It’s hard to believe that 2018 is already halfway over. Amid all the fun and excitement that summer brings, it can be easy to put off thinking about your finances.
The mid-year can serve as a reminder to check in on your financial plan, get an idea of where you’re at in relation to your goals, and evaluate if there are any changes you want or need to make.
To help you get started, I talked to several TD Ameritrade associates for their perspectives on the state of the markets and what investors might want to consider keeping an eye on in the second half of the year. On top of that, they also shared some great information about planning for retirement and where to find resources you can use to continue building your financial knowledge. I hope you find these insights helpful and informative.
The State of The Markets
JJ Kinahan, TD Ameritrade Chief Market Strategist
How would you summarize the first half of the year? Any big surprises?
The first half of the year was probably a lot better than people were expecting after the rapid pullback in January/February. Most of the major indices, such as the S&P 500 (SPX) and Russell 2000 (RUT), are still at, or not too far off, all-time highs.
Consistent growth in the U.S. economy is one of the big factors that has helped support stocks. First quarter GDP dipped a little to 2 percent, but most analysts and economists have said they are expecting 2.7 percent to 3.1 percent for the full year.
The labor market is also still strong. Unemployment’s at 4% and wages have been increasing steadily. Also, consumer sentiment is still on the high end according to the latest reports. So there are a lot of positives going for the economy right now. The question is how long can it keep going.
I think what was most surprising in the first half of the year was the lack of higher interest rates for U.S. Treasuries. At the start of the year, there were a lot of people expecting the 10-year Treasury yield to be past 3.25 percent by now. Instead, it’s been struggling to make a sustained move past 3 percent.
What are some steps investors might want to consider taking now?
Since markets have continued to climb higher, it could be prudent to check your portfolio and see if those are the same investments you want to own going forward. Some of them could have rallied significantly, or you might want to rotate into other areas where you see better value. It’s really about making sure you’re comfortable with the level of risk in your portfolio.
Also, second-quarter earnings season is getting underway and as companies you own report results, you can check in on how the business is doing and listen to earnings calls to see what’s top of mind for management.
Is there anything you think investors might want to keep an eye on in the second half of the year?
I think the big things to watch are tariffs, midterm elections and the potential for interest rates to move higher.
A lot of the new tariffs are just being implemented, and there are others that are set to go into effect over the next several months. Seeing how all the tariffs between countries progress, and if that starts to affect economic growth in upcoming quarters, is something to watch.
Midterm elections are also coming up in the U.S. Depending on the outcome, we could see a shift in the balance of power in Congress. It’s hard to say how that will play out, but investors may want to keep an eye on stocks as they can get more volatile around elections, which can be driven by knee-jerk reactions.
Finally, if interest rates start to climb faster than expected, that could potentially add some volatility as the relative attractiveness of bonds, stocks and other assets shifts, and investors possibly start to rotate holdings.
Looking to stay on top of the markets? Check out Chief Market Strategist JJ Kinahan’s Daily Market Update on the Ticker Tape.
Checking the Technicals
Ben Watson, TD Ameritrade Education Coach
Could you provide an update on where the major benchmarks are at from a technical analysis perspective?
The S&P 500 (SPX) has been trading well above its 200 day moving average since May (see chart below), although it did get down to that level a couple of times earlier in the year. The SPX was trading right around its 50 day moving average for about a week at the end of June and early July. But it recently bounced off of that level and has been trending above it as earnings season kicks off. When stocks or indexes dip below those moving averages, their upward trend might start to lose strength.
The Dow ($DJI) recently broke back above its 50 and 200 day moving averages, although it has been trading below its 50 and has dipped below the 200 a couple of times in 2018. The Dow does represent a larger basket of companies that are spread out across a large section of global markets, so investors might see them dance to the tune of geopolitical concerns a little more than the S&P 500.
The Russell 2000 (RUT) is well above its 200 and 50 day moving averages (see chart below). Some investors may have been rotating into small caps around all the tariff concerns, as their businesses are typically more domestic and not as exposed to international risks like larger, multinationals.
The Nasdaq 100 (NDX) is right above its 50 day moving average, and well above the 200, much like the Russell 2000 which would indicate it may still have some strength in its current trend.
What challenges might the market face over the course of the rest of the year?
2800 has been a big resistance level on the S&P 500 (SPX). This was the high attained after volatility spiked at the end of January and start of February. The SPX is about 9 points above that level right now. I think that level is going to be an important one until we see a sustained move higher, which of course is not guaranteed to happen.
