PEEK OF THE WEEK
November 19, 2017
Leif Hagen & Donna Roberts
The Markets
Are
investors more like tigers or African wild dogs?
It appears investors – retail
and institutional – have become rather like predators. They patiently stalk
shares, waiting for a dip, and then they strike – buying stocks when prices
fall.
Consider last week. Barron’s described it like this: “The
Dow traded down nearly 80 points on Monday, 170 points on Tuesday, and 170
points on Wednesday, but each time the blue-chip benchmark finished off its
lows. That was followed by the Dow’s 187-point rally on Thursday, as everyone
bought the dips.”
Investors’ remarkable behavior
led the publication to speculate, “What if higher volatility, instead of
scaring investors away from the stock market, brings them in? In that case,
this bull market could still have a long way to go.”
Buying low and selling high is a
foundational principle of investing. However, it remains to be seen how successful
buying dips will prove to be in a market that some believe is too highly valued.
One measure of valuation is the
12-month trailing price-to-earnings (P/E) ratio, which tracks a company’s
current share price against its earnings during the previous 12 months. Last
week, FactSet reported the trailing
P/E ratio for the Standard & Poor’s 500 Index was 22. The five-year average
is 18.2, and the 10-year average is 16.9. Some prefer to look at forward P/E
ratios, which compare share price to expected future earnings. The forward P/E
ratio for the Standard & Poor’s 500 Index was 18, while the five-year
average is 15.7, and the 10-year average is 14.1.
Only time will tell whether
investors’ dip buying will more closely resemble the hunts of tigers or those
of African wild dogs. When hunting prey, tigers are successful 5 to 10 percent
of the time. African wild dogs take down prey 85 percent of the time, according
to BBC’s Discover Wildlife.
As always,
much will depend on the investments selected.
Data as of 11/17/17
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500 (Domestic Stocks)
|
-0.1%
|
15.2%
|
17.9%
|
8.1%
|
13.2%
|
6.1%
|
Dow Jones Global ex-U.S.
|
-0.4
|
20.8
|
24.5
|
3.9
|
5.6
|
-0.4
|
10-year Treasury Note (Yield Only)
|
2.4
|
NA
|
2.3
|
2.3
|
1.6
|
4.1
|
Gold (per ounce)
|
0.0
|
10.8
|
4.7
|
2.8
|
-5.8
|
5.1
|
Bloomberg Commodity Index
|
-0.6
|
-0.9
|
4.9
|
-9.6
|
-9.5
|
-7.0
|
DJ Equity All REIT Total Return Index
|
-0.6
|
9.3
|
16.2
|
8.3
|
11.0
|
7.5
|
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.
and now for something completely different. Online
sales aren’t the only threat to traditional brick-and-mortar retailers. Direct-to-consumer
(DTC – also abbreviated as D2C) companies have been implementing a brand new business
model. They’re skipping retailers and selling direct to consumers. Early
entries in the DTC space targeted product areas dominated by big, established
companies that have been enjoying high profit margins. DTC firms often are
offering better price points and far superior customer service, reports Forbes.
In the future, some may remember
the emergence of DTC as the onset of the razor wars. In 2010, the world’s
largest razor blade company had 70 percent market share in the United States. Its
gross margins (sales minus the cost of the product) were as high as 60 percent,
reported The Economist. Soon after,
the company found itself competing with two subscription razor blade services
offering no cost trials and money-back guarantees. The DTC business model
proved to be attractive and the market share of the world’s largest maker of razor
blades has fallen to 54 percent.
Will DTC
have staying power? The Economist
wrote:
“…a growing number of startups are
reimagining everyday household items – from pants and socks to toothbrushes and
cookware. These [DTC] companies bypass conventional retailers and bring their
products straight to customers via their online stores. They began several
years ago to catch the attention of venture-capital (VC) firms, which have
poured in more than $3bn since 2012. But the success of some [DTC] firms has
attracted a lot of wannabes, making this a crowded market and leaving some
wondering whether the boom has reached its limits.”
While analysts ponder the
viability of the new business model, the behemoths of consumer goods and
retailing have begun buying DTC firms. Consequently, we may see a steady stream
of new entrants to the market.
We hope you
have a wonderful Thanksgiving celebration!
Weekly
Focus – Think About It
“Intelligence alone does
not get us where we need to go or even necessarily where we want to go. For
that, the human creature must exercise harder-won capacities of wisdom, and
wise action.”
--Krista Tippett, American journalist and
author
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: