PEEK OF THE WEEK
May 8, 2017
Leif Hagen & Donna Roberts
The
Markets
Is it
complacency? Exuberance? Uncertainty? Exhaustion? Insight? Intuition?
Last week, all three major U.S.
stock markets gained value and two reached new record highs. On the face of it,
that’s great news for stock investors. However, if you look below the surface,
the markets’ upward trend may have you scratching your head.
Barron’s reported:
“That the S&P would hit a new
high was all the more surprising given the lack of reaction to major headlines
throughout the week. On the plus side of the ledger, Congress managed to avoid
a shutdown, while on the downside, President Donald Trump tweeted that the U.S.
‘needs a good shutdown,’ and the Federal Reserve appeared more hawkish than
prognosticators had been prognosticating. Nothing. Then there’s the prospect of
a shocker in the French election over the weekend, though the pro-Europe
candidate Emmanuel Macron is widely expected to beat the more-radical Marine Le
Pen. Yet here we are. 'It’s like the market took Novocain and is numb to
everything,’ says Thomas Lee, head of research at Fundstrat Global Advisors.”
It may be investors give more
weight to company performance during the first quarter than to other factors.
So far, 83 percent of the companies in the Standard & Poor’s 500 (S&P
500) Index have reported first quarter earnings (earnings measure a company’s
profitability). Three-fourths of the companies reported earnings were higher
than had been estimated, reported FactSet.
Strong earnings show companies
have performed well. Price-Earning (P/E) ratios help investors gauge whether a
company’s stock, or a stock index, is a good value. The P/E ratio indicates the
dollar amount an investor may pay to receive one dollar of a company’s or an index’s
earnings, according to Investopedia.
Last Friday, the trailing
12-month P/E ratio for the S&P 500 Index was 21.9. That’s quite a lot
higher than the five-year average of 17.4 or the 10-year average of 16.7.
At the same time, the forward
12-month P/E ratio for the S&P 500 Index was 17.5. That’s also a lot higher
than the five-year average of 15.2 or the 10-year average of 14.0.
So, why are
highly valued markets moving higher? It’s a puzzle.
Data as of 5/5/17
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
0.6%
|
7.2%
|
17.0%
|
8.4%
|
11.9%
|
4.7%
|
|
Dow Jones Global ex-U.S.
|
1.1
|
10.7
|
14.9
|
-0.7
|
3.9
|
-1.2
|
|
10-year Treasury Note (Yield Only)
|
2.4
|
NA
|
1.8
|
2.6
|
1.9
|
4.6
|
|
Gold (per ounce)
|
-3.0
|
6.0
|
-4.1
|
-2.0
|
-5.2
|
6.0
|
|
Bloomberg Commodity Index
|
-1.6
|
-5.5
|
0.0
|
-15.5
|
-9.7
|
-7.1
|
|
DJ Equity All REIT Total Return Index
|
-0.3
|
2.7
|
3.9
|
9.2
|
9.7
|
5.0
|
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.
Is The U.S. government well run? Stop
rolling your eyes. The Economist
reported Steve Ballmer, former head of a large tech company, has been working
on a new project – completing Form 10-K for the United States of America. The
project is called USA Facts: Our nation,
in numbers.
If you’re not familiar with Form
10-K, it is the global gold standard of corporate disclosure. United States regulators
require public companies to provide comprehensive overviews of their businesses
and financial condition each year, including audited financial statements. The
information is provided on Form 10-K.
USA Facts aggregates publicly available data from federal, state,
and local governments. It then groups the data into four operating divisions
based on the ‘missions’ described in the U.S. Constitution:
·
Establish justice and ensure domestic
tranquility
·
Provide for the common defense
·
Promote the general welfare
·
Secure the blessings of liberty to ourselves and
our posterity
After
reviewing USA Facts, The Economist wrote:
“Governance is poor. The country is
not managed using a coherent taxonomy. So, for example, the House of
Representatives, the Senate, and the White House each split the job of running
America into roughly 20 operating divisions. But their categories are
different, meaning crossed wires and insufficient accountability…”
The findings aren’t much of a
surprise. The government does not compare favorably to corporations. It has a
profit margin of negative 3 percent. (The S&P 500 average is 8 percent.) It
invests more in the future than most companies. Research and development and
capital expenditures are 12 percent of revenue. (The S&P 500 average is 8
percent.) Debt is 289 percent of tax revenues, which are a proxy for sales. (The
S&P 500 average is 77 percent.)
If you’d
like to review the numbers, visit USAFacts.org.
Weekly
Focus – Think About It
“Ignorance and fear are but
matters of the mind – and the mind is adaptable.”
--Daniel Kish, President of
World Access for the Blind
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/stocks-ignore-the-headlines-and-hit-highs-1494046842?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-08-17_Barrons-Stocks_Ignore_the_Headlines_and_Hit_Highs-Footnote_1.pdf)
http://www.economist.com/news/business/21721428-new-website-treats-state-if-it-were-company-form-10-k-americas-government (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-08-17_TheEconomist-A_Form_10-K_for_Americas_Government-Footnote_4.pdf)
