Food for Thought:
This past week I read a quote by a senior member of the “Halftime” organization out of Dallas that caught my eye and I wanted to share it with you in this week’s update. It seemed so fitting for our day and age where the very smallest things can be looked at as a major event or problem that set off our anger, often for no reason whatsoever. As I read the daily news headlines, trivial event after trivial event seem to trigger major reactions, all the way from lawsuits to even murder. Just this past week the local news reported that someone slashed another’s throat over what was suspected as road rage due to someone cutting him off from a lane change in Oklahoma City. Here’s what Lloyd Reeb from Halftime had to say about our tendencies to overreact:
“I’ve been in the retirement housing business for almost 25 years and I find that as we get older it’s easy to get outraged by smaller and smaller things. One lady called me to her table to explain her ice cream was too cold. She was outraged by a problem that would ultimately solve itself – guaranteed! As I worked to maintain my composure I was asking myself – how does someone get to this point? When did she begin thinking this way? How did her outrage for injustice, evil, poverty get overshadowed by the trivial? There’s an expression (even a movie) “grumpy old men”- how do grumpy old men become grumpy? What can I do to not follow this well-worn path?” Lloyd Reeb, author of Halftime for Couples
Why don’t we all make an effort to try and take the trivial things in stride for what they are: “trivial”, and focus our time and energy on efforts to change or correct those things that really are serious problems that can truly make a difference in this life.
The Markets:
Like watching the grass grow
Ever watch paint dry or the grass grow? Probably not but the latest upward move in stocks seems almost as exciting. There’s no pop, no fizz. Volume lagged last week and throughout the rally (Reuters).
Seemingly inspired by the prior week’s better-than-expected employment report (BLS, Bloomberg), which suggested economic growth isn’t stalling, the Dow and the S&P 500 pushed into new territory, with both indexes ending the week at new closing highs of 15,118.49 and 1,633.70, respectively (MarketWatch).
So why are we seeing continued interest in equities? Let’s return to some of the themes that propelled shares earlier in the year.
First, there are renewed expectations that economic growth will continue to chug along. No substantial pickup that would quickly create plenty of new (and needed) jobs, but nothing that is so slow that profit growth might be endangered.
This leads us to the second leg of the stool – earnings. With nearly 90% of S&P 500 comings having reported, first quarter earnings are up 5.3% versus one year ago, exceeding the reduced estimate of 1.5% analysts had forecast on April 1 and ahead of the January 1 estimate of 4.5% (Thomson Reuters). Of course, the relationship can breakdown as it did in the 1970s when double-digit inflation, soaring interest rates, rising oil prices, and a temporary Arab oil embargo worked against equities.
Lastly, the Fed’s very accommodative monetary policy has kept interest rates very low and hurt savers, but it has been a tailwind for equities. Plus, loose monetary policies aren’t just a U.S. phenomenon.
The European Central Bank cut its key rate by a quarter of a percentage point in early May to a record low of 0.5% (ECB website), and it is exploring new measures to lift the euro-zone out of a recession (Bloomberg). And the Bank of Japan ramped up its bond and asset purchases in early April (Bank of Japan website). In other words, it just isn’t the Fed. Global central banks are hoping to jumpstart economic growth in their respective countries, which has also been a positive backdrop for U.S. stocks.
It seems now the fear of when and how the Fed might stop this over accommodative policy might dictate the direction of stocks, and the initial reactions to any hint that they will change their current policy has not been positive for stocks in general. We continue to remain underweighted overall in our stock/equity positions at this time for all risk levels, and still feel the Fed may be facing a very difficult time in changing policy and when they do actually start to change direction, it could negatively affect stock prices and trigger a fairly quick turnaround to the downside that we want to try and avoid as much as possible. In the meantime, we continue to be invested in a diversified portfolio of holdings based on risk levels, and will to monitor the situation on an ongoing basis and make adjustments as we feel are warranted.
As always, please don’t hesitate to call at any time if you have any questions or if we can be of further service at any time. We truly appreciate the privilege to be of service to each and every one of you. We look forward to working with you in the years to come. Have a great week!
God Bless,
Your TEAM at F.I.G. Financial Advisory Services, Inc.