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Weekly Market Commentary (March 5, 2019)

Weekly Market Commentary (March 5, 2019)
 
The Markets
 
Is it a soft landing?
 
Economists use aviation metaphors to describe the results of central banks' efforts to manage rapidly growing economies. If the Federal Reserve lifts rates enough to prevent the economy from overheating without jolting it into recession, then it has engineered a soft landing, according to Investopedia. (Rate increases that drop a country into recession are hard landings.)
 
Ben Levisohn of Barron's thinks recent Fed actions may have produced the second soft landing in the history of the United States:
 
"...the Federal Reserve might have engineered a soft landing for the U.S. economy...When Chairman Jerome Powell abruptly decided that he would hold off on further rate hikes, the market responded as if a recession was no longer in the offing. And it probably isn't...There are also signs that the Fed, simply by taking a breather, has eased monetary conditions. The evidence: The yield curve is steepening. The difference between 30-year and two-year Treasury yields - the spread most correlated to money supply - has risen to about 0.6 percentage point, the highest since June..."
 
Not everyone agrees.
 
Last week, Economist Robert Shiller told Bloomberg, "The economy has been growing pretty smoothly...There are some signs there might be things amiss. The housing market is soaring and the stock market is high. It's been a long time that we've been in this recovery period and it wouldn't surprise me at all if there was a recession."
 
The Standard & Poor's 500 Index and Nasdaq Composite delivered slight gains last week, while the Dow Jones Industrial Average was flat.

Data as of 3/1/19
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
0.4%
11.8%
4.7%
12.3%
8.7%
14.9%
Dow Jones Global ex-U.S.
0.1
9.1
-8.0
7.3
0.7
7.8
10-year Treasury Note (Yield Only)
2.8
NA
2.8
1.8
2.6
2.9
Gold (per ounce)
-1.5
2.4
0.3
2.0
0.5
3.4
Bloomberg Commodity Index
-1.4
5.5
-8.2
2.1
-9.8
-2.3
DJ Equity All REIT Total Return Index
-1.6
11.9
19.6
8.7
9.1
19.6
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
 
HERE'S A BLAST FROM THE PAST. Depending on your age, the 1980s may be a nostalgic chapter in your life or the wellspring of amusing photos of your Miami-Vice clad, lace-gloved parents. The 80s are known for more than MTV, yuppies, sci-fi movies, and cell phones the size of shoeboxes, though. The decade marked the start of a new era in geopolitics as the Cold War ended and the Berlin Wall was dismantled.
 
The 1980s also brought a wealth of innovative new products that disrupted markets and changed the way people perform everyday tasks. Entrepreneur Magazine recently identified some of the decade's notable inventions, including:
 
  • The First Artificial Human Heart. Dr. Robert Jarvik's invention was used as a temporary solution for many people who were waiting for a human heart to become available for transplant.
  • Compact Disc (CD) Players. The first compact disc ever pressed was ABBA's 'The Visitors' reported Time Magazine. Not many people listened to CDs early on because of the cost. However, CDs eventually disrupted the market for vinyl records.
  • DNA Fingerprinting. This discovery enabled a person to be identified from just a few hair, skin, or blood cells which revolutionized forensic investigation.
  • Personal Computers and Software. At the start of the decade, technology visionaries Bill Gates and Steve Jobs - still in their twenties - were figuring out how to make computing accessible. Personal computers became more prevalent, along with floppy disks and CD-ROMs.
 
While the fashions have become obsolete, along with camcorders and CD players, many of the decade's inventions have proven more durable - and some have completely changed the way people interact with the world.
 
Which of this decade's inventions do you think could have a similar impact?
 
Weekly Focus - Think About It
 
"Don't let anyone rob you of your imagination, your creativity, or your curiosity. It's your place in the world; it's your life. Go on and do all you can with it, and make it the life you want to live."
--Mae Jemison, American engineer, physician, and NASA astronaut
 
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

The Market

 

Investors were pleased with the Federal Reserve’s (Fed) new approach to its balance sheet.

 

The Fed delivered its semi-annual Monetary Policy Report to Congress last week. The report recapped the events of late 2018 and reiterated the Fed’s intention to “…be patient as it determines what future adjustments to the federal funds rate may be appropriate to support the Committee's congressionally mandated objectives of maximum employment and price stability.”

