“Fascinatingly counterintuitive …”
That’s how Michael Arone, an investment strategist, described the U.S. market environment to Avi Salzman of Barron’s:
“‘Stocks are rallying, but bond yields are reflecting much lower growth.’ Stocks rose during the quarter because the Fed backed away from raising interest rates, and investors grew more confident that the U.S. and China would sign a trade deal, Arone said. The market was also rebounding from a very rough fourth quarter – ‘conditions at the end of the year were wildly oversold,’ he noted.”
Through the end of last week, the Standard & Poor’s 500 Index was up more than 13 percent year-to-date, despite falling corporate earnings and modest consumer spending gains.
Consumer optimism may have played a role in U.S. stock market gains. The Bureau of Economic Analysis released its report on economic growth in 2018 last week. Real gross domestic product (GDP), which is a measure of economic growth after inflation, was revised down to 2.2 percent in the fourth quarter of 2018. Growth was up 2.9 percent for the year, though, which was an improvement on 2017’s gain of 2.2 percent.
Slowing economic growth gives weight to bond investors’ expectations, while consumer optimism supports stock investors’ outlook. Divergent market performance and conflicting data make it hard to know what may be ahead. One way to protect capital is to hold a well-diversified portfolio.
It seems that almost all financial planning websites have essentially the same advice for saving money—cut out the $5 lattes, eating out, spending on entertainment, and a myriad of other non-essential activities that almost everyone enjoys. However, when brokerage firm TD Ameritrade surveyed its clients who it deemed “Super Savers” for saving 20% or more of their incomes, they found something radically different. It turns out the single biggest difference between the spending of Super Savers and the rest of us…was spending on housing. Super Savers spend just 14% of their incomes on housing, while everyone else averaged about 23%. They managed this mostly by simply living in smaller houses – a radical idea in the “bigger is better” real estate world. A recent American Enterprise Institute report showed how dramatically the size of the average house has grown at the very same time that the size of the family living in that average house has dramatically shrunk.
So, if you want to save money you can keep drinking those lattes, if you shrink your housing!