PEEK of the WEEK
June 23, 2015
The Markets
You’re
probably familiar with the seven-year itch. Not the movie with Marilyn Monroe,
but the concept that relationships can lose their luster after seven years.
That may be
what happened last week in China. Investors got itchy and the Chinese stock
market suffered its worst week since 2008. The Shanghai Composite lost more
than 13 percent during the week, and the Shenzhen Composite was down 12.7
percent, according to MarketWatch.
The previous Friday, the Shenzhen had closed at a record high.
Prior to last
week’s correction, China’s stock markets had been VERY popular. So popular,
Chinese firms were seeking to delist from American stock exchanges and relist
their shares on Chinese exchanges, reported The
Economist. Plus, the Chinese government rolled out the red carpet (and
waived profitability requirements) for new firms seeking to list on local stock
exchanges.
In their
enthusiasm to participate in rising markets, some Chinese companies are
reinventing themselves on paper. The
Economist wrote:
“But the wider trend is
clear. At least 80 listed Chinese firms changed names in the first five months
of this year. A hotel group rebranded itself as a high-speed rail company, a
fireworks maker as a peer-to-peer lender, and a ceramics specialist as a
clean-energy group. Their reinventions as high-tech companies appear to have
less to do with the gradual rebalancing of China’s economy than with the mania
sweeping its stock market. The Shenzhen Composite Index, which is full of tech
companies, has nearly tripled over the past year.”
June has been
a tough month for China. Earlier in the month, MSCI decided not to add China’s
A-shares, which are denominated in China’s renminbi, to its emerging markets
index because of issues related to Chinese markets’ accessibility.
Greece hasn’t
been faring all that well either. The European Central Bank extended an
emergency $2 billion loan to the Greek government. The Greek people,
anticipating Greece may not reach an agreement with its creditors, which could trigger
default and an exit from the Euro, withdrew more than $1 billion from the
country’s banking system in one day.
Data as of 6/19/15
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500 (Domestic Stocks)
|
0.8%
|
2.5%
|
7.7%
|
15.8%
|
13.6%
|
5.7%
|
Dow Jones Global ex-U.S.
|
-0.4
|
5.0
|
-5.3
|
8.4
|
4.5
|
3.3
|
10-year Treasury Note (Yield Only)
|
2.3
|
NA
|
2.6
|
1.6
|
3.2
|
4.1
|
Gold (per ounce)
|
1.7
|
0.4
|
-6.9
|
-9.5
|
-0.8
|
11.1
|
Bloomberg
Commodity Index
|
-0.7
|
-4.3
|
-26.7
|
-8.8
|
-4.9
|
-4.7
|
DJ Equity
All REIT Total Return Index
|
1.7
|
-1.8
|
8.7
|
11.2
|
13.1
|
7.4
|
S&P 500, Dow Jones Global
ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends
(gold does not pay a dividend) and the three-, five-, and 10-year returns are
annualized; the DJ Equity All REIT Total Return Index does include reinvested
dividends and the three-, five-, and 10-year returns are annualized; and the
10-year Treasury Note is simply the yield at the close of the day on each of
the historical time periods.
Sources: Yahoo! Finance,
Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no
guarantee of future results. Indices are unmanaged and cannot be invested into
directly. N/A means not applicable.
Ip! Ip! OORAY! Greg Ip, Chief Economics Commentator at The Wall
Street Journal, was blogging about
business cycles. He wrote, “After a perplexing start to the year, the economy
is starting to make sense…[Recently released data] has begun to help solve
three puzzles that have hung over the U.S. and global economies in the last
year.” The three puzzles were:
1. There was no
surge in consumer spending in the United States. Despite a mammoth drop in oil prices, retail sales
were weak and contributed relatively little to first-quarter growth. However,
May retail sales numbers were strong and numbers for March and April were
revised upward. So, consumers appear to be spending. (The final revision to gross
domestic product (GDP), which was released in late May, showed GDP grew by 0.2
percent during first quarter.)
2. When workers
are in short supply, wages should rise – but they haven’t. Unemployment is at about 5.5 percent. Employers have
jobs open and are seeking qualified applicants. Yet, hourly earnings had barely
improved at all. The Bureau of Labor Statistics’ Employment Cost Index showed private
workers’ compensation grew 2.8 percent for the 12-month period ending March 31,
2015. That was a big improvement over the previous year’s growth. Government
workers realized a 2.1 percent increase for the same time period, which was a
modest improvement over the previous year.
3. The bond
market hadn’t priced in a rate increase.
Federal Reserve guidance has been pretty clear. When employment and inflation
numbers align, the Fed will begin to tighten monetary conditions by raising the
Fed funds rate. Regardless, bond market rates hadn’t moved higher – until recently.
Yields on 10-year Treasuries rose from 1.87 percent in early April to about 2.4
percent by mid-June.
Summarized, “…in many ways, the world is behaving
as it should. If so, then the next stage is for stock and bond investors to
finally realize the era of zero rates is coming to an end and re-price
accordingly. Do not expect that to be a smooth process… That the world is
behaving normally, however, is not the same as saying it’s back to normal.”
Weekly Focus – Think About It
“Change is the law of life. And those who
look only to the past or present are certain to miss the future.
--John F.
Kennedy, 35th President of the United States
Best regards,
Leif M. Hagen
Leif
M. Hagen, CLU, ChFC
LP Financial Advisor
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* This newsletter was
prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with
the named broker/dealer.
* The Standard & Poor's
500 (S&P 500) is an unmanaged group of securities considered to be
representative of the stock market in general. You cannot invest directly in
this index.
* The Standard & Poor’s
500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect
fees, expenses, or sales charges. Index performance is not indicative of the
performance of any investment.
* The 10-year Treasury Note
represents debt owed by the United States Treasury to the public. Since the
U.S. Government is seen as a risk-free borrower, investors use the 10-year
Treasury Note as a benchmark for the long-term bond market.
* Gold represents the
afternoon gold price as reported by the London Bullion Market Association. The
gold price is set twice daily by the London Gold Fixing Company at 10:30 and
15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity
Index is designed to be a highly liquid and diversified benchmark for the
commodity futures market. The Index is composed of futures contracts on 19
physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT
Total Return Index measures the total return performance of the equity
subcategory of the Real Estate Investment Trust (REIT) industry as calculated
by Dow Jones.
* Yahoo! Finance is the source
for any reference to the performance of an index between two specific periods.
* Opinions expressed are
subject to change without notice and are not intended as investment advice or
to predict future performance.
* Economic forecasts set
forth may not develop as predicted and there can be no guarantee that
strategies promoted will be successful.
* Past performance does not
guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly
in an index.
* Consult your financial
professional before making any investment decision.
* Stock investing involves
risk including loss of principal.
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Sources:
https://www.economist.com/business/2015/06/20/a-red-tide-ebbs (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/06-22-15_TheEconomist-A_Red_Tide_Ebbs-Footnote_3.pdf)
http://www.economist.com/news/finance-and-economics/21652337-economic-dangers-chinas-manic-bull-market-goring-concern (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/06-22-15_TheEconomist-A_Goring_Concern-Footnote_4.pdf)
