The
Markets
Financial markets were remarkably calm last week.
Many stock markets in the United States, Europe, and
Asia moved higher as investors chose to focus their attention on the minutes of
the October 27-28, 2015 Federal Open Market Committee (FOMC) meeting, which
were released on Wednesday, rather than recent terrorist attacks in Paris,
Lebanon, Mali, and against Russia.
The FOMC minutes captured attention because they
suggested even if the Federal Reserve does begin to tighten monetary policy in
December, rate increases may be incremental and the target rate may not be as
high as many imagined. Bloomberg
reported:
“Fed officials received a staff briefing on the
equilibrium real interest rate, or the policy rate that would keep the economy
running at full employment with stable prices, according to the minutes. Fed
officials discussed the possibility that the short-run equilibrium rate “would
likely remain below levels that were normal during previous business cycle
expansions,” the minutes said.”
Former Federal Reserve Chairman Ben Bernanke has
written about the equilibrium real interest rate on his blog. The point he makes
is the equilibrium rate – not the Fed – determines interest rates. The Fed uses
its influence to move interest rates toward levels that are consistent with its
estimate of the equilibrium rate. If the Fed pushes for rates that are too
high, the economy may slow. If it pushes for rates that are too low, the
economy may overheat. Not everyone agrees on this point, and that has led to
debate between Mr. Bernanke and Former Treasury Secretary Lawrence Summers.
While the Fed is expected to begin tightening U.S.
monetary policy, the European Central Bank (ECB) is expected to further loosen
monetary policy in December. The Wall
Street Journal reported the ECB is “prepared to deploy its full range of
stimulus measures to fight low inflation…” The news was welcome. CNBC reported European markets closed
the week at three-month highs.
Data as of 11/20/15
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard &
Poor's 500 (Domestic Stocks)
|
3.3%
|
1.5%
|
1.8%
|
14.6%
|
11.8%
|
5.2%
|
|
Dow Jones Global
ex-U.S.
|
2.5
|
-3.9
|
-6.4
|
3.1
|
0.2
|
1.5
|
|
10-year Treasury
Note (Yield Only)
|
2.3
|
NA
|
2.3
|
1.7
|
2.8
|
4.5
|
|
Gold (per ounce)
|
0.0
|
-9.8
|
-9.1
|
-14.5
|
-4.4
|
8.3
|
|
Bloomberg Commodity Index
|
-1.2
|
-22.0
|
-31.0
|
-17.1
|
-10.9
|
-6.8
|
|
DJ Equity All REIT Total Return Index
|
3.8
|
1.3
|
5.2
|
11.8
|
12.4
|
7.3
|
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.
if there were a “Page Six” for finance and economics, emerging markets would be splashed across it.
Remember the saying, “Buy low
and sell high?” Well, emerging markets have not performed well for quite a long
time, and that has a lot of people speculating about what may happen in the
next few years.
Analysts at BlackRock opined, “Emerging-market (EM)
equities are fighting an uphill battle, held back by an appreciating U.S.
dollar, falling commodity prices, and flagging exports. These only add to their
other medium-term struggles, such as dwindling corporate profits, declining
productivity, and a dispirited investor base. With valuations of EM equities
trading at the largest discount to their developed-market peers in 12 years,
some opportunities are beginning to
emerge.”
In fact, several economists
and asset managers have begun to compare and contrast the attributes of various
emerging markets. Some say China is a better bet than Latin America. Others
like the opportunities in Southeast Asia. A Goldman
Sachs analyst cited by Bloomberg
cautioned, “…Colombia, South Africa, Turkey, and Malaysia still need to tackle
their current-account imbalances; Russia, India, and Poland are among nations
that have improved enough for their assets to rally…”
The point is there is a buzz
building around emerging markets. Sometimes, when analysts begin to emphasize
the potential of an asset class, investors are tempted to pile in. While
emerging markets investments can be a valuable part of a well allocated and
diversified portfolio, it’s a good idea to remember there are distinct risks
which are not suitable for all investors associated with investing in emerging markets.
If you have questions about
your financial strategy, please give contact your financial advisor.
Weekly Focus –
Think About It
“All you need in this life is ignorance and
confidence, and then success is sure.”
--Mark Twain
Best
regards,
Leif M. Hagen
Leif M. Hagen, CLU, ChFC
LP Financial Advisor
Securities
offered through LPL Financial Inc.,
Member
FINRA/SIPC.
P.S. Please feel free to forward this commentary
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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.
* To unsubscribe from the
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Sources:
http://online.barrons.com/mdc/public/page/2_3064-466583.html (Click on “U.S. & Intl Recaps,” “Fed funds rate
increase - on the horizon,” then scroll down to the chart) (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/11-23-15_Barrons-Global_Stock_Market_Recap-Footnote_1.pdf)
http://www.wsj.com/articles/draghi-vows-to-use-all-instruments-if-price-stability-goal-at-risk-1448009389 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/11-23-15_WSJ-Draghi_Keeps_Options_Open_to_Fight_Low_Inflation-Footnote_6.pdf)
http://blogs.barrons.com/emergingmarketsdaily/2015/11/18/2015-outlook-china-attractive-vs-latin-america-t-rowe-says/ (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/11-23-15_Barrons-Outlook_2016-China_Attractive_vs_Latin_America_T_Rowe_Says-Footnote_10.pdf)
