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February 5, 2018

As January turned to February last week, the S&P 500 recorded its 15th consecutive monthly total return gain (i.e., including dividends), a feat last achieved 59 years ago.  January’s +5.7% gain was also the index’s best start to a year since 1997.  But at this stage of an economic cycle (the US economy has been expanding for 103 months), “too much” good news can foreshadow the need for the Federal Reserve to raise interest rates to keep our economy from overheating.  That fear caused stock buyers to become stock sellers last week, resulting in 2 trading days with losses of at least 1%, significant when compared to all of calendar year 2017 which produced just 4 trading days during the year with at least a 1% loss (source: BTN Research).

By Friday’s (2/02/18) close of trading, the yield on the 10-year Treasury note climbed to 2.85%, up from 2.41% at the end of 2017.  The last time the 10-year note yield was this high was on 1/22/14 or 4 years ago.  The average rate on a 30-year fixed rate mortgage, historically tied to the 10-year note yield, rose to 4.22%, a level last seen in March 2017.  Home buyers are now faced with a shortage of existing homes for resale (1.48 million, down 10% in the last year) and a rising cost of borrowing (source: Freddie Mac).

US employers hired +200,000 new net workers in January 2018, up from an average monthly gain of +181,000 in 2017.  The average hourly wage paid to workers in the private sector rose to $26.74 an hour, up +2.9% in the last year.  The last time wages grew this fast on a year-over-year basis was May 2009 (source: Department of Labor).

Notable Numbers

UPS AND DOWNS – The S&P 500 has gained +10.1% per year (total return) over the last 50 years (1968-2017) despite suffering through 7 bear markets of at least a 20% decline each time (source: BTN Research).

QUITE A PERFORMANCE – During the 4 years that Janet Yellen served as Fed Chair (i.e., 2/03/14 to 2/02/18), the S&P 500 gained +72.4% on a total return basis (an average of +14.6% per year) and achieved 156 record closing highs or 1 every 6.5 trading days (source: BTN Research).

REQUIRED MINIMUM DISTRIBUTIONS – If you turned age 70 ½ sometime in 2017, then you must begin taking annual withdrawals from your IRA accounts no later than 4/01/18.  If you delay your 1st withdrawal until 4/01/18, you must also take a 2nd distribution by 12/31/18 (source: Internal Revenue Service).

HOUSEHOLD SPLIT – The 110.9 million households in the United States on 12/31/07 were split between 75.2 million owners and 35.7 million renters.  The 120.2 million households in the United States on 12/31/17 were split between 77.2 million owners and 43.0 million renters (source: Census Bureau).

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