Volatility Continues
Weekly Update - December 12, 2018
Markets went for another wild ride last week, as major domestic indexes swung back and forth. By Friday, December 7, markets had posted their worst weekly performance since March-and the S&P 500 and Dow both moved into negative territory for 2018.
Overall, the S&P 500 lost 4.60%, the Dow declined 4.50%, and the NASDAQ dropped 4.92%. International stocks in the MSCI EAFE also struggled, posting a 2.27% weekly loss.
 
Let's take a look at what is driving this challenging market performance.
 
Examining Recent Volatility
 
1. How volatile are stocks right now?
If recent market fluctuations have felt intense to you, there's a reason: They are. The past three weeks have had the most volatility since 2008's financial crisis. During this time, domestic indexes have ricocheted between gains and losses. The large swings have occurred both week-to-week and within daily trading.
 
2. What is causing the volatility?
Many of the same themes we've discussed throughout 2018 are continuing to affect market behavior. Ultimately, many investors are worried that corporate profits and global growth will suffer if trade tension persists and the Federal Reserve continues raising interest rates.
 
Concerns about Treasury yields were also on investors' minds. For part of last week, 3-year Treasury notes had higher yields than 5-year notes. Called an inversion, a higher yield on shorter-term Treasuries can be a sign of a coming recession. The yield spread between 2-year and 10-year Treasury notes, which people focus on more, has not inverted.
 
3. Should you feel concerned?
With many headlines to digest, from conspiracy charges against a Chinese tech leader to comments from the Fed, investors had a lot to consider last week. The difference is how they reacted to this information. For some time, markets were basically ignoring headlines. Now, they've moved in the opposite direction into what one investment manager called "a period of hypersensitivity."
 
Consequently, recent market performance may seem unnerving. As is often the case, however, the reality may be less extreme than what appears at first glance, especially when you look at the fundamentals.
 
4. What do the fundamentals tell us?
While last week's market performance saw large fluctuations, the fundamentals we received were far less dramatic. We learned that two sectors beat expectations in November: manufacturing and service. Further, the November labor report revealed fewer new jobs than anticipated, but unemployment is still at historically low levels, as job and wage growth continue.
 
Remember, risks exist in the markets and economy, and we're analyzing these details closely. If you have any questions about your financial standing or anything you hear in the news, we are here to talk.
Economic Calendar
ECONOMIC CALENDAR
Monday: JOLTS
Tuesday: PPI-FD
Wednesday: CPI
Thursday: Jobless Claims
Friday: Retail Sales, Industrial Production

Data as of 12/7/2018
1-Week
Since 1/1/18
1-Year
5-Year
10-Year
Standard & Poor's 500
-4.60%
-1.52%
-0.15%
7.84%
11.63%
DOW
-4.50%
-1.34%
0.73%
8.77%
10.94%
NASDAQ
-4.92%
0.96%
2.30%
11.40%
16.53%
Internationa l
-2.27%
-13.77%
-11.48%
-0.87%
4.98%
Data as 12/7/2018
1 mo.
6 mo.
1 yr.
5 yr.
10 yr.
Tre asury Yields (CMT)
2.32%
2.54%
2.68%
2.70%
2.85%

N otes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on 
Morningstar.com  and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
"If you wish to get rich, save what you get. A fool can earn money; but it takes a wise man to save and dispose of it to his own advantage."
-Brigham Young
Collard Greens with Bacon & Cider Vinegar
Serves 12

Ingredients:
 
For Cake
½ cup unsweetened applesauce
1 cup unsweetened almond milk
2 teaspoons pure vanilla extract
1 cup granulated sugar
½ cup coconut oil, melted (can substitute canola oil)
2 ¼ cups cake flour
3 teaspoons baking powder
1 teaspoon baking soda
3 teaspoons cinnamon
½ teaspoon nutmeg
1 teaspoon salt
2 cups grated carrots, medium packed
½ cup chopped raisins (optional)
¼ cup chopped walnuts (optional)
 
