Weekly Market Review

Weekly Update:Stocks Take A Ride – October 15, 2018

Volatility was back in full force last week. The three major domestic indexes posted several days of losses before experiencing wide swings on Friday. By week’s end, the Cboe Volatility Index (VIX), which investors use to help measure fear in the markets, had increased by approximately 70%. The VIX also reached its highest point since February.[i]

Despite a number of equities posting last-minute gains on Friday, all three domestic indexes had sizable losses for the week. In fact, they posted their worst weekly performance since March.[ii] The S&P 500 dropped 4.10%, the Dow declined 4.19%, and the NASDAQ gave back 3.74%.[iii] International stocks in the MSCI EAFE also lost ground, decreasing 3.96%.[iv]

 

What drove market performance last week?

As is typically the case, a number of details affected investor sentiment and behavior. The following topics were among the perspectives impacting performance:

  • Rising interest rates: In addition to the Fed’s interest rate increases, 10-year Treasury yields are on many investors’ minds. At one point last week, the 10-year reached its highest yields since 2011.[v] As interest from banks and bonds rise, some investors exit the markets in search of more predictable returns. These moves can cause stock prices to drop.[vi] However, we want to remind you of what we wrote about last week: Rising rates may bring their own risks, but they are a sign that the economy is growing.[vii]


  • Falling tech prices: Technology companies have been the best market performers in 2018. However, the sector just experienced its worst weekly results since this spring.[viii] With this shift in industry performance, some market participants have begun searching for different ways to invest their money.[ix]

 

  • Ongoing trade tension: While many analysts believe interest rates and tech prices drove last week’s losses, some feel that our trade renegotiation with China is to blame.[x] We do not yet know how this skirmish will resolve, but tariffs do have the possibility to slow economic growth and increase prices for consumers.[xi]

 

These concerns and perspectives are important, but they do not give a complete understanding of our current economic conditions. Consumer sentiment remains high, and the latest corporate earnings season is likely to show strong, double-digit earnings growth for companies.[xii]

We know that volatility can feel uncomfortable, but it is normal. In the past 38 years, the markets have averaged a 13.8% intra-year decline¾yet 29 of those years had positive returns.[xiii]

As always, we are continuing to monitor economic fundamentals and investor perspectives to find a clear view of where we are today, and what may be ahead. If you have any questions, we are here for you.


ECONOMIC CALENDAR

Monday: Retail Sales

Tuesday: Industrial Production, Housing Market Index

Wednesday: Housing Starts

Thursday: Jobless Claims

Friday: Existing Home Sales

QUOTE OF THE WEEK

“We make a living by what we get, but we make a life by what we give.” 

Winston Churchill

Take a Walk: To Get Healthy

“But the beauty is in the walking—we are betrayed by destinations.” Gwyn Thomas, an ailing Welsh writer, may not have himself walked that much in his lifetime, but you get the idea.

Scholars, for centuries, have raved about walking’s benefits: physical, intellectual, and even philosophical. Some health care experts even assert that walking is superior to running; you avoid the potential for heel and joint injuries with low-impact walking.

The litany of walking’s benefits is long:

  • Walking lowers your body mass index. According to one study, those who walked 1,500 steps a day tended to fall in the normal, healthy BMI range.
  • One study showed regular walking led to a 7% reduced risk for high blood pressure and high cholesterol.
  • Regular walking leads to a 12% lower risk of type 2 diabetes, according to the same study.
  • You’re going to stay focused and have a better memory, according to a Japanese study on walking by older adults.
  • You’re going to have less stress and be in a better mood.
  • Walking will help you live longer. Several studies showed that people who walked about three hours a week had an 11% reduced risk of premature death compared to their sedentary neighbors.

The deep thinkers are correct: Walking is good. But how do you get more “steps” into your busy routine?

Here are five tips from exercise researchers:

  1. Walk, walk, walk. Walk as much as you can.
  2. Pick up the pace. Brisk walking provides greater benefits.
  3. Break it up. You don’t have to do all your walking at once. You can take many short walks throughout your day.
  4. Do intervals. That’s short walking sprints. Experts say that’s the best way to reduce waist size.
  5. Up, up, and away. Walk uphill. You get double the benefit.

Tips adapted from Consumer Reports[xiv]



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Footnotes, disclosures and sources:

Investment advisory services are provided through Penn Investment Advisors, Inc. (PIA), a Registered Investment Adviser. PIA is a wholly-owned subsidiary of Penn Community Bank (Bank). Investment products, securities and services offered by PIA are not a deposit of, or obligation of, or guaranteed by the Bank, or an affiliate of the Bank, are not insured by the FDIC or any agency of the United States, the Bank, or any affiliate of the bank and involve investment risk, including the possibility of loss of principal.  

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Diversification does not guarantee profit nor is it guaranteed to protect assets.

 International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. 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.

The SPUSCIG launched on April 09, 2013. All information for an index prior to its Launch Date is back-tested, based on the methodology that was in effect on the Launch Date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back-tested returns.

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.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. 

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Penn Investment Advisors, Inc., and other listed sources. This should not be construed as investment advice. Penn Investment Advisors, Inc., does not give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information. By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.


[i] https://www.cnbc.com/2018/10/12/us-markets-data-and-bank-earnings-in-focus.html

[ii] https://www.cnbc.com/2018/10/12/us-markets-data-and-bank-earnings-in-focus.html

[iii] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX&region=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI&region=usa&culture=en-US

http://performance.morningstar.com/Performance/index-c/[email protected]

[iv] https://www.msci.com/end-of-day-data-search

[v] https://www.bloomberg.com/news/articles/2018-10-12/another-gut-wrenching-week-puts-2018-stocks-in-with-bad-company?srnd=markets-vp

[vi] https://www.forbes.com/sites/markavallone/2018/10/11/5-reasons-why-higher-interest-rates-matter/#50fabc87577d

[vii] https://www.investopedia.com/investing/how-interest-rates-affect-stock-market/

[viii] https://www.cnbc.com/2018/10/12/us-markets-data-and-bank-earnings-in-focus.html

[ix] https://www.bloomberg.com/news/articles/2018-10-12/another-gut-wrenching-week-puts-2018-stocks-in-with-bad-company?srnd=markets-vp

[x] http://fortune.com/2018/10/11/trump-federal-reserve-powell-lagarde-carney/

[xi] https://www.businessinsider.com/trump-trade-war-tariffs-china-effect-2018-10

[xii] http://wsj-us.econoday.com/byshoweventfull.asp?fid=485860&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top

https://www.cnbc.com/2018/10/12/us-markets-data-and-bank-earnings-in-focus.html

[xiii] https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-the-markets/viewer  p.14

[xiv] https://www.consumerreports.org/exercise-fitness/benefits-of-walking/