Articles tagged with: wall street

How Will the Market Respond After the Election?

We may see some volatility, but equilibrium could quickly be restored.

 

What will happen on Wall Street after November 8? We can shrug and say, “who knows,” and that simple answer may be as good as any other. Trying to predict which way the market will go is difficult, even when it comes to a single trading session. All that said, investors may take some cues from the result of the presidential election and push stocks in one direction or another.

Could there be a market shock? The biggest stock market disruptor so far in 2016 has been the Brexit vote in the United Kingdom. That late June development erased the entire year-to-date advance of the S&P 500 – but the S&P recovered quickly, gaining back its losses by the start of July in a textbook example of stock market resilience. The index rallied for several weeks thereafter.1

The market appears to be pricing in a Clinton win. A Trump win would defy quite a few political forecasts – and perhaps affect Wall Street in a way similar to the Brexit vote.

One forecasting firm, Macroeconomic Advisers, has put out a bold prediction: it believes that the S&P 500 could rise 4% in the near term after a Clinton win, while a Trump win would bring on a 7-8% descent. The Brookings Institute – a research and public policy think tank, not a market analytics firm – feels a Trump victory would prompt a correction. Overseas markets might also slump significantly in reaction to an oncoming Trump presidency, as Trump’s image outside the U.S. is largely unfavorable.1,2

Regardless of who wins, some immediate volatility would not be unusual. Bespoke Investment Group, a very respected provider of market data, finds that the S&P 500 has seesawed in the days surrounding recent presidential elections. The common pattern is a rally on Election Day; then, a pullback the next day, averaging around 1%. An extreme example of this behavior came in 2008, when the index rose 4% on Election Day (Barack Obama was the heavy favorite that year), then fell 5.3% a day later.2

What does history tell us could happen in the months ahead? Understanding that past performance is not indicative of future success (or failure), we see that the performance of the S&P has varied widely on such occasions. In 2012, the index was flat for the rest of the year after the election; the next year, the S&P rose 30%. In 2008, the S&P fell 10% after the election. Then it advanced 23% in 2009. In 2004, a 7% rally after the re-election of George W. Bush was followed by only a 3% gain in 2005. In 2000, an 8% post-election retreat for the S&P preceded a 13% fall for the index in 2001. From numbers like that, we can only conclude that stock market behavior is hard to predict.1

The election is an event on a timeline. Wall Street’s reaction to it, positive or negative, will likely be old news within weeks, if not days. The Federal Reserve’s December policy statement may make bigger waves. Take whatever occurs in stride, knowing that it is but a page in the long story of Wall Street. One market moment should not lead you to rethink your approach or your commitment to saving and investing for your long-term goals.

Mike Moffitt may be reached at ph#641-782-5577 or email: mikem@cfgiowa.com
www.cfgiowa.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

Citations.
1 – businessinsider.com/what-happens-in-the-stock-market-after-us-elections-2016-9 [10/15/16]
2 – money.cnn.com/2016/10/24/investing/stocks-donald-trump-hillary-clinton/index.html [10/24/16]

Should We Break Up the Big Banks?

One Federal Reserve official says we should rethink our financial system.

The newest Federal Reserve policymaker just put forth a radical proposal. Neel Kashkari thinks America’s big banks should be broken up, the sooner the better.

This opinion comes from the man who once directed TARP, the Troubled Asset Relief Program that bailed out giant banks in the Great Recession. Kashkari was assistant secretary of the Treasury at that time. This year, he became president of the Federal Reserve Bank of Minneapolis, two years after running for governor of California.1

On February 16, Kashkari spoke at the Brookings Institution and delivered, as one Bloomberg article put it, “a speech that [read] like a cover letter on a resume sent to the White House c/o Bernie Sanders.” Specifically, he called for “serious consideration” of three ideas.1

The first: “Breaking up large banks into smaller, less connected, less important entities.” The second: “Turning large banks into public utilities by forcing them to hold so much capital that they virtually can’t fail (with regulation akin to that of a nuclear power plant).” The third: “Taxing leverage throughout the financial system to reduce systemic risks wherever they lie.”1

While the Dodd-Frank Act of 2010 increased regulation of behemoth banks, Kashkari is hardly satisfied with it. As he told the Washington Post recently, “Policymakers have been telling Congress, or maybe Congress has been telling the American people, that Dodd-Frank has solved too big to fail. And I’m saying I don’t believe it.”2

The above reforms would require the approval of Congress. So Kashkari wants to deliver a proposal to Capitol Hill, with input from “leaders from policy and regulatory institutions [and] the financial industry.” All of these parties would convene to “offer their views and to test one another’s assumptions” pursuant to a bill.1

Is this kind of reform necessary? Many voices on Wall Street contend that Dodd-Frank was actually unnecessary, that the credit crisis of the late 2000s never would have occurred if markets, regulators, and Congress had simply abided by existing rules.1,2,3,4

