It was not a good week for stocks. Last week, stock markets around the world lost value. In the United States, the Standard & Poor’s 500 Index (S&P 500), Dow Jones Industrial Index (Dow), and NASDAQ all finished lower.

Some pundits have been drawing comparisons between the performance of the Dow last Friday and Black Monday, the memorable day in 1987 when the index shed 508 points in a single day.

They may be barking up the wrong tree.  Yes, the Dow lost more than 600 points on Friday. That was about 2.5 percent of its value. On Black Monday a lesser drop equated to a 22 percent loss for the Dow. In addition, Black Monday was widely attributed to program trading gone awry. The culprit behind last Friday’s fall is likely to be bonds, according to Barron’s.

Last week, the U.S. Treasury announced it would begin selling more short-term government bonds to fund the rising budget deficit. That sparked concerns about the impact of a bigger bond supply on interest rates. When bond supply exceeds demand, interest rates typically go up to attract investors. The United States already has ample bond supply since the Federal Reserve curtailed its bond buying program. Financial Times reported:

“Equity investing involves a delicate balance of three things: earnings, interest rates and valuation. Over the past decade, low long-term bond yields have played a crucial role in helping elevate equity valuations… ‘You have to consistently show economic and earnings growth to justify these valuations at higher rates,’ says Nicholas Colas, cofounder at DataTrek. ‘People forget how closely tied economic and profit growth is to rising rates – it is a horse race and profit growth has to win – even if just by a little.’”

News about employment and wage gains added fuel to the fire of investor worries. In January, the United States experienced its strongest wage growth since 2009. While that’s good news for workers, it may cause the Fed to raise rates more aggressively in an effort to keep inflation manageable.

Data as of 2/2/18	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 (Domestic Stocks)	-3.9%	3.3%	21.1%	11.0%	13.1%	7.2%
Dow Jones Global ex-U.S.	-2.9	3.9	21.9	7.0	5.0	0.9
10-year Treasury Note (Yield Only)	2.9	NA	2.5	1.7	2.0	3.7
Gold (per ounce)	-1.6	2.7	8.9	1.5	-4.4	4.1
Bloomberg Commodity Index	-1.9	1.1	0.8	-4.2	-9.0	-7.4
DJ Equity All REIT Total Return Index	-2.9	-5.7	2.5	2.7	7.7	6.9

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 does success mean to you?   For some, having a big following on social media translates as success. NASA, which has more followers than any other government organization worldwide (28 million), may be considered successful. Of course, NASA doesn’t hold a candle to Katy Perry, who has close to 106 million followers.

It will surprise few to learn the U.S. Treasury, which manages the money resources of the United States, doesn’t have many followers (770,000); however, it has more than the Federal Reserve (446,000).

It’s almost enough to make you wonder whether Americans care about money. They do, but on a more personal level. A corporate survey, Making It in America, queried Americans about what it means to reach “…a level of success, comfort, and security that you find wholly satisfying.” As you might expect, there were a variety of answers.

One gauge of success is income, according to about two-thirds of the respondents. The group’s average income was $57,426 a year. They would know they’d ‘made it’ when they earned about $147,000 a year. According to CNBC, annual income of $150,000 would put many people in the middle class, depending on where they lived and the size of their households. It’s notable few people aspire to join the ranks of the wealthiest Americans. More than three-fourths said they would not want to earn more than one million dollars a year.

Of course, money is not the only measure of success. A Pew Research study found just 11 percent of those surveyed thought wealth was an essential part of the American dream. Far more important were:

• Freedom of choice in how to live (77 percent)
• Having a good family life (70 percent)
• Retiring comfortably (60 percent)
• Contributing to their communities (48 percent)
• Owning a home (43 percent)
• Having a successful career (43 percent)

One participant said, “Even though I truly believe that having money is freedom, money is really just a tool to make experiences in life possible.”

Weekly Focus – Think About It

“You can’t reach for anything new if your hands are still full of yesterday’s junk.”

–Louise Smith, NASCAR driver

 

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.

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

Sources:

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-05-18_Barrons-Global_Stock_Market_Recap-Footnote_1.pdf

https://www.marketwatch.com/story/all-30-dow-stocks-fall-as-the-point-decline-exceeds-that-of-black-mondays-2018-02-02

https://www.investopedia.com/ask/answers/042115/what-caused-black-monday-stock-market-crash-1987.asp

https://www.barrons.com/articles/risk-roars-back-1517626616 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-05-18_Barrons-Risk_Roars_Back-Footnote_4.pdf

https://www.ft.com/content/08f29ca6-07f3-11e8-9650-9c0ad2d7c5b5 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-05-18_FinancialTimes-Stock_Bulls_Fret_that_Bad_News_Comes_in_Threes-Footnote_5.pdf

https://www.cnbc.com/2018/02/02/best-wage-growth-since-2009-spurs-talk-of-more-fed-rate-hikes.html

https://twittercounter.com/pages/100/government-organization

https://www.statista.com/statistics/273172/twitter-accounts-with-the-most-followers-worldwide/

https://www.treasury.gov/about/history/Pages/edu_history_brochure_index.aspx

https://twitter.com/ustreasury?lang=en

https://twitter.com/federalreserve

https://www.thermosoft.com/en-US/blog/making-it-in-america

https://www.cnbc.com/2018/01/18/heres-how-much-money-americans-think-you-need-to-have-made-it.html

https://www.cnbc.com/2017/12/01/american-dream-isnt-about-getting-rich.html

http://www.possibilityoftoday.com/2012/01/03/how-you-can-stop-letting-yesterdays-junk-get-in-the-way-of-todays-success/

