Before I dive into this week's blog post, I want to let you all know that we are actively looking to hire an Executive Administrative Assistant. The full job posting is available on our site here. If you know someone who might be interested, let me know. They can reach out to me directly with their resume as well. Now on to this week's market thoughts...

Do pregnancy rates predict future economic recessions?

According to the National Bureau of Economic Research (NBER) they sure might. Their study tracked 109 million births that occurred from 1989-2016 and found that the number of conceptions declined ahead of eventual declines in economic growth (GDP) back in the late-80s, then again ahead of the tech bubble in the late-90s and then once more ahead of the subprime mortgage crisis in 2007.

This chart shows the positive correlation between conceptions (solid line) and economic production (dashed line):

(per the National Bureau of Economic Research, via CNBC)

I can get on board with this. When we are financially optimistic we tend to spend more. When we are pessimistic or uncertain we tend to spend less. Kids are expensive, so it is reasonable to assume that couples might think twice about having one or more kids if they are concerned about things like job security, stock market conditions or the U.S. economy in general. There are very few areas that are truly recession-proof and two of them happen to be child care and college tuition. If birth rates decline it is very possible that it is because families consider those costs, at least to some extent.

This hopefully goes without saying but this report should not influence investment decisions, at least not in a vacuum. It is a human interest story more than anything. But it is a pretty plain way of thinking about how we feel about the market and economy.

Corporate earnings boom: It was a solid quarter for large publicly traded companies. Revenue growth was terrific and the overwhelming majority of companies surpassed earnings expectations. Here are a few of the highlights (per FactSet):

Earnings grew nearly +15% in Q4, which was the most for any quarter since 2011.
All 11 stock sectors experienced profit growth. So unlike prior quarters, positive earnings results were not limited to a handful of sectors.
Sales increased +8.2%, which was also a high dating back to 2011.
Compared to estimates, 77% of all S&P 500 companies beat their sales targets. This is the highest percentage since FactSet started tracking data in 2008.

Because we emphasize sales over profits, here is a sector-by-sector look at revenue growth in Q4:

Housing prices inch higher: Home values appreciated by an average +0.2% in December nationwide (per the S&P/Case-Shiller report). Seattle real estate beat that average, rising +0.6% during the month, and continue to lead all major cities on an annual basis as Seattle homes have risen +12.7% in value over the past year. Las Vegas continued to narrow that gap, up +11.1% annually, followed by San Francisco (up +9.2%).

Here is a complete city-by-city look at housing price changes:

In The Market...

The S&P 500 rose +3.6% last week. Let's look under the hood:

Last week's surge came on the heels of the S&P falling -2% the week prior, so some context is needed. Nonetheless, following a week where all 10 stock sectors were negative it was good to see all 10 sectors rally back. As a whole the S&P 500 index still remains 3% below its previous peak set back on Jan. 26th. In my view that peak needs to be surpassed soon in order to sustain this rally in the weeks ahead. Or I sense market conditions will remain choppy.

If this rally is to sustain across all/most sectors of the market, I still think Technology will lead the way. Tech continues to look the healthiest among all areas of the market, on all timeframes we analyze. This past week it was Tech and the other growth-oriented sectors that performed the best, namely Financials and Industrials.

We continue to own Financials as well as a tech-heavy index fund (SPYG) across most accounts. I have been looking to add the Tech sector fund (XLK) for a couple weeks but am still weighing whether to cut bait on our Utilities position or wait for a potential rebound in the Utilities sector. This is getting in the weeds a bit, but I am happy to share more if you're interested in my thought process.

Since I didn't send out a blog last week I didn't get to mention that the U.S. market snapped its 15-month winning streak, as the S&P 500 fell -3.9% in February. So far March is starting out much better than did February.

In Our Portfolios...

What's New With Us?

I will be sending you our updated Form ADV 2A, which is disclosure information pertaining to our firm. This is a form you received when you first became a client and is something we update at least annually. If you have any questions about its contents, please ask. However, no action is required of you. It is purely for your information.

I am hoping the sunshine lasts through the weekend so that I can mow our yard for the first time this year. I will also finish getting settled in to our new office at 2nd Avenue and Columbia St. If you happen to be in downtown Seattle please stop by and say hi!

Have a great weekend,

Brian E Betz, CFP®
Principal

In The News...

2,459.

That number is where the S&P 500 index finished this past week. It also marks a new, all-time high for the U.S. stock market.

We are conditioned to believe that what goes up must go down, and visa-versa. That logic is backward when it comes to the market. The phrase "the trend is your friend" is more applicable. If an investment is consistently rising in value, run with it. If it is falling, it may be time to sell.

The key word there is "consistent". Trends require consistency. Right now the S&P 500 -- which we believe is the best barometer of the total U.S. market -- possesses a rising trend dating back to nearly one year ago. Investors have been quick to buy stocks when short-term losses occur (I discuss in more detail below). This is a positive development.

How long will this bull market last? Hard to say. I have been bullish since July 2016 and will continue to be until our technical analysis says otherwise. But I do acknowledge that we are entering the most volatile two months of the year (Aug/Sept).

