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Weekly Market Commentary (May 17, 2019)

Weekly Market Commentary (May 17, 2019)
 
The Markets
 
Trade talk trouble took a toll last week.
 
Major U.S. stock indices moved lower when trade talks between the United States and China broke down. The Standard & Poor's (S&P) 500 Index, Nasdaq Composite, and Dow Jones Industrial Index all finished the week down between 2 percent and 3 percent, reported Ben Levisohn of Barron's.
 
The deadline to settle U.S.-China trade issues was Friday. When it passed without any resolution, the U.S. increased tariffs on Chinese goods to 25 percent, reported the BBC.
 
The economic impact of higher tariffs may be relatively small; however, the impact on business confidence and global markets could be significant, reported Capital Economics.
 
"We think that the direct effects of President Trump's threatened tariff hikes could reduce Chinese GDP by up to 0.4 percent and that the associated retaliation would have only a marginal direct impact on the United States. The effects on business confidence and financial markets around the world could be more significant, potentially adding to reasons for renewed policy loosening...In theory, if all else were unchanged, the increase in tariffs would amount to a small fiscal tightening in China and the United States. But both governments have avoided this by spending the proceeds on aid for the most affected parties."
 
Bond markets reflected uncertainty, too. The yield curve, which has been flirting with inversion for some time, inverted briefly on Thursday, reported Alex Harris of Bloomberg. A persistent inverted yield curve - featuring a lower yield for 10-year Treasuries than for three-month Treasuries - sometimes signals recession.
 
David Lynch and Heather Long of The Washington Post reported tariffs imposed on other countries have yet to be removed, including those on steel and aluminum imported from Mexico and Canada.
 
Trade negotiations between the United States and China are expected to continue.
 

Data as of 5/10/19
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
-2.2%
14.9%
5.8%
11.4%
8.7%
12.2%
Dow Jones Global ex-U.S.
-3.1
8.3
-9.5
5.2
-0.1
4.4
10-year Treasury Note (Yield Only)
2.5
NA
3.0
1.8
2.7
3.2
Gold (per ounce)
0.7
0.4
-2.4
0.6
-0.2
3.5
Bloomberg Commodity Index
-1.5
2.5
-13.1
-1.9
-10.4
-4.2
DJ Equity All REIT Total Return Index
-0.7
17.5
16.5
6.7
8.9
15.5
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, 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.
 
INDEPENDENT THINKING IS IMPORTANT. In The Wisdom of Crowds, James Surowiecki shared a story about Francis Galton, a Victorian-era statistician and scientist whose "...experiments left him with little faith in the intelligence of the average person."
 
Jacob Goldstein and David Kestenbaum of Planet Money summarized the story like this:
 
"One day, Galton goes to a country fair. This was about a hundred years ago in England. And there's this contest going on at the fair - guess the weight of the ox. Galton's a scientist and a statistician. And he figures, hey, I can do an experiment here, right? He figures, I'm going to take everyone's guesses, take the average and compare that to the actual weight of the ox...The ox weighed 1,198 pounds."
 
The average of the estimates was 1,197 pounds. The result surprised Galton and it surprises other people who hear the story, too.
 
Goldstein and Kestenbaum decided to replicate the experiment by visiting a fair, weighing a cow, posting a picture of the cow online (next to a photo of Goldstein that shared his weight), and asking people to estimate the cow's weight.
 
More than 17,000 people responded.
 
After removing outliers, the average estimate of the cow's weight came in at 1,287 pounds. The cow weighed 1,355 pounds.
 
How can a group of people, few of whom knew anything about cows, get so close to a correct answer? The key is that each guess is made independently:
 
"...Every person's guess is contributing some new, little piece of information. Everybody is different. Everybody thinks slightly differently when they're trying to guess the cow's weight. Maybe one person studies that photo of the cow from the side. Some people are probably trying to figure out how many Jacobs would fit in the cow. Someone else might know how much a horse weighs and kind of go from there."
 
That's not to say collective thinking is always accurate. There are terms in our vocabulary - mob mentality, herd thinking, groupthink, and others - that often are used to describe groups getting it wrong.
 
Consider the stock market. You don't need to look far to find examples of what can happen when people push a company's share price or a stock market to an unreasonable level.
 
