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Darren's Market Commentary

September 2018 Market Commentary

Darren Brennan | September 11, 2018

Economic Outlook

The American economy continues to impress me as the positive data continues to pour in. The economy is performing quite well with low unemployment, rebounding wages, and lower tax rates, but the rise in oil prices and inflation numbers are becoming a small headwind for the economy. The good news is that we have a very strong economy so I think any negative consequences of higher energy prices and even rising interest rates can be absorbed without tipping the economy into a recession. I know there has been talk in the media about a recession, but I think it is the anti-Trump media trying to will the economy into a recession in order to hurt Trump politically. To put it simply, the data does not point to a looming recession, not even close to it, but Bill Maher and other outspoken persons in the media would rather have millions of Americans suffer through a recession as long as it gets Trump out of the White House. It is amazing and sad to watch fellow Americans wish harm on most Americans for political gain, but it is the world we live in today. In the meantime, I expect the economy to continue to accelerate through the end of the year and into 2019. By this time next year, I think the economy can do something that Obama could never achieve: four quarters in a row of 3% or better GDP. It has been an amazing turnaround in the economy especially given the fact that Obama and company said it could not be done and that Obama’s weak economy was touted as the “new normal”. They could not have been more wrong.

Stock/Bond Report

Patience remains the theme until we get to the mid-term elections in early November. After that, we will see the new make-up of Congress and that could dictate if the economy continues to grow through 2019 or if it begins to level off. There are three possible outcomes to the elections and 2 out of 3 of them are favorable for investors. First, the worst, and the most unlikely possible outcome: the Dems get both houses of Congress, and they impeach Trump and remove him from office. If this happens, all bets are off and it would be anybody’s guess as to how the stock markets would respond to this event. The second option, which I think is the most likely outcome, is we have a split Congress with the GOP retaining control of the Senate. Under this scenario, I think Trump will be impeached for just about anything, including jaywalking, but he will not be removed from office much like Bill Clinton in the late 1990’s. In this case, Trump and his policies would remain in office and the stock markets should continue to respond favorably to the growing economy. If however, there is another November electoral surprise and the Republicans maintain their current grip, which is the third possible outcome, then I think the stock market may surprise to the upside through the end of the year and into 2019. So how do I read the stock market fluctuations leading up to the elections as a way to predict the election outcome? If the first worst-case scenario looks like it is going to occur, I would expect the stock market to decline leading into early November. If the stock market is still in a trading range, much like it is today, then I think the mid-terms will be favorable to keeping Trump in office until 2021. Historically, the stock market is a great predictor and I think it is telling me that Trump will finish out his first term, at least.

My outlook for stock values through the remainder of the year remains positive since I do think President Trump is here to stay.

As for bonds, the Fed has the green light to keep increasing interest rates, which causes me to be more and more bearish on bonds with each passing day. I think we have entered a prolonged period of rising interest rates, which means that we could see some sectors of the bond market average a net negative total return in the coming years. The good news is that I have been defensive in bonds within client portfolios by shortening maturities, using non-correlative bond sectors, and taking a tactical approach to bonds in general.

Since I am more bearish on bonds, what are clients to do to combat rising interest rates? I am having more discussions with clients regarding tax-deferred Fixed Annuities, which can allow investors to benefit from rising interest rates. As interest rates rise and the value of bonds fall, Fixed Annuities** can be a more conservative option. Many of these types of annuities are now paying over 3% a year for 5 years guaranteed. In addition, if you have a part of your portfolio that you want to remain conservative but don’t want to put it in a low-yielding bank savings account, a tax-deferred Fixed Annuity** might be an option you could consider.

Just a Thought

“You build on failure. You use it as a stepping-stone. Close the door on the past. You don’t try to forget the mistakes, but you don’t dwell on it. You don’t let it have any of your energy, or any of your time, or any of your space.”