In The Market...

The S&P 500 gained +1.4% this past week. Let's look under the hood...

Stocks: Every sector was positive last week, except for Financials. It is funny because coming into this week I felt Financials were arguably the strongest-looking sector out there. I still like Financials and am still considering it as an allocation for most client accounts.

Technology rebounded well, up +3.2% and leading all sectors. This was a very encouraging week considering that the gains were evenly distributed across most of the nine sectors that advanced. Said differently, I would be more concerned if one or two sectors were up big while many others were flat or negative. We like to see the entire market rising as a whole. No surprise the S&P hit a record high as a result.

One of our current holdings is a Real Estate fund (VNQ), which we purchased a couple months ago. My hope/expectation was that it would obviously rally from the time we bought it. Instead the fund has floated around between the pretty well defined $80-85 price range. Take a look at the daily chart of VNQ...

If we expand the above chart to show a longer-term weekly view the outlook still suggests that rally will occur. But I'd be lying if I said I didn't think it would happen by now. My goal is for this latest week (up +1.3%) to propel it to finally surpass $85 and eventually look to sell around $88. Just a little insight to what I am seeing and thinking about a fund currently owned by many client accounts.

Bonds: Somewhat of a bounce-back week for bonds, following consecutive losing weeks for Treasuries. High-yield bonds gained almost +1.0%, which is perhaps the most encouraging news of all. I often look to high-yields as a sign of how stocks may behave in the future. The fact high-yields gained in unison with stocks is bullish.

In Our Opinion...

Sell the Rally vs. Buy the Dip... What's the difference?

The distinction between these two concepts is important. Earlier I mentioned that investors have been ready to buy any dips that the market has taken in recent months. This was the case this past week, as well as back in May and April before that. In each instance, the S&P 500 fell -2% or so and investors quickly jumped in to buy stocks, helping the market not only rebound, but surge higher.

This type of dip-buying is a hallmark of bull market rallies. It is part of the reason we do not fight trends, we embrace them. The opposite would be the mentality of selling-the-rally, which occurs when the market is in bad shape. In those instances, following a big drop the market eventually rallies. But instead of more investors jumping in to keep the rally going, investors instead use those rallies as an opportunity to sell and avoid potential, future losses. It is a matter of playing defense, whereas buying-the-dip is more offensive.

A great example of this is the frustrating period between 2015 and early 2016. Investors were constantly selling into any rallies, which made for some volatile times. Take a look...

This was a time when words like "bear market" and "recession" were popular. To be fair, back then I was on the fence regarding whether the market was going to fall into a bear market. Luckily it never did, but still, this period is a great example of how different times were just two years ago.

In Our Portfolios...

(Note: Each client's account is uniquely managed, based on account size and risk tolerance. Your account will only own some, not all, of the investments bought and sold over time.)

Q&A/Financial Planning...

Lease, lease, lease...

I wrote about this a while back but want to stress it again following our personal decision to lease, rather than buy, a new car this past week.

We leased a Toyota Highlander (three years, $2,000 down). The reason I prefer leasing is because it reduces your liability. A car is a liability, not an asset. The second you drive it off the lot it loses value, which is substantial in the first few years you own a new car. A three-year lease balance pales in comparison to the liability of taking a loan to finance a purchase (assuming you put minimal money down on the purchase). So long as you negotiate reasonable lease terms, the financing cost of owning a lease should be competitive to that of a loan rate. This means you are getting comparable financing without the liability of owning the car outright. Oh, and you still have the option to own it if you want when the lease term ends. It is very unlikely that you will ever make money on a car should you sell, which is why leasing makes more sense.

There are only 2 instances when I would recommend buying over leasing:

You plan to own the car for a decade or more and extend its useful life well beyond full depreciation, AND, you plan to pay it off quickly (within the loan's term, or faster).
You know for a fact that you will exceed the mileage limitations of a lease. Leases typically restrict you from driving the car more than 12,000 or 15,000 miles per-year. If you do, you are charged for each additional mile.

If you are in the market to buy or lease a car, feel free to ask me questions. I am sharp right now when it comes to car research and handling the negotiation process. Let me know, I am happy to help!

What's New With Us?

We are hiring!

I am looking to hire an Executive Assistant on a part-time basis, with the potential of transitioning to a full-time role. The new hire will help with day-to-day administrative functions as well as oversee our industry compliance protocol as the firm's Chief Compliance Officer. Among the skills required for consideration are a proficiency using Microsoft Office applications (namely Excel), an ability to grasp and implement new technologies for the firm and a strong attention to detail. This hire will work side-by-side with me, with the potential of working remotely while doing so.

If you know someone who may be interested, please contact me directly.

Have a great weekend!

Brian E Betz, CFP®
Principal

Market & Financial Planning Commentary

Do Pregnancy Rates Predict Stock Market Returns?

In The Market...

In Our Portfolios...

What's New With Us?

Investors Buy The Dip And Stocks Hit A New Record High

In The News...

In The Market...

In Our Opinion...

In Our Portfolios...

Q&A/Financial Planning...

What's New With Us?