Why Did Stocks Drop?

The Weekly Update

Week of October 29, 2018
By Christopher T. Much, CFP®, AIF®

Last week did nothing to dispel October’s reputation as a tough month for the markets. The S&P 500 lost 3.94%, the Dow declined 2.97%, and the NASDAQ dropped 3.78% during what was one of 2018’s most volatile weeks so far. All three indexes are down significantly for the month, and both the S&P 500 and Dow have entered negative territory for 2018. International stocks in the MSCI EAFE also struggled, posting a 3.87% drop for the week, and a 13.31% decline for the year.

Why did stocks drop? Will they continue to do so?
Currently, many topics are on investors’ minds, from inflation to tariffs to valuations and beyond, but analysts are not pointing to one single culprit for last week’s performance. Instead, a mixture of concerns, with a large dose of emotion, seemed to drive the markets.

Emotional reactions are understandable when volatility emerges, but they have no place in long-term investment strategies. Instead, we need to focus on the fundamentals.

What did we learn last week?
Trying to find simple explanations for market behavior can feel impossible, in part because the markets aren’t a machinethey’re a reflection of many human actions. Investors make choices based on their interpretations of current conditions, and the effects of these decisions become “market performance.”

Amidst the volatility, we received several updates on the economy, including:

  • 3rd Quarter Gross Domestic Product (GDP) beat expectations: The initial GDP reading for the 3rd quarter came in at a strong 3.5%, helped in large part by consumer spending.
  • Corporate earnings have been strong, but imperfect: So far, this corporate earnings season is showing 22% growth, but fewer S&P 500 companies are exceeding analysts’ predictions than in the 1st quarter of 2018. In particular, some major tech companies’ results disappointed investors.
  • Housing continued to struggle: New home sales were lower than expected in September, which followed disappointing results from existing-home sales data, as well.
  • Inflation growth eased: The Personal Consumption Expenditures Price Index, which shows inflation, increased by 1.6% in the 3rd quarter, much lower than projected.

Examined together, this data indicates that while the economy has potential challenges, it also demonstrates solid growth, reasonable inflation, and strong corporate performance. That story feels different than the sharp drop we experienced last week. However, when you look at the bigger picture, our current circumstances provide another reminder that volatility is normal, and examining economic fundamentals is critical.

Still, risks exist, and in the coming weeks we will pay very close attention to data and performance. In particular, we will follow the Federal Reserve’s comments and actions to see what may lie ahead for interest rates. In the meantime, please let us help answer your questions and address your concerns. We are here to help you pursue your goals, in every market environment.

ECONOMIC CALENDAR:
Monday: Personal Income and Outlays
Tuesday: Consumer Confidence
Wednesday: ADP Employment Report
Thursday: PMI Manufacturing Index, ISM Manufacturing Index, Construction Spending, Jobless Claims
Friday: Employment Situation, Factory Orders

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
https://www.bloomberg.com/news/articles/2018-10-25/asia-stocks-set-to-rally-on-u-s-gains-bonds-slip-markets-wrap?srnd=markets-vp
https://www.cnbc.com/2018/10/26/stock-market-us-futures-show-drop-for-dow.html
https://www.msci.com/end-of-day-data-search
https://www.bloomberg.com/news/articles/2018-10-25/sell-offs-are-normal-but-this-week-is-shocking-the-pros
http://wsj-us.econoday.com/byshoweventfull.asp?fid=485684&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
https://www.reuters.com/article/us-usa-stocks-weekahead/mixed-u-s-inflation-signals-leave-investors-adrift-idUSKCN1N01F6
http://wsj-us.econoday.com/byshoweventfull.asp?fid=485959&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
https://www.cnbc.com/2018/10/26/first-read-on-us-q3-2018-gross-domestic-product.html
Why Did Stocks Drop?2018-10-29T13:04:16-04:00

Examining Order

The Weekly Update

Week of October 21, 2018
By Christopher T. Much, CFP®, AIF®

Stock performance was mixed last week as investors considered the impact of interest rates, international affairs and corporate earnings. The S&P 500 gained 0.02%, and the Dow added 0.41% to post its first weekly gains in October. The NASDAQ declined 0.64% and extended its losing streak. International stocks in the MSCI EAFE dropped by 0.08%.

While the final weekly results showed relatively little growth or loss, the week included some volatility. So far, domestic indexes have struggled this month. As of October 19, the S&P 500 and Dow had each lost more than 3% for the month, and the NASDAQ was down 7%.

