Here at DSWP we enjoy the opportunity to share our thoughts with you through this weekly e-Letter. We think it’s good that you know what guides our thinking as we continue to optimize opportunities for our clients and just as important protect and preserve their wealth. Our newsletter is also shared with a number of other financial professionals — people who we consider to be thought leaders in the industry. We also receive newsletters from many of these high quality sources. And, the one this week from the good folks at Zack’s Investment Management reminded us of a couple of things we’ve not talked about for a while. In light of the recent rockiness exhibited in the markets, we thought that now would be a good time to revisit those subjects.

First, let me quickly say that when evaluating any equities the paramount consideration is corporate earnings, which includes a careful eye on any changes in a company’s own outlook of their anticipated performance. Next, we want to be aware of a broader picture. We want to identify trends as quickly as possible. On the other hand, we do not want to react to a trend that has not yet substantiated itself, in other words a false trend.

One of the most reliable data sets comes from the Conference Board. Our friends at Zack’s agree:

“We believe that the Conference Board Leading Economic Index (LEI) is arguably one of the most underrated macroeconomic metrics/indicators out there. If you try to find an instance where the LEI was going up and the economy fell into a recession, you wouldn’t find one. Any time the LEI is high and rising, the economy has grown. It makes sense then that the key elements of the LEI are designed to signal peaks and troughs in the business cycle. It coincidentally looks at factors like manufacturers’ new orders, building permits, the interest rate spread, weekly claims for unemployment insurance, amongst a few others. These are all indicators that may be able to offer forward-looking insights into economic activity, versus a metric like GDP that looks backward.
 
As of this writing, the LEI is high and rising – another good sign, for now (according to Conference Board LEI).”

Another very important trend we keep an eye on is the Yield Curve or, more specifically, signs that the yield curve is flattening.  At this point some readers will be asking “What’s a yield curve?”

Here’s the answer: How much a bond will pay you to own it is determined mostly by the amount of risk you take on by the purchase of it. As Yogi Berra once said ‘Making predictions is difficult, especially about the future.’ The farther into the future you want to look the more difficult it is to see what lies ahead. So, for example the risk of a 2 year bond should be less than a long term, say 10 or 20 year, bond.  Plotting these and other bond maturities on a graph will draw a line: the Yield Curve. When near-term uncertainty raises rates on near term bonds but long term bonds are not (or less) affected the curve is said to be flattening. If it overshoots beyond flattening it will produce an inverted curve. And that…is often an early sign of recession.

Recently we have seen a bit of flattening and that has made a few folks take notice. However, many of the elements that influence the rates themselves are still holding firm and, in many cases, continuing to improve. We remain optimistic, but also we do recognize that nothing is guaranteed and there are potentially countervailing forces at play.

Market Minute 3/16/2018 – Pretty Quiet Week

Markets had a pretty quiet week. I am happy to see a few of the wildly optimistic headlines disappear. It’s better to have some doubters out there, as it keeps markets on an even keel.

I can’t help commenting, however, about recent cash flows of TAXES! Tax hikes almost always bring in less revenue than expected because they dampen economic growth. Tax reductions, on the other hand…encourage economic growth which increases tax revenues!

 As an illustration of a faster-growing economy bringing in more money – Payroll taxes brought in $1.5 Billion more in February than they did last year and are up $11.4 Billion this fiscal year.  (Source IBD March 14 issue) After a while those billions add up.

Democrats once understood how this works. In 1962 JFK said ‘it is a paradoxical truth that tax rates are too high today and tax revenues are too low – and the soundest way to raise revenues in the long run is to cut rates now’. The tax rate reductions they pushed through back then gave a huge boost to the economy. And it appears that perhaps the recent tax cuts may do the same thing. That’s good for ALL of us. 

 

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk

www.denkinvest.com

This weekly article reflects news, commentary, opinions, viewpoints, analyses and other information developed by Denk Strategic Wealth Partners and/or select but unaffiliated third parties. DSWP provides Market Information for illustrative and informational purposes only. If you wish to receive this weekly commentary by email please contact us at 602-252-8700 or by e-mail at lindaw(at)denkinvest.com. If you are receiving this commentary via email and would prefer not to please let us know either by email or phone.

Ronald Denk is an Advisory Representative offering services through Denk Strategic Wealth Partners, A Registered Investment Advisor. He is also a Registered Representative, offering investments through Lincoln Financial Securities Corporation, Member FINRA/SIPC.

Denk Strategic Wealth Partners is not affiliated with Lincoln Financial Securities Corporation. Information in this commentary is the sole opinion of Denk Strategic Wealth Partners. Past performance is no guarantee of future returns. All market related investments involve various types of risk, which include but are not restricted to, credit risk, interest rate risk, volatility, going concern risk, and market risk.

The Update provides information of a general nature regarding legislative or other developments. None of the information contained herein is intended as legal advice or opinions relative to specific matters, facts, situations or issues. Additional facts, information or future developments may affect the subjects addressed in this document. You should consult with an attorney, accountant or DSWP planner about your particular circumstances before acting on any of this information because it may not be applicable to your situation.

Lincoln Financial Securities and Denk Strategic Wealth Partners and their representatives do not offer tax advice. Please see your tax professional regarding your individual needs.

*The indices are representative of domestic markets and include the average performance of groups of widely held common stocks. Individuals cannot invest directly in any index and unlike investments, indices do not incur management fees, charges, or expenses, therefore specific index returns will be higher. Past performance is not indicative of future results.

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