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Weekly Market Commentary (September 25, 2017)
The Markets
Geopolitics, what is it good for? Absolutely nothin'!
In January, Robert Kahn of the Council on Foreign Relations wrote in Global Economics Monthly:
"Markets showed impressive resilience in the face of a range of geopolitical shocks in 2016, but recent market moves suggest this year could be different...It should be the year that global geopolitical risks provide the volatility in markets that I, and many other economists, have been predicting for some time."
Kahn may share the bemusement of bond market prognosticators who have anticipated the end of the bull market in bonds for years and have yet to see their predictions prove out.
So far in 2017, investor confidence has remained impervious to geopolitical threats. Bloomberg reported, while diplomats at the United Nations stress over North Korea's threat to drop a hydrogen bomb, Russia's provocations along the borders of Eastern Europe, rising Middle East tensions, and conflict between the United States and China in the South China Sea, investors remain relatively sanguine.
The CBOE Volatility Index, or VIX, which measures market expectations for near-term volatility in the Standard & Poor's 500 Index (S&P 500), finished below 10 on Friday. Historically, the VIX has finished below 10 on just a few days in its history. While the very low level of the VIX doesn't tell us much about the future, Barron's reports it indicates investors are not too concerned about "what's happening now and what has happened."
That contention appears to be supported by U.S. stock market performance. Despite hostile rhetoric between the United States and North Korea last week, the S&P 500 and Dow Jones Industrial Average both finished slightly higher.
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.
it's the ig nobel awards!On September 14, the 27th First Annual Ig Nobel Prize Ceremony kicked off with a flight of paper airplanes.
The winners were chosen by the publishers of the Annals of Improbable Research, which reviews, "Real research, about anything and everything, from everywhere. Research that's maybe good or bad, important or trivial, valuable or worthless." The most important characteristic of the works published is they make people laugh and think.
The evening's entertainment included ceremonial bows from returning Ig winners John Culvenor, who received the 2003 Physics Prize for analyzing the forces required to drag sheep across various surfaces, and Deborah Anderson, who received the 2008 Chemistry Prize for testing whether a dark cola is an effective spermicide.
This year's winning research explored diverse and improbable ideas, including studies entitled:
Each of the 10 Ig Nobel winners was given 60 seconds to explain themselves before being awarded a bust replica of a human head with a question mark on top of it, a certificate signed by a Nobel Laureate, and one trillion Zimbabweans.
Russian-born physicist Andre Geim was the first scientist to win both awards. He received a 2000 Ig Nobel Prize for his work using magnets to levitate frogs, and a 2010 Nobel Prize for discovering graphene (a new form of carbon).
Weekly Focus - Think About It
"Like a welcome summer rain, humor may suddenly cleanse and cool the earth, the air, and you." --Langston Hughes, American poet
Best regards,
Lee Barczak President
* 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.* 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. |
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The Markets
When it comes to economic growth, the government doesn't measure twice. It measures three times.
Last week, the Bureau of Economic Analysis revised its initial estimate that the gross domestic product (GDP), which is the value of all goods and services produced by a country or region, grew by 2.6 percent during the second quarter of 2017. The second estimate indicated the economy grew by 3.0 percent from April through June. The third and final GDP estimate for the second quarter will become available near the end of September.
The New York Times reported:
"If the economy were to sustain the current pace of expansion, it would be a significant uptick from the 2 percent annual growth rate that has mostly prevailed since the recovery began. A difference of a single percentage point may not sound like much, but the stakes are huge in a $19 trillion economy. The acceleration could also help lift wage growth, which has been frustratingly slow for years despite steady hiring, a surging stock market, and rising home prices."
While second quarter's growth spurt was welcome news, it was overshadowed by the devastation wrought by Hurricane Harvey in Texas and across a swath of the Gulf Coast. Initial estimates of the property damage inflicted by the storm stand between $30 and $40 billion, reported Yahoo! Finance.
Historically, hurricanes have impacted U.S. economic growth and Harvey is likely to be no different. An economist from Goldman Sachs explained the usual progression of economic consequences to Yahoo! Finance:
"...major hurricanes in the past have been associated with a temporary slowdown in retail sales, construction spending, and industrial production, as well as a pickup in jobless claims...However, GDP effects are ambiguous, as the level of economic activity typically returns to its previous trend - or even somewhat above - reflecting a boost from rebuilding efforts and a catch-up in economic activity displaced during the hurricane."
We send our thoughts and prayers to all of those affected by Hurricane Harvey.
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Data as of 9/1/17 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
|
Standard & Poor's 500 (Domestic Stocks) |
1.4% |
10.6% |
14.1% |
7.3% |
12.0% |
5.2% |
|
Dow Jones Global ex-U.S. |
0.7 |
17.4 |
16.0 |
0.6 |
5.5 |
-0.5 |
|
10-year Treasury Note (Yield Only) |
2.2 |
NA |
1.6 |
2.4 |
1.6 |
4.6 |
|
Gold (per ounce) |
2.7 |
13.9 |
0.8 |
0.9 |
-4.8 |
7.0 |
|
Bloomberg Commodity Index |
2.0 |
-2.9 |
3.5 |
-12.1 |
-10.3 |
-6.5 |
|
DJ Equity All REIT Total Return Index |
0.7 |
7.0 |
2.2 |
8.5 |
9.7 |
6.5 |
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.
