Earnings Matter

On any given day, a headline—or even a tweet—can move the stock market. And sometimes those moves are extreme. But what really drives stock prices over the long-term?  Spoiler alert: Earnings matter.

In this episode we discuss:

  • Do Presidential tweets move the market?
  • There is a lot of noise, but over time, profits drive the market.
  • There is a strong correlation between stock prices and earnings.
  • Business in America is good.

Video: Earnings Matter

Each Episode of Monday Morning Money is also broadcast on Local Radio, WMOA (1490 AM and 101.3 FM).  You can hear it at 11:07 every Monday. 

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In addition, you can also hear this episode on our YouTube Channel.  Please take a moment to subscribe, as it helps our analytics and improves our reach.  This also appears on Facebook and LinkedIn.  

Audio Only Version: Click Here

Tweets Moving The Markets

If you haven’t heard, our current president likes to tweet. A lot. Since 2016 the president has tweeted over 10,000 times. About 10% of those tweets are about something important to the financial world.

Some of the big firms try to track the impact of the tweets on the markets. JP Morgan found his musings have had a significant impact on the bond markets. And Merrill Lynch discovered his twitter activity has had a modest impact on the stock market.

But does it really move the needle on stock prices over the long term?

Earnings Matter

The real driver of stock prices and returns extends beyond headlines and tweets. In fact, that stuff is mostly just noise. Sure, it has a short-term impact. But over longer periods of time, people forget those things.

The real driver of prices and returns are corporate profits. When you buy stocks you are buying the future earnings of those companies. When earnings increase over time, the prices tend to follow. And when earnings decrease, you see the impact on stock prices.

In other words, earnings matter a lot.

Consider this:

  • Over the past 30 years, stock prices have increased 7.7% per year. And that doesn’t include the return from dividends. Corporate profits have increased 5.7%.
  • Over the past 20 years, prices have increased 3.8%, profits 6.3%.
  • In the last decade, prices are up 12%, earnings are up 34%.
  • And in the last five years, prices are up 8.5% and profits are up 5.75%.

If you look at a graph of stock prices and corporate profits, they tend to follow a very similar path.

(Click On the Images To Enlarge)

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30 Years
Corporate Earnings Matter
10 Years
Corporate Earnings
20 Years
Earnings matter
5 years

So why is this important to talk about now?

There has been a lot of noise lately. We have a trade war, talk of a recession, an election and political bickering. But what tends to get lost in the shuffle is how American businesses are really doing.

According to Standard and Poors, 498 of the 505 companies in the S&P 500 have reported earnings for the second quarter. Nearly three quarters of those who have reported earnings have beaten their estimates. Only 17% reported lower earnings than expected. The “misses” are well below average for the past several years.

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Click To Enlarge

Things Can Change (Without Notice)

Right now, the earnings news has been quite good.  But that may not always be the case. Profits go in cycles just like the economy.  There will be another period where earnings contract.  In fact, we are starting to see some predictions for a decrease in profits. 

Whether the contraction happens or not remains to be seen.  But that is the nature of the investment world.  We don’t know, in advance, what these outcomes will be.  And that adds to the challenges we face.

The financial world can be a noisy place. It is difficult to sort through what matters and what doesn’t. In our experience, earnings matter.  And like most things in the investment world, the future is very unpredictable.

Stay Informed.

Monday Morning Money is a podcast talking about current events which  impact your bottom line.  

If you would like to be notified when a new episode is released, sign up for our mailing list.  Just complete the form.

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Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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Why Do People Run Out of Money During Retirement?

Nearly Half of Americans say running out of money is their primary concern.  So, why do people run out of money during retirement?  

In this episode we will discuss:

  • There is almost never just one singular reason, it is a combination of factors.
  • A major stock market decline is one factor, but it takes more than a bear market to derail retirement.
  • We identify four of the other common factors which lead to disaster.

Watch Now: Why Do People Run Out of Money During Retirement?

Each Episode of Monday Morning Money is also broadcast on Local Radio, WMOA (1490 AM and 101.3 FM).  You can hear it at 11:07 every Monday. 

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In addition, you can also hear this episode on our YouTube Channel.  Please take a moment to subscribe, as it helps our analytics and improves our reach.  This also appears on Facebook and LinkedIn.  

