Archive Monthly Archives: August 2016

Weekly Market Commentary August 29, 2016

Attention investors: U.S. interest rates may be moving up and it might happen this year.

During last Friday’s speech at the Federal Reserve’s annual economic symposium in Jackson Hole, Wyoming, Fed Chairwoman Janet Yellen signaled that a rate hike is probably coming but, as usual, she didn’t offer any specifics about the timing:

“…Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months. Of course, our decisions always depend on the degree to which incoming data continues to confirm the Committee's outlook.”

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Weekly Market Commentary August 22, 2016

Last week, Wall Street was speculating about monetary policy with the enthusiasm of commentators trying to predict who will bring home Olympic gold.

The Federal Open Market Committee (FOMC) is expected to introduce another rate hike before the end of 2016, according to the BBC, and it has just three opportunities to deliver the goods – during its September, November, or December meetings.

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Weekly Market Commentary August 15, 2016

How do you measure stock market valuation?

If you look at conventional measures – like price-to-earnings (P/E) ratios – then U.S. stock markets appear to be pricey. The Wall Street Journal reported trailing 12-month P/E ratios are high when compared to 10-year averages.

High P/E ratios haven’t dampened investors’ interest in U.S. stocks, and share prices have been moving higher. The Dow Jones Industrial Average (Dow), Standard & Poor’s 500 Index, and NASDAQ all reached new highs last Thursday – the first time that has happened since 1999.

Barron’s suggested investors’ enthusiasm for stocks is rooted in the search for yield. “With the Treasury’s 10-year note yielding 1.5 percent – near lows not seen before in modern history – there’s no alternative to stocks for investors who want returns.”

The relationship between stock yields and bond yields may have some investors measuring market valuations in different ways. Investopedia reported, during the late 1990s, Wall Street professionals came up with a new method for gauging stock market valuation. It was called The Fed Model and it determined full valuation by comparing stock yields to bond yields. (Please note: ‘The Fed Model’ wasn’t created by the Federal Reserve System, and the Federal Reserve System does not endorse it.)

The Wall Street Journal offered this analysis:

“…the so-called Fed model, which says that stocks’ earnings yields – that is, expected annual earnings divided by the share price – should equal the yield on the 10-year Treasury note. With the 10-year now yielding 1.52 percent, the Dow would be fairly valued at 66 times earnings rather than the current, measly 18. Dow 68,000 anyone?”

It’s an enthusiastic estimate. While some analysts are speculating the Dow could surpass 20,000 during the next 12 months, according to CNBC, others are suggesting investors proceed with caution.


Data as of 8/12/16
1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) 0.1% 6.9% 4.7% 8.9% 13.1% 5.6%
Dow Jones Global ex-U.S. 2.7 4.3 -2.6 -0.3 2.0 0.2
10-year Treasury Note (Yield Only) 1.5 NA 2.1 2.6 2.2 5.0
Gold (per ounce) 0.9 27.3 20.8 0.3 -4.9 8.0
Bloomberg Commodity Index 0.3 7.0 -7.5 -12.9 -11.8 -6.9
DJ Equity All REIT Total Return Index -0.2 15.8 19.2 14.3 15.1 7.3

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.

An olympic medal in any other shape still represents a great feat. In 1900, the Olympic games were part of the World’s Fair in Paris. Champions received square medals! Olympics.org reported:

“The 1900 Olympic Games are perhaps the most unusual Olympics in modern history. They have been termed, with the 1904 Olympics, ‘The Farcical Games.’ The 1900 Olympics were poorly organized, almost chaotic. Years later many of the competitors had no idea that they had actually competed in the Olympics, but only that they had competed in an international sporting event in Paris in 1900.”

During the Paris Olympics, champions did not receive gold medals; they were given silver medals. The first time gold medals were awarded was at the 1904 Olympics in St. Louis, Missouri. While gold medals have become the standard, they haven’t been made of solid gold since 1912. Instead, winners’ medals have been made of a combination of gold and silver.

CNN reported gold medals in Brazil are comprised of “494 grams of silver and 6 grams of gold…a gold medal is worth about $587 in current market prices.” The silver medal is worth about $305, and the bronze medal has negligible monetary value, according to CNNMoney. Of course, once a medal has been awarded, its value may increase significantly.