-the great Johnny Cash

The views expressed are not necessarily the opinion of FSC Securities Corporation, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investing is subject to risks including loss of principal invested. Past performance is not indicative of future results. This material contains forward looking statements and projections. There are no guarantees that these results will be achieved. No investment professional or strategy can accurately predict market performance. The bond market involves risk. In general, when interest rates go up, bond values go down and vice versa, and this effect is usually more pronounced for longer-term securities. No investment strategy can guarantee a profit or protect against loss. **Guarantees are subject to the claims paying ability of the insurance company.

The S&P 500 Index cannot be invested in directly, and is unmanaged.

Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Depending upon the municipal bond offered, alternative minimum tax and state/local taxes could apply. Generally, municipal bonds generate tax-free income, and therefore pay lower interest rates than taxable bonds. Therefore, municipal bonds may not be suitable for all investors. Please see your tax professional prior to investing. High-yield bonds typically have lower credit ratings and carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal.

There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. The price of commodities, such as gold, is subject to substantial price fluctuations over short periods of time and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated and concentrated investing may lead to higher price volatility. Sales of CD's prior to maturity may result in loss of principal invested. Federal deposit insurance generally covers deposits of up to $250,000 in the aggregate for each depositor in each bank, thrift, or credit union. A customer should ensure that purchasing any insured CD will not bring his or her aggregate deposit over $250,000 FDIC insurance limit. Investors should be aware that there is no FDIC insurance coverage for any principal losses that may be incurred.

These links are provided for informational purposes only and FSC Securities Corporation does not endorse or accept any responsibility for the content of these websites. FSC Securities Corporation does not guarantee the accuracy or completeness of the information appearing on the linked pages and does not assume any liability for any inaccuracies, errors or omissions in any information provided on the pages.

There are no guarantees that dividend-paying stocks will continue to pay dividends. Companies may reduce or eliminate the payment of dividends at any given time.

Just a Thought

“You build on failure. You use it as a stepping-stone. Close the door on the past. You don’t try to forget the mistakes, but you don’t dwell on it. You don’t let it have any of your energy, or any of your time, or any of your space.”

-the great Johnny Cash


February 2018 Market Commentary

Darren Brennan | February 09, 2018

Economic Outlook

The American economy appears to be primed for a remarkable turnaround. After years of slow growth and a President who claimed that “those manufacturing jobs are never coming back”, the economy is creating more manufacturing jobs and GDP is accelerating. If anyone is serious about growing the economy, it is simple: lower taxes and reduce government regulations, and Trump has done both. For the remainder of the year, I would expect that the data should support my belief that the economy is going to be getting stronger and the unemployment rate going lower. The next big issue that could help the economy would be a major infrastructure bill that would repair roads and bridges and put more Americans to work. I am hopeful that even some Democrats would vote for such a bill to help rebuild America and put Americans to work, but I am not going to count on it since not one Democrat voted for the recent tax cuts.

Stock/Bond Report

Stocks are making quite a bit of investors nervous after a record point sell-off on the Dow and the volatility that followed. However, the record point drop was not a record percentage decline for that index, which is something to remember as the Dow has risen to over 26,000. With higher valuations today, the Dow would have to decline by over 2,500 points in order to meet the minimum requirement of being in a correction, and we would need to see a decline of over 5,000 points to be in a bear market. While the recent point drops of the Dow certainly gets your attention, it is a good reminder that the sky is not falling when you look at the decline in terms of percentage. If the underlying economic data was poor, I would be worried over the market’s recent decline, but the data is showing that the economy is improving and that is why I think the stock markets should continue to improve as well. However, the Fed has been talking more and more about inflation and higher interest rates in the future, both of which are creating concern for stock investors. In addition, ever since Trump was elected, the stock market has been on a tear, so a short-term “breather” for the market was not a surprise. In the near term, I do expect stock market volatility to continue, but I do think that we should see higher valuations by year’s end. In my opinion, the Trump trade is not over yet and the current volatility can provide investors a buying opportunity that we have not seen in over 16 months.

