Hixon Zuercher Capital Management

Fee-only Registered Investment Advisor in Findlay, Ohio 45840

A Shaky Start to September – Weekly Update for September 10, 2018

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Domestic markets fell last week due to negative trade news and declining tech stocks, with the S&P 500 and Dow both breaking their multi-week winning streaks. Meanwhile, the NASDAQ posted losses for 4 days in a row for the first time since April and experienced its worst September start since 2008. Overall, the S&P 500 lost 1.03%, the Dow dropped 0.19%, and the NASDAQ gave back 2.55% for the week. International stocks in the MSCI EAFE also declined, losing 2.89%.

The Cboe Volatility Index (VIX), which can help gauge market fears, increased 15.8% last week. This increase matches what often occurs during September, when volatility returns after waning during the summer months. In fact, since 2007, volatility has been above average in September.

Of course, the change from one month or season to another isn’t enough to trigger market losses and rising volatility. Let’s analyze what drove these experiences last week.

  • Trade tension escalated between the U.S. and China.
    The U.S. is getting closer to resolving trade issues with Mexico, Canada, and the European Union⎯and the countries may unite against China’s trade approach. As a result, the likelihood of calming the trade dispute between the U.S. and China is fading. Last week, President Trump said he was prepared to add tariffs to another $267 billion in Chinese goods. These tariffs would be in addition to the $200 billion that may launch soon, which one expert said could reduce the S&P 500 by 5%.
  • Tech stocks dropped.
    Last week, the technology sector declined by 2.9%. Tech has performed better than any other sector this year and has been a market leader for 3 years. But concerns about increasing regulation—with a focus on social media companies—weighed on investors’ minds last week.
  • Wage growth increased.
    The latest jobs report surpassed expectations, with the economy adding 201,000 jobs in August. Year-over-year wage growth also rose more than expected and hit its fastest pace since 2009. This wage increase contributed to stock losses, because it could mean that 2018 will have 2 additional interest rate increases⎯with more on the horizon for 2019.

Last week certainly provided data and headlines for investors to digest. But the job market, economic fundamentals, and market remain strong. For the moment, we’ll continue to review the data we receive and seek new ways to help you prepare for what lies ahead.

ECONOMIC CALENDAR

Tuesday: JOLTS
Thursday: CPI, Jobless Claims
Friday: Retail Sales, Industrial Production, Consumer Sentiment

Mixed Results as Turkey Stumbles – Weekly Update for August 13, 2018

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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 500 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

The Power of Corporate Earnings – Weekly Update for June 25, 2018

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Stocks stumbled across the globe last week as trade tensions continued to escalate. Despite rebounding somewhat on Friday, the S&P 500 experienced its first weekly loss in a month, and the Dow posted its worst week since March. The S&P 500 dropped 0.89%, the Dow lost 2.03%, and the NASDAQ fell 0.69%. International stocks in the MSCI EAFE gave back 0.98%.

While trade headlines may affect market performance, a closer look at the data shows other, more powerful drivers affecting equity prices. In particular, many investors continue to focus on corporate earnings estimates.

Analyzing Corporate Earnings

Strong corporate earnings have helped maintain a sense of market balance in 2018. As the media focuses on political stories, corporate earnings estimates continue to rise—and have a greater market affect than many investors may recognize.

  • How Corporate Earnings Estimates Work
    Many financial services companies hire analysts to predict how much a company’s stock will earn per share. The average of all the experts’ predictions creates a consensus earnings estimate. This calculation gives a rough view of the company’s cash flow—which helps investors value a stock. Generally, when a company beats its earnings estimate, the stock price goes up. If it misses or matches the prediction, the stock may suffer.
  • Where We Are Now
    Tax cuts and increasing demand have helped earnings estimates grow this year. As the estimates have risen, companies with the largest increases are significantly outperforming those with the worst. The latest numbers show earnings per share growing in 2019 and 2020—and 2018’s projections are higher than they were at the end of the 1st quarter. This data has helped keep markets from overreacting to the geopolitical buzz in the background.

Looking Forward

While we expect to hear more on a potential trade war, we will continue to focus on key market principals. This week, we will receive several reports, including consumer confidence and durable goods orders. Rather than significantly affecting stocks, these releases may simply underscore what corporate earnings and other data continue to demonstrate: Right now, the economy is healthy.

Next month, earnings season will begin, and analysts expect S&P 500 companies to show 20% profit growth in the 2nd quarter.

Looking ahead, we will continue to analyze how rising tariffs could affect the domestic and global markets. But, as always, economic fundamentals will take the lion’s share of our attention.

If you have questions about earnings, trade, or your future, contact us any time.

