November 2018

November 2018 Market Update

Stock Market and Economic Update
October Is Over - FINALLY!

October certainly lived up to its reputation this year with the stock market down approximately 6%, and small company stocks down 10% during the month. The U.S. stock market is now up a mere 2-3% on a year-to-date basis after the recent October decline. On October 3, 2018 the Federal Reserve Board “FED” made it clear that it plans to raise interest rates for the rest of 2018 and into 2019 as it changed its monetary policy from “accommodating” to “neutral”. The stock market has been concerned for several months about trade tensions, especially between the U.S. and China, and then responded swiftly to the downside shortly after the FED announcement.

Why is the U.S. stock market not up 20% in 2018 in lockstep with corporate earnings? The stock market looks ahead as it did in 2017 when the market was up 19% and corporate earnings were up 12%. In 2017, investors were anticipating the positive earnings effects in 2018 of corporate tax reduction, a weaker dollar, and an economy gaining momentum. Currently, economists, strategists and analyst are estimating 8-10% earnings growth in 2019; And investors are becoming less certain about the earnings growth outlook.

Stock market valuation has declined since the beginning of 2018: A Good Thing! The most referenced stock market valuation metric is the price-to-earnings ratio “P/E”. The stock market is up 2-3% so far in 2018 while corporate earnings are up over 20%. As noted above, investors estimate 8-10% corporate earnings growth for 2019. The confluence of stock prices and earnings growth has brought down the P/E ratio from 18.2x at the beginning of 2018 to the current 15.4x, which is right in the middle of the 15x to 16x historical average.

The U.S. economy is performing well above trend; Real Gross Domestic Product “GDP” grew 3.5% in the September 2018 quarter, following a 4.2% growth rate in the June quarter. “Real’ GDP is a measure of economic growth, excluding the effects of inflation which is approximately 2%. So, if we add real GDP and inflation, final goods and services produced were up over 5% for the September 2018 quarter. Personal consumption, business investment, and government expenditures all added to economic growth in the quarter. The one concern is residential real estate which showed contraction in the quarter, very possibly due to interest rates rising. The job market could not be better for job seekers, with 250,000 additional jobs in October 2018, well above expectations and a steady 3.7% unemployment rate as more people joined the labor force. THE BIG NEWS: AVERAGE HOURLY WAGES ROSE 3.1%, FINALLY INCREASING AT A RATE HIGHER THAN INFLATION. In past cycles average hourly wages increased by 4.0% when the unemployment rate was at or below 4.0%. This bodes well for consumer sentiment as we enter the all-important year-end holiday shopping season.

Rich Lawrence, CFA

Plan for the Long Term
Prepare for the Short Term

This market update includes data we believe to be accurate. However, Lawrence Wealth Management (LWM) does not warrant or guarantee its accuracy. Opinions about the future are not predictions, guarantees or forecasts. Investing in stock and bond markets have risk that could lead to investors losing money.


3rd Quarter Commentary

October 2017 Commentary

Global economic growth is on the rise which has led to an increase in the MSCI World Stock Market Index by 15% on a year-to-date basis.   Global GDP growth is currently 3.2%, up from 2.5% last year.  The U.S. stock markets are up 11-15%, depending upon the index.   U.S. companies’ earnings should be up 10%+ in 2017 due to the rise in global economic activity, especially outside the U.S., and to the decline of the U.S. dollar. At the current time, US companies’ earnings are expected to rise 12% in 2018. For the most part, markets have not reacted to the political sparring in Washington D.C. and geo-political rhetoric between the U.S. and North Korea. The bull market appears intact for the time being. 

Are we due for a stock market decline of 5-10% (1,100-2,200 Dow Jones Industrial Average points)? The U.S stock markets’ valuation, as measured by P/E (price divided by earnings), continues to be high at 17.7x earnings compared to the 15-16x historical average.  This has been a continual theme for the past two years, while the market has climbed the proverbial “wall-of-worry”. The U.S. stock market periodically declines by 5-10% during most bull markets, but has not experienced a sharp decline since January 2016 when oil prices collapsed to $29 a barrel.  I believe the stock market is setting itself up for a correction considering investor optimism, high valuations, and low interest rates. Typically, when a negative surprise occurs with this backdrop, a correction is likely. 

