Volatility Continues – December 10, 2018
Markets went for another wild ride last week, as major domestic indexes swung back and forth. By Friday, December 7, markets had posted their worst weekly performance since March—and the S&P 500 and Dow both moved into negative territory for 2018.1https://www.cnbc.com/2018/12/07/stock-market-dow-futures-fall-ahead-of-unemployment-figures.html
Overall, the S&P 500 lost 4.60%, the Dow declined 4.50%, and the NASDAQ dropped 4.92%.2http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-UShttp://performance.morningstar.com/Performance/index-c/performance-return.action?t=%21DJI®ion=usa&culture=en-UShttp://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO International stocks in the MSCI EAFE also struggled, posting a 2.27% weekly loss.3https://www.msci.com/end-of-day-data-search
Let’s take a look at what is driving this challenging market performance.
Examining Recent Volatility
- How volatile are stocks right now?
If recent market fluctuations have felt intense to you, there’s a reason: They are. The past three weeks have had the most volatility since 2008’s financial crisis. During this time, domestic indexes have ricocheted between gains and losses. The large swings have occurred both week-to-week and within daily trading.4https://www.bloomberg.com/news/articles/2018-12-07/stocks-drubbing-vexes-fund-managers-as-year-end-pressure-mounts?srnd=premium
- What is causing the volatility?
Many of the same themes we’ve discussed throughout 2018 are continuing to affect market behavior. Ultimately, many investors are worried that corporate profits and global growth will suffer if trade tension persists and the Federal Reserve continues raising interest rates.5https://www.bloomberg.com/news/articles/2018-12-07/stocks-drubbing-vexes-fund-managers-as-year-end-pressure-mounts?srnd=premium
Concerns about Treasury yields were also on investors’ minds. For part of last week, 3-year Treasury notes had higher yields than 5-year notes. Called an inversion, a higher yield on shorter-term Treasuries can be a sign of a coming recession. The yield spread between 2-year and 10-year Treasury notes, which people focus on more, has not inverted.6https://www.cnbc.com/2018/12/07/stock-market-dow-futures-fall-ahead-of-unemployment-figures.html
- Should you feel concerned?
With many headlines to digest, from conspiracy charges against a Chinese tech leader to comments from the Fed, investors had a lot to consider last week.7https://www.bloomberg.com/news/articles/2018-12-06/asia-signals-mixed-start-for-stocks-yields-drop-markets-wrap?srnd=markets-vp The difference is how they reacted to this information. For some time, markets were basically ignoring headlines. Now, they’ve moved in the opposite direction into what one investment manager called “a period of hypersensitivity.”8https://www.cnbc.com/2018/12/07/stock-market-dow-futures-fall-ahead-of-unemployment-figures.html
Consequently, recent market performance may seem unnerving. As is often the case, however, the reality may be less extreme than what appears at first glance, especially when you look at the fundamentals.
- What do the fundamentals tell us?
While last week’s market performance saw large fluctuations, the fundamentals we received were far less dramatic. We learned that two sectors beat expectations in November: manufacturing and service.9https://www.ftportfolios.com/Commentary/EconomicResearch/2018/12/3/the-ism-manufacturing-index-rose-to-59.3-in-novemberhttps://www.ftportfolios.com/Commentary/EconomicResearch/2018/12/6/the-ism-non-manufacturing-index-rose-to-60.7-in-november Further, the November labor report revealed fewer new jobs than anticipated, but unemployment is still at historically low levels, as job and wage growth continue.10http://wsj-us.econoday.com/byshoweventfull.asp?fid=485662&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
Remember, risks exist in the markets and economy, and we’re analyzing these details closely. If you have any questions about your financial standing or anything you hear in the news, we are here to talk.
CEO, Managing Director
MGO | Wealth Advisors
Thursday: Jobless Claims
Friday: Retail Sales, Industrial Production
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance, S&P Dow Jones Indices and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the SPUSCIG. Past performance is no guarantee of future results. Indices are unmanaged and cannot be investedinto directly.
“If you wish to get rich, save what you get. A fool can earn money; but it takes a wise man to save and dispose of it to his own advantage.”
― Brigham Young
Collard Greens with Bacon and Cider Vinegar
- 3 pounds collard greens
- 4 slices bacon, cut into ¼”-wide strips
- 1 medium onion, coarsely chopped
- 2 tablespoons cider vinegar
- ¼ teaspoon salt
- ¼ teaspoon coarsely ground black pepper
- Throw away the tough stems of the collard greens.
- Chop up and then rinse the collard greens.
- Add bacon and onion to an 8-quart sauce pot.
