Citi Personal Wealth Management — Mid-Year Outlook 2019:  Hope and Fear

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Summary:  After a strong start to the year, financial markets are now being driven by both hope and fear. Hope that the U.S. can reach bi-lateral trade deals with key trading partners (China, Europe, Japan, etc.) and fear that the global economy may slow in the absence of such deals.

The global economy remains on solid footing, but faces downside risks. Citi’s economists are looking for global growth of about 2.9% year-on-year in both 2019 and 2020. However, global trade war simulations suggest that global growth could slow to a rate of 2.0% year-on-year in just 12-months’ time if trade tensions escalate on a broad scale. Under such a scenario, global growth forecasts for 2020 would be lowered dramatically.

We think that the bull market remains intact, but are recommending a more cautious stance over the near-term. While underweight U.S. stocks for now, Citi’s mid-year 2020 S&P 500 target of 3,000 still presents upside from today’s levels. Globally, Citi’s bear market checklists are signaling some caution, but are not yet worrisome. As such, Citi’s global equity strategy team thinks that global equities can return an additional 13% over the next two years.

A dramatic shift from the Federal Reserve helped to boost stocks in the first part of 2019. After once predicting three rate hikes in 2019, the Fed is now signaling that it may be willing to cut rates if the U.S. economy were to weaken due to trade tensions. However, monetary policy often operates with a significant lag and may not be sufficient to offset the immediate impact of tariffs. Our fixed income preferences remain geared towards U.S. Treasuries and short- and intermediate-duration corporate debt.

https://marketinsights.citi.com/marketoutlook/2019-hope-and-fear/

Negative Interest Rates And The Future Of Investing: MARKET COMMENTARY – Charles Schwab

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https://client.schwab.com/secure/cc/guidance/insights/content/negative-interest-rates-and-future-investing

Key Points:
Over 20 years ago the Bank of Japan first cut interest rates to zero, a policy adopted in both the U.S. and Europe a decade later during the financial crisis.

Japanese investors have become more attracted to stocks as stocks’ dividend yields rose relative to bond yields.

Investors’ increasing focus on income may lead to long-term shifts in portfolios that favor international stocks.

Dividend yield table

 

What Is Financial Health? – Morningstar Blog

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Economic stability is only part of reaching financial health 

What is financial health? The topic usually brings to mind only a person’s monetary wealth, but, as many advisors know, even the wealthy can suffer because of their finances. For example, consider the client who has more than enough financial resources to last the rest of his life, but gets anxious about even the smallest splurge. A standard financial algorithm would classify this type of client as being in excellent financial health, since he possesses enough material wealth to withstand any reasonable economic shock. Yet, this finance-related anxiety can ultimately mean his quality of life is quite low.
— Read on www.morningstar.com/blog/2019/04/11/financial-health.html

Cannabidiol (CBD)

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Cannabidiol (CBD), hemp oil and health/wellness-related products.

  • Hemp-derived CBD oil is made from high-CBD, low-THC hemp.
  • Hemp contains only trace amounts of THC, these hemp-derived cannabidiol oil products are non-psychoactive.
  • Medical marijuana products are made from plants with high concentrations of psychoactive tetrahydrocannabinol (THC).

CBD is present in higher quantities in hemp. Hemp’s chemical makeup is dominated by CBD. By definition, hemp’s THC content is no more than 0.3 percent, nearly 10 times less than the least potent strain of marijuana. Instead, hemp naturally has more CBD vs THC, making it an ideal source of CBD from cannabis.

CBD is legally available in the United States, but it must be derived from imported high-CBD, low-THC hemp. CBD is no longer listed under the Controlled Substances Act, so it’s legal in all 50 states provided it’s not extracted from marijuana.

Research continues to indicate that even large doses of CBD are well tolerated and safe. There have been some reports of dry mouth, light-headedness, and drowsiness. A recent research review examining the safety and side effects of CBD concluded that CBD appeared to be safe in humans and animals. Even chronic use of CBD by humans showed to cause no adverse neurological, psychiatric, or clinical effects.

