Peek of the Week
December 14, 2015
The Markets
It’s not like it’s a surprise!
Last week, investors didn’t appear to be thrilled with
the possibility the Federal Reserve might raise rates this week. They also
weren’t too impressed by another drop in oil prices. There was red ink
everywhere as markets from Australia to Hong Kong, across the Eurozone, and
throughout the Americas moved lower last week.
Bloomberg reported there was a 74 percent probability of a Fed
rate hike at the December Federal Open Market Committee meeting. The Wall Street Journal’s survey of
business and academic economists put the chance at 97 percent. More than 80
percent of those surveyed said the Fed would lose credibility if it doesn’t act
in December.
It’s important to remember the Fed doesn’t actually
set interest rates. It takes actions designed to influence financial behaviors.
Even if the Fed does push to increase interest rates, it remains to be seen
whether its efforts will bear fruit. The
Financial Times wrote:
“…As “lift-off” has drawn closer some analysts have
begun to highlight just how experimental this interest rate rise will be. The
Fed’s bloated balance sheet – swelled by its quantitative easing program – prevents
it from using its traditional interest rate tools, so it has unveiled and has
been testing new ones. The main new levers are known as the “interest on
overnight reserves” and the “overnight reverse repo program,” and central bank
officials are confident that they will be able to lift the Fed funds rate,
which is the main target. But some analysts caution that it could be a choppy
take-off.”
If the Fed acts and interest rates don’t respond,
there may be further volatility. The
Financial Times reported markets almost certainly have priced in a rate
hike at this point. We’ll find out next week.
Data as of 12/11/15
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard &
Poor's 500 (Domestic Stocks)
|
-3.8%
|
-2.3%
|
-1.1%
|
12.1%
|
10.2%
|
4.8%
|
Dow Jones Global
ex-U.S.
|
-3.1
|
-8.3
|
-8.4
|
-0.1
|
-1.1
|
0.6
|
10-year Treasury
Note (Yield Only)
|
2.1
|
NA
|
2.2
|
1.7
|
3.3
|
4.6
|
Gold (per ounce)
|
-0.6
|
-10.6
|
-11.8
|
-14.4
|
-5.2
|
7.2
|
Bloomberg Commodity Index
|
-4.0
|
-24.8
|
-29.2
|
-17.7
|
-12.9
|
-7.9
|
DJ Equity All REIT Total Return Index
|
-2.0
|
-1.0
|
-0.3
|
9.9
|
11.6
|
6.9
|
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.
next year, China’s renminbi (A.K.A. yuan) will join the U.S. dollar,
euro, yen, and pound, when it is added to the International Monetary Fund
(IMF)’s Special Drawing Rights (SDR) basket – a supplementary
foreign exchange reserve asset that is defined and maintained by the IMF. It
will become the third weightiest currency in the basket. After the renminbi is
added, the U.S. dollar will comprise 42 percent of the basket (unchanged from
2010). The euro will be 31 percent (down from 37 percent in 2010). The renminbi
will be 11 percent. The Japanese yen will be 8 percent (down from 9 percent in
2010). The British pound will be 8 percent (down from 11 percent).
Managing Director of the IMF
Christine Lagarde said:
“The
Executive Board's decision to include the RMB in the SDR basket is an
important milestone in the integration of the Chinese economy into the global
financial system. It is also a recognition of the progress that the Chinese
authorities have made in the past years in reforming China’s monetary and
financial systems. The continuation and deepening of these efforts
will bring about a more robust international monetary and financial
system, which in turn will support the growth and stability of China and the
global economy.”
So, is the renminbi likely to
give the U.S. dollar a run for its money? Not any time soon, according to
economists surveyed by The Wall Street
Journal. Over the next 50 years, they gave China about a 34 percent chance
of challenging the dollar. One said, “To match the dollar’s appeal, China will
need markets as deep as those in the U.S. and to produce economic indicators
that are trustworthy.”
Weekly Focus –
Think About It
“Power is of two kinds. One is obtained by the fear of
punishment and the other by acts of love. Power based on love is a thousand
times more effective and permanent then the one derived from fear of
punishment.”
--Mahatma Gandhi, Former leader
of the Indian independence movement
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.
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Sources:
http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html?mod=BOL_Nav_MAR_hpp (Click on U.S.
& Intl Recaps, "Nerves on edge," then scroll down to the “Global
Stock Market Recap”) (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/12-14-15_Barrons-Global_Stock_Market_Recap-Footnote_1.pdf)
http://www.barrons.com/articles/stocks-drop-3-8-in-overture-to-fed-meeting-1449899545?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/12-14-15_Barrons-Stocks_Drop_3.8_Percent_in_Overture_to_Fed_Meeting-Footnote_2.pdf)
http://www.wsj.com/articles/wsj-survey-economists-are-convinced-fed-will-raise-rates-in-december-1449759601 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/12-14-15_WSJ-WSJ_Survey-Economists_are_Convinced_Fed_Will_Raise_Rates_in_December-Footnote_4.pdf)
http://www.ft.com/cms/s/0/43f6507c-9f68-11e5-beba-5e33e2b79e46.html#axzz3uA9sho6V (Click on the
Markets tab, then Capital Markets) (or
go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/12-14-15_FinancialTimes-Federal_Reserve_Rate_Call-Five_Questions-Footnote_5.pdf)
http://www.nytimes.com/2015/12/01/business/international/china-renminbi-reserve-currency.html (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/12-14-15_NYTimes-Chinas_Renminbi_is_Approved_by_IMF_as_a_Main_World_Currency-Footnote_7.pdf)
http://blogs.wsj.com/economics/2015/12/10/wsj-survey-yuan-no-challenge-to-dollar-amid-chinas-tiptoe-toward-freer-markets/ (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/12-14-15_WSJ-WSJ_Survey-Yuan_No_Challenge_to_Dollar-Footnote_9.pdf)
