PEEK OF THE WEEK
October 4, 2016
Leif Hagen and Donna Roberts
The
Markets
Markets
were relatively calm during the third quarter of 2016, yet they delivered some
attractive returns overall.
In
the United States, all three major U.S. indices
posted record highs twice during a single 7-day period in August, reported CNBC.com. The Standard & Poor’s 500
Index (S&P 500) experienced a 51-day streak without at least a 1 percent
decline. The index returned 3.3 percent in the third quarter.
Investors were fairly complacent until comments by Federal
Reserve officials raised awareness the Fed might raise rates during 2016,
possibly as early as September. The S&P 500 lost 2.5 percent and the VIX,
known as the market’s fear gauge, rose 40 percent in a single day. The upheaval
was short-lived and U.S. stocks rebounded quickly.
World
markets were moved higher after the Fed opted to maintain its current policy. When the European Central Bank did the same – choosing
not to implement further stimulus measures – markets moved lower. Markets were
also less than enthused with the plans put forth by the
Bank of Japan (BOJ). The central bank will attempt to control the yield curve
by keeping 10-year Japanese government bonds at zero percent.
The BOJ’s goal is to push inflation to 2 percent, reported Reuters. However, some analysts believe
the new policy may be less accommodative than the old one. Experts cited by Financial Times said, “On the face of it
the BOJ has arguably, by setting the [Japanese Government Bond] curve at its
current level, just announced a modest tightening in monetary conditions
relative to where they were in the summer.”
Speculation
about a September rate hike caused many emerging markets, which have been
top-performers throughout the year, to give back some gains late in the
quarter. When the U.S. central bank pushes rates higher, emerging market assets
become relatively less attractive to investors seeking yield. In addition, a
rate hike tends to strengthen the U.S. dollar, inflating the value of
dollar-denominated debt held by emerging countries and potentially slowing
economic growth.
Brazil has been a top performer during 2016, despite recession
and political upheaval. President Dilma Rousseff was impeached in September.
Her successor, Michel Temer plans to enact fiscal reforms he hopes will bring
about a mild economic recovery by 2017. Director
of Latin America Strategy for Templeton Emerging Markets Group Gustavo Stenzel
explained, “We believe Brazil offers a salient example of how political
change can accelerate a turnaround in an economy and stock market.”
Worries about China’s economic stability receded during the
quarter, Reuters explained:
“Recent economic data
has shown signs of recovery in China's economy. Industrial sector profits
jumped 20 percent in August, the best showing in three years, while a Reuters
poll showed manufacturing sector activity likely expanded modestly for a second
straight month in September. But many investors remain skeptical about the
sustainability of a recovery that they believe has depended on government
stimulus.”
At
the end of the quarter, emerging markets moved higher after OPEC announced a
preliminary agreement to limit production. It was the first production cut in
eight years. The agreement boosted oil and energy stocks in countries around
the world.
The
fourth quarter of 2016 may be a bumpy one. The U.S. election has the potential
to cause some upheaval, as does a rate hike by the Federal Reserve.
Data as of 9/30/16
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard &
Poor's 500 (Domestic Stocks)
|
0.2%
|
6.1%
|
12.9%
|
8.8%
|
13.9%
|
5.0%
|
Dow Jones
Global ex-U.S.
|
-0.9
|
3.8
|
7.4
|
-1.5
|
3.9
|
-0.2
|
10-year
Treasury Note (Yield Only)
|
1.6
|
NA
|
2.1
|
2.6
|
1.9
|
4.6
|
Gold (per
ounce)
|
-1.2
|
24.5
|
18.7
|
-0.1
|
-4.0
|
8.2
|
Bloomberg Commodity Index
|
1.2
|
8.6
|
-2.8
|
-12.4
|
-9.5
|
-6.0
|
DJ Equity All REIT Total Return Index
|
-1.7
|
12.5
|
21.2
|
13.9
|
15.9
|
6.4
|
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.
Laugh
then think – HARDER. The Ig® Nobel Prizes were awarded last week. The prizes
celebrate some of the most imaginative, unusual, and peculiar scientific
achievements of the year. For 2016, the winners included:
- Economics: Journalism and marketing professors from New Zealand and Britain
for their work in marketing theory. The winning paper was entitled, “The
Brand Personality of Rocks: A Critical Evaluation of a Brand Personality
Scale.”
- Physics: A slew of Hungarian, Spanish,
Swedish, and Swiss researchers for dual discoveries. They explored and
confirmed the reasons that white-haired horses are the most
horsefly-proof, as well as the reasons dragonflies are fatally attracted
to black tombstones.
- Chemistry: A certain German automobile
manufacturer for “…solving the problem of excessive automobile pollution
emissions by automatically, electromechanically producing fewer emissions
whenever the cars are being tested.”
- Medicine: German researchers who
authored a paper titled, “Itch Relief by Mirror Scratching. A
Psychophysical Study.” Apparently, anyone with an itch on the left side of
the body can relieve it by looking into a mirror and scratching the right
side of the body, and vice versa.
- Biology: A Brit who built prosthetic
limb extensions with plastic hooves and wore a helmet to romp and butt
heads with goats during the three days that he lived among them. His
co-winner was another British Islander who lived in the wild as a badger,
an otter, a deer, a fox, and a bird.
The winners’ accomplishments were
celebrated at Harvard University where winners “physically receive their prizes
and a handshake from genuine, genuinely bemused Nobel laureates.”
Weekly Focus – Think
About It
“I have lived as a
badger in a hole in a Welsh wood, as an otter in the rivers of Exmoor, an urban
fox rummaging through the dustbins of London’s East End, a red deer in the West
Highlands of Scotland and on Exmoor, and, most hubristically, a swift,
oscillating between Oxford and West Africa…Why I did this is not an
unreasonable question. There are many answers. One is that I wanted to perceive
landscapes more accurately. We have at least five senses. By and large we use
only one of them – vision. That’s a shame…I suspect it’s responsible for lots
of our uncertainty about the sort of creatures we are, our personal crises, and
the frankly psychopathic way in which most of us treat the natural world.”
--Charles Foster, Ig
Nobel Prize winner
Warm regards from Eagan,
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://us.spindices.com/indices/equity/sp-500
(or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-03-16_SandP_Indices-SandP-500-Index-Footnote_3.pdf)
http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html?mod=BOL_Nav_MAR_other
(Click on U.S. & Intl Recaps, IP Article Archives, then "The BoJ and Fed have spoken") (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-03-16_Barrons-Global_Stock_Market_Recap-Footnote_4.pdf)
https://www.ft.com/content/f883a303-cd02-335f-b156-3996312c7bc7 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-03-16_FinancialTimes-All_a_Bit_Disappointing_or_QQE_Infinity-Footnote_7.pdf)
http://www.afr.com/opinion/the-higher-the-government-debt-the-slower-economic-growth-20160731-gqhl7y (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-03-16_FinancialReview-The_Higher_the_Government_Debt_the_Slower_Economic_Growth-Footnote_9.pdf)
