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Sustainability Investing Goes Mainstream...A Watershed Moment?

Something of significance is afoot in the investment world. Sustainability investing, which includes an evaluation of a company’s environmental and climate change impact, is going mainstream. There has been a paradigm shift from viewing sustainability as a personal or policy value to viewing it as an important consideration in assessing investment risk. Putting it in the positive, companies with strong sustainability policies will be better positioned to thrive in the future, as environmental and climate change considerations become increasingly important. Exhibit #1 is the recent announcement by BlackRock, the largest global asset manager, on a fundamental shift in its investment policies toward sustainability (see below).

  • BlackRock Getting Greener? Larry Fink, BlackRock’s C.E.O., recently announced that BlackRock would begin unwinding investments in companies that posed significant sustainability risks and would introduce new funds that avoid fossil fuels. In Fink’s own words, “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.” How all this plays out for BlackRock and whether it will make a significant difference will be closely watched, but it is unquestionably a watershed time in the financial world. (New York Times) (CNBC) (Wall Street Journal)  

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Trade Deal Signed (Finally!), Women are the Majority of Workers, & How to Make Your Heart Younger!

The Dow, S&P 500 and NASDAQ stock indexes all hit new highs this week.  Lessening trade tensions, tepid inflation, an accommodative Federal Reserve on hold, and positive company earnings expectations are driving stock prices higher.  And investors have tuned out the noise coming out of DC and will continue to do so unless it affects the economic news.  All that and more in this week's The Friday Buzz! 

  • The Long-Awaited Phase One Trade Deal Signed:  The U.S. and China signed their first trade agreement since the start of the trade war.  In the deal, tariffs on Chinese goods will be reduced and previously announced additional tariffs will not go into effect.  China also agreed to purchase more U.S. products.  U.S. companies will have additional protections regarding intellectual properties and more access to the Chinese financial services market.  Both sides will be monitoring the success of this deal as future deals are discussed.  CNBC  WSJ

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Iran Military Conflict and the Financial Markets-A Missile Dodged?

The possibility that US-Iranian hostilities could erupt into a Middle East war has been high on our list of geopolitical risks that might spill over into the financial markets. The recent US assassination of a top Iranian military leader turned up the heat dramatically, dominating the headlines and causing the price of oil to move upward. The reaction of the financial markets has been surprisingly muted. Notwithstanding the escalating rhetoric, the Iranian response has also been surprisingly muted. Iran did launch an attack on US bases in Iraq that resulted in no US service personnel casualties but then appeared to signal that it considered itself duly avenged. We expect strategic fallout with Iraq forcing US troops out of its country, but this alone will not impact financial markets.

Not that we needed the reminder but understand that financial markets care about earnings, interest rates, inflation and economic developments. Unless and until political and policy events occur with significance for those core financial concerns, financial markets will continue to be coldly indifferent to external events that may nevertheless be truly important to the US or geopolitically.

  • Iran’s Measured Response: Unless there is more to come, Iran has responded to the General Soleimani assassination modestly by any measure. Perhaps Iran enjoys poking the bear but doesn’t want the bear to attack? (Axios)

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2019 Wrap Up, 2020 Predictions, & How to Be a Better You in the New Year!

2019 was a year of tumultuous news headlines of trade wars, the slowing global economy, and political investigations and impeachment.  Yet, with that scary backdrop the markets had a fabulous year.  The Russell 3000, a broad stock index, rose a stunning 31.20%.  International developed stocks as measured by the MSCI EAFE Index were up 18.44%, lower, but still outstanding.  Stocks worldwide rebounded from a sharp correction at the end of 2018 and eventually pushed to record highs at the close of the year.

The U.S. bond market also did well as the Bloomberg Barclays Aggregate Bond Index was up 8.72%.  Municipal bonds as measured by the Bloomberg Barclays Municipal Bond Index were up 7.54%.  These are also excellent returns and reflect the rally in bonds from the mid-year growth scare as any inflation worries abated and yields plummeted.  As yields dropped, the prices of bonds went up as they are inversely connected.  So higher prices, coupled with interest, led to great returns for bonds.

We certainly can't expect returns like this every year but are delighted when they occur.  Here's hoping the headlines this year are a little more sanguine and markets continue marching on.  To start the year off right, I have included a lot of positive news and fun articles to get everyone in a positive frame of mind.  Wishing you a productive, prosperous and happy 2020! 

  • 2020 Predictions:  I keep using the word solid to describe the economy.  Sturdy, stable, and sound also come to mind.  But basically I am trying to describe a scenario that is not weak and not spectacular.  Most pundits seem to agree as estimates for next year's GDP growth tend to come in at about 2.0% and companies earnings growth estimates are in the high single digits.  As I said, solid. Greg Valliere   Yardeni Research  Forbes

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With 2019 Ending, Congress Wants You to Feel More “SECURE”

As 2019 glides to a quiet finish, our wish is that each of you will experience a generous measure of peace and happiness during the last few days of this year and into 2020. It has been a tumultuous year, but certainly an outstanding investment year by any measure. The financial markets continue to shrug off the impeachment process, which stumbles forward. Congress has nevertheless cooperated to pass significant retirement related legislation called the SECURE Act, which has been signed into law.

