PEEK OF THE WEEK
July 5, 2017
Leif Hagen & Donna Roberts
The Markets
This is the
way the quarter ends – with a central bank scare.
Central bankers are stodgy. They
speak carefully. For many, reading the words ‘Federal Reserve’ is enough to
cause boredom to set in and web surfing to ensue.
Last week, though, the European
Central Bank and Bank of England cracked the ‘open secret’ (i.e., central banks
will provide less stimulus and increase rates at some point), and investors did
not like what they heard.
Central bankers were quick to
say they didn’t necessarily mean what people had heard, but the rumor of less
accommodative monetary policy was already moving markets. Barron’s wrote:
“But make no mistake: Last week was
a game changer. Federal Reserve Chair Janet Yellen fretted about the high level
of asset prices, the Bank of England’s Mark Carney hinted at a rate hike, and
Mario Draghi suggested the European Central Bank could be nearing the end of
its bond buying…The market didn’t take it sitting down. Long-term Treasury
yields surged, resulting in a wider spread of short-term bond yields.”
A wider spread between short-
and long-term Treasuries could be good news. The Federal Reserve Bank of Cleveland
explained:
“The slope of the yield curve – the
difference between the yields on short- and long-term maturity bonds – has
achieved some notoriety as a simple forecaster of economic growth. The rule of
thumb is that an inverted yield curve (short rates above long rates) indicates
a recession in about a year, and yield curve inversions have preceded each of
the last seven recessions…”
Central bankers’ comments
affected U.S. stock markets, too. The technology sector lost its allure, while
the possibility of rising interest rates made the financials sector more attractive.
It didn’t hurt that all major institutions passed the Fed’s stress tests for
the first time. That could translate into share buybacks and higher dividends,
reported Financial Times.
There were some notable statistics
during the second quarter of 2017. For instance:
Investors were extraordinarily calm
Throughout second quarter,
investors have been confident the Standard & Poor’s 500 Index would offer a
smooth ride. The CBOE Volatility Index (VIX), a.k.a. the fear gauge, has only closed
below 10 sixteen times; seven occurred during the second quarter of 2017.
Consumer sentiment was quite positive
Consumers were feeling highly
optimistic throughout the quarter. In June, the University of Michigan Consumer Sentiment Survey reported,
“Although consumer confidence slipped to its lowest level since Trump was
elected, the overall level still remains quite favorable. The average level of
the Sentiment Index during the first half of 2017 was 96.8, the best half-year
average since the second half of 2000…”
Investor sentiment shifted into neutral
Last week, the number of
investors who were neutral (rather than bullish or bearish) about markets hit
its highest level in a year. The AAII
Blog reported:
“This year’s record highs for the
S&P 500 and the NASDAQ have encouraged some individual investors, but the
Trump administration’s ability (or lack thereof) to move forward on economic
and tax policy remains on the forefront of many others’ minds. Also playing a
role in influencing sentiment are earnings, valuations, concerns about the
possibility of a pullback in stock prices, and interest rates/monetary policy.”
The U.S. economy appears to be
growing, albeit slowly. Last week, the Federal
Reserve Bank of Atlanta forecast real GDP (Gross Domestic Product) growth
during the second quarter of 2017 at 2.7 percent.
Data as of 6/30/17
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500
(Domestic Stocks)
|
-0.6%
|
8.2%
|
15.5%
|
7.3%
|
12.2%
|
4.8%
|
|
Dow Jones Global ex-U.S.
|
-0.2
|
12.6
|
17.4
|
-1.1
|
5.1
|
-1.2
|
|
10-year Treasury Note (Yield
Only)
|
2.3
|
NA
|
1.5
|
2.5
|
1.6
|
5.0
|
|
Gold (per ounce)
|
-1.1
|
7.2
|
-5.9
|
-1.9
|
-4.8
|
6.6
|
|
Bloomberg Commodity Index
|
3.7
|
-5.6
|
-7.0
|
-15.0
|
-9.5
|
-7.0
|
|
DJ Equity All REIT Total
Return Index
|
-1.0
|
4.9
|
0.2
|
9.0
|
9.7
|
5.9
|
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.
You say potato, i say potato. A persistent debate among the geek set is how to
pronounce the abbreviation for Graphics Interchange Format (GIF). You know,
GIFs, the animated images you see online. Graphics starts with a hard ‘g’
sound, but pronunciation conventions suggest that ‘g’ makes a soft sound before
the vowel ‘i.’ The Economist wrote:
“Some questions will be pondered
for all eternity. What is the meaning of life? Where do you go when you die?
And, even more puzzlingly, what is the right way to pronounce “GIF?”…Debates
over whether it begins with a hard “g,” as in “gift,” or a soft one, as in
“giraffe,” can make discussions about religion or politics look civil by
comparison. Well aware of the risk that taking a side could lead to protests,
boycotts, or worse, the Oxford English Dictionary and Merriam-Webster have
maintained strict neutrality. They proclaim that both pronunciations are
acceptable, betraying nary a hint of favoritism.”
It’s interesting that
dictionaries, those arbiters of correct spelling and pronunciation, would stake
out neutral ground. After all, in the early days of the United States correct
spelling was open to interpretation. In the American Constitution, the word
‘choose’ is spelled ‘chuse’ and ‘Pennsylvania’ was spelled ‘Pensylvania’ (the
Liberty Bell inscription has one ‘n,’ as well). Also, ‘defense’ was spelled
‘defence.’
The first American dictionary
wasn’t published until 1806. Its author, Noah Webster, decided many spelling
conventions were artificial, so he imposed the standards he preferred, changing
‘musick’ to ‘music,’ ‘centre’ to ‘center,’ and ‘women to wimmen.’ Not all of
his changes were accepted.
This
year, in an effort to resolve the GIF issue once and for all, a forum for
computer programmers surveyed 50,000 users in 200 countries. Sixty-five percent
believed a hard ‘g’ pronunciation was correct, while 26 percent believed the
soft ‘g’ was right.
The survey results inflamed soft ‘g’ users, who claim it
was rigged.
Weekly
Focus – Think About It
“My seven-year-old grandson sleeps just down the hall
from me, and he wakes up a lot of mornings and he says, ‘You know, this could
be the best day ever.’ And other times, in the middle of the night, he calls
out in a tremulous voice, ‘Nana, will you ever get sick and die?’ I think this
pretty much says it for me and most of the people I know, that we're a mixed
grill of happy anticipation and dread.”
--Anne Lamott, American novelist and non-fiction writer
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/articles/a-game-changing-week-for-markets-sees-nasdaq-fall-2-1498887177?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-03-17_Barrons-A_Game-Changing_Week_for_Markets_Sees_NASDAQ_Fall_2_Percent-Footnote_2.pdf)
https://www.ft.com/content/d7c47dae-5dd7-11e7-9bc8-8055f264aa8b (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-03-17_FinancialTimes-Second_Quarter_Ends_with_Fierce_Rotation_Away_from_Tech_Stocks-Footnote_4.pdf)
http://www.cboe.com/products/vix-index-volatility/vix-options-and-futures/vix-index/vix-historical-data (click on “VIX data for 2004 to present”)
http://www.sca.isr.umich.edu (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-03-17_SurveysOfConsumers-Final_Results_for_June_2017-Footnote_7.pdf)
https://www.economist.com/blogs/graphicdetail/2017/06/daily-chart-21 (or
go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-03-17_TheEconomist-How_Do_You_Pronounce_GIF-Footnote_11.pdf)
