May 2, 2016
The
Markets
“Which would you prefer to be: a medieval monarch or a modern office-worker?” If you immediately answered medieval monarch, take a moment to ponder life without “…modern dentistry, antibiotics, air travel, smartphones, and YouTube.”
Last week, The Economist used this example to
illustrate the challenges of accurately measuring living standards over time.
For many years, countries and economists have relied on gross domestic product
(GDP), the value of all goods and services produced by a country over a
specific period of time, to gauge relative prosperity. The publication pointed
out GDP may not be an accurate measure of well-being because it does not
account for changes in quality of output:
“…The
benefits of sanitation, better health care, and the comforts of heating or
air-conditioning meant that GDP growth almost certainly understated the true
advance in living standards in the decades after the Second World War. But at
least the direction of travel was the same. GDP grew rapidly; so did quality of
life. Now GDP is still growing (albeit more slowly), but living standards are
thought to be stuck. Part of the problem is widening inequality: median
household income in America, adjusted for inflation, has barely budged for 25
years. But increasingly, too, the things that people hold dear are not being
captured by the main yardstick of value.”
Whether it accurately
reflects growth in the United States or not, U.S. GDP gained 0.5 percent during
the first quarter of 2016. Barron’s
reported investors were not encouraged by the less-than-robust growth rate or
by the fact GDP growth in the Eurozone (0.6 percent) exceeded GDP growth in the
United States during first quarter.
Weak corporate earnings also
influenced market performance last week. So far, 62 percent of companies in the
Standard & Poor’s 500 Index have reported their results, and the numbers
show first quarter earnings have declined by 7.6 percent, year-over-year. That
is better than expected, according to FactSet,
but nothing to write home about.
Data as of 4/29/16
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard &
Poor's 500 (Domestic Stocks)
|
-1.3%
|
1.1%
|
-2.0%
|
9.0%
|
8.7%
|
4.7%
|
Dow Jones Global
ex-U.S.
|
0.1
|
1.7
|
-12.4
|
-1.3
|
-2.1
|
-0.6
|
10-year Treasury
Note (Yield Only)
|
1.8
|
NA
|
2.0
|
1.7
|
3.3
|
5.1
|
Gold (per ounce)
|
3.4
|
21.0
|
6.3
|
-4.3
|
-3.5
|
6.9
|
Bloomberg Commodity Index
|
3.0
|
8.9
|
-17.0
|
-14.0
|
-13.4
|
-7.1
|
DJ Equity All REIT Total Return Index
|
-0.1
|
4.2
|
7.1
|
7.4
|
10.0
|
6.9
|
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.
when someone
says, “federal budget,” do your eyes glaze over? Apparently, enough folks tune out when the budget is
mentioned that the Hutchins Center on
Fiscal and Monetary Policy at the Brookings Institution developed a digital
game to make the matter more palatable. ‘The Fiscal Ship’ gives players a
chance to choose tax and spending policies for the United States and see how
those choices affect the country.
These dollars-and-cents decisions aren’t simple. The
actions taken increase or reduce the country’s debt and also help determine the
kind of nation we’ll be living in three decades from now. The game’s description
explains:
“America is looking at a permanent, growing mismatch
between revenues and spending, and policymakers are faced with difficult
decisions about how to reconcile important government priorities…with the tax
revenues that the current tax code will yield…So your mission is to pick from a
menu of tax and spending options to reduce the debt from projected levels over
the next 25 years. Small changes to spending and taxes won’t suffice. The
choices are difficult, but the goal is achievable…To win the game, you need to
find a combination of policies that match your values and priorities AND set
the budget on a sustainable course.”
Before you select policies, you’ll be asked to choose
the issues that are most important to you, such as: Shrink Government,
Strengthen the Social Safety Net, Invest in the Future, Strengthen National
Defense, and others.
Once you’ve prioritized the issues, you’ll be given a
laundry list of policy choices. That’s when the tough decisions get made. As
you develop your plan, you’ll be shown how the decisions you’re making affect
revenue, spending, and the nation’s debt as well as issues that are important
to you.
Weekly Focus –
Think About It
“I
suppose there's a melancholy tone at the back of the American mind, a sense of
something lost. And it's the lost world of Thomas Jefferson. It is the lost
sense of innocence that we could live with a very minimal state, with a vast
sense of space in which to work out freedom.”
--George Will, American newspaper columnist
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.economist.com/news/leaders/21697834-gdp-bad-gauge-material-well-being-time-fresh-approach-how-measure-prosperity (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-02-16_TheEconomist-How_to_Measure_Prosperity-Footnote_1.pdf)
http://www.barrons.com/articles/stocks-sink-1-3-on-economic-earnings-woes-1461990768?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-02-16_Barrons-Stocks_Sink_1.3_Percent_on_Economic_Earnings_Woes-Footnote_2.pdf)
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