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.
FACT OF THE WEEK
During the Spanish Flu pandemic in 1918, doctors either prescribed shots of whiskey, or no alcohol at all. Others recommended half a bottle of wine a day, or a glass of Port wine after a very hot bath. Many people also relied on folk remedies, like eating and bathing in onions. To prevent the flu, the Colgate Company recommended avoiding tight clothes and shoes and chewing food carefully.
MARKET MINUTE
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. 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. 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.
- 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. With this shift in industry performance, some market participants have begun searching for different ways to invest their money.
- 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. 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.
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.
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 declineyet 29 of those years had positive returns.
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.
RETIREMENT RUNDOWN
DAILY ASPIRIN MAY NOT BE AS HELPFUL AS YOU THINK
Millions of healthy people who take aspirin to ward off illness in old age are unlikely to benefit from the drug, a trial has found.
While a daily dose of the blood-thinning medicine can protect older people who have previously experienced heart attacks, strokes and angina, researchers found the drug did not extend the lifespan of healthy people over the age of 70.
Doctors in Australia and the US enrolled more than 19,000 healthy people, mostly aged over 70, for the trial. Half the participants were asked to take 100mg of aspirin each day, while the rest took a placebo pill.
When the participants were followed up nearly five years later, doctors found that compared with the placebo, a daily aspirin had not reduced the risk of heart attack or stroke, or prolonged the number of years people lived without dementia or physical disabilities.
"Despite the fact that aspirin has been around for more than 100 years, we have not known whether healthy older people should take it as a preventive measure to keep them healthy for longer, "said John McNeil, who led the trial at Monash University in Melbourne.
Details of the trial were published in three papers in the New England Journal of Medicine.
FINANCIAL STRATEGY OF THE WEEK
MAKE USE OF THE ANNUAL GIFT EXCLUSION
In 2018 the annual gift exclusion amount is $15,000. Each individual donor can gift this amount to an unlimited number of donees. If you are married and wish to make gifts to your two children, you and your spouse together are allowed to gift $30,000 to each child for a total of $60,000. If your children are married, you and your spouse can gift as much as $60,000 to each couple without tax issues.
Taking advantage of the annual gift tax exclusion is one way to help reduce tax liability your estate may be subject to. Please contact my office if you would like to discuss other potential methods to reduce your taxable estate.