How to Beat the Market Heat

When volatility hits, keep a cool head and consider taking advantage of potential opportunities.

May 30, 2019

Periods of market volatility can trigger emotional responses in investors. When the markets are as reactive as we’ve seen lately, it can be natural to feel some apprehension, but that’s why you and your advisor have spent time developing a tailored financial plan – so that these dips, dives, rallies and recoveries can be accounted for, all while still making strides toward your long-term financial goals.

In times of uncertainty, the key is to remain focused on those goals. Certainly, how you feel about a hypothetical 10% drop could change if that drop becomes a reality. But as you prepare for market volatility or correction, trust in the planning process and review your priorities and portfolio with your advisor.

A Long-Term View

Part of the strategy, although it may seem counterintuitive, is to pay less attention to the markets and more to yourself and your financial goals. If we’re honest, we know that it’s our emotional reactions to what the markets are doing that often cause us the most trouble. For example, stock investors who simply stayed invested between 2007 and 2013 almost certainly did better than those who tried to time a very volatile market. While it’s difficult in an ultra-connected age, your investment decisions should be based on your long-term goals, not what’s happening in the markets this week or next.

What You Own and Why

Now is a good time to review your individual holdings – stocks, bonds, mutual funds, ETFs – to determine if they’re still right for you. Discuss with your advisor why you bought each security in the first place and if that reason still applies. Evaluate your portfolio as a whole to determine if you are sufficiently diversified – not just in terms of stocks versus bonds but also in terms of large- versus small-cap stocks, long- versus short-term bonds, and domestic versus overseas holdings. With your advisor, consider the current environment, where volatility is likely to continue and interest rates are likely to rise over the next few years. Think about your overall time horizon, and what you expect to happen in your personal life in the near term.

Re-evaluating Risk Tolerance

A key part of paying attention to your goals also means understanding your comfort level with movements in the market. Knowing your risk tolerance – your long-term tolerance, not how you feel when the market is soaring or skidding – can provide important perspective for creating an individual asset allocation model that’s designed to help see you through the markets’ inevitable ups and downs.

Your asset allocation model – the mix of stocks, bonds and cash designed to help you achieve your financial goals – isn’t something you set and forget. It needs to be monitored regularly to be sure it’s reflecting changes in market conditions, as well as in your personal life. You also need to stress test your model periodically to assess the likelihood that it will achieve the objectives you’ve set forth. If things are on track, fine. If they’re not, you and your advisor may have to make some adjustments – either to your goals or the model itself.

The Silver Lining

While market declines are fairly common, historically, gains have tended to follow. But you have to participate, not withdraw, to benefit from those potential gains. Investors who chose to pull their money out of equities during those down periods may have missed some of the market’s biggest gains because some of the best days came right after periods of steep decline. Also, remember that a decline can present opportunities to buy quality investments while they’re potentially undervalued. This may enable you to invest in high-quality companies at lower prices and capture additional value.

Remember:

• Selling during downturns may lock in the loss

• Pullbacks and corrections can present buying opportunities

• Fundamentally sound investments may be discounted

Staying the Course

The stock market is cyclical, and you likely will encounter numerous pullbacks and/or corrections as a long-term investor. In the long run, upturns have always been stronger than downturns.

By looking at the market over a sufficiently long period of time, we’re provided with a true testament of resiliency. When we track the overall growth the market has achieved, we learn a lesson in persistence, patience and commitment.

There is no assurance any investment strategy will be successful. Investing involves risk including the possible loss of capital. Past performance may not be indicative of future results. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Small- and mid-cap securities generally involve greater risks and are not suitable for all investors. Asset allocation and diversification do not guarantee a profit nor protect against a loss.

Keeping It in the Family

Give your family the best shot at preserving wealth from one generation to the next.

 May 14, 2019

As more baby boomers approach retirement, they’ll start thinking about transferring wealth. Many plan to leave generous inheritances, but that’s not always as easy as it sounds. In fact, approximately 70% of family wealth disappears when distributed across multiple generations.

A common reason is many families lack the ability to make joint decisions or can’t implement a system that works with multiple stakeholders. To increase your odds, bring everyone together and create the strongest family unit possible. The goal is for each succeeding generation to preserve wealth for the good of the family and the world around them. The question is how to achieve it.

Start the Process Early

Talk with your children and grandchildren as soon as possible and make sure they understand their responsibilities when it comes to being good stewards of wealth.

Share the Plan

At the right time, share your wishes for the future in detail. Introduce your kids to your professional advisors, who can help answer any questions.

Don’t Divulge Everything at Once

The promise of sudden wealth may inspire your children to rest on your laurels, so to speak. Encourage them to make a financial life of their own.

Educate

Share how your wealth was built in the first place and how you view money’s purpose. This will help heirs recognize the importance of diligence, delayed gratification and good stewardship.

Make Strategic Joint Decisions

While you may not always agree with your kids, give them a say in how the family wealth should be used. This strengthens the family bond and gives you a better chance of success.

Reduce Bailouts

The more children face and conquer obstacles on their own, the more tools and resilience they will develop for later.

Unspoiling the Children

Did you know conversations about money can also teach values? In fact, they can help kids become thrifty, modest, patient and generous – which helps when it comes to transferring wealth.

Something simple, like allowance, is a great place to start. Encourage young children to divide their allowances into three buckets:

• Spending: For spending, of course.

• Saving: To teach the virtues of building a cushion for the “what ifs” that may come their way, as well as the benefits of perseverance and patience in allowing the balance to grow.

• Giving: To promote the value of generosity and giving to those less fortunate. You might be amazed at the results!

While these guidelines might not fit every family, they should provide a great starting point as you plan your legacy and family’s future.

Raymond James and its advisors do not offer legal advice. You should discuss any legal matters with the appropriate professional.

Sources: kitces.com; Raymond James research; James Hughes, author of “Family Wealth: Keeping it in the Family”

IRS Form W-4: How Many Allowances Should I Claim?

By Rocky Mengle, Tax Editor
May 9, 2019

My son recently sent me a text asking, "Is it better to claim 1 or 0 allowances?" He was starting a new job that day, so I instantly knew he needed guidance on how to fill out a W-4 form. That's the IRS form you use to let your boss know how much federal income tax to withhold from your paycheck.

     For such a short form (it's less than half a page long), the W-4 can create an awful lot of stress and confusion. It starts off easy enough – name, address, Social Security number, filing status. But then you get to line 5. That's where you have to report the total number of allowances you're claiming. (That's also when you get that puzzled look on your face and ask yourself, "what's an allowance?") You sense that it's an important question – and you're right. Whatever number you write on line 5 will have a significant impact on both your paycheck and your next federal tax return. But figuring out the right number of allowances for you can be tricky. That's why it's important to understand how allowances work and how to calculate them.

But don't worry…we've got your back! We provide the basics you need to know when it's time to fill out your next W-4, and we also have an easy-to-use withholding calculator to help you figure out how many allowances are right for you. Hopefully, the information below and our handy tool will help reduce some of the angst and uncertainty often associated with the W-4 form.

Are You Exempt From Withholding?

First of all, you're exempt from federal income tax withholding altogether if you had no federal income tax liability last year and you also expect to have no tax liability this year. That'll save you the hassle of having to file a return next year just to get a refund of any income tax withheld from your pay. You still have to give your employer a W-4 form to claim the exemption, but you don't have to worry about the nuts and bolts of claiming allowances on the form.

An exemption is good for only one year, though. So you have to give your employer a new W-4 form by February 15 each year to extend your exemption.

Why Withholding Allowances Are Important

If, like most of us, you're not exempt from withholding, the allowances you claim on your W-4 control how much federal income tax is withheld from your paycheck. If you claim more allowances, less tax is withheld (so you get a bigger paycheck). If you claim fewer allowances, more tax is withheld (so your paycheck shrinks). However, you can't claim fewer than zero allowances.

Since allowances impact withholding, they also affect the amount you have to pay the IRS or the size of your refund when your file your next federal tax return. That's because the total amount of federal income tax withheld from your wages during the year is subtracted from the overall tax liability shown on your return. The more tax withheld, the less you'll have to pay to the IRS or the larger your refund will be on your next return. Conversely, if less tax is withheld, you'll have to pay more or you'll get a smaller refund.

Effect of Adding or Reducing Withholding Allowances

More AllowancesFewer AllowancesLess Tax WithheldMore Tax WithheldLarger PaycheckSmaller PaycheckSmaller RefundLarger RefundLarger Tax PaymentSmaller Tax Payment

Playing it out one more step to connect allowances to refunds or the amount of tax owed next April 15: More allowances will reduce your refund or increase the amount you owe, while fewer allowances will increase your refund or lower the amount you owe. Got it?

 How to Calculate Withholding Allowances

The W-4 instructions have three worksheets to help you determine how many withholding allowances you can claim. (Don't give the worksheets to your employer.) The goal is to select the number of allowances that will result in total withholding for the year being as close as possible to your tax liability for the year. So, if you follow the worksheets, the refund or the amount you owe on your next tax return should be relatively close to zero.

Everyone should complete the Personal Allowances Worksheet first. If your tax situation is fairly simple, that's all you'll need to do to figure the total number of allowances to claim. This worksheet calculates allowances based on your filing status and number of jobs. It also converts tax credits to withholding allowances.