Apparently, the wisdom of the crowd is found in thinking independently, together.
 
Weekly Focus - Think About It
 
"In a basic agricultural society, it's easy enough to swap five chickens for a new dress or to pay a schoolteacher with a goat and three sacks of rice. Barter works less well in a more advanced economy. The logistical challenges of using chickens to buy books on Amazon.com would be formidable."
--Charles Wheelan, American Journalist
 
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. * 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. * Consult your financial professional before making any investment decision.
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Weekly Market Commentary (May 8, 2019)

Weekly Market Commentary (May 8, 2019)
 
 
The Markets
 
Data suggests economic growth remains steady and some analysts and investors have been pecking at Federal Reserve Chair Jerome Powell. They're keen for the Fed to implement a rate cut, which could stimulate economic growth and help push stock markets higher, because inflation is lower than ideal, reported Howard Schneider and Ann Saphir of Reuters.
 
Recent data suggest core inflation is at 1.6 percent. That's below the Fed's target rate of 2 percent. Fed leaders have said they think low inflation may be temporary. Until a trend has been established to their satisfaction, they intend to do nothing. The Reuters article explained, "...preemptive...rate moves in either direction appear off the table for now, absent some unexpected event that raises new risks or shocks the economy into a higher or lower gear."
 
Second-guessing the Fed is not new. In 1955, the ninth Chairman of the Federal Reserve, William McChesney Martin, offered this insight to the Fed's work:
 
"Those who have the task of making [credit and monetary] policy don't expect you to applaud. The Federal Reserve...is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up."
 
On Friday, jobs data suggested U.S. economic growth continues apace. The Bureau of Labor Statistics report showed unemployment was at a 49-year low. The news made investors happy, and the Nasdaq Composite and S&P 500 finished the week higher.
 

Data as of 5/3/19
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
0.2%
17.5%
12.0%
12.6%
9.3%
12.5%
Dow Jones Global ex-U.S.
0.3
11.8
-5.3
6.1
0.6
5.1
10-year Treasury Note (Yield Only)
2.5
NA
3.0
1.8
2.6
3.2
Gold (per ounce)
-0.4
-0.2
-2.8
-0.4
-0.4
3.5
Bloomberg Commodity Index
-1.1
4.1
-11.0
-1.5
-10.2
-3.7
DJ Equity All REIT Total Return Index
1.1
18.3
20.3
8.3
9.3
15.2
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, 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.
 
OVERLOOKED ECONOMIC INDICATORS. Last week, theFederal Reserve Open Market Committee statement indicated inflation was below target levels. The report stated, "On a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 2 percent."
 
A less respected economic indicator is telling a similar story about inflation. The Tooth Fairy Index confirms the value of a baby tooth isn't what it used to be. For the second consecutive year, the average monetary gift left behind by the Tooth Fairy was less generous. In 2018, it fell 43 cents to $3.70, on average.
 
There are regional differences. West Coast Tooth Fairies are, typically, more generous than Midwest tooth fairies. The regional numbers for 2018 looked like this:
 
  • $4.19 was the average payout on the West Coast. That's down 66 cents from $4.85 in 2017.
 
  • $3.91 was the average payout in the South. That's down 21 cents from $4.12 in 2017.
 
  • $3.75 was the average payout in the Northeast. That's down 60 cents from $4.35 in 2017.
 
  • $2.97 was the average payout in the Midwest. That's down 47 cents from $3.44 in 2017.
 
The first baby tooth lost continues to command a higher value than other teeth. It was worth $4.96, on average, across the country.
 
The non-monetary benefits of impending Tooth Fairy visits can be significant. They may include: 1) early bedtime in anticipation of the visit; 2) joy when compensated for a lost tooth; 3) a chance to discuss the importance of oral hygiene; and 4) the opportunity to teach kids about saving.
 
Weekly Focus - Think About It
 
"Joy, feeling one's own value, being appreciated and loved by others, feeling useful and capable of production are all factors of enormous value for the human soul."
--Maria Montessori, Italian physician and educator
 
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. * 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. * Consult your financial professional before making any investment decision.
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Weekly Market Commentary (April 3, 2019)

Weekly Market Commentary (April 3, 2019)
 
The Markets
 
"Fascinatingly counterintuitive..."
 
