Market Update - the Dow has its biggest daily point gain ever

Today is a great example of the danger of trying to time the market.  In October, November, and December, investor sentiment began to sour, and the markets trended lower.  The S&P 500 sold off 19.8% from September 21, 2018 through December 24, 2018.  The Dow sold off 18.5% and the Nasdaq sold off 22.5% during the same period.  With market losses mounting, 2018 was beginning to feel a lot like 2008.  However, there are sharp contrasts between 2008 and 2018.  

In 2008, the US (and global) economy was saddled with unprecedented levels of consumer debt, housing was unaffordable, consumer spending was dropping, unemployment was climbing, and the global banking system was on the verge of collapse because of the then current consumer debt levels.  Additionally, the earnings per share of the S&P 500 began to fall.  To make matters worse, the US was still operating under "Mark-to-Market" accounting rules that gave businesses few options other than massive write downs on collateralized debt instruments, which in most cases were still paying more than 96% of their expected cash flows.  

In contrast to 2008consumers in 2018 have the lowest debt to disposable income ratio they've had since the early 1980s.  Housing affordability is closer to where it was through most of the 1990s than what it was in 2008.  Consumer spending has been increasing, and it looks like this will be the best holiday shopping season in at least the last 6 years.  We are also currently enjoying the lowest levels of unemployment that we've had in 50 years.  Further, we don't see any "BUBBLES" like we saw in the housing market in 2008 or in Tech stocks in 2000.  Additionally, since 2008 banks significantly increased the quality of their balance sheets, and US businesses are as healthy as they've been in a very long time.  In short, 2018 looks nothing like 2008, other than that the last few months have been challenging for equities.

We continue to believe the US economy will expand in 2019, and current expectations indicate we may expect to see a 12% earnings growth for the fourth quarter of 2018, with earnings growth continuing all the way through the end of 2019.  We have shared some of our concerns with respect to an inversion of the yield curve, but the Federal Reserve has shown it is aware of the current interest rate environment, and the Fed has signaled that should the data support pausing, it would be willing to pause.  Powell's statement in November, that he believed we were very "near" neutral rates, indicates he may think we won't need any more rate hikes in 2019.  To reiterate our thoughts after the Fed's decision to raise rates, we believe Powell was leaving the door open for future rate increases in the event that the trade dispute is settled with China and global growth begins to accelerate again.  However, he also left the door open to pause raising rates in 2019 should the trade war extend for longer than anticipated. 

Lastly, the US and China continue to make progress on trade; resolving the trade dispute is in both their interest and ours.  It's too early to determine if we will meet the 90 day deadline agreed upon by Trump and China, but if we look at what transpired between the US and Mexico and the US and Canada, we have reason to believe we may very likely have a deal near the currently set deadline.  

What does a government shutdown mean to you?

The federal government is headed for a partial government shutdown that will likely last until January 3rd when the new Congress is sworn in. This is not the first time we have had a government shutdown through the holiday season, as we had one in 1995 when Bill Clinton was president. The major difference between today and 1995 is that this will be a “partial” shutdown with nearly 75 percent of the government already funded and completely unaffected by the shutdown. That leaves just 25 percent of the government impacted by the shutdown. We anticipate a significant portion of personnel will be considered essential and receive exemptions. As such, it could be that less than 10 percent of the government will be impacted. Historically, shutdowns have not had a major impact on the US economy or financial markets. If the partial shutdown occurs, the impact will be even less. However, we are keeping an eye on the secondary effects:

1.  Shutdown headlines will run throughout the holiday season, at a time when media reports are also leading off with falling stock values.

2. The unpredictability of Trump. He agreed to no shutdown on Wednesday, but was spooked by conservative media over the border wall and reversed his position Wednesday night. This is going to make the more important policy issues for financial markets, the debt ceiling and sequestration, tough to solve in 2019.