Primary risks to our economy and stock markets: the reduction of the $4.5 trillion Federal Reserve balance sheet, and a tight labor market. The Federal Reserve (FED) built up a $4.5 trillion balance sheet of US Treasury and mortgage-backed securities as it was providing cash into the economy to stimulate growth. The FED is now planning to reduce the size of its portfolio to “normalize” its balance sheet.  In doing so, if interest rates rise more than expected the stock market may decline in anticipation of economic growth being constrained.

I continue to advise clients to invest in the stock market for the long term, while having sufficient cash and bonds in one’s portfolio to ride through the next bear market.  Although both optimism and complacency are in the air, we can expect to have a bear market and recession at some point in the future.  During the past 18 months, LWM has been adding “long short” investments to most of our clients’ portfolios.  These investments are designed to capture most of the market’s upside returns, while being exposed to only approximately half the risk of the market.

Rich Lawrence, CFA Managing Director


Annuities: The Good, The Bad, and The …

Lawrence Wealth Management is a fee-only investment management firm and does not sell annuities, insurance products or any commission-based financial products.  This report is for informational purposes only.

Annuities issued by insurance companies are complex contracts that are marketed without disclosing many important details of which investors should be aware before signing the contract and committing funds.   As in a "Tom Waits” song… “the big print giveth; and the small print taketh away”.

Insurance Annuity

An insurance annuity is a contract between an insurance company and an individual with certain contractual obligations (guarantees) provided by the insurance company.  The funds invested in these contracts convert fully liquid funds into tax deferred funds that would be subject to a 10% penalty and taxes if withdrawn prior to age 59 ½ and, in many cases, could be subject to surrender charges of 10%, with that percentage declining over a 7 - 10 year period.

Annuity Tax Implications


Annuity tax implications can be very damaging!  All annuity investment gains are tax differed until withdrawn, at which time all gains are taxed at ordinary tax rates, and not capital gains rates.  This tax treatment could increase the investment gain tax rate from 23.8% to 43.4%! In contrast, investment gains in a taxable account are subject to a 23.8% (highest rate) capital gains rate if the investments are held for a year or more.

An annuity’s cost basis is not “stepped up” at death. In a taxable investment account, the decedent’s investments’ cost basis is stepped up at death. When the asset is passed to the heir, the cost basis increases to the investment value at time of death. This favorable treatment is lost with an annuity and the heir will pay up to 43.4% tax on any gain remaining in the annuity if sold!

Fixed Annuity

A fixed annuity grows at a fixed rate based on interest rates and typically has a guaranteed “floor” rate that is applied each year.  The underlying costs are low and the tax treatment is favorable when compared to bonds in a taxable account. Both bond interest income and fixed annuity gains are taxed at ordinary tax rates. The tax benefit is tax deferral. Sales commissions and underlying expenses are low. Depending upon interest rates and an investor’s bond allocation, fixed annuities could be very attractive at particular times in the interest rate cycle. Fixed annuities typically have surrender charges from 3-9 years.   The reason for these surrender charges is that the insurance company buys bonds that mature in three years for the three year annuity; five years for the five year annuity, etc. Once the initial holding period passes, the contract value is fully liquid, except for the 10% IRS penalty if funds are withdrawn prior to 59 ½ years of age.

Immediate Annuity

With an immediate annuity, investors invest a lump sum of funds with an insurance company which in turn pays the investor a set amount of money each month for life. The investor has no access to the funds after investing in an immediate annuity.  One’s pension from an employer is an immediate annuity.  The main benefit of an immediate annuity is that the monthly payments continue until death.  Internal costs are low and internal rates of return at the current time are in the low single digits.

Sales commissions and underlying expenses are low. Immediate annuities can be attractive, especially when used to pay a fixed expense.