That's how Michael Arone, an investment strategist, described the U.S. market environment to Avi Salzman of Barron's:
 
"'Stocks are rallying, but bond yields are reflecting much lower growth.' Stocks rose during the quarter because the Fed backed away from raising interest rates, and investors grew more confident that the U.S. and China would sign a trade deal, Arone said. The market was also rebounding from a very rough fourth quarter - 'conditions at the end of the year were wildly oversold,' he noted."
 
Through the end of last week, the Standard & Poor's 500 Index was up more than 13 percent year-to-date, despite falling corporate earnings and modest consumer spending gains.
 
Consumer optimism may have played a role in U.S. stock market gains. The University of Michigan's Surveys of Consumers Economist Richard Curtin reported:
 
"...the last time a larger proportion of households reported income gains was in 1966. Rising incomes were accompanied by lower expected year-ahead inflation rates, resulting in more favorable real income expectations...Moreover, all income groups voiced more favorable growth prospects for the overall economy...Overall, the data do not indicate an emerging recession but point toward slightly lower unit sales of vehicles and homes during the year ahead."
 
The Bureau of Economic Analysis released its report on economic growth in 2018 last week. Real gross domestic product (GDP), which is a measure of economic growth after inflation, was revised down to 2.2 percent in the fourth quarter of 2018. Growth was up 2.9 percent for the year, though, which was an improvement on 2017's gain of 2.2 percent.
 
Slowing economic growth gives weight to bond investors' expectations, while consumer optimism supports stock investors' outlook. Divergent market performance and conflicting data make it hard to know what may be ahead. One way to protect capital is to hold a well-diversified portfolio.
 

Data as of 3/29/19
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
1.2%
13.1%
7.3%
11.3%
8.7%
13.7%
Dow Jones Global ex-U.S.
-0.3
9.4
-7.1
5.8
0.5
6.7
10-year Treasury Note (Yield Only)
2.4
NA
2.7
1.8
2.7
2.7
Gold (per ounce)
-1.2
1.1
-2.2
1.9
0.1
3.4
Bloomberg Commodity Index
-0.8
5.7
-7.3
0.7
-9.6
-2.8
DJ Equity All REIT Total Return Index
1.4
17.2
20.4
8.0
10.0
19.6
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.
 
HOW MUCH DOES IT COST TO MAKE MONEY?You may not have given it much thought, but it costs money to make money. In fact, the costs of the metals required to make some U.S. coins is higher than the value of the coins! George Washington and Abraham Lincoln might not approve, if they knew. Take this quiz to see what you know about the cost and value of U.S. coins.
 
  1. How much did it cost the U.S. Mint to make a U.S. penny in 2018?
    1. 0.5 cents
    2. 1.25 cents
    3. 2.06 cents
    4. 3.0 cents
 
  1. How much did it cost the U.S. Mint to make a U.S. nickel in 2018?
    1. 1.25 cents
    2. 4.97 cents
    3. 6.03 cents
    4. 7.53 cents
 
  1. What makes a coin valuable to a collector?
    1. Metal
    2. Age
    3. Rarity
    4. All of the above
 
  1. Which of these coins is the most valuable to collectors?
    1. 1849 Coronet Head Gold $20 Double Eagle
    2. 1913 Liberty Nickel
    3. 1943-D Lincoln Wheat Cent Penny
    4. 1835 Classic Head Gold $5 Half Eagle
 
Weekly Focus - Think About It
 
According to the Federal Reserve, the estimated lifespan of a $10 bill is 4.5 years. The estimated lifespans of a $5 and $1 bill are 5.5 years and 5.8 years, respectively. A $100 bill may last 15.5 years because it circulates less frequently.
 
Answers:
  1. It cost 2.06 cents to make a one-cent coin that few people use. A group of citizens has been encouraging the government to retire the penny.
  2. It cost 7.53 cents to make a nickel in 2018.
  3. All of the above.
  4. The 1849 Coronet Head Gold $20 Double Eagle is worth more than $16,600,000. It isone of the rarest U.S. coins.
 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. * 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. * Consult your financial professional before making any investment decision.
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Weekly Market Commentary (March 19, 2019)

Weekly Market Commentary (March 19, 2019)
 
The Markets
 

Stock and bond markets rallied.

 

Last week, major U.S. stock indices finished higher for the 10th time in 12 weeks. Bond markets moved higher, too, with the yield on 10-year Treasuries dropping just below 2.6 percent, reported Randall Forsyth of Barron's. Yields on 10-year Treasuries haven't been this low since January 2018.

 

The simultaneous rallies are curious because improving share prices are often an indication of a strong or strengthening economy. Improving bond prices tend to be a sign of weakening economic growth, reported Michael Santoli of CNBC.

 

Why are U.S. stock and bond markets telling different stories?

 

It may have something to do with investor uncertainty. A lot of important issues remain unsettled. The British government appears incapable of resolving Brexit issues, the United States and China have not yet reached a trade agreement, and recent economic reports have caused investors to take a hard look at the U.S. economy.

 

Barron's pointed out investors appear to be hedging their bets by favoring in utilities and other stocks that have bond-like characteristics and participate in the stock market's gains. An investment strategist cited by Barron's explained:

 

"The strength in utilities reflects the attitude of investors who 'don't really buy the rally'...While they're skittish, they still want to participate in the stock market rally but opt for its most conservative sector."

 

We've seen this before with stocks and bonds, according to a financial strategist cited by Patti Domm of CNBC. "It's a little bit of a funky correlation. We've had both things rallying, which is strange. This is what happened in 2017, when all asset classes did well. In 2018, nothing did well...I would suspect it goes away soon."

 

Times like these illustrate the importance of having a well-diversified portfolio.

 


Data as of 3/15/19

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor's 500 (Domestic Stocks)

2.9%

13.0%

2.7%

11.9%

8.7%

14.1%

Dow Jones Global ex-U.S.

2.6

9.9

-8.7

6.4

1.0

7.1

10-year Treasury Note (Yield Only)

2.6

NA

2.9

2.0

2.7

3.0

Gold (per ounce)

0.5

1.7

0.7

1.9

-1.1

3.6

Bloomberg Commodity Index

1.4

6.3

-6.6

1.2

-9.5

-2.7

DJ Equity All REIT Total Return Index

2.3

14.7

18.0

8.6

9.7

19.1

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.

 

GEN XERS AND MILLENNIALS: WHAT ARE YOUR PRIORITIES? The 2018 Insights on Wealth and Worth survey provided some startling information about the priorities of high net worth (HNW) investors. More than one-half (54 percent) indicated long-term capital appreciation was a higher priority than income generation. The other 46 percent were looking for steady income.

 

Let's look at the percentages by age group:

 

·         Millennials: 56 percent capital appreciation / 44 percent steady income

·         Gen X: 56 percent capital appreciation / 44 percent steady income

·         Baby Boomers: 56 percent capital appreciation / 44 percent steady income

·         Silent Generation: 46 percent capital appreciation / 54 percent steady income

 

Millennials (ages 21 to 37), Gen Xers (ages 38 to 53), and Baby Boomers (ages 54 to 72) prioritize steady long-term income to the same extent.

 

Older investors, who are near or are in retirement, tend to emphasize steady long-term income because they need to maintain their standard of living in retirement. However, one of the advantages of youth is these investors have the time and flexibility to take on higher levels of risk and recover from any market downturns. In other words, younger investors prioritize capital appreciation (i.e., growth) while older investors prioritize income.

 

It's important for younger investors to consider their life goals and how their finances may support the pursuit of those goals.

 

Weekly Focus - Think About It

 

"There are risks and costs to action. But they are far less than the long range risks of comfortable inaction."

--John F. Kennedy, 35th President of the United States

 

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. * 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. * Consult your financial professional before making any investment decision.
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Weekly Market Commentary

Markets were rattled last week.

 

The market hates surprises, especially when the surprise comes from a central bank. Last week, the European Central Bank (ECB) unexpectedly reversed course and took a more accommodative stance on monetary policy in an effort to encourage stronger European economic growth. Tom Fairless of Barron’s explained:

 

“Officials are seeking to shore up an economy that has been rattled by shocks ranging from a slowdown in China to mass protests in France and bottlenecks in Germany’s crucial auto industry. They are threading a careful path between providing sufficient support for the region’s softening economy while avoiding any appearance of panic, which could ricochet through financial markets.”

