In The News...
Another month of solid housing numbers...
Home prices rose by an average +1.0% in May, per the latest S&P/Case-Shiller index. Year-over-year, prices have gained +5.6%. Here are the 5 cities boasting the greatest annual price appreciation:
- Seattle (+13.3%)
- Portland (+8.9%)
- Denver (+7.9%)
- Dalllas (+7.8%)
- Detroit (+7.6%)
Here is a detailed, city-by-city look:
Seattle real estate not only led the nation again, but extended its lead. I won't rehash my previous thoughts on Seattle housing, but instead want to share some interesting facts from this latest report:
- Since housing bottomed in Feb. 2012, San Francisco has seen the largest, cumulative rise in home prices.
- The average U.S. city population has risen +4.6% since 2010.
- Seattle population growth has more than tripled the national average in that same time, up +15.7%.
- Portland and San Francisco populations rank #2 and #3 in growth, up +9.6% and +8.2%, respectively.
- 64% of homes are occupied by their owners (rather than, say, rented out). San Francisco (36%), Seattle (46%) and Portland (52%) are well under that, reflecting higher levels of real estate investment in these areas.
In The Market...
The S&P 500 rose +0.2% this past week. Let's look under the hood...
Stocks: Financials and Utilities were the runaway winners this week, as returns were pretty split at the sector level. Energy was the biggest loser (down -1.2%), yet I actually like the outlook for Energy to rebound in the weeks ahead. Energy is down more than -11% year-to-date, but that may turn around soon.
Last week we purchased a Financials sector fund (XLF) for many client accounts. As mentioned, Financials were the top-performing sector this past week. More importantly though, the long-term view looks positive for Financial companies. This daily price chart shows why:
Price looks poised to move higher now that it has crossed above previous record highs. Also, Relative Strength (the chart above the main chart) is nicely above 60.0 and rising. Relative Strength, or "RSI", is a measure of price momentum. It measures the size of up-days versus the size of down-days for any investment in question. If the positive days are simply larger -- as has been the case with Financials -- the RSI number rises.
The concept of RSI might seem like common sense -- if price goes up so too does RSI, and visa-versa. But, what it really tells us is whether the price of an investment has risen or fallen too quickly. If that occurs it often means the price will reverse direction. We certainly don't want to be on the wrong end of that by buying an investment that has risen too quickly and is due to fall (a RSI reading above 70.0 is considered "overbought" and could fall).
Ultimately, RSI is central to our analysis because it helps validate price movements by helping us determine if a) there is a trend, and b) if the current trend will continue or change.
Bonds: A fairly good week for bonds, as Treasuries were up +1%. Both high-yields and investment-grade bonds were essentially flat.
In Our Opinion...
A quick public service announcement regarding the latest jobs numbers...
The unemployment rate fell to 4.3% in July. You will hear a lot about how that is a 16-year low, which is true if we ignore the fact that it was 4.3% just two months ago. I wrote about the implications of current employment levels back then, which you can read here.
The important thing to remember is that unemployment is a lagging indicator. I cannot stress that enough. The last two times unemployment fell into the low-4% range (1999, 2007) the market precipitously fell within 1 year or so. But even as I say that, 1 year or so, notice how vague that sounds.
- One year is a broad timeframe, much too long to fit within our investment decision-making process. Because...
- It could take longer than 1 year for a big market decline to materialize. We aren't going to sit on our hands waiting for something to occur. Also...
- Just because the markets receded when unemployment hit similar levels in the past does not guarantee it will happen again.
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.)
Is Amazon coming for financial advisers?
I read an article in InvestmentNews about the prospect that Amazon might consider dipping its toes into the financial advisory world. I have considered this for some time now, as one mantra I believe is that technology is coming for your job, if it hasn't already.
The first generation of do-it-yourself technologies, dubbed "robo advisers", already exists. Robo advisers appeal to a certain market, typically investors under-30 who want the lowest-cost investment platform possible. I have partially written and scrapped many blog drafts on this topic because, while I have spent a lot of time researching robos, I have not done enough due diligence to fully judge.
Here is what I would say about robo advisers:
- Like other do-it-yourself financial technologies, such as Turbo Tax or Rocket Mortgage, robos are rife with flaws (which I'm happy to share).
- Over time though, they will improve like other first-generation technologies.
- Robos serve a different purpose and type of client than we do. Are we more expensive? Yup, we are. But we also provide exponentially more value than they do, too.
- The funny thing about the article is that it highlighted the threat Amazon could pose to financial advisers like us if Amazon chooses to venture into this space. Amazon actually poses much greater threat to current robo advisers than they do to firms like ours. At least for the next 20 years or so...
What's New With Us?
Our trademark was approved to register/protect our company name, "Percension", with the U.S. Patent & Trademark Office! I want to thank my friend/attorney, Garrett Parks, of Polsinelli LLP for helping execute this effort for us over the past year. It feels good to safeguard our company name as it develops into a true brand over time.
Have a great weekend,
Brian E Betz, CFP®