PEEK OF THE WEEK
December 18, 2017
Leif Hagen & Donna Roberts
The Markets
Here we come
a tax-reforming…
The reconciliation of
Congressional tax reform bills proceeded apace last week, and Congress is
expected to vote on the measure early this week. If tax reform passes, Dubravko
Lakos-Bujas, head of U.S. equity strategy with JPMorgan, thinks we may see value stocks swing back into favor. Barron’s reported:
“The spread between value and
growth has reached a point historically associated with a reversal; the Russell
1000 value index is up 9 percent this year, against a gain of 27 percent in the
comparable growth index. Tax reform is a catalyst for a rotation into value
stocks, as value companies generate almost 80 percent of their revenue in the
U.S. and are subject to an effective tax rate of 30.3 percent, the strategist observes.”
Tax reform isn’t the only driver
that may support value stocks. Value also tends to outperform when interest
rates are rising. If the Federal Reserve has anything to say about, rates
should begin to move higher.
The Federal Open Market Committee
(FOMC) increased its benchmark interest rate by one-quarter of a percentage
point last week. It was the third increase during 2017.
Normally, a Fed rate hike would
be expected to push Treasury rates higher; however, that didn’t happen last
week. Rates on U.S. government bonds fell on Wednesday after the Fed took
action, reported CNBC. It’s notable
that, after three rate hikes during 2017, the yield on 10-year Treasury bonds
finished last week at 2.4 percent, which was lower than at the start of the
year.
Following the FOMC meeting last
week, Chair Janet Yellen told CNBC,
“My colleagues and I are in line with the general expectation among most
economists that the type of tax changes that are likely to be enacted would
tend to provide some modest lift to GDP growth in the coming years.”
Data as of
12/15/17
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500 (Domestic Stocks)
|
0.9%
|
19.5%
|
18.3%
|
10.4%
|
13.3%
|
6.4%
|
Dow Jones Global ex-U.S.
|
0.3
|
21.5
|
22.4
|
6.0
|
4.5
|
-0.1
|
10-year Treasury Note (Yield Only)
|
2.4
|
NA
|
2.6
|
2.2
|
1.8
|
4.2
|
Gold (per ounce)
|
0.3
|
8.2
|
11.3
|
1.2
|
-5.9
|
4.7
|
Bloomberg Commodity Index
|
0.1
|
-3.4
|
-3.2
|
-8.5
|
-9.8
|
-7.3
|
DJ Equity All REIT Total Return Index
|
1.2
|
9.6
|
13.0
|
8.1
|
10.5
|
8.1
|
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.
Here’s another reason to like emerging markets. The
MSCI Emerging Markets Index was up more than 30 percent year-to-date late last
week, outperforming national indices in most developed nations. (Remember, past
performance is no indication of future results.) There may be more to like
about emerging markets than 2017 performance, though, wrote Ben Inker in the
latest GMO Quarterly letter:
“…if there is one group of equities
that deals with inflation on a pretty much continuous basis, it is emerging
equities…To be clear, our fondness for emerging equities today is driven
overwhelmingly by their cheaper valuations…But if worse did come to worst and
inflation flared up, owning a good chunk of the only equities that remember
what inflation is like seems like a decent idea.”
Do you
remember inflation?
In the 1970s, it was a household
name. People wore WIN (Whip Inflation Now) buttons, earrings, sweaters, and
other paraphernalia after President Ford declared inflation “public enemy
number one.” The Great Inflation, as it was called, lasted from 1965 to 1982 with
inflation rising above 14 percent in 1980.
While another Great Inflation
isn’t expected, it’s likely inflation eventually will move higher. For most of
the last decade, inflation in the United States has remained low. As economic
activity picked up, late in 2016 and early in 2017, the pace of inflation
increased and moved slightly above the Federal Reserve’s target level of 2
percent. Then, it dropped once again, reported Inker.
Goldman Sachs recently suggested “a sizable and relatively
long-lasting drag from the earlier weakness in import and commodity prices…” is
the reason for low inflation, and the company anticipates inflation will
increase during 2018.
If inflation begins to move
higher, the Federal Reserve is likely to continue to push interest rates
higher. Higher interest rates translate into higher bond yields and that could
affect investors by making investments with lower risk more attractive.
We hope you
will enjoy a very happy holiday!
Weekly
Focus – Think About It
“Inflation is when you pay fifteen dollars for the ten-dollar
haircut you used to get for five dollars when you had hair.”
--Sam
Ewing, American baseball player
Best Regards,
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
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NO COST to work with Leif as
their agent
For more information and resources visit our website at
www.HagenFN.com
* 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:
