U.S. stock markets finished last week in heady territory.

The Dow Jones Industrial Average closed at 18,003. Its all-time closing high is 18,312. The Standard & Poor’s 500 Index was less than 1 percent below its intraday trading record, which was set last year.

Despite strong stock market performance, optimism was in short supply.

Barron’s latest Big Money poll showed money managers are less bullish than they were last fall. Just 38 percent were bullish or very bullish about the prospects for stocks in coming months, 46 percent were neutral, and 16 percent were bearish. Their outlook varied by market. Overall, they were most enthusiastic about the United States, European, and emerging markets:

·         U.S. stocks: 72 percent bullish / 28 percent bearish

·         European stocks: 66 percent bullish / 34 percent bearish

·         Emerging markets stocks: 53 percent bullish / 47 percent bearish

·         Japanese stocks: 30 percent bullish / 70 percent bearish

·         Chinese stocks: 29 percent bullish / 71 percent bearish

The American Association of Individual Investors’ Sentiment Survey reported, when compared to money managers, investors are less neutral (43 percent) and more bearish (24 percent) a­bout what may happen during the next six months.

Current levels of pessimism might have inspired Sir John Templeton, a renowned contrarian investor. He once said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”

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 average, Americans spend 91 percent of their time indoors or in a vehicle. Just 7 to 8 percent of their time is spent outside. These were the findings of The National Human Activity Pattern Survey (NHAPS) which measures variation in human exposure to pollutants.

The findings do not bode well for Americans’ health because levels of pollution indoors are a lot higher than those outside and can cause serious health issues. They also are notable because researchers believe being outside has positive health effects:

“Research published in the Journal of Aging Health shows that getting outside on a daily basis may help older people stay healthy and functioning longer. Participants in the study who spent time outdoors every day at age 70 showed fewer complaints of aching bones or sleep problems, among other health-related problems, at age 77 than those who did not head outside each day.”

Being outside is thought to have benefits for people of all ages. These may include:

·         Greater optimism

·         Enhanced mental health

·         Improved attention spans

·         Stronger immune systems

Rearranging time budgets to include more outdoor activities could improve financial outcomes, too, since healthcare costs are a concern for many families, and these costs often increase as people age. The Bureau of Labor Statistics reported, on average, Americans spent about $53,500 in 2014. Almost $4,300 – about 8 percent – was spent on healthcare.

Weekly Focus – Think About It

“Everybody needs beauty as well as bread, places to play in and pray in, where nature may heal and give strength to body and soul.”

--John Muir, American environmentalist and author

* 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. * Stock investing involves risk including loss of principal.

Isn’t it remarkable that China’s growth is so consistent?

A columnist from The Washington Post once opined that China “produces an astonishing number of astonishing numbers.” Last week’s GDP announcement, which helped push markets higher, may fall into that category.

China’s official statistics agency reported the country’s gross domestic product (GDP) grew by 6.7 percent during the first quarter of 2016. That didn’t come as a big surprise because it’s smack-dab-in-the-middle of the official Chinese government target of 6.5 to 7.0 percent GDP growth. The target was set last year when the government adopted its most recent five-year plan.

Not everyone thinks China’s official statistics are on the money. The Conference Board (TCB), an independent global research association, has found:

“…an upward bias in the previously published GDP growth series of, on average, 2.6 percentage points per year since the start of Deng Xiaoping’s so-called “reform era” that began in 1978, this percentage has not been constant over time. In fact, our alternative series indicates much larger volatility in the year-on-year estimates (sometimes even showing faster growth rates than the official estimates), suggesting that the impacts of external and internal shocks on the Chinese economy are much more pronounced than the official statistics convey.”

In other words, China’s growth may not be as steadfast and unwavering as the country’s government would have us believe.

TCB estimated China’s GDP grew by 3.7 percent during 2015, which was significantly lower than the Chinese government’s 6.9 percent growth estimate. In fact, TCB expects the Chinese economy to grow by 3.7 percent in 2016, too. It’s not 6.5 percent, but it’s solid growth.

