PEEK OF THE WEEK
JUNE 19, 2017
Leif Hagen & Donna Roberts
The Markets
All eyes on
inflation!
Inflation is the way economists
measure changes in the prices of goods and services. The United States has
enjoyed relatively low inflation for a significant period of time. Last week, the consumer price index indicated
inflation had moved lower in May.
Inflation is our focus because
it is at the core of two very different opinions that currently are influencing
markets and investors. A commentary on the
Kitco Blog explained:
“One of the most important economic
debates today is whether the economy will experience reflation or deflation (or
low inflation) in the upcoming months. Has the recent reflation been only a
temporary jump? Or has it marked the beginning of a new trend? Is the global
economy accelerating or are we heading into the next recession?”
Another key factor is
employment. Traditional economic theory holds when unemployment falls (i.e.,
when more people are employed) inflation will rise because demand for workers
will push wages higher. That hasn’t happened yet in the United States even
though unemployment has fallen significantly.
In fact, inflation remains
stubbornly below the Federal Reserve’s 2 percent target, reported The Economist. Regardless, the Federal
Reserve believes higher inflation is ahead, so it raised the Fed funds rate
last week and indicated it was preparing to shrink its balance sheet if the
economy continues to grow as expected.
There is a group that disagrees
with the Fed. They believe inflation will remain low regardless of employment
levels. Barron’s wrote:
“In the theoretical world, low
unemployment threatens to unleash a torrent of inflation, which needs to be
staved off by tighter monetary policies. Back in the real world, disruption,
innovation, and competition relentlessly drive down prices while wage growth is
hard to come by.”
The difference of opinion was
apparent in stock and bond markets last week. In the bond market, yields on
10-year Treasuries moved lower after the Federal Reserve raised rates. In the
U.S. stock market, the top-performing sectors were Industrials, which tend to
do well when investors are optimistic about growth, and Utilities, which tend
to do well when investors are worried about the future.
Data as of 6/16/17
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
0.1%
|
8.7%
|
17.1%
|
7.9%
|
12.6%
|
4.7%
|
|
Dow Jones Global ex-U.S.
|
-0.4
|
12.7
|
19.7
|
-0.8
|
5.6
|
-1.2
|
|
10-year Treasury Note (Yield
Only)
|
2.2
|
NA
|
1.6
|
2.6
|
1.6
|
5.3
|
|
Gold (per ounce)
|
-0.9
|
8.3
|
-4.2
|
-0.6
|
-4.9
|
6.7
|
|
Bloomberg Commodity Index
|
-1.4
|
-7.1
|
-6.8
|
-15.5
|
-9.0
|
-7.4
|
|
DJ Equity All REIT Total
Return Index
|
1.4
|
6.0
|
5.8
|
10.1
|
10.8
|
6.0
|
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.
a century-old medicine may help with autism. Estimates
from the Centers for Disease Control suggest one in every 68 American children
has been identified with autism spectrum disorder. Few effective treatments
have been found, but a medicine that has been around for more than a century
may prove helpful.
The Economist reported a very small human trial – only 10 boys were
involved – showed a drug used since 1916 to treat the sleeping sickness spread
by tsetse flies, may help children with autism. The trial paired the
participating boys by age, IQ, and their level of autism. In each pair, one boy
received the drug and the other received a placebo:
“Every participant given suramin
showed statistically significant improvements in their performance on the tests
at seven days. Those on the placebo showed no significant improvement. At 45
days, the boys who were given the drug were performing better on the tests than
they had before the infusion, but it was clear that as suramin was leaving
their system, their autistic traits were returning.”
The study’s results were
published in the Annals of Clinical and
Translational Neurology in late May; however, the research summary did not
include parent’s personal statements. The study’s first author Dr. Robert
Naviaux published those statements on his website.
One parent wrote, “Immediately
after the infusion, a kind of inner cheerfulness started to come out. When we
were walking back to the car, he was holding me hand. He started giggling and
looked up at me and said, ‘I just don’t know why I’m so happy.’”
Another wrote, “In fact, his
teachers at school were unaware of the trial and one day we got a note from the
teacher asking about what we had changed. We were naturally concerned and when
we asked they told us that, 'He has completed 3 weeks of schooling in 3 days!'”
Let’s hope
larger trials prove the drug to be safe and its positive effects enduring.
Weekly
Focus – Think About It
“If you’ve met one person with autism,
you’ve met one person with autism.”
--Dr.
Stephen Shore, Autistic professor of special education at Adelphi University
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/bond-yields-are-going-up-right-not-so-fast-1497674052?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-19-17_Barrons-Bond_Yields_are_Going_Up_Right-Not_So_Fast-Footnote_1.pdf)
https://www.economist.com/news/finance-and-economics/21723422-economists-and-federal-reserve-are-not-about-abandon-phillips (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-19-17_TheEconomist-Inflation_Has_Not_Yet_Followed_Lower_Unemployment_in_America-Footnote_4.pdf)
http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on U.S. & Intl Recaps, then "Central
banks move markets")
http://www.barrons.com/articles/is-the-federal-reserve-living-in-the-real-world-1497674080?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-19-17_Barrons-Is_the_Federal_Reserve_Living_in_the_Real_World-Footnote_6.pdf)
http://www.barrons.com/articles/stocks-mostly-edge-forward-on-muddled-data-1497675744?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-19-17_Barrons-Stocks_Mostly_Edge_Forward_on_Muddled_Data-Footnote_7.pdf)
http://www.economist.com/news/science-and-technology/21722732-it-was-only-initial-trial-suramins-effects-were-dramatic?zid=318&ah=ac379c09c1c3fb67e0e8fd1964d5247f (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-19-17_TheEconomist-A_Drug_Used_to_Treat_Sleeping_Sickness_May_Also_Help_with_Autism-Footnote_9.pdf)
