PEEK OF THE WEEK
October 16, 2018
Leif Hagen & Donna Roberts
The Markets
Like an unexpected gust of wind
that blows the hat off your head or flips your umbrella inside out, last week’s
stock market performance startled investors.
Looking back, it’s easy to
identify some of the factors that may have contributed to investors’ unease and
shaken confidence in the markets. Ben Levisohn of Barron’s offered a brief rundown that included:
·
The yield on 10-year Treasuries rising to a seven-year
high. As interest rates move higher, bonds
become more attractive to investors who prefer to take less risk. They move
money from stocks into bonds and that can push stock prices lower.
·
Federal Reserve Chairman Jerome Powell suggesting the Fed funds
target rate could move higher. Investors
worry the Federal Reserve is too hawkish and will raise rates too high, too
quickly, causing economic growth to stumble.
·
A speech by Vice President Mike Pence indicating tensions
with China may persist. Companies that
export to China or manufacture goods in China are at risk if relations between
China and the United States don’t improve. Poor relations could affect profits,
share values, and economic growth.
·
Earnings reports showing tariffs negatively affecting some
companies’ profit margins. FactSet reported, “the term ‘tariff’ has
been mentioned during the earnings calls of 12 S&P 500 companies to date,
with six of these 12 companies citing a negative impact linked to tariffs.”
·
The International Monetary Fund (IMF) lowering its economic
growth projections. Concern about the
impact of trade tensions on companies around the world led the IMF to lower some of its economic growth
estimates for 2018, especially in Asia and emerging markets.
Some analysts believe a desire to
take profits also helped fuel the downturn, according to Barron’s Randall W. Forsyth.
Whatever combination of events was
responsible, the result was markets losing value on Wednesday and Thursday of
last week before regaining some lost ground on Friday. Forsyth wrote, “What
turned the U.S. markets around Friday – when the Dow and the S&P 500
managed to pop more than 1 percent and the NASDAQ Composite bounced over 2
percent – wasn’t much clearer than what set off the slide. Market Semiotics’
Woody Dorsey says that his proprietary sentiment polling found a bullish
reading of absolute zero on Thursday, a contrarian indication that “panic”
would be short-lived.”
While sharp drops in share values
are never comfortable, it’s important to consider the bigger picture. A
contributor to Bloomberg Opinion
wrote, “This decline follows a market that has tripled since 2009, had zero
volatility in 2017…This was the 20th time since the bear market ended in 2009
that the Standard & Poor’s 500 Index had a one-day loss of 3 percent. The
NASDAQ-100 Index had its eighth 4 percent down day (although it was the biggest
one-day fall since August 2011).”
In other words, selloffs are
normal and we have experienced them before.
So, what should you take away from
last week?
1.
First, it was a
reminder that stocks are volatile investments. They have the potential to
deliver higher returns than other asset classes because they require investors
to take higher levels of risk.
2.
Second, stock market
volatility is one reason we allocate assets and build well-diversified
portfolios. Holding different asset classes and diverse investments within a
portfolio can help reduce the sting of unwelcome surprises like a sharp drop in
the value of stocks.
3.
Worries about what the
future may hold are likely to ruffle investors and we may see additional bouts
of market volatility. The current bull market has been running for a long time.
Some analysts anticipate recession and a bear market are ahead. As Barron’s reported, neither appears to be
here yet:
“Other leading indicators, including jobless claims and
credit spreads, also held up. ‘I don’t see this all leading to recession,’ says
Ed Yardeni, president of Yardeni Research. ‘And, without a recession, I don’t
think we get a bear market.’”
No matter how intellectually
rational these points seem, downturns tend to leave everyone feeling jittery
and uncertain. So, take a moment. Think about your portfolio and how it was
built to help you achieve your financial goals. Now, ask yourself:
·
Have my goals changed?
·
Has my risk tolerance
changed?
