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|Index||Month / Year to Date|
|Dow Jones||-4.97% +3.39%|
|S&P 500||-6.83% +3.02%|
|10-Yr Treasury||3.06% and ended at 3.14%|
We made the following swap for October:
- Purchased: National Fuel Gas Co- NFG 4.75% 9/1/28 (Baa3/BBB) @ $98.204/ 4.98%
Sold one of the following for the buy:
- Sold: Mosaic Co – MOS 4.25% 11/15/23 (Baa3/BBB-) @ $100.545/ 4.12%
- Sold: Viacom Inc – VIA 4.25% 9/1/23 (Baa3/BBB-) @ $100.25/ 4.18%
- Sold: Arrow Electronics – ARW 3.50% 4/1/22 (Baa3/BBB-) @ $97.89/ 4.16%
Yield pick up of at least 0.80%
October marked the return of major some major volatility to the stock market for the first time since late Spring. Over two dramatic days, on October 10th & 11th, the Dow shed over 1,300 points, while both the S&P 500 and Nasdaq suffered similar losses.* Volatility continued over the next several weeks, and by October 26th the Dow Jones Industrial Average was down 9% from its record high for the year, while both the Nasdaq and S&P 500 were down more than 10% and officially in correction territory.**
Even as the markets were sinking in the final full week of the month, third quarter earnings reports were coming in and most were strong. On the same Friday that all three major indexes were either in or near correction, the Bureau of Economic Analysis reported that GDP growth
hit a healthy 3.5% in the third quarter. That was down from 4.2% in the second quarter, but still indicates a strong, growing economy fueled by the Trump Administration’s massive tax cuts.
While the stock market rebounded slightly to end the month, it certainly didn’t exhibit the kind of optimism one might expect based on all the positive third quarter data. But that shouldn’t be surprising; I’ve been explaining for years that the reckless overuse of quantitative easing by the Federal Reserve has created a disconnect between market performance and economic fundamentals. Just as the stock market soared for all those years (thanks to artificial stimuli) while the economy was slow and sluggish, investors shouldn’t be surprised now to see the market struggling while the economy is—by many indicators—actually booming.
The reality is, Wall Street is well aware that the current boom could, as many analysts believe, be a temporary “sugar high” from the Trump tax cuts, and that growth could be further undermined by the intensifying trade dispute with China, worries over interest rates, inflation and numerous other factors.
As for interest rates, long-term rates continued to exhibit a strong resistance level at right around 3%, just as I forecast early in the year. The yield on the 10-Year Treasury rate opened the month at 3.06% and finished at 3.14%.*** I believe this resistance level will continue to remain in place for a variety of reasons.
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.
*“Another Wild Selloff; Dow Sinks 546 Points,” CNN Business, Oct. 11, 2018
**“S&P Joins Nasdaq and the Russell 2000 in Correction Mode,” Nasdaq.com, Oct. 26, 2018
*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.