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STA Weekly Report – The Appetite for Risk is Back

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The Appetite for Risk is Back
S&P 500 Nears Overhead Resistance While the VIX Tests Underlying Support
Weekly Snapshot of Global Asset Class Performance
401k Plan Manager*Updated on 12/31/2018

The Appetite for Risk is Back

Stocks have extended last week’s positive momentum with a broad-based rally, as investors seem encouraged by dovish Fed minutes and potential progress on U.S.-China trade talks.

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Federal Reserve Chairman Jerome Powell said the U.S. central bank will be patient before adjusting interest rates again as it waits to see how global risks impact the domestic economy.

The last round of trade talks in Beijing didn’t result in too many details but the Chinese Vice-Premier will lead a delegation to Washington at the end of this month to continue negotiations before a 90-day “truce”. This is undoubtedly a step in the right direction on trade and while not a full -fledged deal, it does represent a sign of hope for investors.

Global stocks in the United States, developed international- and emerging-markets, have now managed to recover some of the losses incurred during the selloff in December last year.

In fixed income, risky sectors including bank loans, high yield, and emerging market debt rallied while safe haven assets like U.S. Treasuries lagged, reflecting a sharp turn in investor sentiment.

In contrast to the buoyancy in the market, survey-based economic outlooks have deteriorated somewhat. The U.S. Manufacturing Purchasing Manager Index (PMI) fell to 54.1 from 59.3 last month. This is the largest point drop since October 2008 and the lowest level since November 2016. China’s PMI decline to 49.4, signaled a contraction for the first time in two and half years.

German industrial production unexpectedly fell 1.9% from the previous month (down 4.7% in annual terms), missing economist estimates for a 0.3% gain. The decline was broad-based across all categories and signaled continued weakness in Europe’s largest economy.

Despite recent weakness, economists surveyed by Bloomberg only slightly increased their probability of U.S. recession in the next 12 months to 25%.

Economic downturns or financial crises are typically triggered by significant imbalances in an economy. Compared to the last three U.S. recessions, there is less evidence of significant economic and financial vulnerability.

The job market is strong and inflation pressure is low, suggesting that the Fed can take a more gradual approach to normalizing monetary policy. US households are in good shape judged by reasonable financial leverage. There is also no sign of a bubble in the housing market.

However, corporate Balance sheets are one area of concern. In a scenario where the economy slows down and borrowing costs spike, the increase of corporate defaults could stress the financial market and tip us into our next recession. The increase in fiscal imbalances and rising public sector debt is another area of concern. However, this is a longer-term risk rather than an immediate threat to the length of current business cycle.

Weekly Technical Commentary

The S&P 500 Nears Overhead Resistance While the VIX Tests Underlying Support

The daily bars in the chart below shows the S&P 500 nearing overhead resistance at its 50-day moving average (blue arrow) and price resistance starting at its October/November lows.

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With its 50-day average remaining below its 200-day line (and falling), the chart pictures a short-term rebound within a larger downtrend. The S&P 500 also remains well below its falling trendline drawn over its October/November highs. It would need to clear those barriers to signal the start of another up leg. While the SPX is testing overhead resistance, the Volatility (VIX) Index is testing underlying support. The red line in the lower box shows the VIX peaking during December at overhead resistance formed at last February’s closing high. The falling VIX has helped support the current rebound in stocks. The VIX, however, is now nearing potential support near 16 which was formed by lows hit during November and early December. That’s an important test for the VIX and the SPX. As long as support near 16 holds, the market rebound will remain in jeopardy.

Weekly Snapshot of Global Asset Class Performance

If you have any questions, please feel free to email me at


STA Investment Committee

Luke Patterson, CEO & Chief Investment Officer

Mike Smith, President

Andrei Costas, Senior Investment Analyst (Equity Strategies)

Nan Lu, Senior Investment Analyst (Fixed Income Strategies)

New Year’s Resolutions – Get Your Finances in Order
Written by: Scott Bishop, MBA, CPA/PFS, CFP®

Many of you made new year’s resolutions to eat healthier, lose weight and be better to your family.  For those of you reading this newsletter, I bet you at least thought about making some Financial “New Year’s Resolutions”.  Your friends at STA Wealth want to help you reach your financial resolutions and goals.  I was just interviewed by Cameron Huddleston at Go Banking Rate for some New Years Resolution’s that you can consider…at no cost!

On the STA Money Hour, daily at 12pm on 950AM KPRC in Houston, we have talked several times about how to better plan for your future.  As we enter the New Year, it is a great time to get organized to start next year on the right foot with the right plan!  Below, I have listed some steps that you can take to get your finances ready by year-end.

First off, read this linked article to see if you are on track given your sage in life:   Proper Planning to Avoid Money Worries.  Then take a look at our year-end financial planning ideas to see if there are any you should consider.  Once you read these articles, here are some follow-up steps to help your New Year’s Resolutions become reality!

Read the Full Article Here


Important Disclosure

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by STA Wealth Management, LLC (“STA”), or any non-investment related content, made reference to directly or indirectly in this article / newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this article / newsletter serves as the receipt of, or as a substitute for, personalized investment advice from STA.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  STA is neither a law firm nor a certified public accounting firm and no portion of the article / newsletter content should be construed as legal or accounting advice.  A copy of the STA’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are a STA client, please remember to contact STA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. STA shall continue to rely on the accuracy of information that you have provided.


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