Nola Kulig
Kulig Financial Advisors
Longmeadow, MA, 01116 USA
413-565-2839
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2017 Q3 Market Review: Markets Continue to Rise Despite Geopolitical Turmoil and Natural Disasters

November 1st, 2017

This is our review of the markets for third quarter and year-to-date 2017. Long term readers know that we do not believe in making forecasts, instead commenting on cross currents influencing the markets. As usual, our goal is to look at recent market results, put them in perspective, and see how that experience should set our expectations going forward.

We look at the following topics:

  • 2017 Q3 and Year-to-Date Markets Review
    • Summary of Returns
    • What Does all This Mean?
  • Conclusion

2017 Q3 and Year-to-Date Market Review

Summary of Returns

The S&P 500 Index finished the quarter at a record high. Notably, the closely followed gauge of 500 large U.S. stocks ran up its quarterly winning streak to eight consecutive quarters (MarketWatch data http://www.marketwatch.com/story/us-stocks-set-for-weaker-open-but-monthly-gains-set-to-remain-intact-2017-09-29).

It’s done so in the face of three devastating hurricanes—Harvey, Irma and Maria, dysfunction in Washington, unsettling news from North Korea, and gridlock in Washington.

But in many respects, it shouldn’t be all that surprising; economic fundamentals are actually supportive of good stock performance.

Stocks take their longer-term marching orders from corporate profit growth. And profits are driven primarily by economic growth at home and abroad.

Currently, we’re in the midst of a synchronized global expansion, which has created a strong tailwind for earnings.

Moreover, interest rates remain near historic lows, and the Federal Reserve hasn’t been shy about signaling that any rate hikes are expected to come at a gradual pace.

If I had to concoct a recipe for bull market, I’d go heavy on profits, economic growth, and low interest rates—Oh, wait a minute—that’s today’s environment!

The markets focus on these factors to the exclusion of nearly everything else, like the massive damage to lives and property in Texas, Florida, and Puerto Rico. Short term, the economic data is taking a hit from the storms. Longer term, the markets are saying it is unlikely to have much impact on the economic trajectory. (Please note that some of your dollars were donated from Kulig Financial Advisor’s profits and were matched by TD Ameritrade, your custodian if you have ongoing investment services with us.)

While North Korea’s quest for an ICBM that can strike the U.S. is also very unsettling, short-term investors seem to be pricing in the unpredictability of the rogue regime. More importantly—speaking strictly from an investment perspective—investors aren’t anticipating a disruption in the economic cycle.

So, while we should be prepared for more troubling news, it simply isn’t affecting U.S. economic activity.

 

Market Returns

Market

Index

September

Q3 2017

YTD 2017

Stocks        
Large Cap S&P 500 Index

0.3%

3.0%

11.9%

Midcap S&P Midcap

-1.5

0.9

5.3

Small Cap S&P Small Cap

-2.6

1.3

1.1

Non-US Developed Markets MSCI EAFE

0.0

2.7

17.1

Emerging Markets MSCI Emerging Mkts.

2.2

9.4

28.3

US Bonds Bloomberg Barclays US Aggregate

0.9

1.2

3.6

REITs S&P US REIT

-0.4

3.1

2.8

MLPs Alerian MLP

-4.9

-4.3

-6.3

Gold S&P GSCI Gold Sub index Total Return        -2.8 3.0 10.7
Commodities S&P Dow Jones Commodity Index TR

3.3

7.2

-3.8

Sources: AJO Partners, Factset, S&P Dow Jones Indexes

What Does All This Mean?

Many of you have asked if the steady climb upward in stocks and their accompanying high values mean it is time to take some risk off of portfolios. This is an excellent question, and while we have discussed what this means for individual portfolios, it provides an opportunity to discuss our investment philosophy.

If we (meaning both you and Kulig Financial Advisors) have properly assessed risk tolerance and capacity when the portfolio was built, and done some other planning, then we shouldn’t need to make radical changes to your portfolio for several reasons:

  • If you have followed our counsel, those still working have sufficient emergency reserves and insurance in place; if you are retired, you have either sources of guaranteed income (like pensions and Social Security) or cash to cover several years’ expenses. If that is the case, then your longer term portfolio truly is for more discretionary expenses, and a market decline won’t impact your ability to keep the lights on or put food on the table.
  • We believe it is extremely difficult to predict future market direction, and the only real option anyone has is to maintain a carefully selected risk level for a portfolio. With the stock market mostly up since the 2008 crash, it would have been easy to say that stocks were highly valued for a while and that it was time to get out. With hindsight, that would have been a mistake.
  • While we don’t believe in market timing, we do favor rebalancing to your target allocation for stocks and all other assets. Those of you who have assets managed or advised on by us have in fact been taking profits out of stocks and placing them in lower risk or lower priced assets. In some cases this meant buying international stock markets which were underweighted and which have lower stock values. For others, it has meant buying bonds from time to time. The re-allocations depended on the starting positions for each portfolio. Again, these changes were guided by your asset allocation, not a short term forecast of a US stock market decline.

