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Investment Newsletter - Q3 2018

The 2018 stock and bond market has been continuing its roller-coaster ride, and with trade/tariff showdowns looming, there may be some sudden twists and turns. It may very well remain a bumpy ride, yet as people that ride roller-coasters know,  they are rewarded at the end of the ride for their perseverance!

We give you more detail on it further below, and there are also links that can be read from Russell Investments and Morningstar on their Q2 outlook, located on the right.  

In this issue of our Investment Newsletter:
  • An overview of recent market activity, along with Our Perspective...
  • A recap of the performance of major market indices from the past quarter and year-to-date. 
  • Are you the victim of the latest scams?
  • Upcoming Economic Calendar

You will find past investment articles , and recent stock market commentary and outlook , by clicking on the relevant Quick Links on the right , or peruse past investment topics by clicking the  Articles tab above or directly on our website. 

If there is a topic of interest you would like to see covered in the future, please reply back to this email to let us know, or click here . Likewise, i f you have any questions on this or anything else, feel free to reply back.
Investment Topic:
Tax Law Changes in 2018: What You Need to Know
For our investment topic, Tax Law Changes in 2018: What You Need to Know  we attempt to give a high-level overview of the topic. To learn more, please click here

Our Perspective on Recent Market News and Activity

Our synopsis of the past quarter, a look ahead, and putting it all in perspective:

2nd Quarter in Review: The 2nd Quarter of 2018 was one which saw continued market volatility, primarily driven by two factors: Fear of a U.S. led global trade war and concerns over the effects of the Fed raising interest rates in a steady manner. The result of this led to a 2nd Quarter that at the portfolio level seemingly took one step forward and one step back as a fairly consistent pattern. From an economic fundamentals standpoint, the "Bulls" will point to a whole host of positive data points that seem to indicate that this market still has room to run. The "Bears" will point to market sentiment which seems to indicate real concern over a looming trade war and rising interest rate environment. The "Bulls" will point out that that the fact that the markets have not had a larger sell-off is indicative of the strength of the underlying fundamentals and that a "sideward" market is just a normal period of readjustment and allows the corporate earnings a chance to catch up to the current prices of the securities to become more fairly valued.
Analysts have been raising their earnings estimates for publicly traded companies, many of which are due to report results in the next month. The "Bear" will look at a yield curve that is flattening with concern that it may become inverted as a leading indicator that the next recession may be looming within the next two years. Who will be right? As always, the answer is unpredictable and sometimes the truth lies somewhere in between. For long-term investors, the strategy is to not allow for short-term noise to affect long-term planning. Any attempts to try and time the market, will traditionally go down as a lesson in futility and pose a greater risk of getting it wrong.
The U.S. economy just completed one of its strongest quarters of this expansion, bouncing back from a modest first quarter while the rest of the world appeared to stumble. Several closely watched models that track economic output point to the fastest growth since the third quarter of 2014, when the economy expanded at a 5.2% annualized rate. Spending by consumers, businesses, and the government appeared solid in the second quarter. But economists warn that output is likely outpacing the economy's long-run capacity for growth, raising the possibility of a slowdown next year. The expansion enters its 10th year this month, building on what is already the second longest expansion on record.
The vast majority of meetings that we have attended in 2018 from recognized industry leaders are consistent in their feeling that the next recession is probably a late 2019 to 2020 story, and that unlike some recessions of the past, the next recession is anticipated to be fairly mild and not long lasting. What will cause the next recession? Well, unlike some of the previous recessions that were caused by asset bubbles bursting (i.e. Technology stocks, Housing), that the next one may just be brought on by normal end of cycle slowing growth and the effects of a gradual rising interest rate environment.
Positive performers in the 2nd Quarter the S&P 500 Index was up +2.88%, while the Dow Jones Industrial Average was up +0.70%. The Dow is more prone to trade-related swings than the S&P 500 and other indexes because its multinational constituents, such as Boeing Co. and Caterpillar Inc, receive a significant amount of their revenue from overseas. The Dow attributes approximately 44% of all sales to overseas activities, while the S&P 500 in comparison sits at about 30%. US Mid-Caps were up +2.38% and US Small Caps (Russell 2000) were up +7.43%. The Dow Jones US Select REIT Index was also up +8.89%. Technology stocks helped drive the NASDAQ Composite up +6.33%.
Laggards in the 2nd Quarter were most Bond and International categories. The Barclay's US Aggregate Bond Index was down -0.90%, The Barclay's Municipal Bond Index was down -0.20%, International Stocks (MSCI EAFE) were down -2.34%, and MSCI Emerging Markets were down -8.66%. Managed Futures down -2.77%.
Looking forward to Q3:   From a trading perspective, the first month of quarters is the most bullish and historically July is the best performing Dow and S&P 500 month of the third quarter. Over the next quarter, all eyes will start to shift to the mid-term elections and the party in power (the Republicans) will seek to do all that they can do to maintain positive momentum into the mid-terms as a strong, growing economy is always good for the party in power. While many feel that an all-out trade war will be avoided, a dangerous "game of chicken" may play out that at a minimum can lead to continued periods of market volatility. A looming July 6th deadline for tariffs is approaching. Investors are closely monitoring talks between the U.S., Canada, and Mexico on the NAFTA agreement. Additionally, should a deal between the US and China be reached, that could bode well as the markets clearly do not like uncertainty and talks of trade wars. Look for the Fed to raise interest rates for the 3rd time this year at the September FOMC meeting, with expectations of a 4th increase in Q4. The Fed faces a tricky balancing act as it tries to calibrate how to keep the economy chugging along. Raising rates too quickly could snuff out the economic recovery, which has finally begun to gain stream after years of sluggish growth. But not raising rates fast enough could allow inflation to spiral out of control, driving up prices and potentially sending the economy back into a recession. With inflation at a six-year high, the Fed's goal is to raise interest rates just enough to keep prices from rising faster, but not so much as to smother growth. It is a task that policy makers have never managed without tipping the economy into recession.   
Does asset allocation still work? Occasionally we will be asked that question, and the answer is and has always been a resounding, "Yes!". Asset allocation combined with systematic portfolio rebalancing is a tried and tested way to maintain discipline and avoid emotional responses especially during periods of volatility or during asset class bubbles. Traditional asset allocation seeks to differentiate between stocks, bonds, and cash, in varying percentages based upon an individual's goals and risk tolerance. Diversification takes it a step further by spreading out your money around different types of investments within each asset class. What has evolved is the fine-tuning by adding in "non-traditional" asset classes that can offer even greater diversification, such as Real Estate (REITS), Commodities (i.e., Energy, Agriculture, Precious Metals), and Alternative Strategies (Managed Futures, Long/Short). These non-traditional asset classes have low correlation to traditional asset classes, meaning that they move differently in different markets. This means by adding them into your portfolio can potentially lower your investment risk. Asset allocation does not always deliver the highest return; however, it does deliver consistent, risk-adjusted returns that ideally are designed to meet a long term planning goal, i.e. making money last throughout retirement and a planning age based upon longevity.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Major Market Indices

Below is the Q2 '18 price return and year-to-date performance of some of the major indices:

Index Q2 2018 2018 YTD
US Treasury 3 Month T-Bill
0.48% 0.88%
Barclay's US Aggregate Bond Index
Barclay's Municipal Bond Index
-0.20% -2.33%
S&P 500 Index (US Large Cap)
Russell 1000 (US Large Cap)  3.08% 1.90%
Dow Jones Industrial Average 0.70% -1.81%
Russell Mid Cap  2.38%  1.48%
Russell 2000 Index (US Small-Cap)  7.43% 7.00%
MSCI EAFE International: Developed Markets
-2.34% -4.49%
MSCI International: Emerging Markets
-8.66% -7.68%
Bloomberg Commodity Index
-0.07% -0.86%
Credit Suisse Managed Futures Liquid Index -2.77% -9.01%
DJ US Select REIT Index 8.89% -0.20%

Quick Links

Our current investment topic: 

Tax Law Changes in 2018: What You Need to Know

Stay Connected
Are you a victim of the latest scams?

Two years ago, we had an article discussing scams. To know surprise, scams and fraud has not stopped, and if anything, it keep changing and updating their methods. One of the ones we mentioned and that continues pervasively is where the scammers will look at  Facebook profiles, and will then impersonate someone that may be away or travelling, and that they have had an accident or incident of some kind needing help right away. 

An overall item to be wary of is phishing. The following is from the Federal Trade Commission's site about phishing:
Phishing is when a scammer uses fraudulent emails or texts, or copycat websites to get you to share valuable personal information - such as account numbers, Social Security numbers, or your login IDs and passwords. Scammers use your information to steal your money or your identity or both.
Scammers also use phishing emails to get access to your computer or network then they install programs like ransomware that can lock you out of important files on your computer.
Phishing scammers lure their targets into a false sense of security by spoofing the familiar, trusted logos of established, legitimate companies. Or they pretend to be a friend or family member.
Phishing scammers make it seem like they need your information or someone else's, quickly - or something bad will happen. They might say your account will be frozen, you'll fail to get a tax refund, your boss will get mad, even that a family member will be hurt or you could be arrested. They tell lies to get to you to give them information.
Be cautious about opening attachments or clicking on links in emails. Even your friend or family members' accounts could be hacked. Files and links can contain malware that can weaken your computer's security.
Do your own typing. If a company or organization you know sends you a link or phone number, don't click. Use your favorite search engine to look up the website or phone number yourself. Even though a link or phone number in an email may look like the real deal, scammers can hide the true destination.
Make the call if you're not sure. Do not respond to any emails that request personal or financial information. Phishers use pressure tactics and prey on fear. If you think a company, friend or family member really does need personal information from you, pick up the phone and call them yourself using the number on their website or in your address book, not the one in the email.
Turn on two-factor authentication. For accounts that support it, two-factor authentication requires both your password and an additional piece of information to log in to your account. The second piece could be a code sent to your phone, or a random number generated by an app or a token. This protects your account even if your password is compromised.
As an extra precaution, you may want to choose more than one type of second authentication (e.g. a PIN) in case your primary method (such as a phone) is unavailable.
Another one that has become prevalent is an IRS impersonation fraud that has victimized thousands of Americans. It was at the top of a 2017 U.S. Senate ranking of the Top 10 scams targeting senior citizens, and d ubbed by the  Treasury Inspector General for Tax Administration  as the most pervasive impersonation fraud in IRS history. 

Here is an excerpt  on a story of this from Kevin McCoy of USA Today:

The swindle involves suspected scammers based in the U.S. and India who telephone Americans and threaten arrests unless purported tax debts aren't paid immediately. At least 1.97 million people have been targeted, with as many as 200 victimized per week during the scam's peak last year, according to the inspector general.

Separately, 1,680 people contacted a toll-free hotline established by the Senate Special Committee on Aging (1-855-303-9470) and reported they were contacted or fleeced by the scam in 2016. The total - more than twice as many as any other complaint - ranked the fraud first in the panel's annual report, ahead of sweepstakes scams, robocalls, elder financial abuse and grandparent scams, the committee reported at a Wednesday hearing.

Though the numbers are relatively small, the findings generally align with complaints consumers filed with the Federal Trade Commission. A review of more than 5 million fraud and other complaints filed with the FTC in 2015 and 2016 showed that consumers aged 60 and over primarily complained about imposter scams, along with telemarketing practices and tech support scams, according to FTC testimony prepared for the Senate hearing.
Testifying by video at a committee hearing Wednesday, 81-year-old Phillip Hatch of Portland, Me. said he lost $8,000 to IRS impersonation scammers who threatened "the marshals will be in your house within an hour" unless he paid what they claimed were overdue taxes.

"I was mad - upset that I was taken in," said Hatch. "Just give me five minutes in a room alone with those people and I'd be happy."

Seniors accounted for nearly 33% of the 766,034 consumers who reported their age in 2016 complaints filed with the FTC. In all, financial exploitation cost older adults at least $2.9 billion in 2010, according to a report by the MetLife Mature Market Institute.
"The criminals who prey on our seniors are relentless," and continue harassment "until they have drained every last penny" from their victims' savings, said Sen. Susan Collins, R-Me., who heads the Senate committee.

Frauds that made the Senate aging committee's 2017 rankings include:

  • Sweepstakes scams, run by perpetrators who contact victims by phone, tell them they've won a financial prize, and then require advance payment of a fee to collect the purported winnings. 
  • Robocalls, using advanced electronic technology that enable would-be scammers to maximize the number of potential victims reached.
  • Computer scams a fraud in which callers impersonate representatives of well-known technology companies and convince victims to allow remote access to their home computers to check for problems. The scammers then charge fees to remove purported electronic viruses.
  • Elder financial abuse, in some cases involving relatives or friends who gain access to victims' identification data, bank accounts or other records.
  • Grandparent scams, a con game in which fraudsters phone with phony claims that a grandchild is in trouble and needs help paying a hospital bill, returning home from overseas or gaining release from jail.
The IRS, Social Security Administration, and the Centers for Medicare & Medicaid Services never make phone calls asking for bank information or Social Security numbers.

The Senate report advised seniors and other Americans to never give out personal information by phone and always keep personal and financial documents secure.
People who suspect they have become victims of identity theft should call companies where the fraud occurred, place a fraud alert with national credit reporting agencies, notify the Federal Trade Commission and file a report with local police departments.

These are only a few scams out of a multitude, and there are simply too many to list. So what to do? In essence, be doubtful, and wary especially if it is something that an answer is being looked for on the spot, such as needing to verify your Social Security number, bank information, or looking for an immediate payment of some sort. 

One way that the internet is very helpful is to do a search for what is happening, and read to see what comes up. One resource that can be used is a website called Snopes: . It is a website that tries to be a fact checker, and especially during this political season, it may be looked at as partisan in one way or the other. However, it is also very handy as people use it to see if what is happening is possibly a scam. Put in a word or a term in their search engine, and it should give you an idea. 
In closing, be careful, and better safe than sorry!
On the Investment Horizon
Upcoming Key Dates on the Economic Calendar 

  • First Friday of each month: Unemployment report for the prior month, released at 8:30AM.

  • Wednesday, July 4: Independence Day - Market are closed. 
  • Friday, July 27 at 8:30AM: GDP, 2nd quarter (advance estimate). 

  • Wednesday, August 1: Federal Open Market Committee (FOMC) releases minutes of previous meeting at 2PM
  • Wednesday, August 29 at 8:30AM: GDP, 2nd quarter (second estimate); Corporate Profits, 2nd quarter (preliminary estimate).

  • Monday, September 3: Labor Day - Market are closed. 
  • Tuesday September 25 - Wednesday, September 26: The Federal Open Market Committee (FOMC) meets, and releases their announcement on Wednesday at 2PM.
  • Wednesday, September 26 at 2:30PM: Fed Chair Jerome Powell to hold his quarterly press conference to explain the FOMC's latest quarterly economic projections.
  • Thursday, September 27 at 8:30AM: GDP, 2nd quarter (third estimate); Corporate Profits, 2nd quarter (revised estimate).

If you desire an appointment, have any questions on any of this material, or any other financial subjects may relate to your own financial circumstance, please reach out to us at the contact information below:






Brian Cohen, CCO; email:; phone: 631-923-2487
Joe Favorito, CFP®; email:; phone: 631-930-5336

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