If you expect your next tax return to be more complicated, then you might want to complete the Deductions, Adjustments, and Additional Income Worksheet, too. Use this worksheet to increase allowances/reduce withholding if you plan to itemize deductions or claim certain income adjustments, the qualified business income deduction or additional standard deductions for age or blindness on your next tax return. You can also use this worksheet to decrease allowances/increase withholding from your paycheck if you have a large amount of nonwage income, such as interest, dividends, rental income, unemployment compensation, gambling winnings, prizes and awards, hobby income, capital gains, royalties or partnership income.

If you (1) have more than one job at a time or (2) file a joint return and both spouses work, you can also complete the Two-Earners/Multiple Jobs Worksheet to refine your withholding. However, only use this worksheet for 2019 withholding if the combined earnings from all jobs are more than $53,000 ($24,450 for joint filers).

There are also a few other worksheets in IRS Publication 505 to help certain employees calculate allowances, but most people won't need to use them. You can also use the IRS's withholding calculator or an alternative method to determine the number of withholding allowances to claim. However, if you don't use the W-4 worksheets to calculate allowances, you still need to give your employer a W-4 form to actually claim them.

Tip for Married Couples: If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions and credits. Use only one set of worksheets. You can divide your total allowances any way, but you can't claim an allowance that your spouse also claims. If you and your spouse expect to file separate returns, figure your allowances using separate worksheets based on your own individual income, adjustments, deductions and credits.

Tip if You Have Multiple Jobs: If you have income from more than one job at the same time, complete only one set of worksheets. Then split your allowances between the W-4s for each job. You can't claim the same allowances with more than one employer at the same time. However, you can claim all your allowances with one employer and none with the other(s), or divide them any other way that accomplishes your withholding goals.

Withholding Additional Amounts

If you're already at zero allowances but still want to increase the amount of tax withheld on your paycheck – to account for nonwage income not subject to withholding, for example – you can request an additional amount to be withheld from each paycheck on line 6 of your W-4 form. Use Worksheets 1-3 and 1-5 in Publication 505 to see if this is a good idea for you.

Do You Really Have to File a W-4?

No, you aren't required by law to fill out a W-4 form. However, if you don't, your boss is automatically going to withhold tax from your paycheck as if you're single and claiming no withholding allowances, which is the highest withholding rate.

Can You Just Pick Any Number of Allowances?

You can claim fewer withholding allowances than you're entitled to, but you can't claim more. The IRS can hit you with a $500 civil penalty if you claim allowances with no reasonable basis to reduce the amount of tax withheld. You could also face criminal charges for supplying false or fraudulent information on your Form W-4. If convicted, you could be fined as much as $1,000 and/or thrown in jail for up to a year.

You won't be penalized for a simple error or an honest mistake on your W-4, though. For example, don't worry if you try to figure the number of withholding allowances correctly but end up claiming six when you're actually only entitled to five.

Part-Year Employees

Although it's not included on the W-4 form, there's a helpful withholding wrinkle for people who don't work all year (say, for example, you graduate from college in May and start your first job in July). It's called the part-year withholding method, and it allows less tax to be withheld from your paycheck than would be withheld if you worked all year. To be eligible, you can't expect to be employed for more than 245 days during the year, which is about eight months. (So you aren't eligible if you begin working before May 1 and expect to work for the rest of the year.) You also have to ask your employer to use the part-year method – and your boss can say no.

When to Fill Out a New W-4

The W-4 isn't a one-and-done form. You'll certainly have to fill one out each time you get a new job. But you should also at least check your withholding annually to make sure you're where you need to be – especially if there are significant personal or financial changes in your life, such as getting married or divorced, having a baby, your spouse starting (or stopping) work, receiving a big raise and the like. If you need to make a change, simply give your employer a new W-4 claiming the revised number of withholding allowances. It's also easier to get the right amount of annual tax withheld if you do this earlier in the year.

You should also revisit your withholding if you owed a large amount or received a large refund on your last tax return. Ideally, you want your annual withholding and your tax liability for the year to be close, so that you don't owe a lot or get back a lot when you file your return. (Remember, a large refund just means you gave the IRS an interest-free loan.) But if that's not the case, there's an easy way to see how you can get back on track. Kiplinger has created an online tool that will quickly and easily show you how many more or fewer withholding allowances you need to achieve a better-balanced tax return next year. From that point, it's just a matter of filling out a new W-4 for your employer. It only takes a few seconds to use the tool – so check it out now!

Trade War Hysterics

Brian S. Wesbury – Chief Economist

Robert Stein, CFA – Dep. Chief Economist

Strider Elass – Senior Economist

Since hitting new all-time highs two weeks ago, the S&P 500 has fallen about 2.2% as trade negotiations with China hit a snag.  Last week, the US announced new tariffs on Chinese imports.  This morning, China announced new tariffs on some US goods. Many fear a widening trade war.

Don’t get us wrong.  We want free trade, and we understand the dangers of trade wars and tariffs (which are just taxes on consumers).  At the same time, we think trade deficits themselves are not a reason for trade wars.  We all run personal trade deficits with the local grocery store and benefit from that.  Even if the entire world went to zero tariffs, the US would almost certainly still run trade deficits, even with China.

But today, the trade deficit with China is partly due to the fact that China has higher tariffs on imports than the US does – working to eliminate these lopsided tariffs is worthwhile.

In 1980, China was an impoverished nation.  Then it began adopting tools of capitalism – property rights, markets, free prices and wages.  Chinese businesses started to import the West’s technology, and growth accelerated.

Initially, China didn’t have to worry about intellectual property.  When you replace oxen with a tractor, all you have to do is buy the tractor, not reinvent the internal combustion engine.  But China has now picked, and benefited from, the lowest hanging fruit.  So, China decided to steal the R&D of firms located abroad.  Some estimates of this collective theft run into the hundreds of billions of dollars.

That’s why normal free market and free trade principles don’t neatly apply to China.  

Remember President Reagan’s old story supporting free trade?  “We’re in the same boat with our trading partners,” Reagan said.  “If one partner shoots a hole in the boat, does it make sense for the other one to shoot another hole in the boat?”  The obvious answer is that it doesn’t, and so our own protectionism would hurt us.

But China hasn’t just shot a hole in the boat, they’ve become pirates.  If Tony Soprano and his cronies robbed your house, would free market principles require you to trade with them to buy those items back?  Of course not!  

It’s true tariff increases will not help the US economy.  But $100 billion of tariffs spread over $14 trillion of consumer spending is not a recession inducing drag.  It’s true some business, like soybean farmers, are hurt.  But the status quo means accepting hundreds of billions in theft from companies that are at the leading edge of future growth.

Either way, if tariffs nick our economy, China’s gets hammered.  Last year we exported $180 billion in goods and services to China, which is 0.9% of our GDP.  Meanwhile, China exported $559 billion to the US, which is 4.6% of their economy.  We have enormous economic leverage that they simply can’t match.

An extended US-China trade battle means US companies will shift supply chains out of China and toward places like Singapore, Vietnam, Mexico, or “Made in the USA.”  If that happens, the Chinese economy is hurt for decades.                        

Anyone can invent a scenario where some sort of SmootHawley-like global trade war happens.  Realistically, though, that appears very unlikely.  We’re not the only advanced country China’s piracy has victimized, and China may realize it’s more isolated than it thought.  In the end, China wants to trade with the West, not North Korea, Russia, and Venezuela.  China needs the West.  And all these trade war hysterics just aren’t warranted. 

Click HERE     
 
 

Opinion: What to tell a new graduate about investing in stocks

Published: May 9, 2019 2:58 p.m. ET

Success with money and investments requires humility, self-awareness, and a few good friends

By Vitaliy Katsenelson, Columnist

College graduation ceremonies this time of year remind me of my own graduation from the University of Colorado in 1997.

I felt completely lost, with no idea what to do next. Now, more than 20 years later, I can offer some experience-based advice about investing and how to go about it realistically. Here’s what I would tell my younger self and his generation:

1. Find yourself. Investing is like a piece of tight clothing: Just because it fits and looks good on someone else doesn’t mean it’s a good fit for you. Your investment strategy has to fit your personality; it has to wrap around your biases and life experiences. You’ll only discover your strategy, the one that fits your personality, when you start putting real money to work.

2. Just do it. The best way to learn about investing is by doing. Don’t create paper portfolios. Take as much money as you can afford to lose (because you may lose it), and invest it. The most difficult part of investing is staying rational when you get punched in the face by the markets. Understanding the emotions that losses and gains evoke in you and dealing with them is incredibly valuable.

Don’t focus on building a properly diversified portfolio. Your initial focus should be stock analysis, not portfolio construction. You simply won’t have enough time to do the deep research necessary to build a diversified portfolio of 15 to 25 stocks. At this point in your career, depth is more important than breadth.

3. Invest, don’t gamble. Do the analysis with the diligence and care that you would bring to investing your parents’ retirement savings. Document your research. Imagine you are working as an analyst at a mutual fund and writing a pitch for a stock to a portfolio manager. You’ll learn a lot from documenting and writing up your research. This will keep you rational.

Browse investment writeups on ValueInvestorsClub.com. This website was started by Joel Greenblatt — a terrific investor who wrote “The Little Book That Beats the Market” and “You Can Be a Stock Market Genius” (both highly recommended). This is where you can learn what the depth and rigor of your research needs to be. Writeups here are posted by diehard value investors, not academics, who put their money where their mouths are.

4. Start with what you know.  What stocks do you analyze first? Recently I was asked this question by a fellow who had undergraduate and graduate degrees in aerospace engineering. What do you think my answer was? I said “You probably know more than most people your age about the aerospace industry. Create a map of the industry and then learn about each company in the industry.” It is easier to start analyzing something you already understand.