U.S. Olympians receive cash rewards, in addition to medals. CNNMoney reported, “The U.S. Olympic Committee awards $25,000 for gold medals, $15,000 for silver, and $10,000 for bronze.” Olympians owe state and federal taxes on their prize money, as well as the value of their medals.

Think About It

“…most people listen with the intent to reply, not to understand. You listen to yourself as you prepare in your mind what you are going to say, the questions you are going to ask, etc. You filter everything you hear through your life experiences, your frame of reference. You check what you hear against your autobiography and see how it measures up. And consequently, you decide prematurely what the other person means before he/she finishes communicating.”

--Stephen Covey, American author

Need some Personalized Advice?

Contact us and we will be happy to point you in the right direction.  No bull.

* 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.

* 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 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.

* 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.

* Consult your financial professional before making any investment decision.

Sources:

http://www.wsj.com/articles/stocks-hit-new-highs-and-that-could-be-just-the-start-1470954978

http://www.barrons.com/articles/stocks-hit-record-highs-but-end-little-changed-1471060856?mod=BOL_hp_we_columns

http://www.investopedia.com/articles/stocks/08/fed-model.asp

http://blogs.wsj.com/moneybeat/2016/08/10/dow-68000-here-we-come/

http://www.cnbc.com/2016/08/11/wall-street-sees-these-10-stocks-lifting-the-dow-to-20000.html

http://www.marketwatch.com/story/goldman-sachs-says-stay-away-from-stocks-for-the-next-three-months-2016-08-01

https://www.olympic.org/paris-1900

http://library.la84.org/SportsLibrary/Mallon/1900.pdf (Page ix)

http://www.topendsports.com/events/summer/traditions/medals.htm

http://edition.cnn.com/2016/07/31/sport/olympics-making-of-a-medal/

http://money.cnn.com/2016/08/12/news/olympians-gold-medals-taxes-us/

https://www.stephencovey.com/7habits/7habits-habit5.php

Weekly Market Commentary August 8, 2016

It’s déjà vu all over again!

The Chicago Board of Options Exchange (CBOE) Volatility Index, also known as the VIX, tracks the prices of options on the Standard & Poor’s 500 (S&P 500) Index. Since options often are used to hedge portfolio risk, the VIX is considered to be a ‘fear gauge’ that has value with regard to market volatility during the next 30 days. The VIX moves higher when investors are worried and lower when they’re feeling content. While this is not necessarily predictive, it does measure the current degree of fear present in the stock market.

Last Friday, the VIX dropped to 11.18, which was a two-year low. Financial Times attributed investor complacency to “…a buoyant U.S. jobs report and easy monetary policy.” However, it also pointed out analysts’ concern that the current lack of fear reflects a disregard for threats to world economic stability as well as sparse trading during a vacation month.

Last year in early August, we saw a similar phenomenon. The VIX reached very low levels and then it zoomed from 13 to 53 between August 18 and August 24. At 53, the VIX was higher than when Standard & Poor's cut the credit rating of the United States in 2011, or at the apex of the European debt crisis in 2010. Barron’s explained last year’s move like this:

“...volatility isn’t simply a measure of fear. It has been used to manage risk in portfolios that employ sophisticated trading schemes…Although each type of fund adjusts to market changes at a different speed, they all respond in the same way – by selling stocks…”

There is no gauge to predict whether the VIX will remain low or bounce higher during the next 30 days, but some big name investors are feeling bearish despite the VIX’s outlook for short-term calm. Barron’s reported, “elder statesmen of the markets, including Stanley Druckenmiller, George Soros, and Carl Icahn, all have deemed themselves negative on stocks…”

Regardless, the S&P 500 Index and the NASDAQ finished the week at record levels.


Data as of 8/5/16
1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) 0.4% 6.8% 4.0% 8.5% 12.7% 5.5%
Dow Jones Global ex-U.S. -0.8 1.5 -7.5 -1.1 1.1 0.0
10-year Treasury Note (Yield Only) 1.6 NA 2.3 2.6 2.6 4.9
Gold (per ounce) -0.1 26.2 23.5 0.9 -4.2 7.5
Bloomberg Commodity Index -0.5 6.7 -7.7 -12.5 -11.7 -7.2
DJ Equity All REIT Total Return Index -2.0 16.1 21.1 14.2 15.6 7.2

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.

Have you lived up to your parents’ expectations? In early August, The Harvard Business Review published an article about an unexpected source of career conflict: parents! Stew Friedman, the article’s author, who is a Wharton professor and founding director of the Wharton Leadership Program wrote:

“…business professionals at various stages in life, from college students to mid-career executives, talk more about their mothers and fathers than their spouses and children as sources of career conflict. Here is a small sampling of what I’ve heard:

  • ‘My parents have always made me feel that my accomplishments fall short of expectations; I’m a disappointment to them and this undermines my confidence in choosing a career direction of my own.’

  • ‘My parents expect me to marry a particular (kind of) person, even if committing to that potential spouse would cut against my career goals.’

  • ‘My parents insist I live in a particular geographic location, but this will seriously inhibit my career options and future growth.’

  • ‘I feel obliged to care for my parents in their old age, but I cannot figure out how to coordinate the allocation of these responsibilities with my siblings; the resulting stress is a major distraction from my efforts to focus on work.’”

    While it isn’t a surprise to most people the needs and expectations of parents don’t always sync with those of their children, Friedman had some suggestions for reducing disharmony: stakeholder dialogues. In other words, initiate conversations with the people who are most important to you and discuss mutual expectations. In the end, you may gain insight to and clarity around others’ thoughts and expectations as well as the ways in which they influence your decision-making.

    Think About It

    “The first week of August hangs at the very top of summer, the top of the live-long year, like the highest seat of a Ferris wheel when it pauses in its turning. The weeks that come before are only a climb from balmy spring, and those that follow a drop to the chill of autumn, but the first week of August is motionless, and hot. It is curiously silent, too, with blank white dawns and glaring noons, and sunsets smeared with too much color.”

    --Natalie Babbitt, Author of Tuck Everlasting

Need some Personalized Advice?

Contact us and we will be happy to point you in the right direction.  No bull.

* 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.

* 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 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.

* 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.

* Consult your financial professional before making any investment decision.

Sources:

http://www.investopedia.com/articles/optioninvestor/03/091003.asp#ixzz4GYzqhPlI

http://www.ft.com/cms/s/0/cc20a9f4-5b45-11e6-8d05-4eaa66292c32.html#axzz4GYvcCAVV

http://www.barrons.com/articles/stocks-are-downand-its-your-fault-1441434205?mod=BOL_hp_we_columns

http://www.barrons.com/articles/billionaire-bears-gross-gundlach-fear-a-rout-1470459750

https://hbr.org/2016/08/what-to-do-if-your-parents-are-causing-you-career-angst

https://books.google.com/books?id=4hTN-IEZy4kC&pg=PA3&lpg=PA3&dq=The+first+week+of+August+hangs+at+the+very+top+of+summer,+the+top&source=bl&ots=B3Hv7E- ewI&sig=m_lJ5p6s12pvlxketM2ffdbUJBU&hl=en&sa=X&ved=0ahUKEwjZ19vrxa_OAhXE1IMKHXI8BQIQ6AEITDAI#v=onepage&q=The%20first%20week%20of%20August%20hangs%20at%20the%20very%20top%20of%20summer%2C%20the%20top&f=false

Weekly Market Commentary August 1, 2016

Here’s a brain tickler for you:

In July 2016, there were four.

In June 2016, there were 10.

Since 2008, there have been 673!

What are they?

If you guessed central bank rate cuts, you are on the money. Financial Times reported:

“In the eight years since the collapse of Lehman Brothers, the world’s top 50 central banks have, on average, cut rates once every three trading days…Despite a modest global recovery, central banks have barely had any time to breathe since the summer of 2008 – carrying out mass asset purchases and entering into negative rate territory. Britain’s decision to leave the EU, coupled with political instability across Europe, still subdued inflation, and concerns over Chinese indebtedness, have spurred central banks back into action.”

The latest downward adjustment came last week when the Bank of Japan (BOJ) took its key interest rate into negative territory, reported CNN Money. Negative rates are intended to promote bank lending and consumer spending. They also create a surreal situation in which banks pay customers to borrow and charge customers to keep money in their accounts.

