualified account MUST be accounted for in order to avoid taxes – here are greater details and our taxpayer obligations on this – don’t overpay – the IRS is not tracking this and will not come to the rescue and lower your taxes
All of an individual’s accounts must be included/totaled/value (certain exceptions are made to those continuing to work) to ascertain the needed distribution
Any one account can be used to satisfy the needed distribution (you do not have to take a little from each account, making it easier from an organization standpoint) BUT you must take at least the minimum distribution
Failure to take the mandated distribution amount COULD result in a 100% tax – Break in – our experience has been the IRS is nice about this, but let’s not test them
Social Security COLA Bump
Congratulations to those on a fixed income, the Social Security Administration SSA’s favorite inflation gauge measured a 2.8% increase, which we review in our post here and also even created this neat historical graph for our collective review…
Capital Market Comments –
Suddenly it’s Raining?
After a drop at the beginning of 2018 – mostly blamed on a creative synthetic product that bets risk will stay low (XIV) our patience was rewarded and footing found … until Ugly October came to roost…
What Gives?
At this time, no one with 100% certainty, can pin point what turned the market sky’s grey and sent rain…
Oddly, it may not be any one thing, just like an auto accident – usually multiple items occur at the same time that lead to an opening for contact with another …
Here are our best thoughts in order of our priority/possibility – again no one knows for sure…
Trendy high flying stocks that have been a momentum favorite, suddenly took it on the chin – alone in time not a big deal – seen next
Most mutual funds and many other assets managers close their books at the end of October – many heavily invested in the above trendy stocks had their year turn very ugly right at the finish line, possibly setting a musical chair like exit, causing much more volatility than what would have otherwise occurred if not so near the end of many fiscal years – an extra worry juggle ball in the air
Mid-Term elections are finally here, and it is unlikely anyone can predict with any certainty the outcome of the elections – capital market participants hate uncertainty – not a big deal if this was all they are watching, but another juggle/worry ball up in the air
Interest Rate Increase banter on how many an how long rates will increase before being “Normal” – we have discussed in great length the inverted yield curve and while we are no where near this event, yes… another juggle worry ball in the air
Tarif Talk has been around all year, but looks to come to more of a peak near the end of the year – yet another worry/juggle ball up in the air
The good news is the sun will likely come out again soon, but in true rain like fashion, it seems like the days go by SLOOOOWER when your stuck inside, under cover, without sun!
The GREAT news is earnings have been for the most part very good, not GREAT and screaming as they had earlier in the year, but still very good by comparison.
MAYBE ? – we are just overdue for a correction – This fantastic chart from our friends at JPMorgan reminds us all that these type of corrections are more of the norm, not the abnorm – we have just been without regular bouts for some time!
Have a Great Day – Talk to you at the end of November!
Welcome to our Video and Audio Podcast Review of our Q 4 2018 Newsletter. For those on the road or just unable to grab the time to read, our podcast type review gives you the behind the scenes insight to our thoughts, observations and deep views of the entire Newsletter.
Click Here for direct link to an electronic version (an early peek-good ole fashion paper versions are on their way to you shortly) and here for our Newsletter page
BREAK IN – Save the date for the Holiday Party
November 17th – Saturday before Thanksgiving – Dallas Athletic Club from 3-5 pm
In this hugely in depth article, first we discuss the effect of earnings eventually driving capital markets, but disconnects can occur. It can even be a good thing for Capital Markets to WAY underperform earnings, as they are this year because in brings valuations back in line.
Here is the key graph
Higher Rates, a Short Term Headwind, Eventually a Tailwind
With sustained lower rates over the last decade, memories have faded on the tugging headwinds that higher rates have – IN THE SHORT TERM – on the mandatory safety asset class of bonds.
Higher rates are a great thing as Bonds/Fixed Income Assets have a place for almost all investors due to their safety and liquidity.
Once the headwinds subside our fixed income investments will have ridden the yield curve higher and begin paying more income in the form of yield – into our pockets – Finally!
Too High of Rates Can Create Trouble
Too high of rates or an overshoot CAN create trouble … or a recession…
Our friends at JPMorgan – historically show that rate is about 5% – yea FIVE percent –
We disagree and think a lower level may now be this tipping point, due to the decade low interest rate level we have just experienced-
Current at two percent, we have a long way to go before getting too antsy
Inverted Yield Curve Update
So far to good- no inversion yet!