5. Learn to say ‘I don’t know’. You cannot be expert in everything. Someone who has an answer for everything probably knows very little. Saying “I don’t know” requires honesty and self-confidence, and it opens doors for learning.

6. Make investment friends. My life over the last 20 years has been enriched by having great investment friends around me. Today my investment friends are really just my friends, with whom I share and debate stocks, though we also talk about family, kids, and such.

Investing doesn’t have to be a solitary, sterile journey; in fact it should not be one. Every investor, without exception, will go through a period where he or she feels like a complete idiot — the market will do this to you at times (trust me on this). Surround yourself with loyal, humble investment friends who can give you support, and who are smarter than you, so you’ll always be learning from them.

7. Read. These books have been helpful to me:

•  “Fooled by Randomness”, by Nassim Taleb, which will make you deeply appreciate the role randomness plays in investing.

• “The Essays of Warren Buffett” — Buffett’s annual reports edited into a book by Lawrence Cunningham.

• “Poor Charlie’s Almanac”, to understand the second half of Berkshire Hathaway BRK.A, -2.26% BRK.B, +0.00%  — Warren Buffett’s partner, Charlie Munger.

•  “Basic Economics”,  by Thomas Sowell, which has taught me more about economics than all my economics classes combined.

• “Margin of Safety”, by Seth Klarman — one of the most brilliant investors of our time. Though the book is out of print, you can find it online if you’re resourceful.

• “The Most Important Thing Illuminated”, by Howard Marks, which is filled with Klarman-like wisdom.

• The “Little Book” series: The process of writing one of these books made me appreciate the series even more that I did already. These books are typically written by investors who often have taken their “big” books (as I did) and simplified and condensed them into smaller, more accessible works. This process of simplification and condensation forces you to keep what matters the most. My two favorite books in is series are “The Little Book of Behavioral Investing”, by James Montier, and “The Little Book That Builds Wealth”, by Pat Dorsey.

• “Reminiscences of a Stock Operator”, written in 1923 by Edwin Lefevre, tells from a first-person perspective the fictionalized tale of the early years of the great trader Jesse Livermore. It is rumored that this book was actually written by Jesse Livermore and edited by Lefevre.

This book provides a great introspective look inside a trader’s mind and teaches many behavioral and common-sense lessons. My favorite edition is the one annotated by my friend Jon Markman. His annotations are like a book within a book; they take you behind the scenes of Lefevre’s story and give important insights into the key characters and the backdrop of that interesting time period.

I don’t want to end with empty platitudes, but I’d be remiss if I didn’t stress the importance of having an unstoppable, insatiable thirst for knowledge. Learning doesn’t cease when you graduate; it continues and never stops. As I look at my investment role models, all them, without exception, have that quality. If you don’t have that thirst, cut your losses and find another career or hobby. A value investor needs to have a growth mindset.

Markets’ Tariff Response May Bring Both Sides to Table

“We remain optimistic a deal will be struck,” says CIO Larry Adam.

 May 9, 2019

While optimism had been growing that the U.S. and China were nearing the final stages of a trade deal, market uncertainty moved sharply higher following President Donald Trump’s Sunday tweet that threatened to raise tariffs from the existing 10% to 25% on $200 billion worth of Chinese goods and potentially add tariffs to an additional $325 billion dollars of Chinese imports at 25%. In total, that amounts to the potential of $575 billion in Chinese imports being taxed at 25% (~$144 billion or 0.7% of U.S. GDP). As a result, the potential parameters of what constitutes a “deal” have expanded, with increased downside risk.

A reduction of overall tariffs could lead to upside pressure in the equity market and an increase in tariffs could lead to further downside pressure. The timing and enforcement of these tariffs will similarly play a role in the market response.

Will a Deal Be Struck?

We remain optimistic a deal will be struck. We disagree with many market pundits that believe better economic conditions in both the U.S. and China have emboldened each side to be more aggressive in negotiating. To the contrary, the current “indefinite” postponement of the tariffs and apparent progress in the trade discussions has helped sentiment and led to better economic and equity market performance. Increased tariffs and trade war rhetoric could cause that economic momentum to be short-lived, with both sides incurring at least short-term negative repercussions. Thus, a negative response to increased tariffs could force both sides back to the negotiating table.

With President Trump having such favorable polling on his handling of the U.S. economy (56% approval rate), it is unlikely that he would want to jeopardize the momentum of the economy and dampen his prospects for re-election. However, no one knows what the timing could be or what the framework of a deal would look like. Therein lies the “cliffhanger” for the market.

What Could a Deal Look Like?

Our instincts tell us that a deal will ultimately be reached. The new threat of an additional $325 billion dollars is unlikely. It would be difficult to implement as that would essentially include all Chinese imports, with no exceptions. If the current rate on the $200 billion goes to 25% (from 10%), it will likely be for a limited amount of time as both sides continue to talk. In the end, it is our belief that President Trump wants to engineer a deal that ultimately lowers tariffs from current levels to show he has effectively made a deal. Not all tariffs will be removed as the President needs an enforcement mechanism in place and is likely to use them as a tool to reference in his re-election bid. A deal should provide a catalyst to push global equities higher, especially emerging markets (EM) equities, and would be supportive of more cyclical and internationally-exposed sectors such as industrials and info tech.

What Is the Downside Risk?

If both sides walk away from the table and the 25% tariff (from 10%) goes into effect, it will likely lead to further downside for global equities, with emerging market equities, especially China, getting hurt the most. However, while we see a modest pullback, we do not expect a redux of the ~20% decline experienced in late 2018 for U.S. equities, as a number of key risks have been removed from the market since then. First, interest rates (10-year Treasury yield) have declined significantly and are down ~75 basis points from the September high. Second, the Fed has moved to the sideline as the market is now pricing in a 66% chance of a rate cut in 2019 relative to the expected one to two 2019 interest rate hikes expected last September. Lastly, U.S. recessionary concerns have abated as fundamentals (employment, retail sales, earnings growth) remain solid and have arguably improved over recent months.

All expressions of opinion reflect the judgment of Raymond James & Associates, Inc. and are subject to change. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results. No investment strategy can guarantee success. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change. Investing involves risks including the possible loss of capital. Technical Analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. Further information regarding these investments is available from your financial advisor. Material is provided for informational purposes only and does not constitute a recommendation. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing involves risk and investors may incur a profit or a loss. U.S. Treasury securities are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value.

5 Signs That This Market Will Push Even Higher [VIDEO]

While it’s never easy to watch stocks fall, CIO Larry Adam sees any current weakness in the market as a potential buying opportunity.

May 7, 2019

Click HERE to watch video

In the video above, Chief Investment Officer Larry Adam discusses five factors pointing to continued stock market growth:

1. The economy is accelerating.

2. The Fed has put interest rate increases on hold.

3. Earnings are better than expected, and estimates for future quarters are being revised higher.

4. Dividends have remained healthy and have reached a record high.

5. The U.S. market continues to de-equitize, meaning fewer companies are trading publicly.

Recorded April 25, 2019 with Larry Adam, CFA, CFP®, CIMA®.

The Big Picture and the Fed

Brian S. Wesbury – Chief Economist

Robert Stein, CFA – Dep. Chief Economist

Strider Elass – Senior Economist

you take a long hike up a mountain, there’s plenty to appreciate along the way. But, sometimes, you just have to stop and enjoy the view. With that in mind, let’s forget about the April employment report – which saw a combination of very fast payroll growth and moderate wage growth – and think about where the labor market stands in general.

Nonfarm payrolls have grown by 2.6 million in the past year, well ahead of the roughly 2.0 million jobs the consensus was forecasting a year ago.

Due to the rapid job creation, the unemployment rate has dropped to 3.6%, the lowest level since 1969. Some analysts claim the jobless rate is being artificially suppressed by lower labor force participation, but participation is higher now than it was in the late 1960s, when 3.6% was considered full employment.

Regardless, the labor force is up 1.4 million from a year ago, and the labor force participation rate has been essentially flat since late 2013. And that’s in spite of an aging population.

The unemployment rate for those with less than a high school degree has averaged 5.6% in the past twelve months, the lowest on record, and well below the previous cycle low of 6.3% reached during the internet boom two decades ago

The Hispanic unemployment rate has averaged 4.6% in the past year, while the Black unemployment rate has averaged 6.4%, both also record lows.

Meanwhile, wage growth has accelerated. Average hourly earnings are up 3.2% from a year ago, versus the gain of 2.8% in the year ending in April 2018, and 2.5% in the year ending in April 2017. And the gains in wages are not just tilted toward the rich. Among full-time workers age 25+, usual weekly earnings are up 3.5% for those in the middle of the income spectrum. But wages are up 4.9% for workers at the bottom 10% of earners, while up 1.7% for those at the top 10% of income earners. A rising tide is lifting all boats.

Some observers are claiming we should discount strong job creation because workers are taking multiple jobs. But, in the past year, multiple job holders have been just 5.0% of the total number of employed workers; that’s lower than at any point during the 2001-07 expansion, or during the previous longest recovery on record during the 1990s. Meanwhile, part-time jobs are down since the expansion started, meaning, on net, full-time jobs account for all the job creation during the expansion.

What’s interesting is that President Trump, Vice President Pence and NEC Chief Larry Kudlow all think things could be even better if the Fed hadn’t raised interest rates. President Trump, in fact, is calling for a 1% interest rate cut. This puts the Administration at odds with Fed Chair Jerome Powell, who thinks interest rates are at appropriate levels.

