Weekly Market Commentary – January 29, 2018

Weekly Market Commentary

The Markets

The numbers are coming in.

Publicly-traded companies report their earnings and sales numbers for the previous quarter in the current quarter. For example, fourth quarter’s sales and earnings are reported during the first quarter of the year, and first quarter’s sales and earnings will be reported during the second quarter, and so on.

Through last week, about one-fourth of the companies in the Standard & Poor (S&P)’s 500 Index had reported actual sales and earnings for the fourth quarter of 2017. As far as sales go, a record number – 81 percent – of companies sold more than expected during the fourth quarter. That was quite an improvement. FactSet reported:

“During the past year (four quarters), 64 percent of the companies in the S&P 500 have reported sales above the mean estimate on average. During the past five years (20 quarters), 56 percent of companies in the S&P 500 have reported sales above the mean estimate on average.”

The mean is the average of a group of numbers.

The money a company makes through sales is called revenue. For instance, if a lemonade stand sells 100 glasses of lemonade for $1 each, then the proprietors have earned $100. That is the stand’s ‘revenue.’ Of course, as every parent who has financed a lemonade stand knows, revenue doesn’t include the cost of the product. ‘Earnings’ are what the company has left after expenses – the bottom line. If every glass of lemonade cost 50 cents, then the stand’s earnings are $50.

Companies in the S&P 500 are doing pretty well on earnings, too. About three out of four companies have reported earnings higher than expected. Overall, earnings are 4.5 percent above estimates.

Through Friday, annual earnings growth for S&P 500 companies was 10.1 percent. It’s still early in the fourth quarter earnings season, but the data so far seem likely to confirm that 2017 was a bright, sun-shiny year for U.S. companies.

 

Data as of 1/26/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 2.2% 7.5% 25.1% 11.8% 13.9% 7.8%
Dow Jones Global ex-U.S. 1.9 7.0 28.2 7.8 5.5 1.6
10-year Treasury Note (Yield Only) 2.7 NA 2.5 1.8 2.0 3.6
Gold (per ounce) 1.4 4.4 13.7 1.8 -4.0 3.9
Bloomberg Commodity Index 2.6 3.0 2.9 -3.4 -8.4 -7.1
DJ Equity All REIT Total Return Index 1.7 -2.8 4.6 2.8 8.2 7.4

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

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

 What is the circular economy?  It is “a system that reduces waste through the efficient use of resources. Businesses that are part of the circular economy seek to redesign the current take/make/dispose economy, a model which relies on access to cheap raw materials and mass production. For example, car sharing addresses the inefficiency of privately owned cars – which are typically used for less than one hour a day,” explains Morgan Stanley.

Imagine not owning a car.  Clearly, it’s not something that would work everywhere. However, if you live in a city or town that has public transportation, ride sharing, car rentals, and bicycles, it’s possible. If you’re retired and you can organize your days in the way you like, it may even be sensible because owning a car is expensive. Transportation costs are the second highest budget item for most households, reports U.S. News. Housing costs top the list.

Giving up a car could help households save a lot of money.  According to AAA, owning and operating a new car in 2017 cost about $8,469 annually, on average, or $706 a month. Small sedans are the least costly ($6,354 per year), on average, and pickup trucks are the most expensive ($10,054 per year), on average, of the vehicles in the study. The calculations include sales price, depreciation, maintenance, repair, and fuel costs.  AAA’s estimate does not include insurance. In 2017, the national average premium for a full-coverage policy was $1,318 annually, according to Insure.com. Auto insurance premiums are highest in Michigan ($2,394) and lowest in Maine ($864).  Combining the averages, the cost of auto ownership is almost $10,000 a year. It’s food for thought.

 

Weekly Focus – Think About It

“Conservation is a state of harmony between men and land.”

–Aldo Leopold, American author and conservationist

Best regards,

John F. Reutemann, Jr., CLU, CFP®

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Investment advice offered through Research Financial Strategies, a registered investment advisor.