Financial Planning
This series of articles came out of no where and in like domino fashion, once one was done the next took form and fell into place-
App of the Quarter – Hardware
Our editor took the fancy picture out due to copyright fears, but our experience with the Firestick has been exceptional – Here are the highlights of our findings
Great Savings compared to just full service in many cases
Does not take as much internet speed as we thought
Hello and Welcome to our September 2018 Financial Planning and Capital Market Update!
If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast format as well as Video too!
Newbies – We like to articulate our thoughts and review on a Monthly basis our Financial Planning Tips, Capital Markets and current events!
This is month two of our upgraded Laptop, which means a new recording system of Audio and Video — while still working the kinks out, we are getting the hang of it – Enjoy!
September 2018 Video
Financial Planning Tip (s) –
The Emergency Fund
In our post here, a shortened version of an article in the coming Newsletter, we review all, about a much needed Emergency Fund, and the levels for certain scenarios.
Reasons to be slightly bigger-
Possible Job Change – Need to be higher on emergency funds
New Family Member- Higher is better
New Home – Expect unforeseen expenses – they always occur (Has anyone ever built or bought a home in less time and for less money than they thought? Nope, it’s in our nature)
Salary Fluctuations i.e. Commissions – Error on the higher side of that emergency fund
Others dependent on you – Business owner, large family, solo income earners, college or wedding – Higher is better
Reasons for a normal to smaller Emergency fund-
Dual Similar Incomes – Lower Emergency fund is ok
Very stable Job – Smaller side of the living expenses will
Very fixed income stability – Pensions, Social, etc.
High Deductibles – Why to Consider
In this post, we discuss the reasons for considering a Higher Deductible lifestyle –
Break In – There are always situations that a High Deductible will not work, we are just pointing out the advantages, under the correct circumstances!
Auto Insurance: One of the best ideas to consider a high deductible – take a look here at the great examples of why.
Home Owners: Another great coverage to consider a higher deductible.
Health Insurance: Once again a good one, but certain situations can easily negate the advantages of this!
Capital Market Comments – Interest Rates and Bonds
Short Term Headwinds Of Higher Rates on Bonds
This busy chart gives a great picture of the short term effects of interest rates on bond. Coming from such an extended long period of unusually low rates, we are reminding ourselves along with everyone else, this is very normal phenomenon and will correct itself with time by putting extra dollars in our pockets in the form of higher yields.
Have a Great Day – Talk to you at the end of October!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, please consult your financial advisor prior to investing!
Background
The is the vocal portion of J.K. Financial, Inc. a Dallas Texas Based Fee Only Total Wealth Financial Planning Firm. Founded by John Kvale, a Dallas Texas Fee only Financial Planner and Total Wealth Manager.
Who brought the Grinch to a usually Happy December Markets – Three Possible Items
As we have mentioned here and here, November and December are historically the best times for markets, with the latter having pole position.
While no one knows for certain, and we are watching a ton of different indicators, here are three items of note, worth reviewing.
Three Grinch items to review
Inversion Watch – 10 year treasury yield
We have spoken tons of time about the inverted yield curve and a major part of that curve as well as the inversion, is the current rate of the 10 year yield. This chart shows the recent movement of the 10 year yield moving down – this could be expectations of a slower future economy/growth OR it could be just some big money buying bonds – either way, a Grinch twinge to the capital markets.
Technical testing of markets
Oddly, even as we mention in this post the Grinch – in reality the capital market participants are taking their sweet time to test and re-test their levels – ignoring the happy months of November and December – Whatever makes you happy guys!
Is Sentiment Grinchy? – Worth Watching
With 2/3rds of GDP (Gross Domestic Product) being consumer spending, consumer confidence is one of the most important parts of the economy – No Grinch here!
Capital Markets have forecasted many more bad times than have occurred – but in so doing they have also accurately forecasted “Bad Times!” – For now, we are doing our “No Grinch” dance, but watching closely and respecting all!
Have a Great “No Grinch” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
street-cents
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Posted in Economy, General Financial Planning, Interest Rates, Investing/Financial Planning, Market Comments
Tagged 10 Year, 10 Year Treasury, Consumer Sentiment, Inverted Yield Curve, Technical Analysis