September – 2018 Newsletter

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Index Month / Year to Date
Dow Jones +2.60%/+6.71%

Please note the Dow Jones numbers are as of the close of last night on August 30, so you’ll need to add or subtract today’s gains or losses from these numbers!

 S&P 500  +3.23%/+9.82%

Google, Yahoo Finance, and many other websites will tell you what the DOW, S&P 500 and NASDAQ Indexes all did, if you have any issues email Eric Lutton.

 NASDAQ  +5.57%/+17.93%
 10-Yr Treasury yield was 2.95% at the end of July and 2.85% at the end of August

 

Markets

The stock market returned to a mostly upward trend in late summer after months marked by a consistent pattern of small gains and big drops. Though the Dow Jones Industrial Average, as of this writing, still hasn’t regained its 2018 peak, it did come close in late August, while the S&P 500 actually surpassed its January high and hit a record 2,914 on August 29 before starting to level off again in the final days of the month.1

The relatively strong performance was probably driven in part by news of secondquarter GDP growth hitting 4.1 percent—a figure that was more recently upgraded to 4.2 percent.2 Four percent, of course, was the growth rate touted by President Donald Trump on the campaign trail, and the main goal behind his massive tax overhaul.

In addition to growth, the markets were probably also fueled by additional encouraging data around jobs and consumer confidence, and the fact that interest rates remained fairly stable. The yield on the 10-Year Treasury rate was right around 3 percent at the start of August but never rose higher, and it finished the month at about 2.8 percent—continuing to demonstrate that strong 3 percent resistance level I forecast long ago.3

Despite the market rally and the GDP milestone, it’s important to note that many experts continue to maintain that 4 percent growth is nothing more than a temporary “sugar boost” from President Trump’s tax cuts and is not sustainable long term. Many also remain concerned about the growing economic impacts of President Trump’s controversial trade policies (the U.S. Chamber of Commerce has said new tariffs could lead to 2.6 million American job losses in total)4, and the potentially troublesome relationship between President Trump’s tax cuts and the federal deficit.

How it will all play out remains to be seen. But with another budget showdown looming and the Federal Reserve scheduled to approve another short-term interest rate hike this month,5 it’s clear that our unprecedented age of economic uncertainty remains as uncertain as ever.

Portfolio Transactions:

When managing your portfolio at SIS, we look for one of four possible “enhancement” trades while reviewing securities and possible transactions. Income generation is our primary goal for our clients, and we consider the following four portfolio enhancements before transacting: current yield, yield to worst (minimum projected annualized total return), interest rate risk, and default risk. The intents of these transactions are categorized as follows:

  • Pay Me Now – Enhancing current yield
  • Pay Me Later – Enhancing yield to worst
  • Cover My Assets I. – Managing interest rate risk
  • Cover My Assets II. – Managing default risk

We evaluate the transactions by determining whether they meet one, two, three, or all four enhancements. A baseball analogy for this: SINGLES, DOUBLES, TRIPLES, and HOME RUNS.

Portfolio Swaps:*

  • Sold AIG Life Insurance (AIG 3.75% 7/10/25 @ 4.12% ytw)
  • Purchased Olin Corp (OLN 5.0% 2/1/30 @ 5.45% ytw)
  • Slightly higher yield pickup of 1.33%
  1. macrotrends.net
  2. Lucia Mutikani, “US Second Quarter GDP Growth Raised to 4.2 Percent,” Reuters, August 29, 2018, https://www.reuters.com/article/us-usa-economy-gdp/u-s-second-quarter-gdp-growthrevised-up-to-4-2-percent-idUSKCN1LE1GB?il=0
  3. macrotrends.net
  4. William Mauldin, “Trump’s Trade Policies Threaten Millions of U.S. Jobs, Chamber of Commerce Says,” Wall Street Journal, May 31, 2018, https://www.wsj.com/articles/trumps-trade-policiesthreaten-millions-of-jobs-u-s-chamber-of-commerce-says-1527792627
  5. Greg Robb, “Fed to Send Clear Message that More Rate Hikes are Coming,” MarketWatch, Aug. 1, 2018, https://www.marketwatch.com/story/fed-to-send-clear-message-that-more-rate-hikesare-coming-2018-07-27

Disclaimer:
*Note: The above trades were recent block trades and do not reflect all trades done on an individual specific basis. Sound Income Strategies, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance is not an indication of future results. Be sure to first consult with a qualified financial advisor or tax professional about your specific financial situation before implementing any strategy discussed herein.

You are advised to give independent consideration to, and conduct independent investigation with regards to, the information above in accordance with your individual investment objectives. Use of the Information is at the reader’s risk, is strictly intended for informational purposes in conjunction with the recipient’s due diligence, and should not be construed as a solicitation by Sound Income Strategies, LLC. Past performance will never indicate or guarantee future behavior. Sound Income Strategies, LLC does not represent or warrant that the contents of the document are suitable for you from compliance, regulatory, legal, or any other perspective. We shall have no responsibility or liability for your use or non-use of the document or any portion thereof. Sound Income Strategies, LLC is registered as an investment advisor under the Investment Advisors Act of 1940 and is regulated by the SEC. Sound Income Strategies, LLC and its affiliates may only transact business or render personalized investment advice in those states and jurisdictions where we are registered or otherwise qualified to do so.

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