Disclaimer: These are the views of Summit Financial Consulting and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
October has started off with a lot of volatility in both the stock and bond markets. As we’re posting this today (Oct. 11) the S&P 500 Index is already down over 5.5% for the month. Typically, when stocks are going up, bonds are going down, and vice-versa. However, that has not been the case as stocks and bonds have been losing to start the month. On a positive note, we decreased our exposure to small caps, growth, and technology September 21st of last month near all-time highs. We also added a utilities fund that has been making money during the current downswing. Yesterday we sold additional equity in hopes of protecting client accounts from further short-term losses in the market. Our treasury bond position varies from 20% to 10% across our portfolios and that could change if we feel interest rates will continue rising. Our short-term stock market indicator has turned red and we may be decreasing additional equity exposure if we feel it is prudent. Please remember we are watching the markets and going through more than 5 of our most trusted independent research companies daily to manage risk appropriately. We feel in today’s ultra-sensitive and fast paced stock and bond markets you need to be watching and evaluating daily. If you have a question about any of our recent research, trades, or anything in general, please give us a call.
As of September’s quarter end, our aggressive portfolio at TD Ameritrade was up over 10%. This portfolio typically has 75% in stocks and 25% in bonds. The Barclay’s Aggregate Bond index was down -3.48%, and the DOW Jones Industrial average was up about 7%. A comparable 75%/25% index-based portfolio of the S&P 500 and Agg Bond index was up about 5.9%, giving us an outperformance of roughly 4.1% year-to-date. Our most conservative portfolio, the income portfolio, was up 3.46% year-to-date, which is much better than the bond index that is negative 3.48%. That’s about a 7% outperformance for our portfolio. We’ve been able to navigate the bond market the first three quarters this year by reducing interest rate sensitive holdings during the larger upswings in rates. Our portfolios have reached all-time-highs several times recently.
If you have any friends, family, or co-workers that are nervous about the current market climate and possibly underwhelmed with their portfolio performance, or the comprehensive nature of their financial plan, we would be honored if you would consider referring them to us. We’d be happy to help! Also, just a reminder that our tax preparation firm, Summit Tax Services, has a large staff behind it and we offer very competitive rates for our investment clients. Please call us today at (586) 226-2100 to get a quote.
New Trade Agreement
The biggest market mover this month has been the re-negotiated North American Free Trade Agreement (NAFTA). The United States has been negotiating with Mexico and Canada since August of 2017 to form a new agreement that has the potential to help balance trade between the three neighbors. The new agreement is meant to update the 1994 pact, and will be called the United States-Mexico-Canada Agreement (USMCA). Portions of the final pact have been released. Highlights include a new initiative that benefits United States Dairy Farmers since the old agreement allowed Canada to place large tariffs on all US dairy products. The Canadian Dairy Farmers of Canada were livid: “This has happened, despite assurances that our government would not sign a bad deal for Canadians,” Pierre Lampron, president of Dairy Farmers Canada, said in the statement. It said the measures will have “a dramatic impact not only for dairy farmers but for the whole sector” (Source: https://business.financialpost.com/commodities/agriculture/canadian-dairy-farmers-group-pans-new-trade-pact-with-u-s-mexico).
The new deal also limits the amount of parts that manufacturers can source from Mexico using cheaper labor. The new agreement demands that at least 40% of vehicles are made by workers who are paid at least $16 an hour. President Trump says the goal of the deal is to push manufacturing work to United States citizens. This will likely increase the cost of buying a vehicle because of higher wages (Source: https://www.freep.com/story/money/cars/2018/08/27/trade-deal-mexico-nafta-car-prices/1113586002/).
Overall, it seems the USMCA will benefit United States workers, but time will tell.
Chinese Trade War
While the US trade battle with our neighbors seems to be over, alternatively, the trade war with China is heating up. The United States recently sent a Navy warship into the disputed waters in the South China Sea, angering China and disputing their claims to the territory (Source: https://www.cnn.com/2018/09/30/politics/us-sails-south-china-sea/index.html). President Trump has threatened to put a tariff on every single product exported to the United States from China. Last year, China exported four times what it imported from the United States (Source: https://www.census.gov/foreign-trade/balance/c5700.html). Because of this, the tariffs should theoretically hurt China more than it hurts the United States in the long run. In the short run, it has the potential to hurt many businesses profit margins. The Chinese stock market has lost over 20% this year so far and the government is making an effort to stabilize the economy since it appears their economy is losing steam (Source: https://www.wsj.com/articles/chinas-economy-losing-steam-as-trade-conflict-with-u-s-intensifies-1538305300). Summit Financial has not invested in China this year, avoiding losses, and at this time we have no plans to.
