Weekly Market Commentary – June 25, 2018

What time is it?   The yield curve may be the pocket watch of economic indicators. It’s been around for a long time and it’s often right, but not always.  The yield curve is the difference between the interest paid on two-year government bonds and 10-year government bonds. In normal circumstances, an investor would expect to earn a higher rate of interest when lending money to a government for 10 years than when lending money for two years because there is more risk associated with lending for a longer period of time.  When the yield curve flattens or inverts, it suggests a shift in investors’ expectations. Financial Times explained:  “The slope made up of bond yields of various maturities has a record of predicting recessions that would make even the savviest econometrician turn pea-green with envy. It is not perfect, but the curve has become flat and inverted – when short-term bond yields are actually higher than long-term ones – ahead of most economic downturns in most major countries since the second world war.”

In the United States last week, the difference between yields on 2-year Treasuries (2.56) and 10-year Treasuries (2.90) flattened. The gap narrowed to 34 basis points (a basis point is one-hundredth of one percent). The change reflects higher short-term rates, courtesy of the Federal Reserve. It also suggests tariffs and trade issues have made bond investors more pessimistic about prospects for U.S. growth, reported The Wall Street Journal.

Globally, the yield curve is inverted. “The average yield of bonds in JPMorgan’s broadest Government Bond Index that mature in seven to 10 years last week slipped below the average yields of bonds maturing in one to three years for the first time since 2007…that indicates that investors have a pretty grim view of where the world economy and equity markets are heading,” reported Financial Times.  We’re keeping an eye on developments in the financial markets and will keep you informed.

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.

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.

You knew carrots were good for your eyes, and a newly discovered use for the orange veggie may help farmers and/or food processing companies find a new source of revenue. That’s because carrots can make concrete stronger – and so do sugar beets.  Engineers at Lancaster University in the United Kingdom are infusing nano platelets from discarded carrots and root vegetable peels into concrete. This strengthens the material in an environmentally friendly way. Durability + Design reported:  “These vegetable-composite concretes were also found to out-perform all commercially available cement additives, such as graphene and carbon nanotubes and at a much lower cost…The root vegetable nano platelets work both to increase the amount of calcium silicate hydrate – the main substance that controls the performance of concrete – and stop any cracks that appear in the concrete.”   The Economist reported adding 500 grams of platelets reduced the amount of cement required to make a cubic foot of concrete by 10 percent. In addition to reducing the amount of building material needed for a project, carrot concrete also reduces CO2 emissions.

Another natural material is getting a makeover, too. Researchers at the University of Maryland are refining processes that make wood stronger than steel, reported Scientific American. It may compete with titanium alloys and have applications beyond building:  “A five-layer, plywood-like sandwich of densified wood stopped simulated bullets fired into the material – a result Hu and his colleagues suggest could lead to low-cost armor. The material does not protect quite as well as a Kevlar sheet of the same thickness, but it only costs about 5 percent as much, he notes.”  If demand for carrots (and sugar beets and wood) increases and supply remains constant then we may see prices for those goods increase.

Weekly Focus – Think About It
“A person with a new idea is a crank until the idea succeeds.”
–Mark Twain, American author and humorist

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.

* This newsletter 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.

 

Sources:

https://www.ft.com/content/49d0229e-73c7-11e8-aa31-31da4279a601 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-25-18_FinancialTimes-Flat_Yield_Curve_Sends_a_Grim_Message_for_Investors_in_2019-Footnote_1.pdf

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

https://www.marketwatch.com/story/the-us-economy-is-roaring-but-the-yield-curve-is-flattening-what-gives-2018-06-14

https://www.wsj.com/articles/trade-tensions-pinch-u-s-yield-curve-1529432210 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-25-18_WSJ-Trade_Tensions_Pinch_US_Yield_Curve-Footnote_4.pdf

https://www.durabilityanddesign.com/news/?fuseaction=view&id=19235

https://www.economist.com/science-and-technology/2018/06/14/making-buildings-cars-and-planes-from-materials-based-on-plant-fibres (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-25-18_TheEconomist-Making_Buildings_Cars_and_Planes_from_Materials_Based_on_Plant_Fibres-Footnote_6.pdf

