Understanding Why Markets Are Highly Volatile

Posted By: Ryan Kimes, CFP

Weekly Update – October 15, 2018

10.15.18.PNG

Volatility was back in full force last week. The three major domestic indexes posted several days of losses before experiencing wide swings on Friday. By week’s end, the Cboe Volatility Index (VIX), which investors use to help measure fear in the markets, had increased by approximately 70%. The VIX also reached its highest point since February.

Despite a number of equities posting last-minute gains on Friday, all three domestic indexes had sizable losses for the week. In fact, they posted their worst weekly performance since March. The S&P 500 dropped 4.10%, the Dow declined 4.19%, and the NASDAQ gave back 3.74%. International stocks in the MSCI EAFE also lost ground, decreasing 3.96%.

What drove market performance last week?

As is typically the case, a number of details affected investor sentiment and behavior. The following topics were among the perspectives impacting performance:

Rising interest rates: In addition to the Fed’s interest rate increases, 10-year Treasury yields are on many investors’ minds. At one point last week, the 10-year reached its highest yields since 2011. As interest from banks and bonds rise, some investors exit the markets in search of more predictable returns. These moves can cause stock prices to drop. However, we want to remind you of what we wrote about last week: Rising rates may bring their own risks, but they are a sign that the economy is growing.

Falling tech prices: Technology companies have been the best market performers in 2018. However, the sector just experienced its worst weekly results since this spring. With this shift in industry performance, some market participants have begun searching for different ways to invest their money.

Ongoing trade tension: While many analysts believe interest rates and tech prices drove last week’s losses, some feel that our trade renegotiation with China is to blame. We do not yet know how this skirmish will resolve, but tariffs do have the possibility to slow economic growth and increase prices for consumers.

These concerns and perspectives are important, but they do not give a complete understanding of our current economic conditions. Consumer sentiment remains high, and the latest corporate earnings season is likely to show strong, double-digit earnings growth for companies.

We know that volatility can feel uncomfortable, but it is normal. In the past 38 years, the markets have averaged a 13.8% intra-year declineyet 29 of those years had positive returns.

As always, we are continuing to monitor economic fundamentals and investor perspectives to find a clear view of where we are today, and what may be ahead. If you have any questions, we are here for you.

ECONOMIC CALENDAR

Monday: Retail Sales

Tuesday: Industrial Production, Housing Market Index

Wednesday: Housing Starts

Thursday: Jobless Claims

Friday: Existing Home Sales

[1] https://www.cnbc.com/2018/10/12/us-markets-data-and-bank-earnings-in-focus.html

[1] https://www.cnbc.com/2018/10/12/us-markets-data-and-bank-earnings-in-focus.html

[1] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI&region=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO

[1] https://www.msci.com/end-of-day-data-search

[1] https://www.bloomberg.com/news/articles/2018-10-12/another-gut-wrenching-week-puts-2018-stocks-in-with-bad-company?srnd=markets-vp

[1] https://www.forbes.com/sites/markavallone/2018/10/11/5-reasons-why-higher-interest-rates-matter/#50fabc87577d

[1] https://www.investopedia.com/investing/how-interest-rates-affect-stock-market/

[1] https://www.cnbc.com/2018/10/12/us-markets-data-and-bank-earnings-in-focus.html

[1] https://www.bloomberg.com/news/articles/2018-10-12/another-gut-wrenching-week-puts-2018-stocks-in-with-bad-company?srnd=markets-vp

[1] http://fortune.com/2018/10/11/trump-federal-reserve-powell-lagarde-carney/

[1] https://www.businessinsider.com/trump-trade-war-tariffs-china-effect-2018-10

[1] http://wsj-us.econoday.com/byshoweventfull.asp?fid=485860&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top

https://www.cnbc.com/2018/10/12/us-markets-data-and-bank-earnings-in-focus.html

[1] https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-the-markets/viewer  p.14

