August may yet put a lethargic summer stamp on the flow of financial news, but the pace of developments, led by Facebook’s meltdown last week, doesn’t look like it will slow in the coming days.
Not with high-profile earnings from Apple AAPL, -1.66% and Tesla TSLA, -3.09% , the Fed meeting, whatever Trump does next, and the like all stacking up on the docket, that is.
With all those potential twists and turns on tap, what happens next is anyone’s guess — the predictable is anything but, these days. Personal finance whiz Jonathan Clements, who spent years as a columnist for the Wall Street Journal, has tackled the idea of just how tough it is for investors to navigate markets based on predictions, no matter how widely accepted and obvious they appear to be.
“I’m still waiting,” he wrote in a post for the Humble Dollar blog. “Along with many others, I have spent much of my investing career expecting five key financial trends to play themselves out — and yet they’ve stubbornly refused to do so.”
In our call of the day, Clements says we “may never have to reckon with the five great reckonings that have long been predicted. Sure, these predictions could still come true. But I have my doubts.”
Here they are:
1. Stocks will revert to average historical valuations. Yes, stocks are expensive by just about any measure, but this isn’t really news.
“Indeed, if investors were going to sell because of sky-high valuations, they would have done so long ago,” Clements says. “It seems that, in our increasingly wealthy world, we simply have too much capital pursuing too few investment opportunities.”
2. Interest rates are headed higher. With the Fed meeting on tap this week, rates will again be a hot topic, and there’s little doubt more hikes are to come. But in the big picture, rates are still really low, and Clements says he wouldn’t be surprised if they stay that way.
“For many investors, that waiting game has been going on since at least the 1990s,” he writes. “Just because interest rates are low doesn’t guarantee they’ll go higher. I’d take the market at its word: Whatever interest rates are, that’s the best indicator of where they ought to be.”
Read: Mortgage rates rebound in critical moment for housing
3. Inflation is coming back. “One reason interest rates are low is because inflation, too, is at modest levels,” Clements says. “Will it come roaring back?”
Not necessarily, he suggests, as he points to what happened in the 1970s.
“It was a decade of high inflation, gas shortages, high interest rates and tumbling stock market valuations, and we worry that all of those will return. But will they?” he writes. “History may repeat itself if circumstances are similar — but it doesn’t repeat just for repetition’s sake.”
4. Taxes are going up. Clements says he’s long assumed tax rates are way too low and poised for a jump. But he contends that servicing the increasing federal debt hasn’t proven to be a major problem.
“Instead of federal income-tax rates rising, they keep getting cut,” he writes. “True, those falling rates are often accompanied by the loss of other tax goodies, so it’s never quite clear whether folks are better off. Still, what we haven’t seen are big tax increases, despite all the gnashing of teeth over the federal deficit.”
5. We’re facing a retirement savings crisis. Clements contends this has always been an issue and it’s getting overblown as an outlier today. “There was no glorious past when all Americans happily retired with generous monthly checks from their former employers,” he says.
The bigger issue is that people need to be more prepared than earlier generations because we’re living longer. “This isn’t just a personal finance problem confronting every U.S. household,” he writes. “If folks continue to retire in their mid-60s, we’ll have a nation — and, indeed, a world — with too few workers and too many retirees, and we simply won’t be able to produce the goods and services that society needs.”
Predictions aside, this is what’s happening in the here and now ...
The marketAfter a fairly soft end to last week in the stock market, futures for the Dow YMU8, +0.02% are slightly lower, and the S&P ESU8, -0.07% and Nasdaq NQU8, -0.18% are setting up for a negative open as well. Gold GCU8, -0.22% is off just a touch, but crude CLU8, +1.28% is edging up toward $70 a barrel with an early uptick. Asian markets ADOW, +0.03% closed mostly in the red. Europe SXXP, -0.25% is also dipping in the first half of its day. Bitcoin BTCUSD, -0.58% is trading around $8,200.
See the Market Snapshot column for more.
The chartShould investors be worried when a company like Facebook gets crushed like it did last week? Not if they’re doing it right. That’s the point made by the Portfolio Charts blog, in a post touting diversification (Kanye West aside — see below).
The anonymous investor behind the blog used this chart to illustrate that even though Facebook is one of the biggest and most widely held stocks in the world, it’s still only a small part of the S&P:
The yellow sliver, of course, is Facebook, and so, as the blogger points out, “19% of a single stock is a really big deal, but 19% of even the fourth largest company in the index is still so small in the grand scheme of things that it’s nothing more than a blip.”
EarningsAnother huge week of earnings is ahead, led by Apple AAPL, -1.66% and Tesla TSLA, -3.09% . The latter will likely steal the show, considering Musk’s flair for the dramatic during previous earnings calls. Plus, the Tesla boss seems a bit more irritable than normal lately. That report hits Wednesday, while Apple arrives a day earlier. Overall, at least 140 S&P 500 SPX, -0.66% components are on the docket, along with many others that aren’t in the index.
Among the companies expected to post earnings before today’s open: Caterpillar CAT, -0.01% and Simon Property Group SPG, -1.37% .
The buzzTrump is — again — threatening to shut down the government unless Congress provides money for, yeah, the wall and enacts new curbs on immigration. “I would be willing to ’shut down’ government if the Democrats do not give us the votes for Border Security, which includes the Wall!” the president tweeted Sunday.
Charles Koch had some things to say about Trump’s policies on Sunday. Basically, the billionaire warned against protectionism, saying this kind of thinking “has destroyed countless businesses.” He also gave a rather ho-hum response when asked how he feels about the job Trump’s doing.
CBS CBS, -6.12% could face more selling after falling Friday on news that the media company’s board would investigate allegations of personal misconduct by CEO Les Moonves. Some board members discussed over the weekend whether Moonves should step aside.
Casino operator MGM MGM, -1.60% plans to create a U.S. sports betting and online gaming joint venture with U.K. gambling company GVC Holdings PLC GVC, +4.93% , in a move tied to the recent Supreme Court ruling on sports betting.
Tom Cruise’s latest flick rode some strong reviews to a huge weekend at the box office. “Mission: Impossible — Fallout” opened to a new high for the franchise, bringing in $61.5 million in the U.S. and Canada, according to Viacom VIA, +2.41% .
The stat
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Rapper AND a savvy investor?40% — That’s how much Kanye West beat the S&P by with his Christmas gift basket of stocks for his wife, according to CNBC.
The rapper/outspoken Trump supporter surprised Kim Kardashian in December with shares of Netflix NFLX, -2.17% , Amazon AMZN, +0.51% , Apple AAPL, -1.66% , Adidas ADS, +0.29% and Disney DIS, -0.78% . And yes, it’s been a good year for that little group.
The quote“I told him that although the phrase ‘fake news’ is untrue and harmful, I am far more concerned about his labeling journalists ‘the enemy of the people.’ I warned that this inflammatory language is contributing to a rise in threats against journalists and will lead to violence” — New York Times NYT, -1.84% publisher A.G. Sulzberger, talking about his meeting with President Trump.
Here’s Trump’s take on it:
Had a very good and interesting meeting at the White House with A.G. Sulzberger, Publisher of the New York Times. Spent much time talking about the vast amounts of Fake News being put out by the media & how that Fake News has morphed into phrase, “Enemy of the People.” Sad!
— Donald J. Trump (@realDonaldTrump) July 29, 2018