  • The SECURE Act: This legislation has numerous provisions, necessitating further analysis. Three changes clearly have retirement planning significance. For those who turn 70.5 after 2019, the Act raises the age when individuals must begin taking minimum distributions from their retirement plans from 70.5 to 72. In other words, if you are already subject to the required minimum distribution rules, the new law does not apply. There is a major change to the rules for required minimum distributions from inherited IRAs. This rule also only applies to IRAs inherited after 2019. With a few exceptions, including for spouses and minor children, inherited IRAs will have to be distributed within 10 years and may not be “stretched” over the beneficiary’s lifetime. A third notable change is that individuals will now be able to contribute to IRAs after 70.5, provided they have earned income. Expect to hear more from us on the SECURE Act and how it may impact individual clients. (Schwab)

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More Good Trade News, Retirement Bill in Congress, & the Medical Magic of Saunas!

Some of the big economic and headline risks of the last few years are slowly easing.  Last week there was a significant breakthrough for the trade deal between the U.S. and its neighbors and this week brought a Phase-One agreement between the U.S. and China.  Also, the U.K. elections seemed to create clarity for a roadmap for Brexit.  This is not to say that the trade and Brexit issues are now behind us, as we are a long way away from them being firmly in our rearview mirror.  But these are positive developments on two very thorny issues and any progress is good for the economy and markets.  And if indeed they do pose less risks going forward, it is even more reason for the Federal Reserve to stand pat and keep rates on hold.

To our friends celebrating the Festival of Lights, have a very Happy Hannukah!  Have a very enjoyable weekend and thank you for reading The Friday Buzz!

  • Government Spending Bill Passes the House:  This week the House of Representatives passed a $1.4T spending bill.  It is expected to pass the Senate by late Friday and most think the President will sign the bill (most).  If it passes, it will fund the government through September 30, 2020 and avert a government shutdown.  Lawmakers were quick to laud the compromises that made the bill a reality, but those watching Federal spending lamented the $50B in additional annual costs.  Where are the fiscal hawks?   WSJ  Committee for a Responsible Federal Budget

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Strong US November Jobs Report Boosts Confidence

The November jobs report strengthens our conviction that the US economy continues to grow at a slow but steady pace. The US added 266,000 non-farm jobs in November, exceeding a consensus expectation of a 180,000 jobs gain. Sectors across the economy, including the manufacturing sector, added jobs. The unemployment rate is now 3.5%, and average hourly earnings have increased 3.1%, year over year. People who feel secure in their employment will spend more. Strong consumer spending and low unemployment signal that the economy remains on solid footing.

The excellent November jobs report makes it less likely that the Fed will lower rates again soon, setting up more confrontation with the current administration which wants rates as low as possible. (CNBC)

  • Where Are the Jobs? Not all US geographical regions and economic sectors are benefiting equally from the growth in jobs. So called innovation jobs are highly focused in a few coastal areas. Boston is one growth area. (New York Times)

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Trade vs. Jobs, Stocking Up on French Luxury Goods & Finding Cheap Airfares!

Trade talk moved the markets again this week.  The week started over trade concerns amid comments by the President that trade issues may be unsettled well into next year.  By mid-week the tone had changed to more optimistic comments.  And the markets were lurching lower and higher each day depending on the trade news.  WSJ  It is worth repeating from our previous commentary that the U.S. economy is 70% based on the consumer.  If consumer spending is solid, the U.S. economy tends to act accordingly.  It's not that trade isn't important, but the U.S. is not an export-dependent economy.  Trade issues have an outsized impact on agricultural and manufacturing with some disruption to technology supply chains.  But unless the trade issues dent consumer confidence and spending, the effect on the overall U.S. economy shouldn't be significant.  The job growth numbers being released Friday morning, are a much more significant news item to watch.  So, for the most part, the up and down caused by trade speculation can be ignored.

With all the snow that arrived this week, it certainly feels like the Holidays in the Northeast.  Enjoy the winter wonderland with a hot cup of cocoa while reading The Friday Buzz!

  • ADP Reports Smaller Job Growth:  The ADP National Employment Report showed private jobs growing only 67,000 in November when 150,000 was expected.  The Bureau of Labor Statistics (BLS) will be releasing their overall jobs report Friday morning.  Sometimes the ADP report is off by a large number compared to the BLS.  Nonetheless, the lower than expected ADP number will make the BLS report that much more important.  ADP  CNBC

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Thanksgiving Gratitude, Market Highs, and 2020

With Thanksgiving almost here, we at RSWA want to express our deep gratitude to our clients, friends and supporters and wish that all of you enjoy a happy, safe and relaxing holiday with your loved ones this week.

We are indeed grateful for the strong investment performance year-to-date with the US stock market setting numerous highs, notwithstanding political uncertainties and various geopolitical risks. Fixed-income investors have done well too. The classic 60/40 equity-fixed income portfolio has enjoyed its strongest annual performance in over 20 years. With a little over a month to go in 2019, our Thanksgiving financial wish is that clients and friends hold onto their gains.

  • Goldman Predicts 2020 Will Be A Good Year: Goldman Sachs is positive about the prospects for another good year for stock investors in 2020. Interestingly, they view political stalemate as a plus for the markets. (CNBC) Another group of strategists are less sanguine but still forecast a 5% return. (CNBC)

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Stocks Hit New Highs, Trade Disappoints, & Beating Stress Like a Navy Seal!

The stock market indices were hitting new highs on Tuesday.  But by mid-week they started retreating as news hit that U.S. – China trade negotiations were stalling again.  With a mid-December deadline for new tariffs, trade news will be the main focus for markets in the short-term.

  • Phase One Trade Deal in Trouble:  The U.S. – China Phase One trade deal is in jeopardy.  This has been the story for the last year as encouraging signs of progress quickly disintegrate into impasses over details.  As of mid-week, it appeared both sides once again were deadlocked.  WSJ

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