A few quick thoughts on the market right now.
- I touched last year on diversification and how properly diversified portfolios were being rewarded at the time. Well, the trend continues. Year-to-date, the S&P500 is up a little over 6%, which is a great start to the year. A general basket of real estate investment trusts (REITs) are down slightly for the year after they had a nice run the past few years. The Small Cap index is up roughly 2.5% so far this year while it returned over 21% last year. Last year an index of developed international countries rose almost 1% and so far in 2017 is up nearly 8%. Another index of emerging market stocks continues it hot streak from 2016 where it was up just over 10%. To date this same index is up nearly 13%. No one knows what sector or asset class is going to have a great or terrible year. Hedge your bets, properly diversify your risk and improve your returns. And remember – diversification doesn’t work all the time, it works over time.
- With the Fed raising rates this month there was some discussion related to wage growth, full employment and inflation. Wages rose 2.8% last month, which was in line with economist’s expectations. Rising wages usually indicate a more competitive labor force. If this is the case then we may be entering a tightening labor market where we are getting closer to full employment (I will let the Fed Chair and the President argue about the accuracy of the labor data). Both of these numbers should help the Fed achieve its goal of inflation of 2%. The Fed wants inflation high enough but not too high, and 2% is about the right comfort for them. I see no reason why the Fed would not carry through with two other rate increases this year. They have been planning them since the end of 2016 and right now everything is full steam ahead.
- We have all heard about subprime mortgages after the Great Recession last decade. Well, you may be hearing the term again soon in regards to car loans. Yes, there are subprime auto loans out there. Just like mortgages were bundled into bonds, so are car loans. And the default rate on subprime loans is at the highest rate in nearly a decade. There are all kinds of reasons factoring into this data(repossessed cars being resold at lower values, end of generous lease terms, and more). I don’t think this is anywhere near the magnitude of the mortgage crisis, however, do not be surprised if you start hearing about some lenders connected to this industry getting into financial trouble.
- If you are looking for a good read I recommend Shadow Divers. After cutting the cable cord a few months back I have been reading more. This is a great story of some amateur divers who discovered an unidentified WWII German U-boat off the coast of New Jersey.