https://www.scientificamerican.com/article/stronger-than-steel-able-to-stop-a-speeding-bullet-mdash-it-rsquo-s-super-wood/

https://www.brainyquote.com/quotes/mark_twain_121629

Weekly Market Commentary – June 18, 2018

Deal or no deal?  Last week opened with heightened trade tensions between the United States and its allies. It closed with the United States imposing new tariffs on $50 billion of Chinese goods. The Chinese declared it was the start of a trade war, reported Financial Times.  U.S. markets largely ignored the potential impact of trade wars on multiple fronts. Barron’s reported the Dow Jones Industrial Average, which includes companies that are vulnerable to tariffs, moved slightly lower. However, the Standard & Poor’s 500 Index shrugged off the possibility of trade wars, and the NASDAQ Composite gained more than 1 percent.

While Barron’s has written the largest risk to the U.S. stock market is the possibility of global trade wars, it appears many investors believe tariffs are a negotiating tactic. Barron’s reported: “The market’s apparent indifference suggests it doesn’t see these tariffs as the reincarnation of Smoot-Hawley, but just the latest in President Trump’s negotiating tactics. Moving away from his denunciation of Kim Jong-un as “Little Rocket Man” inviting “fire and fury” by missile launches, Trump last week declared the threat from North Korea neutralized. Similarly, many professional investors view the bluster on tariffs as part of Trump’s negotiating tactics, rather than the start of an actual trade war.”

News that monetary policy is becoming less accommodating in certain regions of the world didn’t have much impact on markets either. Reuters reported the Federal Reserve raised its benchmark rate 0.25 percent last week. The European Central Bank is ending its bond-buying program and gave notice it expects to begin raising rates next summer. The Bank of Japan is still easing.
There was a lot of red ink in Asian emerging markets. China’s Shanghai Composite finished the week lower, as well. However, stock markets in Canada and Mexico finished the week higher.

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.

Sorry America, you’re not in the tournament. If you’ve been watching the World Cup – the global soccer championship – you’ve probably seen the commercials entreating Americans to root for another country since we don’t have a team playing. The ads offer encouragements like, “Iceland could really use your support. We don’t have enough people to do the wave,” and “Cheer for Germany. We gave you the frankfurter!”

If you haven’t already chosen a favorite team, you may want to consider (or not) the insight of economists before making your choice. Since the demise of Paul, the octopus that successfully predicted winners during the 2010 final, various firms’ economists have offered opinions about this year’s possible winner. Financial Times reported:

  • Multinational analysts at a Japanese bank concluded “…using portfolio theory and the efficient-markets hypothesis as well as data on the value, form, and historical performance of players, that France will beat Spain in the final, with Brazil in third place.”
  • A German bank predicted Germany will win, and so did a Swiss bank that relied on unspecified econometric tools to determine that Germans have a 24 percent chance of victory.
  • A Dutch bank concluded Spain will be the big winner.

Perhaps the most interesting analysis was done by the Toulouse School of Economics, which employed automated face-reading software on World Cup sticker albums from the 1970s through the present. They found teams that did better in the group stage had players who looked happier or angrier on the stickers. Happiness showed confidence and anger led to fewer goals allowed.

 

Weekly Focus – Think About It
“Winning is great, sure, but if you are really going to do something in life, the secret is learning how to lose. Nobody goes undefeated all the time. If you can pick up after a crushing defeat, and go on to win again, you are going to be a champion someday.”
–Wilma Rudolph, American sprinter and Olympic champion

 

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.

* This newsletter 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.

