CCM Update

Thanks to the continued growth of our business, we are pleased to announce a new addition to our portfolio management department and the advancement of two of our experienced team members.  We would also like to warmly welcome the clients of Randy Kryszak, who merged his practice into our firm during the first quarter. Randy founded Randall L. Kryszak, CPA, PC, a tax and accounting services firm for small businesses, in Boulder, CO, in 1988. In 2000 the company became a Registered Investment Advisor licensed by the State of Colorado. Randy, a Personal Financial Specialist, will provide investment advice, in conjunction with CCM staff, to those who were previously clients of his practice.

Zuzana Birova joined CCM in January as Assistant Portfolio Manager. She has decade of experience in equity and fixed-income trading, portfolio reconciliation, client reporting, and asset class research.  Originally from Slovakia, where she earned her undergraduate degree in International Business, Zuzana went on to pursue her passion in investment management by completing her MBA at Butler University in Indianapolis. After graduating she joined Deerfield Financial Advisors, Inc., where she managed investment operations and played a key role in implementing new technology for advisors. She is currently in the process of acquiring the Chartered Financial Analyst (CFA) designation.

We are also happy to announce the promotion of Kirsten Roeber from Assistant Portfolio Manager to Portfolio Manager. Kirsten has been with CCM for eight years, serving as a member of the portfolio management team and assisting in research, trading, portfolio construction, and investment strategy since 2014. She holds a bachelor’s degree from the University of Colorado, the Accredited Asset Management Specialist designation, and is a CFP® candidate.

Colleen Harvey, who joined our firm in 2014 as Portfolio Manager and chair of our investment committee, has also taken on new responsibilities.   As of January, Colleen became a full-time financial advisor.  With almost twenty years of experience in the wealth management industry, Colleen is well prepared for her new role.  Colleen has a bachelor’s degree from the University of Notre Dame, a master’s degree from Tufts University, and holds the Chartered Financial Analyst (CFA) designation.  We are delighted to share all of this good news, and hope you will join us in congratulating and welcoming Zuzana, Kirsten, and Colleen into their new roles.

Macro Overview

Markets were rattled in March as a looming trade war between China and the U.S. enhanced market volatility. The administration announced $60 billion in tariffs for Chinese imports, with a detailed list of products which will be identified by the Commerce Department in April. China threatened to retaliate by imposing tariffs on U.S. imports as well as curbing U.S. Treasury purchases.

Economic data released over the past month revealed that key data points were the strongest reported since 1998. The market has become much more dependent on data as it looks for signs of inflation and rising rates. Various analysts view current market volatility primarily driven by non-systemic events and isolated to specific events and individual company news.

A key lending benchmark, the LIBOR, has been rising steadily. The three-month U.S. dollar LIBOR rate surpassed 2% in early March, the highest level since 2008. Based in London, the LIBOR affects U.S. consumer loans, commercial loans, and

 

adjustable rate mortgages. Rapidly rising mortgage rates are dampening the hopes of families eager to lock in rates before payments start to become too expensive. The continued lack of housing supplies has added a double cost factor to the market, with prices elevating due to tight supplies and rising mortgage rates.

Congress reached a $1.3 trillion budget deal that will fund the federal government through September. The extensive 2,232 page bill averts a government shut down and funds special programs for child care, infrastructure, medical research, opioid abuse prevention, and national security.

Sources: Dept. of Commerce, Bloomberg, congress.gov

Tech & Tariff Influenced Volatility – Equity Update

Technology stocks led volatility in the first quarter, pulling other sectors into trading frenzies. Over 25% of the S&P 500 Index is currently comprised of technology stocks, having added volatility to the index for the first quarter. Trade war rhetoric added to volatility as U.S. companies sensitive to higher import prices on raw materials and certain finished goods experienced pullbacks.

Companies in the technology sector faltered as privacy concerns drove social media shares lower. The technology sector has also became more prone to volatility leading to gyrating valuations. In addition, news of heightened regulatory rules for technology and social media related companies escalated a sell off heading into the second quarter. Transportation stocks are rising more closely with the rest of the market, an optimistic signal according to the century old Dow Theory.

Sources: Dow Jones, S&P, Bloomberg

World’s Largest Consumer Markets – Global Commerce

The United States has by far has the single largest consumer market of any country worldwide, representing over 26% of the entire global consumer market. U.S. consumers spent over $12.5 trillion in 2017, nearly three times as much as the second largest consumer market, China. China’s consumer market is currently one of the world’s fastest growing markets, with nearly $4.5 trillion in consumer expenditures.

International companies selling to the U.S. marketplace are attracted to the enormous wealth that consumers have access to in the United States. Ample and readily accessible credit sources in the U.S. also offers consumers the ability to purchase a wide variety of products.

Emerging market economies such as India and Brazil not only have a growing consumer market, but also benefit from exports to the U.S. Developed economies, such as Japan and Germany, have shrinking consumer markets yet depend heavily on exports to the United States.

