Monday Morning Quarter-Buck 12-24-2018 - Market Uncertainty by Amy Irvine

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“I have a strange combination of fearlessness and massive insecurity.” - Penny Marshall

I’ve always been a big fan of Penny Marshall’s, not only because she produced great work, but because she was a woman who marched to her own drum, but was respectful in the way she did it.  She was a role model to other women who worked in male-dominated professions, yet she was inclusive. She was a gift on this plant and I wanted to take a moment to recognize her passing on December 17, 2018, and to the disease that took her: Diabetes.  You may be asking why I am pointing this out, and the answer is two-fold:

  1. I’m truly saddened by her passing, as I mentioned, I looked at her as a role model, and

  2. We will be focusing on health a bit more in 2019.  Not just financial health, but physical health as well.  Diabetes is one of the most expensive health-related conditions that exists.  According to the Center for Disease Control and Prevention, the “total estimated cost of diagnosed diabetes in 2017 was $327 Billion.”  These costs are “2.3 times higher than expected costs” of non-diabetes.  Being healthy might be an expensive investment, but the costs of being unhealthy are even greater.

Speaking of healthy living, as I was researching for this blog, I came across a quiz offered by the University of Rochester Medical Center called, “What Do You Know About Stress.”  It showed up in my feed at the very top, could Google be telling me something?   Yes, the end of the year and holiday’s always seem to add some level of stress to my plate as I’m trying to complete some unmovable deadlines, while also trying to enjoy some time off knowing that tax season is just around the corner.   I’ll often ask people, “what keeps you up at night.” The answer depends on what is going on in their lives, and I’m sure if I asked that question right now, it might be the overall stock market performance that has you concerned.

We have a lot going on here in the US that, in my opinion, is causing enormous volatility.  Remember the markets don’t particularly like uncertainty, which is exactly what is going on.  The S&P 500 is down 9.60% YTD as of Friday, the Dow is down 9.20% YTD as of Friday, and the Aggregate Bond market is down 2.80% as of Friday.  This means even the most conservative (in terms of volatility) portfolios are down YTD. What has caused this? In my opinion, these three things are at the top of the list (although there are many more influences):

  • Rising interest rates do affect current bond positions.  When interest rates rise, bond prices fall, but if you hold the bond to maturity, you get your interest and face value.  So for example, if you are mid-way through holding a 5-year - $10,000 Corporate Bond, you might see the price of that bond be less than $10,000; but if hold that bond until maturity, you will get the $10,000, plus the interest in between.  The current value of the bond is showing you what it would be if you sold it today. Over the weekend Treasury Secretary Mnuchin held calls with the CEO’s of top banks to discuss the “market turmoil.” His conclusion was “The banks all confirmed ample liquidity is available for lending to consumer and business markets.  We continue to see strong economic growth in the US economy with robust activity from consumers and business”

  • Tariffs.  This is not meant to be a political statement.  I don’t believe any country should have tariffs, but they do exist and the uncertainty of where they are going is certainly causing fear on Wall Street.  One of my favorite quotes by Warren Buffett talks about market corrections creating opportunity, “So smile when you read a headline that says ‘Investors lose as market falls.’ Edit it in your mind to ‘Disinvestors lose as market falls—but investors gain.’ Though writers often forget this truism, there is a buyer for every seller and what hurts one necessarily helps the other.”  I bring that up because although we are not officially in market correction territory, it certainly is close and it feels that way.

  • Government confusion.  Yes, I call it confusion.  Again, I’m not trying to create a political statement, but when 400,000 individuals in the United States are wondering when their next paycheck might come (even if they get back pay), that creates enormous fear and uncertainty and it looks like the shutdown will continue until at least Thursday.

We continue to analyze this data and, as I mentioned last week, we are making small adjustments to the portfolio to potentially capture some capital losses.  

We will certainly be talking to you about our 2019 outlook in the first quarter meetings and welcome any questions you might have about how this affects your long-term goals.