Monthly Market Insights from Bill Schiffman – September 2019

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“Dear Mr. Fantasy, play us a tune…something to make us all happy…do anything, take us out of this gloom…sing a song, play guitar, make it snappy…”

It’s hard to believe that Traffic recorded this song over 50 years ago. It was a combined 1967 effort with Stevie Winwood and Chris Wood writing the music, and drummer Jim Capaldi penning the vocals. Like many old chestnuts that I use to start my monthly missives, this one has tremendous applicability to today’s market environment.

August was a negative month for equities, but the final week of trading ameliorated some of the losses. Major averages are still nicely in the black for the year. Fixed income and gold continue to work for investors as well, and our domestic overweighting has remained a good macro call. That being said, August experienced a significant rise in day-to-day volatility as talk of a looming recession heightened. What happened and where are we heading?

To many observers, the bond market has been giving pundits a historical omen that soft times are approaching. The inverted yield curve in Treasuries (meaning short-term instruments are yielding more than long-term) has been a somewhat reliable indicator of a recession within the next 12-24 months. Keep in mind that the classic definition of a recession is negative growth for only two quarters. Yesterday’s revised second quarter GDP reading was 2.0%, so we’re a long way from a current recession. Let’s also remember that the inverted yield in prior years (2007, for example) occurred when rates were much higher than today’s levels. As of this writing, the 10 year Treasury yield is roughly 1.5%, and the 30 year is slightly below 2%. The dividends paid on S&P 500 stocks are similar, and their income is tax-advantaged. Low rates are positive for the housing industry, consumers, and corporations that are either expanding or buying back shares. I’m frankly not buying this harbinger yet, but it has made many folks uneasy.

The trade war with China shared the financial headlines with the inverted yield curve. The on again, off again, ratchet up and down, increase tariffs or delay cycle is dizzying. Wall Street has been reacting with swiftness on nearly every tweet from President Trump. It’s honestly at the point where the uncertainty makes one’s head spin. Trump’s direct order for American companies to leave China stretched credulity even given his loose relationship with the truth. It’s difficult to know where and when this battle will end, and so volatility seems assured.

Other newsworthy topics for August included North Korea, the relations between Iran/Saudi Arabia and India/Pakistan, the G7 conference, mass shootings in El Paso and Dayton, fires in Brazil, protests in Hong Kong, and Hurricane Dorian. Each one of these subjects can induce angst and angina pain on its own, and the combination isn’t conducive to investor confidence.

The counter-balance to this state of world affairs is the fact that the American consumer continues to be alive and well. This quarter’s retail earnings, other than mall-oriented big box companies, were surprisingly strong in virtually all sectors. Folks are traveling in record numbers, and restaurants are thriving, even on week nights. While Europe struggles with moribund or negative GDP prints, the US keeps chugging along. If corporate earnings can be maintained, equities seem a logical choice, particularly given the low interest rate environment.

I remain cautiously optimistic for the next several months due to one overriding factor – President Trump is obsessed with getting re-elected in 2020. While installing conservative judges and deregulating many industries has curried favor with his base, the string of broken campaign promises is a long one, regardless of the spin. Not one mile of the border wall has been built (as reported by Shepard Smith of Fox), and Mexico hasn’t paid a dime of repairs for the portions that have been repaired. The Washington swamp hasn’t been drained. Over a dozen Republican congressmen have decided not to run for another term. Racial animus and gun violence have become part of our daily lives.

My point here is that the wealth effect of a rising stock market during Trump’s first two-thirds of his term is arguably his strongest mandate for re-election. My supposition is that if we are in a recession next year at this time, with the markets down double digits from their present levels, he’ll lose support. Of course, we don’t know who his opponent will be, and that will have a large bearing on the 2020 outcome. Regardless of his foe, the performance of stocks will be important during the cycle. Therefore, I believe that he will do anything within his power to prop things up. He’s already floated the idea of a payroll tax holiday. He’s also relentlessly pressuring his Federal Reserve Chair appointment, Jay Powell (called an enemy of the American people equal to China’s President last week), to lower interest rates further. Trump could advocate additional monetary easing despite the negative effect that it would have on long-term US debt stability. I’m not so sanguine about post-election performance, but Wall Street in the President’s mind needs to do well for the next fourteen months. The artificiality or fantasy of how we get there will be immaterial.

I wish that I had a better sense of clarity, but it’s impossible right now. We’ve been receiving quite a few e-mails and phone calls asking our opinion. All I can say is to try to divorce yourself from the headlines and concentrate on what American companies are doing and how the consumer is faring. There’s a great disconnect between Wall Street and Main Street, and don’t think that it’s not intentional. Purveyors of fantasy use diversions, smokescreens, and subterfuge to create their version of (alternate) reality. It’s imperative that we as investors try to cut through the clutter so that we can make informed decisions.