* The views and commentary expressed should not be construed as investment advice.

* 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.

* All indexes referenced are unmanaged. 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.

* Stock investing involves risk including loss of principal.

* Consult your financial professional before making any investment decision.

* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject line.

Sources:

https://insight.factset.com/record-percentage-of-sp-500-companies-beat-sales-estimates-for-q4

http://www.investinganswers.com/financial-dictionary/ratio-analysis/arithmetic-mean-2546

https://www.accountingcoach.com/blog/what-is-the-difference-between-revenues-and-earnings

https://insight.factset.com/sp-500-earnings-season-update-january-25

https://insight.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_012518.pdf (Page 18)

http://www.morganstanley.com/access/circular-economy

https://money.usnews.com/money/personal-finance/saving-budget/articles/2017-02-14/how-to-save-money-by-ditching-your-car

http://newsroom.aaa.com/tag/driving-cost-per-mile/

https://www.insure.com/car-insurance/car-insurance-rates.html

https://www.brainyquote.com/quotes/aldo_leopold_387729

 

Weekly Market Commentary – January 22, 2018

Last week, the United States government might as well have hung a sign on the front door of the Capitol that read, “Gone negotiating. We’ll be back in…however long it takes.”

In 2013, the U.S. government closed for 16 days. About 850,000 federal workers were furloughed and 6.6 million workdays lost. The shutdown affected private companies that worked with the government, too, and the U.S. economy took a hit.

The prospect of kicking off 2018 with a government shutdown didn’t appear to concern investors too much. Barron’s reported the Dow Jones Industrial, Standard & Poor’s 500, and NASDAQ indices all finished the week higher.

The lack of response from investors isn’t all that surprising. Geopolitical events – from the Brexit vote to the U.S. bombing Syria to the North Korean nuclear escalation – have had little lasting effect on markets. The president of a financial research firm told The New York Times, “geopolitical events may be widely feared, and there will often be a knee-jerk market reaction when they’re unexpected, but seldom do they have a lasting impact. Underlying economic trends and monetary policy are far more important.”

That has been the case with previous U.S. government shutdowns. However, Investor’s Business Daily (IBD) wrote this time might be different:

“Government shutdowns always have been primarily over government spending, but this one will be mostly over an ideological divide on immigration, with budget issues playing a secondary role. That raises the risk that the partial government shutdown could be a long one and have more serious economic consequences than investors expect.”

IBD suggested it wouldn’t be long before the negative economic effects of dysfunctional government consume any economic gains delivered by tax reform. That may provide an incentive for our elected officials.

 

Data as of 1/19/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.9% 5.1% 24.2% 11.6% 13.5% 7.9%
Dow Jones Global ex-U.S. 1.3 5.1 27.7 7.9 5.2 1.9
10-year Treasury Note (Yield Only) 2.6 NA 2.5 1.8 1.8 3.5
Gold (per ounce) 0.2 3.0 11.6 1.6 -4.6 4.4
Bloomberg Commodity Index -0.3 0.4 0.4 -4.5 -9.0 -7.1
DJ Equity All REIT Total Return Index 0.7 -4.5 3.7 3.1 7.9 8.1

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.

i’ll have an order of purchasing power parity, please! Purchasing power parity, or PPP, is a simple idea with a tongue twister of a name. When two countries have PPP, a basket of goods costs the same amount in both countries after the exchange rate has been factored in.

The Economist developed an entertaining measure of PPP. It’s called ‘The Big Mac Index.’ The index doesn’t measure a basket of goods. It simply considers the cost of a hamburger in 120 countries around the world. The index was updated for January 2018 and showed burger costs varied when translated into U.S. dollars. For example:

In Switzerland, a burger costs $6.26

In United States, a burger costs $5.28

In the Euro area, a burger costs $4.84

In Britain, a burger costs $4.41

In China, a burger costs $3.17

In Russia, a burger cost $2.29

 

The Economist reported:

“If the local cost of a [hamburger] converted into dollars is above $5.28, the price in America, a currency is dear; if it is below the benchmark, it is cheap. The average cost of a [hamburger] in the Euro area is €3.95, or $4.84 at the current exchange rate. That implies the euro is undervalued by 8.4 percent against the dollar.”

