October 26, 2015
The
Markets
Central banks were at it again – and markets loved it.
Last week, European Central Bank (ECB) President Mario
Draghi surprised markets when he indicated the ECB’s governing council was
considering cutting interest rates and engaging in another round of
quantitative easing. The Economist
explained European monetary policy was heavily tilted toward growth before the
announcement:
“The ECB is already delivering a hefty stimulus to the
Euro area, following decisions taken between June 2014 and early 2015. It has
introduced a negative interest rate, of minus 0.2%, which is charged on
deposits left by banks with the ECB. It has also been providing ultra-cheap,
long-term funding to banks provided that they improve their lending record to
the private sector. And, most important of all, in January it announced a
full-blooded program of quantitative easing (QE) – creating money to buy
financial assets – which got under way in March with purchases of €60 billion
($68 billion) of mainly public debt each month until at least September 2016.”
Despite these hefty measures, recovery in the Euro
area has been anemic, and deflation remains a significant issue. According to
Draghi, Euro area QE is expected to continue until there is “a sustained
adjustment in the path of inflation.” Europe is shooting for 2 percent inflation,
just like the United States.
The People’s Bank of China (PBOC) eased monetary
policy last week, too. On Monday, data showed the Chinese economy grew by 6.9
percent during the third quarter, year-over-year. Projections for future growth
remain muted, according to BloombergBusiness.
On Friday, the PBOC indicated it was cutting interest rates for the sixth time
in 12 months.
U.S. markets thrilled to the news. The Dow Jones
Industrial Average, Standard & Poor’s 500 Index, and NASDAQ were all up
more than 2 percent for the week. Many global markets delivered positive
returns for the week, as well.
Data as of 10/23/15
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard &
Poor's 500 (Domestic Stocks)
|
2.1%
|
0.8%
|
6.4%
|
13.7%
|
11.9%
|
5.6%
|
Dow Jones Global
ex-U.S.
|
0.6
|
-2.5
|
-3.3
|
3.2
|
0.4
|
2.0
|
10-year Treasury
Note (Yield Only)
|
2.1
|
NA
|
2.3
|
1.8
|
2.6
|
4.5
|
Gold (per ounce)
|
-1.7
|
-3.2
|
-5.8
|
-12.1
|
-2.8
|
9.6
|
Bloomberg Commodity Index
|
-2.6
|
-16.2
|
-25.4
|
-15.4
|
-9.8
|
-6.4
|
DJ Equity All REIT Total Return Index
|
1.2
|
2.4
|
8.1
|
11.6
|
11.7
|
7.9
|
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.
it’s important to ask the right questions. A recent article in The Economist examined the “gig” economy. You know, people selling
crafts online, offering their services as taxi drivers, renting their cars and
spare bedrooms for short periods. Some folks even rent space on their driveways
to commuters. It’s that old American ingenuity and, as it turns out, it’s
difficult to quantify.
Analysts expected this
employment revolution to be reflected in self-employment statistics. However,
the self-employment rate in the United States has declined during the past two
decades, according to Pew Research.
Why would self-employment be
falling when more people appear to be offering services independently? The Wall Street Journal suggested several
possibilities: 1) The gig model might not be prevalent even though some
headline-grabbing companies rely on it; 2) It’s possible gig companies operate
in industries that have always depended on independent contractors; or 3)
people who do this work may report they are employees of the firms they work
for rather than independent contractors.
The Economist
concurred with the last, suggesting that people do not consider their gigs to
be work. If that’s the case, then governments may not be asking the right
questions when they try to assess the situation. A British survey that focused its
queries on alternative employment found that about 6 percent of respondents participated
in the gig economy.
Does it matter? Should anyone
be concerned the dimensions of this segment of the economy are relatively
unknown? The Economist suggests it is
important:
“Measuring
the gig economy matters. To get a clear picture on living standards, you need
to understand how people combine jobs, work, and other activities to create
income. And, this gets to the crucial question of whether the gig economy
represents a positive or negative development for workers. All this makes it
important for official agencies to have a go at measuring it.”
What’s the solution? The Wall Street Journal suggested the
U.S. Congress might want to reconsider funding the U.S. survey of Contingent and Alternative Employment
Arrangements. The last time it was conducted was 2005.
Weekly Focus – Think About It
“The function of education is to teach one to think
intensively and to think critically. Intelligence plus character – that is the
goal of true education.”
--Martin Luther King, Jr.,
Civil rights activist
Best regards,
Leif M. Hagen
Leif M. Hagen, CLU, ChFC
LP Financial Advisor
Securities
offered through LPL Financial Inc.,
Member
FINRA/SIPC.
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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:
http://www.economist.com/blogs/freeexchange/2015/10/marios-hint (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/10-26-15_TheEconomist-The_European_Central_Bank_Prepares_to_Extend_Its_Quantitative-Easing_Programme-Footnote_2.pdf)
http://online.barrons.com/mdc/public/page/9_3063-economicCalendar.html?mod=BOL_Nav_MAR_other (Click on International
Perspective, "Diverging paths” article)
http://www.economist.com/blogs/freeexchange/2015/10/gig-economy (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/10-26-15_TheEconomist-Does_the_Gig_Economy_Revolutionise_the_World_of_Work-Footnote_5.pdf)
http://blogs.wsj.com/economics/2015/10/22/an-enduring-mystery-of-the-gig-economy-why-are-so-few-people-self-employed/ (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/10-26-15_WSJ-An_Enduring_Mystery_of_the_Gig_Economy-Footnote_7.pdf)