[1] https://www.goodhousekeeping.com/food-recipes/easy/a23008885/pumpkin-bread/

[1] https://www.irs.gov/newsroom/taxpayers-should-check-out-these-helpful-tax-tools

[1] https://www.golfdigest.com/story/never-clank-one-off-a-branch-again

[1]https://www.consumerreports.org/exercise-fitness/benefits-of-walking/

Examining Economies

Posted By: Ryan Kimes, CFP

Weekly Update – October 8, 2018

 Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on  Morningstar.com  and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Although new data continued to show strength in the U.S. economy, markets stumbled across the globe last week.[i] The S&P 500 lost 0.98%, the Dow dropped 0.04%, and the NASDAQ declined 3.21%.[ii] International stocks in the MSCI EAFE struggled, posting a 2.35% loss.[iii]

While U.S. and international stocks followed similar paths last week, data is beginning to show that our economic outlooks may be very different for the moment.[iv]

U.S. Strength in a Growing International Divide

The latest labor report helped underscore some of the differences between the U.S. economy and the rest of the world. While the data missed the mark for new jobs added, September marked the 96th-straight month of job growth¾and the lowest unemployment level since 1969.[v] The report pushed interest rates higher, which contributed to last week’s equity losses.[vi]

However, when describing our economy, Federal Reserve Chair Jerome Powell said it is experiencing “a particularly bright moment.” [vii]

Global Growth Adjustments

At the same time, the International Monetary Fund (IMF) indicated that it would decrease its global economic growth predictions. The IMF hasn’t downgraded its forecasts since 2016. Currently, more risks are beginning to emerge¾from trade tension to political challenges in Europe.[viii] In particular, the rise in oil prices, the U.S dollar, and interest rates are hurting emerging economies.[ix]

HSBC mirrored this divide, cutting its global economic outlook while upgrading U.S. numbers.[x]

A Look Ahead While Looking Back

As the labor market tightens, inflation could rise¾bringing even more interest rate hikes from the Federal Reserve.[xi] While rising rates bring their own set of risks, they are ultimately a sign that the economy is growing. On the other hand, when the Fed lowers rates, they do so because the economy is slowing.[xii]

This week, we mark the 11th anniversary of the markets hitting their highest pre-recession point on October 9, 2007.[xiii] At that time, hopes that the Fed would lower rates again contributed to the new record highs.[xiv] In the ensuing months, the Dow lost more than half its value as the Great Recession began.[xv]

While markets were down last week, they were still far ahead of their highs from 2007. The Dow closed at 14,164.43 on October 9, 2007¾and ended at 26,447.05 on October 5, 2018.[xvi]

Investors have experienced quite a ride in the past 11 years, but the market’s long-term growth is undeniable. Risks are here, as they always are. But we are here to help you understand and navigate those risks, no matter what the markets bring.

ECONOMIC CALENDAR

Monday: U.S. Holiday: Columbus Day

Wednesday: PPI-FD

Thursday: CPI, Jobless Claims

Friday: Import and Export Prices, Consumer Sentiment


[i] https://www.reuters.com/article/us-global-markets/stocks-fall-globally-after-u-s-jobs-data-treasury-yields-rise-again-idUSKCN1MF04H

[ii] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI®ion=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO

[iii] https://www.msci.com/end-of-day-data-search

[iv] https://www.bloomberg.com/news/articles/2018-10-05/u-s-economy-isn-t-bright-enough-to-offset-global-growth-slowing?srnd=markets-vp

[v] https://www.cnbc.com/2018/10/05/us-markets-jobs-report-and-rates-in-focus.html

https://www.nytimes.com/2018/10/05/business/economy/jobs-report.html

[vi] https://www.cnbc.com/2018/10/05/us-markets-jobs-report-and-rates-in-focus.html

[vii] https://www.bloomberg.com/news/articles/2018-10-05/u-s-economy-isn-t-bright-enough-to-offset-global-growth-slowing?srnd=markets-vp

