Market News – September 10, 2018

EMPLOYMENT PICTURE STILL LOOKS ROSY: Data from the prior month and week (see next entry) shows a labor market that continues to be strong. For the month of August the U.S. economy added 201,000 new jobs and the unemployment rate stayed at 3.9%. In addition, wages rose at a healthy pace. August wages were 2.9% higher than August of a year ago. The Labor Force Participation Rate, however, declined to 62.7% from 62.8% the month before. That statistic has been treading water for awhile.

LOWEST AMOUNT OF NEW JOB SEEKERS SINCE 1969: In the week that ended September 1, only 203,000 Americans filed initial claims for unemployment benefits. The four-week moving average for this data point is now 213,000. That is the lowest number for that statistic since 1969!

TECH LEADS THE WAY…AGAIN: Stock prices fell across the board last week. Once again the catalyst was trade tension. This week, U.S. and China trade conflict took center stage. President Trump remarked that he might slap another $267 billion in tariffs on China. Disruption in the China trade would hurt tech companies the most. As tech led the way to a week of gains last week, the opposite occurred this week. It did not help that Facebook and Twitter executives had to testify before the U.S. Congress this week to talk about foreign influence on their platforms during the 2016 campaign. Twitter and Facebook were down 13% and 7% for the week. Foreign stocks succumbed to some of the same factors, and the worry that economic woes in a few emerging markets countries that are in despair might spread to other countries continued to cause global market declines.

WHEN WILL THE RECOVERY END?: We get this question a lot. We also get the related question: “When will the U.S. stock market stop going up?” I met with a new client last week who has been invested conservatively (less than 20% in stocks) for the last five years. I told him that we have had clients express concern about investing in a market that is probably at the top for the last five years. He lamented that he was one of them, and he is kicking himself now. The bottom line: Don’t try to time the market or the end of the recovery. I am now going to tell you what the smart people are saying with the caveat that there is a very good chance that they are wrong. The Wall Street Journal surveyed private sector economists on the question, and 59% say the recovery will continue through next year and end in 2020. 22% say it will last through that year and end in 2021. Less than 8% say it will end next year.

DON’T SACRIFICE YOUR RETIREMENT TO PUT YOUR KIDS THROUGH COLLEGE: Many people intuitively know that it is a mistake to prioritize college savings to the point where you are putting your ability to retire at risk. However, it is very common for people to do this any way. Here are some thoughts to ponder if you are weighing how much of your excess cash flow should be diverted to the college savings account versus the retirement portfolio.

• You can’t borrow for retirement.
• There are four pillars of paying for college.
• School selection (pick a school your child can afford)
• Student contribution (via actual dollars, merit scholarships)
• Parental savings
• Parental cash flow
• You help others from a position of strength. (Just like you do not put your child’s oxygen mask on until you put yours on)
• If you over-save to your retirement portfolio, you can use that money to pay for college.
• The tax benefits for retirement savings are much better.
• Retirement accounts can be stretched and provide for better asset protection.
• College prices are much more variable than retirement. College prices can vary by a factor of ten.

LOWEST AMOUNT OF NEW JOB SEEKERS SINCE 1969: https://www.calculatedriskblog.com/2018/09/weekly-initial-unemployment-claims.html
EMPLOYMENT PICTURE STILL LOOKS ROSY: https://www.calculatedriskblog.com/2018/09/august-employment-report-201000-jobs.html
WHEN WILL THE RECOVERY END?: https://www.wsj.com/articles/economists-think-the-next-u-s-recession-could-begin-in-2020-1525961127