RC, Kelley, Christie, and I are watching the proceedings closely, and are here to discuss your holdings with you. As always, we appreciate your continued trust and support. We look forward to hearing from you soon.

Sincerely,
Bill Schiffman

Registered Representative

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification cannot assure a profit or guarantee against a loss. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. Indices are unmanaged and do not incur fees. One cannot directly invest in an index.

Fee-Based Planning offered through W3 Wealth Advisors, LLC – a State Registered Investment Advisor – Third Party Money Management offered through ValMark Advisers, Inc. a SEC Registered Investment Advisor – Securities offered through ValMark Securities, Inc. Member FINRA, SIPC – 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431 * 1-800-765-5201 – W3 Wealth Management, LLC and W3 Wealth Advisors, LLC are separate entities from ValMark Securities, Inc. and ValMark Advisers, Inc.

Monthly Market Insights from Bill Schiffman – August 2019

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“Help me make it through the night…”

Kris Kristofferson wrote this country classic around half a century ago… the hit record performance was by Sammi Smith, although it’s been covered many times, including by the powerhouse duo of Dolly Parton and Willie Nelson.

The song reference for this month’s missive refers to Federal Reserve Chairman Jay Powell’s statements following the first interest rate cut since 2008. Wall Street totally anticipated this move in one of the most telegraphed policy decisions in recent history. Rates were lowered by ¼ point, and the Fed’s program of quantitative tightening signaled an end. Even so, immediately following comments by Chairman Powell, equities shed over 1% of their value. Why? Perhaps folks wanted a ½% slice… maybe Powell’s failure to rule out a “one and done” rate cut scenario is the reason. It simply could have been his less than dovish language. Per usual, traders have over-reacted to the news in a temporary atmosphere of massive volatility. . That being said, where do we go from here?

I wrote last month that I believed that the signals frankly didn’t warrant this cut in the first place, at least not domestically. The stock market continued to reach new highs with the Dow hitting the 27,000 level, S&P 500 exceeding the 3,000 mark, and NASDAQ eclipsing 8,000. This cycle of corporate earnings has been solid, particularly with regard to the consumer sector. Starbucks and Apple were just two of the many stocks that did famously in the discretionary spending arena. Although there’s been plenty of rhetoric, nothing has really changed on the world stage other than Boris Johnson being named UK Prime Minister. His ascendance perhaps brings Brexit closer to the table in the fall. Tensions in the Middle East have simmered, and inflation remains tame.

Why then did the Fed decide to lower rates? Even though the Fed should not be swayed by political pressure, it’s obvious that President Trump’s haranguing of Chairman Powell to ease monetary policy had an effect. The Fed may be reacting to overall world conditions that seem to be slowing in the manufacturing sector. Also, with many developed countries’ sovereign debt yielding negative rates (i.e. Germany, Japan), perhaps we need to keep pace with their race to the bottom. My feeling is that America is still by far the proverbial tallest economic midget in the room and that the easing will have little salubrious effect.

Let’s look at some facts courtesy of CNBC. At the time of the last rate cut eleven years ago, the Dow Jones Industrial Average was roughly half of its level in summer 2019. Ten-year Treasury rates were at around 5% instead of 2%. Oil often exceeded $100/barrel for crude instead of today’s less than $60 price. These are just a few metrics that show that the circumstances underlying today’s action are nowhere remotely similar to the chaotic meltdown of 2008. I’ve never been afraid to take a contrary stance, and I’m certainly not going to be so today. What if things truly go south? Cutting today means less firepower for any future problems. I simply don’t get it.

All venting aside, 2019 continues to be a good year for almost all asset classes. Equities have performed admirably thus far, with fixed income and gold being positive as well. I see the stock market as relatively fairly valued… not cheap by any means, but not expensive vis-à-vis projected future corporate earnings. The angst over monetary policy could be an excuse to take some profits off the table, but I remain constructive. It’s difficult to think otherwise when the ten-year Treasury yield is at the 2% level. There are many stocks that pay more than that rate in dividends, and companies continue to increase their payouts.

Lynne and I are taking a much-anticipated anniversary vacation to the British Isles on Friday. RC, Kelley, and Christie are on hand to answer any questions that you might have. I’ll be available via e-mail in case I’m needed… it will be nice to getaway.

Thanks as always for your continued trust and support. I’ll have a report from “across the pond” next month… take care…

Sincerely,

Bill Schiffman

Registered Representative

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification cannot assure a profit or guarantee against a loss. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. Indices are unmanaged and do not incur fees. One cannot directly invest in an index.

Fee-Based Planning offered through W3 Wealth Advisors, LLC – a State Registered Investment Advisor – Third Party Money Management offered through ValMark Advisers, Inc. a SEC Registered Investment Advisor – Securities offered through ValMark Securities, Inc. Member FINRA, SIPC – 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431 * 1-800-765-5201 – W3 Wealth Management, LLC and W3 Wealth Advisors, LLC are separate entities from ValMark Securities, Inc. and ValMark Advisers, Inc.

