HEARD ON THE MAINLINE
 Weekly Investment Newsletter
By: Kevin Dombrowski
Market Update
Markets trended down sharply this week, particularly by continued fears of trade wars as President Trump announced tariffs with China. Markets also dipped earlier in the week due to inflation concerns as the Fed’s rate increases may be more frequent than previously expected.  Additionally, Facebook headlined news stories as investors criticized Mark Zuckerberg and company for failing to protect client confidentiality as th e Cambridge Analytica story became public, which resulted in a 7.9% loss on Monday equating to a $36.4 billion loss to the company’s market cap. Many experts believe the equity markets were overvalued in aggregate compared to companies’ intrinsic values. To these professionals, the correction these past two months has brought estimates more in line with expectations. While the last week can certainly incite feelings of panic, it’s key to review your long-term strategy and be as prepared as possible for what looks to be a volatile year in the market. 

Fed Raises Rates
The Federal Reserve Bank raised the federal funds rate by a quarter of a percentage point, to a target range of 1.5% to 1.75%.   Officials also signaled they would raise this rate two or t hree more times this year, and three times next year. The projected increases would move the fed-funds rate in a range between 3.25% and 3.5% by early 2020. The Fed also believes inflation will rise above their 2% target next year and to stay there through 2020. 
What does this mean? When rates increase, borrowing is more expensive so we often see a slowdown in home sales, auto sales, and consumer spending. When paired with tax breaks, a strong labor market, low unemployment, and predictable inflation, it is often a sign of a strong and stable economy.  It looks like Chairman Powell is maintaining the policies of his predecessor, Janet Yellen, and ensuring communication remains clear and updates are predictable. 

IPO Market of Profitless Companies
Wall Street prepares for two blockbuster initial public offerings (IPO) later this year: Dropbox Inc. and Spotify Technology. Although tremendous enthusiasm for both exists, they are likely to join what is otherwise a far less excited IPO market. In fact, more than three-quarters of the 108 companies that completed IPOs in 2017 reported per share losses in the 12 months leading up to their launches. The share of unprofitable companies in the IPO markets has been rising and reached its highest percentage since the peak of the dot-com boom in 2000.  What does this mean for investors? This could be a sign that investors are beginning to get blinded by the success of the bull market. Or it could simply be noise, as over 30% of new IPOs are biotech companies waiting on drug approvals and priced accordingly.  

Put your Phone Away
We often preach it but rarely do we practice it. A recent Harvard study shows that by just h aving your phone nearby, your cognitive abilities slow down. In a recent study, they issued simple performance tests to three groups. One group had their phones outside of the room, one group kept their phone in their pockets, and one group placed the phone face down on a table. The research was clear; the further away your phone was the more clearly and quickly your brain operated. With so much reliance on our smart phones, our brains are constantly distracted by their ‘gravitational pull’ whenever they are nearby. To get the most out of your cognitive brain capacity, consider leaving your phone behind when you go to a meeting or when you have an important conversation. Even keeping it in your pocket may cause a distraction.  
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kdombrowski@mainlineco.com
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