We don’t disagree with the theory behind the thinking of Trump, Pence and Kudlow who say faster economic growth, by itself, doesn’t have to cause higher inflation. A "permanent" supply-side boost to "real" growth from deregulation and marginal tax rate cuts is not inflationary. In fact, as we’ve previously written, the growth potential of the US economy has accelerated. Productivity (output per hour) is up 2.4% in the past year, deep into this recovery, when normally productivity growth should slow.

But "nominal" GDP (real growth plus inflation) is still up 4.8% at an annual rate in the past two years, and is set to equal, or exceed, that in the year ahead. If we think of nominal GDP as the average growth rate of all businesses in the economy, then a federal funds rate of 2.375% is not holding anyone back. Even projects with a below-average return could justify borrowing, which is a recipe for disaster – what Ludwig von Mises called "mal-investment" – when people push investment into areas that are unsustainable at normal interest rates. Remember the housing bubble?

That’s why we want Powell and the Fed to resist calls to cut rates. The Fed is not tight. Interest rates are not discouraging investment. If anything, the Trump administration should work to cut government spending, which has grown so large it’s crowding out private sector growth.

https://www.ftportfolios.com/Commentary/EconomicResearch/2019/5/6/the-big-picture-and-the-fed

Consensus forecasts come from Bloomberg. This report was prepared by First Trust Advisors L. P., and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

The Second Quarter Is off to a Promising Start

The S&P 500 has had its best start to a year since 1975 and its second best over the last 75 years.

  April 30, 2019

On the back of solid first-quarter earnings results and healthy economic data releases, the S&P 500 continued its remarkable move higher and closed at a record high for the first time since September 2018, shares Chief Investment Officer Larry Adam. To put the strength of the rally into perspective, the S&P 500 is now up 17.5% year-to-date through April 30 which marks the best start to a year since 1975 and the second best over the last 75 years, he said.

While Gross Domestic Product (GDP) rose at a 3.2% annual rate in the advance estimate for the first quarter of 2019, the details of the report were a mixed bag, explains Chief Economist Scott Brown. Growth was stronger than expected; however, it was boosted by faster inventory growth and a narrower trade deficit – both of which he believes are likely to reverse in the second quarter.

The Federal Reserve (Fed) is expected to keep short-term interest rates steady for the foreseeable future. Fed officials are reviewing monetary policy strategies, tools and communications policies this year, but changes aren’t expected until 2020, Brown added. All of this, combined with positive first-quarter earnings (78% of companies saw an average earnings surprise of 6.33%, adds Senior Portfolio Strategist Joey Madere) and a steepening yield curve, has made this year a good one for diversified portfolios up to this point, says Chief Portfolio Strategist Nick Lacy.

The month ended positively for the Dow Jones Industrial Average, NASDAQ, S&P 500 and the Russell 2000 Index.

                             12/31/18 Close       4/30/19 Close       Change YTD       % Gain/Loss YTD      

DJIA                    23,327.46                26,592.91                 +3,265.45             +14.00%

NASDAQ           6,635.28                  8,095.39                  +1,460.11               +22.01%

S&P 500            2,506.85                  2,945.83                   +438.98                +17.51%

MSCI EAFE       1,719.94                   1,916.38                    +196.44                  +11.42%

Russell 2000    1,348.56                  1,591.21                     +242.65                 +17.99%

Bloomberg Barclays U.S. Aggregate Bond Index

                           2,046.60                   2,104.12                    +57.52                    +2.81%

Performance reflects price returns as of 4:30 ET on April 30, 2019. EAFE reflects the previous day’s close.

Here is a look at what’s happening in the economy and capital markets, as well as key factors we are watching:

Economy

• First-quarter softness in underlying domestic demand may have reflected an impact from the partial government shutdown, explains Brown. Key components of the economy are expected to rebound in the second quarter. 

• Growth is expected to be moderate in 2019; however, the risks are weighted to the downside.

• Consumer spending and business fixed investment slowed, while residential fixed investment fell for the fifth consecutive quarter, he adds.

• Inflation has remained below the 2% target. The Fed could cut interest rates in the months ahead if the labor market begins to weaken; however, no changes are expected until 2020.

Equities

• After rising approximately 10% year-over-year in 2018, dividends are expected to grow an additional 7% in 2019 to another record high, explains Adam. As the current S&P 500 dividend yield (+1.9%) remains elevated relative to short-term Treasury yields, U.S. equities remain an attractive investment in his view.

• First-quarter earnings have been well-received, with notable strength from the technology-oriented areas, explains Madere.

• Seven of the 11 S&P sectors have risen above their September highs. The largest percentage of Q1 earnings beats have come from the Technology, Consumer Discretionary, Communication Services, and Consumer Staples sectors so far. Communication Services has stood out in terms of average price reaction to earnings results.

• Another sign of economic strength, in Madere’s view, is that 73% of S&P 500 stocks are above their 200-day moving average. Readings above 80% have often coincided with short-term pauses or peaks, so there is still room for upside in the short term. Additionally, we believe potential pullbacks should be normal in nature.

Fixed Income

• The world’s central banks have all remained constant in their current monetary policies. And it appears the Fed isn’t expected to make policy changes either, according to Doug Drabik, senior fixed income strategist.

• The bond market sold off at the beginning of the month, pushing yields 5 basis points higher in the intermediate part of the curve and approximately 12 basis points out on the longer end of the curve.

• The municipal and corporate curves maintained a positive slope. The small narrowing in product spreads for the month was offset by the Treasury curve sell-off (yield increases).

• The “sweet” spot of the municipal curve has drifted to the 11- to 18-year maturity range, where 75% to 90% of the entire curve’s yield can be captured, according to Drabik. The same opportunity for yield can be found among corporate bonds in the 5- to 12-year maturity range.

• While some investors are lamenting low rates, according to managing director Ted Ruddock, they may be missing opportunities in the municipal market that is rewarding investors for extending maturities but managing duration risk with embedded call options.

International

• Global equity markets continued to make progress in April, shares European Strategist Chris Bailey, distancing themselves from December 2018 lows despite a rising dollar and a lack of overt progress in key geopolitical debates, including the U.S./China trade discussions and Brexit.

• April saw some downbeat comments from the European Central Bank about the Euro zone’s economic progress and continuing difficult manufacturing output and sentiment data in Asia, he adds.

• April also saw heightened volatility in Turkey and Argentina, while both Brazil and China made positive progress on legislation to help boost economic dynamism, Bailey explains. Toward the end of the month, the global corporate earnings season started solidly in both Europe and Asia. 

Bottom Line

• Adam and the Investment Strategy team remain constructive on the equity market long-term and would use any near-term weakness as a buying opportunity.

• Drabik feels that Treasuries remain a viable option for short-term planning, especially in high-income states, since they are federally taxable but exempt from state income taxes.

• According to Madere, the S&P 500 holding its new high (without a quick rollover) is a good marker for continued momentum, which is what he and his team will be monitoring next.

Your advisor will continue to watch for legislative updates as well as economic developments. In the meantime, please reach out to him or her if you have any questions.

Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc., and are subject to change. Past performance is not an indication of future results and there is no assurance that any of the forecasts mentioned will occur. The process of rebalancing may result in tax consequences. Economic and market conditions are subject to change. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 is an unmanaged index of small cap securities. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. An investment cannot be made in these indexes. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Small and mid-cap securities generally involve greater risks. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. The performance noted does not include fees or charges, which would reduce an investor's returns. Asset allocation and diversification do not guarantee a profit nor protect against a loss. Debt securities are subject to credit risk. A downgrade in an issuer’s credit rating or other adverse news about an issuer can reduce the market value of that issuer’s securities. When interest rates rise, the market value of these bonds will decline, and vice versa. High yield securities involve additional risks and are not appropriate for all investors. Price/Earnings Ratio is the price of a stock divided by its earnings. It gives investors an idea of how much they are paying for a company’s earning power. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, state or local taxes. U.S. Treasury securities are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. The yield curve is a graphic depiction of the relationship between the yield on bonds of the same credit quality but different maturities. Chris Bailey is with Raymond James Investment Services. Material prepared by Raymond James for use by its advisors.

How Long Should You Keep Tax Records?

Hold onto your tax documents at least until the time limit for an audit runs out—and keep some records even longer.

By Rocky Mengle, Tax Editor and  Kimberly Lankford, Contributing Editor

April 16, 2019

Once you've filed your tax return, what should you do with all the forms, receipts, canceled checks and other records scattered across your desk? Do you need to keep them, or can you shred them now? The IRS generally has three years after the due date of your return (or the date you file it, if later) to initiate an audit, so you should keep all of your tax records at least until that time has passed. But you should keep some records even longer, and it's also a good idea to hold onto copies of the return itself indefinitely.

SEE ALSO: 5 Ways to Avoid Taxes on Social Security Benefits

Also keep in mind that you might want to keep certain documents around for non-tax purposes. For example, it might be wise to save W-2 forms until you start receiving Social Security benefits so you can verify your income if there's a problem.

Here's a general rundown on how long you should keep certain common tax records and documents.

One Year

Keep pay stubs at least until you check them against your W-2s. If all the totals match, you can then shred the pay stubs. Take a similar approach with monthly brokerage statements—you can generally shred them if they match up with your year-end statements and 1099s.

