September 2016 - Research Financial Strategies

Weekly Market Commentary – September 26, 2016

by Jack Reutemann | Sep 26, 2016 | Weekly Stock Market Commentary

The Markets

As expected…

The U.S. Federal Reserve left rates unchanged last week and markets celebrated. Across the globe, national stock market indices finished the week higher. In the United States, the Standard & Poor’s 500 Index and NASDAQ gained more than 1 percent.

Not everyone was thrilled with the decision, however. Three Federal Reserve presidents cast dissenting votes. All believed interest rates should move higher. That’s the most dissents since December 2014 when even the dissenters were divided about what should happen.

Proceeding with caution is the right approach, according to Barron’s:

A rate hike is usually aimed at preventing an economy from overheating, and there’s no sign of that – not even close. Housing activity has been disappointing, wholesale inflation is weak, retail sales are declining, and manufacturing activity is slowing. Such a confluence of negative data has never stopped the Fed from tightening rates – the central bank did so in December, even though the economic data looked even worse than it does now – but it isn’t exactly screaming for immediate action.

While that may be true, Financial Times suggested markets are coming to the conclusion the influence of central banks may be limited, and those limits may be near.

We’ll find out eventually. In the United States, the new consensus is we’ll have a rate hike for the holidays, according to CNBC.com

Data as of 09/09/2016	1-Week	YTD	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s (Domestic Stocks)	1.2%	5.9%	11.7%	8.4%	13.8%	5.0%
Dow Jones Global ex-US	3.1	4.7	7.8	-1.5	4.5	0.2
10-Year Treasury Note (Yield Only)	1.6	N/A	2.1	2.7	1.8	4.6
Gold (per ounce)	2.3	26.0	18.3	0.4	-4.5	8.6
Bloomberg Commodity Index	1.3	7.3	-3.3	-12.9	-10.0	-6.0
DJ Equity All REIT Total Return Index	4.3	14.5	23.0	14.2	16.0	6.6

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, 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 an election year!

The influence of elections on markets, investors, and economies has been examined and re-examined over time. Theories have been developed. Ideas have been promoted. Some may be accurate; some may not be. Here are a few things to keep in mind especially if markets get volatile before the election:

Stock markets don’t care who is elected: You may have read markets perform best when Democrats win, or you may have read markets outperform when Republicans are elected. The numbers just don’t prove out either way, according to a white paper from BlackRock:

…while many investors connect political alignment with equity market returns, very few of these patterns hold up to scrutiny. Historically, whether a Republican or Democrat occupies the White House has had no statistically significant impact on U.S. equity markets.

Change tends to happen slowly, especially with divided government: We’ve all become familiar with the term, ‘gridlock.’ There are issues – taxes, immigration, energy – that have been debated for years. In general, policy changes have been relatively small. Sometimes, changes have been reversed. Morgan Stanley concluded, “Hence, election outcomes where one party controls both the White House and Congress are most conducive to expeditiously putting transformative policies into practice.”

The strength of the economy influences voters. According to Oppenheimer Funds:

Decades of history prove that the state of the economy determines the president, not the other way around. In fact, the economy’s impact on elections can be stated in a fairly simple equation: Strong economy (declining [un]employment and inflation) = a win for the incumbent party candidate.

If that’s the case, it will be pretty difficult to guess a likely winner. A Gallup poll found just as many Americans viewed the economy positively as those who viewed it negatively in early September. On the other hand, more Americans said the economy was getting worse than those who thought it was getting better.

Weekly Focus – Think About It

We in Britain stopped evolving gastronomically with the advent of the pie. Everything beyond that seemed like a brave, frightening new world. We knew the French were up to something across the Channel, but we didn’t want anything to do with it. — John Oliver, British comedian

Weekly Market Commentary – September 19, 2016

by Jack Reutemann | Sep 19, 2016 | Weekly Stock Market Commentary

The Markets

If it’s not one thing, it may be another.

Economic data released last week will factor into this week’s Federal Open Market Committee (FOMC) decision on whether to push interest rates higher in the United States. Some of the August data supports the idea economic growth was soft. For example, August retail sales fell more than expected, down 0.3 percent from July. Other data was as expected: U.S. producer prices were flat, which was in line with expectations.