As we have often discussed in our market updates, volatility may feel uncomfortable, but market fluctuations are normal. That perspective becomes especially relevant in October, which is considered the most volatile month for markets.

Examining October History

Historical performance can’t predict future results. However, we do believe that understanding what makes October unique can help provide context for the current environment.

  • Significant market events
    For generations, many of the most significant market events have taken place in October, including the crash of 1929 and multiple large drops in 2008. In addition, last Friday, October 19, marked the 31st anniversary of the “Bloody Monday” market crash. On that date in 1987, the S&P 500 lost over 20% of its value.
  • Higher than normal volatility
    Since 1950, the S&P 500 has experienced more 1% moves in October than any other month. The month has also been the Dow’s most volatile since its beginning in 1896.
  • Surprising performance
    Despite the large events and high volatility that October can bring, its results may be stronger than expected. For the past 20 years, October has had the strongest performance of any month.

Exactly how this month will end remains to be seen, as we still have a few trading days left. But we hope that understanding how much markets often move in October will help you ride out any future volatility with more confidence. Of course, we’re also here to provide any answers or information you need, so contact us any time.

ECONOMIC CALENDAR:
Wednesday: New Home Sales
Thursday: Durable Goods Orders, Jobless Claims
Friday: GDP, Consumer Sentiment

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.
https://www.cnbc.com/2018/10/19/wall-street-futures-point-to-a-slight-rebound-after-the-dow-sheds-300-points.html
https://www.cnbc.com/2018/10/19/wall-street-futures-point-to-a-slight-rebound-after-the-dow-sheds-300-points.html
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
https://www.msci.com/end-of-day-data-search
https://www.cnbc.com/2018/10/19/wall-street-futures-point-to-a-slight-rebound-after-the-dow-sheds-300-points.html
https://www.cnbc.com/2018/10/19/wall-street-futures-point-to-a-slight-rebound-after-the-dow-sheds-300-points.html
https://www.marketwatch.com/story/fasten-your-seat-belt-october-is-almost-here-2018-09-25
https://www.cnbc.com/2018/10/15/this-chart-shows-why-october-has-such-a-scary-reputation-on-wall-street.html
https://www.marketwatch.com/story/dow-poised-to-jump-100-points-at-the-open-as-stock-market-aims-to-follow-china-rebound-2018-10-19?dist=markets
https://www.cnbc.com/2018/10/15/this-chart-shows-why-october-has-such-a-scary-reputation-on-wall-street.html
https://www.marketwatch.com/story/should-investors-fear-october-a-historic-jinx-month-for-stocks-2018-09-26
https://finance.yahoo.com/video/ryan-detrick-markets-210928786.html?format=embed
Examining Order2018-10-22T12:22:39-04:00

Stocks Take a Ride

The Weekly Update

Week of October 15, 2018
By Christopher T. Much, CFP®, AIF®

Volatility was back in full force last week. The three major domestic indexes posted several days of losses before experiencing wide swings on Friday. By week’s end, the Cboe Volatility Index (VIX), which investors use to help measure fear in the markets, had increased by approximately 70%. The VIX also reached its highest point since February.

Despite a number of equities posting last-minute gains on Friday, all three domestic indexes had sizable losses for the week. In fact, they posted their worst weekly performance since March. The S&P 500 dropped 4.10%, the Dow declined 4.19%, and the NASDAQ gave back 3.74%. International stocks in the MSCI EAFE also lost ground, decreasing 3.96%.

What drove market performance last week?
As is typically the case, a number of details affected investor sentiment and behavior. The following topics were among the perspectives impacting performance:

  • Rising interest rates: In addition to the Fed’s interest rate increases, 10-year Treasury yields are on many investors’ minds. At one point last week, the 10-year reached its highest yields since 2011. As interest from banks and bonds rise, some investors exit the markets in search of more predictable returns. These moves can cause stock prices to drop. However, we want to remind you of what we wrote about last week: Rising rates may bring their own risks, but they are a sign that the economy is growing.
  • Falling tech prices: Technology companies have been the best market performers in 2018. However, the sector just experienced its worst weekly results since this spring. With this shift in industry performance, some market participants have begun searching for different ways to invest their money.
  • Ongoing trade tension: While many analysts believe interest rates and tech prices drove last week’s losses, some feel that our trade renegotiation with China is to blame. We do not yet know how this skirmish will resolve, but tariffs do have the possibility to slow economic growth and increase prices for consumers.

