Nine Characteristics of Successful Entrepreneurs

Have you ever thought about striking out on your own? After all, being your own boss can be an exciting prospect. However, owning a business isn’t for everyone. To be a successful entrepreneur, you must have — or develop — certain personality traits. Here are nine characteristics you should ideally possess to start and run your own business:

1. Motivation

Entrepreneurs are enthusiastic, optimistic and future-oriented. They believe they’ll be successful and are willing to risk their resources in pursuit of profit. They have high energy levels and are sometimes impatient. They are always thinking about their business and how to increase their market share. Are you self-motivated enough to do this, and can you stay motivated for extended periods of time? Can you bounce back in the face of challenges?

2. Creativity and Persuasiveness

Successful entrepreneurs have the creative capacity to recognize and pursue opportunities. They possess strong selling skills and are both persuasive and persistent. Are you willing to promote your business tirelessly and look for new ways to get the word out about your product or service?

3. Versatility 

Company workers can usually rely on a staff or colleagues to provide service or support. As an entrepreneur, you’ll typically start out as a “solopreneur,” meaning you will be on your own for a while. You may not have the luxury of hiring a support staff initially. Therefore, you will end up wearing several different hats, including secretary, bookkeeper and so on. You need to be mentally prepared to take on all these tasks at the beginning. Can you do that?

4. Superb Business Skills 

Entrepreneurs are naturally capable of setting up the internal systems, procedures and processes necessary to operate a business. They are focused on cash flow, sales and revenue at all times. Successful entrepreneurs rely on their business skills, know-how and contacts. Evaluate your current talents and professional network. Will your skills, contacts and experience readily transfer to the business idea you want to pursue?

5. Risk Tolerance

Launching any entrepreneurial venture is risky. Are you willing to assume that risk? You can reduce your risk by thoroughly researching your business concept, industry and market. You can also test your concept on a small scale. Can you get a letter of intent from prospective customers to purchase? If so, do you think customers would actually go through with their transaction?

6. Drive 

As an entrepreneur, you are in the driver’s seat, so you must be proactive in your approaches to everything. Are you a doer — someone willing to take the reins — or would you rather someone else do things for you?

7. Vision

One of your responsibilities as founder and head of your company is deciding where your business should go. That requires vision. Without it, your boat will be lost at sea. Are you the type of person who looks ahead and can see the big picture?

8. Flexibility and Open-Mindedness

While entrepreneurs need a steadfast vision and direction, they will face a lot of unknowns. You will need to be ready to tweak any initial plans and strategies. New and better ways of doing things may come along as well. Can you be open-minded and flexible in the face of change?

9. Decisiveness

As an entrepreneur, you won’t have room for procrastination or indecision. Not only will these traits stall progress, but they can also cause you to miss crucial opportunities that could move you toward success. Can you make decisions quickly and seize the moment?

 

 

 

Written By: Ruchira Agrawal
Source: Monster

7 Personal Finance Tips From Warren Buffett

Warren Buffett is generally considered to be the best long-term investor of all time, so it’s no wonder many people like to listen closely to Buffett’s words of wisdom, in order to apply them to their own lives. With that in mind, here are seven of the best personal finance lessons I’ve learned from Warren Buffett over the years.

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1. “Someone’s sitting in the shade today because someone planted a tree a long time ago”

The lesson here is to be a forward thinker when it comes to personal finance, whether you’re talking about investing, saving, or spending. When you’re deciding whether to put some more money aside for emergencies, think of a financial emergency actually happening and how much easier your life will be if you have enough money set aside.

Similarly, few people get rich quick by investing, and most people who try end up going broke. The most certain path to wealth (and the one Buffett took) is to build your portfolio one step at a time, and keep your focus on the long run.

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2. “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years”

In addition to this, one of my all-time favorite Warren Buffett quotes is “our favorite holding period is forever,” which is also one of the most misunderstood things he says. The point isn’t that Buffett only invests in stocks he’s going to buy and forget about — after all, Buffett’s company Berkshire Hathaway sells stocks regularly, and for a variety of reasons. Rather, what Buffett is saying is to invest in stable, established businesses that have durable competitive advantages. That is, approach your investments with the long term in mind, but keep an eye on them to make sure your original reasons for buying still apply.

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3. “Price is what you pay; value is what you get”

When you’re buying an investment (or anything else for that matter), the price you pay and the value you receive are often two very different things. In other words, you should buy a stock if you believe its share price is less than the intrinsic value of the business — not simply because you think the price is low.

For example, if a market correction hit tomorrow and a certain stock were to fall by 10% along with the overall market, would the business inherently be worth 10% less than it is today? Probably not. Similarly, if a stock rose rapidly, it wouldn’t necessarily mean that the value of the underlying business had risen as well. Be sure you consider value and price separately when making investing decisions.

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4. “Cash … is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent”

One of the reasons Berkshire Hathaway not only survives recessions and crashes, but tends to come out of them even better than it went in, is that Warren Buffett understands the value of keeping an “emergency fund.” In fact, when the market was crashing in 2008, Berkshire had enough cash on hand to make several lucrative investments, such as its purchase of Goldman Sachs warrants.