Over the course of the year, companies will be releasing earnings, economic data will keep coming out and the Fed will have a few more meetings. All of those things are likely going to play into how markets perform through the end of the year. Trade tariffs, and the potential for that to keep escalating, could potentially weigh on stocks.
Outside of that, different sectors have unique factors relevant to them, both from a positive and negative perspective. For example, financials have largely been moving in line with U.S. Treasury yields. For the financial sector to break out of its current pattern, investors would likely want to see a change in bond price structure and the yield curve.
Is there anything you think investors might want to keep an eye on in the second half of 2018?
There is a lot going on in the energy sector. It’s possible there’s more demand than what is being estimated, as the economy, both from a GDP and inflation perspective, is running at about what’s been expected.
There have been some geopolitical supply shocks here and there that seem to have helped prop up oil prices. At the same time, some analysts have expressed concerns that pipeline bottlenecks in the U.S. will continue through the end of the year and pressure WTI crude oil prices.
The retail and consumer discretionary sectors are an area where there’s been a lot of change. Consumer preferences and habits appear to be shifting in a lot of ways. Some stocks have gotten hammered, while others have outperformed.
Lately, there’s been more of that in the transportation industry with companies like FedEx Corporation FDX and United Parcel Service, Inc. UPS. Amazon.com, Inc. AMZN and some of the other retailers could play a part in that as they build out their own shipping capabilities and potentially bring more distribution and logistics in-house.
Catch Ben Watson and our other Education Coaches on daily webcasts covering all things investing and trading.
Bonds and Interest Rates
Craig Laffman, TD Ameritrade Director of Fixed Income
Are there any risks that might be underestimated based on the current interest rate environment?
The Fed is the big question mark going forward and the rate at which they hike rates.
One thing investors may want to keep an eye on is what’s taking place with trade wars because that has the potential to stop the Fed’s rate hikes dead in their tracks. As transparent as the Fed has been with messaging and sticking to what they say they’re going to do, an escalation in trade wars could result in them needing to adjust their path.
This could have some effect on economic growth overall, and the combination of the Fed continuing to remove liquidity and a slowdown related to tariffs could be problematic.
Something that I also think investors may want to pay to attention to is the continued flattening of the yield curve and even the potential for inversion. Investors should understand the impact of each on their fixed income portfolios. Fed Chair Powell and other FOMC members have been more vocal about inversion and proactively mentioning it in press conferences recently.
During Powell’s semiannual testimony to Congress on monetary policy, he indicated that the Fed looks at the yield curve as part of their decision making process; however, they aren’t going to base their decisions on avoiding inversion.
The last time there was an inversion was in 2007, right before the last recession. An inverted yield curve has been a common precursor to recessions in the past. Some analysts and economists have said it’s not as big of a concern this time and this is a different scenario. That might be the case, but any time you’re talking about something being different, and all the data in the past says otherwise, it’s something investors may want to consider.
What are some steps investors could consider regarding their fixed income investments?
It’s always helpful to scan your holdings and make sure you’re still very comfortable with your fixed income investments, looking at risks both from a credit and a duration perspective.
Credit risk, or the chance the company could default, is an important consideration. And given the current interest rate environment, understanding your duration risk, or how sensitive the bond is to changes in interest rates, can be an important consideration as well.
Monetary policy actions have made it so that the short end of the yield curve is more attractive, both on a relative basis compared to longer-term bonds and from a pure yield basis. It might make sense for some investors to try to roll out and into a shorter maturity. Looking into strategies like building a bond ladder with shorter-term investments may be something else to consider.
Is there anything you think investors might want to keep an eye in the second half of the year?
Nothing immediate comes to mind. But for a longer term view, the big things to consider paying attention to for bonds and interest rates is what’s happening with the Federal Reserve, the European Central Bank (ECB) and other central banks, and what’s happening on a macroeconomic scale.
The Fed has been more transparent with its actions, whereas there’s been more uncertainty with the ECB’s potential for interest rate hikes in the future as they taper their bond buying program. The ECB also has said they won’t do anything to raise their central bank rate until at least mid-summer 2019.
Central banks and monetary policy are likely going to impact the short end of the yield curve and the long end of the yield curve could be driven by macroeconomic factors like expectations for economic growth and inflation in the future.
Planning for Retirement
Christine Russell, TD Ameritrade Senior Manager Retirement & Annuities
What are some steps investors should consider regarding saving for retirement?
If you’re still actively saving for retirement, focus on the actual saving part. One place to start is to contribute to a workplace plan if you’re allowed, whether that’s a 401k or a simple IRA. At a bare minimum, consider contributing enough to get the full employer match.
