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Market Turbulence Amid Coronavirus Concerns

Posted by Doug Hutchinson | CFA®, Director of Research and Trading

February 25, 2020

Global equity markets have experienced a pullback following heightened fears of the spread of coronavirus (COVID-19). This has left some investors wondering what actions they need to take (if any) with their portfolios.

History has shown that equity markets typically rebound quickly in the event of a viral epidemic driven sell-off.  The pullbacks have historically been short-lived and have typically been followed by a continued upward trend. 1


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market perspective stock market performance Economic Indicators Market Volatility

Yield Curve Inversion and Recession Threats

August 15, 2019
Concerns over an inverted yield curve combined with the threat of higher tariffs around the globe have created some equity market volatility over the past few weeks.  The ups and downs of equity market volatility can certainly be unnerving for investors, but volatility in and of itself is not necessarily a bad thing nor is it necessarily a signal of an upcoming recession. In fact, since 1980 the S&P 500 has suffered an average intra-year decline of 13.9% while the market has had positive returns in 29 of those 39 years.1   [+] Read More

End of Year Market Volatility

December 18, 2018
 The recent pullback in global stock markets has caused some concern that the bull market in equities is winding down. There is even some concern that this pullback is among the initial signs of an upcoming recession.  To gain some better historical perspective on the recent movement in the stock market, let’s take a look at historical intra-year market declines versus calendar year returns.1     [+] Read More

Mid-Term Election Year Volatility

October 26, 2018
Historically, equity markets have been very volatile in mid-term election years. Since 1962, the S&P 500 has had an average intra-year pullback of 19% in mid-term election years.1  In fact, equity market returns have historically been very tepid before Election Day in early November.  In mid-term election years since 1950, the market has returned an average of just 0.96% in the first 10 months of the year, but markets have typically rebounded in the final 2 months of the year, returning an average of 4.24% across November and December. 2 The recent market pullback has wiped out 2018 gains and the S&P 500 is now roughly flat for the year. Again, historically the first 10 months of a mid-term election year are typically flat only to see a relief rally in the final 2 months of the year once the results of the election are known with certainty. Will history repeat itself in 2018? While it is nearly impossible to forecast stock market returns over a specific time frame (particularly for a brief 2-month window), there are reasons to be optimistic going forward: Corporate earnings remain strong3: 81% of the 140 companies in the S&P 500 that have reported third quarter earnings (as of October 23, 2018) posted earnings per share that beat Wall Street expectations, with only 10.7% of companies reporting earnings below expectations.  Over the last 25 years, an average of 64% of companies reported earnings that beat Wall Street estimates with 21% of companies missing expectations.4 [+] Read More

Should Investors Stress Over an Inverted Yield Curve?

August 21, 2018
Despite Apple topping $1 trillion in market value, the unemployment rate continuing to climb down, and a multitude of other positive market indicators, the Treasury yield curve has begun worrying some market analysts. That said, we don’t feel that investors should worry too much about an inverted yield curve. Here’s why… The Treasury Yield Curve as an Indicator of Recession The Treasury yield curve is typically upward sloping where long-term yields are higher than short-term yields. The longer the time to maturity, the higher the risk to the bondholder since the longer-term bonds have a longer time horizon and are therefore exposed to more potential changes in interest rates than short-term bonds. This forces investors in long term bonds to seek higher yields in exchange for accepting the added risk of a longer maturity bond. What is the Treasury yield curve? The U.S. Treasury Yield Curve compares the yields of short-term Treasury bills (those with terms of less than a year) with long-term Treasure notes and bonds (notes have terms of two, three, five, and 10 years while bonds have terms of 20 or 30 years). Yields always move in the opposite direction of Treasury bond prices because low demand drives the price below the face value while high demand drives the price above face value. The yield curve becomes inverted when short-term yields are higher than long-term yields. An inverted yield curve does not happen very often, but it has preceded every recession in the U.S. for the last 50 years.1 What Causes an Inverted Yield Curve? [+] Read More

It’s the 2nd Longest Economic Expansion in U.S. History – How Long Can It Last?