Overall, PPP is better aligned across the globe. One reason is the improving health of world economies. China remains the most undervalued currency among wealthier nations. In emerging markets, like Russia, currencies remain undervalued relative to the United States.

PPP provides economists with an apples-to-apples measure for comparing the wellbeing of countries and consumers.

Weekly Focus – Think About It

“For anything worth having one must pay the price; and the price is always work, patience, love, self-sacrifice – no paper currency, no promises to pay, but the gold of real service.

–John Burroughs, American naturalist and essayist

Best regards,

John F. Reutemann, Jr., CLU, CFP®

 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Investment advice offered through Research Financial Strategies, a registered investment advisor.

* The views and commentary expressed should not be construed as investment advice.

* 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.

* All indexes referenced are unmanaged. 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.

* Stock investing involves risk including loss of principal.

* Consult your financial professional before making any investment decision.

* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject line.

Sources:

https://www.investors.com/news/economy/why-this-government-shutdown-may-be-worse-for-the-economy-markets/ (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-22-18_Investors-Why_this_Government_Shutdown_may_be_Worse_for_the_Economy_and_Markets-Footnote_1.pdf)

http://online.wsj.com/public/resources/documents/b-econoday.htm (Click on U.S. & Intl Recaps and select “Data reinforce global growth expectations”) (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-22-18_Barrons-Global_Stock_Market_Recap-Footnote_2.pdf)

https://www.nytimes.com/2017/05/25/business/stock-market-politics-volatility.html

https://www.investopedia.com/updates/purchasing-power-parity-ppp/

https://www.economist.com/blogs/graphicdetail/2018/01/daily-chart-12?cid1=cust/ddnew/email/n/n/20180118n/owned/n/n/ddnew/n/n/n/nNA/Daily_Dispatch/email&etear=dailydispatch (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-22-18_TheEconomist-Return_of_the_Mac-Footnote_5.pdf)

https://www.economist.com/news/leaders/21735024-whether-currency-cheap-or-dear-not-always-good-guide-its-fortunes-it-now-value (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-22-18_TheEconomist-Value_Matters_Again_in_Currency_Markets-Footnote_6.pdf)

http://www.imf.org/external/pubs/ft/fandd/basics/ppp.htm

https://www.brainyquote.com/quotes/john_burroughs_150290

Weekly Market Commentary – January 16, 2018

  | Jan 16, 2018 | Weekly Market Commentary

The Markets

Inflation, inflation, where’s the inflation?

The U.S. Federal Reserve has been raising interest rates in anticipation of higher inflation.

In its 2018 forecast, Goldman Sachs indicated it expected to see “a gradual increase in global core inflation, albeit to levels that are still below central bank targets in most places.”

At year-end 2017, Barron’s wrote:

“Economists have raised the specter of inflation for several years, only to be disproved time and again. There’s reason to believe, however, that 2018 will be different – that prices will finally rise in a more sustained pattern, forcing stock- and bond-market investors to react to a new trend. ‘An unanticipated acceleration in inflation is probably the biggest risk for markets in 2018,’ says Larry Hatheway, chief economist at GAM Investments…Economists like Hatheway aren’t expecting runaway inflation, as in the days of disco and leisure suits, when prices rose by double digits. They’re girding for an annual increase of 2 percent to 2.5 percent at the most.”

Last week, data released by the Department of Labor showed U.S. inflation, as measured by the Consumer Price Index, ticked higher (0.1 percent) during December. With food and energy excluded, the index was up 0.3 percent. Shelter, which reflects the cost of rent, rose the most (0.4 percent). The indices for medical care, new vehicles, used vehicles, and vehicle insurance all increased during December.