Variable Annuity

Caution!  A variable annuity is an investment product with insurance features. It allows you to select from a menu of investment choices, typically mutual funds, within the variable annuity and, at a later date—such as retirement—allows you to receive a stream of payments over time. The value of your variable annuity will depend on how your investment choices perform.

The insurance markets a “guarantee”; however, the value of your investments is not guaranteed at all.  When/if the investor chooses to receive a stream of payments, these payments become guaranteed at that time.  If you are 65 years of age, the insurance company may offer a 5% income stream for life.  The insurance company is not guaranteeing the value of your investment accounts!  Life expectancy at 65 years of age is 83 years of age for a man and 85 years of age for a woman. So, a 5% income return fully returns your funds to you in 20 years (100 divided by 5% = 20 years).  The benefit is if you live beyond your life expectancy, the income stream continues through the end of life.  One could achieve an income for life with an immediate annuity with lower fees and better financial results.

Sales commissions and fees are high!  Sales commission are 6-8% and underlying expenses, which are not easily determined, are 3.0-3.5% of assets annually.


Fixed Indexed Annuity

Avoid! With a fixed indexed annuity, the insurance company credits you with a return that is based on changes in a securities index, such as the S&P 500 Composite Stock Price Index. Indexed annuity contracts also provide that the contract value will be no less than a specified minimum, regardless of index performance. After the accumulation period, the insurance company will make periodic payments to you under the terms of your contract, unless you choose to receive your contract value in a lump sum.  These are complex contracts that include participation rates, annual caps, spreads, etc., which the insurance company can change AFTER the contract is signed. BUYER BEWARE!  Typical returns with these annuities are 2-3% in the current interest rate environment, even if the stock market increases 6-12%.  Many contracts guarantee the value will not decline in the years when the index declines in value.  However, if you choose to include an income rider, this may cost 0.5-1.0% of assets annually, which would in fact reduce the value of your account when the market is negative.  These annuities also have surrender charges as high as 10% starting in year one and declining over a 10-year period


These are heavily marketed as they are highly profitable products for the insurance companies and salesperson. We recommend that investors avoid these annuities at the current time.

In summary, annuities are sold by contracts that are detailed and complex.  These contracts, and not the marketing materials or “illustrations”, should be read and understood before committing any funds.  These are long term contracts and are very expensive to exit, if an exit is even an option.


Richard Lawrence, CFA
March 2017

If you would like additional information about annuities, financial planning, or investment management advice on a fee-only basis, contact me Richard Lawrence at Lawrence Wealth Management LLC., a  private investment firm in West Conshohocken, PA . Phone 215-540-0896; email

Lawrence Impact Investing

Impact Investing

A New Offering for Clients

We are excited and very pleased to offer an opportunity for our clients to invest in companies executing responsible values as these companies compete and make a positive impact upon the environment and the communities in which they operate.

We began our research in 2015 and now have stock and mutual fund portfolios with the purpose of investing in companies developing and growing their respective businesses with a responsible operating philosophy.

Your Investments Can Now Be Aligned With Your Values

Specifically, the companies in which our clients may invest are assessed in terms of how they impact the environment, their communities, employees, customers and vendors. Corporate governance is correspondingly assessed to determine if Boards of Directors are fully representing shareholder interests and holding management fully accountable.

“SRI” Sustainable, Responsible and Impact investing has come of age and is now a financially sound form of investing. Approximately 22% ($8.1 trillion) of US domiciled investment assets now apply some level of environmental, social, and/or governance (ESG) criteria. While there are 32 criteria used to assess compliance to ESG, many companies pass/adhere to a subset of the criteria.

Performance Does Not Have to Be Sacrificed

Investment Performance is comparable, and in many instances, superior to returns of the major stock market indices. Marsh, Mercer, Kroll, an investment consulting firm, reviewed 20 SRI stock performance assessment studies and found the following:

  • 10 showed that SRI stock outperformed the stock market indices
  • 7 showed no difference
  • 3 showed negative results

Is Economic Growth On The Verge of Rising?

