Vorisek Financial Weekly Market Update for August 15, 2018

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Good morning!

The longest bull market for the S&P 500 since 1950 lasted 3,452 calendar days, i.e., the near 9 ½ years from 10/11/90 to 3/24/00.  The current bull market for the S&P 500 was 3,441 calendar days long as of last Friday 8/10/18, i.e., the approximate 9 ½ years from 3/09/09 to 8/10/18, having gained +410% (total return) or an average of +18.9% per year.  The current bull would have to continue until Wednesday 8/22/18 (i.e., just 9 days from today) to reach 3,453 calendar days (source: BTN Research).            

With 2 months to go in fiscal year 2018 (i.e., the 12 months ending 9/30/18), the US government has recorded a $684 billion deficit, larger than any full year deficit over the last 5 fiscal years (i.e., 2013-2017).  Although deficit spending is the norm for America (45 of the last 50 fiscal years have seen our outlays exceed our revenues), only 4 of our annual deficits in history have exceeded $700 billion (in 2009-2012) and they coincided with the country’s emergency plan to pump newly printed money into an ailing economy.  The current deficit occurs not as the nation pulls itself out of a prolonged contraction, but rather in the 9th year of an economic expansion (source: Treasury Department).       

US Treasury debt and mortgage-backed securities held by the Federal Reserve as of 8/01/18 totaled $4.04 trillion, down from $4.24 trillion as of 8/02/17.  The $200 billion reduction is the result of the Fed’s plan that started in October 2017 that allowed billions of dollars of Treasury bonds to mature each month without reinvesting the principal.  With an increasing supply of Treasury bonds at auction and one fewer buyer (the Fed) in the game, interest rates may be poised to rise (source: BTN Research).   

Notable Numbers for the Week:

  1. HEALTHY GAIN - The total market capitalization of the US stock market was $31.1 trillion as of 7/31/18.  At its bear market low on 3/09/09, the total US market capitalization was $7.6 trillion (source: Wilshire). 

  2. NOT AS OPTIMISTIC - 65% of Americans surveyed in July 2018 think “it’s a good time to buy a house.”  That percentage was as high as 83% in December 2014 and hasn’t been as low as 65% since December 2008 (source: University of Michigan Surveys of Consumers).

  3. TRILLIONS - The size of the US economy reached $2.5 trillion in 1979, doubled to $5 trillion in 1988, doubled again to $10 trillion in 2000, and finally doubled again to $20 trillion in 2018 (source: OMB).  

  4. NOT THE USA - There are 10 countries in the world that currently maintain the top credit rating from each of the 3 major credit rating agencies, including Canada, Germany and Sweden (source: Trading Economics).

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