What's up Correction #2?

Dear Climber,
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The Market. From Wednesday to Thursday, about $8.5 trillion in market cap was wiped off of US markets. The downtick spike suggests either outright panic or a series of automated program trades were the cause. Today’s rally was due to trade data from China easing concerns and the tension, finding out China isn’t manipulating the Yuan and relief on bank earnings. Economists believe a rate inversion will be likely to happen in 2019. Over this last week, we saw gains that occurred over the last 3 months get wiped out. There is a lot of speculation to what caused this drop, if this drop is going to persist, and why bonds and stocks both went down on Thursday. Personally, I feel it’s a two-part answer to what caused this drop: it’s a mix of increased fear in retail investors, and trading algorithms selling when the market dropped past the Moving Averages (specifically the 200-day moving average). CNN’s fear and greed index, which 1 month ago was rated at 59 equaling to greed, is now currently ranked at a 5 equaling to extreme fear.
 
Housing market slowdown. Several economic factors have led to discouraged and hesitated homebuyers in 2018. These factors include:

• Rising interest rates which reduce buyer purchasing power
• Rapidly rising home prices far outpacing income rises
• Uncertainty brought on by shifting economic policies

 
What determines how successful a portfolio is in terms of net inflation-adjusted returns.

1. Security selection
2. Costs and expenses
3. Asset allocation
4. Valuation and when you start cashing out
5. Longevity
6. Behavior and discipline
7. Luck and random chance

 
Banks report earnings. JPM (-0.98%), FRC (+2.51%), PNC(-5.59%), CITI (+2.14%), WFC(+1.34%) were of the first publicly traded banks to release their earnings, earlier today. JPM, CITI, WFC, and PNC all were slightly above estimated EPS. With FRC being directly below estimated, by less than a cent. JPM stated that “they had attracted a record amount of fresh money” - CEO Jamie Dimon, as well as decreases in credit losses by over 35%. The general sense that we are seeing from these earnings calls are rises in deposits, increases to interest income, and increased lending activity. All of the banks are signaling for a positive outlook on future economic growth, and this should help to squash a bit of the fear currently in the market. The only bank struggling in the current market is PNC, as they are dealing with raises of around 1% in non-interest expenses and weak loan growth.
 
To infinity and beyond…. Almost. Over the past few years, we have seen private companies kick off a second space race with the goal of sending a paying customer into space and eventually to the surface of Mars. This week there have been several exciting developments. SpaceX has finally landed a booster on the west coast and created a magnificent spectacle over the Californian horizon in doing so. Amazon founder Jeff Bezos gets his rocket company, Blue Origin, ready for their first suborbital flight which they estimate will take place in the first half of 2019. Richard Branson, yet another billionaire with a rocket company claims that Virgin Galactic will be in space “in weeks, not months” taking a direct jab at all the other companies reaching for the stars. Not all news is good, yesterday a Russian Soyuz rocket carrying an American astronaut on his way to the ISS failed causing an abort and reminding us that space travel is still extremely dangerous and far from routine. Both the American astronaut and the Russian cosmonaut are unharmed, but this innocent means that there is no way to re-crew the ISS. If Russia isn’t ready to fly by January, and SpaceX and Boeing don’t expedite their crewed test flights then the ISS may need to go un-crewed for the foreseeable future.
 
Life advice. Be true to yourself- live the life you want to live. Focus on what is true to yourself. Take a break, meditate, or take time off. Don’t forget to show love- be selfless. It’s not about the hours in the day, it’s how you use them. Right is might, and when you do your work and figure it all out, all the other noise will disappear. Don’t give up. You need to know your limitations- you shouldn’t do what you don’t understand. You always live to fight another day. Do something you love. Everything you do really means two things. Find the smartest people you can, surround yourself with them, and shut up and listen.
 
Regret. Senior citizens flashback to their youth and give advice on what they would change about their financial planning. Here are some of the mistakes they made:

• Didn’t save enough for retirement
• Spent too much money on non-essentials
• Didn’t invest their money
• Got themselves into too much debt
• Relied more on social security and life insurance than on retirement savings

The Volatility Index. Here is something you should know because it might be useful with upcoming market volatility... 

• An index created by the Chicago Board Options Exchange. Shows the market’s expectation of 30-day volatility. Constructed using the implied volatilities on S&P 500 index options. Calculated from calls and puts. A measure of market risk. VIX might be said to provide an estimate for the degree to which the market is uncertain about the future. Measures the implied volatility of the S&P 500 put and call options Uses the price of options on the S&P 500 and then estimates how volatile those options will be between the current date and the option’s expiration date. “The investor fear gauge”. Fear, volatility and falling stock prices in the market move up the index. Has an inverse relationship with the market. One of the biggest risks to an equity portfolio is a broad market decline. The VIX Index has had a historically strong inverse relationship with the S&P 500 Index. VIX below 12 is considered  low, above 20 is considered high and in between, normal.
  

Keep Climbing,


The Alchanati Campbell and Associates Team