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Three Years

Generally speaking, you should hold onto documents that support any income, deductions and credits claimed on your tax return for at least three years after the tax-filing deadline. Among other things, this applies to:

• Form W-2s reporting income

• Form 1099s showing income, capital gains, dividends and interest on investments

• Form 1098 if you deducted mortgage interest

• Canceled checks and receipts for charitable contributions

• Records showing eligible expenses for withdrawals from health savings accounts and 529 college-savings plans

• Records showing contributions to a tax-deductible retirement-savings plan, such as a traditional IRA

If you're among those taxpayers who no longer itemize deductions on Schedule A because the standard deduction was basically doubled beginning in 2018, you might not need to hold onto as many documents. For example, if you're not deducting charitable contributions anymore, then you don't need to keep donation receipts or cancelled checks for tax purposes.

SEE ALSO: Most-Overlooked Tax Breaks and Deductions for the Self-Employed

Six Years

The IRS has up to six years to initiate an audit if you've neglected to report at least 25% of your income. For self-employed people, who may receive multiple 1099s reporting business income from a variety of sources, it can be easy to miss one or overlook reporting some income. To be on the safe side, they should generally keep their 1099s, their receipts and other records of business expenses for at least six years.

Seven Years

Sometimes your stock picks don't turn out so well, or you loan money to a deadbeat who can't pay you back. If that's the case, you might be able to write off any worthless securities or bad debts. But make sure you keep related records and documents for at least seven years. That's how much time you have to claim a bad debt deduction or a loss from worthless securities.

Ten Years

If you paid taxes to a foreign government, you may be entitled to a credit or deduction on your U.S. tax return—and you get to decide if you want a credit or deduction. If you claimed a deduction for a given year, you can change your mind within 10 years and claim a credit by filing an amended return. You also have 10 years to correct a previously claimed foreign tax credit. For these reasons, save any records or documents related to foreign taxes paid for at least 10 years.

Investments and Property

When it comes to investments and property you own, you'll need to keep some records at least three years after you sell.

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For example, keep records of contributions to a Roth IRA for three years after the account is depleted. You'll need these records to show that you already paid taxes on the contributions and shouldn't be taxed on them again when the money is withdrawn.

Keep investing records showing purchases in a taxable account (such as transaction records for stock, bond, mutual fund and other investment purchases) for up to three years after you sell the investments. You'll need to report the purchase date and price when you file your taxes for the year they are sold to establish your cost basis, which will determine your taxable gains or loss when you sell the investment. Brokers must report the cost basis of stock purchased in 2011 or later, and of mutual funds and exchange-traded funds purchased in 2012 or later. But it helps to maintain your own records in case you switch brokers. (If you inherit stocks or funds, keep records of the value on the day the original owner died to help calculate the basis when you sell the investment.)

If you inherit property or receive it as a gift, make sure you keep documents and records that help you establish the property's basis for at least three years after you dispose of the property. The basis of inherited property is generally the property's fair market value on the date of the decedent's death. For gifted property, your basis is generally the same as the donor's basis.

SEE ALSO: 12 Tax Breaks for Homeowners

Keep home-purchase documents and receipts for home improvements for three years after you've sold the home. Most people don't have to pay taxes on home-sale profits—singles can exclude up to $250,000 in gains and joint filers can exclude up to $500,000 if they've lived in the house for two of the five years prior to the sale. But if you sell the house before then or if your gains are larger, then you'll need to have your home-purchase records to establish your basis. You can add the cost of significant home improvements to the basis, which will help reduce your tax liability. (See IRS Publication 523 for more details.) Similar rules apply for any rental properties you own; save records relating to your basis for at least three years after selling the property.

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State Record Retention Requirements

Don't forget to check your state's tax record retention recommendations, too. The tax agency in your state might have more time to audit your state tax return than the IRS has to audit your federal return. For example, the California Franchise Tax Board has up to four years to audit state income tax returns, so California residents should save related documents for at least that long.

Options for Addressing a Wayward Child in Your Will

Every family has its challenges. Learn about estate planning options for addressing a beneficiary that may march to a different drummer.

  April 16, 2019

Every family has a skeleton or two in the closet; a grandson with a history of substance abuse; a daughter who married someone careless with money; a ne’er-do-well brother with a string of petty crimes in his past. Maybe your family doesn’t have a skeleton, so much as a black sheep or a child who marches to a different drummer. Maybe it’s a child who struggles with mental illness, or one who simply doesn’t live up to the family’s expectations. You may disagree about any number of things – but you’re still family, and that bond runs deep.

These challenging family relationships make every day a balancing act, leaving you to find just the right mix of support and protection without enabling your loved one.

So what choices do you have when you’re struggling with family dynamics and have some estate planning decisions to make?

Option 1: Leave Them Nothing

Disinheriting someone is more common than you may think, and it’s not just among wealthy families who disapprove of a child’s lifestyle. Some families make the decision to disinherit a successful child in order to dedicate more assets to a disabled sibling or to balance out distributions if one child received more financial support during their lifetime. Those assumptions can prove risky though, as situations can change in unforeseeable ways.

Of course, you don’t always need a reason. If you don’t want to bequeath anything to anyone, you don’t have to. Many people choose to leave their assets to organizations outside the family. It’s your prerogative.

But if you disinherit someone without an explanation or understanding, expect very real feelings of hurt and betrayal, which could be enough for that person to make a claim against the estate when you’re no longer in the picture. If appropriate, explain your rationale in the will so there can be no claims of attorney drafting errors or other grounds to contest the will.

Potential litigation is just one problem that may arise. It’s likely that a family feud will erupt, even if the discord doesn’t exactly come as a surprise. It’s difficult to accept that your family has cut you off. Disinheriting someone could sow resentment that may last generations.

If you ultimately decide this is the path to take, re-evaluate that decision every so often. Situations change. Your loved one may be making strides toward a better life – and you may decide your support can help them stay on the right track.

Option 2: Leave Them Something Outright

Another option is to stipulate an outright gift for your “wild child,” perhaps something smaller than you would have in better circumstances, or make them the beneficiary of a small life insurance policy. The amount may be hard to determine – somewhere between large enough to avoid resentment and small enough to alleviate some of the worry that the gift will be squandered or potentially cause harm. Your professional advisors can help you find that fine line using the specifics of your estate and other beneficiaries involved.

Option 3: Trust in a Trust

When you want to share your wealth with those you love, but you know that outright gifts might enable them rather than help, you may want to consider a trust. If you have a legitimate need for control – such as avoiding giving a drug user carte blanche access to substantial funds – a well-structured trust may offer the flexibility you need to accomplish your estate planning goals without permanently disinheriting someone.

Certain types of trusts allow you to nominate someone to help your beneficiary manage their inheritance. There are costs involved to set up and maintain the trust, but that may seem a small price to pay for the comfort of knowing your loved one will get their inheritance under the right circumstances. Discretionary trusts, for example, leave the assets at the mercy of the trustee and your heir has no legal claim to any assets. But given the proper structure and a well-chosen trustee, the assets can be distributed with your intentions in mind.

Incentive trusts, on the other hand, formalize those intentions and make any distributions contingent on your child achieving certain goals or milestones, say successfully completing rehab or holding a job for more than a year. The point is stipulations can be built in to the trust to encourage more responsible behavior.

Trusts can also be structured to stagger distributions at intervals or certain ages to prevent the child in question from burning through their inheritance. In the meantime, you can ask the trustee to make distributions on behalf of your beneficiary to cover certain health, education and living expenses.

No matter which type of trust you select, it’s important to choose a trustee who will be objective and fair. Often, appointing a professional as the trustee makes it easier for all parties; relatives and siblings won’t get caught in the middle.

While these decisions are challenging, the good news is that comprehensive estate planning has many tools to help a loved one thrive even after you’re gone. Take the time to put in some careful thought, with guidance from professional advisors, attorneys and accountants.

Sources: marketwatch.com; nextavenue.org; theglobeandmail.com; Raymond James research; themckenziefirm.com; yourestatematters.com; thebluntbeancounter.com; cushingdolan.com; Journal of Financial Planning; bravotv.com

Raymond James and its advisors do not offer legal advice. You should discuss any legal matters with the appropriate professional.

Morning Tack - “Melt Up?”

Jeffrey D. Saut, Chief Investment Strategist  (727) 567-2644

VIEW FULL REPORT

I received a lot of questions about Larry Fink’s (CEO of Blackrock) statement on CNBC yesterday when he said, “I think the risk right now is that we have a melt up in the equity market while everyone is under-invested, not a meltdown.” I also got a lot of questions about my statement that, “In bull markets, most of the surprises come on the upside!” That said, my short-term energy indicator still suggests the equity markets are out of gas on a trading basis and need time to rebuild their energy. As often stated, my long-term energy indicator remains highly bullish. And yesterday was another “stall session” (just like Monday’s session) with the S&P 500 (SPX/2907.06) up a mere 1.48 points. Regrettably, my short-term timing work continues to show the stall should extend for a few more sessions. Accordingly, I would not chase stocks right here, yet longer term, I remain highly bullish despite the chants from a number of pundits I saw on CNBC yesterday stating that the stock market is priced for perfection. In my view, nothing could be further from the truth.

Looking at the longer term, I recently received an excellent report from our friends at Federated titled, “2019 Principals for Successful Long-Term Investing."

To wit:

1. Plan on living for a long time and save more for it.

2. Cash is not always king, even when, like now, a lot of people are relying on it.

3. Harness the power of dividends and compounding. Investing in risk assets – and reinvesting dividends – can be powerful moves.