Others have called for big bank downsizing before this, including some Fed officials. In 2012, the Dallas Fed put out an annual report entitled Choosing the Road to Prosperity: Why We Must End Too Big to Fail – Now. Its president, Richard Fisher, has talked of restructuring large banks into “multiple business entities.” St. Louis Fed president James Bullard once introduced the idea of limiting the size of individual U.S. banks to a percentage of annualized Gross Domestic Product.3,4

Of course, not too long ago the federal government helped make the biggest banks even bigger. As it decided certain financial institutions were “too big to fail” during the credit crisis, it also brokered some deals: Bank of America bought up Merrill Lynch and JPMorgan acquired Washington Mutual and Bear Stearns. JPMorgan and Bank of America both received significant help from TARP as a consequence. Taxpayers made a profit on TARP, and Kashkari says TARP was the right move at the right time. However, he prefers that history not repeat.1,5

The “too big to fail” idea contends that the nation’s largest banks need a federal backstop if threatened with collapse, because their failure would wreck the economy. Its adherents argue that a giant bank is a better bank, providing more services here and in emerging markets, benefiting from economies of scale that make their services cheaper than services of smaller banks. These banks, the thinking goes, deserve a safety net in a catastrophe.1,2,3,4

To other observers, the top U.S. banks have grown frighteningly large. An analysis conducted by SNL Financial last year found that just five banks held almost 45% of the U.S. banking industry’s total assets in 2014, about $7 trillion. To put this in perspective, World Bank data shows the entire 2014 U.S. GDP at $17.4 trillion.6,7

In time, market forces may actually accomplish what Kashkari would prefer to see. With TARP long gone, the largest banks have had to bolster their capital ratios, a potential disadvantage as they compete with smaller banks and online lenders. So new competitors (and new lending and financial services platforms) could soon emerge to take away some of their business.1

Kashkari does not want to wait. With the economy in comparatively good health, “the time has come to move past parochial interests and solve this problem,” Kashkari said in his February 16 speech. “The risks of not doing so are just too great.”5

Mike Moffitt may be reached at Ph# 641-782-5577 or email: mikem@cfgiowa.com
Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – bloomberg.com/gadfly/articles/2016-02-17/let-s-make-sure-neel-kashkari-s-right-before-splitting-up-banks [2/17/16]
2 – washingtonpost.com/news/wonk/wp/2016/02/17/neel-kashkari-oversaw-the-bailout-of-the-big-banks-now-he-wants-to-break-them-up/ [2/17/16]
3 – business.time.com/2012/03/22/break-up-the-banks-dallas-fed-president-calls-for-the-end-of-too-big-to-fail/ [3/22/12]
4 – bloomberg.com/news/articles/2016-02-16/fed-s-kashkari-floats-breaking-up-big-banks-to-avert-melt-down [2/16/16]
5 – money.cnn.com/2016/02/17/news/economy/neel-kashkari-breaking-up-too-big-to-fail-banks/ [2/17/16]
6 – cnbc.com/2015/04/15/5-biggest-banks-now-own-almost-half-the-industry.html [4/15/15]
7 – data.worldbank.org/indicator/NY.GDP.MKTP.CD [2/18/16]

China’s Stock Market Turmoil

Can U.S. shares hold up in the wake of January’s shocks?

On January 7, China halted stock trading for the second time in four days. The benchmark Shanghai Composite sank 7.0% on January 4 and dropped 7.3% three days later, both times activating a new circuit-breaker rule that stopped the trading session.1

Markets worldwide fell in reaction to these dramatic plunges. On January 7 alone, Japan’s Nikkei 225 and Germany’s DAX both suffered selloffs of 2.3%. On the same day, the Dow Jones Industrial Average dropped below the 17,000 level and the S&P 500 closed below 2,000.1,2,3

While the Dow and S&P respectively lost 2.3% and 2.4% Thursday, the Nasdaq Composite lost 3% and actually corrected from its July record settlement of 5,218.86.3

Why is China’s stock market slipping? You can cite several reasons. You have the well-noted slowdown of the country’s manufacturing sector, its rocky credit markets, and the instability in its exchange rate. You have Chinese concerns about the slide in oil prices, heightened at the beginning of January by the erosion of diplomatic ties between Iran and Saudi Arabia. You have China’s neighbor, North Korea, proclaiming that its arsenal now includes the hydrogen bomb. Finally, you have a wave of small investors caught up in margin trading and playing the market “like visitors to the dog track,” as reporter Evan Osnos wrote in the New Yorker. More than 38 million new retail brokerage accounts opened in China in a three-month period in 2015, shortly after the Communist Party spurred households to invest in stocks. Less than 10 million new brokerage accounts had opened in China in all of 2014.1,4

In trying to calm its markets, China may have done more harm than good. Chinese officials spent more than $1 trillion in 2015 to try and reassure investors, and right now they have little to show for it. Interest rates have been lowered; the yuan has been devalued again and again. The government has also made two abrupt (and to some observers, questionable) moves.2