As for bonds, the Fed should begin to raise rates on a more regular basis as the strength of the economy should be able to withstand the Fed normalizing interest rates. Rising interest rates will be the negative side effect of a strong Trump economy. However, I have been cautious on bonds for a few years now so I have been positioning client portfolios to be more defensive in fixed income assets. I still favor the floating rate and municipal sectors as well as high-yield corporate bonds while keeping a focus on lowering duration.


Just a Thought

“Adventure is becoming a lost art in that you can now comfort your way out of it. Don’t just travel, have an adventure! It can reset all your clocks. Through the challenge, the discomfort, the euphoria, the glory and the sense of accomplishment, there is a new sense of self that is refreshing and ready to take on the world in a whole new way.” -Chauncey Locklear

The views expressed are not necessarily the opinion of FSC Securities Corporation, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investing is subject to risks including loss of principal invested. Past performance is not indicative of future results. This material contains forward looking statements and projections. There are no guarantees that these results will be achieved. No investment professional or strategy can accurately predict market performance. The bond market involves risk. In general, when interest rates go up, bond values go down and vice versa, and this effect is usually more pronounced for longer-term securities. No investment strategy can guarantee a profit or protect against loss. **Guarantees are subject to the claims paying ability of the insurance company.

The S&P 500 Index cannot be invested in directly, and is unmanaged.

Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Depending upon the municipal bond offered, alternative minimum tax and state/local taxes could apply. Generally, municipal bonds generate tax-free income, and therefore pay lower interest rates than taxable bonds. Therefore, municipal bonds may not be suitable for all investors. Please see your tax professional prior to investing.

There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. The price of commodities, such as gold, is subject to substantial price fluctuations over short periods of time and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated and concentrated investing may lead to higher price volatility. Sales of CD's prior to maturity may result in loss of principal invested. Federal deposit insurance generally covers deposits of up to $250,000 in the aggregate for each depositor in each bank, thrift, or credit union. A customer should ensure that purchasing any insured CD will not bring his or her aggregate deposit over $250,000 FDIC insurance limit. Investors should be aware that there is no FDIC insurance coverage for any principal losses that may be incurred.

These links are provided for informational purposes only and FSC Securities Corporation does not endorse or accept any responsibility for the content of these websites. FSC Securities Corporation does not guarantee the accuracy or completeness of the information appearing on the linked pages and does not assume any liability for any inaccuracies, errors or omissions in any information provided on the pages.

There are no guarantees that dividend-paying stocks will continue to pay dividends. Companies may reduce or eliminate the payment of dividends at any given time.

Stock/Bond Report

Stocks are making quite a bit of investors nervous after a record point sell-off on the Dow and the volatility that followed. However, the record point drop was not a record percentage decline for that index, which is something to remember as the Dow has risen to over 26,000. With higher valuations today, the Dow would have to decline by over 2,500 points in order to meet the minimum requirement of being in a correction, and we would need to see a decline of over 5,000 points to be in a bear market. While the recent point drops of the Dow certainly gets your attention, it is a good reminder that the sky is not falling when you look at the decline in terms of percentage. If the underlying economic data was poor, I would be worried over the market’s recent decline, but the data is showing that the economy is improving and that is why I think the stock markets should continue to improve as well. However, the Fed has been talking more and more about inflation and higher interest rates in the future, both of which are creating concern for stock investors. In addition, ever since Trump was elected, the stock market has been on a tear, so a short-term “breather” for the market was not a surprise. In the near term, I do expect stock market volatility to continue, but I do think that we should see higher valuations by year’s end. In my opinion, the Trump trade is not over yet and the current volatility can provide investors a buying opportunity that we have not seen in over 16 months.

As for bonds, the Fed should begin to raise rates on a more regular basis as the strength of the economy should be able to withstand the Fed normalizing interest rates. Rising interest rates will be the negative side effect of a strong Trump economy. However, I have been cautious on bonds for a few years now so I have been positioning client portfolios to be more defensive in fixed income assets. I still favor the floating rate and municipal sectors as well as high-yield corporate bonds while keeping a focus on lowering duration.