I ask if economic growth is on the verge of rising for a very specific reason. The stock market in 2016 is up 10% as measured by the S&P 500 Index, led by materials, industrials, financial and telecommunications stocks; and with health care and consumer staple stocks being the two worst performing sectors. In addition, gold and bond prices are on the decline. Please note: when bond prices decline interest rates are rising. This market behavior is classically associated with rising economic activity and certainly not indicative of the latter stage of an economic cycle.

1-2% Real GDP Growth

This market behavior may cause confusion to many, especially after nine years of economic expansion. Although the U.S. economy has been expanding, it has done so anemically with 1-2% real GDP growth. This compares to 6-8% annual GDP growth immediately after the deep recession of 1981 when the unemployment rate hit almost 10%. Then in the 1980s and 1990s GDP growth was 2-5% annually.

After eight years of so-so economic growth, corporate and consumer balance sheets are in good shape and not overextended as is usually the case when the economic cycle is nearing a peak. The U.S. government however continues to run deficits, and its share of GDP has expanded from 19 to 21%. Obviously our government has not had the will to curtail expenses, and its balance sheet poses risk to our economy and taxpayers.

A Republican President and a Republican Congress

What should we expect with a Republican President and a Republican Congress? The Trump campaign and policy initiatives were straight forward: reduce regulations; cut corporate taxes; increase infrastructure spending; renegotiate trade agreements, rebuild the military; and border control. These initiatives are pro-economic growth and the markets responded swiftly.
Some observers (pre-election) opined that the federal deficit would expand regardless of the election outcome. However Mitch McConnell (Senate Majority leader) stated last week that any corporate tax reduction must be matched with budget cuts to fully offset the revenue decline. So let the bargaining begin!

Higher Economic Activity

The stock market is an excellent economic predictor for six months, but that is about all. The market is expecting solid low-teen earnings growth in 2017, along with rising inflation and interest rates. If our government enacts policies of lower taxes and regulation the “animal spirits” of our country may finally be ignited resulting with capital investment and business formation. The result: higher economic activity.

Primary Market Risks

I envision two primary market risks as 2017 unfolds: saber rattling as we attempt to slow the transfer of U.S. wealth to China, and to a lesser extent a strengthening dollar.

As we all know we are in a $400 billion trade deficit annually with China. Why does this matter? Let’s “follow the money”. We sell China plenty of products, especially high technology and complex industrial products. China sells us a wide variety of products from low to high tech, most of which have a high labor content. There is a well know economic theory called comparative advantage that supports free trade. Essentially, comparative advantage stipulates that trading partners all win when each country produces that which they can produce most efficiently. And if trade balances are equal both trading partners win through sharing higher productivity.

Wealth Transfer to China

Our trading situation with China is far different. The regulatory environment of the U.S. and China could not be more different in term of labor laws, environment and market access. Our trade deficit with China has been running between $300 and $400 billion annually for the past few years, and is literally a wealth transfer to China. These deficits provide China with $300 to $400 billion of U.S. dollar currency which can be used to buy U.S. Treasury bonds, businesses or real estate around the globe including back here in the U.S. If this trade imbalance goes unchecked, we will see a slow but continued wealth transfer to China.

President-Elect Trump brought this issue to the fore and it is at the cornerstone of Trumps economic policy. I expect both countries will be pushing back against each other providing uncertainty and potentially stock market corrections. The good news is that both countries are economically dependent upon one another, so both economies will benefit greatly if trading activity remains brisk but moving back into balance.

Is economic growth on the verge of rising? Most indicators suggest our economy is gaining momentum. If you have questions about economic growth, financial planning, or would like to learn more about investment management advice offered on a fee-only basis, contact me Richard Lawrence at Lawrence Wealth Management LLC, a small, private investment firm. Phone 215-540-0896; email


What You Need to Know About a Health Savings Account Before January 1

Are health insurance premiums taking too big of a bite out of your budget? Do you wish you had better control over how you spend your health-care dollars? If so, you may be interested in an alternative to traditional health insurance called a Health Savings Account (HSA).

