Why Did Stocks Drop?

The Weekly Update

Week of November 26, 2018
By Christopher T. Much, CFP®, AIF®

Last week was a tough one for markets. The S&P 500 dropped 3.79% and experienced its worst results during a Thanksgiving week since 1939. While the index officially entered correction territory on Friday, it closed 10.2% below its most recent record high. Meanwhile, the Dow and NASDAQ continued the downward trend, losing 4.44%, and 4.26%, respectively. International stocks in the MSCI EAFE also declined, posting a 1.12% loss.

Reading these results may feel quite unpleasant and elicit concerns about what is ahead. As is often the case, the story behind the numbers can help us understand the complexity and what this performance means.

Why did stocks drop?

Plummeting oil prices were one of the biggest drivers behind the market’s losses, as investors worried that too much oil is available. These concerns have contributed to oil experiencing seven weeks of losses in a row and dropping more than 20% so far this month.

While oil was a key focus last week, many other details were also on investors’ minds. Major tech companies continued to struggle and posted sizable losses for the week. In addition, the markets still don’t know how the Brexit deal, political challenges in Europe, and ongoing trade tension will all work out.

Examined together, these challenges can create questions about the strength of global growth.

Will the market losses continue?

No one can predict the future, but a few data points and perspectives can help deepen understanding of the current environment. We believe the following two details are important for you to know:

  1. Trading was light last week: The days before and after Thanksgiving had trading volume that was much lighter than normal, which often happens during this time period. This lower volume can exacerbate pricing trends, such as the declines we saw with oil. As a result, Friday’s performance may be less significant than it seems on the surface.
  2. Black Friday shopping was strong: Brick-and-mortar stores had people lined up for discounted buys, and online purchases were 28.6% higher than in 2017. The holiday season is very important for retailers, and these initial results indicate consumer spending may remain strong through year’s end.

In the coming weeks, we will gain a clearer understanding of many market influences. President Trump and Chinese President Xi are scheduled to meet this week at the G20 summit to discuss trade. Right now, the markets may be assuming these talks won’t solve the trade tension and that an economic slowdown could be ahead. Investors may also doubt whether oil-producing countries can slow production fast enough to counter reduced demand.

Other experts believe we are experiencing a disconnect between what investors are feeling and what is truly happening in the economy. As a result, a so-called “Santa Claus” rally could occur as consumer spending continues during the holiday season.

But these perspectives are opinions, not a crystal ball. No one can say for sure how these complex scenarios will play out. Rather than rely on guesswork or headlines, we’ll continue to look for clear trends and insight that support your long-term goals. If you have questions or want to talk about your current investments and strategy, we are here for you.

ECONOMIC CALENDAR:
Tuesday: Consumer Confidence, FHFA House Price Index
Wednesday: GDP, New Home Sales
Thursday: Pending Home Sales Index, Jobless Claims

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.
https://www.bloomberg.com/news/articles/2018-11-22/asia-stocks-to-slip-end-weekly-drop-pound-jumps-markets-wrap?srnd=markets-vp
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US
https://www.reuters.com/article/us-usa-stocks/wall-street-drops-sp-500-confirms-correction-idUSKCN1NS1FA
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.reuters.com/article/us-usa-stocks/wall-street-drops-sp-500-confirms-correction-idUSKCN1NS1FA
https://www.reuters.com/article/us-global-oil/oil-plunges-nearly-8-percent-despite-talk-of-output-cut-idUSKCN1NS012
https://www.cnbc.com/2018/11/23/stock-markets-dow-set-for-losses-as-trading-resumes-for-half-day.html
https://www.bloomberg.com/news/articles/2018-11-22/asia-stocks-to-slip-end-weekly-drop-pound-jumps-markets-wrap?srnd=markets-vp
https://www.bloomberg.com/news/articles/2018-11-22/asia-stocks-to-slip-end-weekly-drop-pound-jumps-markets-wrap?srnd=markets-vp
https://www.marketwatch.com/story/when-does-the-stock-market-close-on-black-friday-2018-11-23?dist=markets
https://www.marketwatch.com/story/6-key-reasons-the-bottom-is-falling-out-of-oil-prices-on-black-friday-2018-11-23
https://www.reuters.com/article/us-usa-stocks/wall-street-drops-sp-500-confirms-correction-idUSKCN1NS1FA
https://www.marketwatch.com/story/stocks-poised-to-open-lower-in-black-friday-trade-notch-weekly-loss-of-more-than-3-2018-11-23?dist=markets
https://www.reuters.com/article/us-usa-stocks/wall-street-drops-sp-500-confirms-correction-idUSKCN1NS1FA
https://www.reuters.com/article/us-global-oil/oil-plunges-nearly-8-percent-despite-talk-of-output-cut-idUSKCN1NS012
https://www.marketwatch.com/story/stocks-poised-to-open-lower-in-black-friday-trade-notch-weekly-loss-of-more-than-3-2018-11-23?dist=markets
Why Did Stocks Drop?2018-11-26T13:31:26-04:00

