PEEK OF THE WEEK
April 2, 2018
Leif Hagen & Donna Roberts
The Markets
In like a
lion…
Investors
roared into 2018.
During the first week of the
first quarter of the New Year, the Dow Jones Industrial Average rose above
25,000 for the first time ever. Less than two weeks later, it closed above
26,000. The Standard & Poor’s (S&P) 500 Index and NASDAQ Composite also
reached new all-time highs.
Strong performance was supported
by strong fundamentals. In December 2017, Mohamed A. El-Erian wrote in BloombergView economic and policy
fundamentals, including synchronized global recovery, progress on U.S. tax
reform, improved certainty around Brexit, and orderly acceptance of changing
U.S. monetary policy, “…reinforce the prospects for better actual and future
growth, thereby increasing the possibility of improved fundamentals validating
notably elevated asset prices.”
During the first quarter, the
global economy remained robust, reported Forbes.
American companies were profitable (profitability is measured by earnings) and
earnings per share for the S&P 500 Index are expected to increase during
2018. FactSet reported analysts
currently estimate the S&P 500 Index will deliver double-digit earnings
growth (18.5 percent overall) during 2018. Here’s
what the analysts anticipate each quarter:
·
Q1: Earnings growth of 17.3 percent
·
Q2: Earnings growth of 19.1 percent
·
Q3: Earnings growth of 20.9 percent
·
Q4: Earnings growth of 17.1 percent
Improving expectations for
American companies can be credited, in large part, to tax reform, which lowered
corporate tax rates significantly. In addition, rising oil prices may help
companies in the Energy sector, and rising interest rates may give a boost to
companies in the Financials sector.
Despite a robust global economy,
strong earnings, and improving earnings per share (EPS) expectations, the major
U.S. stock indices delivered negative quarterly returns for the first time
since 2015. On March 29, the last trading day of the quarter, the Dow closed at
about 24,100.
If fundamentals are strong, why
did major indices in the United States (and many indices around the world)
finish the quarter lower? Financial Times
suggested uncertainty might have something to do with the retreat:
“The tax cut has been achieved. We
are no longer so sure that [President Trump’s] remaining ideas are so good, and
most investors think his ideas about trade are downright terrible. And so the
market has started reacting to presidential tweets… Most importantly, though,
key assumptions have been stripped away. We can no longer rely on low
volatility. And critically, the positive view of a low-inflation strong-growth
future has been called into question – but only after the stock market had
priced in that assumption as a done deal.”
Market declines may also reflect
concern about valuations. One financial professional told Financial Times many asset classes have gone from being very
expensive to being expensive. They haven’t yet gotten inexpensive.
Out like a
lamb…
The last week of the quarter was
a good one for U.S. stock markets, which pushed higher. However, the major
indices were unable to overcome deficits accumulated earlier in the quarter.
The Dow Jones Industrial Average gained 2.4 percent last week, finishing the
quarter down 2.5 percent. The S&P 500 Index was up 2.0 percent last week,
down 1.2 percent for the quarter. Likewise, the NASDAQ bounced 1.0 percent last
week, but ended the quarter down 2.3 percent, reported Barron’s.
Data as of 3/29/18
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
2.0%
|
-1.2%
|
11.9%
|
8.2%
|
10.1%
|
7.2%
|
|
Dow Jones Global ex-U.S.
|
0.6
|
-1.5
|
13.6
|
3.9
|
3.9
|
0.6
|
|
10-year Treasury Note (Yield
Only)
|
2.7
|
NA
|
2.4
|
2.0
|
1.8
|
3.4
|
|
Gold (per ounce)
|
-1.7
|
2.1
|
5.8
|
3.8
|
-3.5
|
3.6
|
|
Bloomberg Commodity Index
|
0.0
|
-0.8
|
2.4
|
-4.1
|
-8.5
|
-8.0
|
|
DJ Equity All REIT Total
Return Index
|
3.7
|
-6.7
|
-0.3
|
2.7
|
6.7
|
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.
If you asked Artificial Intelligence (AI) to bake,
what would it make? Janelle Shane at PopSci.com wrote, “When computers try to imitate humans, they often
get confused. But simulated brain cells in so-called neural networks can mimic
our problem-solving skills. An AI will look at a dataset, figure out its
governing rules, and use those instructions to make something new. We already
employ these bots to recognize faces, drive cars, and caption images for the
blind. But can a computer cook?”
Shane addressed the question by
training a computer’s neural network to write a recipe. The computer reviewed a
dataset of more than 24,000 online recipes (647 of them began with the word
chocolate and 8 included blood as an ingredient). After two days of processing,
the network delivered a remarkable recipe that includes a title, category,
ingredients, and directions, although the nonsensical word choices are likely
to leave bakers uncertain about how to proceed:
CHOCOLATE
BUTTERBROTH BLACK PUDDING
cheese/eggs
4 oz cocoa; finely ground
1teaspoon butter
½ cup milk
¼ teaspoon pepper
¼ cup rice cream, chopped
1 lb cream
1 sesame peel
–
Date Holy –
1 large egg
1 powdered sugar serving barme
¼ cup butter or margarine, melted
Brown sugar, chocolate; baking
powder, beer, lemon juice and salt in chunk in greased 9x2 inch cake. Chill
until golden brown and bubbly. Place serve garlic half by pieoun on top to make
more use bay. Place in frying pan in preheated oven. Sprinkle with fresh
parsley for cooking. Eating dish to hect in pot of the oil, pullover half-and
half…Yield: 1 cake”
AI seems to have missed an
important governing rule for recipes: Instructions should not include unlisted
ingredients and all ingredients should be included in the instructions. DATE
HOLY is particularly baffling. The author suggested the neural network might
have been trying for frosting. It is a cake, after all.
Weekly
Focus – Think About It
“We are surrounded by hysteria
about the future of artificial intelligence and robotics – hysteria about how
powerful they will become, how quickly, and what they will do to jobs…Mistaken
predictions lead to fears of things that are not going to happen, whether it’s
the wide-scale destruction of jobs, the Singularity, or the advent of AI that
has values different from ours and might try to destroy us. We need to push
back on these mistakes.”
--Rodney Brooks, Australian robotics
entrepreneur
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:
https://www.barrons.com/articles/dow-25-000-how-high-can-it-go-1515213968 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/04-02-18_Barrons-Dow_25000-How_High_Can_It_Go-Footnote_1.pdf)
https://www.ft.com/content/05a60e04-3357-11e8-ac48-10c6fdc22f03 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/04-02-18_FinancialTimes-Four_Financial_Questions_for_Passover-Footnote_7.pdf)
https://www.ft.com/content/1e6c15e4-3359-11e8-ac48-10c6fdc22f03 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/04-02-18_FinancialTimes-US_Stocks_Hit_by_First_Quarterly_Losses_Since_2015-Footnote_8.pdf)
https://www.barrons.com/articles/dow-gains-569-points-but-falls-for-the-quarter-1522454402 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/04-02-18_Barrons-Dow_Gains_569_Points_but_Falls_for_the_Quarter-Footnote_9.pdf)
https://www.popsci.com/neural-network-bakes-a-cake (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/04-02-18_PopularScience-Recipe-Chocolate_Butterbroth_Black_Pudding-Footnote_10.pdf)