 

The Eurozone isn’t the only region feeling the pinch of weaker economic growth. China’s exports were down more than 20 percent in February, reported Investing.com. Analysts had expected a decline of about 5 percent. Concerns about the health of China’s economy have been growing since the publication of ‘A Forensic Examination of China’s National Accounts’ by the Brookings Institute. The authors concluded:

 

“First, nominal GDP [gross domestic product*] growth after 2008 and particularly after 2013 is lower than suggested by the official statistics. Second, the savings rate has declined by 10 percentage points between 2008 and 2016. The official statistics suggest the savings rate only declined by 3 percentage points between these two years. Third, our statistics suggest that the investment rate has [fallen] by about 3 percent of GDP between 2008 and 2016. Official statistics suggest that the investment rate has increased over this period.”

 

*Gross domestic product is the monetary measure of the market value of all goods and services produced annually in the country.

 

As if that weren’t enough, the U.S. jobs report for February reported far fewer jobs had been created than was expected.

 

It will come as little surprise to learn that major U.S. stock indices moved lower last week.

 


Data as of 3/8/19

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor's 500 (Domestic Stocks)

-2.2%

9.4%

0.2%

11.5%

7.9%

15.0%

Dow Jones Global ex-U.S.

-1.8

7.1

-10.6

6.1

0.1

7.9

10-year Treasury Note (Yield Only)

2.6

NA

2.9

1.8

2.8

2.9

Gold (per ounce)

-1.2

1.2

-1.8

0.8

-0.7

3.5

Bloomberg Commodity Index

-0.6

4.9

-8.1

0.9

-9.9

-2.6

DJ Equity All REIT Total Return Index

0.2

12.1

16.6

8.7

9.4

19.9

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, 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.

 

how do you reconcile the beige book and the labor report? If you have never heard of the Beige Book, it’s a scintillating tale of business and economics published by the Federal Reserve.

 

Okay, maybe it’s not scintillating, but it has some pretty interesting stories.

 

The March 2019 installation – it’s published eight times a year – includes real world stories about businesses and workers gathered by Federal Reserve Banks across the nation. For instance, the St. Louis Federal Reserve reported their contacts in higher education reported falling enrollment. It seems more potential college and post-graduate students have been choosing to go straight into the workforce.

 

The Beige Book reported, across the nation, “Labor markets remained tight for all skill levels, including notable worker shortages for positions relating to information technology, manufacturing, trucking, restaurants, and construction. Contacts reported labor shortages were restricting employment growth in some areas.”

 

Of course, labor is easier to come by in some districts than in others. The Boston Federal Reserve reported contacts in its district have a hard time finding skilled workers in fields like information technology, but retail businesses are having no trouble filling jobs.

 

Wages have been going up in the Cleveland Federal Reserve’s district. “Bankers raised wages both for low-wage and for high-wage positions, citing competitive labor markets. A couple of construction companies granted large retention-focused merit increases to office staff, but other companies mentioned that they tended to grant raises during busier seasons.”

 

Hiring was up in the San Francisco Federal Reserve’s territory. “Employment at a large San Francisco software and consulting company grew notably as demand for its services increased. A cattle ranching company in Arizona also increased employment to meet growing demand. In the Mountain West, a regional bank noted that its hiring was limited only by a shortage of qualified labor.”

 

In light of last week’s incredibly weak jobs report, the Beige Book’s findings seem odd that companies are having trouble hiring enough workers and are raising wages to attract them. How can so few jobs have been created when there is high demand for labor? (Economists’ rule of thumb is 100,000 jobs are needed to accommodate people entering the labor force each month, according to MarketWatch.)

 

An economist cited by MarketWatch commented, “One poor report should not set off alarm bells, but given that the labor market is the linchpin for the entire economy, it does add to existing concerns and raises the stakes for next month’s report.”

 

Weekly Focus – Think About It

 

“Hard work spotlights the character of people: some turn up their sleeves, some turn up their noses, and some don't turn up at all.”

--Sam Ewing, Professional baseball player

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