Audio Only Version: Click Here

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Last week AARP published an article. It had the results of a survey conducted by three organizations. They asked workers about retirement. Here are some key findings:

  • Only 36% of Americans were very confident they could retire comfortably.
  • 44% said declining health as a major concern.
  • 49% listed running out of money as their primary concern.

So, Why Do People Run Out of money During Retirement

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The first contributing factor is a major bear market. That includes one like we saw in the great financial crisis or the dot com bust. We could define this as a period where stocks decline 30% or more. Fortunately, these are not a frequent occurrence. Since the 1960’s, it has happened five times.

Many want you to believe bear markets are the sole reason people run out of money. But, that’s not usually the case. There has to be something else at play.  Sometimes those other factors can be more significant.

The Other Contributing Factors To Running Out of Money in Retirement

Run out of money during retirement spending

Let’s start with how much you spend. There are plenty of debates about what constitutes a safe withdrawal rate.  If you talk to ten different financial planners, you might find ten different answers. But you can reach a point where you are taking too much income from your nest egg.  That dramatically increases your risk of running out of money.

Why do people run out of money

The next is when the bad year—or years—happen early in your retirement. There have been many studies about sequence of returns risk. This data shows bad returns early in a person’s retirement can create big challenges.

Reasons 4 and 5

Click to enlarge.

The fourth contributing factor: people get too aggressive with their allocation. The better the stock market does, the more people want to pursue those returns. They often get more aggressive near the top of a market cycle. Growth is important. Remember, increasing your allocation to stocks to pursue returns increases your risk.

The fifth common element is selling low. It is hard to stick to your long term plan when you see your nest egg shrink. The declines can be extreme. Remember this. In every prior instance of a major market crash, stocks have recovered their losses and set new highs. If you sell your stocks at low points, it makes it impossible to participate in the recovery.

Rarely does “one thing” cause a financial disaster for retirement. Creating a plan can help you address these factors and avoid a potential disaster.

Stay Informed.

Monday Morning Money is a podcast talking about current events which  impact your bottom line.  

If you would like to be notified when a new episode is released, sign up for our mailing list.  Just complete the form.

Join Our List Today!

* indicates required
Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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Are Your Kids a Risk To Your Retirement?

Are your kids a risk to your retirement? Many parents provide financial help to adult children. That assistance could impact your retirement.

 
A Preview: 
  • We share some interesting statistics
  • How it can impact when and how you retire.
  • In extreme cases, how it can deplete your nest egg.

Are Your Kids A Risk To Your Retirement?

Each Episode of Monday Morning Money is also broadcast on Local Radio, WMOA (1490 AM and 101.3 FM).  You can hear it at 11:07 every Monday. 

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In addition, you can also hear this episode on our YouTube Channel.  Please take a moment to subscribe, as it helps our analytics and improves our reach.  This also appears on Facebook and LinkedIn.  

Audio Only Version:  Click Here

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

When you think about the financial threats to your retirement, what comes to mind? Most people would immediately answer a “stock market crash.” Others might say “a prolonged nursing home stay or health care expenses.”

Both of those are legitimate concerns.

Are your kids a risk to your retirement?

For most of us, money is a finite resource. Helping our kids financially means we sacrifice our own needs. For some, that could mean not taking a vacation or delaying the purchase of a new car.  For others, it could mean they don’t save as much as they should for retirement. 

Statistics, Lies and More Statistics

ARe Your Kids A Risk To Your Retirement

79% of parents with adult children provide some sort of financial support for their kids. This would include things like cell phones, car expenses, rent or paying on student loans.

Kids Risk Your Retirement

Parents of 18-34 year olds spent twice as much on their kids as they added to their retirement accounts. 

Kids Risking Your Retirement

On average, parents spend about $7,000 per year helping their kids. This amounts to over $500 billion dollars annually.

Helping Your Kids Can Impact Your Retirement

For many, not saving enough for retirement can translate into working longer— if you can.
 
But, working longer may not be possible. Many Americans retire early because they have to. Lower Social Security benefits and a smaller nest egg create a difficult situation. Your lifestyle in retirement may suffer.