However, the kicker may be inflation. It increased during August, “…offering fresh evidence that U.S. inflation may be firming after years of sluggish price growth,” wrote The Wall Street Journal. The Consumer Price Index, which is a gauge of inflation, rose more than economists had expected in August in large part because of higher healthcare costs, according to Reuters.

Stock markets steadied last week as the chances of a rate hike this week declined. Barron’s reported:

“The probability of a rate hike, as measured by the fed-futures market, sank to 20 percent from more than 30 percent a week earlier. Still, investors fear a September surprise… ‘The Fed’s in a tough spot,’ says Aaron Clark, a portfolio manager at GW&K Investment Management. ‘The governors want to hike but the window is closing.’ The Fed can cry wolf so many times before it loses credibility and dilutes the power of “Fedspeak” in the future.”

If the FOMC increases rates this week, there may be “knee-jerk selloff,” according to Barron’s, and if rates remain unchanged, a relief rally may ensue. Either way, the paper opined, much will depend on the FOMC’s explanation.

So, will the Federal Reserve raise rates or won’t they? We’ll find out soon.

Data as of 09/09/2016	1-Week	YTD	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s (Domestic Stocks)	0.5%	4.7%	7.2%	8.0%	12.0%	4.9%
Dow Jones Global ex-US	-2.5	1.5	0.5	-2.1	2.1	-0.2
10-Year Treasury Note (Yield Only)	1.7	N/A	2.3	2.9	2.1	4.8
Gold (per ounce)	-1.7	23.2	17.1	-0.4	-6.1	8.5
Bloomberg Commodity Index	-0.9	5.7	-6.7	-13.6	-12.0	-6.3
DJ Equity All REIT Total Return Index	-0.7	9.8	18.8	12.8	12.9	6.1

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

IS YOUR STATE CRAFTY?

Oktoberfest is upon us and that means beer. In the United States, celebrations are likely to include craft-brewed drafts, which are a far cry from traditional American lager, according to the Brewer’s Association. The Economist wrote:

“Any American university student can inform you that much of the beer in the United States is utter swill. Those who graduate from the red Solo cup – the brand so synonymous with beer pong and college life – can afford to purchase better. And so they do. Craft beer, the stuff made by small and independent breweries, has exploded beyond just hipsters. Sales reached $22.3 billion in 2015, and volumes have climbed 13 percent over the past year, even as overall beer sales in America dipped somewhat.”

Craft brewers have been winning market share from big brand names for some time. Less than 50 years ago, more than 99 percent of the beer quaffed in the United States was lager produced by large domestic breweries, according to research cited by Forbes.

Since then, the drafts produced by microbreweries, brewpubs, regional craft breweries, and contract brewing companies have gained popularity. In 1994, there were 537 craft brewers in America. That number swelled over the next two decades and, by 2013, there were 2,800 craft brewers and more than 1,500 additional breweries in development.

Remarkably, Vermont, which is one of the smallest states, has the most craft breweries per capita – 44 of them. Oregon, Colorado, Montana, Maine, and Washington also boast a significant number of small breweries, while Mississippi, Louisiana, and Alabama have the fewest.

After tallying the numbers, the Brewer’s Association reported craft beer accounted for more than 12 percent of sales during 2015, and imports for almost 16 percent. The craft brewing industry contributed almost $56 billion to the U.S. economy in 2014, and has created more than 424,000 jobs.

Weekly Focus – Think About It

“My mission in life is not merely to survive, but to thrive; and to do so with some passion, some compassion, some humor, and some style.” –Maya Angelou, American poet

Sources:

Weekly Market Commentary – September 12, 2016

by Jack Reutemann | Sep 12, 2016 | Weekly Stock Market Commentary

The Markets

Blame it on the central banks!

After 44 consecutive sleepy, summer days when Barron’s reported the Standard & Poor’s 500 Index opened and closed without a 1 percent move in either direction, the index tumbled last week – and so did indices in other markets around the world. What roused investors from complacency? Some experts pointed their fingers at central banks:

Three central banks announced their monetary policy decisions during the week and all three maintained the status quo and did not change policy. The news disappointed the markets – they were looking for more stimulus. And, in some cases, good economic data was interpreted as bad news because it meant that there was less of a probability of more stimulus.

