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Jim: Hi everyone today is Wednesday, March 8, 2017 and this is our midweek, market update call.  Each Wednesday, we look to inform you of our investment thinking and decisions we are making on your behalf. 

Today’s comments cover financial news items as well as a review of our market indicators that guide our hand. 

But first here are some thoughts from Bernice Murff on the advantages of Turbo Tax, Bernie, what’s on your mind this Wednesday?

Bernie: Thank you Jim –

I wanted to review two items related to tax filings. First, most of the 1099’s have been generated and sent to you. For those of you that had an amended 1099 the next printing date is March 15^th. Tameika and Paula have been working diligently to communicate with your CPAs and send out items directly to them where requested. I wanted to take a minute to thank them for all of their efforts here behind the scenes to ensure a smooth tax reporting season. Next, for those of you that file your taxes using Turbo Tax, Raymond James currently has a partnership that enables you to use TurboTax® to import data from your Raymond James composite forms, RPS Form 1099-R, and RJ Bank 1099 tax statements.

Steps to import your Raymond James data:

• To use the service, you need only select “Raymond James" or "Raymond James Bank” from the financial institution drop-down menu in TurboTax^®.
• You must then enter the account number and document identification number printed on the 1099 statement as directed. This “key” provides access to a summary of all forms available to import; you can view detailed information by selecting any form listed.
• Once the desired forms are selected, you must choose the import function to fill in your tax forms with the appropriate information.  Raymond James recommends that clients review their tax information to ensure the upload was successful.

I’ll now turn the call over to Jim for his market comments and observations.

Jim: Thank you Bernie.  Making it easier to get through the tax season … ALL SUGGESTIONS are welcome!

Market tops.  Market tops and bottoms are those elusive signals rarely identified with flags or warnings.  Market tops and bottoms tend to be very clear, but only when one looks back after it has happened.  The market top in March of 2000 is quite obvious, it was March 24^th and the bottom that followed—in the longest bear market in history—occurred almost 31 months later (929 calendar days for those counting at home) on October 10, 2002. 

There are signs of market tops and bottoms, but they are more of myth and financial folklore.  Back in the day, if the doorman or taxi driver was telling you what to buy, that was a sign the market top was near.  When stock names on a dart board were winners—just for the dart randomly hitting them—that was another sure sign the market climb was getting tired. 

Inversely, market bottoms were found this way:  when no one—and I mean no one—wanted to buy stocks, that was the time one could be sure the bottom was near.

In our world, the taxi driver, the doorman and times of no stock interest can still play a part in identifying market tops and bottoms, but back in 1947, a financial analyst by the name of A.W. Cohen enhanced a supply and demand technique created by Ernest Staby in the 1930’s that looked at determining whether a stock’s price was climbing or falling, putting stocks into one category or the other and then keeping track of the percentage of each category.  When 70% or more of the stocks were climbing, there was anywhere from 60 to 110 days left for stocks to rise and when more than 70% of all stocks were falling about the same number of days were left until more stocks began climbing again.  This correlates with dart boards and disinterest mentioned above, but it allows us to define it in quantitative terms. 

We look at three large groups of stocks to determine how each is progressing, for certain large groups—even sectors—can be elusive to identify their direction when all lumped together.  Therefore we separate the 6000+ operating companies that trade publicly into three distinct groups.  We further breakdown the stock market into asset classes and sectors, because each one of these has their own personality as well.

While we are almost near the mark of 70% of stocks on the NYSE that are climbing, the range has been somewhat narrow between 52 and 68% and has been in that range since the spring of 2016.  This makes the market assessment harder to identify, but still provides a doorman’s view when it nears the 70% level.

The rapidly declining market prices in the first 6 weeks of 2016 actually pushed the number of stocks with declining prices to over 70%, so that when stock prices reversed and started creating a larger number of stocks climbing in price, that condition makes it easier to be bullish but limits one to a smaller universe of investments to buy.

I am only too happy to review this with you at any time, there are few exceptions to these guidelines and of course income is a primary focus of the large majority of our clients.

*Our indicators? The attributes we follow continue to act favorably. The **Large Groups of stocks we follow,

• the 2000+ on the New York Stock Exchange – currently at 68% and holding
• the almost 2500 in the Over-the-Counter Market – currently at 58% and holding
• the combined group of those two – a select group of almost 3000 found in both of those markets that have options that trade with the stocks.  This group is currently at 64% and holding

Asset Class Rankings?  Domestic equities lead the way, international equities follow, then commodities, fixed income, cash and currencies.

Sector Rankings? Semiconductors, Software, protection safety equipment, then healthcare are the top 10% of sectors performing the best

Interest rates?

• The short term 13 week treasury bill:  breaking into high yields not seen since 2009, that’s in response to intentions of the Fed to raise interest rates
• The 5 year Treasury Note:  hitting yields not seen since April 2011
• The 10 year Treasury Note:  hitting high yields not seen in almost 2.5 years
• The 30 year Treasury Bond: just about to break through the 3.2% level, not seen since the summer of 2015

So rates … they are arising. 

FOOTNOTES:

• Our indicators? The [New York Stock Exchange] [Over-the-Counter Market] [Optionable Universe] BULLISH PERCENTS measure the % number of stock price charts whose most recent signal has been a BUY signal.
• Large Groups? If that % is increasing or decreasing, it may be helpful in making investment decisions to buy, sell or hold. 

Opinions expressed are not necessarily those of Raymond James & Associates. The author's opinions are subject to change without notice. Information contained was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. There is no assurance these trends will continue or that forecasts mentioned will occur.

Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security.

There is an inverse relationship between interest rate moments and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices rise. One basis point is equal to 1/100^th of 1%, or 0.01% (0.0001).

Commodities are generally considered speculative because of the significant potential for investment loss. U.S. Treasury securities are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value.

International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets.

James Schmidt, Raymond James, its affiliates, officers, directors, or branch offices may in the normal course of business have a position in any of the securities mentioned in this report.

Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.

The S&P 500 is an unmanaged index of 500 widely held stocks. The Dow Jones Industrial Average is an unmanaged index of 30 widely held securities. It is not possible to invest directly in an index. U.S. Treasury securities are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds and treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value.  U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government.  Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government. 

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