Peek of
the Week
January 19, 2016
The Markets
We all have our pet peeves, and if there is one thing
markets do NOT like, it is uncertainty. Unfortunately, we entered 2016 with a
lot of unanswered questions:
·
How much has
China’s growth slowed? How will the country’s slower growth affect companies
and investments around the globe?
·
How will the
Federal Reserve’s changing monetary policy affect the U.S. economy? How many
times will it raise rates during 2016? Will the Fed change course?
·
Will oil prices
continue to move lower? Will they move higher? How could changing oil prices
affect economic growth?
·
How is the
sharing economy (renting rooms in a home, offering rides for a price, sharing
goods like automobiles and bikes) affecting economic growth in the United
States?
·
How will demographics
– particularly the changing ratio of working people to retired people – affect
economic growth?
·
How will
geopolitical risks affect markets during 2016?
Amidst all of this uncertainty, the words ‘market correction’
(a drop of at least 10 percent in the value of the market) and ‘bear market’ (a
drop of 20 percent or more in the value of the market) are being bandied about
frequently. According to Barron’s,
the Standard & Poor’s 500 Index finished last week in correction territory.
So, are we headed for a bear market? That remains to be seen.
Bear markets often are accompanied by recessions, and
few experts believe a recession is likely in the United States during 2016. Historically,
there have been bear markets which have occurred without a recession. These
have lasted, on average, for about five months. That’s far shorter than the
20-month average length of bear markets that come in tandem with recessions.
One expert cited by Barron’s commented on the market downturn, “If there’s a silver
lining, it’s that the market is a lot cheaper than it was a few months ago. The
S&P 500 trades at 15.9 times 12-month forward earnings forecasts…back where
valuations were at the beginning of 2014. That means there are values to be
had.”
Data as of 1/15/16
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500 (Domestic Stocks)
|
-2.2%
|
-8.0%
|
-5.6%
|
8.5%
|
7.7%
|
3.9%
|
Dow Jones Global ex-U.S.
|
-3.4
|
-9.3
|
-14.1
|
-4.1
|
-3.3
|
-0.7
|
10-year Treasury Note (Yield Only)
|
2.0
|
NA
|
1.8
|
1.8
|
3.4
|
4.3
|
Gold (per ounce)
|
-0.7
|
3.0
|
-13.1
|
-13.3
|
-4.3
|
7.1
|
Bloomberg Commodity Index
|
-4.2
|
-6.5
|
-27.8
|
-19.3
|
-14.6
|
-8.0
|
DJ Equity All REIT Total
Return Index
|
-2.7
|
-5.6
|
-8.5
|
7.4
|
10.0
|
6.3
|
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.
Investing during
the past couple years has been like driving down a rutted dirt
road in a car with worn shock absorbers: fraught with jarring ups and downs. At
times like these, it can be helpful to look back and realize we have weathered
difficult markets in the past.
A good starting point may be August 1979 when the
headline on the cover of BusinessWeek declared
equities (stocks) were dead. The accompanying article explained, “The Dow Jones
industrial average set its all-time high of 1051 in 1973, but since then it has
sunk nearly 20 percent to its current 830.” More recently, Bloomberg discussed the circumstances that led to the article:
“At the time the story was written, the stock market
had sustained serious losses and the long-term health of the U.S. economy was a
significant concern. The story has aroused some controversy over the years, as
the stock market staged a strong comeback in the decades that followed its
publication. But few, if any, market forecasters were willing to call such a
recovery at the time, and the story provides a telling look at how inflation
had ravaged the market landscape – and investor psychology – at the close of
the 1970s.”
Since the 1970s, we’ve weathered a few other crises of
note:
·
On Black Monday, October 19, 1987, the Dow
lost 22.6 percent of its value in a single day. Major U.S. indices finished the
day at about:
o
Dow: 1,739
o
Standard &
Poor’s 500 Index (S&P 500): 225
o
NASDAQ: 360
·
When the Dotcom bubble burst, the value of the
NASDAQ Composite Index (which is sometimes considered a proxy for technology
companies) bottomed on October 9, 2002. The major indices finished the day at:
o
Dow: 7,286
o
S&P 500: 777
o
NASDAQ: 1,114
·
On June 30, 2009,
the month the Great Recession ended,
the major indices closed at about:
o
Dow: 8,447
o
S&P 500: 919
o
NASDAQ: 1,835
·
Last week, after
the worst start to a year on record, the major indices finished the week at
about:
o
Dow: 15,988
o
S&P 500: 1,880
o
NASDAQ: 4,488
It’s
an uncomfortable fact, but stock markets can be volatile. They move up and down,
although historically, market values have tended to increase over time. That’s
one reason it’s important to build and maintain a well-allocated, diversified
portfolio grounded in your risk tolerance and financial goals. Diversification
does not assure a profit or protect against losses, but it may help reduce the
impact of market fluctuations on the value of your portfolio over time.
Weekly
Focus – Think About It
“The most
difficult thing is the decision to act, the rest is merely tenacity. The fears
are paper tigers. You can do anything you decide to do. You can act to change
and control your life; and the procedure, the process is its own reward.”
--Amelia Earhart, Aviation pioneer
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.
* To unsubscribe from the
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Sources:
http://www.barrons.com/articles/dow-s-p-500-end-week-down-2-2-1452927104?mod=BOL_hp_we_columns (or go to
https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-19-16_Barrons-Dow_S%26P_500_End_Week_Down_2.2_Percent-Footnote_3.pdf)
https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-19-16_Barrons-Dow_S%26P_500_End_Week_Down_2.2_Percent-Footnote_3.pdf)
http://www.barrons.com/articles/bear-market-growl-1452927105?mod=BOL_hp_we_columns (or
go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-19-16_Barrons-Bear_Market_Growl-Footnote_5.pdf)
