In The News...
In light of the 4th of July holiday I opted not to send out a recap last week. So I'll play a bit of catch-up and touch on some things that occurred over the past two weeks.
Housing Prices Hum Along: The housing data has become redundant the past few months. I say that in a good way, particularly for us in the Northwest. Homes appreciated by an average of +5.5% in April, which reflects the trailing 1-year gain. Seattle widened its gap over the rest of the country, rising +12.9% annually. This growth more than doubles the national average and is nearly +4.0% better than the next-closest city (Portland).
Here is a city-by-city look at both monthly and annual price changes:
There is not much to add that I have not said before. Yearly growth of +5% is stable. It does not reflect the bubble that so many continue to preach. Whether Seattle-area homes are overpriced is a different discussion, though I believe this market to be strong.
Different markets will have their time in the sun as the ebbs and flows of hiring occur, as Seattle does now and as San Francisco did in recent years. I suspect growth to remain strong along the west coast, which includes when it eventually comes down from double-digits into the 5% (or so) range. If I had to say I'd think we are a year away from that. But do not mistake slowed growth for falling home values. They are nowhere near the same.
In The Market...
The S&P 500 was up +0.1% this past week. Let's look under the hood...
Stocks: The first half of 2017 came to an end with a whimper. The S&P 500 did gain nearly +3.0% in Q2 but absorbed a bit of a sell-off at the end of June. Through the first half of 2017 the S&P was up +9.0%, tracking nicely above its long-term historical average for a six-month period.
On a sector basis, Technology and Health Care have been the best performers year-to-date. Only the Energy is negative for the year among the 10 major stock sectors. This past week Financials continued to rally, while dividend-paying sectors (Utilities, REITs) again lagged.
Bonds: Just as dividend-paying stocks have struggled recently it has been a tough couple weeks for bonds, specifically the more conservative flavors like Treasuries and Investment-Grade Corporates (both of which we own). I swear I am not only saying this now, but I suspected this rough patch might happen based on analysis I did two weeks ago following the tear that bonds had been on during May and June. We do not react to small timeframes, particularly when the longer-term, weekly view still looks good for bonds.
No bad breadth: One thing that has helped stocks combat a big sell-off this year has been the technical concept of "breadth" that I often reference. Specifically, the ratio of companies whose share prices are above their 200-day trailing averages. The 200-day moving average is a good indicator because it reflects the long-term price trend and we do not like to fight long-term trends. The higher the ratio of collective S&P 500 companies above their respective 200-day moving averages the more the market is rising together, which is good. The lower that ratio the more the market is falling together, which is bad.
Right now, 71% of the 500 companies in the S&P 500 are above their 200-day averages. This is stable, if not strong. If that ratio falls below 60% I may begin to worry, but breadth has held above that threshold for well over a year. We do not look at this in a vacuum, but it does help supplement other analysis.
In Our Opinion...
Have you ever heard someone say something along the lines of...
"Stocks are expensive."
"The market is overpriced."
"This is definitely a bubble."
I certainly have and am not much of a fan. But what do these statements mean?
They all imply roughly the same thing: The stock market is not worth buying because a drop is coming. Sometimes this premise is based on something statistical, like a price-to-earnings ratio. Sometimes it is based on nothing more than what they heard someone else say (i.e. coworker, friend, neighbor, TV talking head).
Most often it is rooted in nothing more than fear, which is damaging when it begins to stifle your investment decisions without just cause. I have no problem with someone saying the market will skyrocket or crater, so long as there is a measurable, process-based reason for the claim. I will find reason at some point in the future for believing that the market will fall. But I track market conditions daily and use what I believe are consistent and sound methods. I also avoid hyperbole because I realize that no method is perfect and the market has a way of humbling you very quickly if you become too presumptive.
Be careful to distinguish noise from knowledge because loud, unsubstantiated claims are easy to come by.
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.)
My wife called me last Thursday freaking out.
She received a voicemail from the IRS informing her that she had committed tax evasion for the years 2010 through 2015 and was going to be arrested within 72 hours. The recording was detailed and when she returned the call the representative on the other end was thorough articulating the "crimes" she had committed.
Moments into her explaining this via text, I quickly interjected to say it was a scam.
These types of calls are apparently way too common. If you ever get a call from someone saying they represent the IRS, do not provide any personal information and certainly do not provide any payment information. If you receive a letter in the mail, scan and email me a copy of it before you do anything. Scammers have gotten very good at mailing out what appear to be legitimate IRS-issued notices requesting payment. Bottom line: If you receive such a notice, do not do anything until you have consulted either myself, Gale or your CPA.
Here is information pulled directly from the IRS website. Note the four things that the IRS says it will never do, but which scammers attempt to pull off.
Luckily for us, my wife did not provide any information and promptly hung up when I texted her to do so. Crisis averted.
What's New With Us?
Quick reminder... To access your monthly fee statements you must login to the Morningstar Client Web Portal. You should have already set up your access, but if you have not, I can re-send you instructions. One of the benefits of adding Morningstar is the ability for us to automate fee summaries. So when you receive an email from Morningstar each month, it likely pertains to the fact that I have posted your latest fee summary for your viewing purposes.
Have a great weekend!
Brian E Betz, CFP®