REED BETWEEN
THE LINES
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REED BETWEEN
THE LINES
Market Updates & Insights
Subscribe
REED BETWEEN
THE LINES
Market Updates & Insights
Subscribe
REED BETWEEN
THE LINES
Market Updates & Insights
Subscribe

Reed Between the Lines

The Latest:

Market Update for August 14, 2017

Scared of Heights and Cliffhangers?

MARKET RECAP

Volatility returned last week in response to combative rhetoric out of both Pyongyang, North Korea and Washington D.C. Presidential tweets like “locked and loaded” have induced a risk averse atmosphere as the price of the S&P 500 decreased 1.39% and purchases of U.S. Treasury Bonds (traditionally considered the safe-haven asset) increased over the course of the week. The volatility was not isolated to the U.S. Internationally, both developed and emerging markets also saw a risk-off trade, losing 1.48% and 2.24% respectively.

Oil prices (WTI) saw little volatility over the week closing the week at $48.82/bbl. MLPs were the biggest detractor this week, losing 4.21%. The flight to safety provided positive returns in the bond market as the broad based U.S. fixed income market was up 0.24% for the week.

Exhibit #1
 
Scared of Heights and Cliffhangers?

Last week, my family and I hiked Mt. Sneffels, a Colorado 14er – a term used for a 14,000 foot mountain. A view from 14,150 feet may look beautiful, but it can be scary, particularly if the environment changes. It’s a little like the markets: it might look good now, but what if things go wrong? The following picture is from the top of Mt. Sneffels.
RBTL

 

ARE YOU SCARED OF HEIGHTS? CLIFFHANGERS?

Providing one is in decent health, it is not that difficult to climb the 14,150 peak of Mt. Sneffels in Colorado. However, if the environment (i.e., weather) changes then you can be in a world of trouble. Colorado is known for quick changes in weather, particularly for unpredicted (by meteorologists) afternoon thunderstorms. It is important to start your climbing early in the morning, so that you are off the treacherous peaks by midday. Many have died who did not follow this sage advice. While my family recently ascended Mt. Sneffels unscathed, our second climbing expedition the next day didn’t go so well. We began early in the morning. However, after about 45 minutes of walking ledges at 10,000 feet on a via ferrata climb, the storms rolled in. Imagine scaling a mountain on 6- to 12-inch ledges, then grabbing metal bars as you move along a rock face with a 1000-foot drop underneath you. And then it starts hailing. As a father, I put on my best game face and marched on despite being truly frightened. While we weren’t climbing a 14er, my 14-year old daughter was braver than I was. The picture to the right is of her calmly walking along a much safer ledge after the hail storm. The storm clouds are just starting to dissipate on the far horizon somewhere over the bordering state of Utah.

Exhibit #2

So, back to the markets. We have been climbing upward with good weather. The S&P 500 seems to be continuously hitting new highs. However, that upward climb hit an obstacle last week as tensions over a skirmish with North Korea caused the equity markets to drop. Thankfully, we are harnessed in with good corporate earnings. As of Friday and according to FactSet, more than 90% of the companies in the S&P 500 have reported earnings for the second quarter. Of these companies, 73% have reported actual earnings per share (EPS) above the mean estimate, which is above the five-year average. In aggregate, earnings have exceeded expectations by 6.1%, which is also above the five-year average. However, we have new obstacles on the horizon.

 

Obstacle  –  North Korea

As the following table illustrates, political and geopolitical events can rock markets in the short-term, but reading between the lines are not automatically big market movers over the long-term. In a recent Did You Know edition we sited that the economies of each of the 50 U.S. states are larger than North Korea’s economy. So, a stranglehold on North Korea’s economy via sanctions will not provide any market disruptions. However, a bombing destruction of Seoul, South Korea, which is 30-some miles from the border of North Korea, could be devastating to human life (@ 20 million inhabitants). And, with South Korea’s economy being the 11th largest globally (by GDP), then the fundamental ripple effects could be serious.

Exhibit #3
 

Obstacle  –  Upcoming Political Issues

Set aside a sustainable growing U.S. economy and a strong rebound in U.S. corporate earnings, the domestic markets could be in for more obstacles as the hopes for tax cuts and reforms could hit some boulder sized hurdles. Companies that are deemed to do best under tax-cuts (i.e., companies with high tax rates) performed extremely well after the election. However, those hopes have dissipated amidst political drama as have the performance of those companies as the odds of such tax-cuts are declining. Moreover, the U.S. will hit its debt ceiling sometime near the end of September. Nobody wants a repeat of a drawn out debt ceiling impasse similar to 2011. At this point we would consider any sell-offs as opportunistic buying opportunities.

Exhibit #4
 

ON THE LIGHTER SIDE

What is a via ferrata? Via Ferrata in Italian means “iron way”. From a mountain climbing perspective it is a mountain route equipped with steel cables, rod iron pegs or rungs, ladders, and other fixed anchors, such as wooden walkways and suspended bridges. According to Wikipedia, the origins of the via ferrata date back to the nineteenth century, but they are often associated with the First World War, when several were built in the Dolomite mountain region of Italy to aid the movement of troops. Many more have been developed in recent years, as their popularity has grown and the tourism benefits have been recognized. See a variety of via ferrata pictures here.


 

Tags:  August, 2017, Bears, Bulls, Corporate Earnings, Market Commentary, Market Trends, News and Markets, North Korea, Political Issues, Reed Between the Lines, Volatility

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Note:  Investment advisory services provided through TC Wealth Partners, LLC, an investment advisor registered with the U.S. Securities and Exchange Commission. Trust services and retirement plan services are provided by the Trust Company of Illinois, a trust company chartered by the Illinois Department of Financial and Professional Regulation. This publication is prepared for general information. This material does not constitute investment advice as it does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should discuss this item with their TC Wealth Partners or Trust Company of Illinois advisor for relevant application to their specific situation. Any opinions expressed here reflect our judgment at this date and are subject to change. Information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Investment involves risk and any statements regarding future prospects may not be realized as market conditions and trends fluctuate. Past performance is not necessarily a guide to future performance.


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Reed Between the Lines

The most basic meaning of the idiom “read between the lines” is “to perceive or detect a hidden meaning.” Its etymology is linked to an early method of transmitting code that hid secret information in invisible ink between the lines of a document. The recipient would then learn the information by reading between the lines.

“Reed Between the Lines” is a periodic market update and thought provoking commentary that digs at the deeper meaning behind wealth management and market behavior.

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