Weekly Market Commentary

December 10, 2018

 

The Markets

We’re off to a slow start but if you step back a bit in time there is good news to digest about the market. The headlines keep promoting that the recent selloff’s have removed the positive performance year to date of 2018 of some of the indexes. Viewed over a longer period, however, corrections often begin to look less severe. An interesting stat that I gleaned from the New York Times noted that the market has been up 16% since the inauguration and more than 23% since Election Day 2016. I have also focused on being defensive and editing positions with the objective to maintain the strong gains that were delivered in 2017. Spot checking accounts and doing reviews has shown consistent success at achieving this.

I have sent out several charts in past emails documenting performance of the markets when downturns take place. In the last 20 years there have only been 10 corrections and only two turned into a bear market. I would also point out that if the tariff issue is clarified and resolved with China there is a very strong possibility of a stock market rally. So for this year every time a tariff issue has been resolved with individual countries or the European Union the markets have responded in a positive fashion. Once again this is a time where patience is very important.

December is usually the best month of the year for the stock market. It has been since 1950, but not so far this year. However, as Yogi Berra has often stated it’s not over till it’s over.

Two issues made investors uncomfortable last week that pushed major U.S. stock indices lower.

  1. Fading optimism about an easing of trade tensions with China. It looked like the relationship between the United States and China might thaw, and Americans were feeling pretty optimistic about a trade truce. In fact, markets moved higher Monday in anticipation.

Unfortunately, on the same day that Presidents Trump and Xi Jinping shared a cordial dinner, the chief financial officer of a major Chinese telecommunications firm was arrested at the request of the United States. The Economist reported, “[The company] is a pillar of the Chinese economy – and Ms. Meng is the founder’s daughter. The fate of the trade talks could hinge on her encounter with the law.”

  1. A section of the yield curve inverted. Normally, Treasury yields are higher for longer maturities of bonds than for shorter maturities of bonds. Last week, yields on three-year and five-year bonds inverted, meaning yields for three-year bonds were higher than those for five-year bonds.

Historically, these maturities have inverted seven times. In one instance, the country was already in recession. On the other six occasions, recession didn’t occur for more than two years. Barron’s reported the Standard & Poor’s 500 Index gained an average of 20 percent over the 24-month periods following these inversions.

 

About Time and Money. Elizabeth Dunn, associate psychology professor at the University of British Columbia in Vancouver, Canada, and Michael Norton, associate marketing professor at Harvard Business School, have been studying whether people should spend money differently. Their goal is to figure out how to get the most happiness for the dollars spent. In Happy Money: The Science of Happier Spending, they explained their experiments:

“…We started doling out money to strangers. But there was a catch: rather than letting them spend it however they wanted, we made them spend it how we wanted…changing the way people spent their money altered their happiness over the course of the day. And we saw this effect even when people spent as little as $5…Shifting from buying stuff to buying experiences, and from spending on yourself to spending on others, can have a dramatic impact on happiness.”

In addition, buying time can improve happiness. How do you buy time? By paying someone else to do tasks you don’t like to do – cleaning, grocery shopping, home maintenance, and other tasks. This can relieve time pressure and free up time to do what you really want to do – and that can make you happier.

The authors suggest individuals ask a simple question before making any purchase: How will this purchase change the way I use my time? Make sure the answer aligns with the goal of having an abundance of time.

 

Focus On The Positive

“Happiness is when what you think, what you say, and what you do are in harmony.”

–Mahatma Gandhi, Leader of Indian independence movement