Video Newsletters: Insights and Observations

Everything listed under: 2018

  • November 2018

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    Kevin - Greetings, Kevin Coyle and John Finley, November 14th, market update. So, John we had an October decline which is not a great shock.

    John - October's the most volatile month on average and when there's volatility, stocks tend to go down. And stocks around the world went down in October, not just the U.S., down about 7%.

    In the U.S. value was down about four, and growth stocks were down about 9%.

    Kevin -So, year to date, we've had a couple of drops of plus or minus 10%, it seems to be in a trading pattern. The comment you made earlier though, when you look at the net returns year to date, plus or minus 3%, a lot of that is the growth component of the market.

    John - We still have large cap growth stocks leading the way, Amazon, Microsoft, Apple in particular, but for most of the other stocks are trading well below their all time high, 10%, even 20% below their all time high.

    Kevin - So, some of the value managers that you talk to are seeing some opportunities-

    John - Definitely. Yes, there's cheap stocks out there to be had.

    Kevin - We're also seeing the same thing in the international emerging markets significantly.

    John - Sure. Relative to the United States, valuations overseas are much more attractive.

    Kevin - So, a diversified portfolio year to date is not going to be showing the numbers that a portfolio that's concentrated in the index or concentrated in the growth stock area, because international emerging market's down, value is down, bonds slightly down. So, you're not going to see quite two to 3% across the portfolio structure, but you're seeing more of the opportunity, at least the managers are saying this, that you want to run in the areas that haven't seen the momentum.

    The bond market, any comments there?

    John - Still have a very flat treasury curve with the Fed on target to raise again in December, and probably a couple more times at least in 2019. Long end of the curve stays a little over 3% on the 10 year, which tells me that long term investors are not seeing inflation as a big risk right now.

    Kevin - Post election, the market seems to have digested that well, having a divided house in Senate normally is a positive thing, in terms of capping spending perhaps. Any other thoughts there as we go into the new year?

    John - Well, the economy is still very healthy, unemployment is still very low at 3.7%, the lowest it's been in 50 years, growth world-wide is slowing a bit, China in particular, but still 3.7% is the estimate for next year world-wide. So, profitability in corporate America is still very, very healthy.

    Kevin - So, maybe we get some positive news on the trade war front and tariffs if you will. So, stay the course. Until next time, enjoy. 

  • August 2018

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    Kevin Coyle: Greetings. Kevin Coyle, John Finley, Augusts 2018 update. Markets have almost recovered to their January of 2018 peaks.

    John Finley: We're up 7 1/2% overall in the U.S., and that's led by large cap growth companies again. Tech's up 12% this year, large cap growth companies up over 10%. Internationally, the story's not so good, down slightly negative in international developed and emerging markets.Kevin Coyle: So total return portfolio with some international emerging markets, bonds, and some of the tech, then you should be up around 2 to 3% so far this year. The earnings backdrop?

    John Finley: Earnings are strong. They're still, with 80% of the companies reporting, over 25% increase in earnings per share. Top line growth is good, year over year over 9% for S&P 500 companies.

    Kevin Coyle: So a lot of the talk has been this rally has been for so long, and the yield curve is bordering on inverting, with the short term being at 2 1/4%, the 10 year bond being around 3%. So even though people have been worrying about inflation, the bond market seems to be saying something different.

    John Finley: Yeah, we've got the Fed on one end, raising rates because of a fear of overheating economy, and inflation but they're doing it in a measured way. We expect them to raise two more times to bring the Fed funds rate up around 2 1/2%. The investors at the long end of the treasury curve however, the reason I think that the yields are still so low is that they're not convinced in that continuing growth story or that potential inflation story.

    Kevin Coyle: Now whether that leads to a recession remains to be seen. But with the global backdrop and generally the sentiment as well as corporate management seems to be positive as we move going forward. Tariffs?

    John Finley: Well, that's the big news item this year. It's creating a lot of volatility and uncertainty in the markets. Although the stock market so far in the U.S. has been kind of shrugging that off-

    Kevin Coyle: In earnings calls, management has been expressing that they felt that it's not material issue as well as that prices could be passed through.

    John Finley: Right. So, what will yet to be seen is a lot of saber rattling in the international arena, between the Trump administration and these other countries, especially China, which has considerably more to lose in a trade war-

    Kevin Coyle: Well, they export $500 billion to us and we export $175 billion to them. So they would seem to have more skin in the game, put this all together, cautiously optimistic as we move forward.

