Q1 2018 Newsletter

Volume 9, Issue 1 - April 2018

Favorable conditions in global equity markets seen over the previous two quarters seemingly evaporated in Q1 2018. A spike in volatility, coupled with a 10% correction following the S&P 500 Index’s all-time high set on January 26th led to a turbulent quarter to say the least (more on volatility below from Robert F. Cary, CFA, who is the chief market strategist at First Trust Portfolios). That said, it is speculative to interject the current bull market is simply aging, or that political turmoil in Washington and its spread around the globe were the cause. Albeit almost certainly supporting factors. Perhaps investors simply became complacent making the first taste of volatility since early 2016 appear the equivalent of sticker shock. And while it was undoubtedly a wild ride the index closed just slightly underwater for the first three months of the year.

Overall we feel there remain many positives to support near to intermediate term growth in equities. Inflationary fears subsided, enough so that the Federal Open market Committee (FOMC) under the direction of its new chair, Jarome Powell continued tightening monetary policy with a rate hike in March. In addition earnings season is underway and thus far the vast majority of reporting companies within the S&P 500 index have shown positive results as of Thursday April 19th. In general the chances of a stock market crash, geopolitical crisis or economic recession seem remote looking ahead.

The Tactical Allocation Portfolio (TAP) witnessed an 80% reduction in equity exposure during the late-January into early-February timeframe as a number of technical indicators dictated it was time to reduce risk in the event of a potential bear market cycle. As markets recovered roughly ½ of their losses a subsequent reinvestment of those proceeds occurred in relatively short order. As retesting lows presented itself in March we again reduced risk by approximately 30%. The reinvestment of those proceeds is currently underway. Q1 represented the most transaction heavy period we have seen in almost two years, a testament to our strategy’s design and focus on managing underlying exposure on our clients’ behalf. The fixed-income portfolio saw no changes as we maintained our commitment to low duration, medium credit quality, primarily corporate bonds.

As a firm we are excited to move into our new office in Greenville, SC early in Q2 2018. Please keep an eye out for upcoming events or simply feel free to stop by to say hello! All of us at 1st & Main Investment Advisors appreciate your patience, commitment and focus as we managed through difficult conditions to begin the year. As always we are here to help and encourage you to reach out if we can assist in any way.


2017 was an outlier with respect to volatility

In 2017, a survey by Natixis Global Asset Management found that help with managing market volatility was the sixth most frequent request that investors had for their financial advisor. Ironically, volatility in the stock market plunged to an all-time low in 2017,so there wasn’t much to manage. That is no longer the case in 2018. Volatility is back. The good news is that it still clocked in below its historical norm in Q1’18.

Perhaps the most well known measure of volatility in the stock market is the so-called VIX Index, which is short for the CBOE SPX Volatility Index®. It uses S&P 500 Index options activity to gauge investors' expectations of volatility. It represents a 30-day measure. It is often referred to as the "fear index" by the financial media. Over the past 10- and 20-year periods ended 3/29/18,the VIX Index averaged 19.87 and 20.34, respectively, according to Bloomberg. As we noted, the VIX Index registered its all-time closing low last year at 9.14 (11/3/17). It averaged just 11.09 for the full year. In Q1’18, its average reading spiked to 17.25, still below its longer-term historical averages.

One of the reasons why so much attention is being focused on volatility levels in 2018 is that the rise in volatility was accompanied by a stock market correction (a price decline of 10% or more) in the S&P 500 Index. The 10.10% correction in the S&P 500 Index from its all-time high on 1/26/18 through 2/8/18 was met by a surge in the VIX Index, from a reading of 11.08 at the close on 1/26/18 to as high as 37.32 at the close on 2/5/18, according to Bloomberg. While the surge in volatility is understandable when you factor in the correction, seeing the VIX Index reading trending back to normal levels should actually reassure investors that the checks and balances of the stock market are alive and well, in our opinion. If you recall, the tone of the financial media’s coverage of the historically low volatility levels in 2017 was one of concern and not reflective of a healthy market. The focus of the discussion was about how complacent investors had become.