Granted, Berkshire Hathaway’s rainy-day fund is probably a bit bigger than yours; Buffett insists on keeping a minimum of $20 billion in cash at all times, and the current total is around $85 billion. However, the same applies to your own financial health. If you have a decent stockpile of cash on the sidelines, you’ll be much better equipped to deal with whatever financial challenges and opportunities life throws at you.

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5. “Risk comes from not knowing what you’re doing”

In Buffett’s mind, one of the best investments you can make is in yourself and the knowledge you have. This is why Buffett spends hours of every day reading, and has done so for most of his life. The better educated you are on a topic, whether it’s investing or anything else, the better equipped you’ll be to make wise decisions and avoid unnecessary risks. As Buffett’s partner Charlie Munger has advised: “Go to bed smarter than when you woke up.”

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6. Most people should avoid individual stocks

This may seem like strange advice coming from Warren Buffett, since he’s widely regarded as one of the best stock-pickers of all time.

However, Buffett has said on several occasions that the best investment for most people is a basic, low-cost S&P 500 index fund, like the one he is using in a bet to outperform a basket of hedge funds. The idea is that investing in the S&P 500 is simply a bet on American business as a whole, which is almost certain to be a winner over time.

To be clear, Buffett isn’t against buying individual stocks if you have the time, knowledge, and desire to do it right. He’s said that if you have six to eight hours per week to dedicate to investing, individual stocks can be a smart idea. If not, you should probably stick with low-cost index funds.

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7. Remember to give back

Warren Buffett is a co-founder of and participant in The Giving Pledge, which encourages billionaires to give their fortunes away. Buffett plans to give virtually all of his money to charity, and since he signed the pledge, he has given away billions of dollars’ worth of his Berkshire shares to benefit various charitable organizations.

Buffett once said, “If you’re in the luckiest one percent of humanity, you owe it to the rest of humanity to think about the other 99 percent.” And even if you’re not a member of the 1%, it’s still important to find ways to give back.

 

 

 

Written By: Matthew Frankel
Source: The Motley Fool

Market Update: May 15, 2017

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  • Overnight in Asia most indexes were up fractionally while Japan pulled back slightly. G-7 discussions focused on protectionist threats, which weighed on sentiment. North Korea also fired a new missile over the weekend, adding to tensions on the peninsula.
  • WTI crude oil prices are up ~3.0%, to $49.25/barrel, after energy ministers from Saudi Arabia and Russia agreed that extension to oil production cuts for an additional nine months, through March 2018, is needed.
  • European markets were mixed on either side of flat. Investors were positive on Christian Democrats state victory supporting Merkel’s hold on power, while oil move was also welcomed.
  • U.S. markets are moving higher, boosted by news on potential oil production cuts. Meanwhile, concerns over cyberattacks and Trump/Comey drama may dampen enthusiasm as trading progresses.

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Key Insights

  • The economy remains on track for Q2 gross domestic product (GDP) growth of 2.0% to 2.5% despite mixed inflation readings and retail sales below forecast.
  • The Consumer Price Index (CPI) rose +0.2% month over month and up from the drop of -0.3% in March, however both year over year CPI (+2.2%) and year over year core CPI (+1.9%) were below expectations, triggering the rally in safe havens last Friday.
  • Retail sales (+0.4%) were also below expectations, but up from the prior month. When considering the improvement in consumer sentiment, it is important to remember that this data point (retail sales) and the performance of retail stocks, should not be viewed as an indictment of the U.S. consumer. Rather than a changing consumer, it is a change in consumer buying habits, which is combining to alter not only retail sales figures, but also pricing measures. Consumers are spending: 1) more online, 2) on experiences over goods, and 3) comparison shopping using mobile technology. Consequently, it is very difficult for the department store model to continue charging premium, retail prices.
  • Considering the unemployment rate of 4.4%, wage growth of +2.5% year over year, riding confidence and delayed tax refunds, the near-term (Q2) and longer-term (2017) GDP trajectory appears favorable. Clarity on tax reform could take these numbers even higher.

Macro Notes

  • Excellent earnings season but bar will soon be raised. First quarter earnings season has been excellent by almost any measure. Results beat expectations by more than usual, the overall growth rate is very strong, and guidance has provided above-average support for analysts’ estimates for the balance of 2017. But at the risk of raining on the earnings parade, we would note that comparisons will get tougher as we anniversary the earnings recession trough of 2016, while the risk that the corporate tax reform timetable gets pushed into 2018 has increased. Market participants generally expect fiscal policy to begin to provide an earnings boost by year end, an expectation that has become increasingly tenuous.

 

