With tax day quickly approaching, so too is the deadline for making Traditional IRA and Roth IRA contributions for 2018. This video explains the contribution limits for various types of retirement accounts.
If you have any questions regarding whether you qualify for a Traditional IRA or Roth IRA, please ask. If you plan to make either type of contribution (or both) you will need to do so not only before April 15th, but before you file your 2018 tax return.
Home values slide in December: The average home fell ever-so-slightly, down -0.1%, in the latest S&P/Case-Shiller home price index report. Seattle homes fell for the 6th-straight month, as home price appreciation slowed throughout the second half of 2018. The average home is up +4.7% annually, which is more in-line with historical averages but still a bit of a shock compared to the +7% to +8% growth we saw not much more than a year ago.
If you were reading this blog 18 months ago, this is exactly what I predicted would happen. I think this is perfectly normal, but as always, it helps to gain historical perspective before drawing any conclusions about what is next. Here is a look at the rise in home prices dating back 30 years.
You can see how real estate has leveled-off as of late, so much so that you might argue a bigger decline is forthcoming. I am not so sure about that, but whatever happens, one thing I am pretty sure of is that the stock market will lead the way (for better or worse). Stock prices are the leading indicator that influences both hiring and real estate values. If company values rise, more people are employed and investor confidence rises, which directly boosts housing demand. If company values fall, the opposite occurs and housing demand will weaken.
Proof of this is what occurred last Summer. It is no coincidence that housing prices started to slow around June/July, just a few months after the S&P 500 had fallen roughly -10%. I can say with confidence that the shock of seeing stocks drop caused homebuyers to pause a bit in their housing pursuits. If you disagree I would be curious to hear what you think.
Here a complete city-by-city look at the latest housing numbers:
In The Market...
The S&P 500 gained +0.4% last week. Let's look under the hood:
It was another constructive week for the stock market, despite modest gains. The individual sectors were a bit mixed but the week ended strong, which is what we like to see. The S&P 500 finished the week just above 2,800, which many think is an important level for the index to hold given it represents the previous high from both November and December — instances where stock prices fell sharply soon thereafter. Will this time be different and see the rally continue into March?
Our cumulative analysis would suggest yes. However, there are two momentum indicators that give us pause, which were the same problems that occurred back in November and December when the S&P failed to hold above 2,800. These are shown in the chart below, which illustrates how Relative Strength (RSI) and the percentage of stocks that are above their respective 200-day moving averages are both lower compared to when the S&P 500 index hit its previous two highs back in Jan. 2018 and Sept. 2018. Take a look…
The large chart in the middle shows the actual price movement of the S&P, including the recent rally to start 2019. RSI is shown in the chart above that, where you’ll notice it is fading despite these price rallies. RSI compares the size of gains in periods when price rises and compares it to the magnitude of losses on days when price falls. The above is a weekly chart, so each period being considered is one week. The important takeaway is that we want to see RSI rise — or at least remain elevated — when stock prices rise. When RSI stalls or fades amid a stock market rally, it indicates that price momentum is weakening and a reversal may be near.
Additionally, the percentage of stocks that are above their 200-day moving averages is lower compared to those previous highs from 2018. Today, 61% of stocks in the S&P index are above their 200-day moving averages. That ratio was much higher during 2018. This measure of what is called market “breadth” statistically represents how well the stocks that comprise the S&P 500 are moving in unison or not. We would like to see this percentage higher, not lower. If the S&P 500 is rising, but this percentage is falling, it indicates that a few big companies are doing all the heavy lifting, which often is not sustainable.
While we remain bullish short-term, I wanted to highlight these two indicators as factors that we are closely tracking, as they influence our buying and selling decisions.
We were pretty inactive on the portfolio front last week. The bond market took a sharp negative turn, which may result in reallocating some of those positions in the coming days. We sold our Municipal Bond fund (PZA) for a modest gain within accounts that owned it.
In Our Portfolios...
What's New With Us?
It was a fairly relaxing weekend. The weather was nice, so I was able to get outside and do some yard work. I had to cut up a tree that had fallen last month as a result of the snowfall. The tree was decaying and the weight of the snow was its final blow. Luckily it did not cause any other damage, but it did take some time to saw it apart.
Have a great week!
Brian E Betz, CFP®