4. Avoid emotional biases by sticking to a plan. Don’t let biases – home-country or otherwise – sway your better judgment.

5. Volatility is normal; don’t let it derail you. See through the noise.

6. Diversification works. Time and again, diversification serves its purpose.

7. Staying invested matters. It’s always darkest before the dawn.

Well said!

As for yesterday, Financials (+1.37%) and Energy (+0.64) were the best performing sectors, which is why we have highlighted them for quite some time. Again, as our pal Leon Tuey writes:

Last week, all the A-D Lines closed at record highs along with the QQEW, XLY, & IYR. What bear market? Today, both the DOW A-D Line and the NYSE A-D Line closed at record highs again. Others will be updated later today. As mentioned, the various market indices, too, will post record highs. Also encouraging is that, globally, the financials are breaking out. Clearly, the bull market has resumed. This sector is not only interest-sensitive, but economy-sensitive. Moreover, next to technology, it's the second biggest weight on the S&P. The breakout augurs well for the equity market.

And then there was this from the astute Lowry’s Research Organization:

The DJIA and S&P 500 staged mediocre rebounds today after yesterday's nominal sell-off. Up Volume was 57% of total Up/Down Volume, Advancers were 54% of total Advance/Decline Issues and NY Comp. Volume remained light at 3.3 billion shares. Buying Power and Selling Pressure were both unchanged, while the Short Term Index rose one point. With the market seemingly stuck in neutral, a short-term overbought condition and ongoing signs of selective strength continue to suggest elevated near-term risk.

The Turnaround Tuesday attempt was disappointing, especially when an expiration week tends to have upward bias. When the equity markets fell during the final hour yesterday, a “V” shaped rally developed after the S&P 500 traded with a 2900 handle (low of 2900.71). That makes the 2900 an important support level today. Participants want to make Wednesday an upward squeeze on expiry call options. The time for the expiry squeeze is down to two days. The market is closed on Friday. This morning, the preopening S&P 500 futures are better by six points at 5:00.

April 17, 2019

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Morning Tack - “Melt Up?”

Q&A: What’s in the Cards for Oil?

Oil prices “will be meaningfully higher in the second half of 2019,” anticipates Energy Analyst Pavel Molchanov.

April 1, 2019      

OPEC and Russia agreed late last year to cut crude production by a collective 1.2 million barrels per day (bpd) for the first half of 2019. Has that happened?

By way of historical background, OPEC generally has a mixed track record for member compliance with its production deci­sions. The smaller oil producers in the group rarely cut production in accordance with the official pledges. However, as a practical matter, only a handful of OPEC countries truly matter when it comes to managing global oil supply. Saudi Arabia is by far the most important, and for the past two years it has played a very proactive role in this regard.

Based on data from the past several months, we estimate that Saudi production in the first quarter of 2019 is tracking to be nearly 600,000 bpd less than in the fourth quarter of 2018. This alone represents half of the total pledged production cut across all of OPEC and Russia. So, it is clear that Saudi Arabia is serious about propping up oil prices – it is not just lip service!

Beyond Saudi action, let’s also bear in mind that several OPEC countries are experiencing organic production declines even without deliberate curtail­ments. Case in point: Venezuela. This country has already had the world’s steepest drop in oil pro­duction since 2015, for purely domestic reasons. Amid the cur­rent political and economic crisis, the national oil company, Petróleos de Venezuela, S.A. (PdVSA), continues to suffer from mismanagement and severe cash flow shortages. Meanwhile, production in Libya and Nigeria is perennially choppy due to recurring violence around oilfields. Looking past this choppiness, the longer-term trend in both countries is downward due to insufficient foreign investment given the hazardous conditions.

The International Maritime Organization (IMO) has set regulations to cut sulfur in fuel used by the marine industry starting in January 2020. How are shipping firms and refiners preparing for this? How do these regulations affect the global oil market?

It is safe to say the oil market, for the time being, is not remotely focused on what will happen in 2020. However, it is important to underscore just how impactful the IMO 2020 policy will be. We estimate it will effectively erase 1.5 million bpd (or 1.5%) of global oil supply, a very meaningful supply reduction. Put another way, this is as much supply impact as what Venezuela has caused over the past four years. Some of this, in fact, will likely be felt toward the end of 2019.

To clarify, the total amount of high-sulfur fuel used in long-dis­tance marine shipping is currently around 4 million bpd. Of this amount, a portion will be processed in newly built units at refineries and another portion will be handled by shipboard scrubbers, which ship owners are in the process of installing. There will be some “cheating,” at the risk of facing sizable fines from regulators, and, as noted earlier, some fuel will simply be rendered unusable.

Another concern, given the dislocations that this may cause, is that some countries could try to back out of the new rules. That, to clarify, is not legally possible because of the binding nature of the underlying treaty known as the International Con­vention for the Prevention of Pollution from Ships. Moreover, the IMO has made it clear that implementation will not be delayed past January 2020.

What’s your oil price outlook over the next 12 months? What wild­cards could derail that outlook?

Oil prices have already bounced back year-to-date from their recent lows but remain well below their 52-week highs. The oil futures curve is relatively flat, indicating minimal upside from current levels over the next five years. We tend to stay away from making short-term (weekly or monthly) com­modity calls, but we are of the view that prices will be meaningfully higher in the second half of 2019.

Our forecast for the second half of 2019 is for WTI to average $70 per barrel and Brent $80 per barrel. Looking out to 2020, we think oil will reach cyclical highs, with WTI averaging $93 per barrel and Brent $100 per barrel. To be clear, such prices would be unsustainably high given the adverse impact on global demand (for example, con­sumers shifting to smaller cars and electric vehicles). That, in fact, is the whole point. We believe that oil prices in 2020 will have to rise to levels that begin to put a damper on demand, in large part because IMO 2020 will create a temporary situation of inadequate supply.

While visibility beyond 2020 is limited, our long-term forecast of $75 per barrel WTI and $80 per barrel Brent reflects a “happy medium” of prices that are high enough to enable the industry to sustain supply growth but not so high as to sharply curtail demand.

As always, there are plenty of wildcards of which we need to be mindful. For example, a sudden spike in the U.S. dollar would, all else being equal, put downward pressure on oil prices. Similarly, a wide-ranging economic slowdown would naturally have a nega­tive effect on demand. On the flip side, there is always the risk of unforeseen supply disruptions, such as what we mentioned ear­lier vis-à-vis Libya and Nigeria. Finally, geopolitical uncertainty swirling around Iran (U.S. sanctions, etc.) could potentially lead to an even higher-impact disruption.

Read the full April 2019
Investment Strategy Quarterly

All expressions of opinion reflect the judgment of Raymond James & Associates, Inc., and are subject to change. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change. Commodities and currencies investing are generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. The forgoing is not a recommendation to buy or sell any individual security or any combination of securities.

Stay Focused, Because 2019 Is Breaking Economic Records

Stay Focused, Because 2019 Is Breaking Economic Records

Growth, earnings and confidence suggest a favorable year, says CIO Larry Adam – “especially for investors maintaining a long-term time horizon.”

April 1, 2019       

To read the full article from Chief Investment Officer Larry Adam, CFA, CFP®, CIMA®, see the Investment Strategy Quarterly publication linked below.

Despite numerous headwinds, 2019 is gearing up to be a celebratory year with record-breaking achievements on many financial and economic fronts. In particular, we just toasted the S&P 500 as it celebrated the ten-year anniversary of the secular bull market in March.

Following last December’s worst equity performance since 1933, concerns of an impending recession, tightening monetary policy, and a trade war with China were muted, allowing risk assets to recover from the December 24 lows.

The U.S. economy and various financial markets are poised to achieve historic milestones, some set to take place in the upcoming quarter. Consensus from the Raymond James Invest­ment Strategy Committee is that markets remain favorable, especially for investors maintaining a long-term time horizon. However, given the speed and magnitude of the first quarter rebound, the path ahead is likely to remain challenging.

The U.S. is the beacon of the global economy, with positive growth of 1.9% expected for the year, according to Chief Economist Dr. Scott Brown. Should the expansion continue past June, it will be the longest economic expansion on record.

Robust job growth, healthy consumer spending, elevated busi­ness and consumer confidence, and fiscal stimulus support our positive view. A “patient”, flexible Fed leads us to assign a 25% probability of a recession over the next twelve months.

Brown recently reported that the Fed is on hold for the foreseeable future, reflecting signs of slower-than-expected growth and downside risks. The fed funds futures are pricing in some chance of a rate cut by the end of the year.

Our expectation of a trade agreement between the U.S. and China should supplement growth globally as trade uncertainty fades. In the absence of an agreement, a softening global economy, that currently shows signs of strain, has the potential to spill over to the U.S.

Despite the slowing ascent of equities, with intermittent periods of downward pressure, we remain unwavering in our expectation of a higher equity market by year end. In fact, Managing Director of Equity Portfolio & Technical Strategy Mike Gibbs’ year-end target of 2,946 gives the market a realistic opportunity of returning to record highs. Supporting equities is his expectation of record earnings again in 2019.

Internationally, we favor the U.S. over other developed markets, as those economies continue to exhibit signs of weakness. European Strategist Chris Bailey believes that the Brexit debate is likely to edge towards a sensible compromise that will avoid a 'no-deal' scenario. Mean­while, this May's European Parliamentary elections will see populist parties make further gains although not take control. Looking at emerging market equities, the recent rally is likely to continue, especially if a U.S.-China trade compromise comes to fruition.

