PEEK OF THE WEEK
MAY 15, 2017
Leif Hagen & Donna Roberts
The Markets
Does
performance tell the whole story?
American stock markets have
delivered some exceptional performance in recent years. Just look at the
Standard & Poor’s 500 (S&P 500) Index. Barron’s reported the S&P 500, including reinvested dividends, has
returned 215 percent since April 30, 2009. The index is currently trading 50
percent above its 2007 high.
The rest of the world’s stocks,
as measured by the MSCI EAFE Index, which includes stocks from developed
countries in Europe, Australia, and the Far East, returned 97 percent in U.S.
dollars during the same period. At the end of April, the MSCI EAFE Index was 20
percent below its 2007 high.
If you subscribe to the ‘buy
low, sell high’ philosophy of investing then these performance numbers may have
you thinking about portfolio reallocation. However, performance doesn’t tell
the full story.
For example, there’s a
significant difference between the types of companies included in the two
indices. At the end of April, Information Technology stocks comprised 22.5
percent of the S&P 500 Index and just 5.7 percent of the MSCI EAFE Index. Financial
stocks accounted for 14.1 percent of the S&P 500 and 21.4 percent of MSCI
EAFE.
It’s important to dig beneath
the surface and understand the drivers behind performance before making
assumptions or changing portfolio allocations.
Even so, European stocks have
the potential to deliver decent performance this year, according to Barron’s. “The case for a revival in
European stocks, particularly the Continent’s many multinationals, rests in
large part on expectations for improving global growth…This year Europe’s GDP
is expected to increase by about 2 percent, after growing 1.7 percent in 2016 –
better than the U.S.’s 1.6 percent.”
Last week,
the S&P 500 Index moved slightly lower.
Data as of 5/12/17
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500
(Domestic Stocks)
|
-0.4%
|
6.8%
|
15.8%
|
8.0%
|
12.3%
|
4.8%
|
Dow Jones Global ex-U.S.
|
0.6
|
11.4
|
15.6
|
-0.6
|
4.9
|
-1.1
|
10-year Treasury Note (Yield
Only)
|
2.3
|
NA
|
1.8
|
2.5
|
1.8
|
4.7
|
Gold (per ounce)
|
0.3
|
6.2
|
-3.8
|
-1.8
|
-4.6
|
6.3
|
Bloomberg Commodity Index
|
1.0
|
-4.6
|
-1.5
|
-15.0
|
-8.9
|
-7.0
|
DJ Equity All REIT Total
Return Index
|
-1.4
|
1.2
|
1.9
|
8.2
|
9.7
|
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 herd of unicorns is growing. Since
1996, the value of companies listed on American stock exchanges has increased
from 105 percent of gross
domestic product (GDP) to 136 percent of GDP, according to The Economist. (GDP is the value of all goods and services produced
in the United States.)
During the same period, the
number of companies listed on American exchanges has fallen from 7,322 to
3,671.
This fact might lead you to
surmise that a few businesses have become dominant in their industries, but
that’s not the case. Many companies are choosing to remain private rather than
issue shares through an Initial Public Offering (IPO) and then trade on an
exchange. Financial Times explained:
“Over the past 10 years the number
of initial public offerings in the United States, and the total amount of
equity raised by them, are way down on historical averages. If these had held
there would have been more than 3,000 new public companies in the past decade.
Instead, we have had fewer than half the number of IPOs.”
Why don’t the leaders of vibrant
young companies want to issue shares? There may be several reasons:
·
Technology-intensive businesses may need less
capital.
·
It’s relatively easy to raise money in private
equity markets.
·
Regulatory requirements for public companies
increase litigation risk from securities class actions.
·
Private markets are better at allowing companies
to take a long-term perspective.
The reluctance to take companies
public has fattened the world’s herd of unicorns – private
firms worth over $1 billion that are not subject to public-company standards
for accounting and disclosure. There are currently about 100 of them.
Weekly
Focus – Think About It
“It may be possible to gild pure
gold, but who can make his mother more beautiful?”
--Mahatma Gandhi, Leader,
Indian independence movement
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:
http://www.barrons.com/articles/europe-on-sale-time-to-buy-foreign-stocks-1494648930?mod=BOL_hp_highlight_1 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-15-17_Barrons-Europe_on_Sale-Time_to_Buy_Foreign_Stocks-Footnote_1.pdf)
http://us.spindices.com/indices/equity/sp-500 (Click on Sector Breakdown to view pie chart) (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-15-17-S%26P_Dow_Jones_Indices-Sector_Breakdown-Footnote_2.pdf)
http://www.economist.com/news/business/21721153-company-founders-are-reluctant-go-public-and-takeovers-are-soaring-why-decline (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-15-17_TheEconomist-Why_the_Decline_in_the_Number_of_Listed_American_Firms_Matters-Footnote_4.pdf)
https://www.ft.com/content/9fcfb668-3409-11e7-99bd-13beb0903fa3 (or
go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-15-17_FinancialTimes-Relax_the_Rules_to_Kickstart_the_Stalled_IPO_Market-Footnote_5.pdf)