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Investment Newsletter - Q4 2019

Hard to believe, but we have more than a year to go until the presidential election. The time until then promises to be...interesting, to say the least. Likewise, what will happen with Brexit? A trade deal with China? And so on. While we do not have the answers per se, we will give you our thoughts, specifically on the past quarter and outlook further below. If you would like, we also have a link to a Q4 2019 Global Market Outlook by Russell Investments, that goes into much further detail. To see that full report, click here .

In this issue of our Investment Newsletter:

  • Our current investment topic is: Required Minimum Distributions: Minimizing the Tax Impact

  • An overview of recent market activity, along with Our Perspective...

  • A recap of the performance of major market indices from the past quarter 

  • How to Learn to Worry Less and Love a Market Correction

  • Upcoming Economic Calendar

You will find past investment articles, by clicking the Articles tab above, or directly on our website, found under Periodicals. 

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, if you have any questions on this or anything else, feel free to reply back.
Investment Topic

Required Minimum Distributions: Minimizing the Tax Impact

For our investment topic, " Required Minimum Distributions: Minimizing the Tax Impact " 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:
3rd Quarter 2019 in Review : Stocks and bonds had slight gains in the third quarter. The S&P 500 eked out a modest increase in Q3, helping stocks to hold onto their largest year to date gains in more than 20 years and prolonging what has been the longest bull market on record. The S&P 500 inched up approximately 1.2% in Q3, which represents close to a 19% gain for the year, its best performance since 1997. The bond markets have also rallied alongside with the equity markets thus far in 2019 as well. Despite many areas of uncertainty and many investors having a feeling of unease, many investors see few alternatives to US stocks to find yield and overall return. Despite the strong returns in 2019 year to date, one must remember that as of the end of Q3, the market had only risen a mere 2.2% from a year ago, after the brutal selloff in Q4 of 2018. This sideways trading pattern has gripped the market since the beginning of 2018. In Q3, stocks did surge to new highs in July ahead of the Fed’s first interest rate cut in a decade. August, however, saw a giveback in some of the gains as the long-simmering trade war with China escalated and recession fears started to rear up. September saw the major indexes claw back those losses in a fairly short period of time, as investors rotated out of growth names and into value and the Fed cut interest rates. 

Does Q4 2018 give us a repeat of Q4 2019? Only time will tell however when you examine where we are today vs. then, there are two key differences: Fed expectations and corporate earnings. The first is in Q4 2018 the markets were dealing with a more hawkish Fed, with most projections at the time estimating 2-4 rate increases in 2019. Heading into Q4 2019, the Fed has changed their tune, and investors are betting on up to two more rate cuts this year, although there is a growing split among Fed officials over which direction to head on this subject. Lower interest rates eased financial conditions globally in recent months, and some signs are pointing to a potential growth pickup in the coming 6 months. Some pockets of the economy that are more sensitive to interest rates appear to be slowly responding to easier financial conditions. In the U.S., the housing market appears to have turned a corner and auto sales have held up. Consumer spending which accounts for approximately 70% of the U.S. GDP continues to be strong and unemployment is still at historically low levels.      

Last year, in Q4 2018, corporate earnings were strong, but it was the future estimates and growth outlooks that came in with warnings. Heading into Q4 2019, earnings estimates have been muted, and we may actually see companies come in with earnings that show a period of lower profit but not as bad as once forecast.   

Looking forward to Q4: China and the trade war.  With the Fed now lowering interest rates, many eyes have shifted primarily back to trade wars and the global effects that this is having and will continue to have on world economies. As you may have noticed, sometimes it only takes a few key words to come out from a tweet or a comment about the status of the trade war to throw the market into a strong few days of volatility. This has happened both to the upside and the downside. A good portion of the volatility can be accounted for by trading algorithms which look for these key words, but for the average investor it can certainly help aid the feeling of unease when these events occur. 
It appears only logical that at some point a trade deal will be reached, however one cannot argue that for many this back and forth has gone on for a much longer period of time than originally was thought would occur.

One year to the next election: As Q4 gets underway, we are now a year away from the next Presidential election. It is often common that we are asked the question, “Do Presidential elections influence the stock market”? The basic themes to this wondering if investor sentiment is swayed in the heat of political campaigns? Is there something that history shows us in terms of any type of repeatable trading patterns? These thoughts and questions seem to pop up every 4 years. If you look at history, let’s examine the return of the S&O 500 Index for each election year since 1928. What you would see is that during the last 21 election years, there have only been 3 years where the S&P 500 Index had a negative return during an election year. So, does that mean the trend will continue? The funny thing about trends is that they often work until they do not work. Is the sample size really large enough to mean anything of statistical significance or has it just been pure coincidence? For example, during the entire 20 th century, every mid-decade year that ended in a “5” was profitable. Well in 2015, that did not work, and the market was slightly negative. What we have seen more specifically is when you look at why might the markets and economy do well during the all-important re-election year is that usually the power in party will do all it can do try and boost the economy so that when it comes time for the voters to pull the lever, they will be feeling more positive to re-elect the incumbent rather than to look for change. Will that translate into a US-China trade deal to help buoy confidence and the economy? Only time will tell, however if the markets get further away from all-time highs, one might suspect a deal may come sooner rather than later. Of course, the US does not hold all the chips, and if China smells blood in the water and feels that a new administration might be better to negotiate with, they could certainly just sit back and wait.

Strap on your seatbelt:  October is starting off poorly, however historically the S&P 500 rises 4.3% according to Barron’s calculation, making it historically the best quarter of the year. Of course, remember what we said earlier about trends and historical patterns. Will the 4 th quarter play out exactly the same as last year? Unlikely that it will but if it does one needs to let that recent history be the reminder that it was only a few short months before markets returned to their all-time highs. That is why having a well thought out strategic asset allocation approach makes the most sense, and any attempts to ever time such events can often be a dangerous lesson in futility. Markets over short periods of time are notoriously unpredictable. However, when one introduces diversification, rebalancing and time to the equation, the results speak for themselves.

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 Q3 '19 price return performance of some of the major indices:
"How to Learn to Worry Less and Love a Market Correction  
It was just about two months ago, in early August, that we felt there was a need to send a "Special Edition" newsletter out as reassurance as the market had taken a bit of a beating, and there was more than usual chatter about whether people should, well, overreact. As this is being sent out, the past couple of days have shown yet again the stock market can, and will show extreme volatility. Therefore, in case you missed our "Special Edition", here is a repeat of a piece we feel should be kept in mind for those that are invested:

Our advice is consistent in each of these events (market downturns), and that is:
1.       Keep market volatility in perspective. These downturns and normal and typically short in nature.
2.      Do not try and time the markets. While it may be tempting to try to sell out of stocks the timing of when to get out and when to get in is impossible to get correct on a consistent basis, and the risks of missing the very best days to the upside can significantly affect your long term results.
3.      A normal, systematic, and unemotional method of re-balancing is a natural way to ensure that portfolio allocation never drifts too high or too low in any one asset class. This is a normal way to take profits from what has done well and reallocate those funds into other asset classes that may not have done as well, with the knowledge that there is usually a reversion to the mean and given time, asset classes go up over time.
4.      Develop and stick to a sensible plan. The analysis that we have run on your financial situation is always the blueprint to your success, and the ability to stick to that plan through good times and bad times will prove the key to your long-term success. 
5.      If you are worried or feeling that you are having difficulty handling the volatility, we always ask that you let us know and we sit down and go over your own unique situation to give you more peace of mind based on our years of experience in navigating market volatility in the past. 
We have posted on our website a piece from Hartford Funds titled: “How to Learn to Worry Less and Love a Market Correction.” This piece was put out earlier this year, after the market downturn in Q4 2018. It is a brief two page piece (with most of the pertinent information on the first page), and is something that can be useful to read over. You can access it on our website by going to our Guest Articles tab under Periodicals, or simply  click here .
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, October 9 - Federal Open Market Committee (FOMC) releases minutes of previous meeting at 2PM.
  • Tuesday, October 29 - Wednesday, October 30: The Federal Open Market Committee (FOMC) meets, and releases their announcement on Wednesday at 2PM.
  • Wednesday, October 30 at 8:30AM - GDP, 3rd quarter 2019 (advance estimate), and annual update.
  • Wednesday, October 30 at 2:30PM - Fed Chair Jerome Powell to hold his quarterly press conference to explain the FOMC's latest projections and stance.

  • Wednesday, November 20 - Federal Open Market Committee (FOMC) releases minutes of previous meeting at 2PM.
  • Wednesday, November 27 at 8:30AM - GDP, 3rd quarter 2019 (second estimate); Corporate Profits, 3rd quarter 2019 (preliminary estimate).
  • Thursday, November 28 - Thanksgiving Day: NYSE closed.
  • Friday, November 29 - day after Thanksgiving, early NYSE close.

  • Tuesday, December 10 - Wednesday, December 11 - The Federal Open Market Committee (FOMC) meets, and releases their announcement on Wednesday at 2PM.
  • Wednesday, December 11 at 2:30PM - Fed Chair Jerome Powell to hold his quarterly press conference to explain the FOMC's latest projections and stance.
  • Friday, December 20 at 8:30AM - GDP, 3rd quarter 2019 (third estimate); Corporate Profits, 3rd quarter 2019 (revised estimate).
  • Tuesday, December 24 - Christmas Eve, early NYSE close.
  • Wednesday, December 25 - Christmas Day: NYSE closed.
  • Monday, September 2 - Labor Day: NYSE closed.

  • Wednesday, January 1 - New Years Day: NYSE closed.
  • Thursday, January 2 - Federal Open Market Committee (FOMC) releases minutes of previous meeting at 2PM.

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
Chris Congema, CFP®;  email: ; phone: 631-923-2486
Joe Favorito, CFP®; email: ; phone: 631-930-5336

Direct office email:  
Direct phone: 631-923-2485

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 Landmark Wealth Management, LLC
900 Walt Whitman Road, Suite 208
Melville, NY 11747
 (631) 923-2485