3.  Because Trump is not getting the wall, he pulled out of Syria by Twitter. This triggered a set of effects including General Mattis resigning. Mattis leaving seems to be a far bigger event. With Mattis gone, does this make it easier to put EU auto tariffs in place which required DoD sign-off? How about Jay Powell being removed as Fed Chair?

4. Republicans are starting to turn on Trump. There are cracks developing in the structure. The economy was holding Trump up and that is fading.

The 1995 shutdown over the holidays was the longest on record. Our belief is that if we shut down tonight, the partial shutdown will be at least 12 days.

We wanted to point out a few facts the media is always inclined to leave out when it comes to government shutdowns.  (1) Most government employees are paid every two weeks, and as stated above, the expectation is that this shutdown will likely be less than two weeks. (2) Further, in past shutdowns the government has generally paid in arrears the wages that would have been earned had their been no shutdown.  (3) Essentially, as long as the shutdown does not last too long , it really should have virtually no affect on the economy.  It is true, the impacted government employees may very likely have to wait an extra week for their paycheck to arrive, but they can reasonably expect to receive their paycheck.  (4) It's also convenient that this shutdown did not start at the beginning of the holiday shopping season.  Perhaps a government shutdown in the third week of November that lasted through the first week of December would have dampened the confidence of some, and led to a reduction in their holiday spending, but that was not the case.


Departments and agencies already funded for fiscal year (FY) 2019 include

  • Army Corps of Engineers
  • Department of Defense
  • Education Department
  • Department of Energy
  • Health and Human Services
  • Bureau of Reclamation
  • Department of Labor
  • Federal Energy Regulatory Comm
  • Nuclear Regulatory Comm 
  • Social Security Administration

The following departments and agencies have not been funded and would be affected if the Federal government shuts down

  • Agriculture Department
  • Commerce
  • Homeland Security  
  • Housing and Urban Development
  • Interior  
  • Department of Justice
  • Department of State  
  • Department of Transportation
  • Treasury  
  • District of Columbia
  • Environmental Protection 
  • Executive Office of the President
  • Federal Communications  
  • Food and Drug Administration
  • General Services Admin  
  • NASA
  • SEC 
  • U.S. Postal Service

There is still time for a deal to be made but we wanted to give you our thoughts at this time.  We will know more by the end of the day. Please call or email us with any questions you may have.

Source:  Strategas

Market Update 12/21

With attention on the Federal Reserve's decision to increase rates and their updated outlook for 2019, we wanted to share an article today that CNBC published (included below).  As we wrote in our commentary after the Fed's press release on Wednesday, we believe the Fed and Powell were (1) buying themselves time - and the ability to review the data that will come in that time, and (2) leaving the door wide open to reduce the number of rate hikes they may do in 2019 without closing the door on future rate hikes should the economy's growth rate increase.  New York Fed President William's comments in the article below support our interpretation of Powell's press release. 

The reaction to the news today is irrational. The S&P 500's earnings growth for the third quarter of 2018 came in above 28%, and the most recent expectation of fourth quarter 2018 growth is +16%.  Further, ALL ELEVEN SECTORS OF THE S&P 500 EXPECT TO SEE GROWTH.  The behavior of the stock market is not commensurate with the growth that is happening.  For all the talk of recessions and bear markets, earnings data has not provided a case for bear markets or the talk of recessions. 

As we've shared previously, earnings are still growing, and the most current outlook is that they will continue to grow.  Further, valuations look very attractive.  Forward earnings estimates show the S&P 500 now trading below 16 times earnings. If the market were to trade back to its average price to earnings ratio from 1971 until today, the S&P 500 would have to increase over 20%.  


 NY Fed President John Williams says the Fed could re-evaluate view in 2019


New York Fed President John Williams says the central bank is open to rethinking rate hikes next year, depending on how the economy looks in 2019.


"What we're going to be doing going into next year is reassessing our views on the economy, listening to not only markets but everybody that we talk to," Williams tells CNBC.


He also says things could "change between now and next year," depending on economic data.