Sources:

https://www.ft.com/content/e04a2368-70a3-11e8-92d3-6c13e5c92914 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-18-18_FinancialTimes-No_Great_Terror_in_Markets_Despite_Trade_War_Fears-Footnote_1.pdf)

https://www.barrons.com/articles/tariffs-nukes-rates-more-sound-than-fury-1529108154 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-18-18_Barrons-Tariffs_Nukes_Rates-More_Sound_than_Fury-Footnote_2.pdf)

https://www.barrons.com/articles/how-investors-can-protect-themselves-in-a-trade-war-1528912117 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-18-18_Barrons-How_Investors_Can_Protect_Themselves_in_a_Trade_War-Footnote_3.pdf)

https://www.reuters.com/article/us-japan-economy-boj/boj-to-keep-policy-unchanged-focus-on-causes-of-weak-prices-idUSKBN1JA38J

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html?mod=BOL_Nav_MAR_other (Click on U.S. & Intl Recaps, “Central banks, tariffs – a busy week,” then scroll down to the market recap chart) (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-18-18_Barrons-Global_Stock_Market_Recap-Footnote_5.pdf)

http://creativity-online.com/work/volkswagen-jump-on-the-wagen/54786

https://www.ft.com/content/9ce1425c-6caf-11e8-852d-d8b934ff5ffa (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-18-18_FinancialTimes-World_Cup-Applying_Economic_Theory_to_Predict_the_Winner-Footnote_7.pdf)

https://ftw.usatoday.com/2016/02/best-sports-quotes-about-winning

Weekly Market Commentary – June 11, 2018

G whiz!  Never before could the Group of 7 (G7) Summit have been mistaken for reality TV.
The generally dignified annual meeting of leaders from the United States, Canada, France, Germany, Italy, Japan, and the United Kingdom (along with the heads of the European Commission and European Council) was a lot more contentious than usual, reported Reuters.  Disagreements about trade were the reason for heightened tensions among world leaders. At the end of May, the United States extended tariffs on aluminum and steel imports to U.S. allies. They had previously been exempted. These countries “account for nearly two-thirds of the [United States’] $3.9 trillion annual merchandise trade,” reported The Washington Post.

Retaliation to U.S. sanctions was fast and furious. Mexico implemented “…a 20 percent tariff on U.S. pork legs and shoulders, apples, and potatoes and 20 to 25 percent duties on types of cheeses and bourbon,” reported Reuters.  Canada imposed $16.6 billion in tariffs on U.S exports of “…steel and aluminum in various forms, but also orange juice, maple syrup, whiskey, toilet paper, and a wide variety of other products,” says Reuters.  The European Union has a 10-page list of goods targeted for sanctions, including bourbon and motorcycles, reported The Washington Post. Complaints that U.S. tariffs are illegal also are being filed with the World Trade Organization.

Difficult relationships with allies are “expected to complicate U.S. efforts to confront China over trade practices that the administration regards as unfair,” reports The Washington Post.  Canadian, Mexican, and U.S. stock markets remained unfazed. Major indices in each country moved higher last week. Some American indices reached new highs. European markets fared less well. Markets may be bouncier this week as investors digest the costs and benefits of trade sanctions.

Data as of 6/8/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 1.6% 3.9% 14.2% 11.1% 10.8% 7.4%
Dow Jones Global ex-U.S. 0.8 -1.6 8.7 3.7 4.0 0.2
10-year Treasury Note (Yield Only) 2.9 NA 2.2 2.4 2.2 4.0
Gold (per ounce) 0.3 0.1 2.0 3.5 -1.3 3.8
Bloomberg Commodity Index -0.5 2.1 9.5 -3.7 -7.2 -8.6
DJ Equity All REIT Total Return Index 1.1 -1.4 3.3 7.7 8.1 7.2

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

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

 

the struggle is real. Millennials are known – and often disparaged – for being innovators and disrupters. According to Business Insider, the generation has been credited with ‘killing’ everything from starter homes to napkins. There’s a reason for that. Millennials are the biggest generation and have become the world’s most powerful consumer group, reports Financial Times:

“The coming of age of the world’s 2bn millennials is not only a generational shift, it is one of ethnicity and nationality. Forty-three percent of U.S. millennials are non-white, and millennials in Asia vastly outnumber those in Europe and the U.S. Despite China’s former one-child policy, it has 400m millennials, more than five times the U.S. figure (and more than the entire U.S. population) while Morgan Stanley estimates that India’s 410m millennials will spend $330bn annually by 2020.”

Millennials have different buying habits and preferences than previous generations. They opt for access rather than ownership, reports Goldman Sachs, which has helped fuel the growth of the gig economy’s sharing services.  As the first digital natives, Millennials also tend to favor brands that offer the greatest convenience at the lowest price. The most successful brands have strong social media presence.

 

Weekly Focus – Think About It
“Millennials are more aware of society’s many challenges than previous generations and less willing to accept maximizing shareholder value as a sufficient goal for their work. They are looking for a broader social purpose and want to work somewhere that has such a purpose.”
–Michael Porter, Harvard Business School Professor

 

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.
*  This newsletter 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.

 

Sources:

https://www.reuters.com/article/us-g7-summit-macron/no-leader-is-forever-macron-says-as-g6-gears-up-to-confront-trump-idUSKCN1J329V

https://www.washingtonpost.com/business/economy/trump-imposes-steel-and-aluminum-tariffs-on-the-european-union-canada-and-mexico/2018/05/31/891bb452-64d3-11e8-a69c-b944de66d9e7_story.html?utm_term=.d1e2f5fa2c50

https://www.reuters.com/article/us-usa-trade-mexico/aiming-at-trump-strongholds-mexico-hits-back-with-trade-tariffs-idUSKCN1J11EV

https://www.reuters.com/article/us-usa-trade-canada/canada-to-impose-tariffs-on-u-s-challenge-at-wto-idUSKCN1IW2SH

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on U.S. & Intl Recaps, “Caution sets in”, then scroll down to the recap chart) (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-11-18_Barrons-Global_Stock_Market_Recap-Footnote_5.pdf)

https://www.marketwatch.com/story/us-stock-futures-edge-higher-with-techs-eyeing-a-new-record-2018-06-05

http://www.businessinsider.com/millennials-are-killing-list-2017-8#napkins-4

https://www.ft.com/content/194cd1c8-6583-11e8-a39d-4df188287fff (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-11-18_FinancialTimes-How_Millennials_Became_the_Worlds_Most_Powerful_Consumers-Footnote_8.pdf)

http://www.goldmansachs.com/our-thinking/pages/millennials/

https://www.brainyquote.com/quotes/michael_porter_588857?src=t_millennials

Weekly Market Commentary – June 4, 2018

­If the countries were instruments, last week sounded like a fifth grade garage band.
World markets were buffeted by a clamor of good, bad, and unexpected news last week. Events that captured media and investor attention included:

  • Taxing America’s allies. Early in the week, investors weren’t the only ones riled by the administration announcement it would impose hefty trade tariffs on American allies. “Brussels’ top trade official vowed to respond to Donald Trump’s new tariffs on imports of steel and aluminum from the EU, Canada, and Mexico with measures of its own, and warned that the EU has “closed the door” on trade talks with the U.S.”
  • Breaking protocol. A strong unemployment report helped settle volatility stirred up by tariff talk. However, a preemptive Presidential tweet introduced controversy. “While not breaking the 8:30 a.m. EDT embargo on the actual numbers, Trump’s tweet appeared to violate a 1985 federal rule barring members of the executive branch from commenting on the employment report until one hour after the release of the report in order to avoid affecting ‘financial and commodity markets,’” reported Barron’s.
  • Counting chickens. Although the summit with North Korea is on the calendar again, the commemorative Korea Peace Talks Coin is selling at a 20 percent discount in the White House gift shop.
  • Puzzling choices. Giuseppe Conte is Italy’s new Prime Minister. He has a tough job ahead. Despite electing “…western Europe’s first anti-establishment government bent on overhauling European Union rules on budgets and immigration,” Italians aren’t keen on leaving the euro behind. Last week, “…opinion polls…showed between 60 and 72 percent of Italians did not want to abandon the euro,” reported Reuters.

