PEEK OF THE WEEK
April 3, 2017
Leif Hagen & Donna Roberts
The Markets
Happy
Birthday!
Toward the end of the first
quarter, the bull market celebrated its eighth birthday. David Kelly, Chief
Global Strategist at J.P. Morgan Asset
Management wrote:
“Eight years ago, on March 9, 2009,
the S&P 500 closed at 677, down 57 percent from where it had been just 18
months earlier. 10-year Treasury yields had fallen from 3.6 percent to 2.9
percent over the previous year…Investors were depressed and scared. However,
good long-term returns from stocks were almost inevitable at that point since
economic and market fundamentals were at unsustainably low levels…Eight years
later, the financial landscape has changed completely…it still makes sense to
be in long-term investments including both domestic stocks and bonds. However,
it is time to adopt a more diversified and thoughtful approach that recognizes
the importance of valuations…”
Valuations were heady during first quarter
Stock valuations reflect how
much a share of a company’s stock, or shares of companies in an index, may be
worth. Valuations can help investors understand whether shares are expensive,
reasonable, or inexpensive. One way to measure valuation is to look at trailing
12-month price-to-earnings (P/E). This gauge reflects how much an investor must
pay to receive one dollar of the company’s earnings.
For instance, on March 31, FactSet reported the trailing 12-month P/E
of the Standard & Poor’s 500 Index was 21.8. That’s well above the 10-year
average of 16.6 and the five-year average of 17.1. This suggests shares of the
overall index are expensive. Keep in mind, even when the index appears to be
expensive, the valuations of specific companies or sectors within the index may
still be attractive.
Animal spirits abounded
The CEO of JPMorgan attributed investors’ enthusiasm for stocks during the first
quarter to ‘animal spirits,’ reported CNN
Money. Animal spirits is a term coined by John Maynard Keynes. It describes “…a spontaneous urge to action rather than inaction, and
not as the outcome of a weighted average of quantitative benefits multiplied by
quantitative probabilities." Investors were inspired by the new
administration’s growth agenda, including promises of lower taxes and less
regulation.
The U.S. economy grew (but we’re not sure
how much)
People and businesses may have been
more enthusiastic than data suggests they should be. Financial Times cited research from Morgan Stanley that shows a growing gap between ‘hard’ economic
data (like slowing corporate spending and lower retail sales) and ‘soft’
economic data (like consumer and business optimism). The disparity has created
uncertainty about the pace of economic growth during the first quarter of 2017.
“The Atlanta Federal Reserve’s model, which…focuses on hard data, projects an
annualized rate of just 1 percent. However, the New York Fed’s model, which ‘incorporates
soft data into its tracking,’ forecasts 3 percent growth.”
The Federal Reserve acted
With employment and inflation
data approaching Fed targets, the Federal Open Market Committee raised rates in
March, pushing the Fed funds target rate into the 0.75 percent to 1 percent
range, reported Financial Times. More
rate hikes are expected during 2017.
Brexit was launched
The end of the first quarter of
2017 marked a new beginning for Britain. On March 29, Prime Minister Theresa
May officially launched Britain’s exit from the European Union. The United
Kingdom now has two years to negotiate terms with the European Union (unless
all members of the EU unanimously approve an extension).
When
you consider how long trade agreement negotiations normally take, it appears
the task ahead for Britain and the EU is akin to running a marathon in 30
minutes. For example, Canada and the EU began discussing a trade
agreement in 2007. It has yet to be finalized.
United
States and European national stock market indices finished the quarter higher.
Data as of 3/31/17
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
0.8%
|
5.5%
|
14.7%
|
7.8%
|
10.7%
|
5.2%
|
|
Dow Jones Global ex-U.S.
|
-0.4
|
7.4
|
10.6
|
-1.2
|
2.1
|
-1.0
|
|
10-year Treasury Note (Yield
Only)
|
2.4
|
NA
|
1.8
|
2.7
|
2.2
|
4.6
|
|
Gold (per ounce)
|
-0.2
|
7.4
|
0.6
|
-1.2
|
-5.8
|
6.6
|
|
Bloomberg Commodity Index
|
1.0
|
-2.5
|
8.3
|
-14.1
|
-9.9
|
-6.7
|
|
DJ Equity All REIT Total
Return Index
|
1.0
|
2.5
|
5.2
|
10.6
|
10.2
|
4.9
|
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.
the tooth fairy is awfully generous these days. Since
1998, an insurance firm has conducted a poll to determine how much swag the
tooth fairy or, depending on your country, the magical mouse, elf, brownie, or
tooth rat has been leaving behind for children who’ve lost their teeth.
When the poll began, the going
rate for a tooth was about $1.50. The most recent survey found that, in the
United States, a tooth was pulling in about $4.66! The going rate in other
nations was similar:
·
C$6.11 in Canada ($4.59 U.S.)
·
¥525.82 in Japan ($4.72 U.S.)
·
€4.38 in Ireland and Spain ($4.67 U.S.)
·
£3.75 in England ($4.70 U.S.)
·
R$14.47 in Brazil ($4.63 U.S.)
·
₡2613.42
in Costa Rica ($4.66 U.S.)
NPR’s Planet Money examined whether the value of lost teeth has
kept pace with inflation. They posited a tooth was worth about $0.50 in the
1970s. If the value of a tooth had risen with inflation, it would be worth less
than $3.00 today. So, the value of a lost tooth has increased faster than the
rate of inflation – similar to college tuition!
Weekly
Focus – Think About It
“But the real magic and the
secret source behind collaborative consumption marketplaces…isn't the inventory
or the money. It's using the power of technology to build trust between
strangers…Because, at its core, it's about empowerment. It's about empowering people
to make meaningful connections, connections that are enabling us to rediscover
a humanness that we've lost somewhere along the way…”
--Rachel Botsman, Business
consultant
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:
https://www.ft.com/content/24843018-c6fc-36cf-aa0c-87a1bf6a61f5 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/04-03-17_FinancialTimes-Morgan_Stanley_Flags_Record_Gap_Between_Hard_and_Soft_US_Economic_Data-Footnote_6.pdf)
https://www.ft.com/content/6723f69c-09a4-11e7-ac5a-903b21361b43
(or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/04-03-17_FinancialTimes-Fed_Increases_Interest_Rates_as_Inflation_Pressures_Loom-Footnote_7.pdf)
http://www.economist.com/news/britain/21719758-it-leaves-britain-little-time-get-through-bulging-contentious-agenda-two-year-countdown
(or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/04-03-17_TheEconomist-The_Two-Year_Countdown_to_Brexit_has_Begun-Footnote_8.pdf)
http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html
(Click on U.S. & Intl Recaps, "The clock is ticking,” and scroll down
to Global Stock Market Recap) (or
go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/04-03-17_Barrons-Global_Stock_Market_Recap-Footnote_9.pdf)