Most HSAs allow you to contribute through automatic transfers from a bank account or, if
You are employed, through an automatic payroll deduction plan.

How Does the HSA Option Work?

An HSA is a tax-advantaged account that’s paired with a high-deductible health plan (HDHP). Let’s look at how an HSA works with an HDHP to enable you to cover your current health-care costs and also save for your future needs. Before opening an HSA, you must first enroll in an HDHP, either on your own or through your employer. An HDHP is “catastrophic” health coverage that pays benefits only after you’ve satisfied a high annual deductible. (Some preventative care, such as routine physicals, may be covered without being subject to the deductible.) For 2016, the annual deductible for an HSA-qualified HDHP must be at least $1,300 for individual coverage and $2,600 for family coverage. However, your deductible may be higher, depending on the plan.

Once you’ve satisfied your deductible, the HDHP will provide comprehensive coverage for your medical expenses (though you may continue to owe co-payments or coinsurance costs until you reach your plan’s annual out-of-pocket limit). A qualifying HDHP must limit annual out-of-pocket expenses (including the deductible) to no more than $6,550 for individual coverage and $13,100 for family coverage for 2016. Once this limit is reached, the HDHP will cover 100% of your costs, as outlined in your policy.

Because you’re shouldering a greater portion of your health-care costs, you’ll usually pay a much lower premium for an HDHP than for traditional health insurance, allowing you to contribute the premium dollars you’re saving to your HSA. Your employer may also contribute to your HSA, or pay part of your HDHP premium. Then, when you need medical care, you can withdraw HSA funds to cover your expenses, or opt to pay your costs out-of-pocket if you want to save your account funds.

An HSA Can Be a Powerful Savings Tool.

Because there’s no “use it or lose it” provision, funds roll over from year to year. And the account is yours, so you can keep it even if you change employers or lose your job. If your health expenses are relatively low, you may be able to build up a significant balance in your HSA over time. You can even let your money grow until retirement, when your health expenses are likely to be substantial. However, HSAs aren’t foolproof. If you have relatively high health expenses (especially within the first year or two of opening your account, before you’ve built up a balance), you could deplete you could deplete your HSA or even face a shortfall.

How can an HSA help you save on taxes?

  • You may be able to make pretax contributions via payroll deduction through your employer, reducing your current income tax.
  • If you make contributions on your own using after-tax dollars, they’re deductible from your federal income tax (and perhaps from your state income tax) whether you itemize or not. You can also deduct contributions made on your behalf by family members.
  • Contributions to your HSA, and any interest or earnings, grow tax deferred.
  • Contributions and any earnings you withdraw will be tax free if they’re used to pay qualified medical expenses.
    Consult a tax professional if you have questions about the tax advantages offered by an HSA.

Can Anyone Open an HSA?

Any individual with qualifying HDHP coverage can open an HSA. However, you won’t be eligible to open an HSA if you’re already covered by another health plan (although some specialized health plans are exempt from this provision). You’re also out of luck if you’re 65 and enrolled in Medicare or if you can be claimed as a dependent on someone else’s tax return.

How Much Can You Contribute to an HSA?

For 2016, you can contribute up to $3,350 for individual coverage and $6,750 for family coverage. This annual limit applies to all contributions, whether they’re made by you, your employer, or your family members. You can make contributions up to April
15th of the following year (i.e., you can make 2016 contributions up to April 15, 2017). If you are 55 or older, you may also be eligible to make a $1,000 additional “catch-up” contribution to your HSA, but you cannot contribute anything once you reach age 65 and enroll in Medicare.

Note: You may be able to make a one-time tax-free rollover of funds to your HSA from a health flexible spending account (FSA), a health reimbursement arrangement (HRA), or a traditional IRA (certain limits apply).

Can You Invest Your HSA Funds?