If you don't live near your parents and older family members, you may want to learn more about Social Security's Representative Payment Program (RPP). The Center for Retirement Research at Boston College (CRRBC) published a brief in August that provided some insight into the need for the program:
"Many older individuals with cognitive impairment, including the vast majority of people with dementia, need help managing their finances. For retirees receiving Social Security benefits, the Representative Payee Program can serve as one source of this help. In the Representative Payee Program, a retiree's benefit is sent to another person (often a relative) who spends it on the retiree's behalf and submits records to Social Security documenting that the expenditures were in the beneficiary's best interest."
Currently, not many people take advantage of the program. More than 10 percent of people who are age 65 or older have dementia, but just 9 percent of that group has a payee.
That doesn't mean retirees aren't getting the help they need. Most are, according to CRRBC. Ninety-five percent of people with dementia have someone to help - an unimpaired spouse, nursing home staff, or adult children. Two-thirds have assigned power of attorney to a trusted party.
If your parents are older and you haven't talked with them about how to handle issues related to finances and aging, it may be a good time to open a dialogue. Daily Caring suggests you, "Approach the conversation around the most important considerations for older adults: safety, freedom, peace of mind, social connection, and being able to make choices."
Weekly Focus - Think About It
"Best thing about being in your 90s is you're spoiled rotten. Everybody spoils you like mad and they treat you with such respect because you're old. Little do they know, you haven't changed. You haven't changed in [the brain]. You're just 90 every place else...Now that I'm 91, as opposed to being 90, I'm much wiser. I'm much more aware and I'm much sexier."
--Betty White, American actor and comedienne
Best regards,
Lee Barczak
President
* 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 indices 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.* 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
Hope floats.
Optimism about possible pro-growth economic policies, including tax reform and deregulation, helped U.S. stock indices finish higher last week, reported Barron’s. It wasn’t all smooth sailing, though. Stocks bobbed up and down as investors’ optimism was weighted by concerns about a possible debt-ceiling battle and government shutdown.
CNN offered some insight to the historic economic impact of government shutdowns on productivity:
“The last time the government was forced to close up shop – for 16 days in late 2013 – it cost taxpayers $2 billion in lost productivity, according to the Office of Management and Budget. Two earlier ones – in late 1995 and early 1996 – cost the country $1.4 billion.”
For investors, it’s important to distinguish between a shutdown’s potential effect on the U.S. economy and its possible impact on U.S. stock markets. A source cited by The New York Times reported:
“…during all 18 government shutdowns, starting in 1976…the Standard & Poor’s 500-stock index averaged just a 0.6 percent loss over the course of those closures. Early on in shutdown history, investors reacted very negatively. Closures in 1976 and 1977 coincided with 3 percent declines in the [S&P 500].
As investors grew more accustomed to shutdowns, they seemed to become more blasé about them. During the mid-1990s and the 2013 closure, for instance, stocks actually rose. They gained 3.1 percent during the 2013 stoppage.”
Bond investors were relatively calm last week, according to Financial Times. Although, there were signs of “debt ceiling jitters.” Yields on U.S. Treasuries that mature in October (when a shutdown may occur) rose on concerns investors might not be repaid in a timely way.
No matter what happens in September and October, keep your eyes on the horizon and your long-term goals.
Data as of 8/25/17 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
|
Standard & Poor's 500 (Domestic Stocks) |
0.7% |
9.1% |
12.5% |
6.9% |
11.6% |
5.2% |
|
Dow Jones Global ex-U.S. |
1.0 |
16.6 |
14.7 |
0.4 |
5.1 |
-0.4 |
|
10-year Treasury Note (Yield Only) |
2.2 |
NA |
1.6 |
2.4 |
1.7 |
4.6 |
|
Gold (per ounce) |
-0.8 |
10.9 |
-2.7 |
0.0 |
-5.1 |
6.8 |
|
Bloomberg Commodity Index |
0.1 |
-4.8 |
-2.1 |
-12.8 |
-10.5 |
-6.6 |
|
DJ Equity All REIT Total Return Index |
2.1 |
6.3 |
1.3 |
8.5 |
9.9 |
6.8 |
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, 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.
millennials are killing it! A recent article in Buzzfeed listed headlines announcing the various things Millennials have “killed” or are “killing.” The list included Big Oil, the NFL, the workday, the cereal industry, and bar soap.
Here’s another industry that is being undermined by millennials’ preferences: cable and satellite television. Millennials are leading a viewing revolution. They are unwilling to ante up for cable and satellite subscriptions, preferring less expensive Internet and streaming services that provide content via the World Wide Web.
A 2017 survey from Videology found more than half of millennial men (ages 18 to 34) have stopped paying for cable, and Forbes reported:
“…on average, the 30-and-under crowd's primary means of consuming content is through mobile devices, streaming, and online. That's in sharp contrast to the over-30 crowd who still rely on television for an average of more than 80 percent of their film and TV show viewing.”
The waning popularity of cable and satellite TV appears to have a lot to do with cost. The typical household paid more than $1,200 a year, on average, for cable and satellite television in 2016, according to Nerdwallet – and the cost increased in 2017. Consumer Reports wrote, “Most pay TV companies have announced modest price hikes, but there are also new hidden fees.”
Budget-minded millennials may be having an influence on older generations whose preferences appear to be changing, too. GfK, a market research company, reported:
“New findings…show that U.S. TV households are embracing alternatives to cable and satellite reception. Levels of broadcast-only reception [a.k.a. antenna reception] and Internet-only video subscriptions have both risen over the past year, with fully one-quarter (25 percent) of all U.S. TV households now going without cable and satellite reception.”
So, what kind of savings can be generated when you cut the cable? It all depends on what you currently pay, but it may be worth crunching the numbers.
Weekly Focus – Think About It
“I find television very educating. Every time somebody turns on the set, I go into the other room and read a book.”
--Groucho Marx, American comedian
