Mid-Year economic review: Preparing for the year to come

The Means Report - Mid-Year Economic Review: Planning For The Year To Come graphic
The Means Report - Mid-Year Economic Review: Planning For The Year To Come graphic
The Means Report - Mid-Year Economic Review: Planning For The Year To Come graphic
The Means Report – Mid-Year Economic Review: Planning For The Year To Come graphic

Augusta, Ga. (WJBF) — The year is halfway over, so it is a good time to take a step back to look at the factors impacting the stock market and your finances. To do that The Means Report welcomes back Will Caywood from the Fehrman Financial Group. He breaks down the past several months and what are key factors moving forward.

Brad Means: Now, whether you’re a Wonder Woman fan or not, one thing we all share is our desire to manage our money better, to be superheroes with our money, right? Well, we have a great person on hand right now to give us some financial advice going forward. He’s Will Caywood, Will is a financial advisor with the Fehrman Investment Group, and a regular here on The Means Report. Will, welcome back.

Will Caywood: Good to be here, Brad.

Brad Means: Well, I appreciate you being here, and I appreciate you kinda taking a look at how we stand now, the halfway point for 2017. Stocks and bonds, let’s start with that and see how you think the market has done so far.

Will Caywood: Yeah, it’s been a fun start to the year, for sure. It’s nice to open your statements and look and see how much money you’ve made, and things like that. Both the Dow and the S&P 500 were up about eight to 9% so far this year. Nasdaq, which is more tech companies, was up about 14, so it was a good start to the year for that. Best start since 2013, so it’s been a positive year so far, for sure. If you remember back to 2016, last year, we had the big selloff the first six or eight weeks of the year, and then we had the Brexit scare last June, so it’s been a much more comfortable ride so far this year. If you look at the bond market, from that perspective, a lot of people were a little cautious on that going to a new year, but it’s been positive as well, up about two to 4%, depending on which index you look at. So, it’s been a good year, the 10-Year Treasury, which is what folks look at to measure performance in the bond market, started the year at 245, it’s down to 230, which is actually a positive thing, which we don’t need to get into all that today, but…

Brad Means: I was gonna say, you need to explain that later.

Will Caywood: Yeah, that’s for a different show, we’ll come back to that one, but, international stocks, again, have been a real bright spot. The last several years, they’ve been lagging, and they’re beating the US so far.

Brad Means: I wanted to ask you about that, the outperformance of international stocks, why is that happening?

Will Caywood: Well, they’ve been a beaten down sector for the last several years. So if you go back to 2012, every single year, the US stocks have outperformed international stocks, so that’s flip-flopped some this year, and one of the main reasons, it’s really three, but the first main reason is valuation. So, if you look at it from a price to earnings perspective, or PE ratio, you’ve probably heard that term some, European stocks are just cheaper right now. So if you had money and you say, “I wanna buy something on sale,” you’d go over to Europe, or over to international places. Stronger global corporate earnings are another thing. Areas such as Europe, parts of Asia, they’ve seen some GDP growth. It’s not been staggering growth, but it’s better than it has been the last couple of years, which is a goose egg, or negative even. So, that’s the second reason, then continued Central Bank easing. So you have the ECB, the European Central Bank, you have the BOJ, the Bank of Japan, they’ve both kind of agreed to have lower interest rates for longer, kind of the way the US was a couple of years ago, as far as interest rates, which keeping interest rates low spurs on economic activity. So those three reasons are why international has outperformed so far, and for some of our clients, we’ve been shifting some US exposure over to international. We haven’t made huge changes, but we’ve increased that exposure, for sure.

Brad Means: I wanna ask you about something that we face every day here at NewsChannel 6, and that’s the headlines coming out of Washington, on a daily basis, many times, negative, how does that affect investors?

Will Caywood: That’s a good question. I think it affects them a lot more psychologically than it does financially. So there’s not a lot of correlation between the White House, what’s going on there, the turmoil with it, and the performance of the actual stock market. So, if you kinda go back to the early ’70s, you had the Nixon impeachment, you had the late ’90s, when Clinton was impeached, you had both of those situations, and in both of those instances, investors were a lot more focused on the actual economy and what was going on there than what was going on inside the Oval Office. So if you go back to the ’70s, I’ve read about them, you could probably tell me a little more than I…

Brad Means: Yeah, I could tell you about the latter part of ’em.

