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Weekly Market Commentary (November 12, 2018)

The Markets
 
How are you feeling about financial markets?
 
Some votes are still being counted but investors appear to be happy with the outcome of mid-term elections. Major U.S. stock indices in the United States moved higher last week, and the American Association of Individual Investors (AAII) Sentiment Survey reported:
 
"Optimism among individual investors about the short-term direction of stock prices is above average for just the second time in nine weeks...Bullish sentiment, expectations that stock prices will rise over the next six months, rose 3.4 percentage points to 41.3 percent. This is a five-week high. The historical average is 38.5 percent."
 
Before you get too excited about the rise in optimism, you should know pessimism also remains at historically high levels. According to AAII:
 
"Bearish sentiment, expectations that stock prices will fall over the next six months, fell 3.3 percentage points to 31.2 percent. The drop was not steep enough to prevent pessimism from remaining above its historical average of 30.5 percent for the eighth time in nine weeks."
 
So, from a historic perspective, investors are both more bullish and more bearish than average. If Sir John Templeton was correct, the mixed emotions of investors could be good news for stock markets. Templeton reportedly said, "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria."
 
While changes in sentiment are interesting market measurements, they shouldn't be the only factor that influences investment decision-making. The most important gauge of an individual's financial success is his or her progress toward achieving personal life goals - and goals change over time.
 

Data as of 11/9/18
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
2.1%
4.0%
7.6%
10.2%
9.4%
11.7%
Dow Jones Global ex-U.S.
-0.3
-11.7
-9.4
3.2
0.3
4.7
10-year Treasury Note (Yield Only)
3.2
NA
2.3
2.3
2.8
3.8
Gold (per ounce)
-1.7
-6.6
-5.7
3.6
-1.1
4.9
Bloomberg Commodity Index
-1.2
-6.0
-5.2
-0.5
-7.7
-4.4
DJ Equity All REIT Total Return Index
3.5
2.3
1.2
8.2
9.6
13.9
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, 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.
 
IS A ZEAL OF ZEBRAS A BETTER INVESTMENT THAN A BLESSING OF UNICORNS? Collective nouns are the names we use to describe collections or significant numbers of people, animals, and other things. The Oxford English Dictionary offered a few examples:
 
  • A gaggle of geese
  • A crash of rhinoceros
  • A glaring of cats
  • A stack of librarians
  • A groove of DJs
 
In recent years, some investors have shown great interest in blessings of unicorns. 'Unicorns' are private, start-up companies that have grown at an accelerated pace and are valued at $1 billion.
 
In early 2018, estimates suggested there were approximately 135 unicorns in the United States. Will Gornall and Ilya A. Strebulaev took a closer look and found some unicorns were just gussied-up horses, though, according to research published in the Journal of Financial Economics.
 
The pair developed a financial model for valuing unicorn companies and reported, "After adjusting for these valuation-inflating terms, almost one-half (65 out of 135) of unicorns lose their unicorn status."
 
Clearly, unicorn companies must be thoroughly researched. There is another opportunity Yifat Oron suggested deserves more attention from investors: zebra companies. Oron's article in Entrepreneur explained:
 
"Zebra companies are characterized by doing real business, not aiming to disrupt current markets, achieving profitability and demonstrating it for a while, and helping to solve a societal problem...zebra companies...are for-profit and for a cause. We think of these businesses as having a 'double bottom line' - they're focused on alleviating social, environmental, or medical challenges while also tending to their own profitability."
 
Including both types of companies in a portfolio seems like a reasonable approach.
 
If you were to choose a collective noun to describe investors, what would it be? An exuberance? A balance? An influence?
 
Weekly Focus - Think About It
 
"In his learnings under his brother Mahmoud, he had discovered that long human words rarely changed their meanings, but short words were slippery, changing without a pattern...Short human words were like trying to lift water with a knife."
--Robert Heinlein, American science fiction writer
 
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 November 5, 2018

The Markets
 
Stocks recovered some ground last week and then stumbled over unemployment.
 
