MARKET WATCH

If you feel like you are a bit befuddled by the stock market right now, you are certainly not alone.  There seems to be a disconnect between the performance of the markets and the performance of the economy, as well as a difference of opinion as to what may happen next.  At this juncture, it is important to remember the stock market is only one indicator of the overall economic climate, and many factors affect the emotional responses of investors and traders.

After an October that lived up to its reputation of being an unfriendly month for the markets, investors and traders whipsawed the indices back and forth as volatility increased.  The markets corrected (dropped 10%) and continued to fall.  Finally, on Christmas Eve, the markets were brought to the brink of a bear market, then rallied through the end of the year to pare their losses.

So, what just happened?  To sum it up, all the concerns about political wrangling, a government shutdown, the Federal Reserve tightening interest rates, a global economic slowdown, bear markets in Europe and Asia and a yield curve close to inversion took their toll on the markets.  After setting an all time high of 26,898.39 on October 3, 2018, the Dow Jones Industrial Average (DJIA)* slid to 21,792.20 on Christmas Eve, an 18.98% decline.  By the end of the year, the DJIA recovered to 23,327.46 ending the year down 5.63% and 13.28% below its all-time high.

The S&P 500* also reached a record high of 2,930.75 on October 3, 2018 and subsequently fell to 2,351.10 on Christmas Eve, a 19.77% decline, but not below the psychological and empirical threshold of 20% necessary to classify it as a bear market.  By year’s end, the S&P 500 closed at 2,506.85 down 6.24% for the year and 14.46% off its record close.  The NASDAQ* set its record on August 29, 2018 when it closed at 8,109.64 and wound up in bear market territory on Christmas Eve when it fell to 6,192.92 which was 23.64% off its peak.  By the end of 2018, the NASDAQ improved to 6,635.28 but was still down 3.88% for the year and 18.18% below its record high.

While the S&P 500 falling to within a rounding error of the definition of a bear market is certainly significant and painful, it is important to note that all the indices need to close 20% or more off their peak in order to consider this a bear market.  So, we need to look for confirmation and that could take months, or days!  By confirmation, I mean does the market visit its record highs, or drop conclusively below the 20% level.  For the DJIA the number is 21,518.71 and for the S&P 500 it’s 2,344.60.

In Barron’s, Vito Racanelli likened the current market conditions to “The Zombie Market where, investors stumble around in a stupor, arms outstretched, feeding on the latest bit of stray economic nourishment.

Like zombies, they don’t scruple to understand, but instead fasten themselves to whatever information they can get their hands on: news, fake news or rumor.  It matters not whether it’s the latest shoot from the hip tweet from President Donald Trump, a cryptic message from the Federal Reserve or fresh jobs and inflation numbers”.

A major concern expressed by investors, and probably one of the main reasons for the disconnect between the markets and the economy, is the balance sheet reduction being conducted by the Federal Reserve.  When Federal Reserve Chairman Jerome Powell dismissed a question about this reduction in his news conference and stated the reduction would continue on auto-pilot, after raising the Fed Funds rate to 2.25% - 2.50%, the markets reacted.  The argument is if quantitative easing (QE) helped support the economy and asset prices coming out of the 2008-09 economic downturn, how could quantitative tightening (balance sheet reduction) not impact the economy going forward.  Obviously, in the minds of many investors on Christmas Eve, this and other factors were weighing on their minds significantly.  So much for trying to trade in this market. Rather, it’s a time to buy and hold diversified assets for the long haul, and for being disciplined so you are buying when assets go on sale, like they did on Christmas Eve!  This is when Dollar Cost Averaging* works its best.

The article below expands on the recent stock market fluctuations, and discusses more reasons for this volatile time period, as well as some of the positives for the new year.

Weathering the Recent Stock Market Fluctuations

Over the past quarter, we’ve seen a lot of volatility in the stock market and a 5,000 plus drop in the Dow Jones Industrial Average (DJIA)*. I am constantly monitoring the markets to ensure your portfolio continues to be well-positioned and diversified.  While such market drops are dramatic – and disconcerting – it’s important to note that nothing unprecedented is going on.

