Nola Kulig
Kulig Financial Advisors
Longmeadow, MA, 01116 USA
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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

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




Q3 2017

YTD 2017

Large Cap S&P 500 Index




Midcap S&P Midcap




Small Cap S&P Small Cap




Non-US Developed Markets MSCI EAFE




Emerging Markets MSCI Emerging Mkts.




US Bonds Bloomberg Barclays US Aggregate








MLPs Alerian MLP




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




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.


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.


2014 Q4 Market Review: A Look Behind and Look Ahead

February 8th, 2015

We begin the new year by taking our regular quarterly temperature of the markets. As you know, we do not believe in making forecasts, but we also comment on what to watch for in 2015. 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.

This post looks at the following topics:

  • 2014 Q4 Markets Review
    • An Exceptional Year Ending in Volatility
    • Optimism Drove Stocks
  • A Sneak Peak at 2015
  • Bottom Line

An Exceptional Year Ending in Volatility

Market reviews are great for keeping us honest as we witness the twists and turns in economic news and market results. You may recall from our earlier newsletters that there were three major themes dominating headlines early in the year: emerging market jitters early in the quarter, Russia’s incursion into Ukraine, and a long and brutal winter that negatively impacted economic results at home. Then the market shrugged all this off and just kept chugging along until hitting a rough patch in October.

When you look at the returns which follow, it is worth recalling that many market forecasters believed that the market “had” to fall in 2014 following a great year for stocks in 2013 (neither year experienced even a 10% decline). However, the real surprise to many has been the strength of the bond market. And of course, nobody forecast the huge declines in energy prices. It all makes a great case for how unpredictable the future is, and why it pays to hold a diversified portfolio.

Overall observations for the fourth quarter and 2014 include:

  • The year ended on a crazy note, with lots of shifts in the markets in the fourth quarter:
    • Small caps surged after trailing the rest of the year.
    • REITs gained even more and had a tremendous year.
    • Long Treasury bonds (not shown) kept pace with REITs (both were up 25% and 30%, respectively for the year).
    • Commodities had a dreadful quarter and year, owing to a steep drop in the price of oil.
  • In all, it was a notable year, with 2014 being the sixth up year in the market, the third double digit advance, and the fourth longest post-war advance.
Market Returns
Market Index December Q4 2014 2014
Large Cap S&P 500 Index    -0.3% 4.9% 13.7%
Midcap S&P Midcap 0.8 6.4 9.8
Small Cap S&P Small Cap 2.9 9.9 5.8
Non-US Developed Markets MSCI EAFE -3.5 -3.6 -4.9
Emerging Markets MSCI Emerging Mkts. -4.6 -4.5 -2.2
US Bonds Barclays US Aggregate 0.1 1.8 6.0
REITs S&P US REIT 1.9 14.4 30.3
MLPs Alerian MLP -5.6 -12.3 4.8
Gold Dow Jones-UBS Gold Sub index Total Return 0.7 -2.3 -1.8
Commodities Dow Jones-UBS Commodity Index TR -7.1 -11.9 -18.8

Sources: AJO Partners, Factset, Dow Jones Indexes

Although not shown in the above table, a major influence on markets in recent months has been the US dollar’s surge in relation to other currencies. The Dollar Index, which is a weighted average of the currencies of the nation’s major trading partners, has risen to its highest level in over four years. For a discussion on how the rise in the dollar impacts stocks, please see our 3rd quarter market review at

Finally, few could have predicted the outright collapse in oil prices. We began the year near $100 per barrel and ended just north of $50 per barrel. When and where oil will stabilize is anyone’s guess, but the decline in crude is responsible for the 10% drop in the S&P Energy sector. It was the worst performing of the 10 industry groups that make up the S&P 500 Index.

Optimism Drove Stocks

Despite currency shifts and a major commodity collapse, the markets continued to move forward. Whatever came along, the fundamentals re-asserted themselves, driving stocks to new highs. These included:

  1. An acceleration in economic activity, which led a pickup in earnings growth. S&P 500 earnings improved from a modest increase of 5.6% in Q1 to a solid 10.3% by Q3, according to Thomson Reuters.
  2.  A pledge by the Fed to keep short-term interest rates at rock bottom levels for a “considerable time.” Without drowning you in the tedious details of discounted cash flows, low interest rates provide little in the way of formidable competition for stocks. Postscript: by now we know that the strength of the dollar and deflationary winds from Europe may also stay the Fed’s hand from rate increases.
  3.  Stock buybacks by corporations continue to rise. According to S&P Dow Jones Indices, combined dividend and buyback expenditures set a new record of $892.66 billion for the 12 months ended September 30, with stock repurchases representing 62% of the total. Stock buybacks reflect confidence as well as real demand for shares.