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  • Chinese industrial production growth weaker than expected. Chinese industrial production growth came in at 6.5% vs. expectations of 7% and down from period month of 7.6%. On an absolute basis, the economy is still on track to meet its growth goals, though it looks like growth may have peaked for the year at the end of the first quarter. The government continues to crack down on excess leverage in the financial system; today’s numbers are unlikely to move them off that path.
  • Japan domestic demand, and prices, rise in April. We normally think of Japan as an export oriented economy, but domestic demand increased over 4% on a year-over-year basis, with the impact felt most strongly in demand for raw materials. Producer prices rose modestly last month against declining expectations and are running at 2.1% annually.
  • Bank of Japan. Just like the Federal Reserve (Fed) and the European Central Bank (ECB), the Bank of Japan (BOJ) is under some public pressure to outline how it intends to unwind both its zero-interest rate policy and the massive expansion of its balance sheet to 93% of the country’s GDP. Recent statements from BOJ Governor Kuroda suggests such policy announcements may be coming. The more good news that comes out of the Japanese economy, the more pressure the BOJ is under.
  • Win streak snapped, but lack of volatility remains. The S&P 500 snapped its 3-week win streak last week, with a modest 0.3% drop. One thing continued though and that was the incredibly small daily ranges and lack of overall volatility. On the week, the S&P 500 traded in less than a one-percent range (from high to low) for the second consecutive week ( only the third time since 1995). Additionally, the intraday range on Friday was 0.22% – the smallest daily range on a full day of trading in nearly three years.
  • Checking in on small caps. The lack of volatility isn’t just in the blue chips, as the Russell 2000 has traded in a range of only 6.8% over the past 20 weeks. That is the tightest 20-week range since at least 1990. After a big jump in the fourth-quarter, small caps have lagged large caps this year, as they continue to consolidate the late 2016 gains.

MonitoringWeek_header

Tuesday

  • Italy: GDP (Q1)
  • UK: CPI & PPI (Apr)
  • Eurozone: GDP (Q1)

Wednesday

  • Russia: GDP (Q1)
  • Japan: GDP (Q1)

Thursday

  • LEI (Apr)
  • ECB: Draghi

 

 

 

 

 

Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

How To Avoid A 401(k) Meltdown If The Trump Rally Fizzles

Millions of Americans are asking the wrong questions when it comes to their retirement plans. It’s not “how much should I invest now?” or “is the market safe?” You should invest as much as you can in every kind of market.

So forget about the question of whether the “Trump rally” is over, or taking a pause. If that’s your concern, you’re focused on the wrong thing.

Despite this reality, far too many investors are trying to find the right fund manager who can somehow predict and navigate the rocky seas the market will toss up. In rare cases, some managers get lucky and get in and out at the right time. But most don’t have this ability.

Most of us want to believe that professional money managers know just when to get in and out of stocks. We put a lot of faith in them — and mis-spend some $2 trillion in fees hoping that they’ll be right and protect our money.

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The numbers don’t lie, however. Most managers can’t do better than passive market averages and rarely outperform after you subtract their fees. So if you’re placing your trust in active management, you’re headed for a meltdown sooner or later.

A recent study by Jeff Ptak at Morningstar shows the folly of active management for most investors.

Ptak looked a the relationship between what actively managed funds return to the fees they charge for management. In most cases, expenses will cancel out most significant gains.

“Fees haven’t fallen that steeply, and, as a result more than two-thirds of U.S. stock funds levy annual expenses that would wipe out their estimated future pre-fee excess returns.”

What this means is that active managers who time the market aren’t likely to outperform passive baskets of stocks. When you subtract their fees, you’re not coming out ahead.

Fees take an even bigger bite when overall market returns are lower. If stocks return less than double digits, you’re going to feel the pain even more.

Ptak is blunt in his conclusion: “Many active stock funds are too expensive to succeed. The exceptions are small-cap funds, where it appears fees are still below estimated pre-fee excess returns.”

What can you do to avoid the meltdown of overpriced, actively managed funds? It’s a pretty simple process.

1) Find the lowest-cost index funds to cover U.S. and global stocks and bonds. Expense ratios shouldn’t be more than 0.20% annually (as opposed to 1% or more for active funds).

2) If you still want active funds in your portfolio, they should be highly-rated managers who invest in smaller companies.

3) Make sure that the “active” part of your portfolio is no more than 30% of your total holdings. While this is an arbitrary percentage, it will provide some buffer against market timing decisions.

You should also avoid the error of picking funds based on their past performance, which can never be guaranteed. So, instead of asking how they performed, you should ask “how many securities can they hold for the lowest-possible cost.”

 

Market Update: April 24, 2017

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  • U.S. up, Europe surging in wake of French vote. U.S. equities are tracking global markets higher this morning following yesterday’s first round of the French presidential elections in which Emmanuel Macron and Marine Le Pen finished in the top spots, triggering a run-off vote set for May 7. Friday’s session concluded with the major indexes posting modest losses ahead of the vote, as the S&P 500 (-0.3%) was led lower by the telecom (-1.6%) and financials (-0.9%) sectors, with only utilities (+0.5%) and industrials (+0.1%) finishing positive. Overseas, Asian indexes reacted positively to the French election as the Nikkei (+1.4%) and Hang Seng (+0.4%) gapped higher; the notable exception was the Shanghai Composite (-1.4%), which fell amidst a government crackdown on leverage. European indexes are spiking as the STOXX 600 (+1.8%) benefits from investors betting on the pro-E.U. candidate Macron; Frances’s CAC is up more than 4% to its highest level in nine years. Finally, the yield on the 10-year Treasury has jumped to 2.30%, WTI crude oil (-0.5%) is just below $50/barrel, and COMEX gold ($1271/oz.) has dropped 1.4%.