ECONOMIC CALENDAR:

Tuesday: Consumer Confidence
Wednesday: Durable Goods Orders
Thursday: GDP, Jobless Claims
Friday: Personal Income and Outlays, Consumer Sentiment

Strength, Growth, and Tension – Weekly Update for June 11, 2018

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As last week ended, tension between the U.S. and some of its greatest allies was on the rise. Trade remained a hot-button topic ahead of the G-7 meeting in Canada, but investors seemed largely unfazed by the drama. In fact, all 3 domestic indexes posted strong results: The S&P 500 added 1.62% and the NASDAQ gained 1.21%, with both indexes notching their 3rd week of gains in a row. The Dow ended Friday up 2.77% for the week—recording both its highest level and largest weekly gain since March. International stocks were also up, with the MSCI EAFE increasing by 0.91%.

While geopolitical headlines keep unfolding, new data continues to indicate that the U.S. economy is on solid ground. Let’s examine a few updates we received last week:

  1. The trade deficit decreased in April.
    The latest trade data was largely positive, with the trade deficit hitting a 7-month low and coming in nearly $3 billion lower than expected. In April, exports reached their highest level in history. The economists at First Trust believe that this strong performance could push the 2nd-quarter Gross Domestic Product (GDP) as high as 5%.
  1. The labor market continues to tighten.
    The latest Job Openings and Labor Market Survey (JOLTS) gave an interesting perspective on our current labor market. Right now, more jobs are available than unemployed people looking for them. Since JOLTS began almost 20 years ago, this has never happened before. The data indicates that employers are struggling to hire people for open jobs—and that the economy is at full employment.
  1. The services sector is expanding.
    May data from the ISM non-manufacturing index showed that the services sector has experienced its 2nd-best beginning of a year since the index launched in 1997. Business activity and new orders had very positive performance, which could contribute to continuing service-sector growth for the months ahead. The report also showed prices increasing and provided more data that employers are having a hard time filling jobs in this tight labor market.

What is ahead this week?

We will receive two major central bank reports this week—and the historic U.S.–North Korea summit is on the docket as well.

President Trump and North Korea’s leader Kim Jong Un are meeting on Tuesday. The talks should cover North Korea’s nuclear program, but no one can say for sure what market impact it may have.

On a more predictable note, most analysts expect the Federal Reserve to announce its latest interest rate hike on Wednesday. While the markets have likely priced in this increase already, the Fed’s projections for the rest of 2018 could affect investor sentiment.

Meanwhile, on Thursday, experts expect the European Central Bank (ECB) will announce a plan to finally wind down its quantitative easing. If the ECB doesn’t share a timeline for ending this recession-era program, investors may interpret the move as a sign that policymakers are concerned about the EU’s economic outlook.[ix]

With a lot to consider this week, we encourage you to remember that many data updates indicate our economy is performing well. As the information unfolds, we’re here to help you separate relevant reports from headline hype. Contact us any time if you have questions about how these details may affect your financial life.

ECONOMIC CALENDAR

Tuesday: Consumer Price Index
Wednesday: FOMC Meeting Announcement
Thursday: Jobless Claims, Retail Sales
Friday: Industrial Production, Consumer Sentiment

Stocks Up, Signals Mixed – Weekly Update for May 29, 2018

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Geopolitical uncertainty affected stocks last week, as the historic summit between the U.S. and North Korea began to look less likely. On Thursday, May 24, President Trump announced that the summit was off, and stocks stumbled in reaction. The next day, Trump said the meeting might still occur next month, leaving investors questioning the eventual outcome.

Also on the geopolitical front, an announcement that Saudi Arabia and Russia would consider easing back oil supply restrictions affected stocks. U.S. crude oil prices dropped in response, pulling energy stocks down with them.

Despite these developments, major domestic indexes increased last week. The S&P 500 gained 0.31%, the Dow added 0.15%, and the NASDAQ grew by 1.08%. International stocks dropped, with the MSCI EAFE decreasing by 1.60%.

What kept U.S. stocks in positive territory for the week?

Solid corporate earnings helped drive upward movement.

A number of companies experienced double-digit stock growth last week after releasing their latest data. This strong performance helped balance the declines and uncertainty that the week’s geopolitical headlines created.

What other economic perspectives did we receive?

From durable goods to home sales, various data came out last week:

  • The factory sector could drive economic growth, as steel and aluminum tariffs are contributing to rising value of orders and inventories for metals.
  • Business confidence and 2nd-quarter investment could increase, as strong core durable goods orders may indicate good news for companies.
  • Housing is underperforming, as growth in home sales volume and prices have softened recently.

Overall, last week provided a mix of insight about the current economic strength and geopolitical environment. In this week’s 4 trading days, we’ll gain more perspectives on consumer confidence, Gross Domestic Product, manufacturing, and employment. We will use this data to continue building our understanding of what may lie ahead in the markets—and how to prepare our clients for the future. If you have any questions, we are here to talk.

ECONOMIC CALENDAR

Monday: U.S. Markets Closed for Memorial Day
Tuesday: Consumer Confidence
Wednesday: GDP, ADP Employment Report
Thursday: Jobless Claims
Friday: Employment Situation, PMI Manufacturing Index, ISM Mfg Index, Construction Spending

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