Some publications are predicting December’s uptick in inflation will lead to a March rate hike by the Federal Reserve. It’s difficult to say with certainty, however, until January’s inflation report is released on February 14.

Data as of 1/12/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 1.6% 4.2% 22.7% 11.2% 13.6% 7.0%
Dow Jones Global ex-U.S. 0.9 3.7 26.1 7.8 5.0 0.6
10-year Treasury Note (Yield Only) 2.6 NA 2.4 1.9 1.9 3.8
Gold (per ounce) 1.2 2.8 10.6 2.9 -4.4 4.0
Bloomberg Commodity Index 1.0 0.7 0.3 -4.5 -8.7 -7.5
DJ Equity All REIT Total Return Index -3.1 -5.1 2.9 3.1 8.1 8.0

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.

How long do you want to live? In 2013, the Pew Research Center asked Americans about the ideal lifespan. More than two-thirds (69 percent) gave an age between 79 and 100. Four percent wanted to live to be anywhere from 101 to 120, and another four percent wanted to live beyond 120.

It’s interesting to note the lifespans named by survey respondents generally matched to some scientists’ predictions about the hardiness of humans. One of the authors of a much-debated article in the journal Nature reported, “It seems highly likely we have reached our ceiling…From now on, this is it. Humans will never get older than 115.”

A slew of billionaire investors falls into the dissenting camp. They’re starting companies and funding research with the goal of making death optional, reported The New Yorker.

LiveMint wrote: “Death is an old technology but, like the umbrella, it has endured…Most of the billionaires who have waged the war against ageing and death are from Silicon Valley because they are the sort of people who have been trained to believe that a problem, because it is a problem, must have a solution.”

While human longevity is interesting to think about, it also has some practical applications. For instance, the life expectancy chosen for a retirement plan should be carefully considered. It influences the amount saved, the investments chosen, and the retirement income withdrawn.

If you would like to talk about your retirement and how it factors into your financial plans, give us a call. 301-294-7500

Weekly Focus – Think About It

“It’s paradoxical, that the idea of living a long life appeals to everyone, but the idea of getting old doesn’t appeal to anyone.”  –Andy Rooney, American journalist

Best regards,

John F. Reutemann, Jr., CLU, CFP®

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Investment advice offered through Research Financial Strategies, a registered investment advisor.

* The views and commentary expressed should not be construed as investment advice.

* 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.

* All indexes referenced are unmanaged. 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.

* Stock investing involves risk including loss of principal.

* Consult your financial professional before making any investment decision.

* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject line.

Sources:

https://www.federalreserve.gov/monetarypolicy/files/monetary20171213a1.pdf

http://www.goldmansachs.com/our-thinking/pages/macroeconomic-insights-folder/2018-global-economic-outlook-as-good-as-it-gets/report.pdf (Page 1)

https://www.barrons.com/articles/what-inflation-could-mean-for-the-market-1514604543 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-16-18_Barrons-What_Inflation_Could_Mean_for_the_Market-Footnote_3.pdf)

https://www.bls.gov/news.release/cpi.nr0.htm

https://www.reuters.com/article/us-usa-economy/rising-rents-healthcare-costs-boost-underlying-u-s-inflation-idUSKBN1F11QD

https://www.ft.com/content/7ba28a3a-f7a5-11e7-88f7-5465a6ce1a00 (See Headline)

http://www.pewforum.org/2013/08/06/living-to-120-and-beyond-americans-views-on-aging-medical-advances-and-radical-life-extension/

https://www.nytimes.com/2016/10/06/science/maximum-life-span-study.html

https://www.newyorker.com/magazine/2017/04/03/silicon-valleys-quest-to-live-forever

http://www.livemint.com/Leisure/miPQTdrjDl5tcjflbG9z4I/What-happens-when-billionaires-seek-immortality.html

https://www.brainyquote.com/quotes/andy_rooney_417356?src=t_long_life