A Time to Be Thankful

A Time to Be Thankful

Wishing you a wonderful Thanksgiving filled with good food, enjoyable company and fond memories.

A Time to Be Thankful2018-11-21T09:25:28-04:00

Analyzing Data Amid Declines

The Weekly Update

Week of November 19, 2018
By Christopher T. Much, CFP®, AIF®

Markets experienced more volatility last week, as perspectives on trade, tech, and retail pulled investor sentiment back and forth. Although domestic indexes were up on Friday, November 16, they still posted losses for the week. In all, the S&P 500 dropped 1.61%, the Dow declined 2.22%, and the NASDAQ gave back 2.15%. International stocks in the MSCI EAFE ended the week down 1.51%.

A major topic over the past couple weeks has been the ongoing, significant declines in oil prices. Last week, we did experience one turnaround—on Friday, signs that oil production may decrease next month helped oil prices start to rebound. This pricing increase contributed to S&P 500 energy stocks rising 1.1%.

In addition to oil’s current trajectory, let’s examine some of the key October data we received last week:

  1. Retail Sales Beat Projections
    October’s retail sales were the highest in 5 months—up 4.6% from this time last year. While some of this growth comes from rebuilding efforts after the latest hurricanes, the overall data suggests that consumer spending remains strong. As a result, we may be able to expect ongoing economic growth.
  2. Inflation Picked Up
    The consumer price index had its largest monthly increase since the beginning of 2018. From gas to rent to cars, U.S. retail prices rose in October. Inflation is still relatively stable, however, which should mean that the Federal Reserve will continue on its current, gradual path of interest-rate increases.
  3. Industrial Production Increased
    Industrial production only grew by 0.1% in October, but the latest data also indicated that previous months were higher than originally thought. In fact, mining reached its highest point ever in August as production of oil and gas surged. Ultimately, this report paints a somewhat mixed picture for manufacturing: For now, output remains solid, but manufacturers have several concerns, including trade and global growth. Production has slowed since August, and we’ll now have to wait to learn whether this decline continues or rebounds.

Examined together, last week’s data may show that the economy still has strength, but questions remain. We will continue to monitor these and many other reports to help gain a clearer perspective on what may lie ahead.

As we look to this week, we want to take a moment to say thank you for being one of our valued clients. We recognize the trust you place in our team and are thankful for your relationship during this holiday—and every week of the year.

ECONOMIC CALENDAR:
Monday: Housing Market Index
Tuesday: Housing Starts
Wednesday: Durable Goods Orders, Consumer Sentiment, Existing Home Sales, Jobless Claims
Thursday: Thanksgiving Day
Friday: NYSE Early Close

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.
https://www.bloomberg.com/news/articles/2018-11-15/asia-stocks-to-track-u-s-gain-brexit-slams-pound-markets-wrap?srnd=markets-vp
https://www.reuters.com/article/us-usa-stocks/sp-dow-advance-on-trade-optimism-nvidia-sinks-nasdaq-idUSKCN1NL1K9 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=!DJItr&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.reuters.com/article/us-usa-stocks/sp-dow-advance-on-trade-optimism-nvidia-sinks-nasdaq-idUSKCN1NL1K9
https://www.ftportfolios.com/Commentary/EconomicResearch/2018/11/15/retail-sales-rose-0.8percent-in-october
https://www.cnbc.com/2018/11/15/us-retail-sales-oct-2018.html
https://www.marketwatch.com/story/consumer-inflation-posts-biggest-jump-in-nine-months-on-higher-cost-of-gas-rent-used-cars-cpi-shows-2018-11-14
https://www.marketwatch.com/story/industrial-production-inches-up-in-october-as-fed-finds-record-mining-output-2018-11-16
Analyzing Data Amid Declines2018-11-19T13:37:12-04:00

