27th Annual Retirement Confidence Survey - Employee Benefits Research Institute

"The 27th wave of the Retirement Confidence Survey (RCS), the longest-running survey of its kind in the nation, finds that the share of American workers who are very confident in their ability to afford a comfortable retirement remains low, and some workers report that preparing for retirement is emotionally or mentally stressful. However, among retirees, confidence in their ability to afford a comfortable retirement continues to be comparably high." Quoted from brief by Lisa Greenwald, Greenwald & Associates; and Craig Copeland, Ph.D., and Jack VanDerhei, Ph.D., Employee Benefit Research Institute.

May 2017 Market Update

The Standard & Poor's 500 gained 0.91% in April. This was the strongest April since 2013 when the S&P 500 returned 1.81%. Let's start this monthly update with a bit of a history lesson. The Dow Jones Industrial Average was created in 1896. This was a price weighted index created to help followers of the market see a quick number to determine how the market was performing. Approximately sixty years after the Dow Jones Industrial Average, in 1957, a better barometer of the market was born: the market cap weighted S&P 500 index (which expanded on the S&P Composite Index). However, the first index fund still took almost twenty years from the birth of the S&P 500 index. The Vanguard index fund, VFINX, started in 1976. On the 40th anniversary for the Vanguard index fund, Bloomberg reported on it's rocky start with only $11.3 million of assets. Over the last 40 years index funds, modern portfolio theory (MPT), and the addition of ETFs, exchange traded funds, have transformed investing. Now that our history lesson is over, let's review price, sentiment, and valuation as we start May.

Improving Our Retirement Ecosystem in the United States

In the United States federal and state regulators allow every major financial product to be offered in the marketplace. When students graduated from college prior to 1980 few of them could have conceived of the financial world they would be entering. As the retirement product offerings evolved, so did our understanding of the gaps in our system. I recently read the BPC's Commission on Retirement Security and Personal Savings report titled Securing Our Financial Future. The report states:

Workers have found themselves part of a great experiment—one that has given individuals and families far more control and responsibility for financing their own retirement, and simultaneously exposed them to greater risk. Some families are preparing appropriately, but others struggle to save for retirement while meeting competing, and often more-immediate, personal needs related to emergencies, homeownership, and education.

The commission highlights 6 areas where the US retirement system needs to improve:


Source: BPC Securing Our Financial Future

This report presents a comprehensive package of bipartisan proposals to address six key challenges:

1) Many Americans’ inability to access workplace retirement savings plans.
2) Insufficient personal savings for short-term needs, which too often leads individuals to raid their retirement savings.
3) Risk of outliving retirement savings.
4) Failure to build and use home equity to support retirement security.
5) Lack of basic knowledge about personal finance.
6) Problems with Social Security, including unsustainable finances, an outdated program structure and failure to provide adequate benefits for some retirees.

Please read the full report to learn the commission's suggestions for how to improve these areas of the retirement ecosystem in the United States. While we may not fully agree with all of the commissions' suggestions, we can all agree the current retirement ecosystem has significant gaps for many Americans that need to be addressed.

April Mid Month Sentiment Update

Sentiment on the market changed from positive for the short term (2 to 6 weeks) on April 8th to negative. We expect this sentiment indicator to fluctuate frequently as it measures the cumulative impact of multiple short term technical indicators on the S&P 500 ETF IVV. Intermediate patterns --covering 6 weeks to 9 months-- continue to read negative. Long term indicators 9 months to 2 years remain neutral. Additionally, the CNN Money Fear and Greed Index is moving closer to extreme fear, which might be a positive for long term investors. Using the calendar as a guide the market is overdue for a 5-10% correction. Fundamentally, earnings for the first quarter will ultimately drive performance over the coming months. I expect more volatility in the market over the coming months as the Trump legislative agenda flickers back and forth between perceived positive and negative impact on stocks. Wise investing my friends.

Please consult a qualified financial advisor before making any investment decisions. This blog is for educational purposes only and does NOT constitute individual investment advice.

April Market Update - Lower Expectations or Accelerating Earnings?

March 2017 was relatively uneventful for the S&P 500 (-0.04%). For the first quarter of 2017, the S&P 500 gained 5.53% --the best first quarter for the index since 2013. Overall, it was the best quarter for the market since the fourth quarter of 2015. On March 21, the S&P 500 dropped 1.2% (after the healthcare legislation failed to pass), only the second move of greater than 1% or more in either direction this quarter, the fewest such moves since 1995. Let's jump right into price, sentiment, and valuation for the market.

Weekend Reading: JP Morgan Guide to Retirement 2017

Do you want to learn all about retirement in America? Please read the slide show: JP Morgan Guide to Retirement 2017. For folks who prefer downloading the presentation, click here.

March Market Update - Will the Melt Up Continue? Time to Rebalance!

The melt up in the US Markets continues into March. The bull market will hit its 8th anniversary on March 9, 2017. Please read Mark DeCambre's article for MarketWatch titled, "Stock market roars to start March—how equities perform in the month." While the market is accelerating to the upside, so is economic data for the United States. Let's examine price, sentiment, and valuation as we begin March.

Price

Price action continues to tell investors to stay in stocks and avoid bonds. When we look at Meb Faber's timing model it reveals that investors should be in US (VTI) and foreign stocks (VEU), real estate (VNQ), and commodities (DBC). The only asset class not above its 10 month simple moving average is bonds as represented by the exchange traded fund, IEF. Price action also shows that the market has gone another month without a 5% correction. U.S. stocks haven't dropped more than 10 percent from a recent high since early 2016. Stocks last retreated close to 5 percent following BREXIT in June of last year. Lastly, moving average indicators are only one small piece of the tactical investing puzzle. Please don't use it as your only decision when making changes to your portfolio.

Sentiment

The CNN Money Fear & Greed Index shifted from 50 last month to 78 as we start March. It is challenging to add money to a market which is overly bullish. Sentiment indicators suggest long term investors will probably be rewarded by dollar cost averaging into stocks rather than adding a large investment all at once.

Valuation

Source: D Short Blog at Advisor Perspectives

Doug and Jill at the D Short blog have shown us through their charts that: The history of market valuations suggests a cautious perspective on the long term prospects for this bull market.

Summary
At the end of January, I was thinking February could be uneventful, boy was I off the mark. The S&P 500 gained 3.7% in February bucking the historical trend of February being a dull month for the market. Over the completion of this current business cycle long term investors may look back at today's expensive market and wish they had kept some cash out of the market for when the next clouds of panic selling rain on the market. As we enter March please review this quote from Mark DeCambre's article:

"And strength tends to beget strength. When looking at periods in which the S&P 500 has posted positive months from November to February. During those periods, March has logged an average return of 2.28% and finished higher nearly 85% of time."

Lastly, please read this quote from a note from Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America Merrill Lynch:

"We are updating our models to reflect the increasing likelihood that we are entering a typical end-of-bull-market rally, where fundamentals take a back seat to sentiment and technicals."

March and April could really add fuel to the end-of-bull-market rally, let's look at price, sentiment and valuation again at the end of March. Wise investing my friends.

Please consult a qualified financial advisor before making any investment decisions. This blog is for educational purposes only and does NOT constitute individual investment advice.