PEEK OF THE WEEK
October 8, 2018
Leif Hagen & Donna Roberts
The Markets
The
stock market tends to be a leading economic indicator.
Last
week offered some insight to economics and stock market behavior. The U.S.
unemployment rate reached its lowest level since 1969 and wages moved higher,
yet major U.S. stock indices lost value.
Why
didn’t stock markets move higher?
The
answer is stock prices tend to be leading indicators. They reflect investors’
expectations for the future. Last week, investors may have been thinking like
this:
When
unemployment is low, companies cannot always hire enough workers…
To hire
more workers, companies raise wages…
Higher
wages give workers more spendable income…
More
spendable income produces higher demand for goods and services…
Higher
demand for goods and services leads to higher prices…
Higher
prices (inflation) cause the Federal Reserve to increase the Fed funds rate…
An
increase in the Fed funds rate pushes interest rates higher…
Higher
interest rates make borrowing more expensive…
Higher
borrowing costs may slow business spending…
Slower
business spending may cause profits to fall…
Falling
profits may cause investors to sell shares…
When
investors sell shares, stock prices may drop.
In
general, “…while it usually takes at least 12 months for any increase or
decrease in interest rates to be felt in a widespread economic way, the
market's response to a change (or news of a potential change) is often more
immediate,” explained Mary Hall on Investopedia.com.
At the
end of last week, 10-year Treasuries yielded 3.2 percent. Daniel Kruger of The Wall Street Journal reported, “U.S.
government bond yields rose to their highest level in years Friday as investors
reconsidered the strength of the U.S. economy while selling off stocks that
could be hurt by higher borrowing costs.”
One
way to manage stock market volatility is to have a well-allocated and
diversified portfolio.
Data as of 10/5/18
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard
& Poor's 500 (Domestic Stocks)
|
-1.0%
|
7.9%
|
13.1%
|
13.2%
|
11.5%
|
10.6%
|
|
Dow
Jones Global ex-U.S.
|
-2.8
|
-7.8
|
-3.7
|
5.2
|
1.5
|
3.7
|
|
10-year
Treasury Note (Yield Only)
|
3.2
|
NA
|
2.4
|
2.1
|
2.6
|
3.4
|
|
Gold
(per ounce)
|
1.4
|
-7.2
|
-5.6
|
1.8
|
-1.9
|
3.2
|
|
Bloomberg
Commodity Index
|
2.0
|
-1.4
|
2.7
|
-0.7
|
-7.5
|
-5.4
|
|
DJ
Equity All REIT Total Return Index
|
-2.9
|
-0.9
|
0.7
|
7.0
|
9.1
|
9.3
|
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 do you think? Athletes who grew up playing pick-up games of baseball, kickball,
basketball, street hockey, and other sports with neighborhood kids may have had
some advantages they didn’t recognize.
A
Brazilian research study, cited by Freakonomics
Radio’s show Here’s Why You’re Not An
Elite Athlete (Ep. 351), found children who played sports in unstructured
environments showed more tactical creativity and tactical intelligence than
children who played in structured environments.
In
addition, playing multiple sports may be more beneficial than specializing in a
single sport, at least when it comes to soccer.
A
study by Manuel Hornig, Friedhelm Aust, and Arne Güllich reviewed the training
of soccer players in Germany. Practice
and play in the development of German top-level professional football players,
which was published in the European
Journal Of Sports Science, reported athletes who went on to play for the
German national team played more pick-up sports as children, and played more
types of sports in adolescence, than players who did not make the German team.
“The
trick is not just to get lots of children playing, but also to let them develop
creatively. In many countries they do so by teaching themselves…Such
opportunities are disappearing in rich countries,” reported The Economist.
Maybe
we should rethink our tactics.
Weekly Focus – Think About
It
“One
man practicing sportsmanship is far better than 50 preaching it.”
--Knute Rockne,
University of Notre Dame football coach
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/dow-tumbles-180-points-jobs-report-inflation-gauge-1538774927?mod=hp_DAY_3
(or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-08-18_Barrons-Dow_Tumbles_180_Points_Because_the_Jobs_Report_is_Really_an_Inflation_Gauge-Footnote_2.pdf)
https://www.wsj.com/articles/bond-yields-reach-new-highs-on-growth-outlook-1538774696
(or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-08-18_WSJ-Bond_Yields_Reach_New_Highs_on_Growth_Outlook-Footnote_5.pdf)
https://www.economist.com/international/2018/06/09/what-makes-a-country-good-at-football
(or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-08-18_TheEconomist-What_Makes_a_Country_Good_at_Football-Footnote_9.pdf)
