After the new year started with volatility, investors have been calmed by words from the Federal Reserve and hope surrounding U.S.-China trade discussions. There is still plenty to worry about including the continued government shutdown, Brexit, and potential fallout from the Mueller investigation. But for the last week, investors were embracing the positive.
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- Inflation Holding Steady: Last Friday the Labor Department released inflation data showing the consumer-price index was 1.9% for the 12 months ending in December. It was under 2% for the first time since 2017. Prices in December declined 0.1% from November with help from lower energy costs, which we can all see at the gas pumps. The 2% number is significant as the Federal Reserve targets inflation of 2% or less and the numbers will give the Fed reason to not raise short-term rates, which they do to contain rising inflation. This is certainly one reason the markets have been positive of late.
- U.S. Earnings Season Starts: The first companies are releasing their earnings from last quarter with many of them coming in lower than expected. Executives are stating reasons for Q4's missed expectations as tariffs, China's slowing economy, volatility in the markets (for financial companies), and the impact of foreign exchange rates (strengthening U.S. dollar). Another reason for the Fed to remain accommodative for growth. To keep track of the earnings, here is a list of the most recent releases.
- 2019 Earnings Estimates: Though some companies had a challenging fourth quarter last year, most analysts expect earnings to grow this year. Analysts estimate earnings for 2019 will come in about 6.5% higher than 2018. Though this is lower than the last couple of years, it is close to the long-term average of about 7.3%.
- Investors Feeling Better: Investors are putting money to work in the new year so far. The biggest concerns still lurking out there are geopolitical risks such as global trade, Brexit, and the U.S. government shutdown. BlackRock tracks these risks on their geopolitical dashboard.
- Winning the Lottery with Statistics, Strategy, and Guts: Who doesn't dream of winning the lottery one day? But we all know the chances are stacked against us – or are they? This captivating story highlights how a retired couple used simple math to turn the odds in their favor to hit it big time - legally. I held this story out to my kids as an example on how knowing math and statistics can pay off. They were unimpressed.
- More Fallout from the California Fires: This week PG&E indicated it would probably file for bankruptcy protection. The large California utility is facing lawsuits from being accused of its power lines starting many of the fires during last year's very dry summer. This week's events highlight the increased risks from the extreme weather effects of climate change that are facing every company – and they know it.
- Relying Too Much on One Stock: PG&E provides another cautionary tale of why we advise many clients not to count on one, or only a few, stocks to fund financial goals. Utilities are thought of as relatively safe boring stocks. But PG&E stock has dropped from $48 in November to about $6 this week. When clients have a large stock position, we employ many strategies to smartly diversify their portfolio.
- PANIC: The Untold Story of the 2008 Financial Crisis: This HBO Documentary was riveting. It consisted of following the timeline of events as they unfolded and interviewed all the behind the scene players who were trying to stave off the worst financial crisis since the Depression. Even my wife Wendi was mesmerized, and she usually isn't interested in this stuff. It's fascinating to watch now but was difficult to live through at the time. The show concludes the financial crisis was the cause of the growing global populism we have today.
- Solutions for the Plastic Problem: It seems like in a short period of time, the negative news on one-use plastic has gone hyperbolic. Restaurants are cutting back on plastic straws and communities, or even countries, are passing laws on reducing plastic. Despite the huge issue and obstacles, I'm convinced the solution is out there given human ingenuity and advances in technology as this article highlights.
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