We hope this puts risk in a perspective that takes into account your individual financial situation and portfolio design. Those are the major reasons to make changes to portfolios, and they do not change that often.

Conclusion

We would reiterate to make sure you are at your recommended risk level and asset allocation for your portfolio. If you are, then all is well, and you can focus your attention elsewhere. If not, please make adjustments so that you are. And last but not least, if you are not sure, please call and let’s see where you need to be.

Thank you very much for your trust and confidence.

 

Steps to Take Following the Equifax Breach

November 1st, 2017

Note: this article was sent last month to clients immediately following the Equifax data breach.

This month’s post concerns steps to take following the Equifax breach. There is lots of information in the public domain (here is one at http://www.marketwatch.com/story/are-you-one-of-the-143-million-customers-in-the-equifax-data-breach-do-this-now-2017-09-08), but you might find some of it conflicting. Also, if you have followed some of the steps in the preceding article, the Equifax website has been frustrating for millions.

I can speak to these steps having been impacted by the Blue Cross/Blue Shield data breach some time ago! So far, no identity fraud has been detected, although I think about it with every transaction I make.

Step 1: Assume you are impacted

Equifax has been very cagey about stating whether consumers have been impacted by the breach. If you go to https://www.equifaxsecurity2017.com/potential-impact/ and enter your information, you may get a message that says you “may” be impacted. They announced at one point they would be contacting those impacted by e-mail. I know we have received nothing, have you?

Given the size of Equifax’s business in the credit reporting industry, you should assume you are impacted. So then what?

Step 2: Freeze your Credit

Contact the three major credit reporting agencies and freeze your credit. This means that you are sealing your credit reports; the company provides you with a PIN that only you know, which you can use to “unfreeze” your credit for legitimate inquiries on your credit. This means that even if crooks get your information, they cannot open new credit in your name.

You can do this online (assuming you have good computer security set up) or by phone. Clark Howard, who is a debt expert has a good guide to freezing credit at all three agencies. It can be found at http://clark.com/personal-finance-credit/credit-freeze-and-thaw-guide/.

Step 4: Use a Credit Monitoring Service

There are many available, including at the credit reporting agencies. Equifax is offering one for free to those impacted by the breach, but when I tried the link at their website, I got a message saying I would have to wait until September 14th (this was on the 9th). Since I already have another service, I am not pursuing theirs.

(Equifax also has a statement regarding the monitoring service that clients using it waive their rights to a class action suit; some commentary points out that this applies to the monitoring service, rather than the breach itself. But waiving rights to either is not good.)

If you do not already have a service, I recommend you not wait. Also, you may not feel so good about letting the company who had the breach do the monitoring.

Instead, you may want to use https://www.creditkarma.com/, which is also free and provides credit reports, which by the way, you should probably check.

Step 5: Beware Phishing Messages and Phone Calls

Once someone has your information, you may be a particular target for scams via e-mail and by phone. When e-mail arrives concerning something financial, be sure to contact the entity directly, rather than by clicking on a link provided in the message. Look for misspellings and grammatical mistakes, which can be an indication of a fraudulent message. Do not answer the phone for numbers you do not recognize, and carefully evaluate any voicemails you receive.

Step 6: Go to the Social Security Website and Establish 2-Step Authentication

The website is www.ssa.gov. I think it is self-explanatory why you would want to do this one.

Step 7: Use 2-Step Authentication at Any Website with your Credit Card Number

For example, www.amazon.com offers this, and it would be desirable anywhere you have a credit card on file. You may also want to think about where you do have credit cards on file and delete them if they are not absolutely necessary to use a site. It may be worth typing that information in over again, especially if it is a site you do not use frequently and may forget that your card information resides there.

Summary

I hope none of you have any trouble from the Equifax situation. Please take this issue seriously and do what you can to protect yourselves. Best of luck!

Investment advisor representative of an investment advisory services offered through Garrett Investment Advisors, LLC, a fee-only SEC registered investment advisor. Tel: (910) FEE-ONLY. Kulig Financial Advisors may offer investment advisory services in the state of Massachusetts and other jurisdictions where exempted.