There was significant financial news this week with the big drop in stocks on Wednesday, bond yields moving up, and the CPI reading coming in below expectations. In other news, once again, another major hurricane makes landfall. We hope everyone is safe in the Southeast, and our thoughts are with you. Enjoy this week's edition of The Friday Buzz. I hope it's worthy of a few minutes of your time to wrap up your week and kick off the weekend.
- Stocks Had a Tough Wednesday: The Dow Jones Industrial Average dropped 831 points on Wednesday. Volatility in the stock market has been relatively low the past few years so when it pops up, it is always a little startling. As of the deadline for this post Thursday, stocks were still volatile with prices zigzagging up and down. But many institutional investors were not panicking observing that corrections are normal and underlying economic fundamentals remain strong.
- Rotation from Growth to Value? On Wednesday, the tech-heavy NASDAQ index was down 4.1%, more than the S&P or Dow. The biggest losers were the companies that were the biggest gainers this year such as Amazon, Google's parent Alphabet, and Netflix. Some feel it was a sign that investors were rotating out of growth stocks and value stocks could benefit from the move. One day or even one week does not make a trend, but it is worth watching as growth stocks have had a long run.
- Some Things to Think About When Stocks Go Crazy: An article from a couple of years ago titled "6 Tips for Investors When the Stock Markets Tumble" is a good short read and applicable for this week. The tips don't address every investor's concern, but it is good common-sense advice and calming when the markets are a little shaky.
- 10-Year Treasury Yields Rise: In just over a week, the 10-year Treasury yield moved from 3.06% to 3.26% this Tuesday. The suddenness of the move caught some off guard, and many feel it was the main culprit why stocks went south. Some investors feel that rising yields and short-term rates are bad for stocks, but the evidence does not support this argument, as outlined in this article by Vanguard. Also, many feel yields are finally becoming more normalized after a decade of extreme lows, and a rise in yields is a positive indication of economic strength. The rise in yields and reaction of markets is similar to what happened in January of this year.
- September Inflation in Check: The Consumer Price Index rose 1.0% for September which was lower than the 2.0% consensus expectation. This helped moderate some investor's fears about inflation rising too fast too soon. In the twelve months through September, prices rose 2.3% and core prices rose 2.2%, which is close to the Federal Reserve target of 2.0%.
- The Fed Has Gone "Crazy": President Trump, reacting to the big stock market drop Wednesday, started criticizing the Fed for being too aggressive with rate increases. As he continued his verbal reprimands on Thursday, some in his administration as well as Christine Lagarde, the head of the International Monetary Fund, came to the Fed's, and Fed chair Jerome Powell's defense.
- National Renewal Led by Collective Impact: There is very little faith these days that institutions are solving our biggest problems. But collective impact organizations, like Strive Together, are changing that perception. These organizations solve big problems by creating a system of resources to solve the problem. For example, a problem like children's preparedness for school will bring together government programs, parents, doctors, dentists, police, non-profit organizations, and private foundations to create a system for solving the problem. The basic premise is that big problems are not solved by one program but by attacking a problem from every angle. These collective impact groups are starting to gain momentum for their successes and are getting noticed.
- Hurricane Michael: I don't know if it was just me, but it seemed like overnight hurricane Michael turned from a tropical storm into a Category 4 hurricane. It was the first Category 4 hurricane to make landfall on the Florida Panhandle. When hurricane Florence hit, The Friday Buzz that week contained articles on disaster preparedness and the "Waffle House Index" which you may want to review. Ironically, this week the U.N. Intergovernmental Panel on Climate Change (IPCC) released a report stating unless dramatic action is taken, extreme weather events will become more frequent.
- Medicare's Annual Election Period Starts October 15th: For those wanting to make changes to their Medicare coverage, it is time to start reviewing your options. Here are a couple of resources: the U.S. government Medicare website and a non-government website.
- Bringing the Fastball Heat: For baseball fans, there is no better time than playoff baseball. Lazy summer games give way to intense October competitions. I came across this article which states that most games start with a fastball right down the middle of the plate – almost always. Some pitchers have gone almost a decade starting every game with a fastball. Amazingly, the first batter almost never swings, even though they would probably have a good chance of hitting it. Something to ponder as you watch the games with your hot dog and Cracker Jacks. Go Red Sox! (I root for them if they are not playing my Indians!)
Thank you for taking the time to read The Friday Buzz. Please be sure to check out our financial planning articles on the RSWA blog. There are articles on charitable giving, diversifying stock, inheritance planning, and many more. Feel free to forward the articles to anyone that may benefit from the information. The link for the RSWA blog is: https://www.robinsonsmithwealth.com/blog. Thank you for reading The Friday Buzz and Coffee Notes, we appreciate your interest!