Despite healthy U.S. economic growth, record national debt, and a gradual reduction in the Fed’s balance sheet, the 10-year U.S. Treasury yield remains well below 3%. Nick Goetze, Managing Director of Fixed Income Services, expects rates to be capped through the end of the calendar year at 3.00%, due, in part, to the wide disparity between domestic yields and devel­oped world sovereign debt creating very strong global demand at current levels and the lack of inflationary expectations.

With slowing global growth and nascent inflationary fears, yields overseas are likely to remain depressed for the foreseeable future. In fact, the University of Michigan inflation expectations survey for the next five to ten years recently fell to 2.3%, tying the lowest level on record. Managing Director of Fixed Income Research Doug Drabik expects higher interest rates to con­tinue to face major headwinds likely keeping them range bound and low. The 2-10 year part of the Treasury curve seems to be pricing in one to two Fed rate cuts, thus giving the potential to steepen the curve from the current mark. Although the Treasury curve remains flat, the municipal and corporate curves are more positively sloped offering opportunities in the intermediate part of the curve.

Record oil production in the U.S. is expected to continue, with average daily production forecasted to reach approximately 12 million barrels per day (mm bpd) by year end. While this would normally place a cap on oil prices, two market dynamics are sup­portive. First, OPEC production cuts have reduced overall supply. In fact, total OPEC production is at its lowest level since 2015. Second, new global sulfur emission standards taking effect in Jan­uary 2020 will effectively erase as much as 1.5 mm bpd of supply. This, combined with our expectation that global oil demand growth will remain healthy, could allow oil (WTI) to move north of $70 per barrel by the end of the year, according to our energy research team.

Moving forward, it is not feasible for markets to continuously rise or fall, so don’t get caught up in the momentary noise. While records can be broken, we can’t lose focus on what the long-term trends are telling us. Staying disciplined during times of uncer­tainty and times of complacency is an essential characteristic of a successful investor.

Read the full April 2019
Investment Strategy Quarterly

All expressions of opinion reflect the judgment of Raymond James & Associates, Inc., and are subject to change. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Commodities and currencies investing are generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Fixed income investments may involve market risk if sold prior to maturity, credit risk and interest rate risk. Asset allocation does not ensure a profit or protect against a loss. The forgoing is not a recommendation to buy or sell any individual security or any combination of securities. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Chris Bailey is with Raymond James Euro Equities, an affiliate of Raymond James & Associates, and Raymond James Financial Services

Morning Tack - “One More Time”

Investment Strategy US RESEARCH | PUBLISHED BY
RAYMOND JAMES & ASSOCIATES

Morning Tack - “One More Time”

Jeffrey D. Saut, Chief Investment Strategist  (727) 567-2644

VIEW FULL REPORT

Yesterday, piqued by my never-ending rant that everybody is looking at the wrong yield curve instead of the real curve of the 3 month T’bill to the 30 year T’bond, I got this email from one of the best portfolio managers I know. Craig Drill (Drill Capital) wrote:

"Doesn’t the investment meaning of a flattening or inverting yield curve depend on WHY it is flattening or inverting? If it is because the Federal Reserve is raising short-term interest rates and reducing credit availability, that is a negative at some point. If, however, it is because long rates are falling because of muted inflation and -0- rates in Germany and Japan, isn’t that ultimately bullish?"

As a sidebar, I would note that despite all the cries that a recession is coming, I would ask if that is the case, why is Dr. Copper (the ultimate recession predictor) acting rather well?

Speaking to ultimately bullish, I cannot get much more bullish than I already am. That said, on a very short-term trading basis, the positive energy flow I was looking for later this week seemed to arrive yesterday as Monday’s “stall,” which my work suggested would last at least another session or two, got blown out of the water early yesterday. Indeed, the D-J Industrial Average leaped over 100 points on the opening bell and then extended that rally to over 250 points by 11:00 a.m. From there, however, stocks peaked and began to fade, yet still managed to leave the senior index higher by some ~141 points on the close. Ladies and gentlemen, we are in a credit boom and a secular bull market that has years left to run. Readers should recall that secular bull markets last 15+ years and DO NOT end because of a mere 20% decline.

Despite yesterday’s fade, the stock market’s internals were pretty good. As Lowry’s writes:

"Although the DJIA and S&P 500 closed well off their highs for the day today, market internals were positive. Up Volume was 79% of total Up/Down Volume while Advances were 74% of total Advancing/Declining Issues."

My monthly indicators still have plenty of internal energy, but in the short run, the stock market’s internal energy, by my pencil, still needs to be rebuilt, despite yesterday’s rally. Regrettably, this still leaves me somewhat non-committal on a near-term trading basis but has NOTHING to do with my long-term secular bull market thesis. And then, as another sidebar, I received this from someone that read my “Trading Sardines” report last Monday:

"Dear Sir, I noticed the sardine parable in your commentary and attribution as anonymous. In fact, I was present when Murray Pezim made the joke with all biblical names of Abraham to Aaron sold to Joseph to explain a whirlwind of activity in junior mining in the early eighties. It was his signature joke, but of course he was friends with Milton Berle and Red Buttons. Just thought you might want to know. Sincerely,Victor"

This morning the preopening futures are flat on no news. 

March 27, 2019 

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Morning Tack - “One More Time”

10 Things Your Kids Don’t Want When You Downsize

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Investment Strategy From Jeff Saut

Investment Strategy US RESEARCH | PUBLISHED BY
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Morning Tack - “Road Trip”

Jeffrey D. Saut, Chief Investment Strategist  (727) 567-2644

VIEW FULL REPORT

While traveling up and down the west coast of Florida this week, I could not help but recall the famous line from the movie Animal House, “Road Trip!” as well as the old stock market axiom, “When the going gets tough, the tough go on the road!” Clearly, that's what I did this week, and while I was traveling, the stock market was doing some pretty weird things. In fact, I cannot recall the last time I saw the D-J Industrials down over 200 points and the S&P 500 up some 13 points. That's why, when someone asks me about the stock market, I hardly ever refer to the Industrials but, rather, the S&P 500. Leon Tuey does me one better by saying the stock market is not an index, which is why the Advance–Decline Line is a much better indicator of the overall stock market than any index.

"The quote, 'a picture is worth a thousand words' is attributed to Confucius. That may or may not be true. The attendant chart [page 2], however, tells investors much more about 'the market' than what the S&P-obsessed seers have been telling investors. Most on Wall Street always talk about the S&P as it was 'the market' not realizing that it only contains 500 big cap stocks and it is a weighted Index. On any given day, several thousand stocks are traded in the U.S. and that, is 'the market'

For decades, I've been advising those who really want to know what 'the market' is doing to look at the Advance-Decline Lines. Mathematically, it's simply the cumulative differential of Advances and Declines. Each day, sum up the day's Advances to previous days and sum up the declines to previous days and subtract one from the other. Because of the way it is calculated, in a bull market, over time, the Advance-Decline Line should rise and in a bear market, it should be heading in a southeasterly direction. Accordingly, this indicator tells investors more about the health and direction of 'the market' than any market index. Yet pundits keep talking merrily about the S&P. You would think these folks are trading the S&P minis or the S&P futures and not 'the market.'"

I received many emails about the lunch group's comments on inflation, but I want to highlight the following from blast-from-the-past Albert Wojnilower, Ph.D., who became known as Doctor Doom, while Henry Kaufman was Doctor Gloom, as a result of their dire economic predictions of the stagflation 1970s. From his perch at my friend Craig Drill's money management firm, Al wrote this week:

"If so, why have the Fed and many other leading central banks been chronically over-estimating inflation? Two major sources of inflation in the post-World War II period were rising wage rates and oil prices. Technological innovation has curbed them both. Globalization, spurred by advances in communication, travel, and transport (especially containerization), has exposed Western labor to world-wide competition, sapping the political and economic power of industrial labor unions. As for oil prices, the burgeoning of shale and off-shore petroleum resources outside the Middle East has been holding them in check. Moreover, sharp declines in the cost of solar and wind energy, coupled with improvements in storage batteries and the advent of affordable electric cars, are likely to displace fossil fuels. This would fundamentally alter the costs and uses of energy, with far-reaching repercussions around the globe. Textbooks and economic models that treat inflation as a mainly monetary disorder are obsolescent."

Today is option and futures expiration. When equity futures expire, it is usually more difficult to generate an upside squeeze late in the week. That said, the preopening futures are better by some 9 points as I write at 5:10 a.m.

 March 15, 2019

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Morning Tack - “Road Trip”

Monday, Ten Years Ago...

Frist Trust

Monday Morning OUTLOOK

March 11, 2019

Brian S. Wesbury – Chief Economist

Robert Stein, CFA – Dep. Chief Economist

Strider Elass – Senior Economist

It’s March 8, 2009. The market’s down 56% from its all-time high, unemployment is over 8% and hurtling toward 10%, it’s just been reported that real GDP dropped at a 6.2% annual rate in Q4 of 2008, and it feels like the world is coming to an end. You’re tired, exhausted from living through this, and you fall into a deep sleep. So deep, in fact, that you don’t wake up until today, 10 years later.

First thing you do is run to your computer and see the S&P 500 is up 305% since the bottom. You are blown away. No way this could be true! Things were so bad when you fell asleep. Little did you know the S&P 500 bottomed the next day.

So you run over to your friend’s house and knock on the door. Your friend answers, wondering where you’ve been for 10 years! You ask what possibly could have happened to drive the stock market up more than 300%.

Your friend pulls out a list. Let’s call them the "golden geese."