- Over medium heat, cook until the onion is tender, and the bacon browned, stirring occasionally, about 15 minutes.
- Turn the heat to medium-high. Slowly add the collard greens and stir until the greens are wilted.
- Lower the heat to medium-low, cover the pot, and cook until the ingredients are tender, about 10 minutes.
- Turn the heat to medium-high, uncover the pot and continue cooking, while stirring, until most of the liquid has evaporated.
- Add vinegar, salt, and coarsely ground black pepper while stirring.
Recipe adapted from Good Housekeeping11https://www.goodhousekeeping.com/food-recipes/a3919/collard-greens-bacon-cider-vinegar-2664/
Tax Reform Changed Small Business Accounting Methods
If you own a small business, you may be able to use the cash method of accounting, thanks to the passage in late 2017 of the Tax Cuts and Jobs Act.
The act redefines small business as a taxpayer who has average annual gross receipts of $25 million or less for the three previous tax years and doesn’t serve as a tax shelter.
Here are some of the changes in the tax code for small business taxpayers.
- More small business taxpayers are eligible to use the cash method of accounting with the increase in the average receipts rising from $5 million to $25 million, which is indexed for inflation.
- Small business taxpayers are exempt from certain accounting rules for inventories, cost capitalizations, and long-term contracts.
- More small business taxpayers can use the cash method of accounting for tax years after December 31, 2017.
The IRS’s Revenue Procedure 2018-40 describes the procedures for obtaining automatic consent to change accounting methods to comply with the new provisions.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Tip adapted from IRS.gov12https://www.irs.gov/newsroom/heres-how-tax-reform-changed-accounting-methods-for-small-businesses
Putt Away the Pressure!
You’re on the last hole. You’re on the green. It’s been a great day on the course. If you sink this, you’ll achieve a personal best, and your friends will brag about your game for the next 10 years.
Everybody’s watching. Your best game ever is at stake. Then suddenly you freeze. Too much pressure!
You’re not alone.
Pressure can ruin the best of games. So, how do the pros overcome the pressure—when the cameras are on and the announcers are whispering?
Develop a standard putting routine, a kind of generic version you can pull out of your bag for every game use.
A kind of pre-putt, it should follow the same pattern, the same timeline, every time.
Most golfers have the habit of slowing (or, with some, speeding it up) when the pressure mounts. But the delay (or the rush) reinforces the tendency to second-guess yourself.
Once you develop a standard routine, practice it frequently so you’re able to do it in pressure settings, at a moment’s notice.
Tip adapted from GolfDigest13https://www.golfdigest.com/story/be-like-tiger-beat-pressure-with-a-relentless-routine
Causes and Treatment of Dysphagia
If you sometimes have difficulty swallowing, you may have dysphagia.
People with dysphagia have trouble getting food to pass from their mouths to their stomachs. Nerve or muscle problems usually cause dysphagia, which is more common in older people and babies.
Problems in any part of the swallowing process can indicate dysphagia.
Dysphagia symptoms include:
- Choking while eating.
- Coughing or gagging while swallowing.
- Frequent heartburn.
- Inability to control saliva in the mouth.
Treatment for high dysphagia includes:
- Swallowing therapy.
- Diet modifications, which may include easy-to-swallow foods.
- Tube feeding may help sufferers at a risk of pneumonia, malnutrition, or dehydration.
Treatment for low dysphagia (esophageal) may include:
- Dilation, which involves using a small balloon to widen the esophagus.
- Botulinum toxin (Botox) can be used to paralyze stiff muscles that are causing constrictions.
Tips adapted from MedicalNewsToday14https://www.medicalnewstoday.com/articles/177473.php
What’s So Wonderful About Wetlands?
The United States has degraded or destroyed half of the nation’s wetlands. In California, that amount is 90%.
So, what’s the big deal about wetlands? Why are they important? Here are ten benefits of wetlands. They:
- Protect one-third of the country’s threatened or endangered species.
- Protect communities from floods.
- Filter pollution.
- Block storm surges.
- Reduce potential wind and swell wave damage.
- Fertilize farm land.
- Foster recreation and tourism.
- Store carbon and thereby protect against climate change.
- Serve to boost employment.
- Lessen rises in sea levels.
Tip adapted from EarthShare15https://www.earthshare.org/wetlands/
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The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia and Southeast Asia.
The S&P U.S. Investment Grade Corporate Bond Index contains U.S.- and foreign-issued investment-grade corporate bonds denominated in U.S. dollars.
The SPUSCIG launched on April 09, 2013. All information for an index prior to its Launch Date is back-tested, based on the methodology that was in effect on the Launch Date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back-tested returns.
The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
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