Last July, they barred all shareholders owning 5% or more of a company from selling their stock for six months. That ban was set to expire on January 8, and that deadline stirred up bearish sentiment in the market this week. The prohibition was just renewed, with modifications, for three more months.4

On January 4, the China Securities Regulatory Commission instituted a circuit-breaker rule that would pause trading for 15 minutes upon a 5% market dive and end the trading day when stocks slumped 7% or more. On January 7, the CSRC scrapped the rule amid criticism that it was being triggered too easily; Thursday ended up being the shortest trading day in the history of China’s stock market. In the view of Hao Hong, chief China strategist at Bocom International Holdings, the circuit-breaker rule clearly backfired: it produced a “magnet effect,” with selloffs accelerating and liquidity evaporating as prices approached the breaker.1,2

As Peking University HSBC Business School economics professor Christopher Balding commented to Quartz, the CSRC seems to lack sufficient understanding of “what markets are, how they work or how they are going to react.” Quite possibly, China will make further dramatic moves to try and reduce stock market volatility this month. Will U.S. stocks rally upon such measures? Possibly, possibly not.2

Wall Street is contending with other headwinds. The oversupply of oil continues: according to Yardeni Research, world crude oil output rose 2.4% in the 12 months ending in November to a new record of 95.2 million barrels a day.1

Additionally, the pace of American manufacturing is a worldwide concern. In December, the Institute for Supply Management’s manufacturing PMI showed sector contraction (a reading under 50) for a second straight month. Factory orders were down for a thirteenth consecutive month in November (the first time a streak of declines that long has occurred outside of a recession) and the November durable goods orders report also disappointed investors.1,5

Citigroup maintains an Economic Surprise Index – a measure of the distance between analyst forecasts and actual numbers for various economic indicators. It just touched lows unseen since early last year, which is not a good sign as equities tend to react the most to surprises.1

If the Labor Department’s December employment report and the upcoming earnings season live up to expectations, stocks might recover from this descent even if China does little to stem the volatility in its market. The greater probability is that more market turmoil lies ahead. That short-term probability should not dissuade an investor from the long-run potential of stocks.

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com
Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – cbsnews.com/news/7-reasons-the-dow-lost-17000/ [1/7/16]
2 – qz.com/588386/chinas-new-stock-market-circuit-breaker-is-broken-and-it-is-panicking-investors/ [1/7/16]
3 – usatoday.com/story/money/markets/2016/01/06/china-stocks/78390650/ [1/7/16]
4 – latimes.com/business/hiltzik/la-fi-mh-a-reminder-china-s-stock-market-is-a-clown-show-20160107-column.html# [1/7/16]
5 – briefing.com/investor/calendars/economic/2016/01/04-08 [1/7/16]

Why It Might Be Time for the Fed to Raise Rates

In doing so, the central bank would cast a vote of confidence in the economy.

Provided by Mike Moffitt

Will the Federal Reserve make a move in December? As our central bank has avoided tightening U.S. monetary policy for nine years, an end-of-year interest rate hike might seem more possible than probable. Call it a strong possibility, if nothing else – after the November 18 release of the October Fed policy meeting minutes, trading in Fed funds futures indicated that investors saw a 68% chance of a December rate hike. In late October, they saw only a 38% chance of that happening.1

The October Fed meeting minutes sent a strong signal. They noted that “most” Federal Open Market Committee members thought that conditions for a rate increase “could well be met by the time of the next meeting,” with another passage stating that “it may well become appropriate to initiate the normalization process” at that time.2

Investors want some certainty when it comes to monetary policy. The S&P 500 advanced 1.6% on November 18, carried by gains in financial shares (banks would benefit greatly from higher interest rates). It was the biggest one-day rally U.S. equities had seen in a month. After the FOMC elected to refrain from raising rates in both September and October, the question became “when?” To many market observers, the October FOMC meeting minutes seem to provide an answer.1

The next jobs report could be a major influence. In October, the economy added 271,000 new jobs with 2.5% annualized wage growth and unemployment falling to 5.0%. If the next Labor Department employment report shows hiring well above the 200,000 level in November, the Fed could interpret that as a clear green light.2

The Fed would be going against the grain by raising rates in December. The People’s Bank of China has lowered its benchmark interest rate six times since October 2014. The European Central Bank, which has launched a major monetary stimulus, has reduced its key interest rate to 0.05%. Some analysts believe it could hit zero. The ECB’s deposit rate is currently at -0.2%.3,4

Even so, investors might appreciate a decisive Fed move. The markets need to have confidence in the Fed, and as CNBC Fast Money panelist Guy Adami recently noted, a hawkish move might be followed by a long dovish interval – the FOMC could raise the federal funds rate in December, then leave it alone until late 2016. That could amount to a best-case scenario for Wall Street.5

