What Can You Expect from Volatility, Inflation & Tech Regulation?
U.S. Stocks appear to have bounced back before entering correction territory, but could 2019 be more inflationary then we thought? Read on to get the details…
Remember that Volatility Works Both Ways – October was far from a pretty month for stocks, as downside volatility took hold early in the month and the S&P 500 shed -7.3% by October 31st. The tech-heavy Nasdaq fared even worse, falling -9.2% and posting its worst month in 10 years. But while many in the investment world were feeling fatigue over bid down days in the stock market, this week served as a reminder that volatility works both ways – as U.S. stocks broadly bounced back before actually crossing into correction territory. Whether it was relief over solid earnings, renewed optimism that a trade resolution is a possibility with China, or perhaps a sign that investors were comfortable “buying the dip,” stocks posted some meaningful up-days this week.1
Looking back with hindsight, it is clear to see that panicking in October would have been a mistake in our view. Still when the market declines and moves close to correction territory, many times panicked investors are knee-jerked into selling stocks in an attempt to ward off further losses.
This is just one of the most common mistakes we see. Learn about more mistakes and how to avoid them with our guide, “5 Investment Do’s and ‘Don’ts”
If you have $500,000 or more to invest and want to learn more, click on the link below:
A Sign the Fed isn’t All About Tightening – the Federal Reserve voted 3 to 1 this week to ease regulations on large and mostly regional banks, in its latest move to soften the regulatory burden placed on banks following the 2008 global financial crisis. Under the Fed’s approved rollbacks, regional lenders would be fully released from certain capital and liquidity requirements or could see those requirements significantly reduced. Among the specific rule rollbacks would be eliminating the so-termed liquidity coverage ratio and giving banks more flexibility in how they treat gains and losses in their securities portfolios. Stress tests could also be performed less frequently based on the new terms. The rollbacks mostly apply to banks with assets between $100 billion and $250 billion, including names like Capital One Financial, BB&T, SunTrust Banks, and U.S. Bancorp. It follows that the largest banks, like J.P. Morgan and Bank of America, did not think the rollbacks went far enough.3
Knock-Knock. Who’s There? Inflation! Earnings season revealed a bit more than revenues, sales, and top and bottom lines in Q3, as many corporations – particularly in the retail sector – used quarterly conference calls to unveil plans to raise prices on goods. Clorox Co. stated it would raise prices on a range of products extending all the way out to things like cat litter, while other major companies like Coca-Cola and major airlines echoed similar plans. According to Kellogg Co. CEO Steve Cahillane, “2019 will be more inflationary than we have seen historically since the recession.” This is just one opinion, and it should be noted that inflation has been quite low throughout the current expansion. But the stories still point to a general consensus that prices may start to feel upward pressure in the coming quarters as a result of tariffs and upward pressure on costs and wages. The return of above-target inflation (2%) could put the Federal Reserve in an even more difficult position looking ahead.4
Tech Regulation Finds a New Home in the U.K. – the United Kingdom is moving into unchartered territory in their treatment of technology companies, with a new plan released this week that would levy a tax on technology companies’ “locally-generated revenue” by 2020. The U.K.’s proposal is considered, according to the Wall St. Journal, “the most concrete attempt yet by an industrialized nation to rewrite the world’s tax code for the digital era.” The central issue that the U.K. seeks to address is how foreign governments can collect tax on (mostly) U.S. technology companies whose global footprint and digital revenue models often combine to allow them to skirt paying taxes outside their home jurisdiction. Targeted would be companies with global revenues of at least ~$650 million whose services range from search engines (Google), social-media platforms (Facebook and Twitter), and online marketplaces (Amazon). Big tech firms and other multinationals criticized the law stating that a hodgepodge of rules that vary by country would hurt small firms and stifle competition, in addition to leading to double taxation of corporate profit. The U.K.’s move comes at a time that the market is increasingly watching for new regulation to come bearing down on technology companies, which have been under fire for issues relating to privacy and improper data collection and use.5
We can’t predict or control the outcomes of these news stories, but investors can stay focused on making sure their own actions help guide their investments to succeed. One way to do this is not to fall prey to common investing mistakes.
There are common mistakes and habits that can help some investors succeed while others fail. To help you understand some of these habits, we have created the guide, “5 Investment Do’s and Don’ts.”6
In this guide, we provide our thoughts on what we believe are 5 of the biggest financial mistakes investors should avoid, while also examining 5 financial habits that we think can help you invest successfully and with confidence. If you have $500,000 or more to invest and want to learn more, click on the link below:
2 ZIM may amend or rescind the “5 Investment Do’s and Don’ts” guide for any reason and at ZIM’s discretion.
3 The Wall Street Journal, October 31, 2018. https://www.wsj.com/articles/fed-set-to-propose-looser-rules-for-large-u-s-banks-1540995057?mod=djem10point
4 The Wall Street Journal, October 31, 2018. https://www.wsj.com/articles/companies-raise-prices-betting-consumers-can-pay-more-1540978200?mod=djem10point&tesla=y
5 The Wall Street Journal, October 29, 2018. https://www.wsj.com/articles/u-k-to-roll-out-developed-worlds-first-digital-tax-1540831931?mod=djem10point
6 ZIM may amend or rescind the “5 Investment Do’s and Don’ts” guide for any reason and at ZIM’s discretion.
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