“Peek of the Week”
Market Commentary
May 13, 2019
The Markets
Trade talk trouble took a toll last week.
Major U.S. stock indices moved lower when trade talks between the
United States and China broke down. The Standard & Poor’s (S&P) 500
Index, Nasdaq Composite, and Dow Jones Industrial Index all finished the week down
between 2 percent and 3 percent, reported Ben Levisohn of Barron’s.
Despite the weak weekly performance, the S&P 500 remains up
14.9 percent year-to-date.
The deadline to settle U.S.-China trade issues was Friday. When it
passed without any resolution, the U.S. increased tariffs on Chinese goods to
25 percent, reported the BBC.
The economic impact of higher tariffs may be relatively small;
however, the impact on business confidence and global markets could be
significant, reported Capital Economics.
“We think that the direct effects of President Trump’s threatened
tariff hikes could reduce Chinese GDP by up to 0.4 percent and that the
associated retaliation would have only a marginal direct impact on the United States.
The effects on business confidence and financial markets around the world could
be more significant, potentially adding to reasons for renewed policy
loosening…In theory, if all else were unchanged, the increase in tariffs would
amount to a small fiscal tightening in China and the United States. But both
governments have avoided this by spending the proceeds on aid for the most
affected parties.”
Bond markets reflected uncertainty, too. The yield curve, which
has been flirting with inversion for some time, inverted briefly on Thursday, reported
Alex Harris of Bloomberg. A
persistent inverted yield curve – featuring a lower yield for 10-year
Treasuries than for three-month Treasuries – sometimes signals recession.
David Lynch and Heather Long of The Washington Post reported tariffs imposed on other countries
have yet to be removed, including those on steel and aluminum imported from
Mexico and Canada.
Trade negotiations between the United States and China are
expected to continue.
Data as of
5/10/19
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
-2.2%
|
14.9%
|
5.8%
|
11.4%
|
8.7%
|
12.2%
|
|
Dow Jones Global ex-U.S.
|
-3.1
|
8.3
|
-9.5
|
5.2
|
-0.1
|
4.4
|
|
10-year Treasury Note (Yield Only)
|
2.5
|
NA
|
3.0
|
1.8
|
2.7
|
3.2
|
|
Gold (per ounce)
|
0.7
|
0.4
|
-2.4
|
0.6
|
-0.2
|
3.5
|
|
Bloomberg
Commodity Index
|
-1.5
|
2.5
|
-13.1
|
-1.9
|
-10.4
|
-4.2
|
|
DJ
Equity All REIT Total Return Index
|
-0.7
|
17.5
|
16.5
|
6.7
|
8.9
|
15.5
|
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, MarketWatch, 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.
independent thinking is important. In The Wisdom of
Crowds, James Surowiecki shared a story about Francis Galton, a Victorian-era
statistician and scientist whose “…experiments left him with little faith in
the intelligence of the average person.”
Jacob
Goldstein and David Kestenbaum of Planet Money summarized the story like this:
“One
day, Galton goes to a country fair. This was about a hundred years ago in
England. And there's this contest going on at the fair – guess the weight of
the ox. Galton's a scientist and a statistician. And he figures, hey, I can do
an experiment here, right? He figures, I'm going to take everyone's guesses,
take the average and compare that to the actual weight of the ox…The ox weighed
1,198 pounds.”
The
average of the estimates was 1,197 pounds. The result surprised Galton and it
surprises other people who hear the story, too.
Goldstein
and Kestenbaum decided to replicate the experiment by visiting a fair, weighing
a cow, posting a picture of the cow online (next to a photo of Goldstein that
shared his weight), and asking people to estimate the cow’s weight.
More
than 17,000 people responded.
After
removing outliers, the average estimate of the cow’s weight came in at 1,287
pounds. The cow weighed 1,355 pounds.
How
can a group of people, few of whom knew anything about cows, get so close to a
correct answer? The key is that each guess is made independently:
“…Every
person's guess is contributing some new, little piece of information. Everybody
is different. Everybody thinks slightly differently when they're trying to
guess the cow's weight. Maybe one person studies that photo of the cow from the
side. Some people are probably trying to figure out how many Jacobs would fit
in the cow. Someone else might know how much a horse weighs and kind of go from
there.”
That’s
not to say collective thinking is always accurate. There are terms in our
vocabulary – mob mentality, herd thinking, groupthink, and others – that often
are used to describe groups getting it wrong.