June 6, 2018
Through April of this year, this economic expansion is now 106 months old. If the US economy continues to grow through May – which seems all but assured – it would make this economic expansion the second longest in US history. Looking out even further, if the economy continues to grow through July 2019, it would become the longest period of growth in the history of the country. There’s a real chance it could happen – in a recent poll of global fund managers by Bank of America Merrill Lynch, only 13% of them thought a recession was likely in the near term. Using Corporate America (earnings) as in indicator, the numbers also support the case for more growth: in Q1 2018, the blended earnings growth rate for S&P 500 companies is 24.5% as of this writing, which would mark the highest earnings growth rate the economy has seen in nearly eight years. [+] Read More

Are Stocks Attractively Valued?

May 22, 2018
Over the past couple of years, the S&P 500 Forward P/E ratio has been above its 25-year average. This has led some market commentators to warn that equities aren’t attractively valued. A Price to Earnings (P/E) ratio is a valuation measure that shows how much investors are willing to pay for a dollar of a company’s earnings. For example, a company that has a stock price of $30 and earnings per share of $2 would have a P/E ratio of 15 ($30/$2 = 15). A reading above the long-term average is typically interpreted to mean that stocks are expensive relative to the historical average. Similarly, a reading below the long-term average is typically interpreted to mean that stocks are cheap relative to the historical average. The recent pullback in equities to start the year coupled with continued strong earnings growth has left the S&P 500 Forward P/E ratio at 16.1x at the end of April 2018. The 25-year average S&P 500 Forward P/E ratio is exactly 16.1x. This marks the first time in over 2 years that this reading has not been above the 25-year average. [+] Read More

Nuveen Feels Reasons for Optimism Outweigh Reasons for Caution

May 10, 2018
Reasons for Optimism Slightly Outweigh Reasons for Caution Corporate earnings were in focus for much of last week. Results continued to come in stronger than expected and earnings are on track for their best quarter since 2010. But concerns remain that earnings growth may have peaked in the current cycle. Investors also focused on economic data, including another drop in U.S. unemployment and indications that global growth momentum may be slowing. Amid these crosscurrents, stocks were mixed, with the S&P 500 Index dropping 0.2% for the week. Technology was a standout performer, while telecommunications and healthcare lagged. Upside and Downside Risks May Result in Ongoing Volatility We do not believe that we are close to the end of the current cycle of global economic expansion, but the endgame may develop more quickly than many investors expect. At this point, it appears that upside and downside risks for the economy and financial markets may be pretty well balanced. [+] Read More

How Inflation and Interest Rate Fears Could Have Been to Blame for Recent Market Volatility

February 8, 2018
Inflation worries caused by a single economic report have led to increasing concern that the economy may be overheated. A rapidly expanding economy could lead the Fed to increase interest rates at a faster than expected pace. The January Unemployment Report from the Bureau of Labor Statistics showed an increase in average hourly wages of 9 cents, pushing the annual increase to 2.9% from 2.6%. A couple points of caution on this report are needed. First, it is possible that some or even most of the wage increase is due to 18 states raising their minimum wage as of January 1st. If that is the case, this will likely be a one-time bump in average wages rather than a sustained trend higher. Second, there could be a temporary weather impact on this report (which won’t repeat once the weather gets warmer). Some workers were not able to work full-time because they couldn’t make it to work on certain bad weather days. If these workers were lower paid workers, that would push up the aggregate average hourly wage for January because the lower paid workers worked fewer hours. We’ll need to wait for the February, March, and April reports to see if the increase in average hourly wages is a trend or if the January report is just a blip on the radar. [+] Read More

Have you heard of the “January Effect”?

December 27, 2017
You many have heard people speak about the "January Effect," but what does it actually mean? In short, the January Effect is a concept suggesting that the first month of the year tends to experience a seasonal increase in stock prices. Some even take the anomaly a step further, suggesting that a positive January means a positive calendar year. With January around the corner, does the “January Effect” concept hold water? Let’s investigate. [+] Read More