These concerns and perspectives are important, but they do not give a complete understanding of our current economic conditions. Consumer sentiment remains high, and the latest corporate earnings season is likely to show strong, double-digit earnings growth for companies.

We know that volatility can feel uncomfortable, but it is normal. In the past 38 years, the markets have averaged a 13.8% intra-year decline – yet 29 of those years had positive returns.

As always, we are continuing to monitor economic fundamentals and investor perspectives to find a clear view of where we are today, and what may be ahead. If you have any questions, we are here for you.

ECONOMIC CALENDAR:
Monday: Retail Sales
Tuesday: Industrial Production, Housing Market Index
Wednesday: Housing Starts
Thursday: Jobless Claims
Friday: Existing Home Sales

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.

https://www.cnbc.com/2018/10/12/us-markets-data-and-bank-earnings-in-focus.html
https://www.cnbc.com/2018/10/12/us-markets-data-and-bank-earnings-in-focus.html
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
https://www.msci.com/end-of-day-data-search
https://www.bloomberg.com/news/articles/2018-10-12/another-gut-wrenching-week-puts-2018-stocks-in-with-bad-company?srnd=markets-vp
https://www.forbes.com/sites/markavallone/2018/10/11/5-reasons-why-higher-interest-rates-matter/#50fabc87577d
https://www.investopedia.com/investing/how-interest-rates-affect-stock-market/
https://www.cnbc.com/2018/10/12/us-markets-data-and-bank-earnings-in-focus.html
https://www.bloomberg.com/news/articles/2018-10-12/another-gut-wrenching-week-puts-2018-stocks-in-with-bad-company?srnd=markets-vp
http://fortune.com/2018/10/11/trump-federal-reserve-powell-lagarde-carney/
https://www.businessinsider.com/trump-trade-war-tariffs-china-effect-2018-10
http://wsj-us.econoday.com/byshoweventfull.asp?fid=485860&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
https://www.cnbc.com/2018/10/12/us-markets-data-and-bank-earnings-in-focus.html
https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-the-markets/viewer p.14
Stocks Take a Ride2018-10-15T13:41:27-04:00

CollegeWise Webinar – Harvard, Stanford or Bust

Harvard, Stanford or Bust – a Webinar

Just what does it take to get into the top colleges and universities in the country? How do you identify the school that’s the best fit for your student? On October 24th, join us for a webinar with CollegeWise, the nation’s largest college counseling organization. We’ll debunk college admission myths and show you what the college admissions process looks like from the inside. We’ll also give you an overview of college savings options and how you can begin to financially prepare for your student’s amazing college adventure. Register here: http://bit.ly/2zU5AgA

CollegeWise Webinar – Harvard, Stanford or Bust2018-10-10T13:39:15-04:00

Examining Economics

The Weekly Update

Week of October 8, 2018
By Christopher T. Much, CFP®, AIF®

Although new data continued to show strength in the U.S. economy, markets stumbled across the globe last week. The S&P 500 lost 0.98%, the Dow dropped 0.04%, and the NASDAQ declined 3.21%. International stocks in the MSCI EAFE struggled, posting a 2.35% loss.

While U.S. and international stocks followed similar paths last week, data is beginning to show that our economic outlooks may be very different for the moment.

U.S. Strength in a Growing International Divide
The latest labor report helped underscore some of the differences between the U.S. economy and the rest of the world. While the data missed the mark for new jobs added, September marked the 96th-straight month of job growthand the lowest unemployment level since 1969. The report pushed interest rates higher, which contributed to last week’s equity losses.

However, when describing our economy, Federal Reserve Chair Jerome Powell said it is experiencing “a particularly bright moment.”

Global Growth Adjustments
At the same time, the International Monetary Fund (IMF) indicated that it would decrease its global economic growth predictions. The IMF hasn’t downgraded its forecasts since 2016. Currently, more risks are beginning to emergefrom trade tension to political challenges in Europe. In particular, the rise in oil prices, the U.S dollar, and interest rates are hurting emerging economies.

HSBC mirrored this divide, cutting its global economic outlook while upgrading U.S. numbers.

A Look Ahead While Looking Back
As the labor market tightens, inflation could risebringing even more interest rate hikes from the Federal Reserve. While rising rates bring their own set of risks, they are ultimately a sign that the economy is growing. On the other hand, when the Fed lowers rates, they do so because the economy is slowing.

This week, we mark the 11th anniversary of the markets hitting their highest pre-recession point on October 9, 2007. At that time, hopes that the Fed would lower rates again contributed to the new record highs. In the ensuing months, the Dow lost more than half its value as the Great Recession began.

