Peek of the Week
February 8, 2016
The
Markets
There was bad news and good news in last Friday’s unemployment report.
In the negative column, fewer jobs were created in the
United States than economists had predicted, and January’s jobs gains were not
as strong as December’s had been. In addition, the December jobs increase was
revised downward from 292,000 to 252,000, according to Barron’s.
On the positive side of the ledger, more than 150,000
new jobs were added in January. The unemployment rate fell below 5 percent for
the first time since February of 2008 and earnings increased. In total, average
hourly earnings have moved 2.5 percent higher during the past 12 months.
Good news plus bad news equals uncertainty.
As we’ve seen, that’s a state of affairs markets strongly dislike. In January,
slower growth in China and low oil prices had markets in a tizzy. Last week,
the Standard & Poor’s 500 Index gave back more than 3 percent as investors
tried to decide whether employment news indicated a rising risk of recession in
the United States, according to Barron’s.
When investors are emotional and markets
are volatile, it can be helpful to remember the words of Ben Graham, author of The
Intelligent Investor, who believed a company’s intrinsic value should be
measured by its operating performance rather than its share value. Warren
Buffett shared Graham’s thoughts on ‘Mr. Market’ in a 1987 shareholder letter.
In part, it cautions:
“…Like Cinderella at the ball, you must
heed one warning or everything will turn into pumpkins and mice: Mr. Market is
there to serve you, not to guide you. It is his pocketbook, not his wisdom,
that you will find useful. If he shows up some day in a particularly foolish
mood, you are free to either ignore him or to take advantage of him, but it
will be disastrous if you fall under his influence.”
So, how are companies performing? It depends on which
you own but, during the current quarterly earnings season, most companies have
reported earnings that exceed expectations. That’s not something that tends to
happen during recessions, according to Barron’s.
Data as of 2/5/16
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard &
Poor's 500 (Domestic Stocks)
|
-3.1%
|
-8.0%
|
-8.9%
|
7.6%
|
7.3%
|
4.0%
|
Dow Jones Global
ex-U.S.
|
-1.1
|
-8.0
|
-16.1
|
-4.0
|
-3.2
|
-0.8
|
10-year Treasury
Note (Yield Only)
|
1.9
|
NA
|
1.8
|
2.0
|
3.6
|
4.6
|
Gold (per ounce)
|
3.5
|
8.3
|
-8.7
|
-11.8
|
-3.1
|
7.3
|
Bloomberg Commodity Index
|
-2.1
|
-3.8
|
-26.2
|
-19.1
|
-14.2
|
-7.8
|
DJ Equity All REIT Total Return Index
|
-2.4
|
-5.7
|
-10.0
|
7.1
|
9.4
|
6.1
|
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.
setting an
example for future generations... Do
your children or grandchildren spend summers mowing lawns, repairing computers,
or selling movie tickets? Perhaps, they have part-time jobs during the school
year, bagging groceries, or working in a local shop. No matter the type of work
done, if a young person has earned income, he or she can save in a Roth IRA.
While saving for retirement probably isn’t even a blip
on the radar for most young people, their older relatives are aware of the
challenges related to saving for and generating income in retirement. Many also
understand the importance of starting early – a task that has been made easier
by custodial Roth IRAs. It is now possible to establish Roth IRAs for children
who are younger than age 18, as long as they have earned income.
Communicating the importance of saving for retirement
(and other goals) to younger family members is important, especially when the 2015 Employee Benefit Research Institute’s
Retirement Confidence Survey found about 39 percent of working Americans
are not currently saving for retirement. Since actions often speak louder than
words, a Time.com reporter offered
this suggestion:
“Most kids will not have the ability or discipline to
fund the account through their earnings. But adults can reward their hard work
by contributing on their behalf. This demonstrates the value of saving…The
additional saving is all the more important for young people, who will have
fewer sources of guaranteed lifetime income in their retirement years.”
Money Chimp’s compounding calculator suggests a one-time $5,000
investment, earning 6 percent a year on average, would be worth more than
$178,000 in 60 years. That could become tax-free income for a child or
grandchild’s retirement if the investment was in a Roth IRA. Please keep in
mind, this is a hypothetical example and is not representative of any specific
situation. Your results will vary. The hypothetical 6% return used is not
guaranteed and does not reflect the deduction of fees and charges inherent to
investing.
Of course, one attractive aspect of a Roth IRA account
is the assets also can be used, penalty-free, for college tuition or the
purchase of a first home, as long as certain requirements are met (including
the account having been open for at least five years). About the Roth IRA – The
Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free,
as long as they are considered qualified.
Limitations and restrictions may apply.
Withdrawals prior to age 59 ½ or prior to the account being opened for 5
years, whichever is later, may result in a 10% IRS penalty tax.
Weekly Focus –
Think About It
“Politics is the art of
looking for trouble, finding it everywhere, diagnosing it incorrectly, and
applying the wrong remedies.”
--Groucho Marx,
American comedian
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/s-p-tumbles-3-1-largest-drop-in-a-month-1454736607?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-08-16_Barrons-SandP_Tumbles_3.1_Percent-Largest_Drop_in_a_Month-Footnote_3.pdf)
http://www.berkshirehathaway.com/letters/1987.html (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-08-16_Berkshire_Hathaway_1987_Shareholder_Letter-Footnote_4.pdf)
http://www.moneychimp.com/calculator/compound_interest_calculator.htm (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-08-16_MoneyChimp_Compound_Interest_Calculator-5000_Dollars_for_60_Years-Footnote_7.pdf)
