PEEK OF THE WEEK
February 5, 2018
Leif Hagen & Donna Roberts
The Markets
It was not a good week for stocks.
Last
week, stock markets around the world lost value. In the United States, the
Standard & Poor’s 500 Index (S&P 500), Dow Jones Industrial Index
(Dow), and NASDAQ all finished lower.
Some
pundits have been drawing comparisons between the performance of the Dow last
Friday and Black Monday, the memorable day in 1987 when the index shed 508
points in a single day.
They may be barking up the wrong tree.
Yes,
the Dow lost more than 600 points on Friday. That was about 2.5 percent of its
value. On Black Monday a lesser drop equated to a 22 percent loss for the Dow.
In addition, Black Monday was widely attributed to program trading gone awry.
The culprit behind last Friday’s fall is likely to be bonds, according to Barron’s.
Last
week, the U.S. Treasury announced it would begin selling more short-term
government bonds to fund the rising budget deficit. That sparked concerns about
the impact of a bigger bond supply on interest rates. When bond supply exceeds
demand, interest rates typically go up to attract investors. The United States
already has ample bond supply since the Federal Reserve curtailed its bond
buying program. Financial Times
reported:
“Equity
investing involves a delicate balance of three things: earnings, interest rates
and valuation. Over the past decade, low long-term bond yields have played a
crucial role in helping elevate equity valuations… ‘You have to consistently
show economic and earnings growth to justify these valuations at higher rates,’
says Nicholas Colas, cofounder at DataTrek. ‘People forget how closely tied
economic and profit growth is to rising rates – it is a horse race and profit
growth has to win – even if just by a little.’”
News
about employment and wage gains added fuel to the fire of investor worries. In
January, the United States experienced its strongest wage growth since 2009.
While that’s good news for workers, it may cause the Fed to raise rates more
aggressively in an effort to keep inflation manageable.
Data as of 2/2/18
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard
& Poor's 500 (Domestic Stocks)
|
-3.9%
|
3.3%
|
21.1%
|
11.0%
|
13.1%
|
7.2%
|
|
Dow
Jones Global ex-U.S.
|
-2.9
|
3.9
|
21.9
|
7.0
|
5.0
|
0.9
|
|
10-year
Treasury Note (Yield Only)
|
2.9
|
NA
|
2.5
|
1.7
|
2.0
|
3.7
|
|
Gold
(per ounce)
|
-1.6
|
2.7
|
8.9
|
1.5
|
-4.4
|
4.1
|
|
Bloomberg
Commodity Index
|
-1.9
|
1.1
|
0.8
|
-4.2
|
-9.0
|
-7.4
|
|
DJ
Equity All REIT Total Return Index
|
-2.9
|
-5.7
|
2.5
|
2.7
|
7.7
|
6.9
|
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.
what does success mean to you? For some, having a big following on social media translates
as success. NASA, which has more followers than any other government
organization worldwide (28 million), may be considered successful. Of course,
NASA doesn’t hold a candle to Katy Perry, who has close to 106 million
followers.
It
will surprise few to learn the U.S. Treasury, which manages the money resources
of the United States, doesn’t have many followers (770,000); however, it has
more than the Federal Reserve (446,000).
It’s
almost enough to make you wonder whether Americans care about money. They do,
but on a more personal level. A corporate survey, Making It in America, queried Americans about what it means to
reach “…a level of success, comfort, and security that you find wholly
satisfying.” As you might expect, there were a variety of answers.
One
gauge of success is income, according to about two-thirds of the respondents.
The group’s average income was $57,426 a year. They would know they’d ‘made it’
when they earned about $147,000 a year. According to CNBC, annual income of $150,000 would put many people in the middle
class, depending on where they lived and the size of their households. It’s
notable few people aspire to join the ranks of the wealthiest Americans. More
than three-fourths said they would not want to earn more than one million
dollars a year.
Of
course, money is not the only measure of success. A Pew Research study found just 11 percent of those surveyed thought
wealth was an essential part of the American dream. Far more important were:
·
Freedom of choice in
how to live (77 percent)
·
Having a good family
life (70 percent)
·
Retiring comfortably
(60 percent)
·
Contributing to their
communities (48 percent)
·
Owning a home (43
percent)
·
Having a successful
career (43 percent)
One
participant said, “Even though I truly believe that having money is freedom,
money is really just a tool to make experiences in life possible.”
Weekly
Focus – Think About It
“You can’t reach for anything new if your hands are
still full of yesterday’s junk.”
--Louise Smith,
NASCAR driver
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.
* To unsubscribe from the
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Sources:
http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-05-18_Barrons-Global_Stock_Market_Recap-Footnote_1.pdf
https://www.investopedia.com/ask/answers/042115/what-caused-black-monday-stock-market-crash-1987.asp
https://www.barrons.com/articles/risk-roars-back-1517626616 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-05-18_Barrons-Risk_Roars_Back-Footnote_4.pdf
https://www.ft.com/content/08f29ca6-07f3-11e8-9650-9c0ad2d7c5b5 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-05-18_FinancialTimes-Stock_Bulls_Fret_that_Bad_News_Comes_in_Threes-Footnote_5.pdf
