PEEK OF THE WEEK
March 13, 2017
Leif Hagen & Donna Roberts
The Markets
Rate hike ahead…maybe.
Last
week’s U.S. employment report was better than expected. The United States added
235,000 jobs in February, which was a few more than economists had forecast.
It may
seem counterintuitive, but the positive economic data helped push U.S. stock
markets lower. The jobs report was a sign the American economy continues to be
strong and indicates a rate hike may be on the horizon. Barron’s reported:
“If
anything, the data just confirms what we’ve known for a while now: The economy
is growing, and one rate hike is unlikely to do much damage…There’s still a
strong likelihood of some sort of economic stimulus plan from the Trump
administration sometime this year…But the fact that tax cuts and infrastructure
projects are even being considered at a time when the U.S. economy is adding
200,000-plus jobs a month is ‘unprecedented’…”
Federal
Reserve (Fed) interest rate hikes affect stock markets because they make
borrowing more expensive. Higher borrowing costs may reduce the amounts people
and companies spend and affect companies’ profitability and share values.
At the
end of last week, CME’s FedWatch Tool,
which gauges the likelihood of changes in U.S. monetary policy, indicated there
was better than an 88 percent chance of a rate hike when the Fed meets on March
15.
It’s
interesting to note investor sentiment has become less optimistic. Last week, the
AAII Investor Sentiment Survey showed
investor pessimism had reached its highest level since February 2016. Bearish
sentiment increased by almost 11 points, finishing at 46.5 percent. That’s
significantly higher than the historic average of 30.5 percent. Bullish
sentiment fell by almost eight points to 30 percent. That’s below the historic
average of 38.5 percent. The AAII
survey is often used as a contrarian indicator.
Data as of 3/10/17
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard
& Poor's 500 (Domestic Stocks)
|
-0.4%
|
6.0%
|
19.3%
|
8.1%
|
11.6%
|
5.4%
|
|
Dow
Jones Global ex-U.S.
|
0.1
|
5.2
|
11.7
|
-1.7
|
1.9
|
-0.9
|
|
10-year
Treasury Note (Yield Only)
|
2.6
|
NA
|
1.9
|
2.8
|
2.0
|
4.6
|
|
Gold
(per ounce)
|
-1.9
|
3.8
|
-5.0
|
-3.6
|
-6.7
|
6.4
|
|
Bloomberg
Commodity Index
|
-3.4
|
-3.7
|
6.2
|
-14.6
|
-10.3
|
-6.6
|
|
DJ
Equity All REIT Total Return Index
|
-4.2
|
-1.1
|
8.3
|
9.8
|
10.3
|
4.4
|
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.
They’re all on the pro rodeo circuit. They all grow corn and soybeans. They all have renowned
universities. In addition, according to The
Economist, Texas, Iowa, Nebraska, Mississippi, Alabama, and Michigan are
likely to experience the biggest increase in tariffs – as a percent of state
gross domestic product (GDP) – if and when the North American Free-Trade
Agreement (NAFTA) is revised.
Under
NAFTA, goods are imported from and exported to Mexico and Canada without
tariffs, which are essentially taxes on imported goods. Tariffs typically
increase the cost of imports, making them less attractive to consumers. This can
help support the market for domestically produced goods and help protect
domestic jobs and industries. Currently, the United States sends about $240
billion worth of goods to Mexico, each year, and Mexico sends even more to the
United States.
The Economist’s analysis
measured potential increases in tariffs, in tandem with the volume of state
exports to Mexico, to determine the possible impact on a state’s economy. (The
analysis did not include Canadian exports, even though Canada is also a NAFTA
participant.) While the effect on the majority of states’ economies would be
relatively small, the impact on others could be more significant:
“In 2015,
Iowa’s farmers shipped $132M of high-fructose corn syrup to Mexico. Without
NAFTA, Mexico would slap a tooth-aching 100 percent tariff on the stuff…Among
this group, Texas stands out. It faces an average tariff of only 3 percent, but
its exports to Mexico are worth nearly 6 percent of its GDP (compared with 1.3
percent nationally)…Michigan also fits this category. Its exports of cars and
parts – many of which end up back in America – would attract tariffs averaging
only about 5 percent. But, with such shipments totaling $4.1B, the bill would
be painfully large.”
No one
yet knows how renegotiating NAFTA may affect any of the countries involved
because talks are not expected to begin for several months.
Weekly
Focus – Think About It
“Making good decisions
involves hard work. Important decisions are made in the face of great
uncertainty, and often under time pressure. The world is a complex place:
People and organizations respond to any decision, working together or against
one another, in ways that defy comprehension. There are too many factors to
consider. There is rarely an abundance of relevant, trusted data that bears
directly on the matter at hand. Quite the contrary – there are plenty of
partially relevant facts from disparate sources – some of which can be trusted,
some not – pointing in different directions. With this backdrop, it is easy to
see how one can fall into the trap of making the decision first and then
finding the data to back it up later. It is so much faster. But faster is not the
same as well-thought-out.”
--Thomas
C. Redman, “the Data Doc”
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.
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Sources:
http://www.barrons.com/articles/major-indexes-suffer-their-first-loss-in-weeks-1489210563?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/03-13-17_Barrons-Major_Indexes_Suffer_Their_First_Loss_in_Weeks-Footnote_1.pdf)
http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/03-13-17_CMEGroup-Countdown_to_FOMC-Footnote_3.pdf)
http://www.economist.com/news/united-states/21716057-rural-republican-states-have-most-lose-farmers-and-texans-would-lose-most (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/03-13-17_TheEconomist-Farmers_and_Texans_Would_Lose_Most_from_Barriers_to_Trade_with_Mexico-Footnote_9.pdf)
https://www.economist.com/blogs/graphicdetail/2017/02/daily-chart-2 (or
go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/03-13-17_TheEconomist-Which_American_Producers_Would_Suffer_from_Ending_NAFTA-Footnote_10.pdf)
