PEEK OF THE WEEK
July 16, 2018
Leif Hagen & Donna Roberts
The
Markets
Investors are
becoming more discriminating.
Trade tensions escalated as the
U.S. administration expanded tariffs on Chinese goods last week. You wouldn’t
have known by watching the performance of benchmark indices, though. Just four of
the 25 national stock market indices tracked by Barron’s – Australia, Italy, Spain, and Mexico – moved lower.
However, if you look a little
deeper into the performance of various market sectors, you discover an important
fact: The market tide wasn’t lifting all stocks.
It has been said a rising tide
lifts all boats. When translated into stock-market speak, the saying becomes, ‘A
rising market tide lifts all stocks.’ In other words, when the market moves
higher, stocks tend to move higher, too. That wasn’t the case last week.
Barron’s reported investors have become more selective:
“We went from a market where
everything moved largely together to one where sector fundamentals began to
matter more than where the S&P 500 was going...At the sector level, it’s
apparent that no one has been ignoring tariffs. While the S&P 500 has
gained 1.7 percent over the past month of trading, industrials and materials have
dropped 2.5 percent, while financials have slumped 2.9 percent, hit by a double
whammy of trade fears and a flattening yield curve. Utilities and consumer
staples have outperformed, gaining 8.1 percent and 3.5 percent, respectively.”
Utilities and Consumer Staples
are considered to be non-cyclical or defensive sectors of the market because
they are not highly correlated with the business cycle.
Defensive companies tend to perform
consistently whether a country’s economy is expanding or in recession. For
example, a household’s need for power, soap, and food doesn’t disappear during
a recession. As a result, the revenues, earnings, and cash flows of defensive
companies remain relatively stable in various economic conditions.
In addition, the share prices of
these companies tend to be less susceptible to changing economic conditions.
Defensive stocks tend to outperform the broader market during periods of
recession and underperform it during periods of expansion.
Data as of 7/13/18
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
1.5%
|
4.8%
|
14.4%
|
10.1%
|
10.7%
|
8.6%
|
|
Dow Jones Global ex-U.S.
|
0.5
|
-4.3
|
4.2
|
3.2
|
3.3
|
1.0
|
|
10-year Treasury Note (Yield
Only)
|
2.8
|
NA
|
2.4
|
2.4
|
2.6
|
3.9
|
|
Gold (per ounce)
|
-1.1
|
-4.2
|
1.9
|
2.5
|
-0.7
|
2.5
|
|
Bloomberg Commodity Index
|
-2.8
|
-4.9
|
2.3
|
-5.6
|
-8.2
|
-9.6
|
|
DJ Equity All REIT Total
Return Index
|
-0.9
|
2.2
|
6.8
|
8.3
|
8.3
|
9.1
|
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.
what are the biggest risks for retirement investors? If
market risk, inflation risk, and interest rate risk were on the tip of your
tongue, you need to update your list.
Recently, T. Rowe Price surveyed employers that make defined contribution
plans, like 401(k) plans, available to their employees. The company asked plan
sponsors to rank the risks they were most concerned about for the people who
saved in the plan. The top concerns were:
42 percent = Longevity
Risk. No one knows exactly how long they will live, which makes it
difficult for plan participants (and anyone else planning for retirement) to be
certain future retirees won’t outlive their savings. Longevity risk was among the
top three risks listed by 95 percent of plan sponsors.
25 percent = Participant
Behavioral Risk. “Left on their own, participants tend to take on either
too much or too little risk by: failing to properly allocate and diversify
their savings; overinvesting in company stock (or stable value/money market
funds); neglecting to rebalance in response to market or life changes; and
attempting to time the market,” explained T.
Rowe Price.
14 percent = Downside
Risk. This is the likelihood an investment will fall in price. For
instance, stocks have higher return potential than Treasury bonds, and higher
potential for loss. When planning for retirement, it’s important to balance the
need for growth against the need to preserve assets.
If you would like to learn more
about these risks and strategies that may help overcome them, give us a call.
Weekly
Focus – Think About It
“Strategy without tactics is the
slowest route to victory. Tactics without strategy is the noise before defeat.”
--Sun Tzu, Chinese general and military
strategist
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 (Click on U.S. & Intl Recaps, then "Trade
jitters cont'd") (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-16-18_Barrons-Global_Stock_Market_Recap-Footnote_2.pdf)
https://www.barrons.com/articles/nasdaq-hits-record-high-defying-tariffs-1531526401
(or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-16-18_Barrons-NASDAQ_Hits_Record_High_Defying_Tariffs-Footnote_3.pdf)