Demographics has been a driving force in the U.S., as baby boomers provided an enormous amount of activity among various sectors and industries for decades. Now, as baby boomers retire and exit their prime spending years, it is up to younger consumers to create and replace much of the wealth needed to maintain consumption expenditures.

Sources: World Bank Group, United Nations Statistics Division

 

The Growing Trade Deficit With China – International Trade Policy

Over the past twenty five years, China has evolved from a heavy equipment and machinery exporter to a prominent leader in technology product exports. Large international conglomerates have established an enormous manufacturing presence throughout China, utilizing its cheap labor and quick turn around times. China’s manufacturing plants are among the most modern in the world, producing large product quantities almost entirely for export.

As the world’s appetite for electronic devices has grown, so has China’s ability to manufacture and export these devices. As a product exporter, China is able to manufacture and export finished products worldwide. In addition, China is also an exporter of components, which may be used in the manufacture and assembly of products in other countries, such as the United States. By exporting components in addition to finished products, China is able to hedge against tariff issues and labor costs should they become a factor.

Trade with China has grown tremendously over the past 30 years, from nearly a trade balance in 1985 to a trade deficit of $375 billion in 2017. Imports from China were $506 billion while U.S. exports to China were $130 billion, thus an ensuing trade deficit.

Ironically, China’s purchases of U.S. government debt has helped maintain a low interest rate environment, thus reducing loan rates allowing U.S. consumers to finance more expensive Chinese imports such as big screen TVs, cell phones and computers.

Sources: WTO, IMF, U.S. Dept. of Commerce, FRED

Rates Stabilize In March – Fixed Income Overview

Equity market volatility in March drove assets towards various sectors of the bond market, thus pushing yields slightly higher and various fixed income prices lower. A key leading rate, the LIBOR, rose the most in 10 years. Debt reliant companies and consumers with variable rate loans tied to the LIBOR are most susceptible. The three month LIBOR rate rose to 2.31% at the end of the quarter. The six-month Treasury bill reached a yield of 1.88% in early March, an important yield because that’s exactly what the S&P 500 Index yields. Some income seeking investors may begin to view short-term bonds as an attractive alternative to dividend paying stocks prone to market volatility.

The Federal Reserve decided to raise the Fed Funds rate to a range of 1.5 – 1.75%, and is on track for another three rate increases this year. Language from the Fed Chief, Jerome Powell, shed some optimism on economic activity, noting that “the economic outlook has strengthened in recent months”, warranting further increases in the Fed Funds rate.

Sources: Federal Reserve, Bloomberg

 

 

Parenting Your Wealth in Uncertain Times

In the face of political drama at home and abroad, it’s certainly been a winter for trying our patience, hasn’t it? For anyone who has ever been a parent or a child – that is, for everyone – there are several comparisons we can draw between good parenting and good wealth management. For both, plenty of patience is one of the most important qualities to embrace.

As an investor, you probably have plenty of “those days” when you wonder whether your money is ever going to grow up. It doesn’t do as you hoped for. It misbehaves. It runs with the wrong crowd. It ignores your best efforts to protect it from harm. But then there are those other days. Suddenly, your money hits a growth spurt, exceeding all expectations! It’s then that you realize that many of the greatest challenges you and your investments faced along the way are the same ones that are contributing to its strength and shaping its character over time.

As much as we would prefer our wealth to mature in a calm, orderly way, there is solid evidence to demonstrate that returns are far more likely to occur in these sorts of anxiety-generating fits and starts. For example, you may recall that January 2016 was an unsettling time in the market, with particularly petulant returns. Some pundits blamed China and oil. There was no incredibly obvious reason; it was just in one of those moods. On the flip side, in the wake of the June 23, 2016 Brexit referendum, when we might have expected the market to remain in a funk for a while, it took a dive but then mostly continued upward, especially in the U.S., where stock market indexes experienced a number of record highs in July.

The Center for Research in Security Prices (CRSP) index returns by year show that from 1926 – 2016, the market experienced 68 years of positive returns (75%) and 23 years of negative returns (25%). The graph below shows a visual of what this looks like. Therefore, although the occurrence and degree of corrections and bear markets might make an investor uncomfortable, long term returns continue to demonstrate that patience and discipline are the best responses to market turmoil. 

That’s not to say that you should plan for 10% annual returns in your financial future. Most investors are wise to offset the heated risks involved in pursuing higher expected returns with an appropriate helping of “cooler” holdings. We also suggest employing global diversification to manage the market risks that you do take on. Spreading your risks among multiple kinds of holdings around the world can be compared to raising several children, without choosing a favorite. Each is expected to contribute in its own special way.

With investing you should avoid the temptation to jump in and out of uncertain markets. We know they are going to often misbehave and sometimes disappoint. We even know that they may never deliver as hoped for. But once you have done everything you can to position your portfolio for the outcome you have in mind, you’ve also done everything you can to stack the odds of success in your favor. The rest is where that patience comes in.