What’s the word ‘phenomenal’ worth? It all depends on who says it.
Barron’s shared Wilshire Associates’ calculations which indicated the word was worth about $175 billion – the amount markets gained last Thursday – when President Trump used it to describe the tax plan his administration will deliver “ahead of schedule.” Markets gained another $100 billion in value on Friday. Barron’s reported: “While tax reform is definitely coming, a final bill is still a long way off, and a 2017 effective date is looking less likely…Yet, as the action late last week suggests, the equity markets are more than willing to give the new administration the benefit of the doubt. Something’s coming, even if we don’t know what or when. And that seems good enough to bid stocks higher…”

The word ‘phenomenal’ is probably worth a bit less than Wilshire’s estimate. United States stocks pushed higher on positive earnings growth, too. With 71 percent of companies in the Standard & Poor’s 500 Index reporting results for the fourth quarter of 2016, “…the blended earnings growth rate for the S&P 500 is 5.0 percent. The fourth quarter will mark the first time the index has seen year-over-year growth in earnings for two consecutive quarters since Q4 2014 and Q1 2015.”

Consumer confidence remained high, but wavered a bit in February, according to the University of Michigan Surveys of Consumers. Americans are happy with their current financial circumstances, but expectations for the future dropped sharply. Surveys of Consumers chief economist, Richard Curtin, wrote:

“… a total of nearly six-in-ten consumers made a positive or negative mention of government policies. In the long history of the surveys, this total had never reached even half that amount…These differences are troublesome: the Democrat’s Expectations Index is close to its historic low (indicating recession) and the Republican’s Expectations Index is near its historic high (indicating expansion). While currently distorted by partisanship, the best bet is that the gap will narrow to match a more moderate pace of growth.”

This week could be bumpy. On Valentine’s Day, Fed Chair Janet Yellen will testify about the state of the economy before the U.S. Senate.

Data as of 2/10/17	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 (Domestic Stocks)	0.8%	3.5%	25.1%	8.8%	11.5%	4.9%
Dow Jones Global ex-U.S.	0.4	4.7	19.2	-1.0	2.0	-1.0
10-year Treasury Note (Yield Only)	2.4	NA	1.7	2.7	2.0	4.8
Gold (per ounce)	1.1	6.0	3.2	-1.3	-6.4	6.3
Bloomberg Commodity Index	1.6	2.1	20.9	-11.3	-9.2	-5.9
DJ Equity All REIT Total Return Index	1.1	1.9	22.4	11.6	10.9	4.3

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.

on the road to brexit…Last week, Members of Parliament (MPs) approved the Article 50 bill, green-lighting Britain’s exit from the European Union (EU). If the House of Lords follows suit, which is far from certain, then the British government will follow the lead of the British people and invoke Article 50 of the Lisbon Treaty. (Article 50 gives member states the right to withdraw from the EU.)

The Economist reported:

“But a different sort of Brexit bill is approaching and will be harder to manage. It could yet scupper the whole process. Leave campaigners promised voters that Brexit would save the taxpayer £350m ($440m) a week. That pledge was always tendentious. But officials in Brussels are drawing up a bill for departure that could mean Britain’s contributions remain close to its membership dues for several years after it leaves. In a new report for the Centre for European Reform, a think-tank, Alex Barker, a Financial Times correspondent, puts the figure at anything between €24.5bn ($26.1bn) and €72.8bn.”

Michel Barnier, the EU’s chief Brexit negotiator, indicated the matter of how much Britain owes must be settled before questions about Britain’s future relationship (i.e., trade agreements) with the EU can be addressed, according to Bloomberg.

To date, Prime Minister Theresa May has been taking a hard line, which has roiled tempers throughout the EU. Bloomberg reported the Prime Minister’s comments:

“…are elevating the likelihood that the United Kingdom leaves the bloc in 2019 without an exit deal, let alone the sweeping trade pact it seeks…The messages from the diplomats are that EU governments are preparing to enforce their line that the United Kingdom can’t be better off outside the bloc than inside it and that they value safeguarding their own interests and regional stability above the need to maintain good relations with the United Kingdom.”

The pending negotiations bring to mind the words of German Field Marshal Helmut Von Moltke, “No operation extends with any certainty beyond the first encounter with the main body of the enemy.”

Weekly Focus – Think About It

“What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know.”

–Warren Buffett, The Oracle of Omaha

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 e-mail with their e-mail address and we will ask for their permission to be added.

Securities offered through Research Financial Strategies, Member FINRA/SIPC.

* These views are those of Peak Advisor Alliance, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* 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 indices 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.

* Consult your financial professional before making any investment decision.

* Stock investing involves risk including loss of principal.

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

Sources:

http://www.barrons.com/articles/magical-mystery-tax-plan-1486794351?mod=BOL_hp_we_columns

http://insight.factset.com/hubfs/Resources/Research%20Desk/Earnings%20Insight/EarningsInsight_021017.pdf

http://www.sca.isr.umich.edu

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html?mod=BOL_Nav_MAR_hps

https://www.ft.com/content/7c25dd1c-ee1f-11e6-930f-061b01e23655

http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/577971/EPRS_BRI(2016)577971_EN.pdf

http://www.economist.com/news/britain/21716629-bitter-argument-over-money-looms-multi-billion-euro-exit-charge-could-sink-brexit?cid1=cust/ddnew/n/n/n/2017029n/owned/n/n/nwl/n/n/NA/email

https://www.bloomberg.com/news/articles/2017-02-10/bad-tempered-brexit-talks-loom-as-may-s-demands-irk-eu-officials

http://www.marketwatch.com/story/the-genius-of-warren-buffett-in-23-quotes-2015-08-19