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Weekly Market Commentary (February 8, 2016)

Weekly Market Commentary (February 8, 2016)
 
The Markets
 
There was bad news and good news in last Friday's unemployment report.
 
In the negative column, fewer jobs were created in the United States than economists had predicted, and January's jobs gains were not as strong as December's had been. In addition, the December jobs increase was revised downward from 292,000 to 252,000, according to Barron's.
 
On the positive side of the ledger, more than 150,000 new jobs were added in January. The unemployment rate fell below 5 percent for the first time since February of 2008 and earnings increased. In total, average hourly earnings have moved 2.5 percent higher during the past 12 months.
 
Good news plus bad news equals uncertainty. As we've seen, that's a state of affairs markets strongly dislike. In January, slower growth in China and low oil prices had markets in a tizzy. Last week, the Standard & Poor's 500 Index gave back more than 3 percent as investors tried to decide whether employment news indicated a rising risk of recession in the United States, according to Barron's.
 
When investors are emotional and markets are volatile, it can be helpful to remember the words of Ben Graham, author of The Intelligent Investor, who believed a company's intrinsic value should be measured by its operating performance rather than its share value. Warren Buffett shared Graham's thoughts on 'Mr. Market' in a 1987 shareholder letter. In part, it cautions:
 
"...Like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence."
 
So, how are companies performing? It depends on which you own but, during the current quarterly earnings season, most companies have reported earnings that exceed expectations. That's not something that tends to happen during recessions, according to Barron's.
 

Data as of 2/5/16
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
-3.1%
-8.0%
-8.9%
7.6%
7.3%
4.0%
Dow Jones Global ex-U.S.
-1.1
-8.0
-16.1
-4.0
-3.2
-0.8
10-year Treasury Note (Yield Only)
1.9
NA
1.8
2.0
3.6
4.6
Gold (per ounce)
3.5
8.3
-8.7
-11.8
-3.1
7.3
Bloomberg Commodity Index
-2.1
-3.8
-26.2
-19.1
-14.2
-7.8
DJ Equity All REIT Total Return Index
-2.4
-5.7
-10.0
7.1
9.4
6.1
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, 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.
 
setting an example for future generations... Do your children or grandchildren spend summers mowing lawns, repairing computers, or selling movie tickets? Perhaps, they have part-time jobs during the school year, bagging groceries, or working in a local shop. No matter the type of work done, if a young person has earned income, he or she can save in a Roth IRA.
 
While saving for retirement probably isn't even a blip on the radar for most young people, their older relatives are aware of the challenges related to saving for and generating income in retirement. Many also understand the importance of starting early - a task that has been made easier by custodial Roth IRAs. It is now possible to establish Roth IRAs for children who are younger than age 18, as long as they have earned income.
 
Communicating the importance of saving for retirement (and other goals) to younger family members is important, especially when the 2015 Employee Benefit Research Institute's Retirement Confidence Survey found about 39 percent of working Americans are not currently saving for retirement. Since actions often speak louder than words, a Time.com reporter offered this suggestion:
 
"Most kids will not have the ability or discipline to fund the account through their earnings. But adults can reward their hard work by contributing on their behalf. This demonstrates the value of saving...The additional saving is all the more important for young people, who will have fewer sources of guaranteed lifetime income in their retirement years."
 
Money Chimp's compounding calculator suggests a one-time $5,000 investment, earning 6 percent a year on average, would be worth more than $178,000 in 60 years. That could become tax-free income for a child or grandchild's retirement if the investment was in a Roth IRA. Please keep in mind, this is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical 6% return used is not guaranteed and does not reflect the deduction of fees and charges inherent to investing.
 
Of course, one attractive aspect of a Roth IRA account is the assets also can be used, penalty-free, for college tuition or the purchase of a first home, as long as certain requirements are met (including the account having been open for at least five years). About the Roth IRA - The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax.
 
Weekly Focus - Think About It
 
"Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying the wrong remedies."
--Groucho Marx, American 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 (February 1, 2016)

Weekly Market Commentary (February 1, 2016)
 
The Markets
 
How low can you go?
 
The Bank of Japan (BOJ) dove into the negative interest rate rabbit hole last week when it dropped its benchmark interest rate to minus 0.1 percent. If you've been following Japan's story, then you know the country has been struggling with deflation for almost two decades. The BOJ's goal is to push inflation up to 2 percent. MarketWatch explained the idea behind negative interest rates:
 
"Central banks use their deposit to influence how banks handle their reserves. In the case of negative rates, central banks want to dissuade lenders from parking cash with them. The hope is that they will use that money to lend to individuals and businesses which, in turn, will spend the money and boost the economy and contribut­­e to inflation."
 
If the idea of negative interest rates sounds familiar, it's probably because Europe has been delving into negative interest rate territory for a while. Several European central banks have adopted negative interest rate strategies, and about one-third of the bonds issued by governments in the eurozone offered negative yields at the end of 2015. It's an unusual state of affairs - offering investors bonds that pay less than nothing. If investors hold to maturity, they get back less than their investment amount.
 
While negative rates may not be pleasing to bond buyers, U.S. stock markets were thrilled by the BOJ's surprise rate cut. Major indices rose by about 2 percent on Friday.
 
Market performance was also boosted by a bad-news-is-good-news interpretation of weak fourth quarter U.S. gross domestic product (GDP) growth estimates. According to Reuters, slower growth in the U.S. economy raised investors' hopes the Federal Reserve would hold back on future rate hikes.
 

Data as of 1/29/16
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
1.8%
-5.1%
-4.0%
8.8%
8.6%
4.2%
Dow Jones Global ex-U.S.
2.2
-7.0
-13.6
-3.8
-2.6
-0.7
10-year Treasury Note (Yield Only)
1.9
NA
1.8
2.0
3.4
4.5
Gold (per ounce)
1.4
4.7
-12.4
-12.6
-3.5
7.0
Bloomberg Commodity Index
2.6
-1.7
-21.8
-18.2
-14.0
-7.8
DJ Equity All REIT Total Return Index
1.1
-3.4
-8.2
7.5
10.1
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; 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.
 
Does the stock market overreact? Some experts say it does. In 1985, Werner DeBondt, currently a professor of finance at DePaul University, and Richard Thaler, currently a professor of behavioral science and economics at the University of Chicago, published an article titled, Does The Stock Market Overreact?
 
The professors were among the first economists to study behavioral finance, which explores the ways in which psychology explains investors' behavior. Classic economic theory assumes all people make rational decisions all the time and always act in ways that optimize their benefits. Behavioral finance recognizes people don't always act in rational ways, and it tries to explain how irrational behavior affects markets.
 
DeBondt and Thaler's research, which has been explored and disputed over the years, supported the idea that markets tend to overreact to "unexpected and dramatic news and events." The pair found people tend to give too much weight to new information. As a result, stock markets often are buffeted by bouts of optimism and bouts of pessimism, which push stock prices higher or lower than they deserve to be.
 
In a recent memo, Oaktree Capital's Howard Marks reiterated his long-held opinion, "...In order to be successful, an investor has to understand not just finance, accounting, and economics, but also psychology." He makes a good point.
 
When markets become volatile, it's a good idea to remember the words of Benjamin Graham, author of The Intelligent Investor, who wrote, "By developing your discipline and courage, you can refuse to let other people's mood swings govern your financial destiny. In the end, how your investments behave is much less important than how you behave."
 
Weekly Focus - Think About It
 
"Keep your eyes on the stars, and your feet on the ground."
--Theodore Roosevelt, 26th 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 (January 25, 2016)

Weekly Market Commentary (January 25, 2016)
 
The Markets
 
Investors breathed a sigh of relief last week when U.S. stock markets recovered from a tumble toward bear market territory with the grace of a Cirque du Soleil performer. Many stock markets around the world finished the week with gains, although national indices in Europe and the United States fared better, generally, than those in Asia.
 
Bloomberg Business reported global stocks experienced their biggest gains in more than three years, while safe haven markets, including Treasuries, retreated*. Stocks moved higher on speculation the European Central Bank (ECB) will expand stimulus measures, the U.S. Federal Reserve may revise its rate hike intentions, and Japan and Asia also may take steps to support their markets. According tothe Financial Times:
 
"Sentiment turned in part because of dovish comments on Thursday from Mario Draghi, president of the European Central Bank, which many in the market viewed as signaling that further stimulus measures could be unveiled in March...The slide in U.S. equity markets and strengthening of the U.S. dollar have rapidly unraveled investor expectations that the Fed will be able to lift rates four times this year, as the central bank seeks to normalize policy. Instead, traders put the odds on just one rate rise this year."
 
A late-week rally in oil prices also helped push stock markets higher. The Financial Times reported crude oil hit a 12-year low midweek and then bounced more than 18 percent. While improving oil prices proved heartening to investors, Barron's pointed out prices have dropped because supply expanded ahead of demand. With growth in China slowing, it may take some time for supply and demand to balance.
 
*US treasuries may be considered "safe haven" investments but do carry some degree of risk including interest rate, credit and market risk.
 

Data as of 1/22/16
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
1.4%
-6.7%
-7.6%
6.2%
8.1%
4.2%
Dow Jones Global ex-U.S.
0.3
-9.0
-15.4
-4.1
-3.1
-0.7
10-year Treasury Note (Yield Only)
2.1
NA
1.9
1.8
3.4
4.4
Gold (per ounce)
0.2
3.2
-15.4
-13.4
-4.0
7.1
Bloomberg Commodity Index
2.4
-4.2
-25.9
-19.1
-14.1
-7.8
DJ Equity All REIT Total Return Index
1.3
-4.4
-9.1
7.4
10.4
6.4
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 college time! What will the money in a 529 college savings plan cover? If you have a child or grandchild who will be heading to college soon, and you have set up and contributed to a 529 College Savings Plan, it's almost time to tap into those funds.
 
The reason many people start tucking money aside in college savings plans when their children are young is any earnings grow tax-deferred in 529 plan accounts, and are federally tax-free (and often state tax-free) when withdrawn, as long as they're used for qualified education expenses for a designated beneficiary. Qualified expenses include tuition, fees, books, and room and board.
 
Recently, Congress passed legislation that made computers, Internet access, printers, scanners, education-related software (no games), and other peripheral equipment qualified expenses. Computers were qualified expenses previously, as long as the college required computers for attendance. Now, they qualify even if the school does not require them.
 
According to Kiplinger's, 529 plan savings can be used for room and board even if the account beneficiary lives off campus, as long as he or she is attending college at least half-time. While you don't have to document expenses for 529 plan administrators, it's a good idea to keep a record of all education-related expenses.
 
529 plans are a smart way to save and invest for college. Contributions may be state tax-free, and there is no limit to the amount you can contribute annually, according to SavingforCollege.com, but there are tax-related nuances to understand. During 2015, a parent or grandparent could contribute up to $14,000 per child or grandchild and qualify for annual gift tax exclusion ($28,000 if a spouse contributes, too.) If you prefer, you can make a lump-sum contribution of up to $70,000 per beneficiary, and spread it over five years for gift tax purposes.
 
* Please keep in mind, prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Non-qualified withdrawals may result in federal income tax and a 10% federal tax penalty on earnings.
 
To learn more about this college savings plan for your children or grandchildren, contact your financial professional.
 
Weekly Focus - Think About It
 
"Common sense is not so common."
--Voltaire, French writer, historian, and philosopher
 
 
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 (January 19, 2016)

Weekly Market Commentary (January 19, 2016)
 
The Markets
 
We all have our pet peeves, and if there is one thing markets do NOT like, it is uncertainty. Unfortunately, we entered 2016 with a lot of unanswered questions:
  • How much has China's growth slowed? How will the country's slower growth affect companies and investments around the globe?
  • How will the Federal Reserve's changing monetary policy affect the U.S. economy? How many times will it raise rates during 2016? Will the Fed change course?
  • Will oil prices continue to move lower? Will they move higher? How could changing oil prices affect economic growth?
  • How is the sharing economy (renting rooms in a home, offering rides for a price, sharing goods like automobiles and bikes) affecting economic growth in the United States?  
  • How will demographics - particularly the changing ratio of working people to retired people - affect economic growth?
  • How will geopolitical risks affect markets during 2016?
Amidst all of this uncertainty, the words 'market correction' (a drop of at least 10 percent in the value of the market) and 'bear market' (a drop of 20 percent or more in the value of the market) are being bandied about frequently. According to Barron's, the Standard & Poor's 500 Index finished last week in correction territory. So, are we headed for a bear market? That remains to be seen.
 
Bear markets often are accompanied by recessions, and few experts believe a recession is likely in the United States during 2016. Historically, there have been bear markets which have occurred without a recession. These have lasted, on average, for about five months. That's far shorter than the 20-month average length of bear markets that come in tandem with recessions.
 
One expert cited by Barron's commented on the market downturn, "If there's a silver lining, it's that the market is a lot cheaper than it was a few months ago. The S&P 500 trades at 15.9 times 12-month forward earnings forecasts...back where valuations were at the beginning of 2014. That means there are values to be had."
 

Data as of 1/15/16
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
-2.2%
-8.0%
-5.6%
8.5%
7.7%
3.9%
Dow Jones Global ex-U.S.
-3.4
-9.3
-14.1
-4.1
-3.3
-0.7
10-year Treasury Note (Yield Only)
2.0
NA
1.8
1.8
3.4
4.3
Gold (per ounce)
-0.7
3.0
-13.1
-13.3
-4.3
7.1
Bloomberg Commodity Index
-4.2
-6.5
-27.8
-19.3
-14.6
-8.0
DJ Equity All REIT Total Return Index
-2.7
-5.6
-8.5
7.4
10.0
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; 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.
 
INVESTING DURING THE PAST COUPLE YEARS HAS BEEN LIKEdriving down a rutted dirt road in a car with worn shock absorbers: fraught with jarring ups and downs. At times like these, it can be helpful to look back and realize we have weathered difficult markets in the past.
 
A good starting point may be August 1979 when the headline on the cover of BusinessWeek declared equities (stocks) were dead. The accompanying article explained, "The Dow Jones industrial average set its all-time high of 1051 in 1973, but since then it has sunk nearly 20 percent to its current 830." More recently, Bloomberg discussed the circumstances that led to the article:
 
"At the time the story was written, the stock market had sustained serious losses and the long-term health of the U.S. economy was a significant concern. The story has aroused some controversy over the years, as the stock market staged a strong comeback in the decades that followed its publication. But few, if any, market forecasters were willing to call such a recovery at the time, and the story provides a telling look at how inflation had ravaged the market landscape - and investor psychology - at the close of the 1970s."
 
Since the 1970s, we've weathered a few other crises of note:
  • On Black Monday, October 19, 1987, the Dow lost 22.6 percent of its value in a single day. Major U.S. indices finished the day at about:
    • o   Dow:1,739
    • o   Standard & Poor's 500 Index (S&P 500): 225
    • o   NASDAQ: 360
  • When the Dotcom bubble burst, the value of the NASDAQ Composite Index (which is sometimes considered a proxy for technology companies) bottomed on October 9, 2002. The major indices finished the day at:
    • o   Dow: 7,286
    • o   S&P 500: 777
    • o   NASDAQ: 1,114
  • On June 30, 2009, the month the Great Recession ended, the major indices closed at about:
    • o   Dow: 8,447
    • o   S&P 500: 919
    • o   NASDAQ: 1,835
  • Last week, after the worst start to a year on record, the major indices finished the week at about:
    • o   Dow: 15,988
    • o   S&P 500: 1,880
    • o   NASDAQ: 4,488
It's an uncomfortable fact, but stock markets can be volatile. They move up and down, although historically, market values have tended to increase over time. That's one reason it's important to build and maintain a well-allocated, diversified portfolio grounded in your risk tolerance and financial goals. Diversification does not assure a profit or protect against losses, but it may help reduce the impact of market fluctuations on the value of your portfolio over time.
 
Weekly Focus - Think About It
 
"The most difficult thing is the decision to act, the rest is merely tenacity. The fears are paper tigers. You can do anything you decide to do. You can act to change and control your life; and the procedure, the process is its own reward."
--Amelia Earhart, Aviation pioneer
 
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 (January 11, 2016)

Weekly Market Commentary

January 11, 2016

The Markets

The People’s Bank of China (PBOC) started the New Year with a downward currency adjustment and fireworks followed.

Last week, three distinct issues affected China’s stock market. First, the PBOC’s devaluation of the yuan (a.k.a. the renminbi), along with the knowledge the central bank had been spending heavily to prop up its currency in recent months, led many analysts and investors to the conclusion China’s economy might not be as robust as official reports indicated, according to the Financial Times.

Not everyone was surprised by this revelation. During the fourth quarter of 2015, The Conference Board’s working paper entitled Global Growth Projections for The Conference Board Global Economic Outlook 2016 reported:

“China’s economy grew much slower than the official estimates suggest in the recent years. During the last five years, our estimates suggest an average growth of 4.3 percent, which is substantially lower than the official estimate of 7.8 percent. In 2015, we project China to see an average growth of 3.7 percent, which is indeed lower than the official target of 7 percent.”

Second, state-run media made it clear the Chinese government would not step in to spur growth. Allowing market forces to play out is a requirement of the reforms international investors have been demanding of China, according to Barron’s. The publicationsuggested Chinese President Xi Jinping is the victim of a Catch-22. The Chinese government took steps toward reform and international investors responded by selling shares in a panic:

“Weaning China off excessive credit, investment and import-led growth in favor of services means slower growth. Markedly slower, in fact, than the 6.5 percent Beijing is gunning for this year. But Monday’s 7 percent stock rout shows international investors want it both ways. The rapid growth, innovation, and disruptive forces that capitalism produces? Yes. The downturns and volatility that come with it? Not so much.”

The third factor was China’s new and very strict stock market circuit breakers, which were introduced on January 4. The circuit breakers were intended to calm overheated markets, but they sparked panicked selling instead. When the Shanghai Shenzhen CSI 300 Index falls 5 percent, Chinese stock trading stops for 15 minutes. When the index is down 7 percent, trading stops for the day. A similar mechanism is employed in U.S. markets, which are far less volatile. However, trading is not delayed until the Standard & Poor’s 500 index has fallen by 7 percent, and it does not stop until the index is down by 20 percent. Last week, China’s stock markets closed twice as investors, who were worried the circuit breakers might kick in, rushed to sell shares.

China suspended its circuit breakers on Thursday, and the PBOC set the value of the yuan at a higher level. That helped China’s stock markets, and others around the world, settle. China’s markets gained ground on Friday, although U.S. markets finished the week lower. Markets may continue to be jittery next week as “a tsunami of negative psychology driven by China” works its way through the system, reported Reuters.


Data as of 1/8/16

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor's 500 (Domestic Stocks)

-6.0%

-6.0%

-6.8%

9.7%

8.7%

4.1%

Dow Jones Global ex-U.S.

-6.1

-6.1

-11.1

-2.6

-2.0

-0.5

10-year Treasury Note (Yield Only)

2.1

NA

2.3

1.9

3.3

4.4

Gold (per ounce)

3.7

3.7

-9.4

-12.7

-4.2

7.4

Bloomberg Commodity Index

-2.3

-2.3

-26.0

-17.8

-13.5

-7.6

DJ Equity All REIT Total Return Index

-3.0

-3.0

-4.6

8.8

11.1

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.

fourth quarter, a look back…

The Federal Reserve pulled the trigger. At the December Federal Open Market Committee meeting, the Fed finally acted, tightening monetary policy by raising the funds rate from 0.25 percent to 0.50 percent. It’s important to remember the Fed doesn’t actually set interest rates. It takes actions designed to influence financial behaviors. The Fed has given rates a push, it remains to be seen whether its efforts will bear fruit.

 

The European Central Bank (ECB) acted, too. Although, its monetary policy moved in a different direction, offering additional stimulus measures to support European economies.  Investors were enthusiastic when the ECB announced its intentions; however, markets were underwhelmed when the economic measures delivered were less stimulative than many had expected.

China’s currency gained status. The International Monetary Fund decided to add the Chinese yuan (a.k.a. the renminbi) to its Special Drawing Rights basket, effective October 1, 2016. After the renminbi is added, the U.S. dollar will comprise 42 percent of the basket, the euro will be 31 percent, the renminbi will be 11 percent, the Japanese yen will be 8 percent, and the British pound will also be 8 percent.

Congress tweaked Social Security. The Bipartisan Budget Act of 2015 (BBA) averted a U.S. default and deferred further discussion of U.S. debt and spending levels until after 2016’s presidential and congressional elections. It also did away with two popular social security claiming strategies. The restricted application strategy was discontinued at the end of 2015, and file and suspend strategies will be unavailable after May 1, 2016.

Medicare premiums go up, but not for everyone. The BBA also limited increases in Medicare premiums. About 14 percent of Medicare beneficiaries will pay higher premiums in 2016. The new premium will be $121.80, up from $104.90 in 2015. Original proposals suggested the premium amount increase to $159.30.

Weekly Focus – Think About It

“If you do not change direction, you may end up where you are heading.”

--Lao Tzu, Chinese philosopher

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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