Hemp — also called industrial hemp — refers to the non-psychoactive (less than 1% THC) varieties of Cannabis sativa L. Twenty-nine U.S. states and Washington D.C. have passed their own cannabis policies permitting the use of medical marijuana with high levels of tetrahydrocannabinol, provided it’s recommended by a licensed physician. Eight of those states and Washington D.C. have gone a step further and legalized the recreational use of marijuana and THC. Cannabis has shown encouraging signs as a treatment for various medical conditions and has become increasingly more acceptable to the public and society.

In 1937, the Marijuana Tax Act strictly regulated the cultivation and sale of all cannabis varieties. The Controlled Substances Act of 1970 classified all forms of cannabis — including hemp — as a Schedule I drug, making it illegal to grow it in the United States (which is why we’re forced to import hemp from other countries as long as it contains scant levels of THC — 0.3% is the regulation for hemp cultivation in the European Union and Canada

The Industrial Hemp Farming Act (H.R. 525 and S. 134) was introduced in the House and Senate. It would remove all federal restrictions on the cultivation of industrial hemp, and remove its classification as a Schedule I controlled substance.

  1. CBD has the following benefits:
    • Stress Relief & Improvement in Mood
    • Chronic Pain or Acute Pain Relief
    • Reduced Itchiness or Other Skin Irritations
    • Improved Sleep
    • Reduction in Joint Pain & Inflammation
    • Eased Nausea or Vomiting

Guide to the Markets Viewer – J.P. Morgan Asset Management

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J.P Morgan’s Guide to the Markets, illustrating compressive market & economic histories, trends & statistics
— Read on am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-the-markets/viewer

Recessions and bear markets

Stock market since 1900

Should You Try Timing to Avoid Bad Markets? – Retirement Researcher

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Everyone likes the markets when stocks are going up. We’re all getting the returns that we are “supposed” to be receiving for putting our money at risk. Naturally, we aren’t big fans of the market when stocks start falling. Unfortunately, stocks are “supposed” to go up and down – a lot.

The financial markets are based on the relationship between risk and return. We wouldn’t be able to harvest the long-term returns we expect without the risk. And, well, this is what risk looks like.
— Read on retirementresearcher.com/occams-should-you-try-timing-to-avoid-bad-markets/

Should You Own Bonds in a Rising Rate Environment? – Retirement Researcher

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One of the first things that finance students learn is that bond prices (and therefore bond returns) are inversely related to interest rates. Considering that all else is equal, when interest rates are going down, bond prices will go up, and when interest rates are going up, bond prices will go down.

This is fundamental to how finance works, and this raises the obvious question of why you would want to hold bonds when rates are rising – why would we choose to lose money?
— Read on retirementresearcher.com/should-you-own-bonds-in-a-rising-rate-environment/

The Hype: CNBC Recession Countdown

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According to one CNBC strategist speaking on the CNBC show Fast Money, he implied that the “recession countdown” clock has started, but the market will rally before the downturn begins.

This coverage of the “recession countdown” clock is the epitome of financial entertainment media hype. It brings to minds a quote from Warren Buffett…

“WE HAVE LONG FELT THAT THE ONLY VALUE OF STOCK FORECASTERS IS TO MAKE FORTUNE-TELLERS LOOK GOOD. ”

Warren Buffett is skeptical of the predictions of economic and financial forecasters, and we should be, too.

www.cnbc.com/video/2019/08/28/recession-countdown-on-but-strategist-says-markets-will-rally-first.html

Fund Manager, Kevin Landis, has walloped the stock market over the past decade – MarketWatch

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Six investing lessons you can learn from tech investor Kevin Landis.
— Read on www.marketwatch.com/story/forget-warren-buffett-this-fund-manager-has-walloped-the-stock-market-over-the-past-decade-2019-05-23

Recession Risk

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Many economists and financial analysts insist that a recession is unlikely in the next twelve to eighteen months. They cite data that indicates that the consumers are healthy. The economic data shows that American consumers all have jobs, they are working in record numbers and their wages are growing. And, they’re spending.

Additionally, consumers are tuning out the financial entertainment media unending talk about recession, tariff tensions and inverted yield curve. Since, one of the biggest risk to the economy is the possibility that Americans become overly concern about their financial well-being and self talk the economy into a recession.

Furthermore, history reveals that an inverted yield curve has preceded every recession; it, however, has not predicted every recession.