Friday, August 10, 2018

Monthly Market Insights: August 2018 | What Really Matters

Mark K. Nickel, CFP, CIO
Author position
Chief Investment Officer

What Really Matters

There are plenty of annoyances and distractions in our everyday lives. We have all forgotten our cell phone, experienced flight delays, and endured adverse weather. Much of what we lament on a day-to-day basis however, has little lasting impact on our lives. Broad areas that really matter might include our personal health, opportunities for our kids, or our families’ long-term financial security. Like our daily personal lives, financial news and markets present many items that demand our attention. But much of the noise is of low importance to our long-term approach.

What really matters to the processes of long-term wealth planning can be distilled down to two major verticals: company results (micro) and broad economic trends (macro). The Investment Strategy & Research (ISR) Roundtable keenly focuses on what matters as we work to ensure both you and your Wealth Advisor are well-informed. To that end, we are pleased to relay our takeaways from August’s meeting are mostly constructive.

  • Stocks Impressive through Earnings Season: This month’s ISR Roundtable dissected the month of July for US stocks; strong returns reflected robust corporate earnings. Our bond conversations focused on the yield curve (interest rates across the maturity spectrum). Possible curve inversion (a 2-yr Treasury yield > 10-yr) is a key area of focus for us, although net changes in July were minimal. Key points:
    • S&P 500 profits are set to grow ~24% in Q2’18 versus Q2’17. Sales are in line to grow ~10%. Tax cuts are boosting bottom lines, although fundamental demand is driving revenue growth.
    • The S&P 500 gained 3.3% in July, bucking weak historical trends based on seasonality. Industrials (+7%) and Healthcare (+6%) were the strongest sectors, representing new leadership.
    • The 10-yr yielded 0.30% above 2-yr notes on 7/31, -0.03% m/m.
  • Tariffs & Trade vs. Economic Data: Various data points for the US economy remain robust, from strong consumer sentiment and job gains, to tame inflation. US/China rhetoric regarding trade is still contentious for the most part, but we are not seeing meaningful impact to US activity. The Roundtable believes tensions are likely to remain elevated up to US mid-term elections, but the preponderance of US macro items creates a positive picture, in our view.
  • Opportunities: Higher short-term interest rates present investors ways to earn modest income on idle cash balances and ‘emergency’ reserves. Opportunities exist across a range of products, including ultra-short duration funds and traditional certificates of deposit (CDs). Divergences in recent performance across sectors and styles (e.g., Growth versus Value or US versus International), may bring opportunities to rebalance portfolios. Your Wealth Advisor is equipped to help you capitalize on these items.

Here at Hilliard Lyons, we focus on what really matters in order to suggest the most prudent steps along the path of attaining your long-term financial goals. ISR and your Wealth Advisor stand ready to help you navigate financial markets.

Name to Know For August

Andres Manuel Lopez Obrador

President Elect, Mexico

Andres Manuel Lopez Obrador was elected to be the next Mexican President on July 1; he won 53.2% of the popular vote. He is often referred to as ‘AMLO,’ in media publications. Mexico has a relatively long lead time between elections and inauguration, which will occur on December 1.

The President-elect is viewed as both a populist and a nationalist. He is of note this month as his election has served as a catalyst to re-invigorate NAFTA trade talks. Despite nationalist leanings, he seems open to renegotiating parts of the pact.

Important Disclosures

Each client’s investment needs, risk tolerance, and goals are different. This newsletter is not meant to be advice for any specific investor. Nothing in it should be construed as an offer to sell, or a solicitation of an offer to buy, any securities. This should not be used as the sole basis for an investment decision. Any opinions or estimates are subject to change without notice. For information about how any of this information applies to your per­sonal financial situation, please contact your Wealth Advisor.

Past performance is not a guarantee of future results.

Although the information provided to you in this newsletter was obtained or compiled from sources that we believe are reliable, J.J.B. Hilliard, W.L. Lyons, LLC cannot, and does not, guarantee that the information or data is accurate, timely, valid, or complete.

All investing involves risk, including the possible loss of principal. You should carefully consider investment objectives, risks, charges, and expenses of any investment before investing. Diversi­fication and asset alloca­tion do not guarantee a profit or guarantee against a loss.

Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market or economic developments. The bond market is also volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect can be more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks.