The Weekly View (4/24/17)

What’s On Our Minds:

Writing a post about French elections and the structure of the European Union might be a bit overdone, but that is what’s on not just our but everyone’s minds this week. Last July, we wrote about Brexit in our quarterly newsletter. Undoubtedly we’ll talk more about Europe in the next one, as well. For now, let’s do a quick refresher on how France’s elections seem to mean so much for Europe- and the US.

Centrist candidate Emmanuel Macron pulled ahead in the weekend’s primary election results, signaling his likely win in the runoff election. The markets responded overwhelmingly positively, with the Euro’s value rising 1.8% on Sunday against the dollar. Macron was so warmly welcomed by the markets because his opponent, far-right candidate Marine Le Pen, would mean further nationalist tumult in the EU and another step toward its breakup.

The European Union is flawed, to be sure. We are not the first to point out that a monetary union (everyone uses the Euro) without a fiscal union (not everyone treats the Euro the same in their budget) means that some countries (i.e. Germany) feel that they are subsidizing the bad financial habits of others.

Also stirring Europe’s electorate is the rise of nationalism, not just in the EU but around the world. France is especially pressured by these thoughts, with the country having had far and away the most religiously-motivated terrorist activity in the recent past. The BBC shared the top five countries for terrorist arrests:

Chart showing arrests for terrorism inspired by religion

However, the EU is, at least for now, the law of the land. A disruption would call into question important trade agreements, investment flows, tariffs, and more. It’s not certain if each tradeoff would be good or bad for the US in the long run, but that’s one thing the markets really hate: uncertainty.


Last Week’s Highlights:

It was a choppy week in the markets as investors processed political headlines and first quarter earnings reports from various companies. By the end of the week, major indexes were in the green.  Investors are hanging in there, even with tensions in North Korea, the French election, and some doubts over whether President Trump can deliver on campaign promises.  On Friday, stocks bounced off session lows when Trump announced he will make a “big announcement” on tax policy this Wednesday.


Looking Ahead:

Investors are preparing for the busiest week of first quarter earnings season.  More than 190 S&P 500 constituents report this week, including large components Alphabet and Microsoft.  Housing data, including new and pending home sales, will be reported on Tuesday and Thursday.  Along with earnings and economic data, investors are also anticipating big news on tax reforms from President Trump on Wednesday.  Then on Friday, first quarter GDP will be reported.  Analyst and traders will be busy digesting all the information which could lead to another choppy week in equity markets.

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The Tufton Viewpoint, Spring 2017: The Skies are Clearing

In a market that can be difficult to anticipate, there’s a simple pleasure to seeing spring arrive right on time. And if the April showers outside our office are any indication, it would seem that May is planning to make a colorful entrance, indeed.

Of course, encouraging though the view outside our windows may be, rest assured that your team of investment professionals remains focused on an entirely different landscape. In the first three months of 2017, as the Fed raised rates and forecasters fretted over policy, the S&P 500 rose by roughly 6%, while the Dow Jones Industrial Average rose by nearly 5%. Together, these indices contributed to the best quarter for American equities in over a year, and the best quarter for global equities in over three years.

To some, these gains signal clear skies—and good times—ahead. In a recent poll survey of C-suite sentiment, JP Morgan Chase found that over three quarters of executives expect the new administration to be a boon for business. On Wall Street, where marquee brands like Canada Goose and Snapchat are stepping out confidently into the public markets, the feeling appears to be mutual. As Goldman Sachs chief Lloyd Blankfein pithily put it in a February presentation to clients, “It feels like…it’s going to get growthier.”


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The First Quarter of 2017: March Madness

by Eric Schopf

The stock market built on year-end momentum and racked up impressive gains in the first quarter. The Standard and Poor’s 500 provided a total return of 6.07%. Optimism ran high for President Trump’s aggressive fiscal policy. Consumer confidence reached levels not experienced since 2000. The mantra of lower taxes, reduced regulation, and increased infrastructure spending was the sweetener for a powerful sugar buzz. The market’s rapid ascension was dubbed the “Trump Bump.”

The sugar high began to wear off as plans to repeal and replace the Affordable Care Act floundered. Even with control of the House and Senate, Republicans could not find common ground. Revised healthcare legislation didn’t even make it to the Floor for a vote. With that failure, suddenly the remaining tenets of the President’s platform appeared vulnerable. The Trump Bump became the Trump Slump as the stock market delivered negative returns in March.


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How Hot is Too Hot?

by John Kernan

Many of our clients have been asking questions about the (real or imagined) “peaking” of the market. They have seen one of the longest continuous bull markets in history and are telling themselves that the party must end sometime. One of the more confusing pieces of this puzzle is the role of the Federal Reserve and its interest rate policy. The Fed plays a delicate game with interest rates. It seems like the markets live or die by the Fed’s moves, and what the Fed does with rates has real consequences for all kinds of investors and businesses.

What is the “game,” exactly? What makes an interest rate “too low”? Wouldn’t we want the economy to grow as much as possible, all the time?


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Company Spotlight: ExxonMobil (Ticker: XOM)

by Ted Hart

Started by John D. Rockefeller as Standard Oil in 1870, ExxonMobil (Ticker: XOM) is the world’s largest diversified petrochemical company with a market capitalization of $343 billion. The company is split into three businesses: Upstream, Downstream, and Chemical. The Upstream segment engages in the exploration and production of crude oil and natural gas. Downstream refines the oil into liquids such as gasoline and markets the finished product at your nearby gas station. Finally, the Chemical business manufactures chemicals like ethylene, which is a basic petrochemical product that is the building block for many everyday products including packaging materials, storage containers, bottles, and toys.


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Giving Options for Wealthy Donors

As a wealthy donor, the options available for charitable giving multiply.

You can have more control over how your donations will be spent, even potentially directing how each charitable dollar is allocated. While some of these options may require more planning and administrative work than direct giving, they also provide the potential for a deeper charitable impact and the chance to leave behind an enduring charitable legacy. Before deciding to use one of the following options in your charitable giving strategy, take time to learn about the obligations and resources each will require as well as the potential tax benefits each can offer.


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The Weekly View (4/17/17)

What’s On Our Minds:

Tufton Capital is committed to helping our clients implement financial plans that will help keep them on track during their retirement years.  By establishing a financial plan, you will determine how your investment assets will fund your financial needs, wants, and wishes.  Seeing that saving enough for retirement is the most important part of the planning process, review our 10 Tips for Saving for Retirement Below.

Start now: It’s a simple fact that the earlier you begin saving for retirement, the more time your money has to earn interest and grow. If you’ve put off saving until your 30s or later, make up for lost time now by stashing away 10 to 15 percent of your salary.

Plan your retirement needs: If you want to retire at 55 and travel the globe or work for as long as you can but stick close to home, how much money you need to retire is unique to you. Rather than relying on figures that suggest you’ll need 80 percent of your pre-retirement income to live comfortably later in life, talk with your spouse and portfolio manager to settle on an amount to save that’s tailored to you.

Learn about and contribute to your employer’s plan:  If your employer offers a tax-sheltered plan, contribute at least enough to get the employer match. Your employer can provide you with a summary plan description, which recaps your plan and vesting eligibility, as well as an individual benefits statement.

Consider saving “on the side”: If you don’t have access to an employer-based plan, contributing to a traditional or Roth IRA allows you to get similar tax benefits for your retirement savings. Even if you do contribute to an employer-based plan, an IRA can supplement those savings.

Make saving as easy as possible:  Eliminate the need to move money from one account to another by setting a monthly savings goal and automating a deposit to that amount. By making savings routine, you are more likely to see your retirement nest egg grow. To help boost your regular savings, funnel any extra cash windfalls, such as from a bonus or inheritance, directly to your retirement savings.

Increase savings as your near retirement: Your income will likely rise with age and experience, so it makes sense to save more as you earn more. After age 50, you will also be eligible for catch-up contributions, which allow you to contribute beyond the set limit. For 401(k)s, you can contribute an extra $6,000, while for IRAs you can contribute an extra $1,000.

Be an active participant in your retirement plan: Automating your retirement savings and amount doesn’t mean you should “set it and forget it.” Examine your quarterly statements to ensure you are on track to meet your goals. Can you afford to contribute more? Are your investments still appropriate? Do you need to lower your exposure to risk? By taking active control now, you take control of creating the best retirement lifestyle possible.

Decide on your Social Security strategy:  Social Security benefits may be available at age 62, but up until age 70, your retirement benefit will increase by a fixed rate (based on your year of birth) each year you delay retirement. Waiting means you may be able to take advantage of some extra cash. If you are married, you may also be able to receive spousal benefits, which boost the amount you and your spouse receive in Social Security as a couple. To learn more, visit

Be a savvy investor: It’s important to be smart about not only the amount you save but also how you save.  Keep tabs on how your investment accounts are performing and keep in touch with your portfolio manager.  The more intentional you are about how your assets are invested, the more secure you can feel about them.

