Digging Into A Very Muddy Bond Market

Hi everyone,

Here is the rundown of this week’s blog…

  • Read Josh’s latest blog highlighting the 8 ways to put cash to work (0:20)

  • Unemployment holds at 3.6%, lowest in 50 years (0:48)

  • Largest weekly percentage gain for stocks this year (2:08)

  • What now for stocks? (3:30)

  • What bond yield curve “inversion” means and why it matters (5:05)

  • Portfolio activity (10:47)

(sources: Stockcharts.com, FRED) (Video created using Camtasia)

Have a great week!

Brian E Betz, CFP®

Unemployment Falls To A 50-Year Low

Hi everyone,

U.S. stocks climbed to fresh highs last week, but that was soon overshadowed by President Trump’s announcement on Sunday that tariffs on certain Chinese imports would be increased from 10% to 25% due to prolonged trade negotiations. The stock market fell sharply Sunday night and has opened the week in the red.

As you know, these types of events do not influence our investment decisions. It is foolish to react emotionally because you think that a current event will cause the market to behave a certain way. The fact that prices moved sharply is significant and it will influence our buying and selling decisions should current price trends shift, but it is too early to make that call.

Lowest unemployment in 50 years: The unemployment rate fell to 3.6% in April, which is the best/lowest rate since Dec. 1969. No commentary or opinion on this one. Here is a look at the unemployment trend dating back 70 years…

(source: U.S. Bureau of Labor Statistics)

No interest rate increase: The Federal Reserve left its benchmark lending rate (the “Federal Funds Rate”) unchanged at 2.5%. This is the rate that big banks use when they lend cash to one another. After raising interest rates four times in 2018, there have been no increases to the Fed Funds Rate in 2019. Rate hikes are likely to occur at some point in the future to prevent the economy from overheating, but the Fed has indicated it won’t budge interest rates anytime soon.

In The Market...

The S&P 500 gained +0.2% last week. Let's look under the hood:

(price data via stockcharts.com)

As mentioned, the S&P index extended its record highs thanks to a small weekly gain. The S&P rose +4.1% in April, staying a perfect 4-for-4 in terms of its monthly winning streak to begin the year.

Despite the losses to start this new week, our stock market outlook remains neutral-to-positive. However, we are coming up on the Summer months, which tend to be flatter than the October thru March timeframe of the stock market year.

We shuffled some funds around, selling a S&P 500 index fund (SPLG) for a nice gain. We then took a partial position in a more Tech-heavy index fund (SPYG), which we aim to add to in the near future. On the bond side we reduced our Corporate bond fund position (SPLB) and still hold both High-Yield bonds (SHYG) and Treasury bonds (SPTL) for accounts that own bonds.

In Our Portfolios...

What's New With Us?

I am pleased to announce that Josh Baird has been promoted to Investment Adviser Representative! He will assume his new role starting in June and will be tasked with building his client base within our firm. If you happen to communicate with Josh in the coming days make sure to congratulate him on a position well earned.

Have a great week!

Brian E Betz, CFP®

A Massive Jobs Miss (In More Ways Than One)

Hi everyone,

Before I get to the flop that was the February unemployment numbers, here is a video we made recently that explains how we go about managing investment portfolios for clients. You likely know much of this already, but if not, hopefully it sheds light on our process.

Jobs numbers thud: Something funny happened on Friday. I was sifting through news on my way into the office and saw the headline showing that the economy had added 200,000 jobs in February. Not thinking much of it, I continued on with my morning.

A couple hours later I was grabbing coffee and noticed that this particular jobs report was getting more buzz than normal. So I looked at it again. Economists expected 180,000 jobs to be added and the actual number was +200,000 jobs.

Great, so it beat expectations. Still though, I didn’t understand the reaction.

Then I realized it…

It wasn’t 200,000 new jobs. It was 20,000 jobs.

A BIG difference… Except after a few minutes went by I noticed my reaction was the same as when I thought the number was just 20,000.

This sums up how economic data points influence our day-to-day work. The market and the economy are two different things. The market leads the economy, not the other way around. Even if that was not the case - let’s say the stock market did react to such data points - it would be impossible to base an investment process off of economic readings.

The irony is, the unemployment rate actually fell from 4.0% to 3.8%, as the number of people considered “not in the labor force” increased. When that number rises, those who are excluded from the labor force are removed from the unemployment calculation altogether. This helps lower the unemployment rate. If they were instead looking for work they would be considered unemployed.

In The Market...

The S&P 500 fell -2.1% last week. Let's look under the hood:

(price data via stockcharts.com)

Last week was the worst since mid-December and just the second down week of 2019. If you read my thoughts the past couple weeks this was not a total surprise, as there were multiple reasons to think that stock prices would stall. Here is essentially the same chart of the S&P 500 index from last week, highlighting three things:

  1. The aforementioned -2% weekly price decline.

  2. The falling trend in Relative Strength (RSI), reflecting possible weakening momentum.

  3. The falling percentage of stocks that are above their respective 200-day moving averages (54%), which also reflects possible weakening momentum.

(chart created via stockcharts.com)

Not shown in the above chart, the S&P 500 fell below its 200-day moving average as a collective whole. Normally that would be cause for concern, and to some degree it is. However, I think the odds favor a bounce from here rather than a continuation of losses in the weeks ahead. Without getting more technical, I believe that the market has digested much of this “corrective” behavior and is closer to starting a new rally than it is to deeper losses. I could be wrong there, and the picture is anything but clear, but that is my judgment.

We made a few moves last week, most notably shuffling our bond positions out of Long-term Treasury Bonds (SPTL) and over to Long-term Corporate Bonds (SPLB) for certain accounts. We also made some buys and sells among the individual stocks we own, for those accounts that own individual stocks. As always, feel free to ask if you have any questions.

In Our Portfolios...

What's New With Us?

Happy birthday to us! Our firm turned 7 years old as a Registered Investment Adviser (RIA) firm. It has been a great experience and want to thank you for trusting us to advise you and manage investments for you. Here is to many more great years ahead!

Have a great week!

Brian E Betz, CFP®

Unemployment Falls To A 50-Year Low (Almost)

The unemployment rate fell to 3.9% in April, which is the lowest/best rate since exactly 18 years ago when it was 3.8% back in April 2000.

If that sounds impressive, consider this: If unemployment improves below 3.8% in the coming months it will be the lowest rate in nearly 50 years, dating back to 1969. Take a look:

This is a great trend. Employers are steadily hiring. A potentially better job market indicator than the standard unemployment calculation is another that the Dept of Labor calls the U-6 unemployment rate, which measures:

(Traditional unemployment rate) + (Those working part-time due to economic reasons) + (Those unemployed who have looked for a job sometime in the past 12 months but are not actively looking right now)

This under-employment rate is, by nature, historically higher because it includes more of the people who the DOL considers to have "dropped out of the labor force" under the traditional unemployment calculation. It currently sits at 7.8%. It is typically around 2x higher than the normal unemployment rate, which coincidentally is exactly what it is today. Take a look at the trend in this U-6 rate:

One thing that may jump out to you about the under-employment rate is that it is trending closer to the level where the previous two recessions occurred in 2002 and 2008. On both occasions it took some time for the stock market to tank from the point at which this U-6 rate fell to the mid-7% range, but it is still worth noting.

All of this is positive, although it is still unclear (at least to me) how much it matters that more and more people are leaving the labor force altogether. These people are not counted in any of the data. Another 400,000 people left the labor force in April, bringing the total number of working-age citizens not working to nearly 96 million. This is not a surprise given what a high percentage of our population is comprised of Baby Boomers, but it is still foggy whether the increase in non-workers is tolerable over the long run.

In The Market...

The S&P 500 fell -0.2% this past week. Let's look under the hood:

(price data via stockcharts.com)

While unemployment falls the stock market is not budging. The S&P 500 remains flat on a year-to-date basis and last week did little to suggest that a big move is coming in either direction. The S&P index continues to flirt dangerously with its 200-day moving average price, even falling below it on Thursday before staging a rally to end the week. Not to beat a dead horse, but a sustained drop below the 200-day average would likely spell problems for the overall market in the weeks that follow.

Sector-wise, most areas of the market were negative this past week. The lone runaway winner, Technology, was up +2.6%. This was nice to see given that Technology is the only stock sector we are invested in right now. Tech is the healthiest looking sector, with Energy just behind. We actually sold our Energy position (XLE), which might seem odd considering that just last week I mentioned looking to buy Energy for more accounts. This was a short-term decision to sell. I would like to repurchase Energy in the future, but some things need to sort out first.

To this end, we are sitting on cash balance right now. The exact cash allocation ranges from 20% to 50% of the account total, depending on the aggressiveness and size of the portfolio. This is a rarity given that I am continually scouring for investable options, but I do not feel comfortable pulling the trigger right now. Both the stock and bond markets have been stuck in neutral. We could overweight our position in Technology, but I am reluctant to do so given the risk associated with concentrating too heavily in one sector of the market.

Right now the name of the game is patience. Until market conditions improve and new rising trends emerge, we will continue to hold a cash position.

In Our Portfolios...

What's New With Us?

I have been in the process of interviewing candidates for our Executive Administrative Assistant role and will hopefully fill that position soon.

Have a great weekend,

Brian E. Betz, CFP®

Real Estate Remains The Hot Topic Heading Into August

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:

  1. Seattle (+13.3%)
  2. Portland (+8.9%)
  3. Denver (+7.9%)
  4. Dalllas (+7.8%)
  5. 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...

(price data via Yahoo Finance)

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:

(chart created via stockcharts.com)

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.

  1. One year is a broad timeframe, much too long to fit within our investment decision-making process. Because...
  2. 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...
  3. 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.)

Q&A/Financial Planning...

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®

Understanding The Jobs Numbers Is a Job In Itself

In The News...

I want to briefly touch on something I didn't have a chance to discuss last week: Jobs.

The latest report for April showed unemployment fell to 4.4%. That is the lowest in 10 years, since March 2007. What does it mean and is it significant?

It depends. The problem is that you can use a variety of jobs-related statistics to prove your argument, depending whether you think the job market is strong or weak. It is complicated because while the notion of having a job is straightforward (a lower unemployment rate seems obviously better), the context around the entire job market is not. Point being, it is not as simple as saying things are rosy because the official unemployment rate is the lowest in a decade.

A negative take: One big difference between today and 2007 lies in the participation rate. This is the ratio of working-age Americans either employed or actively-looking-for-work compared to the total working-age population. The following chart shows that while unemployment (BLUE line, right axis) is back at lows seen 10 and 20 years ago, labor participation (RED line, left axis) has fallen some -4% since 2007 and is currently at 63%. Take a look...

A -4% decline in participation may not sound like a lot, but when you consider there are 254 million working-age citizens in the U.S., 4% in either direction is significant.

A positive take: A stat that gets thrown around a lot is the number of people not in the labor force, currently 94 million. No doubt that number is high, but context is needed because it stems from the total pool of working-age Americans, which includes retirees. Baby Boomers (those born between 1946 and 1964) comprise nearly one-third of the U.S. population and are gradually retiring with each passing year. Those retirees are counted in the denominator of that 63% participation ratio. There are other caveats that may help explain the 94 million who "aren't working", but that is a big one.

The numbers that matter: Just as important to the growth in jobs is the growth in pay, shown below. Average hourly pay (BLUE line) is up +2.5% year-over-year, which is just a shade above the 2.2% inflation rate (RED line) that reflects the average cost increase of the things we buy every day.

Most telling from above is how wages have only inched higher despite the stark rise in the cost of goods and services. Look no further than the housing market to feel this impact. In a hot real estate market such as Seattle, it is difficult for many prospective homebuyers to keep pace with housing prices without wage increases. (I don't mean to oversimplify what it takes to buy a home or the savings process required. I am merely using a situational example to illustrate my theoretical point that wage growth and inflation are just as important as the number of people hired.)

All in all, the April jobs report was positive. But before praising or refuting the conditions of the labor market, realize that a lot of stats matter aside from the 4.4% headline figure that you see.

In The Market...

The S&P 500 fell -0.3% this past week. Let's look under the hood...

(data source: Yahoo Finance)

Stocks: Seven of the 10 equity sectors were down on the week. Technology led the way, as the exchange-traded fund "XLK" is at all-time highs, eclipsing the previous mark set in March 2000 (more on this below). On the flip side, Financials, Real Estate and Materials were each down more than -1.0%. For those who own the Real Estate fund (VNQ), I feel we are nearing a point where Real Estate could rebound in the near future, coming off of consecutive weekly declines.

Bonds: A bounce-back week for the bond market, which may be getting close to breaking out. Investment-grade bonds were the best of the bunch, which we own in most accounts. If stocks were to slide further, or if the S&P 500 has trouble getting over 2,400, that could mean good news for bonds.

In Our Opinion...

I mentioned that technology is breaking out to all-time highs. Here is a look at where the price of XLK stands in relation to the past 20 years:

(chart via stockcharts.com)

Back in February, when tech was some 6% below its current price, I was concerned about the rally stalling out near that previous record high from March 2000. Now that it has pushed above it, this investment looks promising.

One concern I do have is that the relative strength reading (RSI) is sitting up around 80.0 on this monthly chart. That is well above the "overbought" level of 70.0 that investors use as a predictor that a sell-off is near. There is no tried-and-true approach when comparing price with RSI, but we do so because RSI helps measure buying and selling momentum, which can help provide clues to potential trend changes.

I tend to think that a RSI reading above 70.0 is actually bullish, particularly if similar, past instances turned out well in the weeks that followed. Will this be the case here? I tend to think the rally has some legs in it. As a result, I have my eye on tech again as a potential buy.

In Our Portfolios...

Stocks: No changes this week.

Bonds: No changes this week.

Q&A / Financial Planning...

What is the difference between stock options and restricted stock?

Many of you benefit from owning stock options or restricted stock (or both), as your employer grants you company shares as an employee incentive. It is easy to overlook the details that differentiate options from restricted shares, so here is a high-level comparison of the two:


  • The right to buy shares at a predetermined price ("exercise price"). Not an obligation to buy.
  • Your reward is if the share price exceeds the exercise price on-or-after the vesting date. If so, your stock options are profitable.
  • Your risk is if the share price is lower than the exercise price on the vesting date. In this case, you earn nothing but lose nothing.
  • If you leave your employer and own vested shares that you have not purchased, you typically have 90 days to buy them post-departure.
  • Taxes vary depending on whether the shares are incentive (ISO) or non-incentive (non-ISO) stock options.


  • Shares are simply given to you by your employer (no option to buy).
  • You must wait for the vesting date to actually own the shares (if you leave your employer prior to vesting, bye-bye shares!).
  • The value of the shares are taxed as ordinary income for the year in which the shares vest.
  • (Number of shares that vest) x (Share price on the vesting date) = Initial amount you are taxed on
  • If you hold the shares past the vesting date, the difference between the eventual sale price and the price on the vesting date is taxed as either a long-term or short-term capital gain (unless you elected 83b tax treatment).

    What's New With Us...

    If you have not received the account transfer request to move your account(s) from Scottrade to TD Ameritrade, you will over the weekend. Please be on the lookout for that form, which we would appreciate if you could e-sign once you get it. Call me if you have any questions.

    Have a great weekend!


    Brian E Betz, CFP®