The table at the right of this page tells the story. Volatility swings both ways. Begin by comparing the VIX Index levels posted in 2008 and 2009,which encompassed the financial crisis. In both years, the average readings were significantly higher at 32.69 and 31.48,respectively,than the historical norm of around 20.00, yet the total returns posted by the S&P 500 Index were nothing alike. The data in the table also shows that the S&P 500 Index can prosper even when the average on the VIX Index is north of 20.00 (see 2003 & 2010).

Another gauge of volatility getting some press lately is the size of the daily fluctuations of the major stock indices. In 2016 and 2017, the S&P 500 Index registered several multi-month periods without experiencing a single up or down day of more than 1%, according to Bloomberg. As of Q1’18, there have already been 23 days in which the S&P 500 index has fluctuated by more than 1% in a trading day, more than triple the total for all of 2017. Suffice it to say, volatility has replaced complacency, and that is a good thing, in our opinion.

Source: https://bit.ly/2FkHxbQ

Author: Robert F. Carey, CFA


moneyguide pro + yodlee - revisited


PIEtech, Inc., innovator of MoneyGuidePro®, the industry's leading financial planning software, today launched three new integrated financial applications powered by Yodlee®. Available through MoneyGuidePro's SMART Portal, the apps include automated capabilities to view recent transactions, analyze spending, and create budgets - across multiple bank and credit card accounts - to help investors understand and proactively manage their financial health.

"Since we began offering Yodlee through our SMART Portal, our advisors and clients have expressed a desire for a personal financial management (PFM) tool within their financial plans," said Kevin Knull, CFP®, President of PIEtech, Inc. "Now, by leveraging the capabilities of Yodlee's PFM tool, our subscribers can offer an intuitive interface to their clients, bringing both attention and clarity to an often-overlooked subject: monthly expenses and cash flow."

Powered by Yodlee, the platform behind hundreds of innovative direct-to-consumer financial offerings and apps, these tools allow investors to manage their spending while accessing their financial plan via MoneyGuidePro's SMART Portal. The expense analysis app enables investors to categorize and track expenses in real time. Access to individual transactions gives investors a 360 degree view of their activity across all accounts in one convenient location, so they always know where they stand. Furthermore, the budget app helps investors to define goals for each spending category to easily monitor their monthly cash flows and expenditures via the attractive, user-friendly interface.

All MoneyGuidePro advisors who have a subscription to Yodlee aggregation will be able to offer these robust personal financial management capabilities to their clients.

"The use of digital money management tools and apps has grown exponentially the last few years, helping millions of consumers become more aware of their financial health and create smarter spending habits," said Bill Parsons, Chief Customer Officer at Yodlee. "We are thrilled to leverage our depth of wealth data access to bring these powerful capabilities to investors via MoneyGuidePro's SMART Portal, demonstrating a shared vision to create greater financial wellness across the U.S."

About Yodlee®

Yodlee (NASDAQ: YDLE) is a leading technology and applications platform powering dynamic, cloud-based innovation for digital financial services. More than 750 companies, including 9 of the 15 largest U.S. banks and hundreds of Internet services companies, subscribe to the Yodlee platform to power personalized financial apps and services for millions of consumers. Yodlee solutions help transform the speed and delivery of financial innovation, improve digital customer experiences, and deepen customer engagement.

Yodlee is headquartered in Redwood City, CA with global offices in London and Bangalore. For more information, visit www.yodlee.com.

About MoneyGuidePro®

MoneyGuidePro, innovated by PIEtech, Inc., is the industry's leading financial planning software. MoneyGuidePro makes powerful, profitable planning easy, allowing financial advisors to help more clients achieve their financial goals. MoneyGuidePro provides college, retirement, estate and Social Security planning, investment and insurance needs analysis, technology integration and account aggregation. For more information on MoneyGuidePro visit, www.moneyguidepro.com.

Source: http://bit.ly/2CS2lbZ

Author: Jaime Proctor


*The interpretations and organizations of these ideas are the confidential thoughts of 1st & Main Investment Advisors and do not represent the opinions of Berthel Fisher & Co. Financial Services, Inc. nor Berthel Planning, Inc.