October 4, 2019
Happy Fall! As the leaves begin to turn and fall, we enter the final quarter of 2019. October begins with the S&P 500 up nearly 19% year-to-date and interest rates remaining near historic lows. As we begin the home-stretch of 2019 we’ve heard questions from clients on a few topics and would like to share our perspective on what these issues are, and how to best address them.
INTEREST RATES? WE’RE HAVING THIS TALK AGAIN?
Yes, we are. Does the term “inverted yield curve” ring a bell? It’s been in the news lately and sparked activity in the stock market in late August. The yield curve is a method of comparing interest rates on short and long-term bonds. Typically, longer-term bonds (ten years and longer) pay higher interest than shorter-term bonds. In exchange for holding longer-term investments, you are paid more. However, recently the yield curve “inverted.” For a short period of time in late August (3 days to be exact), a two-year government bond yielded higher interest than the ten-year bond. Markets reacted and all of a sudden we were hearing about the “inverted yield curve” predicting the next recession in our economy.
Why?
Historically inverted yield curves have signaled a recession in the United States economy. This is often due to investors moving assets from stock and equity holdings into more conservative investments such as bonds, often longer-term bonds that offer more substantial returns. This makes plenty of sense. However, it should be noted that no two cases of yield curve inversions (or anything, really) are completely alike, and recessions often occur for a multitude of reasons, as opposed to just one.
In this case, we believe declining international interest rates have caused foreign investors to purchase U.S. government bonds instead of bonds from their home nations – most predominantly this happened in Germany, where a ten-year government bond currently yields approximately -0.5% annually. An increase in purchase of long-term U.S. bonds created more demand, causing bond prices to rise and yields to fall.
So, what does this mean?
Our crystal balls haven’t arrived yet, so predicting the future isn’t something we’re ready to start doing. Keep in mind that recessions and periods of market turmoil happen for different reasons - no two circumstances are alike. Regardless of the cause, in periods of uncertainty, holding quality investments and having a plan to guide us along the way remains the most prudent course of action.
PLENTY OF POLITICAL UNCERTAINTY
We’ve been asked a great deal lately about the political uncertainty regarding Ukraine (and previously with the Mueller report). Our focus when discussing this topic is to answer from a place of objectivity and without emotion. With that being said – markets do not like uncertainty, politically related or not. It isn’t unrealistic to think that political turmoil or uncertainty will cause the stock market to react. It’s happened before, it’s likely to happen again. However, markets and our economy tend to be efficient, and over time tend to react more strongly to corporate profits and earnings. Our advice: Own quality investments and refrain from emotionally-driven investment decisions.
POINTS OF INTEREST
- Required Minimum Distributions from IRAs must be completed by 12/31/2019. If you have an IRA requiring a distribution that is not yet satisfied, we will be contacting you to complete before the 12/31 deadline.
- Stock Market Holidays: Markets will be closed in observance of the following holidays in the coming months.
o Thursday, November 28th - Thanksgiving
o Friday, November 29th – Markets close at 1pm
o Tuesday, December 24th – Christmas Eve (Markets close at 1pm)
o Wednesday, December 25th – Christmas Day
- One of our priorities this year is to confirm beneficiaries are in proper order for our clients. Please review your statements to confirm your beneficiaries, and if a change is needed, please let us know!
- As a reminder, if you would like to make a request to have funds sent to you from an investment account, please call to make this request. For security purposes we cannot issue funds via e-mail, only by speaking in person or over the phone.
UPCOMING EVENTS
- Medicare Educational Enrollment Seminar - Register Here: https://www.brightonsecurities.com/events/30
o Wednesday, November 6, 2019 at Cobblestone Creek Country Club
The Wade Group
Direct: 585.340.2203
Email: wadegroup@brightonsecurities.com