So, what is going on?

• Interest Rates are Rising This scenario hits the earnings of tech stocks particularly hard.  And these are the very companies that have been driving stock market gains.

• Return of Volatility  Since the recession of 2008-2009, the stock market has experienced unusually low market volatility. The increased volatility in the last couple quarters is much more normal of longer-term market trends.

• Investors are Cashing in anticipating a high-rate environment, many investors are selling their holdings and taking their gains.

• Trade/Tariff Issues Uncertainty is causing some investors to sell on emotion.

• While global growth is expected to slow, it is not stagnant

Is the news all bad? Not at all.

• U.S. economic fundamen- tals are strong.

• Valuations are sound for investors with a long-term time horizon.

• While the volatility can be difficult at times to stomach, it has also historically created great investing opportunities.

• Unemployment is among the lowest levels seen in recent memory.

• Inflation is under control.

I want to stress that I am here to guide you, to explain the implications of market events to you and to work with you toward your financial goals.  Please remember:

• If you have a question, contact me. Together we'll address any concerns you have.
• Please remember that investing is a long-term prospect.
• I can help you stay informed. My firm works with some of the nation's leading investment management companies, giving me access to some of the best research and financial analysts in the industry.

Again, please don't hesitate to reach out to me by telephone, email or through the Jersey Benefits web-site, should you have any questions or concerns.

Retirement Plan Contribution Changes for 2019

As we begin the new year, one of the important steps most families take is to begin assessing the amount of the tax refund they’ll receive, or how much more they’re going to owe in taxes.  This will be the first time for filing under the tax law changes passed in 2017.  Remember, you can still contribute $5,500 to your IRA for 2018 until April 15, 2019.  If you are older than 50, you can contribute an extra $1,000 catch up contribution to that amount.  If you’d like to make a contribution to your IRA, or set up an IRA, please contact me.

Maximum SEP contributions are still 25% of the employee’s income, but the maximum limit has increased to $56,000 for 2019.       

If you have a 401k, 457 or 403b plan at work, the deferral limits have increased to $19,000 for 2019 and the catch up contribution for those 50 and older remains $6,000.  If you have a SIMPLE plan, the salary deferral limits have increased to $13,000 for 2019 with a catch up contribution for those 50 and older of $3,000.

Finally, the contribution limit for IRA's and ROTH IRA's in 2019 will be increased to $6,000 with a $1,000 catch up contribution. This increase in contribution limits for IRA's and ROTH IRA's was overdue and helps lower taxes and increase saving.           

*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 and the performance of these indices does not reflect the 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 checking or savings accounts.  For more information, just call to set up an appointment.  Referrals are always welcome. 

Company Information

John H. Kaighn offers various products and services under the trade name of Jersey Benefits Advisors.

PO Box 1406

Ocean City, NJ 08270

Phone: (609) 827-0194

Fax: (856) 637-2479

Email: kaighn@jerseybenefits.com

http://jerseybenefits.com

John H. Kaighn is an Investment Advisor Representative & Registered Representative of Royal Alliance Associates, Inc. 

Securities and Investment Advisory Services are offered through Royal Alliance Associates, Inc. Member FINRA & SIPC.

10 Exchange Place

 Suite 1410

Jersey City, NJ 07302

Royal Alliance Associates, Inc. is not affiliated with Jersey Benefits Advisors or Jersey Benefits Group, Inc.

Insurance Services and Third Party Administration offered through Jersey Benefits Group, Inc., a licensed Insurance Agency in the State of New Jersey.

PO Box 1406

Ocean City, NJ 08226

Phone: (609) 827-0194

Fax: (856) 637-2479

Email: kaighn@jerseybenefits.com

http://jerseybenefits.com

All opinions expressed in this newsletter are independent of Royal Alliance Associates, Inc. and solely those of John H. Kaighn and Jersey Benefits Advisors.

John H. Kaighn