Jeremy Siegel, commentator and professor at the Wharton School of Business,  noted at year’s end, “The last three, four years, I thought this was easy. I mean, it was a slam dunk. The market was so undervalued with the interest rates so low, and earnings momentum going up. … Earnings momentum is going up, but we are closer to fair market value.”

Before we get carried away with unbridled enthusiasm, it’s fair to point out that Siegel was relatively bullish on stocks as part of a panel discussion that was published by Business Week in May 2000.

And it highlights why diversification between and among asset classes is always a good idea. No one has a crystal ball. No one can accurately foresee the unexpected events that may derail the most thoughtful forecasts.

A Sneak Peak at 2015

The fundamentals that have fueled equity gains in recent years remain in place. Even as the Fed ended its controversial bond-buying program last October, the fed funds rate is expected to remain at historically low levels through at least the end of 2015 and possibly beyond.

Moreover, the European Central Bank moved on its hints made all year by announcing it will start a quantitative easing program, as it battles a severe disinflationary environment. Simply put, central bank generosity has historically been a tailwind for stocks.

But let’s not get carried away. Let’s keep a balanced approach. Let’s adjust our portfolio when changes in your personal situation or goals make our current stance less than optimal.

While strong fundamentals remain in place, risks never disappear, even in a diversified portfolio. We can manage but not eliminate risk. So that leads to the next question – what may be some of the events that could create volatility in 2015. Here are some possibilities:

  • The year ended with oil near $50 per barrel, and it has since declined further. A recent story in Reuters noted $150 billion in energy projects around the globe face the axe. That means there will be winners and losers at current prices. Economists continue to debate whether the net gain to the US economy will be positive, since lower gas prices mean consumers have more money in their pockets.
  • Meanwhile, Russia is undergoing a wrenching adjustment, as its energy-dependent economy must adapt to the new reality. The Russian ruble has fallen sharply this year, and Russia’s central bank said its economy could shrink by as much as 4.7% in 2015 if oil averages $60 a barrel.
  • A 1998-like crisis that briefly walloped stocks doesn’t appear to be on the horizon, but any contagion that seeps out of Russia could create volatility at home.
  • Then there has been the steep selloff in junk bonds tied to the energy sector. While Treasury and investment grade yields fell last year, yields on junk bonds rose. Some of the rise can be blamed on expectations the Fed will eventually raise interest rates, which could crimp some highly-leveraged borrowers. But a big part of the increase can be blamed on default fears in the energy patch amid a re-pricing of risk in high-yield energy bonds. If concerns were to seep into other sectors of the junk bond market, we could see a spillover into stocks.
  • One test the market faces early this year: Greece is set to elect a new president in January (postscript: he did get elected), and there are worries the far left could take the top spot.
  •  While political leaders on the left favor staying in the euro-zone, they want to renegotiate the terms of the Greek bailout. Markets rarely enjoy grappling with an added layer of uncertainty.
  •  Slowing growth in China and Europe’s tepid recovery could dampen growth at home. Odds are fairly low, as the U.S. isn’t dependent on overseas demand to drive its economy. So far, U.S. growth has accelerated in the face of global jitters.
  •  Will we get volatility around the Fed’s first rate hike in nearly a decade? There are no guarantees when it comes to Fed policy, but if U.S. employment and economic growth continues at the current pace, the Fed has signaled rates will start rising in 2015. Although it is doing its best to telegraph its intentions, markets could get jittery in the interim. This one is a tough call, as some analysts also think the Fed will avoid increasing the strength of the dollar by raising rates. Deflationary pressures also may delay the Fed’s rate hike plans.
  •  Emerging market anxieties. A stronger dollar and a Federal Reserve that is expected to begin raising rates could pressure developing countries that have sold bonds in greenbacks instead of their local currencies, forcing them to repay loans in more expensive dollars. Foreign reserves (akin to a rainy day fund) could minimize any pressure, but it’s something that bears watching.
  • Liquidity is like oxygen to the market. A brief surge in U.S. Treasury prices and the steep but short-lived stocks selloff in October can be partly blamed on a temporary lack of liquidity. Some cite well-intentioned regulations put in place after the 2008 financial crisis.
  • Cyber-attacks. North Korea’s alleged attack on Sony quickly comes to mind. It’s impossible to forecast, but the outside chance of a big event can’t be completely discounted.
  • Geopolitical fears. War or geopolitical instability has historically caused short-term losses. Whether the Arab spring, Russia’s incursion into Ukraine, or the rise of ISIS (ISIL) in Iraq, heightened uncertainty is not a friend of investors.

