Market Watch
The end of the third quarter came without much fanfare, and the results were actually not too shabby. The three major indices were all up, which is the first time in several quarters we’ve had that happen. Some newsworthy reports by the government were issued from mid to late September, and they basically support the notion the economy is chugging along in a positive way in year seven of this cycle.
The Dow Jones Industrial Average (DJIA)* ended the third quarter at 18,308.15 and was up 884.12 points year to date for a gain of 5.07%. The S&P 500* closed up 124.43 points at 2,168.37 which was a year to date increase of 6.09%. The NASDAQ* generated a 6.00% year to date increase topping out at 5,312.00 and adding 304.59 points. While none of the indices closed in record territory, all of them are within striking distance of surpassing their records, depending on what happens in the spooky month of October. I mention it because many people think of October as the month of ghosts, goblins, vampires and stock market crashes. While I don’t expect this month to deliver anything like 1929 or 1987, it is always prudent to acknowledge the panics in those years in the hope that all of us will remain rational this month, even if our elected officials, those hoping to be elected and those reporting on their utterances seem anything but rational at times.
The Bureau of Economic Analysis (BEA) released its final Gross Domestic Product (GDP) revision for the second quarter on September 29th and the economy grew at a 1.4 % rate. Personal consumption expenditures, non residential fixed investment & exports led to the updated increase from the previous estimate of GDP growth, which was 1.1%. While this is not optimum, it is positive. The next release from the BEA will be on October 28th, and it will be the advanced estimate of growth in the third quarter.
The Bureau of Labor and Statistics (BLS) reported in September that the overall unemployment rate was holding steady at 5% nationally, and the all items Consumer Price Index (CPI), a measure of inflation for the last 12 months ending in August, increased 1.1% including food and energy. The CPI annually adjusted without the inclusion of food and energy increased 2.3% on an annual basis. The Producer Price Index (PPI) for the 12 months ending in August rose 1.2% adjusted for food, energy and trade services.
Since the Federal Reserve has a mandate to keep inflation under control and to attempt to achieve full employment, the numbers reported by the BLS tend to support the idea that an interest rate hike is likely in the fourth quarter. The Fed’s target for inflation is 2% and most economists agree that 5% unemployment is considered full employment. I actually was hoping the Fed would make the move at the September Federal Open Market Committee (FOMC) meeting, because more than likely, when the Fed does raise rates by 0.25% to 0.50% it will cause a market swoon. It will be temporary, but I would rather have had the swoon take place in September, than December. No matter what the Fed did in September, it would have been labeled as political. In December, the election will be over and the Fed can take the next step towards normalizing interest rates. Unfortunately, we had a terrible start to the new year in the markets, due to the timing of the first Fed interest rate hike in December 2015. Perhaps the markets will be more rational this time around?
Anyway, if you get spooked, be sure to give me a call.
Let’s hope the spookiness bypasses the markets!
Growth of a Hypothetical Investment Made in an Election Year
Recently, American Funds studied the performance of a $10,000 investment made in one of its funds at the beginning of an election year, and its value ten years later. It also tracked the S&P 500* and its performance relative to their fund. The research looked at elections starting with the year 1936. In all but one 10 year period, 2000 - 09, the S&P 500* produced positive returns, and the $10,000 investment was worth more than when it was invested. The fund studied was positive in all of the 10 year periods. In 13 of the 18 ten year periods studied, the $10,000 investment had at least doubled, and in 8 cycles either the fund or the S&P500* produced a value of $30,000 or more. In some cycles the fund did better, and in some the S&P 500* did better. Past performance does not guarantee future results, but history can be reassuring for investors.
The 2016 Election and Beyond
On Tuesday, November 8, 2016, in a little more than one month from this writing, Americans will be casting ballots to elect a President and numerous Congressional seats, as well as the Governors of 12 states and two US Territories. So much has been written and will be written in the month ahead, that even bringing it up in discussion can make one wary. With one debate behind us, the Vice Presidential candidates squaring off on October 4, and the next Presidential Debate scheduled for October 9, there will be much more fodder for the TV analysts to ponder.
Most observers have widely judged Hillary Clinton as the winner of the first debate, and according to Barrons, “Donald Trump appeared unprepared and responded defensively to questions about his tax returns and his statements about women”. Green Party candidate Jill Stein and Libertarian candidate Gary Johnson obviously were not part of the debate, so most Americans must utilize their own wits to gather information to make a decision about their candidacies. Meanwhile, many voters seem to be wondering if this is the best we can do.
My focus is to look beyond the actual election to the realities that will exist on November 9 and beyond. While very much a lame duck, Barack Obama will still be the President of the US. The Congress will be eyeing their next vacation, so they’ll be looking at either another continuing resolution to fund the government beyond the Christmas Holidays, or they may actually draft an Omnibus Appropriations Bill. ISIS will still exist, college tuition won’t be free, there will be no wall between Mexico and the US, Russia and China will still be hacking our computer systems, and the best news is we’ll know who will assume the Presidency, barring any hanging chards.
The single most precious concept about our system is the peaceful transition of power established by the Constitution. While the President is a powerful figure, it is so very important to remember we live in a democracy, and no one person can make a law or dictate a policy, without a majority, and in many cases a plurality of votes on the matter.
So, there are many issues that must be addressed in the upcoming years including spending on the major social programs of Social Security, Medicare, Medicaid and now Obamacare. All of this spending must be addressed, because sooner than later, the tax receipts contributed by you and I to these programs will not be enough to support them. Remember, there is no lock box full of money. Taxation is the method by which these and all government programs are funded. As a country, we are making decisions about our levels of taxation, the functions of government, many social policies and fiscal prudence. Be sure to vote, and remember it is a privilege for which many people have fought and died.
Company Information:
John H. Kaighn is an Investment Advisor Representative with and offering Investment Advisory Services through Jersey Benefits Advisors.
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 856 637-2479
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com
John H. Kaighn is a Registered Representative with and offering Securities through Signator Investors, Inc. Member FINRA SIPC
197 Clarendon Street
Boston, MA 02116
800-322-7161
Signator Investors, Inc. is not affiliated with Jersey Benefits Group, Inc. or Jersey Benefits Advisors
Third Party Administration and Insurance Services offered through: Jersey Benefits Group, Inc.
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 856 637-2479
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com/
All opinions expressed in this newsletter are independent of Signator Investors, Inc. and solely those of John Kaighn & Jersey Benefits Advisors.
* The S&P 500, the DJIA, the NASDAQ and others referenced are unmanaged indices that are widely used as indicators of Market Trends. Past performance does not guarantee future results. The performance of these indices does not reflect fees and charges associated with investing. It is not possible to invest directly in an index.
*Dollar Cost Averaging through a systematic savings plan is an excellent way to build an account without a sizeable initial investment. Saving a portion of our pay each month is very important. Company sponsored pension plans are one method to save and should be used for retirement. Other systematic investment accounts, SUCH AS ROTH IRA’S, TRADITIONAL IRA’S, COVERDELL ACCOUNTS, 529 PLANS, BROKERAGE ACCOUNTS AND ANNUITIES can also be opened, and debited directly from your checking or savings account. For more information, just call to set up an appointment. REFERRALS ARE ALWAYS WELCOME.
John H. Kaighn
199-20161004-321809