January 2018 Market Commentary

Darren Brennan | January 30, 2018

Economic Outlook

Comprehensive tax reform is now a reality and we are already seeing the benefits at both the corporate and individual level. As a result of lower corporate tax rates, many companies have been providing their employees with bonuses and I even read where a utility company was going to lower rates for its customers due to the lower corporate tax rate. In addition, most Americans will get some type of tax relief through lower individual brackets and that, combined with rising wages, could be the much needed boost the economy needs to break through the 3% GDP barrier we experienced for the last 8 years. There is also talk of an infrastructure-spending package that could be in place this year that would also boost the economy through more jobs. By the end of 2018, it would not surprise me to see our economy exceed 4% GDP growth, which would be a huge accomplishment for President Trump. From my point of view, I have not been this optimistic on the economy in over a decade, so I am excited to see how this year plays out.

Stock/Bond Report

With the economy now juiced with tax cuts, I think stocks could react favorably to what I expect will be improving economic data throughout the year. While I doubt that we will see the same type of performance that we saw in 2017, I do think that stocks could perform at the higher end of their historical returns for this year.

For bonds, I think the Fed will be more confident in raising rates with an accelerating economy and rising inflation, which is my outlook for 2018. This could cause some headwinds for bonds, especially those bonds that are not tax efficient like government bonds. Municipal bonds have also come under recent pressure with the passage of the tax reform, which is a common reaction in this sector of the bond market. It seems like every time there is a reduction of individual Federal tax rates, municipal bonds experience short-term selling pressure. However, tax reform did not eliminate taxes, so I think that municipal bonds should come back into favor for investors who are looking to reduce their tax liability, even with lower rates. Right now, I think there is a buying opportunity in the municipal bond market while there is short-term selling pressure in response to the tax reform.

Just a Thought

“The heart of human excellence often begins to beat when you discover a pursuit that absorbs you, frees you, challenges you, or gives you a sense of meaning, joy, or passion.”

-Terry Orlick

The views expressed are not necessarily the opinion of FSC Securities Corporation, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investing is subject to risks including loss of principal invested. Past performance is not indicative of future results. This material contains forward looking statements and projections. There are no guarantees that these results will be achieved. No investment professional or strategy can accurately predict market performance. The bond market involves risk. In general, when interest rates go up, bond values go down and vice versa, and this effect is usually more pronounced for longer-term securities. No investment strategy can guarantee a profit or protect against loss. **Guarantees are subject to the claims paying ability of the insurance company.

The S&P 500 Index cannot be invested in directly, and is unmanaged.

Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Depending upon the municipal bond offered, alternative minimum tax and state/local taxes could apply. Generally, municipal bonds generate tax-free income, and therefore pay lower interest rates than taxable bonds. Therefore, municipal bonds may not be suitable for all investors. Please see your tax professional prior to investing.

There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. The price of commodities, such as gold, is subject to substantial price fluctuations over short periods of time and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated and concentrated investing may lead to higher price volatility. Sales of CD's prior to maturity may result in loss of principal invested. Federal deposit insurance generally covers deposits of up to $250,000 in the aggregate for each depositor in each bank, thrift, or credit union. A customer should ensure that purchasing any insured CD will not bring his or her aggregate deposit over $250,000 FDIC insurance limit. Investors should be aware that there is no FDIC insurance coverage for any principal losses that may be incurred.

These links are provided for informational purposes only and FSC Securities Corporation does not endorse or accept any responsibility for the content of these websites. FSC Securities Corporation does not guarantee the accuracy or completeness of the information appearing on the linked pages and does not assume any liability for any inaccuracies, errors or omissions in any information provided on the pages.

There are no guarantees that dividend-paying stocks will continue to pay dividends. Companies may reduce or eliminate the payment of dividends at any given time.