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  • Solid start to Q1 earnings season. With 95 S&P 500 companies having reported, Thomson-tracked S&P 500 earnings for first quarter 2017 point to an 11.2% year-over-year increase, compared with consensus estimates of +10.2% as of quarter end on April 1, 2017. The early upside has been driven largely by financials, which are tracking to a 19.0% year-over-year increase, more than 4% above quarter-end estimates. Industrials have also surprised to the upside thus far. Conversely, since earnings season began, first quarter earnings estimates have been cut for the consumer discretionary, energy, and telecom sectors, though it is probably too early to call any of these sectors “earnings season losers.” This week (4/24/17-4/28/17) is the busiest week of earnings season with 194 S&P 500 companies slated to report. All of the widely-held sectors are well represented on the earnings calendar, led by industrials.

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  • Leading indicators rise for seventh consecutive month. The Conference Board’s Leading Economic Index (LEI) pushed 0.4% higher in March, ahead of expectations but decelerating from a downwardly revised 0.5% increase in February. Eight of 10 indicators increased in March, led by contributions from the yield curve and strong new manufacturing orders survey data. The LEI has climbed 3.5% year over year, a rate that has historically been associated with low odds of a recession occurring within the next year.
  • The latest Beige Book suggests a steady economy with modest wage pressure. The Federal Reserve (Fed) released its April Beige Book last week ahead of the May 2-3, 2017 Federal Open Market Committee (FOMC) meeting. Our Beige Book Barometer (strong words minus weak words) rose to +77 in April, its highest level since +84 in January 2016, indicating continued steady economic growth in early 2017 with some signs of potential acceleration. Words related to wage pressure have held steady over the last six months at levels above the 2015-2016 average, indicating the appearance of modest but still manageable wage pressure.
  • Important period for European markets. This week, we examine the importance of European market earnings, particularly in important sectors like energy and banking. Expectations remain high for earnings growth throughout 2017, which has kept us cautious on investing in European markets. Political risks also remain, but seem to be abating as we get past the first round of French Presidential elections.

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Monday

  • Germany: Ifo (Apr)

Tuesday

  • New Home Sales (Mar)

Wednesday

  • BOJ Outlook Report & Monetary Policy Statement
  • BOJ Interest Rate Decision

Thursday

  • Durable Goods Orders (Mar)
  • Eurozone: Consumer Confidence (Apr)
  • ECB Interest Rate Decision
  • Japan: CPI (Mar)

Friday

  • GDP (Q1)
  • UK: GDP (Q1)
  • Eurozone: CPI (Apr)

Saturday

  • EU Leaders Summit
  • China: Mfg. & Non-Mfg. PMI (Apr)

 

 

 

 

 

 

Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

Market Update: April 17, 2017

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  • Stocks tick higher to begin week. U.S. equities are slightly higher this morning as earnings season ramps up this week with 63 S&P 500 components set to report. Markets moved lower the final three sessions of the last week’s shortened trading week, concluding with a 0.7% loss for the S&P 500 on Thursday which was led lower by energy (-1.9%) and financials (-1.7%). Asian indexes closed mixed overnight, with the Nikkei gaining 0.1%, while China’s Shanghai Composite slipped 0.7% as a request from the country’s top securities regulator to tighten controls overshadowed an upside surprise to Gross Domestic Product (GDP); European markets are closed for Easter Monday. Meanwhile COMEX gold ($1291/oz.) is near flat, WTI crude oil ($53.03/barrel) is dropping 0.3%, and the yield on the 10-year Note little changed at 2.23%.

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  • First big earnings week on tap. This week 16% of the S&P 500’s market cap will report first quarter 2017 results, highlighted by the financials and industrials sectors. Banks got the season off to a good start late last week, pushing the financials earnings growth rate to near 18% from an estimated 15.6% over the past week. Overall, Thomson-tracked consensus for S&P 500 earnings is calling for a 10.4% year-over-year increase in the quarter; a strong 76% earnings beat rate thus far has lifted overall earnings growth by 0.2% (though just 6% of the S&P 500’s market cap reported last week). Look for our earnings dashboard here on April 24.
  • Consumer prices fell in March. The consumer price index (CPI) fell 0.3% month over month in March, below consensus expectations for a flat reading. Core prices, excluding food and energy, slipped 0.1% month over month, the first sequential decline since January of 2010 and well below consensus estimates of +0.2%. The drop pushed the year-over-year changes in headline and core prices to 2.4% (down from 2.7% in February) and 2.0% (down from 2.2% in February), respectively. The drop in prices was broad based, driven by a combination of wireless phone services, apparel, autos, and housing. We continue to expect two more rate hikes from the Federal Reserve (Fed) in 2017, but the soft data in March may cause markets to at least partially discount the probability of a June hike, which is currently about a coin flip based on fed funds futures markets.
  • Retail sales fell for the second straight month. Following a downward revision to February, retail sales fell for the second straight month in March, slipping 0.2% (vs. consensus of -0.1%), though sales increased by a respectable 5.2% on a year-over-year basis. Core retail sales (excluding autos, gasoline, building materials and food services), rose 0.5% month over month, above expectations, after a downwardly revised 0.2% decline in February. Consumer spending clearly slowed in the first quarter after a strong finish to 2016, but weather, delayed tax refunds, and seasonal quirks in first quarter data in recent years suggest a rebound in the second quarter is likely. Still, first quarter gross domestic product, based on available data to date, is tracking to only about 1%.
  • Upside surprise to Chinese GDP. The Chinese government released its official Q1 GDP report overnight, up 6.9%, better than expectations which generally were in the 6.5%-6.7% range. Economic indicators were up across the board, including growth in Fixed Asset Investment (infrastructure and real estate spending), which is often heavily influenced by government policy, and retail sales. Consumer spending is key to the Chinese government, as it is trying to manage its economy away from infrastructure and heavy industry and toward consumer spending and the service sector.
  • Though many are skeptical regarding Chinese GDP growth figures, what may matter most is how China responds to them. Because the government is signaling that the economic situation is strong, it gives it room to be more aggressive on important issues, primarily the debt problem. Chinese shares were down slightly despite the positive data. Why? Perhaps because of the government’s signal that policy will shift away from supporting the economy (which officially no longer needs the support) and toward dealing with these longer term imbalances.
  • Checking in on technicals, sentiment, and uncertainty. This week we will take a look at market technicals, sentiment, and the ever increasing uncertainty. The good news is market breadth remains strong and globally we are seeing many major markets in uptrends as well. Still, sentiment is a mixed picture and the level of uncertainty remains high. All of this, coupled with the historically low level of market volatility during the first-quarter, makes the potential for higher volatility very likely.