Major U.S. stock indices faltered Friday after the Bureau of Labor Statistics (BLS) reported on a popular 'lagging' economic indicator - unemployment. (Remember, lagging indicators describe what has happened in the past.) The BLS reported:1, 2, 3
 
"The unemployment rate remained at 3.7 percent in October, and the number of unemployed persons was little changed at 6.1 million. Over the year, the unemployment rate and the number of unemployed persons declined by 0.4 percentage point and 449,000, respectively."
 
Reuters reported the number of Americans receiving unemployment benefits was at the lowest level in 45 years. That's good news, but it's old news. Again, unemployment is a lagging indicator and the report reflected what happened in October.4
 
The stock market, on the other hand, is a 'leading' economic indicator. It moves in response to investors' expectations for the future - and recent gyrations suggest investors aren't certain what to think. Barron's Daren Fonda wrote, "The market's 6.9 percent slide in October and the stock averages' wild swings are testing everyone's mettle."2, 5
 
Economists are uncertain about what's to come, too. Kevin L. Kliesen, in an Economic Synopseson the St. Louis Federal Reserve website, wrote, "Historically, a trough in the unemployment rate also tends to be a reliable predictor of a business recession...an economic analyst is nonetheless never sure that a trough has occurred. Indeed, the unemployment rate can move up and down over the expansion."6
 
There is one thing many analysts think is likely. They expect the Federal Reserve to increase the Fed funds rate so the U.S. economy does not overheat. Paul Kiernan at The Wall Street Journalreported, "Robust hiring and wage gains last month leave the Federal Reserve all but certain to raise interest rates in December and on course to continue gradually lifting them next year."7
Higher interest rates are expected to keep inflation in check by slowing economic growth.8
 
Despite Friday's stumble, major U.S. stock indices finished the week higher.1
 

Data as of 11/2/18
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
2.4%
1.9%
5.6%
9.0%
9.0%
10.9%
Dow Jones Global ex-U.S.
3.9
-11.4
-9.3
2.7
0.1
4.8
10-year Treasury Note (Yield Only)
3.2
NA
2.4
2.2
2.6
3.9
Gold (per ounce)
-0.1
-5.0
-3.7
2.8
-1.4
5.4
Bloomberg Commodity Index
-1.3
-4.9
-3.2
-1.2
-7.4
-4.4
DJ Equity All REIT Total Return Index
0.8
-1.1
0.2
5.0
7.9
12.0
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; 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.
 
HERE'S AN UNEXPECTED RETIREMENT SAVING TRICK. If you're concerned your adult children are not saving enough for retirement, send them a photo of themselves that's altered so they appear to be older, perhaps age 60 or 70. (You can do this for yourself, too.)9
 
One reason Americans don't begin saving early enough, or save as much as they should for retirement, is 'present bias.' When asked to choose between two possible rewards, research shows that people tend to choose the one that will be received sooner.10
 
For instance, imagine you have chocolate and fruit salad. Which will you choose to eat today and which will you choose to eat next week? Researchers found that 83 percent of people chose chocolate today and fruit salad next week.11
 
Try this one.
 
You can watch one movie today and another movie tomorrow. Your choices include 'Anchorman,' 'Clear and Present Danger,' 'The Piano,' and 'Schindler's List.' What movie will you watch today? Which will you watch tomorrow?
 
Researchers found a higher percentage of participants chose to watch lighter films on the day they were asked and more intellectually taxing films later.12
 
When presented with the choice to vacation today or save for retirement, it's little surprise many people choose the former. The rewards associated with retirement are often far into the future. As a result, until a person is within a decade or so of retirement, it's easy to rationalize spending on other things and not setting aside money for the future.12
 
There is a way to overcome present bias. When people 'get to know' their older selves by spending time looking at altered photos, they tend to save more for the future.9
 
Weekly Focus - Think About It
 
"If we now care little about ourselves in the further future, our future selves are like future generations. We can affect them for the worse, and, because they do not now exist, they cannot defend themselves. Like future generations, future selves have no vote, so their interests need to be specially protected. Reconsider a boy who starts to smoke, knowing and hardly caring that this may cause him to suffer greatly fifty years later. This boy does not identify with his future self."
--Derek Parfit, British philosopher13
 
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.
Continue reading
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Weekly Market Commentary (October 29, 2018)

Weekly Market Commentary (October 29, 2018)
 
 The Markets
 
Why did the stock market fall when the economy is doing well?
 
The answer is that one reflects the past and the other anticipates the future.
 
Last Friday's advance estimate from the Bureau of Economic Analysis showed the U.S. economy grew 3.5 percent during the third quarter of 2018. Harriet Torry of The Wall Street Journal reported:
 
"The economy powered ahead in the third quarter, driven by robust consumer and government spending, though Friday's report included warning signs that the business sector faces turbulence that could hold back the expansion in the months ahead."
 
Third quarter's economic growth was slower than economic growth during the second quarter and stronger than economic growth during the first quarter of 2018.
 
Economists refer to economic growth as a 'lagging indicator.' It is a measure that may help confirm longer-term trends, but offers little information about the future.
 
In contrast, the stock market is a 'leading indicator.' It reflects what investors think may happen over the next few weeks or months. The volatility we've seen during the past two weeks suggests investors are uncertain about what may be ahead. Many factors are contributing to uncertainty. For instance, investors are concerned:
 
  • The U.S. economy may grow more slowly.Economic growth slowed during the third quarter and investors are uncertain whether the trend will continue through the remainder of 2018 and into 2019.
 
  • Negative earnings guidance from companies. Corporate earnings growth was robust during the third quarter. Through Friday, almost one-half of companies in the Standard and Poor's 500 Index had reported earnings and their blended earnings growth rate was 22.5 percent, according to FactSet. However, despite strong earnings growth, many companies' shares lost value. One reason is a fair number of companies have issued negative guidance indicating earnings may be weaker in the future.
 
  • Trade tensions could slow global growth. While trade disputes with Mexico and Canada have been resolved, trade issues between the United States and China remain. Al Root of Barron's reported:
 
"Now, on third-quarter calls, companies have begun to spell out tariff impacts in greater detail. Calculating the ultimate impact of tariffs isn't easy or precise. A fair calculation would include not only costs but also changes in demand and the possibility of supply-chain disruptions. The result could be significant. The International Monetary Fund lowered its global growth expectations when it released its recent outlook because of, in part, 'escalating trade tensions.'
 
  • Federal Reserve rate hikes could slow economic growth too quickly. The Fed has begun raising the Fed funds rates, encouraging interest rates higher, in an effort to keep inflation in check. Some are concerned the Fed may raise rates too quickly or too high and choke economic growth.
 
You have probably heard the saying, "Markets hate uncertainty." Recent volatility seems to be the result of uncertainty and it is possible uncertainty will cause stock markets to bounce around for some time.
 
When stock markets are volatile and headlines describe the action with words like 'plunge' and 'erase,' it's easy to let emotion get the better of you. Before making changes to your portfolio, please give us a call. We can discuss your concerns and any changes you would like to make to your long-term financial plan.
 

Data as of 10/26/18
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
-3.9%
-0.6%
3.8%
8.7%
8.6%
12.1%
Dow Jones Global ex-U.S.
-3.9
-14.8
-11.4
1.2
-0.8
6.0
10-year Treasury Note (Yield Only)
3.1
NA
2.5
2.1
2.5
3.7
Gold (per ounce)
0.5
-4.8
-3.1
1.9
-1.9
5.4
Bloomberg Commodity Index
-1.1
-3.6
-1.1
-0.8
-7.7
-4.0
DJ Equity All REIT Total Return Index
-1.1
-2.0
1.2
5.2
7.4
14.1
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.
 
IS THAT A FACT? A recent Pew Research Center survey found younger people (ages 18 to 49) were better able to distinguish facts from opinions than older people.
 
Jeffrey Gottfried at Pew reported, "About a third of 18- to 49-year-olds (32 percent) correctly identified all five of the factual statements as factual, compared with two-in-ten among those ages 50 and older. A similar pattern emerges for the opinion statements. Among 18- to 49-year-olds, 44 percent correctly identified all five opinion statements as opinions, compared with 26 percent among those ages 50 and older."
 
Pew concluded younger Americans, especially millennials, were better able to distinguish fact from opinion than older Americans because young people tend to be more digitally savvy and also tend not to have a strong affiliation to either political party.
 
If you're ready to test your acumen, visit the Pew Research Center website and search for 'Quiz: How well can you tell factual from opinion statements?'
 
Weekly Focus - Think About It
 
"I never considered a difference of opinion in politics, in religion, in philosophy, as cause for withdrawing from a friend."
--Thomas Jefferson, 3rd American President
 
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.
Continue reading
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Weekly Market Commentary (October 22, 2018)

Weekly Market Commentary (October 22, 2018)
 
The Markets
 
The world remains full of opportunities and challenges.
 
Although we've seen global markets moving in tandem in recent years, Sara Potter of FactSetpointed out, "...we're starting to see the end of the synchronized global growth that has prevailed over the last two years. While the U.S. economy remains strong, growth in Europe and Japan is moderating, and emerging markets are under increasing economic and financial market pressure."
 
Strong economic growth and robust earnings helped U.S. stocks significantly outperform other regions of the world during the third quarter of 2018. In addition, the resolution of some trade tensions, namely the signing of a United States-Korea trade deal and the renegotiation of NAFTA (North American Free Trade Agreement), helped soothe investor concerns, reported Jeffrey Kleintop of Schwab.
 
The trade relationship between the United States and China, however, remains an itchy rash marring the outlook for economic growth in both countries. The Economist Intelligence Unitreported:
 
"Since the start of 2018 trade policy has become the biggest risk to The Economist Intelligence Unit's central forecast for global economic growth. We now expect this risk to materialize in the form of a bilateral trade war between the United States and China, with negative consequences for global growth...The trade war comes at a challenging time for the Chinese economy...The trade war will also affect the U.S. economy...the escalating trade dispute with China will start to weigh on growth later in 2018 and into 2019 - we now expect growth to slow in 2019 to 2.2 percent (2.5 percent previously). The U.S. manufacturing and agricultural sectors, in particular, will be hit by the trade dispute, and rising interest rates will cause private consumption to slow."
 
China's economic growth slowed during the third quarter. The nation experienced its slowest growth since 2009, reported Reuters.
 
Chinese stock markets generally lost value. However, some Chinese indices performed better than others, depending on the type of stocks included in the index. For example, the MSCI China Index, which measures large- and mid-cap stocks of various share types that trade on the mainland and in Hong Kong, was down 8.45 percent during the quarter.
 
In contrast, the MSCI Red Chip Index, which is comprised of stocks that are incorporated outside of China, trade on the Hong Kong exchange, and are usually controlled by the state or a province or municipality, was up 3.25 percent for the quarter and flat year-to-date.
 
Emerging markets were weak performers overall during the third quarter, but there were bright spots. Schroders explained, "Turkey was the weakest index market amid a sharp sell-off in the lira...By contrast, Thailand recorded a strong gain and was the best performing index, with energy stocks among the strongest names. Mexico outperformed as the market rallied following general elections and an agreement with the United States on NAFTA renegotiation. Taiwan, where semiconductor stocks supported performance, also outperformed. Despite ongoing risk of new U.S. sanctions, Russian equities also finished ahead of the benchmark, benefiting from crude oil price strength."
 
Political strife continued to hamper the European Union and the United Kingdom during the third quarter. Overall company profits weren't particularly impressive in the region and neither was economic growth, reported BlackRock.
 
As the third quarter came to a close, Barron's conducted its Fall Big Money Poll. Vito Racanelli reported almost two-thirds of professional money managers from across the country said the U.S. stock market was fairly valued - and that was before the market slid lower early in the fourth quarter. While the money managers' assessment doesn't mean all U.S. stocks are fairly valued, there may be opportunities to invest in sound companies at attractive prices.
 
Trade tensions, inflation trends, and central bank monetary policy are likely to affect the performance of markets during the remainder of 2018 and into next year.
 

Data as of 10/19/18
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
0.0%
3.5%
8.0%
10.8%
9.7%
10.9%
Dow Jones Global ex-U.S.
-0.3
-11.4
-8.7
2.8
-0.1
4.3
10-year Treasury Note (Yield Only)
3.2
NA
2.3
2.0
2.6
3.9
Gold (per ounce)
0.7
-5.3
-4.6
1.5
-1.4
4.4
Bloomberg Commodity Index
-0.3
-2.5
0.7
-1.0
-7.7
-4.7
DJ Equity All REIT Total Return Index
3.1
-0.9
0.1
5.6
8.0
11.3
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.
 
NEW TREND: PETS AND FINANCIAL PLANNING. Animals have played important roles in human lives for centuries. They provide companionship, comic relief, work assistance, transportation, reassurance, protection, and food.
 
Today, emotional-support and service animals may be found in workplaces, beauty salons, cafes, theatres, airplanes, and many other places where our parents or grandparents would have been surprised to find them. Landlords charge pet rent, and some service animals qualify as a medical expense under Internal Revenue Service rules.
 
It is also becoming more and more common for pet owners to include pets in their financial planning goals. While you cannot leave your pet property, you can make arrangements to have your pet cared for after you are gone.
 
Last week, The Economist reported, "Two-thirds of all horse owners in America have made some provision in their wills for their pets, according to a survey by the American Pet Products Association. Over a third of American pet owners say they would pay for animal-related expenses by putting less into their retirement accounts. And, three-quarters of those buying a home said they would turn down an otherwise ideal property if it did not meet their animal's needs." In addition, pets can become beneficiaries of trusts.
 
Whether you think the idea of providing financial support for pets is silly or you wholeheartedly embrace it, the role of animals in the lives of many Americans is changing.
 
Weekly Focus - Think About It
 
"Animals are such agreeable friends - they ask no questions; they pass no criticisms."
--George Eliot (a.k.a. Mary Anne Evans), English Novelist
 
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 (October 15, 2018)

Weekly Market Commentary (October 15, 2018)
 
 
The Markets
 
Like an unexpected gust of wind that blows the hat off your head or flips your umbrella inside out, last week's stock market performance startled investors.
 
Looking back, it's easy to identify some of the factors that may have contributed to investors' unease and shaken confidence in the markets. Ben Levisohn of Barron's offered a brief rundown that included:
 
  • The yield on 10-year Treasuries rising to a seven-year high. As interest rates move higher, bonds become more attractive to investors who prefer to take less risk. They move money from stocks into bonds and that can push stock prices lower.
  • Federal Reserve Chairman Jerome Powell suggesting the Fed funds target rate could move higher. Investors worry the Federal Reserve is too hawkish and will raise rates too high, too quickly, causing economic growth to stumble.
  • A speech by Vice President Mike Pence indicating tensions with China may persist.Companies that export to China or manufacture goods in China are at risk if relations between China and the United States don't improve. Poor relations could affect profits, share values, and economic growth.
  • Earnings reports showing tariffs negatively affecting some companies' profit margins. FactSet reported, "the term 'tariff' has been mentioned during the earnings calls of 12 S&P 500 companies to date, with six of these 12 companies citing a negative impact linked to tariffs."
  • The International Monetary Fund (IMF) lowering its economic growth projections.Concern about the impact of trade tensions on companies around the world led the IMF to lower some of its economic growth estimates for 2018, especially in Asia and emerging markets.
 
Some analysts believe a desire to take profits also helped fuel the downturn, according to Barron's Randall W. Forsyth.
 
Whatever combination of events was responsible, the result was markets losing value on Wednesday and Thursday of last week before regaining some lost ground on Friday. Forsyth wrote, "What turned the U.S. markets around Friday - when the Dow and the S&P 500 managed to pop more than 1 percent and the NASDAQ Composite bounced over 2 percent - wasn't much clearer than what set off the slide. Market Semiotics' Woody Dorsey says that his proprietary sentiment polling found a bullish reading of absolute zero on Thursday, a contrarian indication that "panic" would be short-lived."
 