Earlier this week, the Federal Reserve hiked its target range for benchmark interest rates to 2.25 percent to 2.5 percent. Central bank officials also forecast two hikes next year, down from three rate raises previously projected.


NY Fed President: 2019 outlook may change, rate hikes not guaranteed


Federal Reserve Bank of New York President John Williams told CNBC on Friday the Fed is open to reconsidering its views on rate hikes next year.


"We are listening, there are risks to that outlook that maybe the economy will slow further," Williams told Steve Liesman during an interview on "Squawk on the Street."


Williams said despite this week's forecasts, the central bank is not "sitting there saying we know for sure what's going to happen" in 2019.


"What we're going to be doing going into next year is reassessing our views on the economy, listening to not only markets but everybody that we talk to, looking at all the data and being ready to reassess and re-evaluate our views," he said.


The market jumped after Williams signaled more willingness for the Fed to rethink rate hikes and its balance sheet policy. Stocks jumped 350 points after the interview.


Investors were focused on Fed Chairman Jerome Powell's comments on Wednesday that the balance sheet reduction program is going well and will proceed as planned. Right now, the Fed is allowing $50 billion a month to run off the balance sheet, which is mostly a portfolio of bonds the central bank purchased to stimulate the economy during and after the financial crisis.


"We did not make a decision to change the balance sheet normalization right now, but as I said, we're going to go into the new year with eyes wide open, willing to read the data, and reassess the economic outlook and take the right policy decisions," Williams told CNBC.


The Federal Reserve on Wednesday hiked its target range for benchmark interest rates to 2.25 percent to 2.5 percent. Central bank officials also forecast two hikes next year, down from three previously projected.


Williams said the Fed could could rethink those the two hikes.


"Things can change between now and next year," he said. "Something like two rate increases would make sense in a really strong economy going forward. But we're data dependent, we're going to adjust our views dependent on how the outlook changes."


Powell also left the door open to other options next year. He emphasized "data dependency" on Wednesday and said if data do not hold up in 2019, the Fed may change course.


Markets stumbled up and down after the decision Wednesday, then ultimately turned negative during Powell's news conference. Major equity indexes have moved into correction territory and are mostly negative for the year.


"The Fed wants to shrink that balance sheet, they know it's big, it hamstrings them in the next downturn," Peter Boockvar, chief investment officer at Bleakley Advisory Group, told CNBC. "The market knows it's a steady drip liquidity drain every month."


The Fed is also dealing with repeatedly criticism from President Donald Trump. On Monday, Trump said "it is incredible" that "the Fed is even considering yet another interest rate hike."


— CNBC's Jeff Cox and Patti Domm contributed to this report.


Fortem Financial Group, LLC, has adopted this policy with recognition that protecting the privacy and security of the non-public personal information we obtain about our customers is an important responsibility.

All financial companies choose how they share your non-public personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your non-public personal information. Even when you are no longer our customer, we will only share your non-public personal information as described in this notice. So, please read this notice carefully to understand what we do.

The types of non-public personal information we collect and share depend on the product or service you have with us. This information can include items such as your Social Security number and income, your account balances and transaction history, and your investment experience and account transactions.

We collect your non-public personal information in a variety of ways. For example, we obtain your non-public personal information when you open an account or give us your income information, tell us about your portfolio or deposit money, or enter into an investment advisory contract. We also collect your non-public personal information from other companies. For example, from the custodians who hold your account assets.

All financial companies need to share customer’s non-public personal information to run their everyday business. Below, we describe the reasons we can share your non-public personal information and whether you can limit this sharing.

We share your non-public personal information for our everyday business purposes such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, report to credit bureaus, to protect the confidentiality or security of your records, or as permitted by law. We may also share your non-public personal information for our own firm’s marketing purposes; so that we can offer our products and services to you.