MonitoringWeek_header

Monday

  • BOJ: Kuroda Speaks to Trust Companies Association

Wednesday

  • Beige Book
  • Eurozone: Trade Balance (Feb)
  • Eurozone: CPI (Mar)

Thursday

  • Initial Jobless Claims (Apr 15)
  • Conference Board US Leading Index (Mar)
  • Eurozone: Consumer Confidence (Apr)

Friday

  • Existing Home Sales (Mar)
  • Eurozone: Markit Mfg. & Services PMI (Apr)
  • CAD: CPI (Mar)
  • ECB: Current Account (Feb)

 

 

 

 

 

 

Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

Market Update: April 10, 2017

MarketUpdate_header

  • Stocks move higher to start week. U.S. equities are modestly higher this morning as investors look ahead to the start of first quarter earnings season, with several tier one banks set to report later this week. This after major indexes shook off a lackluster jobs report and pushed higher through midday, only to give back gains late in the session; the S&P 500 fell 0.1%. The telecom (+0.2%) and healthcare (+0.2%) sectors clung to modest gains, while financials (-0.3%) and energy (-0.4%) stocks were among the days’ laggards. Overseas, investors are focusing on political turmoil stemming from Syrian incidents amid light economic data; Asian markets were mixed overnight, with the Nikkei (+0.7%) advancing, and the Shanghai Composite (-0.5%) moving lower; while European indexes are near flat amid range-bound trading. Elsewhere, WTI crude oil ($52.80/barrel) continues to climb on regional turmoil in the middle east, COMEX gold ($1250/oz.) is lower, and Treasury yields are down slightly to 2.37% on the 10-year.

MacroView_header

  • Over the last month, the LPL Financial Current Conditions Index (CCI) fell 20 points to 235. The CCI remains in the middle of the range it has held since 2010. Falling shipping traffic and an increase in initial jobless claims off of near 40-year lows were the main detractors from the CCI in the last month, while fed fund rate expectations and credit spreads were the main positive contributors.
  • Inflation and highlights from this week’s economic calendar. Despite Friday’s holiday, retail sales and the consumer price index (CPI) will be reported on that day (producer prices come Thursday) and will highlight what is otherwise a quiet week of data in the U.S. Two reports that deserve some attention, however, are National Federation of Independent Business (NFIB) Small Business Optimism and JOLTS (Job Openings and Labor Turnover) which will provide some insights into the policy-driven rise in business confidence and the job market, where Friday’s weak payroll employment report raised some concerns. Overseas, we get Chinese and Japanese trade data and G7 Finance Ministers will meet, while geopolitical risk will remain in focus following last week’s military strike in Syria.
  • S&P 500 poised for double-digit earnings gain. The S&P 500 is likely to produce double-digit year-over-year earnings growth for the first quarter (Thomson-tracked consensus is +10.1%) as earnings season gets underway this week. Earnings growth would reach 12-14%, the best since 2011, should companies beat estimates by the average 4.1% seen over the last five years according to FactSet. Last year’s first quarter marked the trough of the earnings recession, setting up an easy comparison, though we have several other reasons to be optimistic. Growth is expected to be powered by energy’s rebound from the oil downturn that battered the sector early last year while solid macro data in recent months is also supportive.
  • Fed balance sheet. Minutes from the recent Federal Reserve (Fed) meeting, released last Wednesday, signaled that the Fed intends to reduce its sizable $4.2 trillion balance sheet. We’ll analyze the options available to the Fed to accomplish a reduction of this size. In addition to how the balance sheet was built, we look at the structure of the assets within the portfolio for clues as to how the normalization may impact markets.
  • Continued strong breadth. The New York Stock Exchange (NYSE) Composite Advance/Decline (A/D) line broke out to new highs last week. This is one of our favorite technical indicators, as it shows how many stocks are advancing versus declining at any given time. In other words, it measures overall market breadth. To see new highs occur suggests there is a good deal of investor participation and the overall equity rally could continue to have legs. Also, the NYSE A/D line broke out to new highs one year ago this week, well ahead of the eventual S&P 500 Index’s (SPX) new highs in July 2016.

