PEEK OF THE WEEK
August 20, 2018
Leif Hagen & Donna Roberts
The Markets
As Maxwell
Smart used to say…
Missed it by THAT much! After a rocky start, the Standard &
Poor’s 500 Index came within 1 percent of an all-time high last week, reported
Ben Levisohn for Barron’s. It’s
significant because the Standard & Poor’s 500 Index has been trading below
its January record all year. The article suggested the lack of progress begs
the question: Are we still in a bull market?
It’s the old ‘Shrink Global Markets with Corporate Buybacks’ trick.
Last week, Robin Wigglesworth of Financial
Times reported, “The global equity market is shrinking at the fastest pace
in at least two decades, as a wave of corporate share buybacks swamps the
overall volume of companies going public, issuing new stock or selling
convertible debt.”
The value of the global equity
market is increasing despite the reduction in volume. In part, this is because
stock buybacks help push share prices higher.
There is a potential downside to
buybacks, though. Nasdaq.com
explained, “…rewarding current shareholders so liberally can lead to a systemic
extraction of value from companies on a macroeconomic scale. Throw in dividends
and little is left for growth and expansion.”
Would you believe…the President asked for it? “President Trump on
Friday asked regulators to review a decades-old requirement that public
companies release earnings quarterly, a change some executives support to
promote longer-term planning but that some investors worry could reduce market
transparency,” reported Dave Michaels, Michael Rapoport, and Jennifer Maloney
of The Wall Street Journal.
While transparency is essential to
investors, critics suggest quarterly reporting “distracts companies from
focusing on longer-term financial and strategic goals and may deter companies
from going public,” wrote Andrew Edgecliffe-Johnson and Mamta Badkar for Financial Times.
Stay tuned.
Data as of 8/17/18
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
0.6%
|
6.6%
|
17.3%
|
11.1%
|
11.6%
|
8.4%
|
|
Dow Jones Global ex-U.S.
|
-1.4
|
-6.9
|
0.5
|
3.4
|
2.5
|
1.2
|
|
10-year Treasury Note (Yield
Only)
|
2.9
|
NA
|
2.2
|
2.2
|
2.9
|
3.8
|
|
Gold (per ounce)
|
-3.0
|
-9.1
|
-8.3
|
1.8
|
-2.9
|
4.0
|
|
Bloomberg Commodity Index
|
-1.0
|
-5.5
|
0.8
|
-2.5
|
-8.5
|
-7.8
|
|
DJ Equity All REIT Total
Return Index
|
3.1
|
4.8
|
8.5
|
7.9
|
11.4
|
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.
remember that saying about the forest and the trees? Some pretty good numbers
have been posted for 2018. They’re the type of numbers that inspire confidence.
For example:
4.1 percent. The United States experienced strong economic growth
during the second quarter. The advance estimate for U.S. gross domestic product
(the value of all goods and services produced by a nation) during the second
quarter of 2018 was 4.1 percent. That was the highest rate of growth since the
first quarter of 2014.
24.6 percent. 2017’s tax reform, which lowered corporate tax rates from
an average of 35 percent to an average 21 percent, boosted corporate earnings,
reported Nasdaq.com. With 91 percent
of companies reporting in, the blended earnings growth rate for the S&P 500
was 24.6 percent during the second quarter of 2018.
$1 trillion. What are companies doing with their tax windfall? U.S.
companies are rewarding shareholders by buying back stock, reported Nasdaq.com, which suggested buybacks
could total $1 trillion in 2018.
3,453 days. Depending on how precisely you define the last bull
market, August 22 may be the day that marks this one as the longest bull market
in history.
While positive economic and
market numbers are nice to see, they are trees in a forest and don’t
necessarily provide a full or an accurate picture. For instance, the length of
a bull market is interesting, but it has no predictive value, reported Barron’s. The length of the current
economic expansion is far more important.
Barron’s cited Dr. Ed Yardeni, chief investment strategist at Yardeni Research, who said, “All I’m
interested in is how long the expansion lasts…Because the longer it lasts, the
longer the bull market lasts.”
It’s important to understand
which numbers are important and how they relate to one another. If you would
like to learn more, give us a call.
Weekly
Focus – Think About It
“There is no truth. There is
only perception.”
--Gustave Flaubert, French novelist
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:
https://www.barrons.com/articles/will-jpmorgan-tank-when-jamie-dimon-leaves-1534433537
(or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-20-18_Barrons-The_Bull_Market_Rumbles_On_Despite_Turkey_Turmoil-Footnote_2.pdf)
https://www.ft.com/content/5a359796-a18e-11e8-85da-eeb7a9ce36e4 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-20-18_FinancialTimes-Global_Equity_Market_Shrinks_as_Buybacks_Surge-Footnote_3.pdf)
https://www.wsj.com/articles/trump-directs-sec-to-study-six-month-reporting-for-public-companies-1534507058
(or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-20-18_WSJ-Trump_Asks_SEC_to_Study_Six-Month_Reporting_for_Public_Companies-Footnote_5.pdf)
https://www.ft.com/content/c1d133aa-a211-11e8-85da-eeb7a9ce36e4 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-20-18_FinancialTimes-Trump_Asks_SEC_to_Study_Scrapping_Quarterly_Earnings_Reports-Footnote_6.pdf)
https://www.brainyquote.com/quotes/gustave_flaubert_161911?src=t_perception