[viii] https://www.bloomberg.com/news/articles/2018-10-05/u-s-economy-isn-t-bright-enough-to-offset-global-growth-slowing?srnd=markets-vp

[ix] https://www.reuters.com/article/us-global-markets/stocks-fall-globally-after-u-s-jobs-data-treasury-yields-rise-again-idUSKCN1MF04H

[x] https://www.bloomberg.com/news/articles/2018-10-05/u-s-economy-isn-t-bright-enough-to-offset-global-growth-slowing?srnd=markets-vp

[xi] https://www.bloomberg.com/news/articles/2018-10-05/u-s-economy-isn-t-bright-enough-to-offset-global-growth-slowing?srnd=markets-vp

[xii] https://www.investopedia.com/investing/how-interest-rates-affect-stock-market/

[xiii] https://www.thebalance.com/stock-market-crash-of-2008-3305535

[xiv] https://money.cnn.com/2007/10/09/markets/markets_0500/index.htm?postversion=2007100917

[xv] https://www.thebalance.com/stock-market-crash-of-2008-3305535

[xvi] https://www.thebalance.com/stock-market-crash-of-2008-3305535

https://www.cnbc.com/2018/10/05/us-markets-jobs-report-and-rates-in-focus.html

New Records and Changes

Weekly Update – September 24, 2018

Posted by: Ryan Kimes, CFP

24 Data.PNG

Last week brought new tariffs and data, and another look at changes coming to equity classifications. Overall, the S&P 500 gained 0.85% and the Dow was up 2.25%, while the NASDAQ dropped 0.29%.[i] International stocks in the MSCI EAFE had sizable growth, posting a 2.89% increase.[ii]

A Look Back: Last Week’s Tariffs and Mixed Housing Data

For months, fears of a global trade war have dominated headlines. Last week, China and the U.S. launched new tariffs on each other’s products, but the latest round of this trade skirmish had an interesting effect. Rather than feeling concerned, both analysts and investors interpreted the tariffs to be lower than what they expected. As concerns about the global trade war calmed, both the S&P 500 and Dow reached new record highs.[iii] 

In addition, we received some important economic information last week, including key updates on the housing industry. While the economy and markets are performing well, recent data indicates that the housing market isn’t keeping up. The data revealed:

 

  • The Housing Market Index remained at the same relatively low point it reached in August.[iv]

  • Housing starts jumped, but new building permits declined.[v]

  • Existing home sales were flat, marking the first time in 4 months that they didn’t decline.[vi]

 

A Look Ahead: This Week’s Global Industry Classification Standard (GICS) Update

 

Since 1999, the GICS has been classifying stocks based on their sectors and industries, including most of the world’s equities.[vii]

As of Monday, the S&P 500 has adjusted its sectors to change telecom into communications services and moved several big stocks into new classifications. This move is the largest GICS change since 1999 and is partly an attempt to reduce tech stocks’ weight in the markets. As technology companies have grown in the past few years, they have come to represent 26% of the S&P 500. Some experts believe that is an unbalanced level and allows tech to have too much influence on the markets.[viii] 

The GICS reclassification affects many notable companies, including Facebook, Netflix, Alphabet, and Twitter. They all now join the new communications services sector.[ix] This sector name change may not actually alter the sway that technology companies have on the markets, but it will likely have other effects on investors. In the near term, volatility may increase as stocks move to new industries and fund managers adjust their holdings.[x]

Many factors determine the reclassification’s specific effects on individual investors, so if you have questions about your portfolio, please let us know. We want to ensure you understand what you hold—and why—and how we are helping you adapt to both short- and long-term changes. If you would like guidance on any of the details we’ve shared today, we are always ready to help.