    John Finley: Right. I agree with that.

    Kevin Coyle: Midterm elections coming up. Summer in its last month, seems like summer is ending on August 1st these days, is a bit depressing but it beats subzero temperatures. Until our next update, see you in September, October.

  • May 2018

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    Kevin: Hello, John Finley, Kevin Coyle, May 2018 market update. Maybe start with a quick recap of how we've done year-to-date, John, and over the last year.

    John: Year-to-date, we're about flat, but year-over-year, we're still up double digits, about 14% in the U.S. The market hit a new high on January 26th, but we're down about 6% from that.

    Kevin: We've had a lot more volatility than usual. We were kind of lulled into a false sense of security maybe in 2017 with very, very little fluctuation and mostly up days, but this would be more normal.

    John: Right.

    Kevin: If you look back historically, we're going to have a lot more of these types of down days during the course of the year. The global backdrop, growth-wise, what does that look like?

    John: It's still very supportive. We have global, synchronized growth. Maybe 70% of developed countries are in a pretty strong expansionary economic situation, which is good and low inflation. So it's a very supportive economic backdrop.

    Kevin: So there are some fears out there, which we'll talk about in a second, but the correction that we had, maybe 6% down from the lows combined with increased earnings, part of that from the tax cuts, but from historical measures, the market would appear to be fairly valued at this point in time.

    John: Right. The forward price earnings we're right about at the average, long-term average, and we're expecting earnings in the U.S. to be up about 20%, year-over-year, 25% on earnings per share basis, and the revenue top-line growth is still pretty healthy. It's 7%.

    Kevin: So we talked about potential fears out there of inflation, which we'll talk about in a second. The other one, which has been since this recovery started, it's been a long but slow recovery. A lot of people think, "Well, it's nine years." It's what, the second longest expansion that it can't have legs much longer. It's got to be running out soon. What are your thoughts on that?

    John: Well, this has been a different recovery coming out of the financial crisis than the other post-war recessions that we've had. We bounced back much quicker before, and we've just been plodding along at about 2% or so real GDP growth. And the reason for that is we've got the two components of GDP growth are population growth and productivity, and both of those are relatively low rates of growth right now.

    Kevin: So if you look the numbers, the length of the expansion has been long, but the degree of the recovery has not been as significant.

    John: Right. We’re seeing unemployment continue to drop, and that's creating some issues, maybe some labor shortages in certain industries.

    Kevin: But we're not seeing that really show up in the inflation figures.

    John: Not yet.

    Kevin: So we're afraid about the length of the recovery, and we're afraid about inflation, but we're not really seeing signs.

    John: Right.

    Kevin: That those are rearing their heads this year.

    John: Oil is up to $70 a barrel now, and lumber prices are up, so there are indicators that inflation may be on the rise. The Federal Reserve said recently that their inflation in the U.S. is approaching their 2%.

    Kevin: Well so the Fed had been taking precautionary action, and they've been raising short-term rates, so you have that going on. You also have the Federal Reserve trying to unwind its balance sheet from the quantitative easing from the bonds they've purchased since the recovery. And then, you also have record deficits on the horizon, and this all adds up  as potentially inflationary as well, correct?

    John: Well, certainly, it's going to put pressure on interest rates as the Fed unwinds the balance sheet, and the government has to sell bonds to finance a trillion dollar deficit for the next five years. But the bond market is not really reacting yet to any higher inflation expectations. And, in fact, it may be a bit concerned the Fed will overshoot.

    Kevin: So you have this balancing act going on, where you have potential inflation, but the bond market's saying that it's not seeing it, so rates have gone up, but the yield curve is still relatively flat. So the bond market's saying that it's seeking more potential of recession as opposed to inflation. But then you put that together with the global backdrop. The earnings and the economic climate is still positive, so it's kind of a different recipe of this Goldilocks scenario from couple years ago. It's all kind of mixing together, where it's kind of steady as you go kind of a scenario.

    John: Right. Oh, yeah, it doesn't appear that, from what we can tell, the indicators that we watch, that there's a recession around the corner, certainly. And the backdrop, again, is very supportive from a global economic perspective.

    Kevin: With all that being said, stick to your plan, but the volatility, I would imagine, will continue to be present because there is some uncertainty as to some of these issues that are out there. So those are the things we'll be looking for going forward. Until our next update, enjoy.