We’re about a month away from the mid-term congressional elections. This election has the potential to have a huge impact on the economy and the stock market. If Democrats successfully take over the Senate or House, they will most likely make it more difficult to pass laws, the same way Republicans did for President Obama’s last term. The last presidential election proved that you cannot always trust polls. With that in mind, we will most likely approach the next 30 days with caution.
We will let you know if there is a situation which calls for immediate attention. If you have any questions about taxes, your investment portfolio, our 401(k) recommendation service, or anything else in general, please give our office a call at (586) 226-2100. Please feel free to forward this commentary to a friend, family member, or co-worker. If they would like to be added to our complimentary commentary, please send us an e-mail at email@example.com at your earliest convenience. If you have had any changes to your income, your job, your family, your health insurance, your risk tolerance, or your overall financial situation, please give us a call so we can discuss it.
Thank you for your confidence and referrals!
Bob, Ken, and Jim
Summit Financial Consulting
The selloff in the Shanghai stock market has wiped off nearly $2.7 trillion of its value since its January high. Today, the Chinese stock market is now worth only five Apples. Source: https://www.bloomberg.com/news/articles/2018-09-12/china-s-pummeled-stock-market-is-now-worth-only-five-apples
Cosmetic surgery jumped 11% in 2017, with patients spending more than $6.5 billion last year. Some 229,000 cosmetic procedures were performed on patients between the ages of 13 to 19. Source: https://www.marketwatch.com/story/should-you-let-your-teenager-get-plastic-surgery-2018-08-29
A recent study set out to determine what predicted the best outcome of surviving your first heart attack 12 month afterwards and based it on a single outcome: survival or death. The best predictor? The number and quality of friendships you had. Source: https://www.ft.com/content/c5ce0834-9a64-11e8-9702-5946bae86e6d
Pay-television subscriptions are down to 93.7 million from just under 101 million in 2011. About 6 Americans cancel their paid television every minute. Source: https://www.bloomberg.com/news/articles/2018-08-09/pay-tv-subscribers-on-the-decline
While Fannie Mae and Freddie Mac withdrew $119.8 billion and $71.6 billion from the Treasury during the Great Recession, they’ve since paid back $167.3 billion and $112.4 billion in dividends, meaning the Treasury is $88.3 billion in the black thanks to the bailouts. Source: https://www.cnbc.com/2018/09/05/fannie-mae-freddie-mac-are-uncle-sams-cash-cows-a-decade-after-crash.html
The Small Business Optimism Index jumped to 108.8 in August, the highest level ever recorded in the survey’s 45-year history and above the previous record of 108 set in 1983, during the second year of Ronald Reagan’s presidency. Source: https://www.cnbc.com/2018/09/11/small-business-optimism-surges-to-highest-ever.html
Disclosures regarding our performance reporting: Because some clients are in the 10% tax bracket and others are in the 37% Federal tax bracket, we have decided to report performance before taxes. If you have a non-qualified account, please feel free to contact us to determine your individualized rate of return after tax. All of Summit’s performance is after our 1.25% advisory fee that is deducted monthly. Your fees may be higher or lower depending upon the amount of assets invested with our firm. Feel free to contact us to receive online access so you can see your personalized rate of return. The Aggregate bond index we use is ticker: AGG. All dividends and distributions are reinvested and included in the performance. The S&P 500 index quoted above does not include dividends within the performance. If a holding within our portfolio does pay a dividend or other income, it is reinvested, so our performance does include dividends. This report has been prepared from data believed reliable, but no representation is made as to accuracy or completeness. Total return and principal value will vary depending upon the deduction of advisory fees, brokerage commissions, reinvestment of dividends and other earnings or fund charges. This information is provided to you in combined form, solely for your convenience and ease of review and is not an offer or solicitation to buy or sell any securities. In order to verify that all account values and transactions are accurate, we encourage you to compare the information provided in our statement with the statement you receive directly from your custodian. All written content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Past performance does not guarantee future results.
Summit Financial Consulting LLC
43409 Schoenherr Road, Sterling Heights, MI 48313
Phone: 586-226-2100 Fax: 586-226-3584 E-mail: firstname.lastname@example.org
Securities offered through Gradient Securities, LLC (Arden Hills, MN (866)991-1539) Member FINRA/SIPC
Summit Financial Consulting LLC is independent and is not an affiliate of Gradient Securities, LLC. Investment advisory
services offered through Summit Financial Consulting LLC, a Registered Investment Advisor in the State of Michigan.