ECONOMIC CALENDAR

Tuesday: Consumer Confidence

Wednesday: New Home Sales, FOMC Meeting Announcement

Thursday: Durable Goods Orders, GDP, Jobless Claims

Friday: Personal Income and Outlays, Consumer Sentiment




[i] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI&region=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO

[ii] https://www.msci.com/end-of-day-data-search

[iii] https://www.cnbc.com/2018/09/21/wall-street-turns-to-economic-data-and-trade-spat-news.html

[iv] http://wsj-us.econoday.com/byshoweventfull.asp?fid=496710&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top

[v] http://wsj-us.econoday.com/byshoweventfull.asp?fid=485719&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top

[vi] https://www.ftportfolios.com/Commentary/EconomicResearch/2018/9/20/existing-home-sales-were-unchanged-in-august

[vii] https://www.investopedia.com/terms/g/gics.asp

[viii] https://www.cnbc.com/2018/09/21/on-monday-google-facebook-and-netflix-will-make-a-big-market-move.html

[ix] https://www.reuters.com/article/us-usa-stocks-gics-explainer/what-sector-overhaul-means-for-tech-stocks-wall-street-idUSKCN1LZ2JT

[x] https://www.reuters.com/article/us-usa-stocks-gics-explainer/what-sector-overhaul-means-for-tech-stocks-wall-street-idUSKCN1LZ2JT

Mixed Performance as Turkey Stumbles

Weekly Update - August 13th 2018

Posted by: Ryan Kimes,  CFP®

Stocks ended the week in mixed territory as trouble with Turkey’s currency affected U.S. equity performance on Friday, August 10.  For the week, the S&P lost 0.25%, the Dow declined 0.59%, and the NASDAQ increased 0.35%.  International stocks in the MSCI EAFE stumbled, giving back 1.57%.  

Although last week brought relatively few economic updates, we did learn that the labor market continues to improve and consumer prices are on the rise.  While this news may have affected market performance, the challenges facing Turkey’s economy had an outsize impact on global stocks.  

What happened to the Turkish lira?
The Turkish lira dropped 14% to 6.46 per dollar, the weakest on record with the largest drop in more than 17 years. The lira ended the week at a record low against the U.S. dollar.  Tension between the U.S. and Turkey played a part in the decline as President Trump tweeted plans to double tariffs on Turkish steel and aluminum imports. This potential tariff hike followed a stalled conversation between the two countries concerning an imprisoned U.S. pastor who Turkey believes supported a 2016 attempted coup.  

How did investors react?
The resulting drop in the lira’s value concerned investors and led to losses in markets worldwide. Friday, the S&P 500 marked its largest daily decline since June after getting close to a new record high.  

Why do investors care?
The lira’s drop is another sign that emerging markets are experiencing challenges in their economies.  Some investors worry that Turkey’s economic crisis could spread to other countries or affect interest in other emerging markets.  

Should you be concerned?
Probably not for now. U.S. companies don’t have a tremendous amount of exposure to Turkish markets.  

We know that global dynamics can be complex and understanding their specific effects on your financial life may seem challenging. If you have any questions, contact us any time. 

ECONOMIC CALENDAR
Tuesday: Import and Export Prices
Wednesday: Retail Sales, Industrial Production, Housing Market Index
Thursday: Housing Starts, Jobless Claims
Friday: Consumer Sentiment
 

 Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on  Morningstar.com  and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Stocks Up as Data Comes In

Posted by: Ryan Kimes, CFP®

Week in Review: Data as of 8/6/2018

Domestic markets ended last week in positive territory, as the S&P gained 0.76%, the Dow was up 0.05%, and the NASDAQ increased 0.96%.  This performance marked the 5th week in a row that the S&P 500 and Dow posted gains.  Meanwhile, international stocks in the MSCI EAFE stumbled, losing 1.47% for the week.  

Once again, trade and corporate earnings were in the news last week. We learned that the U.S. is considering increasing tariffs on $200 billion of Chinese imports. In response, China announced their own tariffs ranging from 5%–25% on $60 billion of U.S. products.  

Corporate earnings season also continued, and so far, more than 78% of S&P 500 companies have beaten estimates.  If the trend holds, the 2nd quarter will likely average more than 20% growth in earnings per share. Companies have also detailed positive perspectives for the rest of 2018, showing that this strong corporate performance should continue.  

