Hixon Zuercher Capital Management

Fee-only Registered Investment Advisor in Findlay, Ohio 45840

Volatility Continues – Weekly Update for December 10, 2018

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Markets went for another wild ride last week, as major domestic indexes swung back and forth. By Friday, December 7, markets had posted their worst weekly performance since March-and the S&P 500 and Dow both moved into negative territory for 2018.

Overall, the S&P 500 lost 4.60%, the Dow declined 4.50%, and the NASDAQ dropped 4.92%. International stocks in the MSCI EAFE also struggled, posting a 2.27% weekly loss.

Let’s take a look at what is driving this challenging market performance.

 Examining Recent Volatility

  1.  How volatile are stocks right now?

If recent market fluctuations have felt intense to you, there’s a reason: They are. The past three weeks have had the most volatility since 2008’s financial crisis. During this time, domestic indexes have ricocheted between gains and losses. The large swings have occurred both week-to-week and within daily trading.

  1. What is causing the volatility?

Many of the same themes we’ve discussed throughout 2018 are continuing to affect market behavior. Ultimately, many investors are worried that corporate profits and global growth will suffer if trade tension persists and the Federal Reserve continues raising interest rates.

Concerns about Treasury yields were also on investors’ minds. For part of last week, 3-year Treasury notes had higher yields than 5-year notes. Called an inversion, a higher yield on shorter-term Treasuries can be a sign of a coming recession. The yield spread between 2-year and 10-year Treasury notes, which people focus on more, has not inverted.

  1. Should you feel concerned?

With many headlines to digest, from conspiracy charges against a Chinese tech leader to comments from the Fed, investors had a lot to consider last week. The difference is how they reacted to this information. For some time, markets were basically ignoring headlines. Now, they’ve moved in the opposite direction into what one investment manager called “a period of hypersensitivity.”

Consequently, recent market performance may seem unnerving. As is often the case, however, the reality may be less extreme than what appears at first glance, especially when you look at the fundamentals.

  1. What do the fundamentals tell us?

While last week’s market performance saw large fluctuations, the fundamentals we received were far less dramatic. We learned that two sectors beat expectations in November: manufacturing and service. Further, the November labor report revealed fewer new jobs than anticipated, but unemployment is still at historically low levels, as job and wage growth continue.

Remember, risks exist in the markets and economy, and we’re analyzing these details closely. If you have any questions about your financial standing or anything you hear in the news, we are here to talk.

 ECONOMIC CALENDAR

Monday: JOLTS

Tuesday: PPI-FD

Wednesday: CPI

Thursday: Jobless Claims

Friday: Retail Sales, Industrial Production

Why Did Stocks Drop? – Weekly Update for November 26, 2018

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Last week was a tough one for markets. The S&P 500 dropped 3.79% and experienced its worst results during a Thanksgiving week since 1939. While the index officially entered correction territory on Friday, it closed 10.2% below its most recent record high. Meanwhile, the Dow and NASDAQ continued the downward trend, losing 4.44%, and 4.26%, respectively. International stocks in the MSCI EAFE also declined, posting a 1.12% loss.

Reading these results may feel quite unpleasant and elicit concerns about what is ahead. As is often the case, the story behind the numbers can help us understand the complexity and what this performance means.

Why did stocks drop?

Plummeting oil prices were one of the biggest drivers behind the market’s losses, as investors worried that too much oil is available. These concerns have contributed to oil experiencing seven weeks of losses in a row and dropping more than 20% so far this month.

While oil was a key focus last week, many other details were also on investors’ minds. Major tech companies continued to struggle and posted sizable losses for the week. In addition, the markets still don’t know how the Brexit deal, political challenges in Europe, and ongoing trade tension will all work out.

Examined together, these challenges can create questions about the strength of global growth.

Will the market losses continue?

No one can predict the future, but a few data points and perspectives can help deepen understanding of the current environment. We believe the following two details are important for you to know:

  1. Trading was light last week: The days before and after Thanksgiving had trading volume that was much lighter than normal, which often happens during this time period. This lower volume can exacerbate pricing trends, such as the declines we saw with oil. As a result, Friday’s performance may be less significant than it seems on the surface.
  2. Black Friday shopping was strong: Brick-and-mortar stores had people lined up for discounted buys, and online purchases were 28.6% higher than in 2017. The holiday season is very important for retailers, and these initial results indicate consumer spending may remain strong through year’s end.

In the coming weeks, we will gain a clearer understanding of many market influences. President Trump and Chinese President Xi are scheduled to meet this week at the G20 summit to discuss trade. Right now, the markets may be assuming these talks won’t solve the trade tension and that an economic slowdown could be ahead. Investors may also doubt whether oil-producing countries can slow production fast enough to counter reduced demand.

Other experts believe we are experiencing a disconnect between what investors are feeling and what is truly happening in the economy. As a result, a so-called “Santa Claus” rally could occur as consumer spending continues during the holiday season.

But these perspectives are opinions, not a crystal ball. No one can say for sure how these complex scenarios will play out. Rather than rely on guesswork or headlines, we’ll continue to look for clear trends and insight that support your long-term goals. If you have questions or want to talk about your current investments and strategy, we are here for you.

ECONOMIC CALENDAR

Tuesday: Consumer Confidence, FHFA House Price Index

Wednesday: GDP, New Home Sales

Thursday: Pending Home Sales Index, Jobless Claims

 

Examining October – Weekly Update for October 22, 2018

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Stock performance was mixed last week as investors considered the impact of interest rates, international affairs and corporate earnings. The S&P 500 gained 0.02%, and the Dow added 0.41% to post its first weekly gains in October. The NASDAQ declined 0.64% and extended its losing streak. International stocks in the MSCI EAFE dropped by 0.08%.

While the final weekly results showed relatively little growth or loss, the week included some volatility. So far, domestic indexes have struggled this month. As of October 19, the S&P 500 and Dow had each lost more than 3% for the month, and the NASDAQ was down 7%.

As we have often discussed in our market updates, volatility may feel uncomfortable, but market fluctuations are normal. That perspective becomes especially relevant in October, which is considered the most volatile month for markets.  

Examining October History

Historical performance can’t predict future results. However, we do believe that understanding what makes October unique can help provide context for the current environment.  

  • Significant market events
    For generations, many of the most significant market events have taken place in October, including the crash of 1929 and multiple large drops in 2008. In addition, last Friday, October 19, marked the 31st anniversary of the “Bloody Monday” market crash. On that date in 1987, the S&P 500 lost over 20% of its value
  • Higher than normal volatility
    Since 1950, the S&P 500 has experienced more 1% moves in October than any other month. The month has also been the Dow’s most volatile since its beginning in 1896.
  • Surprising performance
    Despite the large events and high volatility that October can bring, its results may be stronger than expected. For the past 20 years, October has had the strongest performance of any month.

Exactly how this month will end remains to be seen, as we still have a few trading days left. But we hope that understanding how much markets often move in October will help you ride out any future volatility with more confidence. Of course, we’re also here to provide any answers or information you need, so contact us any time.

ECONOMIC CALENDAR

Wednesday: New Home Sales
Thursday: Durable Goods Orders, Jobless Claims
Friday: GDP, Consumer Sentiment

October 2018 Market Update Video

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We just completed the 3rd quarter of 2018 and are now entering the year’s final stretch. Between July and September, the S&P 500, Dow, and NASDAQ all gained at least 7%. In fact, the S&P 500 had its best quarter since 2013. However, last month’s performance contributed little to these strong gains.

In this month’s video, I’ll discuss some of the major headlines that influenced markets in September. I will also provide insight into what these developments could mean for you as an investor.

As always, if you have any questions or concerns about your financial situation after watching this video, you can give us a call at (419) 425-2400, or send us an email at hello@hzcapital.com. We would be happy to talk.

New Records and Changes – Weekly Update for September 24, 2018

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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%. International stocks in the MSCI EAFE had sizable growth, posting a 2.89% increase.

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.

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:

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.

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.

The GICS reclassification affects many notable companies, including Facebook, Netflix, Alphabet, and Twitter. They all now join the new communications services sector. 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.

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

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