The U.S. Federal Open Market Committee doesn’t meet until September 20, but markets reacted sharply after Boston Fed President Eric Rosengren (whom Thomson Reuters labels as a dove) said, “My personal view, based on economic data that we have received to date, is that a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy.” After his speech, Reuters reported the odds of a September Fed rate increase rose from 24 percent to 30 percent.

Expectations for market volatility moved higher, too, but markets weren’t too worried. The CBOE Volatility index (VIX) jumped 33 percent on Friday, reaching 16.56, according to MarketWatch. That was a big move, but significant market volatility is not indicated until the VIX moves above 20.

Data as of 09/09/2016	1-Week	YTD	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s (Domestic Stocks)	-2.4%	4.1%	9.6%	8.4%	13.0%	5.1%
Dow Jones Global ex-US	0.2	4.1	3.3	-0.6	2.8	0.2
10-Year Treasury Note (Yield Only)	1.7	N/A	2.2	2.9	1.9	4.8
Gold (per ounce)	0.5	25.3	19.9	-1.4	-6.4	8.5
Bloomberg Commodity Index	1.2	7.0	-4.8	-13.6	-12.2	-6.4
DJ Equity All REIT Total Return Index	-3.8	10.6	24.6	13.5	14.0	6.3

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

WHAT’S CHANGING IN WORLD MARKETS? GROCERY SHOPPING! Groceries may be mundane, but they’re big business. By 2020, the value of the world’s grocery market is expected to reach $11.8 trillion, according to The Institute of Grocery Distribution (IGD). The largest markets are expected to be China, United States, India, and Russia. That’s not the interesting part, though.

According to Morgan Stanley, fewer people will gather food by carting up and down the aisles of local grocery stores. Instead, in many countries, people will fill their baskets online. Globally, the share of shoppers buying groceries via the Worldwide Web and having them delivered is expected to grow from 21 percent in 2015 to 34 percent in 2016:

“Several factors may be driving the trend. Generally, more shoppers are accustomed to buying online, including a younger, more mobile generation of consumers. More specifically, boutique online-only grocery services in recent years have proven that the business model can work, overcoming logistical and consumer-behavioral barriers and building credibility for the category as a whole. Now, larger traditional players have entered the arena, offering more choices, services, and attractive prices, all within familiar eCommerce experiences and expectations for an even larger audience.”

Developed economies are expected to experience faster adoption rates. For instance, fewer than 10 percent of Americans bought fresh groceries online last year, but this year the percentage is expected to reach 26 percent. In Germany, just 10 percent of shoppers purchased groceries online. In 2016, that number is expected to rise to 36 percent.

In emerging markets, the expansion of online grocery shopping is dependent on the expansion of mobile networks. In countries like China and India, online grocers must leverage mobile networks to grow their market share.

Weekly Focus – Think About It

“People have been starting to focus less on the disability and more on the actual sport. I’ve had so many interviews that don’t even mention the backstory of how I became an amputee or whatever. I prefer that – I prefer being on the back pages with the rest of the sportsmen, not being just a heart-warming story.” –Jonnie Peacock, British paralympic sprinter

Sources:

Weekly Market Commentary – September 6, 2016

by Jack Reutemann | Sep 6, 2016 | Weekly Stock Market Commentary

The Markets

“We can never know about the days to come, but we think about them anyway…” –Carly Simon

Economists and market analysts have been thinking a lot about the Federal Reserve and the actions it may take before the end of 2016. Friday’s employment numbers helped fan the speculative fire. The U.S. Labor Department reported the unemployment rate remained at 4.9 percent with 151,000 jobs added during August.

The broad market consensus was 180,000 jobs would be created, according to MarketWatch. The publication cited a source as saying the report, “…wasn’t strong enough to force the Fed to raise rates in September, but it also wasn’t weak enough to raise concern about the U.S. economy or dampen the outlook for corporate earnings. As such it’s a mildly dovish report…”

Economists and political leaders also are thinking a lot about the impending British exit from the European Union (EU). At the G20 Summit – a forum for government and central bank leaders from 20 countries – British Prime Minister Theresa May confirmed, “Brexit means Brexit.” However, the BBC reported there remains a general lack of agreement within the British government about exactly what the country’s relationship with the EU should be after Brexit.