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.

what do economists think? As they’ve traveled across the country, U.S. Presidential candidates have made a variety of economic proposals and promises. National Public Radio’s Planet Money asked 22 economists from across the political spectrum for their two cents on the matter. Survey participants were given three options: good, debatable, or bad. Here are their opinions:

1.      End the “carried interest” tax break, which benefits hedge fund managers and private equity executives.

·         Good: 20

·         Debatable: 2

·         Bad: 0

2.      Lower the corporate tax rate to 25 percent.

·         Good: 10

·         Debatable: 10

·         Bad: 2 

3.      Create a “National Infrastructure Bank” seeded with public money to help finance infrastructure projects.

·         Good: 10

·         Debatable: 8

·         Bad: 4

4.      Make tuition free at public colleges and universities.

·         Good: 1

·         Debatable: 1

·         Bad: 20

5.      Make tuition free at community colleges for students who contribute earnings from working 10 hours a week.

a.       Good: 5

b.      Debatable: 9

c.       Bad: 8

6.      Impose a “spectator tax.” Stock trades will be taxed at 0.5 percent and bonds at 0.1 percent.

a.       Good: 4

b.      Debatable: 6

c.       Bad: 12

7.      Raise the federal minimum wage to $15 an hour.

a.       Good: 2

b.      Debatable: 4

c.       Bad: 16

8.      Remove single taxpayers who earn less than $25,000, and married taxpayers (and those filing jointly) who earn less than $50,000 – approximately over 50 percent – from the tax rolls.

a.       Good: 2

b.      Debatable: 9

c.       Bad: 11

9.      Everyone pays the same 10 percent tax rate. It retains some version of the earned income tax credit and deductions for lower-income families.

·         Good: 1

·         Debatable: 0

·         Bad: 21

10Expel immigrants who are in the United States illegally.

·         Good: 0

·         Debatable: 0

·         Bad: 22

We’ll find out what the American people think later this year!

Weekly Focus – Think About It

“And along the way I discovered that a lot of great originals in history were procrastinators. Take Leonardo da Vinci. He toiled on and off for 16 years on the Mona Lisa. He felt like a failure. He wrote as much in his journal. But some of the diversions he took in optics transformed the way that he modeled light and made him into a much better painter.”

--Adam Grant, Organizational psychologist

* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.  These risks are often heightened for investments in emerging markets. * 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. * Stock investing involves risk including loss of principal.

We all learned a thing or two about Panama last week.

The country is not the home of the Panama hat, which is made in Ecuador. However, it is the only place in the world where you can watch the sun rise on the Pacific Ocean and set on the Atlantic Ocean.

It’s also home to a lot of offshore companies, according to the millions of records leaked from the world’s fourth largest offshore law firm. The Guardian reported 12 national leaders were among 143 politicians, athletes, and wealthy individuals (including family members and associates) who were participating in offshore tax havens.

It’s not illegal to hold money in an offshore company, unless the company facilitates tax evasion or money laundering, reported The New York Times. Further investigation will be required to know whether that was the case. CNBC suggested financial markets could be affected if the findings lead to greater regulation of foreign banks or prosecutorial action against them.

While the Panama scandal captured a lot of attention, it didn’t have much of an impact on markets. News that the U.S. Treasury was cracking down on corporate inversions, along with indications the U.S. Federal Reserve may raise rates twice during 2016, caused stocks to dip late in the week. Some major U.S. indices finished the week lower. (Corporate inversions are mergers that give U.S. companies a foreign address and lower their tax rates.)

We may be in for another round of market volatility. Corporate earnings season is here. That’s the period when publicly traded companies report how well they performed ­­during the previous quarter. CNBC said, “Over the past 10 years, the emergence of first-quarter earnings reports has generally corresponded with a rise in volatility.”

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.

as carly simon used to sing, “we can never know about the days to come…”However, that doesn’t stop anyone from making educated guesses about the future of companies, financial markets, and economies. As we enter the second quarter, investment and business professionals have been offering their insights:

·         McKinsey & Company’s March Economic Conditions Snapshot indicated 80 percent of surveyed executives “…expect demand for their companies’ products and services will grow or stay the same in the coming months, and a majority believe (as they have in every survey since 2011) their companies’ profits will increase.” However, they are not as optimistic about the global economy as they were in December. About one-half of executives in developed and emerging markets said economic conditions globally are worse than they were six months ago.