Of course, last week’s trade and earnings weren’t the only topics on investors’ minds. We also received a number of data reports that shaped our understanding of the economy’s health. 

 All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on  Morningstar.com  and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly

All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly

Key Findings from Last Week

•    Consumers are earning and spending more. 
The latest data for personal consumption and personal income revealed both measures increased by 0.4% in June. In addition, the report included revised data from 2013–2017, which indicated that people earned $1.05 trillion more during that time period than initially thought.  

•    Tariff concerns are affecting manufacturing. 
The manufacturing sector continues to expand at a faster rate than in 2017, but the pace of growth slowed more than anticipated in July. Respondents to the ISM Manufacturing Index survey shared concerns about tariffs, steel and aluminum disruptions, and transportation challenges.   

•    The Federal Reserve is on track for a September rate hike.
The Fed didn’t raise rates this month, but projections show a 93.6% chance that it will do so in September.  The latest jobs report detailed steady wage increases, which helped ease Fed concerns about inflation.  

This week is relatively light on economic data, but we will continue to analyze last week’s reports and the remaining corporate earnings releases. If you have any questions about where the economy is today or what may lie ahead, we’re here to talk. 

 

[1] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI&region=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
[1] https://www.cnbc.com/2018/08/03/us-stocks-point-to-lower-open-as-investors-await-jobs-report.html
[1] https://www.msci.com/end-of-day-data-search
[1] https://www.cnbc.com/2018/08/03/us-stocks-point-to-lower-open-as-investors-await-jobs-report.html
[1] https://www.reuters.com/article/us-usa-stocks/wall-street-gains-as-upbeat-earnings-trump-trade-jitters-idUSKBN1KO1IH
[1] https://www.barrons.com/articles/after-the-bell-stocks-steamroll-tariff-and-job-worries-to-end-higher-1533330996
[1] https://www.ftportfolios.com/Commentary/EconomicResearch/2018/7/31/personal-income-and-personal-consumption-both-rose-0.4percent-in-june
[1] https://www.bloomberg.com/news/articles/2018-08-01/u-s-manufacturing-cools-as-orders-gauge-falls-to-one-year-low
[1] https://www.cnbc.com/2018/08/03/us-stocks-point-to-lower-open-as-investors-await-jobs-report.html
[1] http://wsj-us.econoday.com/byshoweventfull.asp?fid=485658&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top

When Do You Need to Change Your Life Insurance Policy?

Posted by: Ryan Kimes, CFP®

When you decide to get life insurance, you’re essentially looking beyond yourself. You understand that life insurance is necessary to protect your family after you’re gone.

Sometimes, however, circumstances change, and you have to make changes to your policy to ensure your goals are achieved.

 There are numerous forms of life insurance policies, understanding which is the best for you is critical for you and your family's security and financial well-being. Sentinel Wealth Management does not sell insurance products for a commission, but includes objective insurance recommendations and advice to our clients.. 

There are numerous forms of life insurance policies, understanding which is the best for you is critical for you and your family's security and financial well-being. Sentinel Wealth Management does not sell insurance products for a commission, but includes objective insurance recommendations and advice to our clients.. 

Here are several matters to consider periodically if you have a long-standing policy:

1.    Paying your mortgage

Ideally, if you’re approaching retirement or have already retired, you should have paid off your home mortgage. Traditionally, lower retirement incomes can make mortgage payments difficult. However, mortgage and other debt is becoming increasingly commonplace among older Americans.  In fact, research shows debt levels among retirees over the age of 75 have risen by nearly 20% between 2007 and 2016. Mortgage debt has nearly doubled in the past 20 years. 

Financial analysts say eliminating mortgages should be a top priority before retiring.  Without a mortgage you may decide to lower your policy’s face amount—and your premiums—since you won’t need the higher policy proceeds. The additional income—and lower monthly expenses—will make for more manageable retirement budgets. 