See What’s Cooking with Max Lukawski

See What’s Cooking with Max Lukawski

See what’s cooking with Max Lukawski, CTS Financial Group’s Director of Tax Services. Max took a crack at the Proust Questionnaire, revealing what he likes to do when he’s not crunching numbers. Wait ‘till you see what a Renaissance man he is. http://bit.ly/max_proust

See What’s Cooking with Max Lukawski2018-11-16T09:45:17-04:00

The Impact of Oil and Elections

The Weekly Update

Week of November 12, 2018
By Christopher T. Much, CFP®, AIF®

Last week, markets experienced a 4-day winning streak before dropping on Friday, November 9. Despite those losses, domestic indexes posted gains for the week. The S&P 500 increased 2.13%, the Dow added 2.84%, and the NASDAQ was up 0.68%. International stocks in the MSCI EAFE had slight growth, ending the week up 0.20%.

From interest rates to corporate profits, investors had a number of topics to consider. In this update, we want to focus on two key details that drove markets: oil prices and midterm election results.

1. Oil Prices Declined
Oil prices continued to fall last week, posting the most consecutive daily declines in at least three decades. In fact, West Texas Intermediate (WTI) futures, a key oil benchmark, is officially in bear market territory. WTI has fallen more than 20% below its highest point over the past year.

What does this drop mean for markets?
Some investors believe the price declines are another sign that the global economy is slowing down. Historically, people have used oil prices as one way to decipher economic health because they can correlate with global growth. When crude oil prices drop, greater economic challenges are often ahead.

This recent decline may have a less concerning explanation. The United States sanctioned Iran last week while allowing eight nations to continue buying oil from the country for now. All of these waivers resulted in 1 million more barrels of Iranian oil being on the market than expected, the opposite of the anticipated tightening supply.

Bottom line: The oil price decline may be more of a symptom of disrupted supply and demand, rather than an indication of the global economy’s health.

2. Midterm Elections Brought Few Surprises
The long-awaited midterm elections occurred last week, and the results matched
expectations for a split Congress. These results contributed to the midweek market rally we experienced.

How could the results affect markets?
Post-midterm market results are generally strong. Over the past 18 midterm elections, stocks have always had positive returns from their lows in October to the year’s end. Some investors even believe that October’s struggles were a sign of the markets pricing in the election results about a month early.

Taking a historical, long-term view, the current arrangement of a Republican president and a split Congress has resulted in 12% annual returns since 1936. The chart below shows how markets have performed through each potential party-control scenario.

Although stocks have often done well when Washington experiences gridlock, the current scenario also makes a government shutdown or increased investigations into President Trump more likely. With either of these actions, market volatility could follow.

Bottom line: The election results could help bolster market performance. The split Congress also brings potential for political uncertainty that increases volatility for investors.

In many ways, this week’s market behavior underscores the complex, interconnected relationships between geopolitics and the markets. If you have any questions or would like to dive deeper into how these situations affect your financial life, we’re here to talk.

ECONOMIC CALENDAR:
Monday: U.S. Holiday: Veterans Day observed
Wednesday: CPI
Thursday: Retail Sales, Import and Export Prices, Business Inventories, Jobless Claims
Friday: Industrial Production

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.
https://www.marketwatch.com/story/dow-looks-set-to-sink-by-triple-digits-after-fed-update-as-oil-extends-fall-2018-11-09?dist=markets
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/2018/11/09/stock-market-us-futures-lower-after-fed-decision.html
https://www.reuters.com/article/us-usa-stocks/oil-slide-china-worries-send-wall-street-tumbling-idUSKCN1NE1GQ
https://www.cnbc.com/2018/11/09/stock-market-us-futures-lower-after-fed-decision.html
https://www.investopedia.com/terms/w/wti.asp
https://www.marketwatch.com/story/stock-market-investors-wrestle-with-a-glut-of-bearish-signs-as-oil-prices-plunge-2018-11-10
https://www.reuters.com/article/us-usa-stocks/oil-slide-china-worries-send-wall-street-tumbling-idUSKCN1NE1GQ
https://www.marketwatch.com/story/stock-market-investors-wrestle-with-a-glut-of-bearish-signs-as-oil-prices-plunge-2018-11-10
https://www.marketwatch.com/story/stock-market-investors-wrestle-with-a-glut-of-bearish-signs-as-oil-prices-plunge-2018-11-10
https://www.bloomberg.com/news/articles/2018-11-07/this-time-stocks-got-it-right-now-about-that-october-rout
https://www.cnbc.com/2018/11/09/stock-market-us-futures-lower-after-fed-decision.html
https://www.bloomberg.com/news/articles/2018-11-07/this-time-stocks-got-it-right-now-about-that-october-rout
https://www.cnbc.com/2018/11/05/market-history-shows-investors-should-hope-for-gridlock-on-election-day.html
https://www.cnbc.com/2018/11/05/market-history-shows-investors-should-hope-for-gridlock-on-election-day.html
https://www.cnbc.com/2018/11/05/market-history-shows-investors-should-hope-for-gridlock-on-election-day.html
The Impact of Oil and Elections2018-11-12T12:38:46-04:00