The stimulus package that accompanied the BOJ’s rate cut was more subdued than many had expected. The Wall Street Journal said the less-than-robust stimulus prompted speculation the central bank had “run up against the limits of monetary policy” and bank leaders wanted to see more robust fiscal policy introduced by Japan’s government.

The United States has been pursuing a different course of action. The Federal Reserve has been raising rates; however, it left rates unchanged last week. More rate cuts may be ahead elsewhere, though. The Bank of England is expected to cut rates next week.

The Standard & Poor’s 500 Index finished the week slightly lower after the Commerce Department reported growth of gross domestic product (GDP) – a measure of all goods and services produced – was weaker than expected during the second quarter. GDP grew at an annualized rate of 1.2 percent during the period. Economists had expected GDP to grow by 2.5 percent, according to Bloomberg. In addition, first quarter’s GDP growth was revised downward from 1.1 percent to 0.8 percent.

Household consumption, which comprises about 70 percent of GDP, was up 4.2 percent during the second quarter, according to Bloomberg. However, those gains were offset by a decline in corporate spending on equipment, structures, and intellectual property (down 2.2 percent). That was an improvement on first quarter when corporate spending fell by 3.4 percent. Government spending declined during the second quarter, as well.


Data as of 7/29/16
1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) -0.1% 6.3% 3.1% 8.9% 11.0% 5.5%
Dow Jones Global ex-U.S. 1.9 2.3 -6.7 -0.4 -0.8 0.0
10-year Treasury Note (Yield Only) 1.5 NA 2.3 2.6 2.8 5.0
Gold (per ounce) 1.6 26.3 23.1 0.3 -3.8 7.8
Bloomberg Commodity Index -0.4 7.3 -9.4 -12.6 -12.3 -7.2
DJ Equity All REIT Total Return Index 0.5 18.4 23.1 13.9 13.1 7.5

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, 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.

the envelope please... Every year, Kiplinger’s publishes a list of the best and worst states for retirees. The publication considers the share of each state’s population that is age 65 or older, as well as average income, average cost of living, and average healthcare costs for older Americans (relative to the national average). The economic health of each state and its citizens, and the taxes imposed on retirees also are considered.

For 2016, the best states for retirees include:

  1. South Dakota

  2. Utah

  3. Georgia

  4. Tennessee

  5. Alabama

  6. South Carolina

  7. Washington

  8. Florida

  9. Arizona

  10. Idaho

The worst states for retirees include:

  1. New York

  2. New Jersey

  3. California

  4. Connecticut

  5. Illinois

  6. Massachusetts

  7. Rhode Island

  8. Montana

  9. Vermont

  10. Wisconsin

Interestingly, taxes weren’t the most important factor in determining the states where retirees might be happiest. Just four of the most tax-friendly states in the nation made the list of best places to retire. Utah, Tennessee, Alabama, South Carolina, and Washington were all in the tax friendly category, while Idaho fell into the mixed group.

Think About It

“If a country is to be corruption free and become a nation of beautiful minds, I strongly feel there are three key societal members who can make a difference. They are the father, the mother and the teacher.”

--A. P. J. Abdul Kalam, Former President of India

Need some Personalized Advice?

Contact us and we will be happy to point you in the right direction.  No bull.

* 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.

* 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 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.

* 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.

* Consult your financial professional before making any investment decision.

Sources:

http://www.ft.com/fastft/2016/07/28/major-central-banks-have-cut-rates-672-times-since-lehman/

http://money.cnn.com/2016/01/28/news/economy/bank-of-japan-negative-interest-rate/

http://www.wsj.com/articles/has-boj-shifted-pressure-onto-japans-government-1469796930

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

http://www.kiplinger.com/slideshow/retirement/T006-S001-worst-states-for-retirement-2016/index.html

http://www.kiplinger.com/slideshow/retirement/T006-S001-best-states-for-retirement-2016/index.html

http://www.kiplinger.com/slideshow/retirement/T006-S001-worst-states-for-retirement-2016/index.html

http://www.brainyquote.com/quotes/quotes/a/apjabdu178502.html