Besides placating the market, are there other notable reasons to raise rates? Adami’s Fast Money colleague, Euro Pacific Capital CEO Peter Schiff, begged to differ. On the same broadcast, he shared his opinion that the Fed is standing pat because it feels the economy is not yet strong enough to handle a rate hike. “This is a bubble … not a recovery,” he commented, adding that Wall Street remains in love with easing and “easy money.”5

These points of view aside, many analysts, journalists and market participants see a December rate move (and the tightening that would presumably follow it) as a net positive. As Cuttone & Co. senior vice president Keith Bliss told the Wall Street Journal, “I think it’s a relief for the market that in the opinion of the Fed policy makers the economy is not falling apart.”1  

One thing is certain – the federal funds rate will eventually rise from its current historic low, perhaps very soon, as what should be the first step a tightening cycle. In light of this eventuality, you might want to review your investments and your financial strategy.

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com.

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – tinyurl.com/nexyes9 [11/18/15]

2 – foxbusiness.com/economy-policy/2015/11/18/federal-reserve-minutes/ [11/18/15]

3 – reuters.com/article/2015/10/23/us-china-economy-policy-idUSKCN0SH18W20151023 [10/23/15]

4 – usnews.com/news/business/articles/2015/11/18/as-us-prepares-to-hike-rates-europe-could-reap-benefits [11/18/15]

5 – thestreet.com/story/13301410/1/with-latest-fomc-statement-released-will-or-won-t-the-fed-raise-rates.html [11/19/15]

 

 

 

Terrorism & the Financial Markets

Wall Street has the potential to recover quickly from geopolitical shocks.

The worst terrorist attack in Europe since 2004 has rattled governments and investors. The French government has closed the nation’s borders and placed thousands of soldiers on the streets of the country’s major cities.1

As an anxious world watches the response of France (and perhaps other nations) to the ISIS attacks, there is also concern about European and global financial markets. Wall Street, which is coming off its second-worst week of the year, hopes that fear will not drive a major selloff.2

Even if it does, history suggests that any damage to global shares might be temporary.

While geopolitical shocks tend to scare bulls, the effect is usually short-term. On September 11, 2001, the attack on America occurred roughly at the beginning of the market day. U.S. financial markets immediately closed (as they were a potential target) and remained shuttered the rest of that trading week. When Wall Street reopened, stocks fell sharply – the S&P 500 lost 11.6% and the Nasdaq Composite 16.1% in the week of September 17-21, 2001. Even so, the market rebounded. By October 11, the S&P had returned to the level it was at prior to the tragedy, and it continued to rise for the next few months.3,4

In the U.S., investors seemed only momentarily concerned by the March 11, 2004 Madrid train bombings. The S&P 500 fell 17.11 on that day, as part of a descent that had begun earlier in the month; just a few trading days later, it had gained back what it had lost.5

Perhaps you recall the London Underground bombing of July 7, 2005. That terror attack occurred on a trading day, but U.K. investors were not rattled – the FTSE 100 closed higher on July 8 and gained 21% for the year.4

Wall Street is remarkably resilient. Institutional investors ride through many of these disruptions with remarkable assurance. Investors (especially overseas investors) have acknowledged the threat of terrorism for decades, also realizing that it does not ordinarily impact whole economies or alter market climates for any sustained length of time.

You could argue that the events of fall 2008 panicked U.S. investors perhaps more than any geopolitical event in this century – the credit crisis, the collapse of Lehman Bros. and the troubles of Fannie, Freddie, Merrill Lynch and Bear Stearns snowballed to encourage the worst bear market in recent times.

When Hurricane Katrina hit in 2005, truly devastating New Orleans and impacting the whole Gulf Coast, it was the costliest natural disaster in the history of the nation. It did $108 billion in damage and took more than 1,200 lives. Yet on the day it slammed ashore, U.S. stocks rose 0.6% while global stocks were flat.4,6

The terror attacks in France and Lebanon have stunned us. They may stun the financial markets as well, but perhaps not for long.

Mike Moffitt may be reached at ph# 641-782-5577 or email mikem@cfgiowa.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – cnbc.com/2015/11/13/french-police-report-shootout-and-explosion-in-paris.html [11/13/15]

2 – abcnews.go.com/Business/wireStory/stocks-set-end-winning-streak-retail-slammed-35177303 [11/13/15]

3 – tinyurl.com/pzwzrmb [11/14/15]

4 – moneyobserver.com/opinion/terrorism-terrorises-stocks-fishers-financial-mythbusters [10/22/15]

5 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=3%2F11%2F04&x=34&y=18 [11/14/15]

6 – cnn.com/2013/08/23/us/hurricane-katrina-statistics-fast-facts/ [8/23/15]

 

 

 

 

 

Why DIY Investment Management Is Such a Risk

Paying attention to the wrong things becomes all too easy.

If you ever have the inkling to manage your investments on your own, that inkling is worth reconsidering. Do-it-yourself investment management can be a bad idea for the retail investor for myriad reasons.

