Vorisek Financial Weekly Market Update for February 21, 2018

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Good morning!

At least in the short-run, equity investors have not been scared off from buying stocks following the S&P 500’s 10.2% correction that ended on 2/08/18.  The 6 trading days since then have all been “up” with the index posting a +6.0% gain (total return), leaving the S&P 500 up +2.5% YTD.  In the aftermath of the S&P 500’s next most recent correction (a 13.3% drop that ended on 2/11/16), the stock index gained +20.8% over the subsequent 6 months.  Market drops are a reminder that bull markets do not last forever.  The current bull will reach 9 years in length in just 17 days (source: BTN Research). 

The United States has an entire generation of citizens who have never lived through annual inflation greater than +5%.  Since prices increased +6.1% in 1990 (using the “Consumer Price Index”), inflation has averaged just +2.3% per year through 2017.  But signs of wage inflation have prompted a continued selling of bonds, moving the yield on the 10-year Treasury note from 2.41% to 2.87% YTD.  If given the dual choice between dealing with rising inflation (causing them to raise interest rates) or a struggling domestic stock market (encouraging them to lower interest rates), the current members of the Federal Reserve may lean towards the former and not the latter (source: BTN Research).    

The fiscal year 2019 budget plan (i.e., the 12 months ending 9/30/19) released last week by the White House calls for $3.422 trillion of tax revenue and $4.407 trillion of outlays, resulting in a forecasted deficit of $984.4 billion.  Our country’s actual deficit for the recently completed 2017 fiscal year was $665.4 billion (source: OMB).     

Notable Numbers for the Week:

  1. FEWER CHOICES - There were 1.48 million existing homes for sale in the United States as of 12/31/17, a drop of 460,000 in the last 6 months.  The 1.48 million “for sales” is the lowest level reported in history for a statistic that has been tracked since 1999 (source: National Association of Realtors).  

  2. HOARDING MONEY – The $2.08 trillion of excess reserves held by US banks at the 12 regional Federal Reserve banks as of 1/31/18 is up $104 billion in the last 12 months.  Excess reserves are funds held that are above and beyond the federally mandated reserve requirement amounts (source: Federal Reserve). 

  3. THIRTY TRILLION - The White House released on Monday 2/12/18 a 10-year projection for our nation’s outstanding debt.  Our national debt, $20.7 trillion as of 2/12/18, is forecasted to reach $29.97 trillion in 2028.  Our national debt hit $10 trillion on 9/30/08 (source: White House). 

  4. SAME INCOME, DIFFERENT YEARS - To rank in the top 1% of taxpayers in 1980 took $80,580 of adjusted gross income (AGI).  To rank in the top 25% of taxpayers in 2015 took $79,655 of AGI (source: IRS). 

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