If the answer to either of these
questions is, ‘Yes,’ call us. We’ll sit down, review your goals and risk
tolerance, and make sure your portfolio is structured appropriately.
We’re hoping for calmer markets
ahead, but we may be in for a bumpy ride.
Data as of 10/12/18
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard
& Poor's 500 (Domestic Stocks)
|
-4.1%
|
3.5%
|
8.5%
|
11.1%
|
10.1%
|
10.7%
|
|
Dow
Jones Global ex-U.S.
|
-3.6
|
-11.1
|
-8.3
|
3.0
|
0.5
|
4.3
|
|
10-year
Treasury Note (Yield Only)
|
3.1
|
NA
|
2.3
|
2.1
|
2.7
|
3.9
|
|
Gold
(per ounce)
|
1.3
|
-5.9
|
-5.5
|
1.6
|
-1.0
|
3.9
|
|
Bloomberg
Commodity Index
|
-0.8
|
-2.2
|
1.3
|
-1.4
|
-7.6
|
-5.1
|
|
DJ
Equity All REIT Total Return Index
|
-3.0
|
-3.8
|
-3.4
|
5.2
|
7.8
|
9.2
|
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.
on a
lighter note…It’s important to recognize
when daily challenges affect our ability to cope and take steps to lower stress
when they do. The Mayo Clinic
recommends laughter, “Whether you're guffawing at a sitcom on TV or quietly
giggling at a newspaper cartoon, laughing does you good. Laughter is a great
form of stress relief, and that's no joke.”
In the hope of offsetting some of
last week’s stress, here is humor from F
In Exams: The Very Best Totally Wrong Test Answers by Richard Benson:
Question:
What is a vibration?
Answer:
There are good vibrations and bad vibrations. Good vibrations were discovered
in the 1960s.
Question:
What happens when your body starts to age?
Answer:
When you get old your organs work less effectively and you can become
intercontinental.
Question:
What is a fibula?
Answer:
A little lie.
Question:
Give three ways to reduce heat loss in your home.
Answer:
1) Thermal underwear; 2) Move to Hawaii; 3) Close the door.
Question:
You are at a friend’s party. Six cupcakes are distributed among nine plates,
and there is no more than one cake per plate. What is the probability of
receiving a plate with a cake on it?
Answer:
None, if my sister is invited too.
Question:
Explain the dispersal of various farming types in the Midwest.
Answer:
The cows and pigs are distributed in different fields so they don’t eat each
other.
Question:
Name six animals that live specifically in the Arctic.
Answer:
Two polar bears Three Four seals
Sometimes, laughter is truly the
best medicine.
Weekly Focus – Think About
It
“In the business world, the
rearview mirror is always clearer than the windshield.”
--Warren Buffett, American businessman, speaker,
and philanthropist
Best
Regards,
Leif M. Hagen
Leif M. Hagen, CLU, ChFC
LP Financial Advisor
Securities offered through LPL Financial Inc., Member FINRA/SIPC.
P.S. Please feel free to forward this commentary
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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/heres-why-more-scares-are-ahead-for-the-stock-market-1539390914?mod=hp_LEAD_1
(or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-15-18_Barrons-Heres_Why_More_Scares_are_Ahead_for_the_Stock_Market-Footnote_1.pdf)
https://www.wsj.com/articles/surging-yields-raise-threat-of-tipping-point-for-stocks-1538913600
(or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-15-18_WSJ-Surging_Yields_Raise_Threat_of_Tipping_Point_for_Stocks-Footnote_2.pdf)
https://www.barrons.com/articles/why-the-stock-market-went-loco-1539361320?mod=hp_LEAD_3 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-15-18_Barrons-Why_the_Stock_Market_Went_Loco-Footnote_7.pdf)
https://books.google.com/books/about/F_in_Exams.html?id=hei-i5QP_7UC (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-15-18_Book-F_in_Exams-Footnote_10.pdf)
