Weekly Commentary

As of Friday, September 23rd, 2016

• Equity markets rebounded strongly from last week’s declines with the S&P 500 finishing the week up 1.23% and international equities (EAFE) up 3.08%
   
• Fixed income markets also experienced healthy gains this week with investment grade bonds up 0.38% and high yield up 1.02%.
   
• The Fed Decision – The probability of the next Fed rate hike coming by the end of the year rose to over 60% following this week’s FOMC statement in which 14 of the 17 voting members decided to leave rates unchanged. The 3 dissenting votes were in favor of raising rates anywhere from 0.25-0.50 basis points. While the committee recognized that the case for rising rates had strengthened it decided to hold off from a hike, most likely not wanting to create any political impacts on the impending presidential election. It is now likely that we see the first and only rate hike of the year in December. 
   
• The Bank of Japan Decision – Japan’s central bank kept rates steady at its meeting on Wednesday but did introduce some new changes to its policy approach in its latest attempt to boost prices and economic growth. The BOJ announced they will make yield-curve control the primary focus of its new policy framework and outlined their plan to purchase 10-year Japan government bonds, keeping the yield around zero percent. They also revised their consumer price index (CPI) target to 2%.
   
• German Elections – Merkel’s CDU party suffered in the most recent regional election as people turn more to the country’s anti-immigrant “Alternative for Germany” party. As a result she came up with a statement on getting tougher on immigration, which should have interesting ramifications for the upcoming “Brexit” negotiations with the U.K. 
   
• Commentary: More often than not people at or nearing retirement have been told to find their “number”, but what exactly does that mean? Please join Jake in this week’s Beyond the Portfolio piece in which he covers why sometimes finding your “number” doesn’t necessarily prepare you for retirement and why finding your income stream may hold the answers. 

• Unemployment Claims – Initial claims for unemployment benefits dropped to its lowest level since July, falling by 8,000 week over week to a level of 252,000. Economists say few layoffs alongside steady hiring rates implies that solid payroll employment growth lies ahead. Continuing claims also fell by 36,000 to 2.1 million.
   
• Homebuilder Sentiment – the NAHB Housing Market Index rose to 65 vs. 59 in August. Anything above 50 indicates optimism amongst builders in their outlook.

• Existing Home Sales - Sales of previously owned homes fell for a second month in August as inventory of homes for sale continued to shrink. Existing home sales declined 0.9% in August, which is only 0.8% higher than one year ago. With inventories tightening we have seen pressure on home prices sending them higher. The median sales price is now $240,000, 5.1% higher than one year ago.
   
• Housing Starts – Starts fell by 5.4% in August, with building permits also dropping by 0.4%. The biggest weakness in starts came from single-family homes which dropped 6.0%. One positive is permit growth for single-family homes did increase by 3.7%, a key indicator of future housing demand.  

• First: the numbers in ads like the one you see above and in certain “best-selling” retirement books are, more often than not, designed to sell products and create anxiety and uncertainty rather than educate you.
   
• Second: most of the calculations that determine your “number” are based on very basic assumptions that ignore key factors that drive your individual financial security during retirement.
   
• Third: the very idea that you can somehow pinpoint a specific number that will be relevant 20, 30 or even 40 years down the road is naïve at best and catastrophic at worst.