Don’t touch your savings until retirement: Dipping into your retirement savings is a last resort. In addition to harsh penalties, you lose principal, which in turn depletes interest earnings and tax benefits. Also, if you switch jobs, rollover your retirement account rather than “cashing out.” Preserving your retirement savings may be difficult when funds are tight, but will benefit you when you truly need it most.


Last Week’s Highlights:

In an abbreviated week of trading due to Friday’s holiday, stocks declined roughly 1% in the face of global tensions with Syria, Russia, and North Korea. Because of the international drama, we saw a dip in bond yields as investors “flew to safety” and put more money into U.S. Treasuries.  Along with geopolitical pressure, earnings season kicked off and investors weighed earnings reports from large U.S. banks.  Wells Fargo shares fell 3.3% after reporting a slowdown in their mortgage banking business.  Warren Buffet’s Berkshire Hathaway said it was forced to sell more than 7 million shares of Well Fargo’s stock in order to keep their ownership stake in the bank below 10%. The move to cut its stake keeps Berkshire from having to become a bank holding company.

Looking Ahead:

Investors will be examining first quarter earnings reports this week and working through anymore geopolitical turmoil that may arise. Netflix and United Airlines report their first quarter results on Monday. On Tuesday, we will hear from Goldman Sachs, Bank of America, and IBM.  On Friday, Samsung will release their new Galaxy S8 mobile phone.


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The Weekly View (4/10/17)

What’s On Our Minds:

After you have achieved your goal of owning a home, you may be itching to jump into the real estate game again by buying a second home. While interest rates are low, it might make sense to buy a house to use as a vacation home, a rental property, or a home for retirement.   The process of buying a second home is similar to the process you already undertook when you bought your first home, but the mortgage and tax implications will be different.  Below we will discuss some of these differences.

Financing the House

At this point in your life, you may have more cash to put toward a down payment or may even be able to buy a second home outright.  While rates are still historically low, it may make sense to finance a portion of the home.  That being said, mortgages for second homes are often more difficult to qualify for and require stricter terms:

  • Interest rates: Expect your interest rate to be half a point to one point higher than it would be if you were buying a principle residence.
  • Down payment: For a principle residence, most mortgage lenders prefer 20 percent down, but don’t require it. For a second home, plan to put 20 to 25 percent down in order to qualify for financing.
  • Credit score: Typically, you must have a credit score of at least 730 or 740 to get the best loan terms. Some lenders will require an even higher score for second home mortgage applicants.
  • Debt ratio: The debt ratio (the ratio of your debt payments to your monthly income) that your second mortgage lender requires will probably be the same as for your first mortgage—typically no higher than 36 percent. However, when calculating the ratio for your second mortgage, you’ll have to include house payments, property taxes and insurance for two houses instead of just one.

Tax Implications

Your second home expenses will include additional property taxes. If you’re renting it out, you also need to pay income tax on your rent earnings, but you could be eligible to deduct operating costs. The sale of a second home is also subject to different capital gains tax rules than a primary residence.

  • Property taxes: The taxes you pay on either of your houses will depend on where they’re located, how much land you own, and how many improvements the house has had. If you buy a run-down house with plans to make improvements, expect your property tax bill to increase. Similarly, if you buy a house that has seen major improvements since the last tax assessment, be prepared for it to increase after you buy it. You can write off your property taxes as a tax deduction, just as you can with a first home..
  • Income taxes: If you rent your house out for more than 14 days and use it for personal reasons for less than 14 days of the year, you must pay income tax on your rent earnings. However, when you claim rental income on your taxes, you can also deduct rental expenses you incur from maintaining the property, finding tenants, etc.
  • Interest deduction: You can also deduct your mortgage interest payments on your second house if you itemize your tax return. If the total value of both mortgages is below $1 million, you can deduct your interest in full.
  • Capital gains taxes: When you sell your primary residence, you won’t be taxed on capital gains up to $500,000 (if you’re married) or $250,000 (if you’re single). With a second home, those limits don’t apply. Instead, you’ll be taxed on the entirety of your capital gains. To avoid paying high capital gains taxes, you must have lived in your home for at least two years before selling. If you’re selling a house that you used as a rental property or vacation home, consider making it your primary residence for two years before selling to reap the tax benefits.

While owning a second home comes with added expenses, the tax benefits provided by taking on a mortgage and potential appreciation of the home’s value can make it a sound investment strategy.

Last Week’s Highlights:

While stocks lost only a few points last week, there was no absence of market moving news.  The Federal Reserve’s meeting minutes were released last week which revealed that the Fed is beginning to determine when and how it will reduce the size of its balance sheet (its ownership of bonds it purchased as part of its quantitative-easing stimulus strategy).  The 10-year interest rates fell to as low as 2.32% last week, receding from the 2.60% level reached in March after the Fed announced its second rate hike in the span of three months.  On Friday, we saw a weak jobs report that showed that the economy added only 98,000 jobs in March.  The Street had expected 185,000 new jobs.  Investors are blaming the weak job report on bad weather in March.


Looking Ahead:

After being stuck in a state of suspended animation for the past few weeks, the stock market will finally have its moment of truth as corporate earnings begin rolling out this week.  JPMorgan Chase and Citigroup will kick things off on Thursday.  Earnings report will reflect President Trump’s first quarter as President so investors will be crunching the numbers to see if they support the post election rally.  The bond market will close early on Thursday in advance of Good Friday.  On Friday, equity markets will also be closed.


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The Weekly View (4/3/17)

What’s On Our Minds:

Market cycles represent fluctuations in stock, bond and investment markets. These cycles are closely tied with large-scale economic business cycles and have an important impact on investment, financial, cash flow and personal planning.

Market Cycles Versus Business Cycles

Market cycles and business cycles may sound the same, and are indeed very similar, but are slightly different. A market cycle typically refers to different phases in the stock market, whereas the business cycle is an underlying fundamental change in economic business activity as measured by real Gross Domestic Product (GDP) percent change (an important measure of the level of business activity in the economy), unemployment rates, manufacturing data and more.

The difference can be more clearly seen in the terminology; market cycles are defined by bull and bear markets, while business cycles are defined by economic growth and recession. A typical definition for bear market is a downturn of at least 20 percent over longer than a two-month period in either the S&P 500 for Dow Jones Industrial Average (DJIA). This is not to be confused with a correction, which is a short-term downtrend in stock markets. The length of market cycles also is important to note. If market analysts believe that stock appreciation will be a short-term trend, then it is referred to as cyclical. Long-term trends longer than a few months in duration are referred to as secular.

Business Cycle Stages

Not all phases of the business cycle can be easily separated, and the stages of the business cycle may only be able to be identified in retrospect. Still, it is useful to define the five stages to business cycles, as follows:

  1. Initial recovery: usually a short period in which the economy comes out of a recession. Unemployment remains high and consumer confidence will most likely be suppressed. At this point in the business cycle, open market activities to reduce interest rates or governmental policies, such as stimulus efforts, are enacted.
  2. Early upswing: confidence recovers and the economy gains some momentum. This is a very healthy period in time, where productive capacity is still able to keep pace with growing demand and there is no sign of significantly higher inflation.
  3. Late upswing: although confidence is high and unemployment is low, inflation is starting to pick up and offsets nominal economic growth.
  4. Slowdown: as a result of rising interest rates, the economy starts to slow. Investors reduce risk and shift stock allocations to bonds. Although there is a slowdown in activity, inflation is still likely to rise during a slowdown.
  5. Recession: typically defined as two consecutive quarterly declines in GDP; consumer spending contracts. Once the recession is confirmed, central banks start to cautiously increase the supply of money to spur growth. Recessions may be highlighted by bankruptcies, fraud or a financial crisis.

Although forecasting upcoming business cycles is particularly challenging, it helps to know how these cycles tie into market cycles and, ultimately, the performance of your investment portfolio.

Last Week’s Highlights:

Stocks rebounded last week as both large and small caps made a move higher. The S&P 500 was up .8% and the Dow Jones was up .32%.  Over the past two weeks we’ve seen some volatility return to equity markets that we haven’t seen in some time.  Investors were spooked after Trump failed to repeal and replace Obamacare but last week’s rally shows that investors remain confident that he will be able to deliver on his promises of sweeping tax reform, regulatory relief and infrastructure spending.

Looking Ahead:

There’s a heap of economic data coming across the wire this week including vehicle sales on Monday, the Federal Reserve’s March meeting minutes on Wednesday, and the March Jobs report on Friday.  Investors will be looking at these numbers closely as many believe equity markets have been running hot and these numbers will either confirm or refute those beliefs.

As always, Tufton portfolio managers remain focused on managing accounts for the long term as opposed to getting caught up in pundits’ hype.

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The Weekly View (3/27/17)

What’s On Our Minds:

Tufton Capital Management is committed to helping our clients take control of their financial future. Armed with an effective estate plan, you can be sure you preserve your family’s legacy while minimizing taxes. By taking advantage of direct gift limits allowed by the IRS, wealthy families can get a head start on generational wealth transfer.

Taxes and direct gifts

Depending on their amount, direct gifts can be given tax-free. You may give up to a combined $5.45 million in life or death without the money being subject to estate or gift taxes, and there is also a $14,000 annual exemption rate per donee (recipient). Couples can combine their annual exclusions to double this amount, meaning they can give $28,000 per donee per year. Even if only one spouse technically makes the gift, as long as both spouses consent, it is considered by the IRS to have come from both. This allows couples to maximize their gifting ability. In addition, all gifts you give to your spouse throughout your lifetime are tax-free, as long as he or she is a U.S. citizen. Annual gifts can make a big difference over time, and since they are a “use it or lose it” exclusion, it makes sense to transfer as much money as possible this way as part of an estate plan.

Since annual gift tax exemptions are based on the calendar year, timing is important when gifting. For example, instead of gifting $25,000 to someone in December, if you gifted $14,000 in December and the remaining $11,000 in January, you could avoid gift taxes altogether. If your gifting amount for the year does end up exceeding the annual exemption amount, you have to file an informational gift tax return for that year and either pay 40 percent of the excess amount or use up some of your $5.49 million lifetime estate/gift exemption. One thing to consider with estate and gift taxes is that if you have to choose between the two, it will usually cost less to gift while you are living (even if it is above the exemption amount) than to wait until after death. Gifts made before death shrink your taxable estate by both the amount of the gift and the interest the money would have gained by the time of your death.

In addition to gift taxes, generation-skipping transfer tax (GST tax) is also a consideration for those subject to estate taxes. GST tax is applied to property that is passed to related persons more than one generation younger than the donor or to unrelated persons who are more than 37.5 years younger than the donor via a will or trust. This tax was created because many people had discovered that they could pass their estates directly to their grandchildren and therefore avoid one generation of estate taxes. GST tax rates and exemptions are the same as estate taxes, with up to a $5.49 million exemption and a 40 percent taxation rate.

Appreciated Assets

Gifts do not always have to be in cash. By gifting appreciated assets, you not only move money out of your estate, but you also move any future appreciation of those assets out of your estate and out of the grip of estate taxes. Another benefit of gifting appreciated assets is a possible capital gains tax advantage. Capital gains tax is enforced on the amount that the value of the asset increases from its original value. For example, if a stock was bought for $2,000 and then gifted when it was worth $2,500, capital gains tax would be assessed on $500. If the recipient of the assets is in a lower tax bracket than the donor, he or she will end up owing less money on this asset.

Last Week’s Highlights:

Stocks were lower last week and bonds were higher. It was the worst week for stocks since last November’s election.  Tuesday was a particularly tough day for stocks as investor angst grew over doubts that Republicans would successfully get their health care bill through congress.  Tuesday’s 1.2% decline accounted for most of the week’s losses.  On Friday afternoon, Republicans pulled their healthcare bill, which was meant to overhaul the Affordable Care Act. This was viewed as a major setback for the president.  On Friday, the president also mentioned his administration would now focus on getting “big tax cuts” through Congress.

Media pundits have taglined the bearish sentiment as the “Trump Slump” even though the economy continues to improve and it’s been a strong year for stocks thus far.


Looking Ahead:

Stocks opened at six-week lows Monday morning after President Trump failed to push through his healthcare bill last Friday.

Fed chair Janet Yellen will deliver a speech on Tuesday where she may shed some light on the Fed’s plans for interest rates moving forward.  We will also get some important economic data this week with the Case-Shiller index and consumer confidence figures on Tuesday and pending home sales on Wednesday.  On Thursday we will see fourth quarter GDP numbers and weekly jobless claims. On Friday, we will close out the week with personal income and spending data.

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The Weekly View (3/20/17)

What’s On Our Minds:

The Economics Team at Tufton Capital normally takes the helm of the blog only every fourth week. It is filling in this week for its vacationing colleagues, and would like to take the opportunity to talk about the fabled “economic equilibrium” that is used as a guiding star- but somehow never reached.

We begin with Kenneth Arrow, a Nobel Prize-winning economist who passed away last month. Arrow mathematically showed many economic ideas to be true, and in fact has a mathematical theorem named after him, but of interest to us now is his work on market equilibriums. Arrow showed in his Nobel-winning work that a market exists where an equilibrium price can be reached for all goods. This intersection of Supply and Demand is an extension of Adam Smith and Economics 101. However, Arrow’s theorem requires, among other things, that a futures market exists for all goods. And of course, we do not trade our babysitter’s labor costs two years from now on the NYSE (that said, could babysitter futures be a good product for an enterprising salesman on Wall Street?).

Despite this and other discrepancies, the idea that there is a perfect equilibrium price that will be reached and will balance all costs- human, economic, and otherwise- prevails in many discussions of the markets and politics today. The Tufton Economics team is quick to caution (as it always does) that real life is rarely so orderly as the simple graphs of 18th century economics. While they certainly illustrate some basic ideas about markets, applying them to a society at large can be overly simplistic.


Last Week’s Highlights:

Stocks managed to eke out some gains last week, returning  tentatively to what has been the bull market of early ’17. The S&P 500 and Dow Jones both gained under a quarter percent. Both remain up roughly 6% year to date.  Interest rates, while still very low by historical (or any) standards, seem like they might be rending up, with the Fed indicating more rate hikes are on the way, despite the tick down this week.


Looking Ahead:

A pretty quiet week ahead. We’ll be interested to see home sales numbers, as they could be confirmation- or a warning flag- of the general belief that the US economy is still chugging healthily along.


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The Weekly View (3/13/17)

What’s On Our Minds:

Many investment companies will advertise their strategies as “value” or “growth.” According to standard definitions, these two types of investment strategies stand opposite to one another. Each uses its own elements and metrics to determine a sound investment, and each has its own standards and expectations for returns.

Defining “Value” and “Growth”

In traditional terms, “value investing” is the purchase of stocks or other securities that are currently undervalued by the market. To make a value investment, an investor must find a security that is being sold for less than what its calculated and/or historical value suggests. Value investing works off a person’s logical expectation that a security will return to a normal price.  At Tufton, our value philosophy takes advantage of the emotions in the market. The price of a stock gyrates around its intrinsic value as investors’ emotions cause them to make irrational decisions. We try to buy securities when the market has given up on them – when it feels “dread” and “desolation”. Later, when the market is “deliriously” happy with an investment, we look to sell. We don’t chase hot stocks higher.

On the other end, “growth investing” is the purchase of shares in a company that is expected to grow in importance or become more valuable than it is now. To pursue growth investment, an investor seeks out companies that have excellent potential to expand. The current cost of their shares are not undervalued, their growth has simply not yet been realized. Growth investing is based on the optimistic anticipation of a company’s future.


Investors will undoubtedly notice that several firms and funds will either label themselves “value” or “growth.” In general, this reflects the funds volatility: value funds are often less volatile than growth funds. Though growth funds make up for their risk by offering the potential for higher returns, economic downturn can cause them significant losses. By purchasing securities at a significant discount, Tufton provides a “margin of safety” which provides downside protection.


In recent years, several well-known investors, including Warren Buffet, have stated that the difference between “value” and “growth” investing are arbitrary. A company’s shares might be a good deal because they are undervalued, but an investor is expecting some form of growth or performance to push it back to its normal value. Similarly, if an investor feels a company’s growth is certain, then he or she sees its shares as undervalued at their current price.

The differences between “value” and “growth” are only noticeable if an investor is speculating on growth or continued performance. An experienced and well-informed investor will consider a company’s past and future before purchasing a security. After taking everything into account, it becomes a simple judgment of whether the company’s expected future is worth the current price, market risk and length of time.

If you have questions about your current market positions or would like to learn more about Tufton’s value strategy, please give us a call today!.

Last Week’s Highlights:

Stocks broke their six-week winning streak last week. The S&P 500 and Dow Jones both fell by less than 0.5%. Both remain up roughly 6% year to date.  Oil prices declined by 9.1% last week which pulled shares of energy companies lower. Healthcare stocks moved up and down as President Trump and the GOP proposed major changes to Obamacare.  On Friday, we closed out the week with a solid jobs report.

Looking Ahead:

Earnings season is wrapping up.  Tiffany, DSW, and Oracle report earnings this week.  The Federal Reserve is expected to increase interest rates on Wednesday. Investors are viewing a 25-basis point increase as an almost certainty after last week’s strong jobs report.


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The Weekly View (3/6/17)

What’s On Our Minds:

Interest rates are, to put it mildly, a complex beast. There are a few mechanisms by which rates affect the economy and the stock market, not all of which are obvious, but which have large effects. We’ve tried to break down these levers without getting too granular or using financial jargon.

The first is the most obvious: a lower interest rate means it’s cheaper to borrow. Consumers borrow more money to buy houses or cars, businesses borrow money to expand production. And thus, we get economic growth. Everybody’s happy. Except, maybe, the people who get less money in interest for loaning out their hard-earned cash.

An interest rate raise, like the one that seems imminent, is a signal that rates are moving higher, might cause both consumers and Chief Financial Officers to cut back on spending. So businesses earn less, and earnings fall.

Another very important but more abstract concept is the valuing of stocks via a discount rate. If I think a company is going to earn $10 million in ten years, the interest rate would have to be 0 for me to want to buy its stock now for a $10 million valuation. But if interest rates are higher, I’d be better off just putting the money in the bank for ten years and earning some interest in those ten years. In this way, investors compare interest rates with their expectations for the earnings of companies. If interest rates are low, companies’ stocks are more attractive, and therefore worth more in today’s dollars.

When Janet Yellen and the Fed meets this month, they have to think about all of this, with the added complexity of inflation. The inflation target is 2-3%: at this level, prices are fairly stable, but there is incentive to spend, rather than save, money, and to push the economy along. With inflation at zero, you know that the car you want to buy will cost about the same in year, so you might just think about it for a while, dampening economic activity.

Deflation, when inflation falls below zero, is a major problem: here, you might wait to buy that car, since it will be cheaper next year. And the year after that. And…

This gives rise to the “pushing on a string” phenomenon that was one of our founder Jim Hardesty’s favorite metaphors. You can’t entice people to spend money by cutting rates indefinitely, since rates below zero (usually) are avoided by simply keeping the cash. This illustrates, in part, one of the major limitations of monetary policy (setting interest rate, money supply, etc.) vs. fiscal policy (where and how the government spends their money). But fiscal policy is a topic for another post.


Last Week’s Highlights:


For the fourth straight week, stocks increased and closed at record highs on Wednesday. Donald Trump laid out an optimistic vision of the country during his address to Congress on Tuesday evening. Economic data was strong last week. Consumer confidence reached a new high and the ISM Non-manufacturing index, which measures business activity and employment trends, rose to a level last seen in October of 2015.

Warren Buffet shared that Berkshire Hathaway had taken a larger position in Apple stock earlier this year.  It’s now one of their largest equity holdings.

Target shares had a rough week as they decreased 14% in value after the company announced it had missed earnings expectations. The company reduced profit targets and said they are focusing on investing in stores and lowering prices to bring back customers.

Snapchat went public on Thursday. Shares surged from their $17 IPO price to as high as $26.05.  The company is now worth about $33 billion even though it lost $515 million last year.

Looking Ahead:


Companies continue releasing earnings reports this week. Armstrong Flooring and Korn/Ferry International report first quarter results on Monday. On Tuesday investors will hear from Dick’s Sporting Goods and Navistar International. Breakfast chain Bob Evans Farms reports results on Wednesday.

February’s jobs report will be released on Friday. A surprise to the upside would likely increase prospects for the Fed to raise interest rates after their 2-day policy meeting on March 15th.

On Friday, the Department of Labor will issue a report detailing the status of its new fiduciary rule. President Trump has mentioned he might cancel the new rule’s implementation.

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The Weekly View (2/27/17)

What’s On Our Minds:

Everyone remembers the old saying, “don’t put all your eggs in one basket”.  Well, sometimes investors end up with a whole lot of their eggs in one basket whether it be intentionally or unintentionally.  Often times, entire fortunes are tied to the prospects of one single company and while this is great when business is good, it can get ugly when the tides turn.  Large individual positions in companies are acquired every day through employer retirement plans, inheritances, stock options, and business sales.  It’s not unusual for successful professionals and executives and their heirs to find themselves with too much of a good thing: owning a large quantity of highly appreciate stock or a large equity position in a private partnership.

While countless individuals and families have accumulated great wealth by holding large amounts of a single position, betting your financial future on a concentrated position is rarely the best course of action.  Even if an investor has the utmost faith in their largest holding, the return prospects simply are not worth the risks.  If you are approaching retirement age and will need to start living off of your investment portfolio, a concentrated position can create a problem because your long-term financial security is dependent on the success of a single business.

The only way to reduce the inherent risk of a concentrated investment portfolio is to diversify.  Of course, this is easier said than done!  Due to the bite of capital gains taxes, fully selling out of a concentrated position can be a long process, but over time an investor can sell a certain amount of shares, per quarter, or per year and reinvest the proceeds into a well-diversified account.

At Tufton Capital, we take a customized approach to wealth management which allows us to manage the complex situation brought on by a concentrated portfolio.