·         The Wall Street Journal’s April 2016 Economic Forecasting Survey, which queries 60 economists, reported three-of-four survey participants expect a Fed rate hike in June. Few expect a recession during the next 12 months, putting the odds at 19 percent. Almost one-half stated global risks were the greatest threat to the U.S. economy, followed by financial conditions, a slowdown in consumer spending, falling corporate profits, and U.S. politics.

·         PIMCO’s Cyclical Outlook predicts China’s gross domestic product (GDP) growth may be in the 5.5 to 6.5 percent range. The target is 6.5 percent. In addition, a gradual devaluation of the yuan is possible, although China’s currency policy often produces unexpected twists and turns.

·         BlackRock Investment Institute’s second quarter outlook centered on three themes. First, returns are likely to remain muted in the future. Second, monetary policies appear to be less divergent, which could be a positive for some markets. Third, volatility may persist as the Federal Reserve normalizes monetary policy. Diversity and careful asset selection are likely to be critical in this environment.

While it’s interesting to read experts’ predictions and expectations for coming months and years, it’s important to remember forecasts are not always accurate. An organization that tracked forecasting results through 2012 found forecasts were correct about 47 percent of the time.

Weekly Focus – Think About It

“Do the right thing. It will gratify some people and astonish the rest.”

--Mark Twain, American author

* 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. * Stock investing involves risk including loss of principal.

It’s like déjà vu all over again!

This wasn’t the first quarter, or even the first year, that bond markets have not performed in the way Wall Street strategists have expected.

During 2014, bond yields were expected to rise. They did not.

During 2015, bonds were predicted to finish the year yielding about 2.8 percent to 3.3 percent. On December 31, they were at about 2.3 percent.

During the first quarter of 2016, despite persistent predictions yields would move higher after the Federal Reserve’s rate hike, yields fell and bond values increased. Government bonds delivered the strongest returns gaining 3.7 percent for the quarter, according to Bloomberg.

There is an inverse relationship between interest rates and bond prices. When rates move higher, bond prices move lower, and the value of investors’ holdings may fall. When rates move lower, bond prices move higher, and the value of investors’ holdings may increase.

The current bull market in bonds started in 1982. During January of that year, the 10-year U.S. Treasury yield was about 14.6 percent. Since then, rates on Treasuries have declined and investors have reaped the rewards of steadily rising bond values. 

The Federal Reserve began tightening monetary policy in December 2015 by raising the fed funds rate. Late in the month, the rate on benchmark 10-year Treasury bonds reached about 2.3 percent. However, after central banks in Europe and Japan loosened their monetary policies, yields on Treasuries moved lower. By the end of the first quarter of 2016, they were at about 1.8 percent.

Overseas, the picture was a bit more complicated. An expert cited by Bloomberg explained, “Of the five countries that performed best – Germany, Belgium, Denmark, Japan, and the United Kingdom – the two-year debt of all but the United Kingdom has negative yields.”

When bonds have negative yields, investors are paying to lend their money. Why would anyone do that? The Economist reported there are three types of investors who buy bonds when yields are negative: 1) central banks and other entities that must own government bonds, 2) investors who expect to make money when a country’s currency gains value, and 3) investors who would rather suffer a small loss in government bonds than risk a bigger loss investing in something else.

That something else might have been a stock market during the first month or so of the quarter.

Globally, stocks underperformed bonds, returning 0.4 percent for the first quarter of 2016. However, the end-of-quarter return doesn’t really tell the whole story. Fears of global recession, among other things, produced a wild ride for stock market investors during the first months of the year. Worldwide, stocks were down about 11.3 percent through mid-February, according to Barron’s, and then gained 13.2 percent to end the quarter slightly higher, overall.

The United States delivered strong returns for the period. Barron’s reported:

“Still, the United States fared a good deal better than other developed markets, with Europe down 2.4 percent, the United Kingdom off 2.3 percent, and Japan worse by 6.4 percent – a surprise because overseas markets were touted as the places to be. That is, except for emerging markets; but their results also confounded the seers, as they returned a robust 5.8 percent for the quarter.”

At the end of last week, the Bureau of Labor Statistics’ monthly jobs report showed more people were looking for jobs, increases in employment exceeded analysts’ expectations, and average hourly earnings had moved higher. These were positive signs for the U.S. economy.