MonitoringWeek_header

Tuesday

  • Eurozone: Industrial Production (Feb)

Wednesday

  • Bank of Canada Rate Decision & Monetary Policy Report

Thursday

  • Initial Jobless Claims (Apr 1)

Friday

  • Banks Open, Markets Closed
  • CPI (Mar)
  • Retail Sales (Mar)

 

 

 

 

 

Important Disclosures: Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. 

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

 

Market Update: March 20, 2017

MarketUpdate_header

  • Stocks little changed following G20. Major indexes are near flat this morning as stocks search for direction amid little economic data and traders assess the impact of the weekend’s G20 summit, which ended with a whimper. This follows a quiet session on Friday in which the heavily-weighted financials (-1.1%) sector kept the S&P 500 (-0.1%) underwater. Overseas, Asian markets were mixed overnight with the Shanghai Composite (+0.4%) and Hang Seng (+0.8%) moving higher while stocks in India and South Korea finished lower; the Nikkei was closed for a holiday. Europe is mostly lower midday with the STOXX 600 down 0.2%, though off session lows. Elsewhere, WTI crude oil is retracing Friday’s gains, COMEX gold is ticking higher as the dollar continues to weaken, and 10-year Treasury yields are unchanged at 2.50%.

MacroView_header

  • Housing data, Fed speakers highlight the week ahead. This week, we get some key data points on housing, with existing home sales on Wednesday and new home sales on Friday. We also get data on manufacturing with both durable goods orders and Markit’s Manufacturing Purchasing Managers’ Index (PMI) on Friday. Nine Fed members, including four voting members (Yellen, Dudley, Evans, and Kashkari) are lined up to speak this week, providing an opportunity for further insight on last week’s rate hike.
  • Industrial production flat, but manufacturing improving. Industrial production was flat in February, missing expectations of 0.2% growth, although a 0.2% upward revision to January provided an offset. Utility production held the overall industrial production number down after another warm month, but manufacturing production rose 0.5%, topping expectations of 0.4%, a meaningful beat given it came on top of a 0.3% upward revision to January’s data. The gains provide further evidence of a strengthening rebound in manufacturing already being signaled by the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) and several regional manufacturing indexes.
  • Leading indicators remain strong. The Conference Board’s Leading Economic Index (LEI) rose 0.6% in February, topping consensus expectations and matching similarly strong gains in December and January. The largest positive contributor for the month was the ISM new orders index, reflecting recent gains in manufacturing. The index accelerated to a 3.1% gain year over year, its highest growth rate since August 2015. The LEI continues to point to a low chance of a recession in the next year.
  • In the spirit of March Madness, we have compiled our “Sweet 16” for the stock market. Specifically, we have identified 16 keys-many of them policy related-for stocks for the rest of 2017 and assessed their implications for the stock market. While the path for several policy-related areas is uncertain, we still expect a solid year for stocks in 2017-potentially even slightly above our S&P 500 target of mid-single-digit gains[1] depending on the exact policy path. Look for a deeper dive into four of these 16 keys to the market in our “Final Four” next week.
  • Big bounce for small caps. The Russell 2000 (RUT) was up 1.9% last week, which was the largest weekly gain of the year for small caps and the best weekly bounce since early December. This is a nice change, as small caps have lagged most of 2017 after an 8.4% gain during the fourth quarter of last year. In fact, year to date, the RUT is up only 2.5% versus 6.2% for the S&P 500. Many have blamed the recent underperformance on investor skepticism on how quickly tax cuts and infrastructure spending will be implemented. At the same time, some weakness after the huge fourth quarter rally is perfectly normal.

 

MonitoringWeek_header

Monday

  • Evans (Dove)

Tuesday

  • Dudley (Dove)

Wednesday

  • Existing Homes Sales (Feb)

Thursday

  • New Home Sales (Feb)
  • Yellen (Dove)
  • Kashkari (Dove)
  • Kaplan (Hawk)
  • Eurozone: Consumer Confidence (Mar)
  • Japan: Nikkei Mfg. PMI (Mar)

Friday

  • Durable Goods Orders and Shipments (Feb)
  • Markit Mfg. PMI (Mar)
  • Eurozone: Markit PMI (Mar)

Saturday

  • China: PBOC’s Zhou Speech

 

 

 

[1] We expect mid-single-digit returns for the S&P 500 in 2017 consistent with historical mid-to-late economic cycle performance. We expect S&P 500 gains to be driven by: 1) a pickup in U.S. economic growth partially due to fiscal stimulus; 2) mid- to high-single-digit earnings gains as corporate America emerges from its year-long earnings recession; 3) an expansion in bank lending; and 4) a stable price-to-earnings ratio (PE) of 18 – 19.

Important Disclosures: Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

 

Monthly Market Insights | December 2016

U.S. Markets

A surprise election outcome ignited an unexpected rally that pushed stocks into record territory, as investors anticipated faster economic growth, lower corporate taxes and increased infrastructure spending under the newly elected president.

For the month, the Dow Jones Industrial Average jumped 5.4 percent, the Standard & Poor’s 500 Index gained 3.4 percent, and the NASDAQ Composite rose 2.6 percent.1

Head Fake

The wave of investor selling overseas in response to the U.S. election results threatened to extend to domestic stocks, with U.S. stock futures down sharply prior to the first day of post-election trading. However, instead of dropping, stock prices jumped as investors appeared to focus more on the potential positives of a Trump presidency than its uncertainties.

quote

Along with the rally in prices came a weakening in the strong correlations among industry sectors that have existed for some time now. For example, since the election, the correlation between financial stocks and the S&P 500 Index fell to 0.59, down from 0.89 on November 7.2 (A correlation of 1.0 indicates the two are moving in perfect harmony.)