For Frosting
½ cup dairy free cream cheese (such as Toffutti)
½ cup vegan butter, softened (such as Earth Balance)
1 teaspoon vanilla extract
¼ cup all-purpose flour (soy flour works great, too!)
2 cups confectioners sugar
Directions:  
For Cake
  1. Heat oven to 350°F.
  2. Grease lightly and flour two 9-inch round cake pans or a 9x11-inch baking pan. Set aside.
  3. Mix applesauce, milk, vanilla, sugar, and oil together in a large mixing bowl.
  4. Whisk cake flour, baking powder, baking soda, cinnamon, nutmeg, and salt together in a separate mixing bowl.
  5. Mix dry and wet ingredients together until combined.
  6. Add in carrots and (optional) chopped raisins.
  7. Bake 20-30 minutes (or until a toothpick inserted in the cake's center comes out clean).
  8. Put on wire rack to cool for 10 minutes.
  9. Let the cake cool completely before adding frosting. 
For Frosting
  1. As the cake is cooling, use an electric mixer to beat cream cheese and butter together until the mix becomes smooth and creamy.
  2. Add the vanilla extract and continue beating until it is combined.
  3. Slowly add flour and confectioners sugar and continue to beat on high until it is light and fluffy.
  4. Continue to add sugar until the frosting reaches the desired consistency.
  5. Cool the frosting in the refrigerator for 20 minutes before applying it to the cake.
  6. Frost the top of one cake. Place the second cake on top. Continue to layer frosting on the rest of the cake.
  7. Sprinkle the chopped walnuts on the cake if desired.
  8. Put in the refrigerator.
Recipe adapted from Bakerette
Tax Reform Changed Small Business Accounting Methods
If you own a small business, you may be able to use the cash method of accounting, thanks to the passage in late 2017 of the Tax Cuts and Jobs Act.
The act redefines small business as a taxpayer who has average annual gross receipts of $25 million or less for the three previous tax years and doesn't serve as a tax shelter.
Here are some of the changes in the tax code for small business taxpayers.
  • More small business taxpayers are eligible to use the cash method of accounting with the increase in the average receipts rising from $5 million to $25 million, which is indexed for inflation.
  • Small business taxpayers are exempt from certain accounting rules for inventories, cost capitalizations, and long-term contracts.
  • More small business taxpayers can use the cash method of accounting for tax years after December 31, 2017.
The IRS's Revenue Procedure 2018-40 describes the procedures for obtaining automatic consent to change accounting methods to comply with the new provisions.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Tip adapted from IRS.gov
 

Putt Away the Pressure!
You're on the last hole. You're on the green. It's been a great day on the course. If you sink this, you'll achieve a personal best, and your friends will brag about your game for the next 10 years.
Everybody's watching. Your best game ever is at stake. Then suddenly you freeze. Too much pressure!
You're not alone.
Pressure can ruin the best of games. So, how do the pros overcome the pressure-when the cameras are on and the announcers are whispering?
Develop a standard putting routine, a kind of generic version you can pull out of your bag for every game use.
A kind of pre-putt, it should follow the same pattern, the same timeline, every time.
Most golfers have the habit of slowing (or, with some, speeding it up) when the pressure mounts. But the delay (or the rush) reinforces the tendency to second-guess yourself.
Once you develop a standard routine, practice it frequently so you're able to do it in pressure settings, at a moment's notice.

Tip adapted from GolfDigest
Causes and Treatment of Dysphagia
If you sometimes have difficulty swallowing, you may have dysphagia.
People with dysphagia have trouble getting food to pass from their mouths to their stomachs. Nerve or muscle problems usually cause dysphagia, which is more common in older people and babies.
Problems in any part of the swallowing process can indicate dysphagia.
Dysphagia symptoms include:
  • Choking while eating.
  • Coughing or gagging while swallowing.
  • Drooling.
  • Frequent heartburn.
  • Hoarseness.
  • Regurgitation.
  • Inability to control saliva in the mouth.
Treatment for high dysphagia includes:
  • Swallowing therapy.
  • Diet modifications, which may include easy-to-swallow foods.
  • Tube feeding may help sufferers at a risk of pneumonia, malnutrition, or dehydration.
Treatment for low dysphagia (esophageal) may include:
  • Dilation, which involves using a small balloon to widen the esophagus.
  • Botulinum toxin (Botox) can be used to paralyze stiff muscles that are causing constrictions.
 
Tips adapted from MedicalNewsToday
What's So Wonderful About Wetlands?
The United States has degraded or destroyed half of the nation's wetlands. In California, that amount is 90%.
So, what's the big deal about wetlands? Why are they important? Here are ten benefits of wetlands. They:
  • Protect one-third of the country's threatened or endangered species.
  • Protect communities from floods.
  • Filter pollution.
  • Block storm surges.
  • Reduce potential wind and swell wave damage.
  • Fertilize farm land.
  • Foster recreation and tourism.
  • Store carbon and thereby protect against climate change.
  • Serve to boost employment.
  • Lessen rises in sea levels.
 
Tip adapted from EarthShare

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The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The S&P U.S. Investment Grade Corporate Bond Index contains U.S.- and foreign-issued investment-grade corporate bonds denominated in U.S. dollars.
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The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
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