HSAs typically offer several savings and investment options. These may include interest-earning savings, checking, and money market accounts, or investments such as stocks, bonds, and mutual funds that offer the potential to earn higher returns but carry more risk (including the risk of loss of principal). Make sure that you carefully consider the investment objectives, risks, charges, and expenses associated with each option before investing. A financial professional can help you decide which savings or investment options are appropriate.

How Can You Use Your HSA Funds?

You can use your HSA funds for many types of health-care expenses, including prescription drugs, eyeglasses, deductibles, and co-payments. Although you can’t use funds to pay regular health insurance premiums, you can withdraw money to pay for specialized types of insurance such as long-term care or disability insurance. IRS Publication 502 contains a list of allowable expenses.
There’s no rule against using your HSA funds for expenses that aren’t health-care related, but watch out–you’ll pay a 20% penalty if you withdraw money and use it for nonqualified expenses, and you’ll owe income taxes as well. Once you reach age 65, however, this penalty no longer applies, though you’ll owe income taxes on any money you withdraw that isn’t used for qualified medical expenses.

HSA Questions to Consider

  •  How much will you save on your health insurance premium by enrolling in an HDHP? If you’re currently paying a high premium for individual health insurance (perhaps because you’re self-employed), your savings will be greater than if you currently have group coverage and your employer is paying a substantial portion of the premium.
  • What will your annual out-of-pocket costs be under the HDHP you’re considering? Estimate these based on your current health expenses. The lower your costs, the easier it may be to accumulate HSA funds.
  • How much can you afford to contribute to your HSA every year? Contributing as much as you can on a regular basis is key to building up a cushion against future expenses.
  • Will your employer contribute to your HSA? Employer contributions can help offset the increased financial risk that you’re assuming by enrolling in an HDHP rather than traditional employer-sponsored health insurance.
  • Are you willing to take on more responsibility for your own health care? For example, to achieve the maximum cost savings, you may need to research costs and negotiate fees with health providers when paying out-of-pocket.
  • How does the coverage provided by the HDHP compare with your current health plan? Don’t sacrifice coverage to save money. Read all plan materials to make sure you understand benefits, exclusions, and all costs.
  • What tax savings might you expect? Tax savings will be greatest for individuals in higher income tax brackets. Ask your tax advisor or financial professional for help in determining how HSA contributions will impact your taxes.

If you need help with evaluating HSA options, financial planning, or investment management advice on a fee-only basis, contact me Richard Lawrence at Lawrence Wealth Management LLC, a small, private investment firm. Phone 215-540-0896; email

Lawrence Wealth Mgmt is a Registered Investment Advisor (RIA) and provides financial planning and investment management services to our clients on a “fee-only” basis. We sell no investment products for compensation and are therefore “conflict-free.” Bond, stock and other capital market investments could lose value and are not guaranteed. Investors should consider investment risks before investing, and be aware that historical returns are not a guarantee of, or proxy for, future results. Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016


Thoughts From a Money Manager on New Trump Policy Initiatives

The election cycle is over: FINALLY! The political rhetoric we all witnessed was divisive and very disruptive. Once a Trump victory was evident, global markets sold-off taking the Dow Jones Industrial Average (DOW) down by more than 700 points at 1a.m. Eastern standard time on election night; only to rebound swiftly with the DOW now up over 400 points (2%) since election day, prompting this post containing advice from a money manager.

We now have a Republican President and Congress, setting the stage for reducing Washington D.C. gridlock and enacting pro-economic growth legislation. The support Bernie Sanders, Gary Johnson, Jill Stein, and Donald Trump received indicate the country was ready for change, and change we received.