While markets were down last week, they were still far ahead of their highs from 2007. The Dow closed at 14,164.43 on October 9, 2007and ended at 26,447.05 on October 5, 2018.

Investors have experienced quite a ride in the past 11 years, but the market’s long-term growth is undeniable. Risks are here, as they always are. But we are here to help you understand and navigate those risks, no matter what the markets bring.

ECONOMIC CALENDAR:
Monday: U.S. Holiday-Columbus Day
Wednesday: PPI-FD
Thursday: CPI, Jobless Claims
Friday: Import and Export Prices, Consumer Sentiment

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.
https://www.reuters.com/article/us-global-markets/stocks-fall-globally-after-u-s-jobs-data-treasury-yields-rise-again-idUSKCN1MF04H
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
https://www.msci.com/end-of-day-data-search
https://www.bloomberg.com/news/articles/2018-10-05/u-s-economy-isn-t-bright-enough-to-offset-global-growth-slowing?srnd=markets-vp
https://www.cnbc.com/2018/10/05/us-markets-jobs-report-and-rates-in-focus.html
https://www.nytimes.com/2018/10/05/business/economy/jobs-report.html
https://www.cnbc.com/2018/10/05/us-markets-jobs-report-and-rates-in-focus.html
https://www.bloomberg.com/news/articles/2018-10-05/u-s-economy-isn-t-bright-enough-to-offset-global-growth-slowing?srnd=markets-vp
https://www.bloomberg.com/news/articles/2018-10-05/u-s-economy-isn-t-bright-enough-to-offset-global-growth-slowing?srnd=markets-vp
https://www.reuters.com/article/us-global-markets/stocks-fall-globally-after-u-s-jobs-data-treasury-yields-rise-again-idUSKCN1MF04H
https://www.bloomberg.com/news/articles/2018-10-05/u-s-economy-isn-t-bright-enough-to-offset-global-growth-slowing?srnd=markets-vp
https://www.bloomberg.com/news/articles/2018-10-05/u-s-economy-isn-t-bright-enough-to-offset-global-growth-slowing?srnd=markets-vp
https://www.investopedia.com/investing/how-interest-rates-affect-stock-market/
https://www.thebalance.com/stock-market-crash-of-2008-3305535
https://money.cnn.com/2007/10/09/markets/markets_0500/index.htm?postversion=2007100917
https://www.thebalance.com/stock-market-crash-of-2008-3305535
https://www.thebalance.com/stock-market-crash-of-2008-3305535
https://www.cnbc.com/2018/10/05/us-markets-jobs-report-and-rates-in-focus.html
Examining Economics2018-10-08T13:46:54-04:00

Special Update: Quarterly Report

The Weekly Update

Week of October 1, 2018
By Christopher T. Much, CFP®, AIF®

Friday, September 28, was the last trading day in 2018’s 3rd quarter, and the S&P 500 posted its strongest quarterly return in nearly 5 years. The Dow also showed impressive returns by beating expectations for the quarter, while the NASDAQ notched record highs against 2017 numbers. For the quarter, the S&P jumped 7.2%, the Dow increased 9.3%, and the NASDAQ moved up 7.1%.

Weekly numbers, however, revealed mixed performances: the S&P 500 slipped 0.54%, the Dow fell 1.07%, and the NASDAQ gained 0.74%. Internationally, the MSCI EAFE dropped 1.07%.

As we learn more about the 3rd¬ quarter, some details from last week offer perspectives on where we stand today.

What We Learned About the 3rd Quarter Last Week

1. Consumer outlook suggests positive trends continue.
A few early reports have given us a sense of positive trends in consumer activity during the 3rd quarter:

  • Consumer sentiment rose in September to finish at healthy levels that beat August’s performance, marking the 3rd time the index has moved above 100. With personal income optimism hitting a 14-year high, the positive trend suggests that nearly every population group now benefits from the 3rd quarter expansion.
  • Consumer confidence neared its highest reading since 2000, beating analyst predictions and inching closer to the dotcom’s record highs. This rise came after a surge in August, prompting predictions that spending strength will carry us through 2018. From sentiment boosts in the stock market to positive home-buying trends, consumers remain optimistic.

These numbers suggest healthy consumer outlooks, positive economic attitudes, and possible trends in increased spending.