Getting caught up in the moment. When you are watching your investments day to day, you can lose a sense of historical perspective – 2011 begins to seem like ancient history, let alone 2008. This is especially true in longstanding bull markets, in which investors are sometimes lulled into assuming that the big indexes will move in only one direction.

Historically speaking, things have been so abnormal for so long that many investors – especially younger investors – cannot personally recall a time when things were different. If you are under 30, it is very possible you have invested without ever seeing the Federal Reserve raise interest rates. The last rate hike happened before there was an iPhone, before there was an Uber or an Airbnb.

In addition to our country’s recent, exceptional monetary policy, we just saw a bull market go nearly four years without a correction. In fact, the recent correction disrupted what was shaping up as the most placid year in the history of the Dow Jones Industrial Average.1

Listening too closely to talking heads. The noise of Wall Street is never-ending, and can breed a kind of shortsightedness that may lead you to focus on the micro rather than the macro. As an example, the hot issue affecting a particular sector today may pale in comparison to the developments affecting it across the next ten years or the past ten years.

Looking only to make money in the market. Wall Street represents only avenue for potentially building your retirement savings or wealth. When you are caught up in the excitement of a rally, that truth may be obscured. You can build savings by spending less. You can receive “free money” from an employer willing to match your retirement plan contributions to some degree. You can grow a hobby into a business, or switch jobs or careers.

Saving too little. For a DIY investor, the art of investing equals making money in the markets, not necessarily saving the money you have made. Subscribing to that mentality may dissuade you from saving as much as you should for retirement and other goals.

Paying too little attention to taxes. A 10% return is less sweet if federal and state taxes claim 3% of it. This routinely occurs, however, because just as many DIY investors tend to play the market in one direction, they also have a tendency to skimp on playing defense. Tax management is an important factor in wealth retention.

Failing to pay attention to your emergency fund. On average, an unemployed person stays jobless in the U.S. for more than six months. According to research compiled by the Federal Reserve Bank of St. Louis, the mean duration for U.S. unemployment was 28.4 weeks at the end of August. Consider also that the current U-6 “total” unemployment rate shows more than 10% of the country working less than a 40-hour week or not at all. So you may need more than six months of cash reserves. Most people do not have anywhere near that, and some DIY investors give scant attention to their cash position.2,3

Overreacting to a bad year. Sometimes the bears appear. Sometimes stocks do not rise 10% annually. Fortunately, you have more than one year in which to plan for retirement (and other goals). Your long-run retirement saving and investing approach – aided by compounding – matters more than what the market does during a particular 12 months. Dramatically altering your investment strategy in reaction to present conditions can backfire.

Equating the economy with the market. They are not one and the same. In fact, there have been periods (think back to 2006-2007) when stocks hit historical peaks even when key indicators flashed recession signals. Moreover, some investments and market sectors can do well or show promise when the economy goes through a rough stretch.

Focusing more on money than on the overall quality of life. Managing investments – or the entirety of a very complex financial life – on your own takes time. More time than many people want to devote, more time than many people initially assume. That kind of time investment can subtract from your quality of life – another reason to turn to other resources for help and insight.

Mike Moffitt may be reached at phe# 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

  

Citations.

1 – cnbc.com/2015/09/10/this-market-is-setting-a-wild-volatility-record.html [9/10/15]

2 – research.stlouisfed.org/fred2/series/UEMPMEAN [9/4/15]

3 – research.stlouisfed.org/fred2/series/U6RATE/ [9/4/15]

You Could Retire…But Should You?

It might be better to wait a bit longer.

Some people retire at first opportunity, only to wish they had waited longer. Thanks to Wall Street’s long bull run, many pre-retirees have seen their savings fully recover from the shock of the 2007-09 bear market to the point where they appear to have reached the “magic number.” You may be one of them – but just because you can retire does not necessarily mean that you should.

Retiring earlier may increase longevity risk. In shorthand, this is the chance of “outliving your money.” Bear markets, sudden medical expenses, savings shortfalls, and immoderate withdrawals from retirement accounts can all contribute to it. The downside of retiring at 55 or 60 is that you have that many more years of retirement to fund.

Staying employed longer means fewer years of depending on your assets and greater monthly Social Security income. A retiree who claims Social Security benefits at age 70 will receive monthly payments 76% greater than a retiree who claims them at age 62.1

There are also insurance issues to consider. If you trade the office for the golf course at age 60 or 62, do you really want to pay for a few years of private health insurance? Can you easily find such a policy? Medicare will not cover you until you turn 65; in the event of an illness, how would your finances hold up without its availability? While your employer may give you a year-and-a-half of COBRA coverage upon your exit, that could cost your household more than $1,000 a month.1,2

How is your cash position? If your early retirement happens to coincide with a severe market downturn or a business or health crisis, you will need an emergency fund – or at the very least enough liquidity to quickly address such issues.

