Upside Down
Conveniently, but not by design, Netflix is releasing “Stranger Things” season three on July 4th to coincide with our quarterly missive. Stay with us here as we know this is a little stranger storyline than normal, pun intended. For the uninitiated, “Stranger Things” is a David and Goliath story, where the neighborhood kids discover an alternate universe full of monsters they name the “Upside Down”. Of course, the show is well produced and has a Speilberg-esque feel to it but, it is the parallel world which we find quite apropos to the current stock market.
For instance, doesn’t the world feel somewhat upside down when the stock market is up double digits, but the ten-year Treasury note yields less than the three-month Treasury? The fixed income market thinks the future is so bleak that it would rather lock in a ten-year investment yielding less than the three-month piece of paper, while at the same time, inflation is negligible and unemployment is at a 50 year low. This same market has the chairman of the Federal Reserve talking about lowering rates he just raised September of last year. Conversely retail sales are up 10.9% annualized over the past three months and nominal GDP is up 4.8% annualized, over the past two years. Of course, at the same time the most recent Empire State Manufacturing Survey declined the most in its history. “Strange things indeed” to quote John Lennon.
Of course, some point to the political environment as the reason for the “otherworldly” feel of the current environment. This is where historical perspective is important. Today’s bombastic headlines blasted out every 24 hours seem to lend themselves to anxiety and uncertainty, which are the arch-enemies of long-term financial planning. As a reference point, we were listening to a NY Times podcast recently describing Iran and U.S. tensions being at an all-time high and couldn’t help but think that Jimmy Carter might disagree with that sentiment. Not getting political, by any means, we are instead trying to diminish the media and political influence in your day-to-day activities. In our opinion, the spirit of capitalism grinds higher no matter the political backdrop, and again, history provides a good frame of reference here. In other words, “Keep calm and carry on” to borrow from the British government in WWII.
Tying up all these loose threads is where we come into the picture. How does one make sense of it all? Let’s just say that ten years into a bull market rally, one needs to be careful, but how is one careful? Putting all of your investments into a broad based index when valuations aren’t cheap and economic signals are mixed doesn’t seem to be a prudent move to us. Making use of a flexible manager who can invest in an asset class like cash or fixed income that doesn’t move in lockstep with the market, is something we think makes sense. Of course, if markets power higher, getting some of the upside with less of the risk still seems like a logical move to make as well. Additionally, investing in areas with less price risk makes sense to us also. For instance, small cap and healthcare have trailed the market this year for reasons we think may be fleeting, and, therefore, may provide greater upside with less downside risk at current levels. These are the types of moves we are making in today’s environment. It is our feeling that no matter how strange things get, we can weather the changes for our clients if we stick with our flexible approach and our long-term plan.
On that note, we are truly grateful to work in our current situation with so many great people. This feeling emboldens us to do whatever we must to try to keep anxiety and uncertainty (the nemesis of a good plan) at bay. Most of the time logic and planning can keep things from turning upside down, but we also know how fragile the human psyche can be at times, so if this market has been a little stranger than normal to you recently, please give us a call.
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If you buy and sell a security in a taxable account on or after the effective date, NFS will report cost basis for the sold security to you and the IRS on Form 1099-B. If you have a mix of covered and uncovered positions in the same security, NFS will report cost basis to you and the IRS for any covered position that is sold. NFS will apply the FIFO (First In, First Out) default method unless you inform us of a different method. Your cost basis method for all transactions must be final by settlement date. If you choose to change the default method, you can do so by notifying your Financial Consultant.
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iThe investment return and style information and comparisons employ a variety of popular indices, and the index contents and strategies are the property of their respective companies (e.g., Dow Jones, Standard & Poor’s, Morningstar, Barclay Capital, Russell). Although the data is believed to be reliable, CFG makes no warranty with respect to the contents, accuracy, completeness, timeliness, suitability, or reliability of the information, which is represented here for informational use only and should not be considered investment advice or recommendation. None of the indices can be invested directly, and the return figures for these various securities indices are reported without management fees, trading costs, or other expenses subtracted from the returns, and are shown on a total return basis that assumes reinvestment of applicable capital gains and dividends. Components of indices may change over time. Small capitalization stocks are represented by the Russell 2000 Index. Mid Capitalization stocks are represented by the S&P Mid Cap 400 Index. Foreign stocks are represented by the MSCI EAFE Index and emerging markets are represented by the MSCI Emerging Markets Index.
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Creative Financial Group (“CFG”) is a division of Synovus Securities, Inc (“SSI”), member FINRA/SIPC. Prior to January 1, 2011, CFG was a separate registered investment adviser affiliate of SSI. Investment products and services are not FDIC insured, are not deposits of or other obligations of Synovus Bank, are not guaranteed by Synovus Bank and involve investment risk, including possible loss of principal amount invested. Synovus Securities, Inc. is a subsidiary of Synovus Financial Corp and an affiliate of Synovus Bank. You can obtain more information about Synovus Securities, Inc. and its Registered Representatives by accessing BrokerCheck