“Peek of the Week”
Market Commentary
Market Commentary
July 1, 2019
The Markets
In the infamous words of
Mortimer Snerd, “Who’d a thunk it?”
After U.S. stocks dropped
sharply during the last weeks of December 2018, investors were not optimistic
about the future. Early in January 2019, the State Street Investor Confidence Index dropped to its lowest point
since 2012, and the American Association of Individual Investors (AAII)
Sentiment Survey showed just about 31.6 percent of investors as bullish. The
long-term average for bullishness is 38.2 percent.
How things have changed!
The Standard & Poor’s 500
Index finished the second quarter up about 17 percent year-to-date, according
to Ben Levisohn of Barron’s. The
index gained 6.9 percent in June, its best performance since 1955.
Stocks weren’t the only
market delivering gains. Bond markets did well, too. Corrie Driebusch of The Wall Street Journal reported the
yield on 10-year Treasuries finished the quarter at 2 percent. That was
significantly below its yield at the end of March 2019. Remember, when bond
yields fall, bond prices rise.
The strong performance of
both markets owes much to changing policies at the Federal Reserve. Randall
Forsyth of Barron’s reported,
“The
first half of 2019 was terrific for financial markets, regardless of whether
you were a stock or bond investor…a good first six months largely reflects the
pivot by the Federal Reserve from its stance last year, when it indicated that
it would raise short-term rates multiple times. In early January, Fed Chairman
Jerome Powell said the central bank would be “patient” in boosting rates and
then, in late spring, shifted to indicate that the next move is likely to be a
cut.”
Stocks didn’t follow a steady
upward trajectory during the second quarter, reported Forbes. Signs the U.S. economy could be softening combined with
trade tensions between the United States and China caused major U.S. indices to
lose ground in May before climbing higher again in June.
On Saturday, following the
G20 Summit – a confab between leaders of 19 countries and the European Union,
as well as representatives from the International Monetary Fund, and the World
Bank – China and the United States agreed to restart trade talks, reported Reuters. President Trump indicated
current tariffs on China will remain in place, but additional tariffs will not
be assessed, according to CBS News.
While it appears to be
positive news, managing director of the International Monetary Fund Christine
Lagarde stated, “While the resumption of trade talks between the United States
and China is welcome, tariffs already implemented are holding back the global
economy, and unresolved issues carry a great deal of uncertainty about the
future,”
Last week, the S&P 500
was down slightly, as were yields on 10-year Treasuries.
Hold onto your hats. We could
see some volatility during the second half of the year.
Data as of
6/28/19
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
-0.3%
|
17.4%
|
8.3%
|
13.1%
|
8.5%
|
12.2%
|
|
Dow Jones Global ex-U.S.
|
0.1
|
11.4
|
-0.9
|
7.8
|
-0.1
|
4.2
|
|
10-year Treasury Note (Yield Only)
|
2.0
|
NA
|
2.9
|
1.5
|
2.5
|
3.5
|
|
Gold (per ounce)
|
0.9
|
9.9
|
12.6
|
2.5
|
1.4
|
4.2
|
|
Bloomberg Commodity Index
|
1.0
|
3.8
|
-8.2
|
-3.4
|
-10.1
|
-4.4
|
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; 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.
still confused
about tariffs? The United
States and China have resumed trade talks, but it could be a while before
things settle – and all tariffs may not be removed even if talks are
successful. Since, there is a lot of misinformation floating around about
tariffs, we want to review the basics.
When the United States puts tariffs on Chinese goods, China does not
pay the tariff. American companies that import goods from China pay the
tariffs. These companies may absorb the cost or pass the cost on to consumers
by raising prices.
In some cases, manufacturers of complementary goods have raised the
prices on items which aren’t subject to tariffs. (Complementary goods are
products typically sold together like flashlights and batteries, printers and
ink cartridges, or washers and dryers.)
Greg Rosalsky of Planet Money
reported on tariff research from the Becker
Friedman Institute for Economics at
The University of Chicago reported the phenomenon. Rosalsky wrote,
“In early 2018…the Trump administration implemented
tariffs on washing machines imported from all over the world. It's a 20 percent
tariff on the first 1.2 million washing machines sold a year and a 50 percent
tariff on every one after that…New washing machines in America got about 12 percent
more expensive…dryers also got more expensive even though they weren't subject
to the tariff. That's because washers and dryers…are typically bought at the
same time...so the full effect of tariffs on prices is only visible after
factoring in the price of the complementary good – dryers."
When it happens in reverse and China puts tariffs on the United States,
the United States does not pay the tariff. Chinese companies importing the
goods from the United States pay the tariff, and which may cause Chinese
companies to buy goods from countries that are not assessed tariffs. Reuters reported,
“American farmers have been among the hardest hit so
far. China is the top market for many of their biggest crops and Beijing hit
those crops with retaliatory tariffs…The single biggest agricultural export
from the United States are soybean sales, most of which went to China before
the trade war.”
So, when you boil it down, American companies and consumers are paying
U.S. tariffs on Chinese goods. Chinese companies and consumers are paying
Chinese tariffs on U.S. goods. Companies in both nations may be looking for
alternative suppliers so they can keep prices low.
Weekly Focus – Think About
It
“To argue against the global
economy is like stating opposition to the weather - it continues whether you
like it or not.”
--John McCain, American politician
Best regards,
Leif
M. Hagen
Leif M. Hagen, CLU, ChFC
LPL Financial Advisor
Leif M. Hagen, CLU, ChFC
LPL Financial Advisor
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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 95percent 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 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.
*
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Sources:
https://www.aaii.com/sentimentsurvey [or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/7-01-19_AAII_Sentiment_Survey_data.pdf provide e-mail address to read more. Click on
download historic data at bottom of the page.]
https://www.barrons.com/articles/the-s-p-500-just-had-its-best-june-since-1955-51561767202?mod=hp_DAY_4 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/7-01-19_The_S%26P_500_Just_Had_its_Best_June_Since_1955.pdf)
https://www.wsj.com/articles/asian-stocks-slip-as-g-20-begins-11561708211 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/7-01-19_S%26P_500_Posts_Best_First_Half_in_22_Years.pdf)
https://www.barrons.com/articles/whats-ahead-for-stocks-after-a-great-first-half-51561766305?mod=hp_DAY_1 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/7-01-19_What's_Ahead_for_Stocks_After_A_Great_First+Half.pdf)