Does your spouse want to retire later? If so, your desire to retire early might cause some conflicts and impact any shared retirement dreams you hold. If you have older children or other relatives living with you, how would your decision affect them?

Working a little longer might be good for your mind & body. Some retirees end up missing the intellectual demands of the workplace and the socialization with friends and co-workers. They find no ready equivalent once they end their careers.

Staying employed longer might also help baby boomers ward off some significant health risks. Worldwide, suicide rates are highest for those 70 and older according to the World Health Organization. Additionally, INSERM (France’s national health agency) tracked 429,000 retirees and pre-retirees for several years and concluded that those who left the workforce at age 60 were at 15% greater risk of developing dementia than those who stopped working at 65.3

It seems that the more affluent you are, the more likely you are to keep working. Last year, Bank of America’s Merrill Lynch and Age Wave surveyed wealthy retirees and found that 29% of respondents with more than $5 million in invested assets were still working. That held true for 33% of respondents with invested assets in the $1-5 million range. Most of these millionaires said they were working by choice, and about half were working in new careers.1

Ideally, you retire with adequate savings and a plan to stay physically and mentally active and socially engaged. Waiting a bit longer to retire might be good for your wealth and health.

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – tinyurl.com/o8lf6z2 [8/1/14]

2 – money.usnews.com/money/blogs/on-retirement/2015/02/05/6-reasons-you-shouldnt-retire-early [2/5/15]

3 – newsweek.com/2015/03/20/retiring-too-early-can-kill-you-312092.html [3/20/15]

How Might Higher Inflation Affect Your Investments?

With the Fed poised to gradually raise rates, this is worth considering.

America once experienced something called “moderate inflation.” It may seem like a distant memory, but it could very well return in the second half of this decade.

A remote possibility? Most economists think the Fed will start raising interest rates in late 2015 and take them higher in 2016 through a series of incremental hikes – a march toward normal monetary policy, in which the Fed funds rate ranges between 3-5%. Once the Fed begins tightening, it usually keeps at it – as an example, the central bank raised rates 17 times during 2003-06 alone.1

Keep in mind that there are two forms of interest rates. Short-term interest rates are mainly controlled by Fed policy. Long-term interest rates ride on the bond market’s expectations. Still, short-term rate hikes have an effect on investors as well as lenders. They influence the mood and outlook of Wall Street; they affect interest rates on credit cards, some home loans and short-term savings vehicles.

What if moderate inflation resumes & the Fed reacts? What might higher inflation (and correspondingly higher interest rates) mean for your portfolio? Under such conditions, your investments may perform better than you think.

Equities should still be attractive. The ascent of the federal funds rate should be gradual over the next couple of years, and the market may price it in. A climbing federal funds rate need not become a market headwind. Remember that as the Fed authorized all those rate hikes in the mid-2000s, the market pushed toward all-time highs. When it becomes apparent that the Fed has taken rates too high, then Wall Street tends to adopt a defensive mindset.

Fixed-income investments may hold up well. It is true, long-term bonds may lose market value in a market climate with rising interest rates (though this will eventually promote additional income for investors with patience). Many investors may see wisdom in a fixed-income ladder, which means putting money into fixed-income securities with staggered maturity dates, typically from one to five years away. As interest rates gradually increase, you can gradually take advantage by replacing the shortest-term security with a medium-term or longer-term security. (Some of the other kinds of fixed-income investments, which have been earning next to nothing, may start to become more attractive; we might see interest-earning checking and savings accounts make a full-fledged comeback.)

In the big picture, consider how unimpeded the Barclays U.S. Aggregate Bond Index (in shorthand, the S&P 500 of the bond market) was in prior rising-rate environments. In the six such instances during the past 40 years (and these periods lasted 2-5 years), T-bill rates increased between 2.3-11.9% while the total annual return for the index ranged from 2.6-11.9%, with most of those total returns varying between 4-6%. For the record, the index posted a total return of 5.97% in 2014.2

So, gradually increasing inflation might not hold back the return on your portfolio. Your portfolio aside, what steps could you take that may put you in a better financial position as inflation normalizes?

You may want to adjust your spending habits. If consumer prices start rising notably, you may decide to spend less and buy less often. You may want to buy durable goods such as cars now rather than later in the decade. You may also want to make your house more energy-efficient, drive vehicles that get better MPG, and take full advantage of your health care coverage – as energy, fuel, and medical costs often rise faster than others.

You could live with less debt. As determined by Bankrate.com, the average credit card currently carries a 15.91% interest rate. Can you imagine that going higher? It almost certainly will when the Fed makes its move. Credit card interest rates are based on the prime rate; movements in the prime rate closely mirror movements in the federal funds rate. Credit card issuers frequently adjust interest rates upward right after the central bank does.3

Lastly, remember the upside to rising inflation. A larger annual increase for the Consumer Price Index implies a boost in Social Security income for seniors, and rising interest rates will translate to appreciable yields for risk-averse savers.