Bottom Line

I always stress the importance of being comfortable with your portfolio. As we discuss in our meetings, my goal is to help you mitigate that risk. But you must be comfortable with the level of risk you’re taking as we set out to meet your objectives. If you are not, let’s talk and recalibrate.

Stick with your plan. Markets rise and markets fall, but unless there have been changes in your circumstances or you’ve hit milestones in your life, such as retirement, stay with the plan. By itself, a record high in stocks isn’t a good reason to bail out of stocks.

Rebalance. Last year’s rise in equities may have created imbalances in your portfolio, taking your target stock and bond allocations away from target weights. Now may be the time to take profits on winners and selectively re-allocate proceeds.

I hope you’ve found this review to be educational and helpful. If you have any questions or would like to discuss any matters, please feel free to give me a call.

As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.

2013 Markets Review

January 31st, 2014

What a difference a year makes! Early in 2013, things were incredibly unsettled: markets continued to teeter based on the most recent news from Europe, we had just “gone over the fiscal cliff,” we all wondered what the impact of the sequester would be, Congress was always divided on some issue . . .   the list just went on and on. There was either macroeconomic or political fodder for nearly every newsletter or blog post penned  last year, which tended to crowd out discussion of personal finance topics. For that I apologize, but this was the hand we were dealt.

So if it didn’t feel much like we should be having a roaring bull market, you are certainly to be forgiven. But many factors began to turn more positive. The economy sidestepped the fiscal cliff, and without this stiff headwind, stocks roared out of the gate, producing their best year since 1997, according to data provided by the St. Louis Federal Reserve. Domestic mid- and small caps performed even better:

Market Returns




Q4 2013


Large Cap S&P 500 Index




Midcap S&P Midcap




Small Cap S&P Small Cap




Non-US Developed Markets MSCI EAFE




Emerging Markets MSCI Emerging Mkts.




US Bonds Barclays US Aggregate








MLPs Alerian MLP




Gold Dow Jones-UBS Gold Sub index Total Return




Commodities Dow Jones-UBS Commodity Index TR




Sources: AJO Partners, Factset, Dow Jones Indexes

Many are asking, “Why did we have a ferocious bull market when the economy is still limping along?” It’s a great question. The short answer: 2013 was a year where the bad news was good news.

First, the economy has been limping along since it officially emerged from the Great Recession in 2009. With job growth in low gear and inflation even lower, the Federal Reserve embarked on a series of bond purchases, popularly called quantitative easing, or QE for short. Remember, by definition, rising bond prices equate to falling yields. The Fed’s goal? Put downward pressure on yields in the hope consumers and businesses would borrow and spend, sparking job growth.

Reviews on the effectiveness of QE have been mixed, but one thing seems certain: the Fed’s ultra-easy monetary policy has been a boon for the stock market.

Second, we should not discount the impact from rising corporate profits. According to Thomson Reuters, earnings per-share for S&P 500 companies hit a record in the first quarter of 2013, and subsequently broke that record in the second and third quarters.

Moreover, analysts are forecasting another high in the fourth quarter. True, economic growth has been substandard, but very modest revenue gains, coupled with highly controlled expense management, have been a tailwind for profits.

Third, companies have more cash than they know what to do with, at least the major corporations. Given heightened levels of economic uncertainty and few opportunities to expand, companies are buying back stock (or borrowing at record low interest rates to finance purchases).

Yet it is not just the repurchases of shares that count, but whether companies are also selling new shares to the public. Howard Silverblatt, senior index analyst at S&P Dow Jones indices, summed it up well in December when he said, “We are starting to see excess buying, where the repurchases outnumber the issuance, and therefore, reduce the share count. The lower share count leads to higher earnings per share, and the market likes higher earnings per share.”