Federal law gives you the right to limit only sharing non-public personal information about your credit worthiness for our affiliates’ everyday business purposes; sharing non-public personal information about you with our affiliates to market to you; and sharing non-public personal information with non-affiliates to market to you.

We don’t share non-public personal information about your creditworthiness with our affiliates for their everyday business purposes. We don’t share your non-public personal information with our affiliates to market to you. We don’t share your non-public personal information with non-affiliates to market to you. We also don’t share your non-public personal information for joint marketing with other financial companies. State laws and individual companies may give you additional rights to limit sharing.

We share non-public personal information with our parent company affiliate, Focus Financial Partners, Inc, for its internal and external auditing purposes. We also share your non-public personal information with a non-affiliate for the purpose of aggregating it and providing summary information based on this data to our parent company, Focus Financial Partners, Inc.

To protect your non-public personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.

Our policy about obtaining and disclosing non-public personal information may change from time to time. We will provide you notice of any material change to this policy before we implement the change.

If you have questions please call us at 760-206-8500 or go to our website at


Fortem Financial Group, LLC ("Fortem Financial" or the "Firm") is a federally registered investment adviser with offices in California. Fortem Financial and its representatives are in compliance with the current registration and notice filing requirements imposed upon federally registered investment advisers by those states in which Fortem Financial maintains clients. Fortem Financial may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements.

This website is limited to the dissemination of general information regarding the Firm's investment advisory services offered to U.S. residents residing in states where providing such information is not prohibited by applicable law. Accordingly, the publication of Fortem Financial' website on the Internet should not be construed by any consumer and/or prospective client as a solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment, tax or legal advice. Furthermore, the information resulting from the use of any tools or other information on this website should not be construed, in any manner whatsoever, as the receipt of, or a substitute for, personalized individual advice from Fortem Financial. Any subsequent direct communication from Fortem Financial with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. Fortem Financial does not make any representations as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to this website or incorporated herein, and takes no responsibility therefore. All such information is provided for convenience purposes only and all users thereof should be guided accordingly.

All statements and opinions included on this website are subject to change as economic and market conditions dictate, and do not necessarily represent the views of Fortem Financial or any of their respective affiliates. Past performance may not be indicative of future results and there can be no assurance that any views, outlooks, projections or forward-looking statements will come to pass. Investing involves risk, including the potential loss of principal, and the profitability of any particular investment strategy or product cannot be guaranteed.

Any rating referenced herein may not be representative of any one client's experience. Further, the Firm's receipt of any rating is not indicative of the Firm's future performance. The Charles E. Merrill Circle of Excellence award is granted by Merrill Lynch for outstanding client service and satisfaction. The award is granted based on annual criteria established by Merrill Lynch for its top decile advisors. The Barron's Top 1,200 Financial Advisors rating of the top financial advisors in the United States is based on data provided by participating firms. The following factors are included in the rankings: assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. Investment performance is not an explicit component. The Five Star Professional award is granted by Five Star Professional and recognizes service professionals who provide quality services to their clients based on data provided by participating firms. The award is granted based on the following ten objective eligibility and evaluation criteria: credentialed as an investment advisory representative (IAR) or a registered investment advisor; actively employed as a credentialed professional in the financial services industry for a minimum of five years; favorable regulatory and complaint history review; fulfilled their firm review based on internal firm standards; accepting new clients; one-year client retention rate; five-year client retention rate; non-institutionalized discretionary and/or non-discretionary client assets administered; number of client households served; and educational and professional designations. Feedback from consumer surveys will augment a regulatory history review. Firms have the option to provide input on award candidates from their firm, regardless of the nomination source. The Palm Springs Life's "40 Under 40" Rising Young Professionals to Watch in the Coachella Valley is based upon nominations from the local business community and selected by the staff of Palm Springs Life.

For information pertaining to the registration status of Fortem Financial, please refer to the Investment Adviser Public Disclosure website, operated by the U.S. Securities and Exchange Commission, at, which contains the most recent versions of the Firm's Form ADV disclosure documents.