Markets Bounce Back

The Weekly Update

Week of November 5, 2018
By Christopher T. Much, CFP®, AIF®

Markets posted strong gains last week after struggling for much of October. The S&P 500 had its best weekly performance since May, and the NASDAQ had its first positive week since September. Despite domestic markets dropping on Friday, November 2, the S&P 500 added 2.42%, the Dow increased 2.36%, and the NASDAQ gained 2.65%. International stocks in the MSCI EAFE were also up 3.34%.

What drove market performance last week?
We received a fair amount of data and reports, with the following details holding particular weight for investors:

  • U.S.–China trade updates were inconsistent.
    Stocks fluctuated widely on Friday, in large part because of contradictory updates on a potential trade deal between the U.S. and China. President Trump said the two countries are a lot closer to an agreement. Larry Kudlow, Trump’s economic advisor, shared a different perspective, indicating the U.S. is not working out a trade deal with China. These conflicting reports contributed to volatility in the markets as investors tried to determine exactly where we stand.
  • U.S. corporate earnings were strong but imperfect.
    So far, the 3rd quarter earnings season has been a strong one. Of the 74% of S&P 500 companies that have released their data, 78% have beaten their earnings-per-share estimates, and earnings have grown 24.9% year-over-year. However, concerns for at least one major tech company’s projections affected investor behavior. In addition, analysts predict that in 2019, earnings growth will not match the double-digit results we’ve experienced this year.
  • Labor market growth beat expectations.
    The economy added 250,000 jobs in October, a stronger increase than expected. Wages also rose, posting 3.1% growth over the prior year, the fastest annual growth since 2009. Investors interpreted these results to mean that the Federal Reserve would continue raising interest rates at its projected pace.

Where should you go from here?
If you felt at all whipsawed by last week’s price fluctuations, especially after October’s declines, you weren’t alone. Even if you know that market volatility is normal, it can feel intense in the moment. Right now, many investors are also jumping in and out of popular, crowded stocks, causing market levels to shift more quickly than many people are used to. To navigate these accelerated changes, you need to remove emotion from investing decisions and stick to your long-term vision even more.

Rather than trying to predict what stocks will do in the immediate future, we are here to help you plan for the financial life and legacy you desire. Please let us know if you have any questions about where you are and how to pursue your future.

ECONOMIC CALENDAR:
Monday: ISM Non-Manufacturing Index
Tuesday: JOLTS
Thursday: Jobless Claims
Friday: PPI-FD, Consumer Sentiment

Past performance is no guarantee of future results. Data collected from Investors FastTrack software.
https://www.bloomberg.com/news/articles/2018-11-01/asia-stocks-to-extend-rally-after-trump-xi-call-markets-wrap?srnd=markets-vp
https://www.marketwatch.com/story/dow-aims-for-4th-gain-in-a-row-ahead-of-jobs-report-apples-stock-sinks-on-outlook-2018-11-02?dist=markets
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.cnbc.com/2018/11/02/stock-market-triple-digit-gains-for-dow-nonfarm-payrolls.html
https://www.msci.com/end-of-day-data-search
https://www.cnbc.com/2018/11/02/stock-market-triple-digit-gains-for-dow-nonfarm-payrolls.html
https://www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_110218.pdf
https://www.cnbc.com/2018/11/02/stock-market-triple-digit-gains-for-dow-nonfarm-payrolls.html
https://www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_110218.pdf
https://www.ftportfolios.com/Commentary/EconomicResearch/2018/11/2/nonfarm-payrolls-rose-250,000-in-october
https://www.bloomberg.com/news/articles/2018-11-01/asia-stocks-to-extend-rally-after-trump-xi-call-markets-wrap?srnd=markets-vp
https://www.bloomberg.com/news/articles/2018-11-02/bulls-sit-still-as-u-s-stock-reversals-land-with-record-force?srnd=markets-vp
Markets Bounce Back2018-11-05T12:50:54-04:00