While the repurchase of company stock has underpinned the market, dividends have also sweetened the pot. S&P Dow Jones Indices estimates that companies returned a record $310 billion last year in the form of dividends.

Finally, although we cannot truly call this a tailwind, Europe has quieted down. Banking woes have not been put to rest, but the vicious headlines that swirled across continents creating uncertainty in the US, especially in 2011, were mostly absent last year. Think of it like the fiscal cliff – for now, a hurdle removed.

Bond Market: Dancing to a Different Tune

Early gains in treasuries were replaced by jitters that QE was on the verge of being reduced by the Fed, and Treasuries responded accordingly. The 10- year treasury yield which began 2013 at 1.70%, ended at 3.04%. (Note that rising yields did little to slow the equity juggernaut.)  At the December meeting, the Fed finally announced it would reduce the $85 billion in monthly bond buys by a modest $10 billion, with promises of more cuts in 2014 if the economy cooperated.

Meanwhile, losses in corporate bonds were more muted, and high-yield debt, which hit a pocket of turbulence in the middle of the year, outperformed most bond classes. That shouldn’t come as a surprise, since an expanding economy has historically lent support to firms with lower credit quality.

Setting Expectations for 2014

It’s never productive to make predictions, especially about the markets. And as my clients know, we design portfolios with the objective of avoiding being dependent on any single market scenario; instead, we diversify to make your portfolio more resilient in different market environments which no one can predict accurately in advance. With that in mind, we will cautiously look at possibilities for 2014, using history as a guide.

Everything that drove stocks to new highs in 2013 remains in place: extremely low interest rates, expectations of further growth in corporate profits, and the belief that companies will continue to return cash to shareholders. Further, any acceleration in economic activity that might reduce QE could be supplanted by rising corporate profits, which might shoulder more of the heavy lifting for the stock markets.

Having said that, it is unlikely that we will have as spectacular a year for the US stock market as we did in 2013. Will they continue to rise, even if it is at a more moderate pace? Although some analysts are optimistic about US stocks this year, others think that US equity prices are no longer cheap. Yet few are calling for significant declines.

But it’s never really clear. Questions being asked include:

What will the Fed do? Will the shallow recovery in Europe take root, or will banking woes resurface? Will China continue to grow or is an economic hard landing inevitable?

Could we see new problems surface in the Middle East? Historically, geopolitical headwinds have proved to be temporary, but that doesn’t eliminate the possibility of heightened uncertainty over the short term.

On a more positive note, will faster capital spending occur, supporting the economy? And how will the energy boom continue to underpin growth?

Portfolio Implications

You’ve heard this before from me: no one can accurately predict the future. A search for the proverbial crystal ball over a long career in finance has come up dry. (Although I do have one in my office–a gag gift from my husband.)

Could we have a correction and see the major averages decline by 10 to 15% or more? It’s always possible. Corrections have a way of catching the consensus off guard, creating unwanted anxiety.

Yet most of the time we need not be overly concerned. Besides, washing out excess optimism can set the stage for further gains. Here are some key things to remember as events unfold this year:

  • You need to be comfortable with the risk level of your portfolio.
  • There’s always some uncertainty when investing.  As we discuss in our meetings, our goal is to help you mitigate that risk. But you must be comfortable with the level of risk you’re taking as we set out to meet your objectives. If you are not, it’s time to recalibrate.
  • Stick to your plan. Markets rise and markets fall, but unless there have been changes in your circumstances or you hit milestones in your life, such as retirement, stay with the plan. For example, it was tempting to cash out of stocks in 2009, but hindsight has proved that would have been costly.
  • Rebalance. Last year’s surge in equities may have taken your portfolio out of alignment with target stock and bond allocations. Now may be the time to take profits on winners and selectively reallocate proceeds into bonds.
  • Don’t discount international. Emerging markets have been underperformers over the last couple of years. The US may or may not outperform the rest of the world in 2014, but over the longer-term, exposure to global markets should be beneficial and help to reduce risk.
  • Don’t dump bonds. While prospects for returns look low, they continue to provide diversification and risk protection, especially if your time horizon is shortening as you age. You may want to take more of a defensive strategy with bonds, but they still play a key role in portfolios.


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.