While sharp drops in share values are never comfortable, it's important to consider the bigger picture. A contributor to Bloomberg Opinion wrote, "This decline follows a market that has tripled since 2009, had zero volatility in 2017...This was the 20th time since the bear market ended in 2009 that the Standard & Poor's 500 Index had a one-day loss of 3 percent. The NASDAQ-100 Index had its eighth 4 percent down day (although it was the biggest one-day fall since August 2011)."
 
In other words, selloffs are normal and we have experienced them before.
 
So, what should you take away from last week?
 
  1. First, it was a reminder that stocks are volatile investments. They have the potential to deliver higher returns than other asset classes because they require investors to take higher levels of risk.
 
  1. Second, stock market volatility is one reason we allocate assets and build well-diversified portfolios. Holding different asset classes and diverse investments within a portfolio can help reduce the sting of unwelcome surprises like a sharp drop in the value of stocks.
 
  1. Worries about what the future may hold are likely to ruffle investors and we may see additional bouts of market volatility. The current bull market has been running for a long time. Some analysts anticipate recession and a bear market are ahead. As Barron'sreported, neither appears to be here yet:
 
"Other leading indicators, including jobless claims and credit spreads, also held up. 'I don't see this all leading to recession,' says Ed Yardeni, president of Yardeni Research. 'And, without a recession, I don't think we get a bear market.'"
 
No matter how intellectually rational these points seem, downturns tend to leave everyone feeling jittery and uncertain. So, take a moment. Think about your portfolio and how it was built to help you achieve your financial goals. Now, ask yourself:
 
  • Have my goals changed?
 
  • Has my risk tolerance changed?
 
If the answer to either of these questions is, 'Yes,' call us. We'll sit down, review your goals and risk tolerance, and make sure your portfolio is structured appropriately.
 
We're hoping for calmer markets ahead, but we may be in for a bumpy ride.
 

Data as of 10/12/18
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
-4.1%
3.5%
8.5%
11.1%
10.1%
10.7%
Dow Jones Global ex-U.S.
-3.6
-11.1
-8.3
3.0
0.5
4.3
10-year Treasury Note (Yield Only)
3.1
NA
2.3
2.1
2.7
3.9
Gold (per ounce)
1.3
-5.9
-5.5
1.6
-1.0
3.9
Bloomberg Commodity Index
-0.8
-2.2
1.3
-1.4
-7.6
-5.1
DJ Equity All REIT Total Return Index
-3.0
-3.8
-3.4
5.2
7.8
9.2
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron's, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
 
ON A LIGHTER NOTE...It's important to recognize when daily challenges affect our ability to cope and take steps to lower stress when they do. The Mayo Clinic recommends laughter, "Whether you're guffawing at a sitcom on TV or quietly giggling at a newspaper cartoon, laughing does you good. Laughter is a great form of stress relief, and that's no joke."
 
In the hope of offsetting some of last week's stress, here is humor from F In Exams: The Very Best Totally Wrong Test Answers by Richard Benson:
 
Question: What is a vibration?
Answer: There are good vibrations and bad vibrations. Good vibrations were discovered in the 1960s.
 
Question: What happens when your body starts to age?
Answer: When you get old your organs work less effectively and you can become intercontinental.
 
Question: What is a fibula?
Answer: A little lie.
 
Question: Give three ways to reduce heat loss in your home.
Answer: 1) Thermal underwear; 2) Move to Hawaii; 3) Close the door.
 
Question: You are at a friend's party. Six cupcakes are distributed among nine plates, and there is no more than one cake per plate. What is the probability of receiving a plate with a cake on it?
Answer: None, if my sister is invited too.
 
Question: Explain the dispersal of various farming types in the Midwest.
Answer: The cows and pigs are distributed in different fields so they don't eat each other.
 
Question: Name six animals that live specifically in the Arctic.
Answer: Two polar bears Three Four seals
 
Sometimes, laughter is truly the best medicine.
 
Weekly Focus - Think About It
 
"In the business world, the rearview mirror is always clearer than the windshield."
--Warren Buffett, American businessman, speaker, 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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Morgan Kenwood Advisors, LLC
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Greendale, WI 53129-1424
Phone: (414) 423-4020
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