 

In other words, rate hikes are on hold for now.

 

The Fed also addressed issues related to its balance sheet, which grew from $900 billion at the end of 2006 – about 6 percent of the United States’ gross domestic product (GDP) – to almost $4.5 trillion at the end of 2014 – about 25 percent of U.S. GDP. (GDP is the value of all goods and services produced in the United States in a given period.)

 

The balance sheet more than quadrupled during the past decade because the Fed began buying Treasuries and mortgage-backed securities, a policy called quantitative easing, in an effort to restore the U.S. economy to health, according to The Hutchins Center of the Brookings Institute.

 

Friday’s report indicated the Fed will not shrink its balance sheet to pre-crisis levels, reported Erwida Maulia for Financial Times. Markets responded positively to the news:

 

“U.S. stocks and Treasuries were comfortably higher at midday on Friday as the Federal Reserve signaled it will hold a much larger balance sheet in the long term than it did before the financial crisis, helping ease investor concerns about tightening financial conditions.”

 

Investors also remained optimistic about trade talks between the United States and China. Major U.S. stock indices finished the week higher.

 


Data as of 2/22/19

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor's 500 (Domestic Stocks)

0.6%

11.4%

3.3%

12.8%

8.6%

14.2%

Dow Jones Global ex-U.S.

1.7

9.1

-9.8

7.7

0.4

7.2

10-year Treasury Note (Yield Only)

2.7

NA

2.9

1.8

2.8

2.8

Gold (per ounce)

1.1

3.9

0.2

3.2

0.1

3.1

Bloomberg Commodity Index

1.4

7.0

-7.4

2.6

-9.3

-2.2

DJ Equity All REIT Total Return Index

0.0

13.7

20.5

10.7

9.7

18.8

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

salt water has an economic IMPACT due tosea levels rising at a more rapid rate during the past three decades, according to the U.S. Global Change Research Program’s Climate Science Special Report. Since 1900, sea levels have risen between 7 and 8 inches. Since 1993, they’re up 3 inches.

 

As levels continue to rise, people and companies around the world are likely to be affected. Morgan Stanley reported, “Many coastal cities around the world that look attractive to real assets investors – for example, Miami, New York, Boston, Osaka, Guangzhou, and Mumbai – are particularly vulnerable to flooding and other weather-related problems. And, infrastructure assets favored by investors, like airports, cell towers, and oil and natural gas pipelines, are often located in places prone to storms and extreme heat…Insurance will continue to be an important safeguard, but a limited one.”

 

Protecting property and improving infrastructure is likely to change demand for specific goods and services. Sarah Green Carmichael of Barron’s reported, “As we rush to protect basements and beach houses, companies in the home-improvement retail sector should benefit…So should companies that make products to cope with flooding, such as commercial-grade water pumps…Upgrades to infrastructure also mean good news for the construction sector…”

 

The textile industry – think fabrics and clothing – may also be affected since major exporters like Bangladesh, Indonesia, and the Philippines, which supply 10 percent of the textiles and clothing imported by the United States, are vulnerable to coastal flooding.

 

Sea level is a macroeconomic issue. It has the potential to affect output and income across the global economy. Investment managers who take a top-down approach to investing consider the ways in which macroeconomic factors, like changing sea levels, could affect the market as a whole, as well as the share prices of specific companies. Bottom-up investors take a different approach. They consider company fundamentals, such as management team and earnings growth potential, first.

 

Weekly Focus – Think About It

 

“They always say time changes things, but you actually have to change them yourself.”

--Andy Warhol, American artist

 

Best regards,

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Weekly Market Commentary (February 5, 2019)

Weekly Market Commentary (February 5, 2019)
 
 The Markets
 
And, U.S. stock markets celebrated.
 
Last week, the Federal Reserve put itself on hold. The Federal Open Market Committee met on Wednesday, January 30, 2019, to discuss the state of the economy and determine policy. After the meeting, Fed Chair Jerome Powell offered a positive assessment of U.S. economic strength that was leavened with a few concerns.
 
