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Weekly Market Commentary (July 23, 2020)

The Markets
 
Is the United States economy recovering or faltering?
 
It depends on who you ask and which data you consider. For example, last week, the Department of Labor reported fewer people applied for first-time unemployment benefits during the week of July 11. That could be a tick in the positive data column. Week-to-week the number declined from 1.31 million to 1.30 million. The lackluster decline could be a tick in the negative data column since the long-term weekly average is about 20 percent of that number.
 
There was positive news about progress on COVID-19 vaccines last week. The hope it inspired was tempered by reports the number of new cases continued to grow in a majority of U.S. states.
 
Concern about the resurgence of the virus negatively affected consumer sentiment during the first half of July. The University of Michigan Consumer Sentiment Survey reported, "The promising gain recorded in June was reversed, leaving the Sentiment Index in early July insignificantly above the April low (+1.4 points)."
 
Uncertainty is reflected in the divergent stories told by stock and bond markets.
 
The year-to-date return for the Standard & Poor's 500 Index moved briefly into positive territory last week before finishing slightly down, reported Financial Times. That's an impressive run for a benchmark that was down more than 30 percent in late March. Meanwhile, the tech-heavy Nasdaq Composite has been in positive territory for a while.
 
Last week, Mike Wilson, Chief U.S. Equity Strategist at Morgan Stanley said, "The bottom line, equity markets have been telling us growth is going to surprise on the upside."
 
Bond markets have been less optimistic. Yields on U.S. Treasuries remain exceptionally low, suggesting investors continue to seek safe havens amidst uncertainty about the future. On January 2, 2020, 10-year Treasury notes yielded 1.88 percent. Last week, the yield was 0.63 percent.
 
On a recent earnings call, Jamie Dimon, chairman of JPMorgan Chase, shared his thoughts on the state of the economy. "Can I just amplify it? In a normal recession unemployment goes up, delinquencies go up, charge-offs go up, home prices go down; none of that's true here...Savings are up, incomes are up, home prices are up. So you will see the effect of this recession; you're just not going to see it right away because of all the stimulus...you're going to have a much murkier economic environment going forward than you had in May and June, and you have to be prepared for that..."
 
Markets may remain volatile until the economic picture gains some clarity.
 

Data as of 7/17/20
1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) 1.3% -0.2% 8.1% 9.5% 8.7% 11.7%
Dow Jones Global ex-U.S. 1.2 -8.0 -2.2 -0.6 0.7 2.7
10-year Treasury Note (Yield Only) 0.6 NA 2.1 2.3 2.4 3.0
Gold (per ounce) 0.2 18.7 28.2 13.6 9.8 4.4
Bloomberg Commodity Index -0.2 -17.8 -16.5 -7.0 -7.4 -6.3
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; 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.
 
STOP MAKING CENTSYou may not have noticed, but there is a coin shortage in the United States. National Public Radio explained:
 
"Supermarkets and gas stations across the U.S. are asking shoppers to pay with a card or produce exact change when possible. [A big box store] has converted some of its self-checkout registers to accept only plastic. [A grocery chain] is offering to load change that would normally involve coins onto loyalty cards."
 
Social distancing, and other safety measures taken to slow the spread of COVID-19, also slowed the U.S. Mint's coin production. In June, the Federal Reserve began rationing coins, and convened a task force to investigate the issue.
 
With coins in the public eye, it may be time to resurrect the 'Kill the penny' movement, suggested Greg Rosalsky of Planet Money.
 
In 2019, 60 percent of the coins produced by the U.S. Mint were pennies. The majority of the Mint's coin-producing time was spent making about seven billion pennies. The problem is pennies cost more to produce than they are worth as currency.
 
According to the U.S. Mint's 2019 Annual Report, "The unit cost for both pennies (1.99 cents) and nickels (7.62 cents) remained above face value for the fourteenth consecutive fiscal year." In other words, the Mint lost more than $72 million making pennies last year.
 
How often do you use pennies and nickels?
 
Weekly Focus - Think About It
 
"Money often costs too much."
                                                                                                                                                                                                      --Ralph Waldo Emerson, Philosopher and essayist
 
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 (July 17, 2020)

The Markets
 
Please don't scream inside your heart.
 
Last week, a reopened Japanese theme park asked patrons to wear masks to help reduce the spread of coronavirus. It also asked them not to scream while riding the rollercoaster. "Please scream inside your heart," park management urged.
 
During 2020, stock markets in the United States have taken investors on an emotional rollercoaster ride. By late March, the Standard & Poor's 500 Index had lost more than 30 percent. The Index has since regained most of those losses, although there have been many ups and downs along the way.
 
The culprits behind market volatility have been fear and uncertainty, often inspired by twists and turns in the coronavirus saga. Last week, as stocks faltered and demand for U.S. government bonds surged, Eric Platt and Colby Smith of Financial Times reported:
 
"The strong demand for [safe] haven assets emerged after several U.S. states reported further increases in coronavirus cases, after Florida on Thursday recorded its largest death toll since the crisis spread to the United States. Some succor was provided to nervous investors on Friday after [a pharmaceutical company] released data showing its potential coronavirus treatment...had reduced mortality rates in early trials. That provided a bump to stocks and tempered the gains in Treasuries."
 
Volatile markets often cause investors to become uneasy. Sometimes, the emotional rollercoaster causes them to focus on short-term performance rather than long-term financial goals. Today, market fluctuations, in tandem with health concerns, work anxiety, and social distancing requirements, may trigger a stronger response than usual, making investors particularly vulnerable to the emotional biases within us.
 
If short-term market swings are making you restless or uncomfortable, don't keep it to yourself. This is a good time to re-evaluate your risk tolerance, review your financial goals, and make sure you have enough cash to meet current needs.
 

Data as of 7/10/20
1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) 1.8% -1.4% 6.4% 9.5% 8.9% 11.4%
Dow Jones Global ex-U.S. 1.4 -9.0 -3.1 -0.1 0.8 2.6
10-year Treasury Note (Yield Only) 0.6 NA 2.1 2.4 2.4 3.1
Gold (per ounce) 1.7 18.4 28.0 14.2 9.2 4.1
Bloomberg Commodity Index 1.5 -17.6 -17.2 -6.8 -7.7 -6.2
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; 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.
 
The coronavirus effect. COVID-19 has been reshaping Americans' financial habits. During the second quarter, credit card debt and personal savings data showed, overall, we were spending less and saving more than ever before.
 
In 2019, when a pandemic was a planning and preparedness exercise for epidemiologists, healthcare professionals, and health officials, the debt Americans accrued on credit cards increased between 2.5 and 4.6 percent each quarter.
 
Since COVID-19 arrived on our shores and began to spread, credit card debt has fallen dramatically. From January through March, it was down 7.6 percent (the seasonally adjusted annual rate). In early July, the Federal Reserve reported the numbers through May:
 
April 2020: - 64.8 percent (seasonally adj. annual rate)
May 2020: - 28.6 percent (seasonally adj. annual rate)
 
Lower spending may have contributed to higher savings. The personal saving rate (PSR) in the United States is the percentage of income left after people spend money and pay taxes each month. It increased dramatically in 2020:
 
            January 2020: 7.9 percent (seasonally adj. annual rate)
            February 2020: 8.4 percent (seasonally adj. annual rate)
            March 2020: 12.6 percent (seasonally adj. annual rate)
            April 2020: 32.2 percent (seasonally adj. annual rate)
            May 2020: 23.2 percent (seasonally adj. annual rate)
 
Some believe higher rates of saving are the result of lockdowns and will reverse quickly as states reopen. An analyst cited by Jessica Dickler of CNBC explained, "In a month with large government stimulus payments to the majority of U.S. households and widespread economic shutdowns that largely curtailed discretionary spending, the boost to income and the plunge in spending produced an outsized savings rate."
 
The shift in percentages from April to May appear to support the hypothesis. We won't really know whether Americans will continue to charge less and save more until the pandemic ends.
 
Weekly Focus - Think About It
 
"It's good to have money and the things that money can buy, but it's good, too, to check up once in a while and make sure that you haven't lost the things that money can't buy."
                                                                                                                                                                                                                                         --George Lorimer, 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 (July 10, 2020)

The Markets
 
What a quarter!
 
Who could have guessed a global pandemic would produce outsized stock market returns? Near the end of last quarter (March 23), the Standard & Poor's 500 Index was down 30.75 percent for the year, and it looked like 2020 was going to be a disappointing year for many investors.
 
Since then, the S&P 500 has gained 39 percent, reported The Economist. It rose 20 percent from March 31 to June 30. The Dow Jones Industrial Average also did well, delivering its second best quarterly showing since 1938. The Nasdaq Composite finished the quarter in positive territory.
 
A variety of factors contributed to the exceptional performance of U.S. stock markets during the quarter:
 
  • The Federal Reserve maintained a supportive monetary policy stance. It has been buying Treasuries and mortgage-backed securities and funding emergency loans.
  • The $2 trillion emergency spending package passed by Congress had impact. Stimulus checks, enhanced unemployment benefits, and emergency loans plumped personal income and supported businesses through second quarter closures.
  • Positive data suggested economic recovery might be underway. In the United States, unemployment numbers improved, although they remained at historically high levels. Factory activity in China hit a three-month high, and the June Purchasing Manager's Index in the United States came in above expectations.
 
Supportive central bank policies helped global economies during the second quarter, too. Stock markets in many regions, including Europe, China, and Japan, finished the second quarter higher. Positive economic data, optimism about coronavirus treatments, and hopes for a vaccine helped push markets higher, reported T. Rowe Price.
 
Consumer confidence also contributed. Callum Keown, Nicholas Jasinski, and Carleton English of Barron's reported:
 
"On Tuesday, the Conference Board reported an 11-point rise in the June consumer confidence index, to 98.1 points. Economists' consensus estimate had been for a 90.6 reading. American households remain more optimistic about the future than their current circumstances: the present situation index component of the survey rose 15.1 points, to 86.2, while the expectations index rose 9.1 points, to 106."
 
It is possible consumer confidence in the United States will be dented by the recent upsurge in coronavirus cases. Last week, the spread of COVID-19 was gaining momentum again. Every day, from Wednesday through Saturday, more than more than 50,000 new cases were confirmed.
 
Many states and cities implemented new measures to slow the spread. One of the most important may be mask wearing. Researchers at Goldman Sachs reported:
 
"Thus, the upshot of our analysis is that a national face mask mandate could potentially substitute for renewed lockdowns that would otherwise subtract nearly 5 percent from GDP. It is important to recognize that this estimate is quite uncertain because it is based on a number of statistical relationships that are all measured with error. Despite the numerical uncertainty, however, our analysis suggests that the economic benefit from a face mask mandate and increased face mask usage could be sizable."
 

Data as of 7/3/20
1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) 4.0% -3.1% 5.3% 8.8% 8.6% 11.8%
Dow Jones Global ex-U.S. 1.8 -10.3 -5.4 -0.7 0.3 2.9
10-year Treasury Note (Yield Only) 0.7 NA 2.0 2.3 2.4 3.0
Gold (per ounce) 1.5 16.4 25.4 11.5 8.7 3.9
Bloomberg Commodity Index 3.8 -18.9 -15.9 -7.6 -8.4 -6.3
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; 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.
 
Let's all go to the drive-in! Americans' search for socially-distanced entertainment is leading them to drive-in theaters. Demand has been strong enough that pop up drive-ins are opening in sports venues, arenas, and fairgrounds across the United States, reports Sara Fischer of Axios News.
 
In the 1950s, there were more than 4,000 drive-in theaters in the United States. By October 2019, the number had dwindled to 305. More than one-third were concentrated in Pennsylvania, New York, Ohio, Indiana, and California, according to the United Drive-In Theater Owners Association.
 
Outdoor movie theaters tend to operate on razor-thin margins, reported The Washington Post. "...Drive-ins in the 21st century have flourished in more working-class and rural areas where land is cheaper and the venue appeals to families seeking to pile in the car for a night of inexpensive entertainment."
 
Now, we're seeing a resurgence of interest in outdoor movie venues. The sponsor of the Tribeca Film Festival has partnered with big box stores. They'll be bringing "...the big screen to America's backyard this summer...," by offering movies in store parking lots.
 
So, set up the lawn chairs or deck out your cargo space with pillows and blankets, and settle in to watch some movies from a safe social distance in the great outdoors.
 
Weekly Focus - Think About It
 
"Outside of a dog, a book is a man's best friend. Inside of a dog it's too dark to read."
                                                                                         --Groucho Marx, Comedian
 
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 (June 30, 2020)

The Markets
 
Blame it on the coronavirus.
 
Stock markets in the United States and Europe retreated last week as the number of new COVID-19 cases increased steadily in America. On Thursday, there were more than 44,000 new cases, the highest daily total to date, according to data from the Centers for Disease Control.
 
"The turn has created a new puzzle for investors, many of whom had started focusing on 2021 earnings expectations as the next performance-driver for stocks. The old market gauges, like manufacturing surveys, jobs tallies, and retail sales, feel like lagging indicators. The new leading indicators deal with the disease. Yet tracking its progress is tricky even for epidemiologists who have studied these issues for decades," reported Avi Salzman of Barron's.
 
Another piece of the investment puzzle was reshaped when the Federal Reserve (Fed) released bank stress test results last week. It found most banks were likely to remain well-capitalized if economic growth rebounds relatively quickly. However, in a worst-case economic recovery scenario, banks did not fare as well. Consequently, the Fed suspended share buybacks and capped the dividends banks can pay investors, reported Alexandra Scaggs of Barron's.
 
"The Fed...also said future payouts would depend on bank earnings - and bank earnings will start to look worse as pre-coronavirus quarters drop out and are replaced by COVID-impaired results. Even that decision might not have been a problem if the market believed the spread of COVID was under control. Then the numbers started coming out. Florida's seven-day average of cases grew 7.8 percent, up from the previous day's 4.1 percent. Arizona's jumped to 5.4 percent, from 2.9 percent. In Texas, the positivity rate - that is, the number of tests divided by positive results - hit 11.8 percent," reported Ben Levisohn of Barron's.
 
Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, dispelled the notion this is a second wave of the virus. He told The Wall Street Journal, "People keep talking about a second wave...We're still in a first wave."
 

Data as of 6/26/20
1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) -2.9% -6.9% 3.3% 7.3% 7.4% 10.9%
Dow Jones Global ex-U.S. -1.1 -11.9 -5.7 -1.4 -0.5 2.3
10-year Treasury Note (Yield Only) 0.6 NA 2.1 2.1 2.5 3.0
Gold (per ounce) 0.7 14.8 24.5 12.0 8.4 3.3
Bloomberg Commodity Index -2.1 -21.8 -21.1 -7.5 -9.0 -6.9
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; 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.
 
College sports budget cuts. College and university campuses across the world are facing serious financial shortfalls. "Revenues are plummeting as students (particularly international ones) remain home or rethink future plans, and endowment funds implode as stock markets drop," reported Alexandra Witze in Nature.
 
One way some schools are trying to balance budgets is by cutting sports programs. Kendall Baker of Axios News reported athletic directors and conference commissioners are brainstorming ways to lower spending, including reducing travel by focusing on regional play and eliminating conference championship tournaments. The sports affected may include:
 
  • Field hockey
  • Men's and women's soccer
  • Men's and women's tennis
  • Women's lacrosse
  • Softball
  • Baseball
 
During the past 12 weeks, 43 Division I teams have been eliminated from the NCAA, reported Baker. "Men's and women's tennis have been hit the hardest, as have Olympic sports like volleyball. That could affect future podiums: 88 percent of American athletes in the Rio Games had played their sport in college."
 
Power 5 conferences, which include the Atlantic Coast, Big 12, Big Ten, Pac-12, and Southeastern Conferences have not yet eliminated a sports team. That may change if the highly lucrative football season is cancelled due to COVID and television deals, which account for about a third of revenue, disappear.
 
A source cited by Ross Dellenger and Pat Forde of Sports Illustrated suggested the accounting may deserve a closer look. So-called 'non-revenue generating' sports often generate income for colleges and universities because many athletes pay tuition:
 
"While trimming their own budget, athletic directors are often hurting their university's bursar office. Sure, eliminating a men's track team might save $1 million a year in the athletic budget, but what is it costing the academic side...A track team could be generating over $1 million to the university side."
 
Weekly Focus - Think About It
 
"Do not judge me by my successes, judge me by how many times I fell down and got back up again."
                                                              --Nelson Mandela, Former President of South Africa
 
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 (June 22, 2020)

The Markets
 
Could it be the upside surprises?
 
U.S. stock markets have marched higher despite a pandemic, an economic downturn, and social justice protests - and a lot of people have wondered why.
 
Greg Rosalsky of Plant Money spoke with Nobel Prize-winning economist Robert Shiller about, "...the mass psychology of a gazillion buyers and sellers, who each are telling themselves their own stories about why they're making the trades they're making."
 
Rosalsky and Shiller discussed some narratives that purport to explain recent market performance, including: 
  • Quarantine boredom. Matt Levine of Bloomberg has postulated "...a lot of individual investors buy stocks mainly because it's fun, and that the more fun stocks are, and the less fun everything else is, the more they'll buy stocks. In a pandemic, when people can't really leave their house and sports are canceled, there is a lot less fun to be had elsewhere...so people buy more stocks." 
  • Big, publicly-traded companies are safe. This theory suggests businesses hit hardest by the economic downturn often are not traded on stock exchanges. In a separate article, Rosalsky cited former technology executive Eric Schmidt who wrote, "Gigantic corporations, which have deep pockets, fancy accountants, huge legal teams, and access to international financial markets, are also better equipped to weather shocks than your local hardware store or small manufacturing company." 
  • Don't fight central banks. "The Fed is using its unlimited money-printing machine to single-handedly prop up the stock market. 'The Fed is itself an important narrative,' Shiller says. In reality, he says the Fed's magic over the real economy is limited. But its statements clearly move markets, and it has lots of power as a storyteller," reported Rosalsky. 
On Saturday, Lisa Beilfuss of Barron's offered another narrative. She reported:
 
"...upside economic surprises over the past two weeks - mortgage applications hit the highest level since 2008, retail sales rose at the fastest pace ever, and U.S. businesses added 2.5 million jobs in May instead of cutting an anticipated eight million, to name a few - are even better than they look and offer at least some proof that the stock-market rebound was driven by expectations for improving fundamentals...It's about the magnitude of the surprises versus Wall Street's expectations."
 
We don't know which narratives were responsible, but major U.S. stock indices moved higher last week.

Data as of 6/19/20

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor's 500 (Domestic Stocks)

1.9%

-4.1%

5.9%

8.1%

8.0%

10.8%

Dow Jones Global ex-U.S.

1.8

-10.9

-4.1

-1.1

-0.1

2.1

10-year Treasury Note (Yield Only)

0.7

NA

2.0

2.2

2.3

3.2

Gold (per ounce)

0.1

13.9

29.1

11.6

8.1

3.3

Bloomberg Commodity Index

1.4

-20.2

-17.0

-7.2

-8.4

-7.0

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; 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.
 
WHAT DO YOU THINK? In recent years, we've learned a lot about why investors do the things they do. For instance, we now know investors are not the omniscient, rational decision-makers economists believed them to be. Investors have built-in biases that sometimes cause them make errors in thinking.
 
One of those biases is known as confirmation bias. Investors (and non-investors) have a tendency to seek data that reinforces their beliefs and ignore data that suggests they're wrong. Recently, sentiment data has been published that supports diverse ideas about the direction of the economy and stock markets. For example: 
  • Consumer sentiment was up month-to-month, suggesting Americans were more optimistic about their personal finances and current economic prospects in June than they were in May. However, sentiment remains down year-to-year and below the baseline, which is consumer sentiment in 1966 (the year the survey began).
  •  Investor sentiment was down week-to-week. Almost one-half of participants (47.8 percent) in the American Association of Individual Investors (AAII) Sentiment survey were feeling bearish last week, while one-fourth (24.4 percent) were feeling bullish. The bulls were down 9.9 percent week-to-week, and the bears were up 9.7 percent week-to-week. Some investors consider the AAII survey to be a contrarian indicator, meaning they think the survey's prevailing sentiment is incorrect. In this case, contrarians would be bullish.
  •  Money managers think the market is overvalued. Bank of America surveyed 212 money managers with $598 billion under management and reported 78 percent think the stock market is pricey. Survey participants indicated the most crowded trades were U.S. technology and growth stocks, reported John Melloy of CNBC. 
When data supports varied opinions, how can investors avoid mistakes? One of the best ways is to work with an advisor who has a clearly defined process and who will help you develop a plan to meet your financial goals.
 
Weekly Focus - Think About It
 
"A public-opinion poll is no substitute for thought."
--Warren Buffett, Investor and philanthropist
 
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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