Consider
the stock market. You don’t need to look far to find examples of what can
happen when people push a company’s share price or a stock market to an
unreasonable level.
Apparently,
the wisdom of the crowd is found in thinking independently, together.
Weekly Focus – Think About
It
“In
a basic agricultural society, it's easy enough to swap five chickens for a new
dress or to pay a schoolteacher with a goat and three sacks of rice. Barter
works less well in a more advanced economy. The logistical challenges of using
chickens to buy books on Amazon.com would be formidable.”
--Charles
Wheelan, American Journalist
Best regards,
Leif M. Hagen
Leif M. Hagen, CLU, ChFC
Leif M. Hagen, CLU, ChFC
P.S. Please feel free to forward this commentary
to family, friends, or colleagues. If you would like us to add them to the
list, please reply to this email with their email address and we will ask for
their permission to be added.
Securities
offered through LPL Financial Member FINRA/SIPC.
*
These views are those of Carson Coaching, and not the presenting Representative
or the Representative’s Broker/Dealer, and should not be construed as
investment advice.
*
This newsletter was prepared by Carson Coaching. Carson Coaching is not
affiliated with the named broker/dealer.
*
Government bonds and Treasury Bills are guaranteed by the U.S. government as to
the timely payment of principal and interest and, if held to maturity, offer a
fixed rate of return and fixed principal value.
However, the value of fund shares is not guaranteed and will fluctuate.
*
Corporate bonds are considered higher risk than government bonds but normally
offer a higher yield and are subject to market, interest rate and credit risk
as well as additional risks based on the quality of issuer coupon rate, price,
yield, maturity, and redemption features.
*
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.
*
All indexes referenced are unmanaged. Unmanaged index returns do not reflect
fees, expenses, or sales charges. Index performance is not indicative of the
performance of any investment.
*
The Dow Jones Global ex-U.S. Index covers approximately 95% of the market
capitalization of the 45 developed and emerging countries included in the
Index.
*
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.
*
The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an
index representing 30 stock of companies maintained and reviewed by the editors
of The Wall Street Journal.
*
The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ
system.
*
International investing involves special risks such as currency fluctuation and
political instability and may not be suitable for all investors. These risks
are often heightened for investments in emerging markets.
*
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.
*
Stock investing involves risk including loss of principal.
* The foregoing information has
been obtained from sources considered to be reliable, but we do not guarantee
it is accurate or complete.
*
There is no guarantee a diversified portfolio will enhance overall returns or
outperform a non-diversified portfolio. Diversification does not protect
against market risk.
*
Asset allocation does not ensure a profit or protect against a loss.
*
Consult your financial professional before making any investment decision.
*
To unsubscribe from the “Peek of the Week” please reply to this email with
“Unsubscribe” in the subject line or write us at: Hagen Financial Network,
Inc.; 4640 Nicols Road – Suite 203; Eagan, MN 55122.
Sources:
https://www.barrons.com/articles/dow-drops-2-1-as-tariffs-unexpectedly-return-51557541449?mod=hp_DAY_7 (or go
to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-13-19_Barrons-Dow_Drops_2.1_Percent_as_Tariffs_Unexpectedly_Return-Footnote_1.pdf)
https://research.cdn-1.capitaleconomics.com/a603fb/the-implications-of-a-collapse-in-us-china-trade-talks.pdf (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-13-19_Capital_Economics-The_Implications_of_a_Collapse_in_US-China_Trade_Talks-Footnote_3.pdf)
https://www.barrons.com/articles/yield-curve-inverted-recession-indicator-51557420751?mod=article_inline (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-13-19_Barrons-The_Yield_Curve_Inverted_Again_but_that_Doesnt_Mean_a_Recession_is_Coming-Footnote_5.pdf)
https://www.washingtonpost.com/business/economy/trumps-tariffs-once-described-as-negotiating-tools-may-be-here-to-stay/2019/05/10/8a55b69e-735d-11e9-8be0-ca575670e91c_story.html?noredirect=on&utm_term=.0fa3633795e1 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-13-19_The_Washington_Post-Trumps_Tariffs-Once_Described_as_Negotiating_Tools-May_Be_Here_to_Stay-Footnote_6.pdf)
https://www.amazon.com/Wisdom-Crowds-James-Surowiecki/dp/0385721706 (or go
to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-13-19_Book_Excerpt-Surowiecki-The_Wisdom_of_Crowds-Footnote_7.pdf)