Monthly Market Insights from Bill Schiffman – July 2019

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“Take it to the limit…one more time…”

This month’s lyric is from one of the Eagles’ monstrous hits. It’s got an interesting story behind it since it resulted in bassist Randy Meisner being replaced by Poco’s Timothy B. Schmitt. As you might recall, the end of the song has some incredibly high notes to sing as part of the overall harmonic structure. It was so difficult to do in concert that Meisner began to refuse to play the song. He was ultimately fired…but I digress…

The real reason for this walk down memory lane is that the markets emulated the song last month. The Dow Jones Industrial Average had its best June since 1938. Other major averages either established or flirted with new all-time highs. Bonds did reasonably well, and gold continued its interesting positive run. The first half of 2019 has been strong for investments…will it continue through the rest of the year?

Despite the upward trajectory of equities, many pundits are citing what they believe to be the proverbial canaries in the coal mines. Here are just a few:

1.) The benchmark 10-year Treasury remains around the 2% mark. If the economy is doing so well, why isn’t there any major inflation? Why should the bond market be signaling rate cuts instead of increases?

2.) The rise in the price of gold hasn’t been seen since the beginning of the Obama administration. In 2009, many investors were of the opinion that the country would fall apart under the new President and bought gold as a hedge against disaster. What’s the perceived need for protection now?

3.) At various points this spring, the bond yield curve has become inverted, meaning that short-term yields have been higher than longer-term instruments. This phenomenon has been historically interpreted as a harbinger of recession. If a major slowdown is so imminent, why aren’t stocks declining in anticipation of that event?

4.) The trade “war” negotiations with China are set to continue, but tariffs have not been removed. The situation is still extremely fluid, and no one honestly can predict its outcome. Why should equities continue to rise in the face of this uncertainty?

5.) Iran has rather suddenly become more of a thorn in our side, if not a hot spot. Will Iran’s damaging oil tankers in the Strait of Hormuz, coupled with their shooting down an unmanned US drone, lead to a new Middle East conflict? If so, what would stocks do then?

6.) The US PMI, or Purchasing Managers Index, fell by almost five points last month to reading slightly under 50. Again, this occurrence has often been seen as a precursor to a recession. However, stocks marched onward.

One important reason for the popularity of equities speaks to low bond yields. Think about it…how many folks want to buy a 10-year Treasury that pays roughly 2% interest (taxable as ordinary income) when they can own stocks that pay higher dividends (taxed as capital gains) for their income stream? Another possible backdrop is the strength of US corporate balance sheets. The incredible amounts of cash held by companies increases book value for their stocks. New IPO’s (initial public offerings) keep rolling at a swift pace. Although some of the more high-profile issuances (Uber, Lyft) have performed badly, many others have soared. The appetite for buying these new ticker symbols seems unabated. Finally, merger and acquisition activity remain solid.

The summer months can be volatile for markets simply because the volume is lower. Headline risk can become exacerbated in the face of fewer traders working their posts. The Federal Reserve will meet again in July to decide whether an interest rate cut is necessary. Although most polls show a high likelihood of this occurring, I’m currently in the opposite camp. Rates are already incredibly low, and how much further stimulus is actually needed at this juncture? What message would a Fed lowering action signify? Might it not cause more of a lack of confidence in the US economy rather than keeping on its current course?

As usual, we’ll have to monitor things closely. RC, Kelley, and I are working hard as your advisory team to stay abreast of the news flow. As I mentioned last month, it’s more difficult to stay focused on long-term planning in the midst of daily tweet sturm und drang. We’d all like a lot more consistency from day to day, but that’s just not happening.

In the meantime, let’s hope that “One of these nights,” we don’t find ourselves in the “Hotel California,” emulating “Life in the fast lane.” Let’s hope for a slower journey that takes us to the limit one more time. As always thanks for your trust and support. We look forward to talking with you soon.

Sincerely,

Bill Schiffman

Registered Representative 

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification cannot assure a profit or guarantee against a loss. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. Indices are unmanaged and do not incur fees. One cannot directly invest in an index.

Fee-Based Planning offered through W3 Wealth Advisors, LLC – a State Registered Investment Advisor – Third Party Money Management offered through ValMark Advisers, Inc. a SEC Registered Investment Advisor – Securities offered through ValMark Securities, Inc. Member FINRA, SIPC – 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431 * 1-800-765-5201 – W3 Wealth Management, LLC and W3 Wealth Advisors, LLC are separate entities from ValMark Securities, Inc. and ValMark Advisers, Inc.

Monthly Market Insights from Bill Schiffman – May 2019

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“Sign, sign, everywhere a sign… Blockin’ out the scenery, breakin’ my mind… Do this, don’t do that, can’t you read the sign?”

The year was 1971, and the little known Canadian group Five Man Electrical Band released their one and only hit. The song was a typical anti-establishment paean, but the chorus lyrics above resonate almost a half-century later.

To be honest, the past couple of months have been extremely difficult for those of us in the investment advisory world. Markets deal with uncertainty on a regular basis. But these periods of non-clarity usually last for weeks, if not months. We’re now in a pattern of near-daily back and forth due to Twitter feeds and subsequent constant news reporting. Here are some examples from the last thirty days alone:

1.) Treasury Secretary Steven Mnuchin “hoped that the latest talks would seal a US-China trade deal” on 29 April (quote courtesy of Reuters). On 9 May, the New York Times reported that the two countries were nearing a trade deal that would lift all tariffs. On the very next day, CNBC aired an interview from Mnuchin where he stated that “no more China trade talks were planned as of now”. President Trump also tweeted that day that there was “absolutely no rush” on reaching an agreement with China. Yes, perhaps this is posturing and deal-making protocol. However, markets are on a hair trigger reacting to every bit of news, and that’s problematic for advisors seeking direction. Wall Street would doubtless react unfavorably if no deal were reached due to adverse tariff effects. On the contrary, pundits have opined that a trade deal would spur the market higher. Which way do we turn?

2.) On 4 May, two months after the Hanoi summit between President Trump and North Korean leader Kim Jung-Un, Pyongyang fired a new type of solid-fuel short range ballistic missile and tested two separate multiple rocket launch systems. Any hope that the test was a one-time affair evaporated just five days later when North Korea again launched several of the short-range missiles. On 24 May, US National Security Adviser John Bolton stated (via USA Today quote) that the above tests were a violation of United Nations Security Council resolutions. At 9:32 PM on 25 May, President Trump tweeted “North Korea fired off some small weapons, which disturbed some of my people, but not me. I have confidence that Chairman Kim will keep his promise to me, & also smiled when he called Swampman Joe Biden a low IQ individual, & worse. Perhaps that’s sending me a signal?” Signs, signs, everywhere signs.

3.) As of the middle of May, Iran is now an official threat to the United States. On 19 May, President Trump tweeted “If Iran wants to fight, that will be the official end of Iran”… “Never threaten the United States again.” In a response to Trump on the same day, Major-General Hossein Salami, commander of Iran’s Islamic Revolution Guard Corps, said that “Iran is not looking for any kind of war, but is fully prepared to defend itself.” There have been few specifics on what the actual threat is all about, but the US has committed additional troops to the region and also agreed to sell over eight billion dollars of arms to Saudi Arabia and the United Arab Emirates. Stay tuned.

4.) The rhetoric over the potential of impeachment of President Trump has been going on for a while, but May saw new escalation. During the late winter, House Speaker Nancy Pelosi said that impeaching the President was “just not worth it.” Pelosi has been rather consistent in her quotes about not favoring this tactic. However, on 22 May, she stated (quote courtesy of Fox News from an address at the Center of American Progress) “the fact is, in plain sight, in the public domain, this president is obstructing justice and he’s engaged in a cover-up. And that could be an impeachable offense.” Two days later, she suggested that Trump (quote from USA Today) “is crying out for impeachment, and that’s closer to the truth. It would be the ultimate way to portray himself as a victim.” The prospect of impeachment is perhaps the most divisive of all disputed topics.

Do this… do that… can’t you read the signs? Believe me, I’m reading a lot (hence the research in this missive from many sources). But all of my work isn’t leading me in any direction that could unlock the clouds of opacity surrounding the markets. Therefore, the natural reaction is (and should be) to do nothing as far as macro portfolio changes are concerned. The four topics listed above all have significant market effects, depending on how they are settled. I’m not smart or brave enough at this juncture to be confident how any of them will turn out. Hopefully, we’ll be able to get some clarity soon. Hang in there.

Thanks as always for your continued trust and support. Your advisory team of Kelley, RC, and I are here to answer any questions that you might have There’s obviously a lot to discuss. I simply wish that we could give you more substantive answers.

Sincerely,

Bill Schiffman

Registered Representative 

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification cannot assure a profit or guarantee against a loss. The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. Indices are unmanaged and do not incur fees. One cannot directly invest in an index.

Fee-Based Planning offered through W3 Wealth Advisors, LLC – a State Registered Investment Advisor – Third Party Money Management offered through ValMark Advisers, Inc. a SEC Registered Investment Advisor – Securities offered through ValMark Securities, Inc. Member FINRA, SIPC – 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431 * 1-800-765-5201 – W3 Wealth Management, LLC and W3 Wealth Advisors, LLC are separate entities from ValMark Securities, Inc. and ValMark Advisers, Inc.