Correlation Watch

When examined more broadly, a benchmark measuring the anticipated average correlation among stocks dipped to its lowest level since 2008.3  Whether lower correlations become a more permanent feature of the markets remains a question mark.

Long-Term Trend?

Should the larger dispersion of returns among industry sectors persist, the ability of investors to separate leaders from laggards may be met with greater reward than it has been met with in the recent past. In short, a weakening in correlations potentially could mean more opportunities for active managers to outperform popular indexes.3

After posting gains for three straight weeks in November, market momentum stalled in the closing days of trading, despite news that OPEC nations reached an agreement to cut oil production.

Sector Performance

The majority of industry sectors posted strong gains, led by Financials (+12.34 percent) and Industrials (+9.16 percent). Also advancing were Consumer Discretionary (+5.77 percent), Energy (+2.10 percent), Health Care (+2.40 percent), Materials (+5.74 percent) and Technology (+1.33 percent). Meanwhile, Consumer Staples (-2.41 percent), Real Estate (-0.49 percent) and Utilities (-0.39 percent) ended lower.4

us-market-11-2016

World Markets

World markets did not participate in the stock market rally experienced in the U.S., with the MSCI-EAFE Index sliding 2.05 percent for the month.5

Some European markets struggled in November, weighed down by persistent economic weakness and growing concerns about spreading populism in the wake of Brexit and the election of Donald Trump. U.K. and Germany closed lower while France posted a slight gain.6

Markets in the Pacific Rim grappled with their own challenges, while Australia managed a slight gain on stronger commodity prices.7

World Markets 11-2016.png

Indicators

Gross Domestic Product: The economy expanded at a rate of 3.2 percent in the third quarter, up from the initial estimate of 2.9 percent. This represents the strongest growth in two years.8

Employment: The unemployment rate dipped to 4.9 percent as employers added 161,000 new nonfarm jobs, while the prior two months saw upward revisions from original estimates. Average hourly earnings for private-sector workers jumped 2.8 percent, year-over-year, the largest such increase since June 2009.9

Retail Sales: On the eve of holiday shopping season, retail sales jumped 0.8 percent, while September sales were revised upward to 1.0 percent, from the originally reported 0.6 percent increase. These back-to-back increases represent the best two months in at least two years.10

Industrial Production: Industrial output was unchanged in October as unseasonably warm weather kept home and office heating demands low.11

Housing: Housing starts increased 25.5 percent, the fastest pace since August 2007. Through October-end, starts were higher by 5.9 percent.12

Sales of existing homes increased 2.0 percent, touching a sales level not seen since February 2007.13

New home sales, however, declined 1.9 percent in October, though they are 12.7 percent higher year-to-date over the same 10-month period last year.14

CPI: Consumer prices jumped 0.4 percent from a month earlier. When compared to a year earlier, the increase represents the fastest rate in two years, signaling firming inflationary pressures.15

Durable Goods Orders: Posting the biggest increase in a year, orders of durable goods jumped 4.8 percent in October, propelled by a nearly 100 percent increase in civilian aircraft orders. September’s durable goods orders were revised higher, from an initial decline to a 0.4 percent gain.16

The Fed

In testimony to Congress, Janet Yellen on November 17 reiterated her belief that the U.S. economy is stable enough to absorb an interest rate hike, telling lawmakers that such an increase might come “relatively soon.” Her comments confirmed market expectations of a Fed hike in the federal funds rate at its next meeting on December 13-14.17

What Investors May Be Talking About

December is one of the best performing months on an historical basis. Since 1926, it has experienced the highest number of positive monthly returns of any month, the fewest number of negative returns, the least performance volatility and the second highest average return.18

Since past performance is not indicative of future results, this December’s market performance may turn on how investors respond to the wealth of news that unfolds over the course of the month.

Secrets of the Temple

Perhaps the most critical news might be what the Fed does about the federal funds rate. The Fed has signaled that a hike may be likely in December, though they may reconsider taking action in light of the unexpected election result.

If they move ahead with a rate hike, how the markets will respond may depend on whether this anticipated action has been fully priced in the markets. In the alternative scenario where the Fed delays a rate hike, the market’s response may be even greater, though no one can be sure in which direction such a development would drive stock prices.

Cabinet Positions

There is a Washington D.C adage, “personnel is policy.” This may never be truer when it comes to the incoming Trump presidency. Markets may be watching very closely any news about potential Cabinet appointments as a sign of the policy direction that the new administration may be taking once it assumes office in January.

Markets also are expected to keep an eye on consumer spending, which accounts for more than two-thirds of GDP.19 No month is more critical than December for retail sales.

Retail Spending

For some retailers, the holiday season can represent as much as 30 percent of annual sales, with jewelry stores reporting the highest percentage (27.4 percent) during the 2015 holiday season. Overall, last year’s holiday sales represented nearly 20 percent of total retail industry sales.20

As December marks the close of 2016 and represents the gateway to a new year, the uncertainty that reigns over the economic and foreign policies that will be pursued by President-elect Trump may lead to bouts of market skittishness in the weeks and months ahead.

