Last week did nothing to dispel October’s reputation as a tough month for the markets. The S&P 500 lost 3.94%, the Dow declined 2.97%, and the NASDAQ dropped 3.78% during what was one of 2018’s most volatile weeks so far. All three indexes are down significantly for the month, and both the S&P 500 and Dow have entered negative territory for 2018.[1] International stocks in the MSCI EAFE also struggled, posting a 3.87% drop for the week, and a 13.31% decline for the year.[2]
Why did stocks drop? Will they continue to do so?
Currently, many topics are on investors’ minds, from inflation to tariffs to valuations and beyond, but analysts are not pointing to one single culprit for last week’s performance. Instead, a mixture of concerns, with a large dose of emotion, seemed to drive the markets.[3]
Emotional reactions are understandable when volatility emerges, but they have no place in long-term investment strategies. Instead, we need to focus on the fundamentals.
What did we learn last week?
Trying to find simple explanations for market behavior can feel impossible, in part because the markets aren’t a machine¾they’re a reflection of many human actions. Investors make choices based on their interpretations of current conditions, and the effects of these decisions become “market performance.”
Amidst the volatility, we received several updates on the economy, including:
- 3rd Quarter Gross Domestic Product (GDP) beat expectations: The initial GDP reading for the 3rd quarter came in at a strong 3.5%, helped in large part by consumer spending.[4]
- Corporate earnings have been strong, but imperfect: So far, this corporate earnings season is showing 22% growth, but fewer S&P 500 companies are exceeding analysts’ predictions than in the 1st quarter of 2018. In particular, some major tech companies’ results disappointed investors.[5]
- Housing continued to struggle: New home sales were lower than expected in September, which followed disappointing results from existing-home sales data, as well.[6]
- Inflation growth eased: The Personal Consumption Expenditures Price Index, which shows inflation, increased by 1.6% in the 3rd quarter, much lower than projected.[7]
Examined together, this data indicates that while the economy has potential challenges, it also demonstrates solid growth, reasonable inflation, and strong corporate performance. That story feels different than the sharp drop we experienced last week. However, when you look at the bigger picture, our current circumstances provide another reminder that volatility is normal, and examining economic fundamentals is critical.
Still, risks exist, and in the coming weeks we will pay very close attention to data and performance. In particular, we will follow the Federal Reserve’s comments and actions to see what may lie ahead for interest rates. In the meantime, please let us help answer your questions and address your concerns. We are here to help you pursue your goals, in every market environment.
ECONOMIC CALENDAR
Monday: Personal Income and Outlays
Tuesday: Consumer Confidence
Wednesday: ADP Employment Report
Thursday: PMI Manufacturing Index, ISM Manufacturing Index, Construction Spending, Jobless Claims
Friday: Employment Situation, Factory Orders
| DATA AS OF 10/26/2018 | 1 WEEK | SINCE 1/1/18 | 1 YEAR | 5 YEAR | 10 YEAR |
| STANDARD & POOR’S 500 | -3.94% | -0.56% | 3.84% | 8.60% | 11.73% |
| DOW | -2.97% | -0.13% | 5.50% | 9.66% | 11.41% |
| NASDAQ | -3.78% | 3.82% | 9.31% | 12.69% | 16.53% |
| INTERNATIONAL | -3.87% | -13.31% | -10.76% | -1.18% | 4.57% |
| DATA AS OF 10/26/2018 | 1 MONTH | 6 MONTHS | 1 YEAR | 5 YEAR | 10 YEAR |
| TREASURY YIELDS (CMT) | 2.16% | 2.47% | 2.63% | 2.91% | 3.08% |
Notes: 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.
Tax Preparers Should Watch for Signs of Information Theft
If you’re a tax preparer or professional, how do you detect theft? What are the subtle signs that indicate information has been stolen?
The IRS has joined forces with Security Summit to combat information and identify theft. State tax agencies, tax preparation firms, software developers, payroll and tax financial product processors, tax professional organizations, and financial institutions are part of Security Summit.[8]
Tax preparers may be unaware of client data theft until they discover fraudulent tax returns being filed in their clients’ names. Safety experts urge preparers to protect client information by implementing strong security protections.
Here are some red flags for tax preparers of possible data theft:
- The IRS begins to reject clients’ e-filed returnsbecause a tax return with the same Social Security number has already been filed.
- The IRS sends authentication letters to clients who haven’t filed returns. The letters include forms 5071C, 4883C, and 5747C.
- The IRS sends refunds to clients who haven’t filed returns.
- The IRS sends tax transcripts to clients who haven’t requested them.
- The IRS sends notices to clients who have created online services accounts that their accounts were accessed.
- The number of returns you filed with your Electronic Filing Identification Number is greater than the number of clients you have.
- You are getting responses to emails you either didn’t send or don’t recall sending.
Other details may apply, and you can find more information on the IRS website.
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 the IRS.gov[9]
Share the Wealth of Knowledge!
Please share this market update with family, friends, or colleagues.
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 indices from Europe, Australia, and Southeast Asia.
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.
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 Platinum Advisor Strategies, LLC, and not necessarily those of the named representative,
Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives 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.
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[1] http://performance.morningstar.com/Performance/index-c/performance-return.action?t=SPX®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=!DJI®ion=usa&culture=en-US
http://performance.morningstar.com/Performance/index-c/performance-return.action?t=@CCO
https://www.bloomberg.com/news/articles/2018-10-25/asia-stocks-set-to-rally-on-u-s-gains-bonds-slip-markets-wrap?srnd=markets-vp
https://www.cnbc.com/2018/10/26/stock-market-us-futures-show-drop-for-dow.html
[2] https://www.msci.com/end-of-day-data-search
[3] https://www.bloomberg.com/news/articles/2018-10-25/sell-offs-are-normal-but-this-week-is-shocking-the-pros
[4] http://wsj-us.econoday.com/byshoweventfull.asp?fid=485684&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
[5] https://www.reuters.com/article/us-usa-stocks-weekahead/mixed-u-s-inflation-signals-leave-investors-adrift-idUSKCN1N01F6
[6] http://wsj-us.econoday.com/byshoweventfull.asp?fid=485959&cust=wsj-us&year=2018&lid=0&prev=/byweek.asp#top
[7] https://www.cnbc.com/2018/10/26/first-read-on-us-q3-2018-gross-domestic-product.html
[8] https://www.irs.gov/privacy-disclosure/security-summit
[9] https://www.irs.gov/newsroom/tax-preparers-should-look-out-for-these-signs-that-a-criminal-stole-information
