“Peek of the Week”
Market Commentary
February 25, 2019
The Markets
Investors
were pleased with the Federal Reserve’s (Fed) new approach to its balance
sheet.
The
Fed delivered its semi-annual Monetary Policy Report to Congress last week. The
report recapped the events of late 2018 and reiterated the Fed’s intention to
“…be patient as it determines what future adjustments to the federal funds rate
may be appropriate to support the Committee's congressionally mandated
objectives of maximum employment and price stability.”
In
other words, rate hikes are on hold for now.
The
Fed also addressed issues related to its balance sheet, which grew from $900
billion at the end of 2006 – about 6 percent of the United States’ gross
domestic product (GDP) – to almost $4.5 trillion at the end of 2014 – about 25
percent of U.S. GDP. (GDP is the value of all goods and services produced in
the United States in a given period.)
The
balance sheet more than quadrupled during the past decade because the Fed began
buying Treasuries and mortgage-backed securities, a policy called quantitative
easing, in an effort to restore the U.S. economy to health, according to The Hutchins Center of the Brookings Institute.
Friday’s
report indicated the Fed will not shrink its balance sheet to pre-crisis levels,
reported Erwida Maulia for Financial
Times. Markets responded positively to the news:
“U.S.
stocks and Treasuries were comfortably higher at midday on Friday as the
Federal Reserve signaled it will hold a much larger balance sheet in the long
term than it did before the financial crisis, helping ease investor concerns
about tightening financial conditions.”
Investors
also remained optimistic about trade talks between the United States and China.
Major U.S. stock indices finished the week higher.
Data as of
2/22/19
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500 (Domestic Stocks)
|
0.6%
|
11.4%
|
3.3%
|
12.8%
|
8.6%
|
14.2%
|
Dow Jones Global ex-U.S.
|
1.7
|
9.1
|
-9.8
|
7.7
|
0.4
|
7.2
|
10-year Treasury Note (Yield Only)
|
2.7
|
NA
|
2.9
|
1.8
|
2.8
|
2.8
|
Gold (per ounce)
|
1.1
|
3.9
|
0.2
|
3.2
|
0.1
|
3.1
|
Bloomberg Commodity Index
|
1.4
|
7.0
|
-7.4
|
2.6
|
-9.3
|
-2.2
|
DJ Equity All REIT Total Return
Index
|
0.0
|
13.7
|
20.5
|
10.7
|
9.7
|
18.8
|
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.
salt water has an economic IMPACT due to sea levels rising at a more rapid rate during the past
three decades, according to the U.S.
Global Change Research Program’s Climate Science Special Report. Since 1900,
sea levels have risen between 7 and 8 inches. Since 1993, they’re up 3 inches.
As
levels continue to rise, people and companies around the world are likely to be
affected. Morgan Stanley reported,
“Many coastal cities around the world that look attractive to real assets
investors – for example, Miami, New York, Boston, Osaka, Guangzhou, and Mumbai
– are particularly vulnerable to flooding and other weather-related problems.
And, infrastructure assets favored by investors, like airports, cell towers,
and oil and natural gas pipelines, are often located in places prone to storms
and extreme heat…Insurance will continue to be an important safeguard, but a
limited one.”
Protecting
property and improving infrastructure is likely to change demand for specific
goods and services. Sarah Green Carmichael of Barron’s reported, “As we rush to protect basements and beach
houses, companies in the home-improvement retail sector should benefit…So
should companies that make products to cope with flooding, such as
commercial-grade water pumps…Upgrades to infrastructure also mean good news for
the construction sector…”
The
textile industry – think fabrics and clothing – may also be affected since
major exporters like Bangladesh, Indonesia, and the Philippines, which supply
10 percent of the textiles and clothing imported by the United States, are vulnerable
to coastal flooding.
Sea
level is a macroeconomic issue. It has the potential to affect output and
income across the global economy. Investment managers who take a top-down
approach to investing consider the ways in which macroeconomic factors, like
changing sea levels, could affect the market as a whole, as well as the share
prices of specific companies. Bottom-up investors take a different approach.
They consider company fundamentals, such as management team and earnings growth
potential, first.
Weekly Focus – Think About
It
“They
always say time changes things, but you actually have to change them yourself.”
--Andy
Warhol, American artist
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 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.
*
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Sources:
https://www.ft.com/content/a80b032e-36c2-11e9-bb0c-42459962a812
(or go
to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-25-19_FinancialTimes-Wall_Street_Higher_After_Feds_Balance_Sheet_Inflation_Remarks-Footnote_5.pdf)
https://science2017.globalchange.gov/chapter/12/ (Key Finding 1 and Key Finding 2)
https://www.barrons.com/articles/why-sea-level-rise-could-be-good-for-ford-and-home-depot-51550149200
(or go
to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-25-19_Barrons-The_Sectors_that_Stand_to_Gain_the_Most_from_Rising_Seas-Footnote_10.pdf)