The government gives workers tax incentives to save for retirement. For example, in a 401(k), you can contribute pre-tax money. This allows you to save for the future and save on taxes at the same time, so it might be prudent to take advantage of the tax savings Uncle Sam wants to give you.
It might also be a good idea to look at how much you’ve contributed and check your employer match totals to make sure everything’s correct. Then, see if you can afford to increase that contribution.
What I find is that folks get a raise at the end of the year and they’re a little afraid to increase their contribution too much. Maybe they don’t want to put it all into savings and they want a little extra spending money. But now that it’s halfway through the year, you see how you’re living and what your budget is, so you have a better idea if you can afford to save a little more.
Next, investors can think about starting a Roth IRA if you’re within income limits, or a traditional IRA if you’re above the income limits for a Roth. One way to regularly save is by setting up a regular direct deposit out of your checking account. An advantage of the Roth IRA is it will give you tax-free income, which can be a huge help in retirement.
Finally, if you’re contributing to a 401k, are putting some amount in a Roth or traditional IRA, another thing to think about looking into is a health savings account (HSA). HSAs are a tax-advantaged account where the money can be used for health expenses today, or the money will carry over if unused in the future and can be saved for health expenses down the road, even in retirement. Withdrawals are tax-free as long as the money is used for qualified medical expenses.
How often should investors check on their retirement accounts?
It can be helpful to check on it when you get your quarterly statements, look at contributions and make sure everything is correct.
After the recent run-up in the stock market, it could be a good idea to possibly rebalance your account and get it back in line with your strategy. Some people choose to rebalance on a quarterly basis, while others do it on an annual basis.
In most instances, especially in longer-term timeframes, you probably don’t need to micromanage it. Set a long-term strategy with your saving and investing and just stick with it.
What are some common mistakes investors make with their retirement accounts, especially after the market rallies we’ve had?
People might try to buy high and potentially double down on an investment, and throw aside their strategy to chase winners. We get emotionally attached to investments when our strategy is really what’s important. Having a strategy that you can stick to and rebalancing on a set schedule can potentially help avoid common mistakes.
Remember that saving for retirement is a longer-term goal. The easiest mistake to make is not getting started.
Low investment minimums have made it easier to save for retirement, and even a small amount of money can add up significantly. For younger people, they have a lot more time on their side. Even starting with the tiniest amount today, they’re likely going to be better off than they were thanks to the power of compounding.
If there’s a temporary setback, which happens in life, try to get back to regularly investing when you can. Use the tools that are available to your advantage and try not to let procrastination put off saving for retirement.
Keep Learning
Lee McAdoo, TD Ameritrade Managing Director of Education
We rebuilt our education center this year to make it easier for investors to keep learning. Can you share a bit more about these changes?
The big change is that we made our premium education free to all TD Ameritrade clients. There used to be a cost associated with this education offering and now we’ve opened up everything to clients: online courses, videos, webcasts, and live events, pretty much every week of the year.
The second thing we did was make it very accessible and easy to use. It was previously set up as a separate website, and now we have our Education resources embedded in our trading platforms and available on desktop, and mobile—we have education everywhere our clients are.
In our Financial Literacy Survey, 76 percent of investors said the more educated they are about investing, the better they can manage their money. At the same time, only 9 percent said they took a financial course in high school and 7 percent in college. So there’s a big opportunity for people to keep learning and the best thing we can do for our clients is to help them enhance their financial acumen.
What education resources have we rolled out recently that you’re excited about?
I’m pretty excited about the new Education resources on Twitter, Alexa, and Apple Business Chat. This allows people to learn in a place where they’re already interacting. Whether they’re on their smartphone or at home on a desktop, there’s a variety of ways they can access education and communicate with TD Ameritrade.
The educational resources on these platforms are bite-sized and snackable, making it convenient to learn even when you only have a little time. We also made it a really fun and interactive experience, and gamified it in some ways. For example, on Apple Business Chat you can get free trades for completing certain activities.
We’re all crunched for time. How do you go about learning and what’s your favorite Education resource?
I’m a commuter and take the train to work every day. My commute is half an hour in the morning and the evening, and I’ve found that’s the best time for me.
Twitter is one of the best resources that I use on a regular basis because it’s easy to get snippets of information. The other thing I like to do is watch short videos and read articles. The Ticker Tape is a great resource for article content. Between videos and articles, those are probably the two ways I learn the most.
What if you’re just getting started and don’t know much about investing?
For people that are just getting started learning, the best part about our curriculum is it can take you all the way from the basics with stocks, up to futures, options and forex. No matter how much time you want to dedicate, or how involved, we have a level of content for where you’re at. You can find where you fit in the learning spectrum and then customize the curriculum to fit your needs.
Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.
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