Last Week’s Highlights:

Equity markets continued their 5-week trek higher last week. The Dow Jones closed at 20,822 on Friday, which was a record high.

A better-than-expected earnings season has helped stocks move higher. Nearly 66% of S&P 500 companies have reported earnings above analyst estimates.

Treasury Secretary, Steven Mnuchin, laid out an ambitious time frame last week saying that a tax-reform package could be passed by Congress before their August recess.  He also said that the Trump administration is aiming for sustained 3% or higher economic growth.

While equity markets have been chugging along, bond investors have been hunkering down recently. Despite a reflationary trade in stocks and expectations of an interest rate hike in by June, the 10-year U.S. Treasury ended the week at 2.317%, its lowest since last November.


Looking Ahead:

On Tuesday evening, President Trump will address Congress in a televised speech. A lot is expected from this speech as he will lay out his plans for the rest of the year. He will likely touch on his fiscal-policy plans, and discuss tax reform, border security, healthcare, and future infrastructure spending plans.

Economic data from January is coming across the wire this week.  Retail sales will be reported on Tuesday. On Wednesday, construction spending and automotive sales will be reported.


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The Weekly View (2/21/17)

What’s On Our Minds:

The “Trump Rally” or “Trump Bump” continued the Tuesday morning after President’s Day. Since the election, sectors that had underperformed the S&P 500 began to rally on the back of the possibility of higher interest rates, stronger economic growth and President Trump’s agendas. The Financial sector, which includes the “Big Banks”, Insurance companies, and asset managers, has led all sectors with a 23% return since President Trump’s win. In the more cyclical sectors, Industrials are up nearly 13%, while the Materials sector is up 11%. Consumer Discretionary and Technology also barely outperformed the broader index with a roughly 10.5% return from each sector. Health Care, Telecom, Consumer Staples, Energy, REITs and Utilities sectors have all underperformed after mostly leading in 2016.

Looking “under the hood,” higher interest rates will help earnings growth for the banks as their loans spreads widen, creating higher profits. Investors are also speculating that President Trump’s plans for deregulation will allow the financial companies, specifically the systematically important financial institutions, to hold less capital, which would give them the ability to lend more.

Industrial companies have rallied on speculation that President Trump’s infrastructure plan will translate into new orders for the group. Leaders include United Rentals, which is up nearly 69%. The company rents construction equipment and tools to the construction industry. Other beneficiaries of infrastructure investment would include the railroad companies as they would be utilized to transport the new orders from the industrial companies. As a result, CSX Corporation and Norfolk Southern Corporation are up 52% and 29%, respectively.

Investors also believe that the Materials sector will benefit from stronger economic growth and potential inflation. Earnings growth would be expected if further demand for their raw materials and products created price increases to their customers. Material leaders include steel manufacturer Nucor, paint maker Sherwin Williams and chemical producer LyondellBassell Industries.

Of the S&P 500 companies that have reported 4th quarter results, 68% of them have beaten on earnings. However, only 52% of the companies have beat their sales estimates, suggesting that companies are growing earnings more through cost cutting than growth of their business. The market may keep making new highs on the back of potential policy changes, but eventually, sales growth will have to follow.

Last Week’s Highlights:

Stocks extended their winning streak last week as both the S&P 500 and the Dow Jones gained over a full percentage point.  The Trump rally continues.  Investors remained euphoric as most expect President Trump to reduce U.S. corporate taxes and introduce some sort of fiscal stimulus package.  Strong earnings reports along with robust economic data have also helped to push indexes to record highs.

Janet Yellen took a hawkish stance last week during her testimony to Congress.  Her tone increased the odds that the Fed will raise interest rates before their next policy meeting in June.  Her latest stance on rates helped push the financial sector higher.

Kraft Heinz offered to acquire Unilever last week.  However, over the weekend, Kraft said it “has amicably agreed to withdraw its proposal.” Unilever shares took a hit on the news.

Shares of Boeing enjoyed a 1% bounce on Friday when President Trump visited their South Carolina manufacturing plant.  Shares of Campbell Soup Co. decreased 6.5% last week because second quarter profit and revenue missed.

Looking Ahead:

Markets were closed on Monday for President’s Day.

This week, investors’ attention will be focused on economic data reports and minutes from the latest Federal Open Market Committee meeting.

Earnings reports from retailers will also be on tap this week. Wal-Mart, Home Depot, and Macy’s release earnings on Tuesday and Nordstrom reports on Thursday.

On Saturday, Warren Buffet will release his annual letter to Berkshire Hathaway shareholders.

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