Mike Moffitt may be reached at ph# 641-782-5577 or email rsmlbyer@mchsi.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

The Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.

Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

No strategy assures success or protects against loss. Investing involves risk, including loss of principal. 

Citations.

1 – news.morningstar.com/articlenet/article.aspx?id=705846 [7/16/15]

2 – marketwatch.com/story/how-your-bond-portfolio-can-survive-higher-rates-2015-04-23 [4/23/15]

Rising Interest Rates

How might they affect investments, housing and retirees?

How will Wall Street fare if interest rates climb back to historic norms? Rising interest rates could certainly impact investments, the real estate market and the overall economy – but their influence might not be as negative as some perceive.

Why are rates rising?
You can cite three factors. The Federal Reserve is gradually reducing its monthly asset purchases. As that has happened, inflation expectations have grown, and perception can often become reality on Main Street and Wall Street. In addition, the economy has gained momentum, and interest rates tend to rise in better times.

The federal funds rate (the interest rate on loans by the Fed to the banks to meet reserve requirements) has been in the 0.0%-0.25% range since December 2008. Historically, it has averaged about 4%. It was at 4.25% when the recession hit in late 2007. Short-term fluctuations have also been the norm for the key interest rate. It was at 1.00% in June 2003 compared to 6.5% in May 2000. In December 1991, it was at 4.00% – but just 17 months earlier, it had been at 8.00%. Rates will rise, fall and rise again; what may happen as they rise?1,2

The effect on investments. Last September, an investment strategist named Rob Brown wrote an article for Financial Advisor Magazine noting how well stocks have performed as rates rise. Brown studied the 30 economic expansions that have occurred in the United States since 1865 (excepting our current one). He pinpointed a 10-month window within each expansion that saw the greatest gains in interest rates (referencing then-current yields on the 10-year Treasury). The median return on the S&P 500 for all of these 10-month windows was 7.93% and the index returned positive in 80% of these 10-month periods. Looking at such 10-month windows since 1919, the S&P’s median return was even better at 11.50% – and the index gained in 81% of said intervals.3

Lastly, Brown looked at the S&P 500’s return in the 12-month periods ending on October 31, 1994 and May 31, 2004. In the first 12-month stretch, the interest rate on the 10-year note rose 2.38% to 7.81% while the S&P gained only 3.87%. Across the 12 months ending on May 31, 2004, however, the index rose 18.33% even as the 10-year Treasury yield rose 1.29% to 4.66%.3

The effect on the housing market. Do costlier mortgages discourage home sales? Recent data backs up that presumption. Existing home sales were up 1.3% for April, but that was the first monthly gain recorded by the National Association of Realtors for 2014. Year-over-year, the decline was 6.8%. On the other hand, when the economy improves the labor market typically improves as well, and more hiring means less unemployment. Unemployment is an impediment to home sales; lessen it, and more homes might move even as mortgages grow more expensive.4

When the economy is well, home prices have every reason to appreciate even if interest rates go up. NAR says the median sale price of an existing home rose 5.2% in the past year – not the double-digit appreciation seen in 2013, but not bad. Cash buyers don’t care about interest rates, and according to RealtyTrac, 43% of buyers in Q1 bought without mortgages.4,5

Rates might not climb as fast as some think. Federal Reserve Bank of New York President William Dudley – whose voting in Fed policy meetings tends to correspond with that of Janet Yellen – thinks that the federal funds rate will stay below its historic average for some time. Why? In a May 20 speech, he noted three reasons. One, baby boomers are retiring, which implies less potential for economic growth across the next decade. Two, banks are asked to keep higher capital ratios these days, and that implies lower bank profits and less lending as more money is being held in reserves. Three, he believes households and businesses are still traumatized by the memory of the Great Recession. Many are reluctant to invest and spend, especially with college loan debt so endemic and the housing sector possibly cooling off.6

Emerging markets in particular may have been soothed by recent comments from Dudley and other Fed officials. They have seen less volatility this spring than in previous months, and the MSCI Emerging Markets index has outperformed the S&P 500 so far this year.2

Michael Moffitt may be reached at 1-641-782-5577 or email: mikem@cfgiowa.com
website: cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC.  Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor.  Cornerstone Financial Group and AIM are separate entities from LPL Financial.

The Standard & Poor’s 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.

Economic forecast set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The MSCI EM (Emerging Marketing) Europe, Middle East and Africa Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of Europe, the Middle East and Africa. As of May 27, 2010 the MSCI EM EMEA index consisted of the following 8 emerging market country indices: Czech Republic, Hungary, Poland, Russia, Turkey, Egypt, Morocco, and South Africa.

