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Gov Back to Work, Jay POWell to the Rescue, and Quantum Computers

As cold gripped much of the nation this week with temperatures not seen in a generation, the markets were feeling much cozier.  The economy, markets, and capital investment are linked to confidence.  Last quarter, confidence was dropping precipitously due to Fed comments, trade issues, concerns about world growth, and the government shutdown.  Since the beginning of January, confidence has slowly been increasing, and this week it seemed to notch up significantly due to the apparent reversal from some of the biggest concerns from last quarter. 

 Please share The Friday Buzz with anyone who may have interest.  Thank you for your time and enjoy the articles!

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Muddy Waters and A One-Handed Economist

Summarizing the current state of affairs, it would simply be that the economy and earnings continue to grow but at a slower rate in the face of various risks. Whether that makes the glass half full or half empty may be partially a matter of longer-term perspective or even temperament. At times like this, when the investing and economic waters are muddy, I do know that I sympathize with President Truman, who was quoted as pleading for a “... one-handed Economist. All my economists say on one hand..., then but on the other….”  Investing is ultimately the art of weighing our perception of rewards against risks. For now, our mantra is to proceed but with caution.

  • IMF Trims 2019 Global Growth Forecasts: Last October, the International Money Fund (“IMF”) reduced its global growth estimates for 2019 and 2020, based on U.S. and China trade war fears. Recently, the IMF again cut its forecasts to 3.5% growth in 2019 and 3.6% for 2020. Reports like these provide us with a temperament test of sorts. If you have a minute, read this article and see if it leaves you feeling more positive or negative. 

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Inflation Moderated, Earnings Rolling In, and Solutions for Plastic

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.

Please share The Friday Buzz with anyone who may have interest.  Thank you for your time and enjoy the articles!

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Positive Fed and China Trade Talk News Propels Stock Markets to Strong 2019 Start

Two important developments have boosted stock markets in the new year. First, the Fed has adopted a more dovish tone relative to additional rate increases in 2019. Second, negotiations between the U.S. and China have apparently been successful in narrowing the trade differences. The relief felt by equity investors is palpable. Perceived risk may have fallen but lurks near the surface of investing waters. Caution is warranted. 

  • Powell’s Do-Over: Fed Chairman Powell softened his tone on future rate increases in a recent speech, realizing that the Fed needs to project more flexibility. With inflation in check, we see no reason why the Fed needs to engineer a recession with unnecessary rate hikes at a sensitive time.

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Factors in 2019 for Investors, 2019 Retirement Saving Limits, and the World is Getting Better, Really…

We are starting the new year, much how we ended the last - with stock market volatility and uncertainties surrounding global economic growth, Fed rates, tariffs, and the government shutdown.  Most of the current challenges are self-inflicted and controllable to an extent. One does not want to be Pollyannaish, but these challenges can be resolved.  What happens in January may go a long way in determining if they will be resolved or continue to be a thorn in investor's sides.

Thank you for taking a few minutes of your time to read and share The Friday Buzz.      

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Positive Economic Fundamentals vs. Negative Investor Emotions

Concerns about the slowing global economy and increasing short term interest rates are valid. However, the fear that likely drove the substantial December stock sell-off appears disproportional to the actual risks to the economy and earnings. Slower economic growth does not equate to a near term recession. What might have been a relatively mild correction was unquestionably exacerbated by a general sense of Washington instability. The massive gain in the U.S. stock market, this past Wednesday, may reflect the perception that the market is oversold, but it is too soon to have any degree of conviction. Given the market volatility and the holidays, the notes this week are few in number and market focused.

  • Economy Is Strong. Leadership Is Shaky: This NYT article makes the case that leadership missteps are part of the problem. We agree. The global and U.S. economies are slowing but do not appear to be imminent danger of going into a recession.

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The Fed Raises Rates, Europe Ends QE Purchases, and Champagnes for the New Year

There is an old axiom in the investment world, "Don't Fight the Fed."  It means if the Federal Reserve is using monetary policy to grow the economy, then don't fight the growth, and vice versa.  The investment world paused on Wednesday to listen to Jay Powell, the Federal Reserve Chairman.  This was probably the most anticipated Fed meeting of the last few years.  The whole investment world was listening, because who wants to fight the Fed?

Thank you for taking a few minutes of your time to read and share The Friday Buzz

  • The Fed Raises Short-term Interest Rates:  On Wednesday, the Fed announced it was raising the short-term federal-funds rate a quarter of a percent to a range of 2.25% - 2.5%.  This marks the ninth time the Fed has raised the benchmark since December 2015.  The Fed also felt they would not need to raise short-term rates more than two times next year and the path of future increases was uncertain.  In their released economic projections, the Fed stated they expected core inflation of 2.0% over the next three years, down slightly from 2.1%, and GDP growth of 2.3% in 2019, down slightly from their previous expectation of 2.5% They also expect unemployment to remain low and their long-term growth projection for the U.S. economy remained in the range of 1.8% - 2.0%.  

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Fed Gives Guidance, China and G20, U.S. Economy (and more)

With the Fed signaling that it may slow the pace of interest rate increases, the stock market is getting some good news. Concerns like trade conflicts and Brexit remain but knowing that the Fed is flexible when it comes to pushing rates up bolsters the positive case for equities.

Thanks to all who read these notes. We enjoy writing them and endeavor to make them worthy of a modest time commitment on your part.

  • Powell Boosts Markets: Fed Chairman Powell indicates that rates are slightly below a "neutral" level. In lay speak, this means that current rates are close to the point that they neither encourage nor discourage economic growth. It signals less tightening in the form of rate hikes for the foreseeable future. We anticipated this “signal” but are still reassured to hear a public statement, given the headwinds facing the stock market. 

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Midterm Election Aftermath; Jobs; Trade (and More!)

Regardless of the results, everyone I know is happy to have the midterm elections over. It gets so nasty that you might wonder if all the political hot air contributes to global warming. Guess not but still…. In these notes we share a few post-election observations, along with noting some other topics, including an expert viewpoint on how trade issues may impact Maine and New Hampshire.

  • Divided Government and Markets: Partisan gridlock is here with Republicans controlling the Senate and Democrats controlling the House. Our take is that the U.S. financial markets, which care more about economic fundamentals and policy, will be ok with this standoff. Trump will have difficulty getting any significant legislation passed but retains his veto power which he will use to protect the tax cuts and deregulation moves.
  • More Women Headed to Congress: Actually, it's a record. I don’t see anything but upside to greater gender balance in our national leadership. 

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Stocks Were Down and Then Up, GDP and Earnings are Up, and Time to Vote

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 Recover Mid-Week:  The volatility continued in stocks this week.  On Monday all three major stock indexes were up strongly before reversing and ending the day down.  During trading Monday, all three major indexes, the Dow, NASDAQ, and S&P were in correction territory, which is defined as being 10% below their peak.  By Wednesday the S&P had finished up two consecutive days in a row for the first time for October. 

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