Policy Initiatives Impacting Financial Planning

There are three initiatives I will be monitoring as part of the financial planning I do for my clients:

  • Tax Reform: Corporate tax reduction to 15%? I don’t think so; although 20-25% may be realistic. This would put the US in a globally competitive position from a tax cost perspective. In addition, there are $2 trillion of corporate cash parked outside of the U.S. because of the 35% tax levy that would be applied, if repatriated back to the US. There has been discussion of a 10-15% one-time reprieve from corporate taxation if repatriated to the U.S. If funds are brought back to the U.S., I expect a significant portion would be invested here in the U.S, providing a welcome stimulus to our economy.
  • The Affordable Care Act of 2010 (ACA):  Will it be abolished? Although ACA’s policy goals of increasing insurance coverage and cost reduction were virtuous, its design and execution fell short. I am sure this public policy initiative will get immediate legislative attention, due to rising premiums and deductibles that are affecting so many people. U.S. healthcare expenses is the single largest financial liability we face and needs to be addressed quickly. Health care expenditures have risen from 13% of our economy in 2000 to the current 18%. If these health care expenses are not controlled, how will we ever rebuild our infrastructure and educate our children? Who knows if ACA will actually be “repealed”, but the act will be amended and reformed.
  • Regulatory Reform: Regulations are hard to define economically but businesses, especially small businesses, have held back hiring and investing due to the regulatory environment. Small companies have been the life blood of our economy’s growth, and will benefit if regulation is eased. President-elect Trump and Congress have stated clearly that the regulatory environment will be eased, and many regulations outright eliminated.

The stock market is anticipating corporate earnings to rebound in the current quarter, followed by double digit economic growth in 2017. If consensus earnings growth of 13% and 10% are achieved in 2017 and 2018, respectively, the market could advance 8-12% implying a 20,500 Dow! The DOW is currently at its all-time high, indicating confidence in our economy and earnings for the next six to 12 months. Gold prices are also affirming this sentiment as they are down 11% from the high in July 2016, and down 5% since the election. While we are cautiously optimistic about the stock market and our economy, we are also keenly aware of various headwinds, including rising interest rates and inflation, and the likelihood of the very normal periodic stock market declines (corrections) which are taken into consideration with any good wealth management strategy.

November 15, 2016
Rich Lawrence, CFA
This market update includes data we believe to be accurate. However Lawrence Wealth Management (LWM) does not warrant or guarantee its accuracy. Opinions about the future are not predictions, guarantees or forecasts. Investing in stock and bond markets have risk that could lead to investors losing money.

Summer vacation

Investment Strategy Changes as Summer Doldrums End in September

Summer is typically a quiet time for the markets, but quiet doesn’t mean your investment strategy gets to take a vacation. This summer was remarkably quiet, with the exception of the June Brexit turmoil and vote. In August, the markets were more than a little sleepy  with average volume across all U.S. stock exchanges reaching at its lowest level in over a year. How do quiet summer months typically impact investors, and how is investment strategy impacted now that September is here and the markets are back from vacation?

Investment Strategy And Volatility

The stock market this summer has been trading between 17,800 to the 18,500, and recent pulled back slightly to 18,000. While summer is typically associated with a quiet market, the September to November period tends to be a market with volatility both on the downside and upside.

Liz Ann Sonders, chief investment strategist at Charles Schwab, provides some insight into what is expected at the end of a period as quiet as the summer we have just had.

“History shows subdued periods tend to be followed by a lift in volatility, and some weakness in returns.”

While volatility means greater stock price movement higher and lower, most investors use this term when discussing downside risk or a market correction. For more insight, you can read her complete Market Perspective Report from September 2, 2016.

Adding Investments

We review your accounts regularly, and officially every month. We have been adding investments to clients’ portfolios with hedging strategies. These strategies are designed to temper downside risk while still participating in market advances. We are also shifting portfolio weightings toward growth stocks and mid-sized companies. These mid-sized companies tend to be takeover targets, are domestic oriented, and grow faster than their large global competitors.

We expect the market to be volatile in the next few weeks and market advances limited until a new President is sworn into office. Washington politicians are focused on securing power bases and getting re-elected. Any significant regulatory or tax reform will not occur until this election cycle is complete. If you have questions or concerns about the election cycle and your investment strategy, consider joining us for our October Investment Strategy Event, The Election Cycle and Your Investments.