2.    Becoming guardians of grandchildren

Sometimes tragedy or misfortune requires you to become your grandchildren’s guardians. More than 6 million children in the United States live with at least one grandparent, which is 9% of the population of children in the country. That’s 56% of children who are not living with their parents.  Reviewing your policy coverage, which may include adding your new dependents, may help secure your grandchildren’s future.

3.    Divorcing your spouse 

Although today’s retirees live longer, the divorce rate among older Americans is climbing. Called “gray divorces,” the rate among people 65 and older has nearly tripled since 1990.  Changes in your marital status may require you to change your beneficiary designations or reduce your coverage. Former spouses generally don’t need the higher protections under joint policies.

4.    Marrying later in life

On the other side of the relationship fence are first-time marriages or remarriages. When you enter into a new relationship, you should revisit your policies (or buy new ones) to ensure your loved ones are insured. Most policies allow you to name primary and contingent beneficiaries. 

If you’re ready to make changes to your policies, give us a call. We’re ready to help you make the most of your opportunities in the most biased way possible.
 

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Jobs Push Stocks Up

Weekly Update - July 9, 2018

Posted by: Ryan Kimes, CFP®

Domestic stocks only traded for 4 days last week, due to the Independence Day holiday. In that time, all 3 major domestic indexes posted positive results for the week. The S&P 500 added 1.52%, the Dow gained 0.76%, and the NASDAQ increased 2.37%.  International stocks in the MSCI EAFE were up as well by 0.56%.  

Once again, trade and tariffs were a major topic on many people’s minds. On Friday, July 6, the U.S. and China placed $34 billion of duties on each other’s imports.  However, instead of focusing on the trade-war escalation, another topic captured many investors’ attention: the latest jobs report.
 

 Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on  Morningstar.com  and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

What did we learn about the labor market?

This month’s report about the employment situation provided several indications that the economy continues to be healthy and growing.

1. The economy added more jobs than expected.

Economists predicted approximately 195,000 new jobs in June. Instead, the report showed that the economy added 213,000 new positions.[i] This positive performance indicates the labor market may be somewhat looser than people originally thought. As a result, the economy may have more ability to continue growing without inflation becoming a bigger concern.[ii]

2. More people tried to enter the labor market.

Unemployment rose from 3.8% to 4% in June. On the surface, this result may seem negative. In reality, the increase comes from people who were sitting on the sidelines deciding to look for work once again. This choice indicates they feel more confident in their potential to find jobs.[iii]

3. Wage growth continued at a moderate pace.

The latest data revealed wage growth at a 2.7% annual pace, which was slightly below projections. Economists aren’t certain why wages are growing at such a tepid rate, considering the labor market’s strength.[iv] However, with a record number of open jobs, wage growth should increase later this year. In addition, June’s pace should help calm concerns about the economy growing too quickly.[iv] 

One detail that June’s employment report didn’t show was any meaningful, negative impacts from tariffs. If the trade disputes continue, however, industries such as manufacturing and construction could suffer. For now, the economy is starting the 3rd quarter on relatively strong footing—after a 2nd quarter that experts say could have experienced economic growth as high as 5%.[v]

We will continue to monitor ongoing trade developments for any lasting effects on the economy or our clients’ financial lives. As always, if you have any questions, we’re here to talk.

[i] https://www.cnbc.com/2018/07/06/us-stock-futures-tariff-turmoil-and-jobs-report-in-focus.html
[ii] https://www.bloomberg.com/news/articles/2018-07-06/u-s-jobs-report-shows-room-to-run-as-trade-war-threatens-gains
[iii] http://wsj-us.econoday.com/byshoweventfull.asp?fid=485657&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
[iv]  https://www.reuters.com/article/us-usa-economy/u-s-job-growth-underscores-economys-strength-tariffs-a-threat-idUSKBN1JW0EI

[v]https://www.reuters.com/article/us-usa-economy/u-s-job-growth-underscores-economys-strength-tariffs-a-threat-idUSKBN1JW0EI