By the Numbers

Beginnings and Endings

Year the first “greenbacks” were issued in the U.S.: 186121
Birth of the mail-order catalog: 174422

The first self-made multimillionaire in America: John Jacob Astor (1763-1848)23Famous hotel co-founded by Astor’s grandson and namesake: The Waldorf-Astoria24
How Astor’s grandson died in 1912: Aboard the Titanic24

First year Social Security taxes were collected: 193725
Size of the first lump-sum Social Security check: 17 cents25

Approximate number of kindergarteners in the U.S.: 3.7 million26
Approximate number of students who graduate from high school each year: 3.5 million26
Percent of graduating seniors who enroll in college the following fall: 68.4%26

Approximate number of new businesses started in the U.S. last year: 680,00027
Share of new businesses that survive 20 years or more: About 1 in 527

Success rate of businesses whose founder has previously started a successful business: 30%28
Success rate for businesses whose founder has previously failed with a start-up: 20%28
Success rate for first-time entrepreneurs: 18%28

Average retirement age: 6329
Share of Americans who plan to “keep working as long as possible:” 27%30

Number of AirBnB users over age 60: 1 million31
Percent of AirBnB hosts over age 60: 10%31

Percentage of retirees who say going on an RV trip is very appealing: 24%31
Most popular bucket list item, according to bucketlist.net: See the Northern Lights32

 

 

 

 

 

 

 

  1. The Wall Street Journal, November 30, 2016
  2. The Wall Street Journal, November 23, 2016
  3. The Wall Street Journal, November 23, 2016
  4. Interactive Data Managed Solutions, November 30, 2016
  5. MSCI.com, November 30, 2016
  6. MSCI.com, November 30, 2016
  7. MSCI.com, November 30, 2016
  8. The Wall Street Journal, November 29, 2016
  9. The Wall Street Journal, November 4, 2016
  10. The Wall Street Journal, November 15, 2016
  11. The Wall Street Journal, November 16, 2016
  12. The Wall Street Journal, November 17, 2016
  13. The Wall Street Journal, November 22, 2016
  14. The Wall Street Journal, November 23 18, 2016
  15. The Wall Street Journal, November 17, 2016
  16. The Wall Street Journal, November 23, 2016
  17. The Wall Street Journal, November 17, 2016
  18. Yardeni Research, “Stock Market Indicators: Historical Monthly and Annual Returns,” Yardeni Research,” October 2, 2016
  19. The Wall Street Journal, October 14, 2016
  20. National Retail Federation, 2016
  21. UScurrency.gov, 2016
  22. Wikipedia, October 20, 2016
  23. Britannica.com, 2016
  24. Encyclopedia-Titanica.org, 2016
  25. Social Security Administration, 2016
  26. NCES.ED.gov, 2016
  27. Bureau of Labor Statistics, April 28, 2016
  28. Inc.com, October 21, 2015
  29. SmartAsset.com, October 28, 2016
  30. Bloomberg, May 13, 2016
  31. Forbes, June 3, 2016
  32. BucketList.net, 2016

Source: Lake Avenue Financial

Is This 100-year Old Indicator Suggesting Market Strength?

The Dow Jones Industrial Average (Dow) gained for the sixth consecutive day yesterday and closed at a new all-time high for the third straight day. The Dow Jones Transports (Transports), meanwhile, had another big day yesterday and has been one of the top performers since the election. The Dow and Transports will forever be linked, as they are the two components to Dow Theory. Charles Dow created the Dow Theory in the late 1800’s, and it revolves around needing confirmation from both industrial and transports before establishing market direction. Think about it—if both the industrial and transports are strong, this likely suggests an improving economy. The flip side is if both are going lower, the economy is weakening.

Another way to look at the relationship between the two indexes is to compare them on a relative strength chart. When the ratio of the Transportation Index to the Dow increases, this means that transports are outperforming. We have found that when this ratio on a weekly chart moves above its 40-week simple moving average for more than three weeks, stocks tend to move higher over the next year. This signal triggered recently; the last time it happened was in late 2012, right before a huge equity rally in 2013.

chart-1

Looking at historical data going back to 1979, this signal triggered 20 times. Take note, we removed the two largest recessions over the past 20 years, as we don’t see any signs of a coming recession. The S&P 500 gained more than 9% on average six months later and was higher 80% of the time. Going out a full year, the S&P 500 has been up more than 16% on average and higher all 20 times.

111516_blog_figure3

Could this newfound strength from the transports be telling us the economy could be set for strong improvement as we head into 2017? It very well could be, and this could be another reason to expect the equity bull market could possibly continue as well.

IMPORTANT DISCLOSURES

Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. Stock investing involves risk including loss of principal. Because of its narrow focus, specialty sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Dow Jones Industrial Average Index is comprised of U.S.-listed stocks of companies that produce other (non-transportation and nonutility) goods and services. The Dow Jones Industrial Averages are maintained by editors of The Wall Street Journal. While the stock selection process is somewhat subjective, a stock typically is added only if the company has an excellent reputation, demonstrates sustained growth, is of interest to a large number of investors, and accurately represents the market sectors covered by the average. The Dow Jones averages are unique in that they are price weighted; therefore, their component weightings are affected only by changes in the stocks’ prices. This research material has been prepared by LPL Financial LLC.