After-tax economy-wide corporate profits are at record highs, up 175% since the bottom, or around 11% annualized growth.

Then your friend tells you about Apple. When you fell asleep, Apple had been selling the iPhone for about a year and a half. Over that period, they sold a record-breaking 17.4 million of them. But since you’ve been asleep, Apple has sold about 1.3 billion of them. Every calendar quarter Apple sells about three times what it sold in that first year and a half.

Then there’s Uber. Your friend tells you how you can press a button on a phone and a few minutes later a car will come by and, before you get in, you know who the driver is, his rating, how much it’ll cost, and how long it will take to get to your destination. All cheaper than a taxi. It seems like science fiction!

You see unemployment is only 3.8% and think it’s a typo, because when you fell asleep it was more than double that.

Your friend shows you a video of a self-driving semi-truck that Budweiser used to carry 51,744 cans of beer from Fort Collins, CO, to Colorado Springs, CO. About 130 miles on I-25 with no driver! Now Amazon is deploying similar trucks.

But what may be most amazing is that that there have been several years over the last 10 that the US has run a trade surplus with OPEC. You wonder how this can be since the US was in an energy crisis when you fell asleep. In fact, oil production had been on a declining trend for about 50 years. Your friend tells you it’s all changed. Since you have been asleep, because of new technology, oil production has more than doubled, from about 5 million barrels per day to around 12.1 million barrels per day. In fact, the US is now the world’s biggest oil producer. Bigger than Russia and Saudi Arabia! The state of Texas, by itself, just surpassed Iran to become the world’s fifth biggest oil producer!

You continue through the list and are more and more blown away. It’s been only 10 years and the world is completely different, for the better! You barely recognize it, so many things have happened that you wouldn’t have even dreamt possible.

And notice, you have no idea who is President, what’s been going on with interest rates, Quantitative Easing, China, or North Korea. You’ve never heard of "AOC" and you missed the whole Greek debt crisis. All you know about are these "golden geese." And that’s all you need to know. The entrepreneur, alive and well, has continued to revolutionize the world over the past 10 years. That’s what has been driving economic growth and the stock market.

Imagine where we will be 10 years from now. Our guess is that it will be better than you can think.

************************************

As a side note, celebrating the 10-year anniversary of the current recovery and bull market is very satisfying to us.

We believed the Panic of 2008 was made significantly worse (trillions of dollars worse) than it needed to be because of overly strict mark-to-market accounting. Forcing banks and other financial institutions to write the value of assets down to fire sale prices based on frozen markets put the whole financial system at risk.

No amount of money from the Federal Government would have ever stopped it. Private investors stopped investing in banks. Markets stopped trading. All because assets were being written down well below the amount of cash they generated.

Quantitative Easing and TARP were both unnecessary, and useless. QE was started in September of 2008 and TARP was passed in October. During the next five months, the S&P 500 fell an additional 47% and financial stocks declined 70%. There is no evidence (unless you value self-proclaimed victories) that either worked.

The market turned on March 9, 2009, when the House of Representatives decided to push the Financial Accounting Standards Board to reverse the damaging mark-to-market rules. The change wasn’t made until April 2009, but the market knew it was coming. The change allowed banks to use cash flows to value investments. And guess what, private investors came back. They invested in banks and other equities and that was the turning point.

While government will tell you that it saved the economy, it didn’t. Once mark-to-market accounting rules returned to the way they were from the late 1930s through 2007, the economy could recover. And that’s exactly what it did. This recovery and the bull market are based on entrepreneurship. It’s not – and never was - a Sugar High.

TARP would have never been enough to save the system because assets would have continued to be marked down. And QE was unnecessary because the problem wasn’t due to a lack of money in the system.

Some members of the Federal Reserve try to compare 2008/09 to the Great Depression, and argue Milton Friedman would have wanted QE. But in the Great Depression, the money supply was declining. It never declined in 2007 or through September 2008, when QE was started. The problems in the system were capital problems, not liquidity problems.

In fact, it is our belief that without those overly strict mark-to market accounting rules, Bear Stearns, Lehman Brothers, WAMU and Wachovia would never had needed to go under.

Thank goodness the rules were changed, allowing the free market and entrepreneurship to once again work the magic that has transformed this great country since its start.

The attached information was developed by First Trust, an independent third party. The opinions of Brian S. Wesbury, Robert Stein and Strider Elass are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. The S&P 500 is an unmanaged index of 500 widely held stocks that's generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index. The Troubled Asset Relief Program (TARP) was a group of programs created and run by the U.S. Treasury to stabilize the country's financial system, restore economic growth, and mitigate foreclosures in the wake of the 2008 financial crisis.

Morning Tack - “Boeing Crash”

Jeffrey D. Saut, Chief Investment Strategist | (727) 567-2644 | jeffrey.saut@raymondjames.com

MARCH 12, 2019 | 8:16 AM EDT

"If there is one thing to be gleaned from the futures market this morning, it is this: the Dow Jones Industrial Average is not 'the market'. When one refers to 'the market', think the S&P 500.”

. . . Briefing.com

If I have heard it once, I have heard a million times from stock market guru Leon Tuey. To wit:

"Many persist in believing that the S&P is 'the market' which it is not as it only represents 500 big cap stocks and it is a weighted index. On any given day, however, several thousand stocks are traded in the U.S. and that is 'the market'. Hence, it's much more important and more informative to watch the Advance-Decline Lines as they reveal the true health of the market.

SHORT-TERM: Last week, the short-term oscillators (daily) registered oversold readings pointing to a bounce this week, and the market is rallying right on cue. Pundits, however, point to the 200+-point drop at this morning's opening. Little do they realize that much of the loss was due to a sharp plunge in Boeing and other airline stocks while Advance outnumbered Declines by a margin of more than 2-to-1 both in New York and on the NASDAQ. In other words, most stocks rallied.

INTERMEDIATE-TERM: As mentioned, in the week of February 25, a consolidation/correction was signaled as the market was grossly overbought, momentum and sentiment deteriorated. Short-term rallies notwithstanding, until a grossly oversold condition is reached, momentum and sentiment improve, further consolidation/correction lies ahead. As noted, the correction will prove to be rotational/time rather than magnitude as in December, fearful of a recession and a bear market, investors liquidated their equities ferociously. Consequently, they are grossly under-weighted in equities and are sitting on a mountain of cash. Now, they are starting to realize that given the Fed's dovish posture, there is no recession and as this begins to dawn, investors will scramble to get back in. Hence, the consolidation/correction is nothing more than a normal reaction to an overbought condition within an ongoing bull market which is healthy. After gaining more the 19% from its December low, the bull is just trying to catch its breath, a well-earned rest.

LONG-TERM: The secular bull market which commenced on October 10, 2008, remains firmly intact. Investors are witnessing the second leg of this great bull market that began in February, 2016 which is always the longest and strongest as it is driven by improving economic conditions caused by the monetary stimulation of years past. Since the first leg lasted nearly seven years, despite the black headlines and the widespread fear, the current leg remains relatively early."

And then there was this from our friends at the astute Lowry’s Research Organization:

"On Monday, the DJIA and S&P 500 rallied throughout the day, adding 0.79% and 1.47%, respectively. The lag in the DJIA was the result of extraordinary weakness in one of its largest components – Boeing (BA). Overall, Demand and the breadth behind the gains were strong, with Up Volume at 83% of total NY Up/Down Volume, while Advancing Issues made up 79% or total Advance/Decline Issues. Further support for Monday’s rally was reflected in Buying Power’s 4-point gain and Selling Pressure’s 4-point loss."

Stock Chart’s, John Murphy, went one further by writing:

"1) TECHNOLOGY SECTOR LEADS TODAY'S REBOUND AND HOLDS ITS 200-DAY LINE

2) SEMICONDUCTORS ARE HAVING AN EVEN STRONGER DAY

3) THE NASDAQ AND S&P 500 REGAIN THEIR 200-DAY LINES

4) THE DOW SHRUGS OFF BIG BOEING LOSS

5) AND IS BEING LED HIGHER BY APPLE, INTEL, AND MICROSOFT

6) MICROSOFT NEARS ANOTHER TEST OF ITS DECEMBER HIGH"

As for me, I have always averred the support level for the S&P 500 (SPX 2783.30) was in the 2700–2730 level and that the December 2018 intraday low of 2346 would NOT be retested. Last week’s pullback stopped at 2722.27; GED! Speaking to crude oil, as Cornerstone Analytics’ savvy Mike Rothman writes:

"Fears of an economic slowdown in China have recently weighed heavily on global oil prices. Demand deterioration leading to a drop in demand might sound like straightforward logic, but February’s Chinese oil usage data paints a completely different picture. Year over year crude demand increased by almost 15%, a staggering 1.78 million b/d for the month. Keep in mind that the per capita oil usage in China is at only 2.3 barrels a person – about one-tenth the usage rate of the US. With coal still accounting for 70% of China’s overall energy usage, we continue to have trouble turning bearish on China’s impact on the global oil balances. In the words of Mike, “it’s strange to see such a preponderance of bearish beliefs that keep getting defied by obvious bullish data.”

Yesterday, the SPX rallied 1.2% above its 200-day moving average, suggesting this rally may have upside “legs.” This year, the Federal Reserve has taken a softer tone, concerns regarding a trade war with China have fallen, and recessionary risks have declined. This more benign backdrop creates the potential for multiples to expand despite uninspiring profit trends. This morning, the preopening futures are marginally higher with no real overnight news.

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