The potential effects of Brexit gained some clarity at the G20. The Guardian reported, “…the U.S. wanted to focus on trade negotiations with the EU and a bloc of pacific nations before considering a deal with the U.K.” In addition, it reported Japan threatened, “…a string of corporate exits from the U.K. unless some of the privileges that come with access to the single market are maintained.”

U.S. stock markets remained sanguine. The Dow Jones Industrial and Standard & Poor’s 500 Indices finished the month almost flat. Most stock markets across Europe finished the month higher.

Data as of 09/02/2016	1-Week	YTD	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s (Domestic Stocks)	0.5%	6.7%	11.9%	10.0%	13.2%	5.2%
Dow Jones Global ex-US	1.6	3.9	6.4	0.2	1.8	-0.2
10-Year Treasury Note (Yield Only)	1.6	N/A	2.2	2.9	2.0	4.8
Gold (per ounce)	0.5	24.7	16.4	-1.6	-6.7	7.8
Bloomberg Commodity Index	-2.4	5.6	-6.7	-14.3	-12.6	-7.0
DJ Equity All REIT Total Return Index	1.6	15.0	27.7	16.4	14.7	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.

WE’RE DEVILS AND BLACK SHEEP, AND REALLY BAD EGGS…

The movie, Pirates of the Caribbean, made light of piracy but maritime crime has a significant economic impact.

About 50 percent of the goods that trade globally travel by sea, according to the United Nations Conference on Trade and Development (UNCTAD)’s 2014 report,Maritime Piracy. It estimated the economic costs of piracy – including ransoms, insurance, re-routing ships, security equipment and guards, naval forces and military operations, counter-piracy organizations, and other factors – at $7-12 billion in 2010.

During the first half of 2016, however, the cost hit a two-decade low. The Economist reported:

“The recent decline in global piracy can be attributed in part to better security on ships. For years, the UN’s International Maritime Organization discouraged boat owners from arming their crews. Ships tried in vain to defend against heavily-armed pirates using little more than diligent watch-keeping and water cannons. In the mid-2000s, facing rising insurance and ransom costs, shipping companies began employing private security contractors. These firms are increasingly supplied by “floating armories” to help evade laws that bar crews from bringing weapons into territorial waters…Better policing of the high seas has also played a part.”

In 2010, governments and marine insurers identified high-risk shipping areas. Not long after, floating armories were established and became a type of temporary agency for armed guards on the high seas. The Economist reported, “At the peak of Somali piracy in 2012, ship owners would pay about $45,000 per trip for armed guards.” When they weren’t on a client’s ship, guards returned to the floating armory until employed by another merchant ship.

Floating armories are experiencing some growing pains, as have many fledgling industries before them. Piracy is down, and so is demand for their services.

Weekly Focus – Think About It

The Federal Election Commission (FEC) recently sent letters to individuals who have filed to be Presidential contenders, who may not really be qualified to run. The list of suspect candidates includes Darth Vader, Jean-Luc Picard, God, Captain Crunch, and Queen Elsa. A letter sent to H. Majesty Satan Lord of Underworld Prince of Darkness said:

“It has come to the attention of the Federal Election Commission that you may have failed to include an accurate candidate name and an accurate principal campaign committee under 52 U.S.C. § 30102(e) when you filed FEC Form 2…Furthermore, the Commission requires the filing to be true, correct, and complete…Additionally, knowingly and willfully making any materially false, fictitious, or fraudulent statement or representation to a federal government agency, including the Federal Election Commission, is punishable under the provisions of 18 U.S.C. § 1001.”

Sources:

Weekly Market Commentary – September 26, 2016

The Markets

It’s an election year!

Weekly Focus – Think About It

Weekly Market Commentary – September 19, 2016

The Markets

IS YOUR STATE CRAFTY?

Weekly Focus – Think About It

Weekly Market Commentary – September 12, 2016

The Markets

Weekly Focus – Think About It

Weekly Market Commentary – September 6, 2016

The Markets

WE’RE DEVILS AND BLACK SHEEP, AND REALLY BAD EGGS…

Weekly Focus – Think About It

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