February, 2018 Mid-Month Update

President’s Day Holiday-Monday, February 19^th:

The U.S. financial markets will be closed on Monday, February 19^th in observance of President’s Day.  Our offices will be closed as well.  Monday is also a banking holiday, so any requested withdrawals from accounts at Trust Company of America will be processed on Tuesday, the 20^th, the next business day.  Our office will be back open for normal business hours on Tuesday.

Tax Information for 2017:

All 1099’s have now been mailed from Trust Co. of America for all accounts, both retirement accounts as well as taxable accounts.  This information is also available online via your Liberty login for your accounts.  Also, please remember there is a CSV (Excel) file that can be downloaded to most tax preparation software providing all transactions within taxable accounts. We are more than happy to assist you in providing this information to your tax preparer.  Just let us know and we can send this directly to them to in order to prepare your 2017 income tax return.

The Markets:

February started out with a well overdue stock market “correction”.  From the high for the Dow Jones Industrial Average on January 26^th of 26,616.71 to the correction low as if this date on February 8^th of 23,860.46, the Dow had dropped 10.36%.   The Dow has already recovered back to 25,219.38 as of last Friday. This is a gain of 5.7% in just 6 trading days. (Google Finance) A 10% correction in a rising market is quite common and we fully expected some type of correction this year.  Volatility has also returned to the markets, which up until late January, has been fairly benign since late 2016.  We probably can expect volatility to get back to a more normal level, but we do still believe 2018 will still likely produce positive results.  Actual point swings in the market indices will likely be larger numbers since the major indices are at such a higher level than 5 or 10 years ago. It’s important to focus on the percentage of change vs. the point change at these current levels.

Rising Treasury yields and higher inflation expectations probably help spark the recent correction in stock prices.  Inflation has been so low in recent years, that even an inflation rate between 2 and 3 percent is quite low relative to historical norms.  The current yield for the 10- year U.S. Treasury is at 2.875% while the 30-year Treasury yield closed at 3.133% on Friday. (MarketWatch) The national average for a 30-year fixed rate mortgage was at 4.3% while the 15-year fixed rate was 3.69% on Friday, February 16^th. (Bankrate.com)

The fundamentals are still in place for economic growth moving forward as well as rising corporate profits.  Tax cuts are just now taking affect, both on a personal and corporate tax level. We remain cautiously optimistic moving forward this year and are pleased with the recovery of portfolios for all risk levels since February 8^th. Our allocations continue to hold fixed income/bond assets primarily in the corporate bond sector, which has been less affected by the increase in Treasury yields (decline in prices)

Some possible risks to the markets that could present a headwind for stock prices could be:

1. Accelerating inflation
2. Analysts over optimistic regarding corporate earnings growth?
3. Direction of the dollar
4. Oil prices

We will continue to monitor the markets moving forward and make adjustments if warranted.

We appreciate the privilege to serve each of you and look forward to working with you all in the years to come.

God Bless,

Your TEAM at F.I.G. Financial Advisory Services, Inc.

 

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