Five Charts that Define 2018

crystal ball

The stock market is the closest thing we have to a crystal ball.

The stock market bottomed in April 1942 a full three years before the Allied Forces beat Germany/Japan in WWII. How did it know to bottom and then move up 135% three years before the war ended?

The stock market only had three 20% plus corrections in the 1960’s, with none being bigger than 35%. How did it know the US (and the world) was going to make it through the 1960’s?  

What if the market could look into the future and discount and integrate 100’s of millions of voters beliefs about the future?

Sometimes questions have no answers and sometimes complicated questions can have simple answers.

To me one of the answers to a complicated world/market/economy is in price charts. Not the only answer but a good place to start.

What do you think?

What do you think the world is telling us about the rest of 2018 and 2019? My thoughts… I have five charts that have defined 2018 and perhaps 2019.

Chart #1 – The Yield Curve

If any investment topic this year has been talked about more than the inverted yield curve I’m not sure what it is. Below you will find a price chart of the Yield Curve.

Over the past forty years the US has had an inverted yield curve 12 to 15 months before a recession started. The problem. Everyone is watching now. And everyone thinks it matters like it was 2000 or 2008 when no one was watching. Attention matters.

Will it matter this time with quantitative easing, quantitative tightening and historic low interest rates?

The black horizontal line is the “inverted part” of the yield curve. Is this time different?

Yield curve

Chart #2 – The Federal Funds Rate

The US was the first to lower rates and they are the first to raise rates. First mover advantage helped in 2008 to 2016. Will it help this time? So far so good.

Fed Funds Rate

Chart #3 – The US 30-Year Bond Price

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Despite the early year (mid year) stock market volatility, the price of 30-year US bond is still down 5%. No panic yet… or is this what happens when the biggest buyer of US bonds on the planet (US government) becomes the biggest seller? This is not 2008 part II. This is part one of today.  

US 30yr Bond

Chart #4 – The US Dollar

Like or hate Trump… people are very clear where they stand on the person. What has been clear this year is that a protectionist Trump combined with a Fed raising rates has created a strong US Dollar.

Who would have thought trillions of dollars of money printing, a zero interest rate policy AND deficit spending would have kept the US Dollar at the front?

The chart doesn’t lie. People are loving the US Dollar.

US Dollar

Chart #5 – Consumer Discretionary

With the world coming to an end and the worst recession since 1929 to start any minute according to the noise machines, it must be confusing how companies like Home Depot, Disney, McDonald’s, Nike and GM can be doing well collectively.

And yet that is what we see in the consumer discretionary sector below… a sector that wants to move higher.

Consumer Discretionary

Everything you need to know about what might be wrong with your portfolio or your approach can be seen in price charts. But even more important than price charts is how the investor behaves. This is the crux.  This is how 100 people can all own Berkshire Hathaway stock and have 100 different performance numbers.

It’s interesting that behavior is the last place people look. But it’s the easiest place to start.

What small shift you can take to create the biggest change in your investments? You can book a call here with me personally and let’s together figure out a game plan for you.

In Your Corner,

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RC Peck, CFP

P.S. The ability to observe the markets without taking sides is the highest form of investing. If you are noticing wanting the market to go higher or lower than maybe a conversation between the two of us might be the thing that shifts what’s needed most. It’s the easiest place to start. 

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