by Stephen D. Memery
Summer is officially over. I know this because the World Series ended with my Red Sox as world champions for the third time in a decade. When I was young, I would sit and imagine living in a perfect world where the Red Sox were perennial victors and the Yankees their foil. Around age 10, I finally came to grips with reality, and, from then on, a world where the Sox had won three series in a decade seemed far-fetched. But then, so did the idea that the federal government would set out to cancel the health insurance for a majority of individually insured Americans. Ah, youth. As much as I would like to revel in another Boston championship, unless your retirement plan allows you to invest in season tickets at Fenway (Game 6 recorded the highest ticket prices ever for an MLB game), it’s not the issue that is likely to affect your investments.
But before we take a look at how the Affordable Care Act might impact your portfolio, let’s take a peek at what the market has done for the past 10 months. Without much fanfare, the S&P 500 has climbed up about 24 percent. That’s a larger increase than we saw in the rebound year of 2009. In addition to this, we are seeing year over year corporate earnings growth at 3.1 percent, which is higher than projected. That means that even though stock prices are moving up, their values aren’t necessarily expensive because companies are making more money. This bodes well for equity investors. Remember, a stocks per share price doesn’t always determine how expensive it is.
So was my 10-year-old self correct? Have the boys up in Boston ushered in a Golden Age? Will it be sunshine, fair weather and record quarterly earnings for all? I’m a fan, not a fool. As usual, in this “new normal” economic recovery, there are a number of pitfalls to which we need pay attention. Factory orders were below expectations for September. (They were also down in August; the report was delayed when Halloween came early in the form of the latest government shutdown.) This may be an indication that manufacturers are anticipating a pullback in consumer spending as we head into the holiday season.
In another area to watch, the Federal Reserve continues to remind us that the era of easy money may be coming to an end. Ben Bernanke is set to leave his position as chairman in January, and, as of this writing, there is no clear consensus in the confirmation of Janet Yellen as his successor. Still, there have been overtures by Fed Board members indicating that the Reserve could begin tapering off its program of bond buying. No matter how well the Fed manages this tapering process, we expect that there will be volatility in the equity market once tapering begins.
Finally, there is the Affordable Care Act insurance mandates. At this point, we’ve heard so many tales of website difficulties, quotes of 100 percent premium increases and cancelled coverage that one almost has to believe the bad news can’t last forever. But I’m a Red Sox fan. I know better. Okay, 83 years isn’t forever. But when you’re 10, it feels like forever. Heck, when you’re in your 40s, it still feels like forever.
Then CNBC hits you with news that President Obama knew the ACA was going to force 50 to 75 percent of all individual insurance coverage to be cancelled, even while he was telling the country we could keep our policies and our doctors. Might as well show re-runs of Bill Buckner and Bucky Dent while you’re at it. But “so what,” right? What does that stumble have to do with our investments as long as the recovery continues?
It means that this dribbling ground ball we have allowed through our second baseman’s legs, results in mandated consumer insecurity in the middle of the holiday season, the largest event in our consumer-driven economy. Most individuals seeing the big insurance premium hikes are younger workers. Coincidentally, these are also the people more likely to have children who utilize health services, and be less likely to have significant personal savings to cushion the blow. Decisions will have to be made.
Like the uninsured, uncertainty will always be with us. The glory of Capitalism is that it allows us to see opportunity where there is risk, so that we can benefit, even thrive, instead of merely survive. As a Red Sox fan, I know one thing: No matter what happens in October, by January, “this is our year.”
To hear more about how we manage risk for healthy investment portfolios, tune in to Talk Zone Internet Radio for our show Money@Work every Thursday from 2:00 to 3:00 PM.
Stephen D. Memery is a Chartered Portfolio Manager and Chartered Market Analyst with more than 20 years experience in the financial industry. He is a founding partner of OV Capital in Old Town Alexandria and host of the Talk Zone Internet Radio program Money@Work every Thursday from 2:00 to 3:00 PM.