Markets, Economy

Weekly Kickstart (07/23/2018-07/27/2018)

7/23/18 8:00 AM

iStock-626627280.jpgStocks edged higher last week, as the S&P 500 rose by 0.02 percent to 2,801.83. That fractional gain left the benchmark index up 4.80 percent year-to-date, and just 2.47 percent below the all-time closing high. Although major indices have rallied sharply in July, the journey for equities back to near-record levels has not necessarily been easy for everyone. Indeed, the intraday swings in the market have been violent on numerous occasions this month, therefore making it difficult for many long-biased investors to remain calm. This is likely especially true for any non-professional investors trying to quickly build a retirement nest egg by timing the market. Such individuals typically run into trouble by allowing emotions to control their trading decisions and positioning themselves to “buy high and sell low” rather than “buy low and sell high.”

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For example, retail investors are too often “late to the party” relative to institutional traders in that they buy close to market tops and sell near the bottom. This can exacerbate the negative effects of an adverse move for such investors and therefore increase the likelihood that they will be scared out of a position or forced out by a margin call. Shifting their focus from short-term speculative trading to long-term wealth creation can help regular investors avoid those costly situations. Moreover, understanding that time in the market is more important than timing the market can better prepare investors for spikes in volatility. That is useful because the S&P 500 since 1980 has experienced an average intra-year drawdown of 13.8 percent but still ended with a positive annual return for 29 of the past 38 years. Some investors were likely able to even capitalize on a few of those pullbacks thanks to consistent participation in a tax-advantaged 401(k) plan, dollar-cost averaging, and regularly consulting with a professional financial advisor. As always, we are here to help with any questions you may have.

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To recap a few of the things we learned about the economy last week, the positives included that homebuilder optimism remained elevated, retail sales growth firmed, industrial production rebounded, capacity utilization rose, small business borrowing surged, and first-time claims for unemployment benefits fell to the lowest level since 1969. As for the negatives, mortgage applications slid, housing starts plunged, building authorizations declined, and gauges of regional manufacturing activity continued to send mixed signals (due to concerns about inflation and U.S. trade policy). This week the pace of economic data slows down but there are still a few important reports on housing and manufacturing scheduled to be released, along with the government’s first official estimate of U.S. gross domestic product (GDP) growth for the second quarter of 2018 due out on Friday.

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**A more detailed snapshot of the U.S. economy can be found here.**

What To Watch:

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Sources: Econoday, J.P. Morgan, FRBSL

Post author: Charles Couch

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