Peek of the Week
August 8, 2016
Leif Hagen & Donna Roberts
The Markets
It’s déjà vu all
over again!
The Chicago Board
of Options Exchange (CBOE) Volatility Index, also known as the VIX, tracks the
prices of options on the Standard & Poor’s 500 (S&P 500) Index. Since
options often are used to hedge portfolio risk, the VIX is considered to be a ‘fear
gauge’ that has value with regard to market volatility during the next 30 days.
The VIX moves higher when investors are worried and lower when they’re feeling
content. While this is not necessarily predictive, it does measure the current
degree of fear present in the stock market.
Last
Friday, the VIX dropped to 11.18, which was a two-year low. Financial Times attributed investor
complacency to “…a buoyant U.S. jobs report and easy monetary policy.” However,
it also pointed out analysts’ concern that the current lack of fear reflects a
disregard for threats to world economic stability as well as sparse trading
during a vacation month.
Last year in early
August, we saw a similar phenomenon. The VIX reached very low levels and then
it zoomed from 13 to 53 between August 18 and August 24. At 53, the VIX was
higher than when Standard & Poor's cut the credit rating of the United
States in 2011, or at the apex of the European debt crisis in 2010. Barron’s explained last year’s move like
this:
“...volatility
isn’t simply a measure of fear. It has been used to manage risk in portfolios
that employ sophisticated trading schemes…Although each type of fund adjusts to
market changes at a different speed, they all respond in the same way – by
selling stocks…”
There is no gauge
to predict whether the VIX will remain low or bounce higher during the next 30
days, but some big name investors are feeling bearish despite the VIX’s outlook
for short-term calm. Barron’s
reported, “elder statesmen of the markets, including Stanley Druckenmiller,
George Soros, and Carl Icahn, all have deemed themselves negative on stocks…”
Regardless, the S&P 500 Index and the NASDAQ finished
the week at record levels.
Data
as of 8/5/16
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500 (Domestic
Stocks)
|
0.4%
|
6.8%
|
4.0%
|
8.5%
|
12.7%
|
5.5%
|
Dow Jones Global ex-U.S.
|
-0.8
|
1.5
|
-7.5
|
-1.1
|
1.1
|
0.0
|
10-year Treasury Note (Yield Only)
|
1.6
|
NA
|
2.3
|
2.6
|
2.6
|
4.9
|
Gold (per ounce)
|
-0.1
|
26.2
|
23.5
|
0.9
|
-4.2
|
7.5
|
Bloomberg Commodity Index
|
-0.5
|
6.7
|
-7.7
|
-12.5
|
-11.7
|
-7.2
|
DJ Equity All REIT Total Return Index
|
-2.0
|
16.1
|
21.1
|
14.2
|
15.6
|
7.2
|
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.
Have you lived up to your parents’ expectations? In early August, The Harvard Business Review published an
article about an unexpected source of career conflict: parents! Stew Friedman,
the article’s author, who is a Wharton professor and founding director of the
Wharton Leadership Program wrote:
“…business
professionals at various stages in life, from college students to mid-career
executives, talk more about their mothers and fathers than their spouses and
children as sources of career conflict. Here is a small sampling of what I’ve
heard:
•
‘My
parents have always made me feel that my accomplishments fall short of
expectations; I’m a disappointment to them and this undermines my confidence in
choosing a career direction of my own.’
•
‘My
parents expect me to marry a particular (kind of) person, even if committing to
that potential spouse would cut against my career goals.’
•
‘My
parents insist I live in a particular geographic location, but this will
seriously inhibit my career options and future growth.’
•
‘I
feel obliged to care for my parents in their old age, but I cannot figure out
how to coordinate the allocation of these responsibilities with my siblings;
the resulting stress is a major distraction from my efforts to focus on work.’”
While it isn’t a surprise
to most people the needs and expectations of parents don’t always sync with
those of their children, Friedman had some suggestions for reducing disharmony:
stakeholder dialogues. In other words, initiate conversations with the people
who are most important to you and discuss mutual expectations. In the end, you
may gain insight to and clarity around others’ thoughts and expectations as
well as the ways in which they influence your decision-making.
Weekly Focus – Think About It
“The first week of August hangs at the very top of summer,
the top of the live-long year, like the highest seat of a Ferris wheel when it
pauses in its turning. The weeks that come before are only a climb from balmy
spring, and those that follow a drop to the chill of autumn, but the first week
of August is motionless, and hot. It is curiously silent, too, with blank white
dawns and glaring noons, and sunsets smeared with too much color.”
--Natalie Babbitt, Author of
Tuck Everlasting
Warm regards from Eagan,
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
to family, friends, or colleagues.
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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://www.ft.com/cms/s/0/cc20a9f4-5b45-11e6-8d05-4eaa66292c32.html#axzz4GYvcCAVV (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-08-16_FinancialTimes-VIX_Fear_Index_at_Lowest_Level_in_2_Years-Footnote_2.pdf)
http://www.barrons.com/articles/stocks-are-downand-its-your-fault-1441434205?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-08-16_Barrons-Stocks_are_Down_and_Its_Your_Fault-Footnote_3.pdf)
http://www.barrons.com/articles/billionaire-bears-gross-gundlach-fear-a-rout-1470459750 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-08-16_Barrons_Billionaire_Bears-Gross_Gundlach_Fear_a_Rout-Footnote_4.pdf)
https://books.google.com/books?id=4hTN-IEZy4kC&pg=PA3&lpg=PA3&dq=The+first+week+of+August+hangs+at+the+very+top+of+summer,+the+top&source=bl&ots=B3Hv7E-
ewI&sig=m_lJ5p6s12pvlxketM2ffdbUJBU&hl=en&sa=X&ved=0ahUKEwjZ19vrxa_OAhXE1IMKHXI8BQIQ6AEITDAI#v=onepage&q=The%20first%20week%20of%20August%20hangs%20at%20the%20very%20top%20of%20summer%2C%20the%20top&f=false (or
go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-08-16_Book-Tuck_Everlasting-Footnote_6.pdf)
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