All indices referenced 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. Past performance is no guarantee of future results.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – newyorkfed.org/markets/statistics/dlyrates/fedrate.html [5/22/14]
2 – reuters.com/article/2014/05/21/saft-on-wealth-idUSL1N0NZ1GM20140521 [5/21/14]
3 – fa-mag.com/news/what-happens-to-stocks-when-interest-rates-rise-15468.html [9/17/13]
4 – marketwatch.com/story/existing-home-sales-fastest-in-four-months-2014-05-22 [5/22/14]
5 – marketwatch.com/story/43-of-2014-home-buyers-paid-all-cash-2014-05-08 [5/8/14]
6 – money.cnn.com/2014/05/20/investing/fed-low-interest-rates-dudley/index.html [5/20/14]

China, Ukraine & the Markets

Dow drops again, analysts wonder. March 13 saw another triple-digit descent for the blue chips – the Dow Jones Industrial Average plummeted more than 230 points, the second market day in less than two weeks to witness a loss of 150 points or greater. The S&P 500’s (small) YTD gain was also wiped out by the selloff. As the bull market enters its sixth year, it faces some sudden and potentially stiff headwinds, hopefully short-term.1,2

In Ukraine, the situation is fluid. As the trading week ended, much was unresolved about the nation’s future. The parliament of its autonomous Crimea region had announced a March 16 referendum, which gave voters two options: rejoin Russia, or break away from Ukraine and form a new nation.3

Ukraine’s government calls the referendum unconstitutional. The United States and key European Union (EU) members agree and claim it violates international law. Russia welcomes the vote – 60% of the Crimean Peninsula’s population is made up of ethnic Russians, and Russian troops more or less control the region now.3

Russia wants the real estate (its Black Sea naval fleet is based on the Crimean Peninsula) and could spread its economic influence further with the annexation of that region. The cost: economic sanctions, probably harsh ones. Should diplomacy fail to stop the secession vote, then Russia can expect “a very serious series of steps Monday in Europe and [the United States],” according to Secretary of State John Kerry.3

So far, the moves have been largely symbolic: a suspension of the 2014 G8 summit and the talks on Russia’s entry into the OECD, and asset freezes for individuals and companies deemed to be hurting democracy in Ukraine. Additional “serious” steps could include financial sanctions for Russian banks, an embargo on arms exports to Russia, and the EU opting to get more of its energy supplies from other nations. Russia could respond in kind, of course, with similar asset freezes and possible pressure on eurozone companies doing business in Ukraine. The fact that Russia has already staged war games near Ukraine adds another layer of anxiety for global markets.4

Investors see China’s growth clearly slowing. Its exports were down 18.1% year-over-year in February. Analysts polled by Reuters projected China’s industrial output rising 9.5% across January and February, but the gain was actually just 8.6%. The Reuters consensus for a yearly retail sales gain of 13.5% for China was also way off; the advance measured in February was 11.8%. These disappointments bothered Wall Street greatly on Thursday. The news also roiled the metals market – copper fell 1.3% on March 13, its third down day on the week.

Besides being the world’s top copper user, China also employs the base metal as collateral for bank loans.1,5,6

As Chinese Premier Li Keqiang noted on March 13, the nation’s 2014 growth target is 7.5%; the respected (and very bearish) economist Marc Faber told CNBC he suspects China’s growth is more like 4%. The upside, Faber commented, is that “4 percent growth in a world that has no growth is actually very good.”6

Will the bull market pass the test? It has passed many so far, and it is just several days away from becoming the fifth-longest bull in history (outlasting the 1982-7 advance). Bears wonder how long it can keep going, referencing a P-E (price-to-earnings) ratio of 17 for the S&P 500 right now (rivaling where it was in 2008 before the downturn), and the 1.9% consensus estimate of U.S. Q1 earnings growth in Bloomberg’s latest survey of Wall Street analysts (down from a 6.6% forecast when 2014 began).1

Then again, the weather is getting warmer and the new data stateside is encouraging: February saw the first rise in U.S. retail sales in three months, and jobless claims touched a 4-month low last week. Maybe Wall Street (and the world) can keep these signs of the U.S. economic rebound in mind as stocks deal with momentary headwinds.1

Michael Moffitt may be reached at 1-800-827-5577 or email: mikem@cfgiowa.com
Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and, securities are offered through LPL Financial, member FINRA/SIPC.  Investment advice offered through Advantage Investment Management, a registered investment advisor and a separate entity from LPL Financial.

The Standard & Poor’s 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. It cannot be invested into directly.

The Dow Jones Industrial Average (the ‘Dow’) is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

The P/E ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower P/E ratio.

International and emerging market investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – bloomberg.com/news/2014-03-12/nikkei-futures-fall-before-china-data-while-oil-rebounds.html [3/12/14]
2 – ajc.com/feed/business/stock-market-today-dow-jones-industrial-average/fYjPS/ [3/3/14]
3 – cnn.com/2014/03/13/politics/crimea-referendum-explainer/ [3/13/14]
4 – uk.reuters.com/article/2014/03/13/uk-ukraine-crisis-factbox-idUKBREA2C19L20140313 [3/13/14]
5 – cnbc.com/id/101492226 [3/13/14]
6 – cnbc.com/id/101489500 [3/13/14]