PEEK of the Week
July 10, 2017
Leif Hagen & Donna Roberts
The Markets
Things you may want to know…
Last Friday, Financial Times (FT) published, ‘Five markets charts that matter
for investors.’ Among the issues addressed in the charts were:
·
The bond market bear watch. The yield on 10-year German Bunds (Germany’s government
bonds) reached an 18-month high of 0.58 percent recently. Yields rose after the
European Central Bank’s Mario Draghi indicated its stimulus efforts would end
at some point.
When bond yields
rise, bond values fall, and that makes rising interest rates quite a
significant event for anyone who holds lower yielding bonds. In the United
States, 10-year U.S. Treasuries moved to a seven-week high last week and then
dipped lower following the release of the Federal Open Market Committee meeting
minutes, reported CNBC.com.
·
Financial companies gaining favor. During the past month, U.S. stock markets have seen a
sector rotation. FT reported:
“…S&P financials have gained some 6 percent,
with tech sliding almost 4 percent. That still leaves financials lagging behind
the S&P 500 for the year and well behind the roughly 17 percent gain for
tech. A similar story has unfolded in Europe between banks and tech.”
Investors’
appetite for financial companies may reflect the belief higher interest rates
are ahead. Banks and other financial firms generally benefit when interest
rates rise. Investor’s Business Daily
reported:
“Several Wall Street giants have warned of weak trading
revenue in Q2, continuing the lackluster trend in 2017…Still, bank stocks large
and small have been leading in recent weeks, helped by higher bond yields and
massive buyback and dividend plans.”
Last week, the unemployment rate
in the United States rose from 4.3 to 4.4 percent. It was good news according
to an expert cited by Barron’s, “…the
rise in labor force participation indicates slack remains in the labor market.”
That may be the reason wages showed little improvement.
Data as of 7/7/17
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500
(Domestic Stocks)
|
0.1%
|
8.3%
|
15.6%
|
7.0%
|
12.4%
|
4.7%
|
Dow Jones Global ex-U.S.
|
-0.6
|
12.0
|
18.2
|
-1.4
|
5.3
|
-1.4
|
10-year Treasury Note (Yield
Only)
|
2.4
|
NA
|
1.4
|
2.6
|
1.5
|
5.2
|
Gold (per ounce)
|
-2.1
|
4.9
|
-10.4
|
-2.5
|
-5.2
|
6.3
|
Bloomberg Commodity Index
|
-1.0
|
-6.5
|
-4.4
|
-14.9
|
-10.1
|
-7.2
|
DJ Equity All REIT Total Return
Index
|
-1.3
|
3.6
|
-0.7
|
8.5
|
9.4
|
5.7
|
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.
It
doesn’t appear to be common knowledge but there may be an affordable car crisis in the United States.
The latest Bankrate.com Car
Affordability Study found:
“…typical households
in most of America’s larger cities don’t earn enough to afford the average new
vehicle, under a common budgeting rule for buyers… The ‘20/4/10’ rule says you
should aim to put down at least 20 percent of a vehicle’s purchase price, take
out a car loan for no longer than four years, and devote no more than 10
percent of your annual income to car payments, interest, and insurance. If you
can’t stay within those lines, you can’t afford the car.”
The only major city where a new car remains affordable is
Washington, D.C.!
For some, the obvious solution is choosing a less expensive
model. For others, the answer is buying a used vehicle. For the latter group,
here’s some bad news: even an average-priced used car – nationally, the average
price is about $19,200 – is unaffordable for households in eight of the 25
largest cities.
Leasing is also an option; one that may have helped create
an oversupply of used cars. In July, Automotive
News reported:
“…millions [of] cars that were leased two or three years
ago, many of them used compact and midsized cars with low mileage, are heading
toward auction lots and used car dealerships. That surge in supply threatens to
depress prices for new and used vehicles, raising the risk of losses for
automakers and finance companies on lease deals. It also undercuts the value of
cars customers want to trade in for a new vehicle.”
The rising popularity of ride-sharing and car-sharing, and
the introduction of self-driving vehicles, may also depress prices. In fact,
some automakers have introduced their own ride-sharing services.
Weekly Focus – Think About
It
“A man is rich in proportion to the number
of things he can afford to let alone.”
--Henry
David Thoreau, American
philosopher and naturalist
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:
https://www.ft.com/content/c4de73e2-17a1-11e7-9c35-0dd2cb31823a (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-10-17_FinancialTimes-Five_Markets_Charts_that_Matter_for_Investors-Footnote_1.pdf)
https://www.investors.com/news/q2-earnings-season-why-analysts-are-so-bullish/ (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-10-17_InvestorsBusinessDailyNews-Earnings_Season_on_Tap-Here_are_the_3_Top_Sectors-Footnote_3.pdf)
http://www.barrons.com/articles/june-jobs-report-payrolls-climb-but-wages-dont-1499431826?mod=BOL_hp_highlight_1?mod=BOL_hp_highlight_1 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-10-17_Barrons-June_Jobs_Report-Payrolls_Climb_More_than_Expected_But_Wages_Dont-Footnote_4.pdf)
