PEEK OF THE WEEK
October 2, 2017
Leif Hagen & Donna Roberts
The Markets
A lot
happened during the third quarter of 2017, but not much changed.
The bull market in U.S. stocks continued to charge ahead. Traditional
measures of valuation continued to suggest the market is overvalued, but some
analysts argued it’s different this time. The
Economist explained:
“The current [cyclically-adjusted
price-to-earnings] ratio of 31 suggests that stocks are about 50% over-valued –
a figure that has only been exceeded in the past 60 years during the dot-com
bubble. Bulls argue that the S&P 500’s constituents can justify this heady
valuation. Big American companies are wielding increased market power, enabling
them to earn outsized profits at the expense of America’s customers.”
The bull market in U.S. bonds continued.
Interest rates on 10-year Treasury bonds were lower at the end of September
than they were at the start of the year, despite the Federal Reserve increasing
rates in March and June. The Fed also has indicated it will soon begin to
unwind its balance sheet, which includes about $4.5 trillion in Treasury bonds,
mortgage-backed securities, and government agency debt.
Geopolitical tensions remained high, but investors were
impervious to the potential effect of various conflicts on stock and bond
markets. In August, Barron’s wrote:
“The
biggest surprise of 2017 remains that geopolitical risk continues to not
matter. Until Monday, North Korea’s nuclear missile program had again faded
into the background as just another high impact/low probability risk with no
discernible effect on market sentiment. Brexit, the changes in leadership roles
in China after the 19th National People’s Congress, the possibility of a United
States-China trade war, and the unpredictable nature of the Trump presidency
are not weighing on stocks.”
The CBOE Volatility Index (VIX) keeps
plumbing historic lows. The VIX reflects investors’ expectations for market
volatility in coming months. The lower the Index reading, the lower volatility
expectations are. The historic average for the VIX is about 19.
During
2017, the number of days on which the VIX finished below 10 – suggesting investors
are exceptionally calm – increased significantly. In early June, the VIX had
closed below 10 just 14 times since 1990. Six of those closes had occurred in
2017. By the end of September, the VIX had closed below 10 on 32 days since
1990 and 24 times in 2017.
We’re still waiting for inflation to move
higher. At the end of the quarter, inflation appeared to be heading the
wrong way. The core Personal Consumption Expenditures (PCE) index, which is the
Federal Reserve’s favorite measure of inflation, came in at 1.3 percent,
year-over-year. That’s its lowest level since October 2015, reported Barron’s. The Fed’s goal is to have
inflation at 2 percent. It has raised rates during 2017 in anticipation of
higher inflation rates, but those higher rates have yet to materialize.
Data as of 9/29/17
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
0.7%
|
12.5%
|
17.1%
|
8.4%
|
11.8%
|
5.0%
|
|
Dow Jones Global ex-U.S.
|
-0.6
|
18.7
|
16.5
|
2.7
|
4.9
|
-0.9
|
|
10-year Treasury Note (Yield
Only)
|
2.3
|
NA
|
1.6
|
2.5
|
1.6
|
4.6
|
|
Gold (per ounce)
|
-0.9
|
10.7
|
-2.7
|
1.7
|
-6.4
|
5.6
|
|
Bloomberg Commodity Index
|
-0.5
|
-3.5
|
-0.9
|
-11.2
|
-10.8
|
-7.2
|
|
DJ Equity All REIT Total
Return Index
|
0.7
|
6.1
|
2.1
|
10.1
|
10.2
|
5.8
|
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 case of the swirling Euros. In
mid-September, local authorities in Geneva, Switzerland were investigating an
unexpected deposit. Reuters reported:
“…the first blockage occurred in
the toilet serving the vault at [a] bank…in Geneva’s financial district, and
three nearby bistros found their facilities bunged up with 500-euro notes a few
days later…The cash was confiscated during the investigation and it was unclear
who would get it if it was found to be lawful. There was no immediate reason to
think it was dirty money...”
Whoever was responsible for
flushing about $100,000 worth of 500-euro bills may have jumped the gun. The
€500 note will be discontinued by the European Central Bank because authorities
suspect it has been used to facilitate illegal activities, but production continues
until the end of 2018.
The perpetrator hasn’t committed
a crime, reported Bloomberg. While
it’s illegal to mutilate or deface bills in the United States, that’s not the
case in Switzerland. The European
Commission isn’t concerned when small amounts of euro are damaged. Its
rules for legal tender state:
“The destruction of small
quantities of euro banknotes or coins by an individual should neither be
prohibited nor penalized. The justification for the non-prohibition is the fact
that the lawful owner of a banknote should be able to do what he/she wants with
his/her own good as long as there is no impact on third parties.”
Why
investigate if there is no crime? There’s nothing like a good mystery to occupy
the mind!
Weekly
Focus – Think About It
“The problem with putting two and two together is that
sometimes you get four, and sometimes you get twenty-two.”
--Dashiell Hammett, American author
Best Regards,
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.
P.S.S. Also,
please remind your friends and family members becoming Medicare eligible that
we offer Medicare insurance and Part D options with NO COST to work with Leif as
their agent
For more information and resources visit our website at www.HagenFN.com
For more information and resources visit our website at www.HagenFN.com
For Medicare supplement and part D information and
resources, please visit MEDICAREforSENIORS.info
Please FOLLOW and “LIKE US” on FACEBOOK.com/HagenFN
Please Read our Blog @ http://HagenFinancialNetwork.blogspot.com
Please Follow our Tweets on Twitter.com/SafeLeif
Check out this: http://www.MedicareForSeniors.info
* 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
“Peek of the Week”, please reply to this email with “Unsubscribe” in the
subject line, or write us at: Hagen Financial Network, Inc. 4640 Nicols Road,
Suite 203; Eagan, MN 55122.
Sources:
https://www.economist.com/blogs/graphicdetail/2017/09/daily-chart-10?zid=295&ah=0bca374e65f2354d553956ea65f756e0 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-02-17_TheEconomist-The_S%26P_500_Breaks_Another_Record-Footnote_1.pdf)
http://www.barrons.com/articles/whats-driving-asias-stock-market-rally-1504227382 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-02-17_Barrons-Whats_Driving_Asias_Stock_Market_Rally-Footnote_4.pdf)
http://www.cboe.com/products/vix-index-volatility/vix-options-and-futures/vix-index/vix-historical-data (Click on ‘VIX data for 2004 to present (Updated
Daily)*’ to review the downloaded data in an Excel spreadsheet)
http://www.barrons.com/articles/inflation-falls-again-and-by-more-than-expected-1506691462 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-02-17_Barrons-Inflation_Falls_Again_and_by_More_than_Expected-Footnote_7.pdf)