Despite the noise, the Standard & Poor’s 500 Index and NASDAQ forged ahead last week. That may have something to do with valuations. Barron’s wrote, “…the S&P 500…now trades at 16.5 times 12-month earnings estimates, down from 18.2 at the beginning of the year…”

Data as of 6/1/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.5% 2.3% 12.5% 9.0% 10.8% 7.0%
Dow Jones Global ex-U.S. -0.8 -2.4 7.7 2.9 3.7 -0.1
10-year Treasury Note (Yield Only) 2.9 NA 2.2 2.2 2.1 4.0
Gold (per ounce) -0.7 -0.2 2.4 2.6 -1.6 3.8
Bloomberg Commodity Index -0.5 2.6 9.7 -3.6 -7.3 -8.3
DJ Equity All REIT Total Return Index 2.0 -2.4 2.5 6.1 7.5 6.8

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, Barron’s, djindexes.com, London Bullion Market Association.

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

  • it’s water under the bridge. Water is so common we tend to take it for granted. We drink it, cook with it, wash with it, swim in it, and rarely give it much thought. We should, though, because fresh water is more rare than many people realize. According to National Geographic, “Over 68 percent of the fresh water on Earth is found in icecaps and glaciers, and just over 30 percent is found in ground water. Only about 0.3 percent of our fresh water is found in the surface water of lakes, rivers, and swamps.” Here are some other notable facts about water:
    – Our planet is mostly H2O. However, more than 96 percent of the water on Earth is salt water.
    – The atoms in the water you drink today were around when dinosaurs roamed the Earth.
    – Water is the only compound on earth that can be found naturally in three forms – solid, liquid, and gas.
    – The average person in the United States uses 80 to 100 gallons of water each day, according to the U.S. Department of Interior’s     estimates.
    – Thermal power plants generate the majority of the world’s electricity – more than 81 percent – and cannot run without water.
    -‘ Day Zero’ is the day Cape Town, South Africa will become the first major metropolis to run out of water. When it arrives, residents will receive rations of seven gallons a day.

Fresh water may soon be top of mind for everyone because it is rapidly becoming a scarce resource.

McKinsey & Company estimates suggest current water supplies will meet just 60 percent of global demand by 2030. The fraction may be lower in countries like China, India, and South Africa where water supplies are already under stress.

Weekly Focus – Think About It
“To find the universal elements enough; to find the air and the water exhilarating; to be refreshed by a morning walk or an evening saunter…to be thrilled by the stars at night; to be elated over a bird’s nest or a wildflower in spring – these are some of the rewards of the simple life.”
–John Burroughs, American Naturalist

Best regards,
John F. Reutemann, Jr., CLU, CFP®

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Sources:

https://www.ft.com/content/11d2890a-65b6-11e8-a39d-4df188287fff (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-04-18_FinancialTimes-Global_Markets_Rally_as_US_Jobs_Growth_Calms_Volatility-Footnote_1.pdf

https://www.barrons.com/articles/take-this-jobs-report-and-tweet-it-1527897844 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-04-18_Barrons-Take_this_Jobs_Report_and_Tweet_It-Footnote_2.pdf

https://www.whitehousegiftshop.com/searchresults.asp?Search=commemorative+coins&Submit=

https://www.reuters.com/article/us-italy-politics/markets-breathe-easier-as-italy-government-sworn-in-idUSKCN1IX49T

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on U.S. & Intl Recaps, “Italy and Spain steer investor expectations”, scroll down to chart) (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-04-18_Barrons-Global_Stock_Market_Recap-Footnote_5.pdf

https://www.barrons.com/articles/dow-shows-nerves-of-steel-amid-trade-tensions-1527897602 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/06-04-18_Barrons-Dow_Shows_Nerves_of_Steel_Amid_Trade_Tensions-Footnote_6.pdf

https://www.nationalgeographic.org/media/earths-fresh-water/

https://water.usgs.gov/edu/earthhowmuch.html

http://www.bbc.co.uk/guides/z22fb82

https://www3.epa.gov/safewater/kids/water_trivia_facts.html

https://water.usgs.gov/edu/qa-home-percapita.html

http://www.wri.org/blog/2018/01/power-plants-use-water-we-have-no-idea-how-much

http://www.newsweek.com/day-zero-drought-cape-town-792036

https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/the-business-opportunity-in-water-conservation

https://www.brainyquote.com/quotes/john_burroughs_760773?src=t_water