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Second Quarter 2018

The Markets

We are halfway through the year and a very unpredictable market climate is evolving. Markets have digested political talks with North Korea, tax reform and rising interest rates. The hope that tariff talks would end as a threat are gone and we now have the makings of a trade war. Depending on the level of retaliation, this will likely affect many parts of the economy, especially in the farm belt and the steel and aluminum industries.

Year-to-date key market stats can be found under the Financial Market Update heading to the right. U.S. stocks are up slightly for the year and international is negative. After a strong first quarter, Europe's economy has significantly slowed. The Brexit situation is still somewhat uncertain. The European Central Bank has suggested that interest rates may begin to rise next year. Tariffs are likely impacting global markets as well.

It is worth noting that just three stocks - Amazon, Netflix and Microsoft - make up approximately 70% of the returns of the S&P so far this year. If you include Apple, Google and Facebook, combined they make up 98% of the returns year-to-date.** The valuations of most of these companies are extremely high as well. The current, average price/earnings ratio of the S&P is about 16.0. See P/E ratios below.***

  • Alphabet Inc. (Google): 25.1
  • Amazon Inc.: 107.2
  • Apple Inc.: 15.0
  • Facebook Inc.: 24.3
  • Netflix Inc.: 109.5

What many people may not realize when they add money to the S&P 500 stock index because of low cost, is that they are buying a disproportionate amount of these companies at extremely expensive levels. Investors may not always be aware of this as it can be difficult to look under the hood of some of the funds that they own. They may buy an index fund thinking they are well diversified. We include index funds in an overall investment strategy, but are mindful not to overweight in areas that can be very high risk when it is not appropriate or designed for a long-term investment strategy.


Bonds are negative this year, meaning if you bought a 5-year treasury bond in January and sold it today, you would not get back as much as you invested (even after you collected the interest payment). As you know, if you hold the bond until maturity you will receive the face value. If you sell early and rates have risen, you can lose money. Bond funds may contain many different types of bonds. Each bond within the fund may mature at a different time and money can flow freely in and out on a daily basis. There is no maturity date on a bond fund, so it is important to know what you own in terms of interest rate risk, quality risk and why you own it. We want to have some stability when stocks are very volatile, even if an interest rate payment is somewhat low. There are also other “alternatives” to stocks that may be less impacted by stock market declines and extreme volatility. Some examples are managed futures, long/short funds and some commodities. We incorporate cash, bonds and alternatives like this in a portfolio to help smooth the ups and downs. As interest rates rise, holding cash will be more tolerable.

Education News

Many of our team attended a conference in Washington D.C., where we heard from the likes of Andy Friedman, attorney and political expert, about the state of our political environment domestically and internationally, as well as Adam Alter, New York Times bestselling author of Irresistible: The Rise of Addictive Technology and the Business of Keeping Us Hooked - a very interesting read. There was much about the new tax law and many sessions on better technology to make your financial world easier to navigate. We are exploring ways to get you information faster and the way you want it (expect to hear from us as we reach out to you for your suggestions). We also heard from portfolio managers and economic analysts on our ever-changing, global financial engine.

Tech Corner

We have partnered with many firms to help you with things like healthcare, insurance concierge assistance, Medicare assistance, estate planning, document storage and aggregation tools to help you keep it all in one place. As we roll these out and help you become familiar with the resources, we will bring them to you as your needs dictate. Feel free to ask us anytime if we have resources in an area of concern for you.


One new tool I’d like to share with you is called Everplans. It is a relatively simple, web-based tool that guides you through the process of documenting legal, financial, healthcare, eldercare, and other personal decisions for your use today, and for your loved ones use if something were to happen to you. Everplans is a wonderful compliment to the work you’ve likely already done in legacy planning (i.e., wills, trusts, etc.) While typical legacy documents address what you want to happen, Everplans addresses how your successors will execute your plans. Simple things like who to call to address issues related to pets, utilities, and favorite doctors and friends, will be at the fingertips of those who will need to know. If you are interested in a demonstration of this free tool, please contact our office.

Happy Summer!

After the coldest April on record in Michigan, we are having one of the hottest summers on record so far with several heat indexed days of 100 degrees! Stay hydrated! We hope you are enjoying your summer. Our grandbaby number eight is on her way and we are enjoying every minute with all of them.

Warm Regards,



Financial Market Update* Year-to-date change as of June 30, 2018
S&P 500 Index 2.65%
Morningstar Commodities
Broad Basket Category 1.50%
MSCI EAFE US$ (International) -2.75%
Barclay US Aggregate Bond -1.62%

*Past performance may not be indicative of future results. Expressions of opinions are as of this date and are subject to change without notice. Any opinions are those of Sherri Stephens and not necessarily those of RJFS or Raymond James. Stephens Wealth Management Group is not a registered broker/dealer and is independent of RJFS.

Diversification and asset allocation do not ensure a profit or guarantee against a loss. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. You should discuss any tax or legal matters with the appropriate professional.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected.

**Source: CNBC
***Source: MarketWatch

Managed futures involve specific risks that may be greater than those associated with traditional investments and may be offered only to clients who meet specific suitability requirements, including minimum net worth tests. You should consider the special risks with alternative investments including limited liquidity, tax considerations, incentive fee structures, potentially speculative investment strategies, and different regulatory and reporting requirements. You should only invest in hedge funds, managed futures or other similar strategies if you do not require a liquid investment and can bear the risk of substantial losses. There can be no assurance that any investment will meet its performance objectives or that substantial losses will be avoided. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

Investments mentioned may not be suitable for all investors. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.

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