"We continue to expect that the American economy will grow at a solid pace in 2019, although likely slower than the very strong pace of 2018...Despite this positive outlook...Growth has slowed in some major foreign economies, particularly China and Europe. There is elevated uncertainty around several unresolved government policy issues, including Brexit, ongoing trade negotiations, and the effects from the partial government shutdown in the United States...We are now facing a somewhat contradictory picture of generally strong U.S. macroeconomic performance, alongside growing evidence of cross-currents. At such times, common sense risk management suggests patiently awaiting greater clarity..."
 
Through the end of last week, almost one-half of companies in the S&P 500 had shared fourth quarter 2018 earnings. FactSet reported the blended year-over-year earnings growth - which includes earnings for companies that have reported and earnings estimates for companies that have not yet reported - was 12.4 percent. That's lower than the 20-plus percent growth companies have delivered since late 2017. Analysts believe this is the waning effect of corporate tax cuts.
 
The Bureau of Labor Statistics reported fewer jobs were created in December than had been reported. Unemployment ticked higher for the month because of the government shutdown, reported Bloomberg. All of these could account for the reason the Federal Reserve held back on interest rate increases. Concern for further stimulating the economy was clearly an issue.
 

Data as of 2/1/19
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
1.6%
8.0%
-4.1%
11.8%
9.2%
12.6%
Dow Jones Global ex-U.S.
1.1
7.1
-14.8
6.7
1.3
6.2
10-year Treasury Note (Yield Only)
2.7
NA
2.8
2.0
2.6
2.7
Gold (per ounce)
1.9
2.9
-1.7
5.4
0.9
3.7
Bloomberg Commodity Index
-0.1
5.5
-9.9
2.2
-8.5
-3.0
DJ Equity All REIT Total Return Index
2.9
10.9
11.6
9.2
10.3
15.6
 
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not 
applicable.
 
 
HERE THEY ARE: SOME OF THE BEST INVENTIONS OF 2018. Time Magazine asked its editors and correspondents to nominate inventions that are making the world smarter and more fun. The magazine whittled down the suggestions to 50 inventions it considers to be the very best. They include:
  • Off-the-rack bespoke clothing. If you have ever found yourself between two sizes or have had difficulty figuring out women's swimsuit sizing, you'll appreciate an innovation offered by a Japanese retailer. All you have to do is put on one of the company's "...stretchy black bodysuits...covered in white dots, which enables consumers to make a '3-D scan' of their bodies in the comfort of their own home, via a companion mobile app." Once you've completed the scan, you can order custom-fit clothing. Next up: custom shoes.
 
  • Blankets that ease anxiety. Science suggests there is a connection between insomnia and anxiety - and we all know how important sleep is. Weighted blankets offer gentle pressure that may help soothe the nervous system and improve sleep, according to Time. Retailers suggest consumers opt for blankets with a weigh equal to 10 percent of body weight. Be forewarned. The blankets come with a hefty price tag.
 
  • A gravity-defying toolbox. If you're looking for the perfect Valentine's gift for a friend or family member who uses tools in tough environments, this might be a good choice. A former F-16 aircraft mechanic designed a flexible toolbox that stays on curved surfaces without slipping.
 
  • A compass that points to friends and family. If you stress over the possibility of a child or pet getting lost at a crowded event or in an unfamiliar place, you may appreciate these paired compasses. They use GPS technology, in tandem with long-wave radio frequencies, to help people keep track of each other.
 
Just for fun, check out the other inventions at Time.com.
 
Weekly Focus - Think About It
 
"The fact is that my brain goes out to play. That's what creativity is - intelligence having fun."
--Joey Reiman, American businessman
 
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

 
The Markets
 
Like competitors who've completed a difficult section in an endurance race, U.S. stock investors took a breather last week.
 
The Standard & Poor's 500 Index, which has gotten off to its best start since 1987, ended the week with a slight loss, while the Dow Jones Industrial Average and Nasdaq Composite finished slightly higher, reported Ben Levisohn of Barron's.
 
News the U.S. government shutdown would end, albeit temporarily, appeared to be of little interest to investors. Barron's suggested the markets' muted response to the government reopening was in balance with its response to the shutdown - there wasn't much of one. In fact, the S&P 500 has gained 10 percent since the federal government closed.
 
Despite apparent disinterest, the shutdown could negatively affect sentiment, according to Sam Fleming and Brooke Fox of Financial Times. They reported:
 
"The record-breaking US government shutdown is triggering ripple effects across the US economy and risks denting confidence among companies that have already been fretting about trade disputes and stock market turbulence. Shutdowns have historically had only fleeting economic effects, but Jay Powell, the Federal Reserve chairman, warned last week that a dispute that outlasts past impasses could begin to change the picture for the worse."
 
Last week, stock investors weren't all that impressed by earnings, either. Earnings indicate how profitable companies were in the previous quarter. At the end of last week, 22 percent of companies in the S&P 500 had reported earnings and, overall, they were 3 percent above estimates, according to John Butters at FactSet.
 
However, indications the Federal Reserve may decide to keep more Treasuries on its balance sheet than originally anticipated gave U.S. stocks a boost late in the week, reported Nick Timiraos of The Wall Street Journal. The Fed began shrinking its balance sheet in 2017 by letting Treasury and mortgage bonds mature. We'll know more after this week's Fed meeting.
 

Data as of 1/25/19
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
-0.2%
6.3%
-6.2%
12.4%
8.4%
12.3%
Dow Jones Global ex-U.S.
0.7
5.9
-16.7
7.5
0.6
5.9
10-year Treasury Note (Yield Only)
2.8
NA
2.7
2.0
2.8
2.6
Gold (per ounce)
0.8
1.0
-4.5
5.4
-0.7
3.6
Bloomberg Commodity Index
-0.4
5.7
-10.4
2.9
-8.4
-3.4
DJ Equity All REIT Total Return Index
1.4
7.7
6.3
8.8
9.7
15.2
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
 
WHAT IS GOING ON ACROSS THE POND? Last November, BBC commentator Chris Mason reflected the frustration of a nation with his report on the rapidly approaching deadline for the British exit from the European Union (EU). He said:
 
"So, where are we in all of this Brexit process...people like me are paid, aren't we, to have insights and foresights and hindsight about these things, to be able to project where we're going to go. To be quite honest, looking at things right now, I haven't got the foggiest idea what is going to happen in the coming weeks. Is the prime minister going to get a deal with the EU? Dunno. Is she going to be able to get it through the Commons? Don't know about that, either."
 
The report went viral.
 
Since then, we've gotten some answers. The Prime Minister did indeed negotiate a deal with the EU and, on January 15, the British Parliament soundly rejected it. Heather Stewart of The Guardian reported it was, "...the heaviest parliamentary defeat of any British prime minister in the democratic era."
 
The lack of an agreement in combination with a looming Brexit deadline - it's just 9 weeks out - has created tremendous uncertainty about the future of British trade with the EU. One response has been stockpiling goods. Last week, Sarah Butler of The Guardian reported three-fourths of warehouse space in the United Kingdom is at capacity.
 
One intrepid entrepreneur has been marketing Brexit survival kits that provide 30 days of food rations for £295 ($380). Reuters reported the kit includes, "...60 portions of freeze-dried British favorites: Chicken Tikka, Chili Con Carne, Macaroni Cheese and Chicken Fajitas, 48 portions of dried mince and chicken, firelighter liquid, and an emergency water filter."
 
As they say, necessity is the mother of invention.
 
Weekly Focus - Think About It
 
"Courage is like - it's a habitus, a habit, a virtue: you get it by courageous acts. It's like you learn to swim by swimming. You learn courage by couraging."
--Marie M. Daly, Chemist
 
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 22, 2019)

The Markets
 
We're off to a good start.
 
Investors who remained steady during December's wild ride are probably pleased with their decision as stocks have gotten off to a strong start in 2019. Unfortunately, those who reduced their exposure to the asset class may be feeling the sting of missed opportunity.
 
Last week, the Dow Jones Industrial Average gained about 3 percent. The Index is up 5.9 percent year-to-date, which is its best start in more than a decade, according to Ben Levisohn of Barron's. The Standard & Poor's 500 Index (S&P 500) and NASDAQ Composite also moved higher last week.
 