Could Your Kids Cause You To Run Out Of Money?

Over the past two decades, we can point to a handful of real life examples.  The extra income taken to help children was the primary reason a few clients saw their accounts go to zero.  These were extreme situations, but the outcome was not ideal.

Set Healthy Limits

There is nothing wrong with helping your kids.  My wife and I have adult children, and we have helped them at various times. And, if necessary, we will help again.  

You need to set a healthy limit to the assistance you provide.  Your retirement savings comes first.   If you are concerned about what is reasonable, check with a trusted professional.  They can provide an objective viewpoint to help you make a good decision.  

And if you aren’t working with a financial planner, we would welcome the opportunity to talk to you.  Click here to arrange a complimentary consultation.

Stay Informed.

Monday Morning Money is a podcast talking about current events which  impact your bottom line.  

If you would like to be notified when a new episode is released, sign up for our mailing list.  Just complete the form.

Join Our List Today!

* indicates required
Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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Not As Bad As It Seems

In the investing world, things are often not as bad as they seem. The data doesn’t always match the headlines.  

Today we talk about:

  • August was not good, but was it really bad? It felt really bad.
  • The worst month for stocks (so far) this year is…
  • Have we even had a correction in stocks yet?
  • Don’t look now, but the US stock market is having a really good year.
  • So is everything else.
  • Things also aren’t as good as they look either.
  • The fourth quarter is the “money quarter” for the stock market.

Monday Morning Money: Not As Bad As It Seems

Each Episode of Monday Morning Money is also broadcast on Local Radio, WMOA (1490 AM and 101.3 FM).  You can hear it at 11:07 every Monday. 

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In addition, you can also hear this episode on our YouTube Channel.  Please take a moment to subscribe, as it helps our analytics and improves our reach.  This also appears on Facebook and LinkedIn.  

Stay Informed.

Monday Morning Money is a podcast talking about current events which  impact your bottom line.  

If you would like to be notified when a new episode is released, sign up for our mailing list.  Just complete the form.

Join Our List Today!

* indicates required

August Was Bad, But Not As Bad As It Seems

I’m a big Ohio State Football fan. I admire Jim Tressel who was the head coach for one of the more successful periods in school history. One of the things I can remember him saying in his press conferences, was “things are rarely as good or as bad as they seem.”

You can say the same thing about the investment markets. August seemed like an awful month. We had “headliner” down days of 767, 623, and 800 points. We were bombarded with the negative news. The trade war with china, the inverted yield curve, and the looming recession all dominated the headlines.

It felt like August was a dismal month. If I didn’t keep score, I would have guessed things were far worse than they were. On a total return basis, the stock market, as measured by the S&P 500, was down a little more than a percent and a half. It was not as bad as it seemed.

In fact, August wasn’t even the worst month this year. That distinction belongs to May when stocks declined more than 6%.

(Click image to enlarge)

The Headlines Make it Sound Bad, But It's Not As Bad As It Seems

If you only follow the headlines and sound bites, you may think we’ve had a difficult year. The maximum draw down in stock prices this year is less than 7%. That doesn’t even classify as the textbook definition of a correction. A correction is a 10% decrease in prices. And it is half of the average correction we have seen since 1980.

The endless parade of pessimism makes us think things are worse than they seem. August was not a good month. But, The S&P 500, which is the primary index we use to keep score, is up over 18% on a total return basis through the end of August. 

(Click images to enlarge)

Most of the Major Asset Classes Are Doing Well

In fact, most of the major asset classes we follow have had an outstanding year—so far. Bonds are doing well. Remember last week we talked about the relationship between yield and price. When yields fall, bonds prices go up. And yields continued to fall.

Gold is up more than 18% for the year. And Real Estate is up more than 27% for the year. International stocks are also up for the year.

(Click image to enlarge)

An Interesting Nugget

Over the past 25 years, October has been the 3rd best month for stocks. November has been the 2nd best. And December has been the 5th best. Combined, the fourth quarter has generated an annualized return of 4.3% per year.

Over the past 25 years, the stock market has averaged a gain of 8.9% per year. Nearly half of the return for the last quarter century was generated in the fourth quarter.

(click image to enlarge)

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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