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.

how do investors feel about stock markets? The American Association of Individual Investors (AAII) surveys investors weekly about whether they are bullish, bearish, or neutral on stock markets for the next six months. Last week, the majority of participants indicated they were neutral. There was less bullish sentiment than the previous week, but bulls maintained a slight edge over bears:

·         Bullish: 27.2 percent

·         Neutral: 47.1 percent

·         Bearish: 25.8 percent

The AAII also asked whether participants were better off, worse off, or as well off as they had been eight years ago (early in the Great Recession). More than one-half (54 percent) said they were better off. The remainder was almost evenly split. Twenty-four percent indicated they were not better off, and 23 percent said they were as well off.

Weekly Focus – Think About It

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way…”

--Charles Dickens, A Tale of Two Cities

* International debt securities involves special additional risks.  These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.  These risks are often heightened for investments in emerging markets. * 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. * Stock investing involves risk including loss of principal. 

Weekly Market Commentary (March 28, 2016)

Are corporations in the United States struggling?

In its cover article last week, The Economist (a British publication), suggested there is not enough competition among American companies. It pointed out:

“Aggregate domestic profits are at near-record levels relative to GDP…High profits might be a sign of brilliant innovations or wise long-term investments were it not for the fact that they are also suspiciously persistent. A very profitable American firm has an 80 percent chance of being that way 10 years later. In the 1990s the odds were only about 50 percent.”

At the end of last week, U.S. headlines indicated concern about declining corporate profits:

·         Consumers prop up U.S. economy, but profits under pressure

·         U.S. Fourth-Quarter GDP Revised Up to 1.4% Growth but Corporate Profits Fall

·         Corporate profits fall in 2015 for first time since Great Recession

·         U.S. Corporate Profits Fall 8.1% in 4th Quarter

So, are U.S. companies experiencing record profits or are they in trouble?

Last week’s press release from the Bureau of Economic Analysis indicated corporate profits (after inventory valuation and capital consumption adjustments) declined from the third quarter of 2015 to the fourth quarter of 2015; hence, the headlines.

However, a one-quarter decline doesn’t provide a complete picture of the health of corporate America. As CFO.com pointed out, over the full year, corporate profits were up 3.3 percent year-to-year.

Trading Economics offered additional context. From 1950 through 2015, U.S. corporate profits averaged about $395 billion annually. Profits hit a record low for that period, $14 billion, during the first quarter of 1951. Profits rose to an all-time high of about $1.64 trillion during the third quarter of 2014.

Fourth quarter’s profits of $1.38 trillion remain well above that average.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

If you could live anywhere, where would you live?  If cities are your cup of tea, then here is some good news. The 2016 Worldwide Cost of Living Report compares the prices of 160 products and services – from food and drink to domestic care and private schools – in cities around the world. It found the cost-of-living in many cities fell during 2015 thanks to lower commodity prices, weakening currencies, and geopolitical unrest.

Be warned: a lower cost-of-living doesn’t mean a city offers good value. Take Zurich, for instance. Remember the uproar when the Swiss unpegged their currency early in 2015? The Swiss franc realized double-digit gains, the Swiss stock market swooned, and the Swiss people went shopping in neighboring countries. Well, the cost of living in Zurich fell from September 2014 to September 2015, but the decline wasn’t proportionate to declines elsewhere in Europe, and Zurich currently reigns as Europe’s most expensive city.

In September 2015, the most and least expensive cities in the world were:

Most expensive:

·         Republic of Singapore

·         Zurich, Switzerland

·         Hong Kong, China

·         Geneva, Switzerland

·         Paris, France

Least expensive:

·         Chennai, India

·         Karachi, Pakistan

·         Mumbai, India

·         Bangalore, India

·         Lusaka, Gambia

Cities in the United States didn’t fare well, either. A strong U.S. dollar helped push all 16 of the U.S. cities that were in the survey up at least 15 places. New York and Los Angeles both rank among the 10 most expensive cities in the world.

Weekly Focus – Think About It

“The first step in the evolution of ethics is a sense of solidarity with other human beings.”

--Albert Schweitzer, Winner of the Nobel Peace Prize

* 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. * Stock investing involves risk including loss of principal.