Barron's reported investors were encouraged by positive news about trade talks between the United States and China, as well as stronger-than-expected fourth quarter earnings. Eleven percent of S&P 500 companies have reported so far and, altogether, their earnings have beaten expectations by 3.2 percent, according to FactSet. (Quarterly earnings indicate how profitable a company was during the period being reported.)
 
The FTSE All-World Index also moved higher last week. It is up almost 8.5 percent for the year.
Richard Henderson, Emma Dunkley, and Robin Wigglesworth of Financial Times offered the opinion investors could have been overly pessimistic during December, and their change in attitude might be attributed to a more dovish tone at the U.S. Federal Reserve, as well as evidence the U.S. economy remains strong.
 
While investor confidence appears to be strengthening, consumer confidence wavered. The University of Michigan Survey of Consumers showed consumer confidence was lower in January 2019 than it was in January 2018. The Survey's Chief Economist Richard Curtin wrote, "The loss was due to a host of issues including the partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies."
 

Data as of 1/18/19
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
2.9%
6.5%
-4.6%
12.4%
7.7%
12.7%
Dow Jones Global ex-U.S.
1.3
5.2
-15.9
7.5
-0.2
5.6
10-year Treasury Note (Yield Only)
2.8
NA
2.6
2.0
2.8
2.4
Gold (per ounce)
-0.4
0.2
-3.6
5.6
0.5
4.4
Bloomberg Commodity Index
2.2
6.1
-8.2
3.4
-8.3
-3.0
DJ Equity All REIT Total Return Index
2.0
6.2
7.4
8.3
9.0
15.8
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
 
HOW MUCH WOULD THOSE BURGERS COST IN BRITAIN? Purchasing power parity, or PPP, is a straightforward idea with a tongue twister of a name. When two countries have PPP, people pay the same amount for the same goods, after adjusting for the exchange rate. For example, if one British pound is worth 50 U.S. cents, then an item that costs one British pound in the United Kingdom should cost 50 cents in the United States.
 
The Economist developed 'The Big Mac Index' to measure burger parity. It's an engaging way to look at local prices and exchange rates. The index measures the price of the seven-ingredient, double-decker burger in different countries and offers a rough estimate of whether a country's currency is overvalued or undervalued relative to the U.S. dollar.
 
In January 2019, the index served up the news that almost every currency, in developed and emerging economies, is undervalued relative to the U.S. dollar. The only countries with currencies that appear to be overvalued are Switzerland, Norway, and Sweden.
 
So, how undervalued are other countries' currencies?
 
  • The Canadian dollar is 8.9 percent undervalued
  • The European Union's euro is 16.8 percent undervalued
  • The British pound is 27 percent undervalued
  • The Chinese yuan is 45.3 percent undervalued
  • The Russian ruble is 70.4 percent undervalued
           
The Economist explained, "It is not unusual for emerging-market currencies to look weak in our index. But, today the dollar towers over rich and poor alike. The pound, for example, looked reasonably priced five years ago. Today, Americans visiting Britain will find that [burgers] are 27 percent cheaper than at home."
 
The U.S. dollar is stronger than usual because higher interest rates and tax cuts made American assets more attractive to investors than other assets in 2018, reported The Economist.
 
A strong dollar is a boon to travelers, who get more for their money in other countries. It also can make imports from other countries more attractive price-wise. There are disadvantages to a strong dollar, too. For example, it makes the United States a more expensive destination for travelers from other countries, which could discourage tourism. In addition, a strong dollar makes exports more expensive and that could make U.S. goods less competitive in overseas markets.
 
Weekly Focus - Think About It
 
"Wealth begins in a tight roof that keeps the rain and wind out; in a good pump that yields you plenty of sweet water; in two suits of clothes, so to change your dress when you are wet; in dry sticks to burn; in a good double-wick lamp; and three meals; in a horse, or a locomotive, to cross the land; in a boat to cross the sea; in tools to work with; in books to read; and so, in giving, on all sides, by tools and auxiliaries, the greatest possible extension to our powers, as if it added feet, and hands, and eyes, and blood, length to the day, and knowledge, and good-will."
--Ralph Waldo Emerson, American writer
 
Best regards,
Lee Barczak
President
 
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