Will Caywood: Okay,well, the early ’70s, you had, the Middle East was in huge conflict, you had an oil crisis, where gas prices quadrupled, you had inflation running at double digits, investors were a lot more worried about those issues than the White House, from a stock market perspective. Go to the late ’90s, you’ve got the tech bubble, you’ve got tech companies that were… If there was something that ended in .com, people were putting money into it. They didn’t care what it was, if it made money or not, people were focused on that, and the turmoil and the fallout from that, a lot more than what was going on inside the Oval Office. So I think that the people should focus a lot more on the economic news than they should on the political news, when it comes to their portfolio.

Brad Means: Wanna focus on a few items quickly here, beginning with factors outside of politics that you see that can impact our markets.

Will Caywood: Sure. Profitability for companies, I think, is a big one. Obviously, if you’re looking at that, you see when there’s an increased demand for someone’s service, or for their goods, their stock prices goes up, their profitability goes up, so when you see that, that’s a positive thing. For example, you got Apple, the iPhone’s coming out, the new release of the iPhone, how that’s released and the performance of Apple has a lot more to do with how the stock market returns than the current DC investigations, in my opinion. Secondly, interest rates, we’ve talked about that some. The lower the interest rates, the more economic revitalization’s gonna happen, because people can borrow money at lower prices. Thirdly, you have investor confidence. So, if something works… You know, we’re all driven by emotion, so, if something works, we’re gonna do more of it. So, if the money’s growing in the stock market, we’re gonna put more money in there, we’re gonna leave it invested. If it’s not working, we’re gonna take it out. That’s another factor.

Brad Means: Let’s look at the bad, the good, and the future as we wrap up our time together, beginning with any potential negatives or headwinds you see going forward.

Will Caywood: Yeah, I think that the calendar, the length of time that this bull market’s run, we’ve been straight up since March of ’09, so it’s been about a eight, 8 1/2 year run, that’s one of the longest bull runs in history. So, that’s one possible headwind. Many people feel that there could be policy gridlock. Obviously, we’re not talking White House, we’ve already been there, but, as far as Congress goes, they’ve talked about infrastructure, they’ve talked about healthcare, they’ve talked about tax reform, all these things, not a lot’s gotten done yet, so, that’s a possible headwind. And then, finally, valuation, from a PE perspective, stocks are pretty fully-valued at this point in the US.

Brad Means: You have to see some bright spots though?

Will Caywood: Sure. I like bright spots, that’s more than headwinds, for sure.

Brad Means: Me too.

Will Caywood: Employment, that’s a huge one. There’s never been more people employed in the US than there is right now. Not everybody has the job they want, or may not be making what they want, but, unlike a few years ago, at least they can get a job. GDP growth is something that’s been constantly steady higher, which is a good positive sign. The biggest thing, I think, is the resiliency in the stock market. You’ve had the last 18 months or so, any time the market’s sold off two, three, 4%, buyers have stepped in and boosted it right back up. So any time the market’s gone on sale, it’s like it bounces right back, so it’s been very resilient over the last 18 months or so.

Brad Means: All right, give me your 11-second outlook for the future, knowing that you’re not committing to anything, this is just a crystal ball.

Will Caywood: Sure. I’d bring Wonder Woman back on, she’s a superhero, but, cautiously optimistic’s what I’d say, I think we’re gonna be higher at year-end, for sure.

Brad Means: All right, we will not hold you to that, but we will remember that you said it, and we will have you back very soon, and please give Jeff our best. Will Caywood, thank you.

Will Caywood: Wonderful, thank you.

Brad Means: Of the Fehrman Investment Group, and if you have questions, they would love to meet with you and give you some financial advice, take a look at your individual situation, and it is easy to do that. We have the contact information for the Fehrman Investment Group on our website.

Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than you initial investment. Holding bonds to term allows redemption at par value. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise.

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