2. Companies anticipate softer profits.
Although corporate earnings in the 1st and 2nd quarters rose roughly 25%, 3rd¬ quarter corporate earnings may miss that mark. Of the 98 companies in the S&P 500 that have released earnings outlooks, 74 predicted that earnings will fall below expectations from Wall Street. This ratio is the worst since the earnings recession of 1st quarter 2016. Even with the softer outlook, analysts still expect the S&P 500 to post numbers that indicate a growing economy.

3. Gross Domestic Product (GDP) growth shows signs of slowing.
Core capital goods (not including aircrafts) dropped 0.5% in August after July’s negative performance—as demand for computers, electronic products, and motor vehicles waned. The shift prompted some analysts to revise their 3rd¬ quarter GDP predictions downward. Yet, with a bump in wholesale and retail inventories, overall 3rd quarter growth remains in positive territory. The Atlanta Federal Reserve now predicts growth to be 3.8%, revised from an earlier prediction of 4.4%.

4. Tariffs start to drag 3rd quarter growth estimates.
The early effects of tariffs seem to have surfaced, as exports are now trending negatively. On September 27, the International Trade in Goods report posted numbers that may predict slower 3rd quarter growth:

  • Exports dropped 1.6% in August, continuing July’s downward trend.
  • Imports rose 0.7% yet have so far posted a trade negative for the quarter.
  • The trade deficit hit $75.8 billion, yet analysts believe this gap will narrow slightly once more 3rd quarter data emerges.

If this trend involving experts and imports continues, the U.S. dollar may take a hit.16 Meanwhile, on September 24, President Trump added tariffs on $200 billion worth of Chinese goods, and China responded with its own tariffs on $60 billion of U.S. products. Though negotiations between the two countries have stalled, we will monitor the situation.

What’s Ahead

The Federal Reserve remained optimistic last week about the economy, raising the interest rate from 2% to 2.25%. The 3rd increase this year is no surprise but does suggest confidence in a growing economy and low unemployment numbers, and that a 4th quarter hike is highly probable.

With new data coming in, we’ll deepen our understanding of the economy’s performance in the 3rd quarter. If you have questions about how this may affect you or your financial life, contact us today; we’re ready and happy to help.

ECONOMIC CALENDAR:
Monday: PMI Manufacturing Index, Construction Spending
Wednesday: PMI Services Index
Thursday: Jobless Claims, Factory Orders
Friday: Employment Situation, International Trade

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.
https://www.marketwatch.com/story/stock-futures-fall-dow-set-for-worst-week-in-three-months-2018-09-28
https://www.cnbc.com/2018/09/28/us-markets-political-turmoil-and-data-take-center-stage.html
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=%21DJI&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
https://www.msci.com/end-of-day-data-search
https://www.marketwatch.com/story/us-consumer-sentiment-cools-a-bit-in-late-september-2018-09-28
http://mam.econoday.com/byshoweventfull.asp?fid=485859&cust=mam&year=2018&lid=0&prev=/byweek.asp#top
http://mam.econoday.com/byshoweventfull.asp?fid=485922&cust=mam&year=2018&lid=0&prev=/byweek.asp#top
https://www.reuters.com/article/us-usa-economy/u-s-consumer-confidence-races-to-near-18-year-high-idUSKCN1LD201
http://mam.econoday.com/byshoweventfull.asp?fid=485922&cust=mam&year=2018&lid=0&prev=/byweek.asp#top
http://mam.econoday.com/byshoweventfull.asp?fid=485922&cust=mam&wiconly=1&lid=0#top
https://www.cnbc.com/2018/09/26/companies-are-warning-about-declining-profits-and-that-could-be-the-catalyst-for-a-pullback.html
https://www.marketwatch.com/story/this-trend-threatens-one-of-the-stock-markets-strongest-pillars-2018-09-26
https://www.reuters.com/article/us-usa-economy/us-capital-goods-orders-trade-data-temper-third-quarter-growth-forecasts-idUSKCN1M71PK
https://money.cnn.com/2018/09/28/investing/stocks-markets-third-quarter/index.html
http://mam.econoday.com/byshoweventfull.asp?fid=486154&cust=mam&year=2018&lid=0&prev=/byweek.asp#top
http://mam.econoday.com/byshoweventfull.asp?fid=486154&cust=mam&wiconly=1&lid=0#top
https://www.bloomberg.com/news/articles/2018-09-24/trump-imposes-next-batch-of-china-tariffs-as-trade-war-escalates
https://www.usatoday.com/story/money/2018/09/26/fed-raises-rate/1426946002/
Special Update: Quarterly Report2018-10-01T13:07:24-04:00