Weekly Market Commentary – May 14, 2018

by | May 15, 2018 | Weekly Stock Market Commentary

Splash!
How do employers lure staff in a tightening labor market? The curly tail grubs and spinnies of the business world are higher wages and better benefits. During the past decade, the employment picture in the United States has shifted dramatically. In mid-2009, 15.4 million unemployed Americans were chasing 2.2 million available jobs. At the end of 2017, just 6.6 million Americans were unemployed, and employers were casting eagerly to fill 6.6 million open jobs, reports Barron’s.

Bloomberg offered some colorful examples:
“Want ads for truck drivers to haul crude oil in Texas are touting salaries as high as $150,000 a year. Some nurses are getting $25,000 signing bonuses. The U.S. unemployment rate just fell to 3.9 percent, one tick away from its lowest since the 1960s. And, on May 8, the Bureau of Labor Statistics reported there are 6.5 million unfilled jobs in the United States, the most on record. Some employers say they’re feeling the squeeze.”
Clearly, wages are moving higher for some types of jobs, but they’re not increasing everywhere. Last week, the Bureau of Labor Statistics reported real average hourly earnings for all employees were flat from March to April. ‘Real wages’ mean wages after inflation is subtracted.

The National Federation of Independent Business’ Small Business Optimism Index hit a record high in April, as small companies reported record profits. It was the 17th consecutive month of record optimism.

Major U.S. stock market indices moved higher last week as did many global stock market indices.

Data as of 5/11/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 2.4% 2.0% 13.9% 9.0% 10.8% 6.9%
Dow Jones Global ex-U.S. 1.7 0.4 12.8 3.3 3.5 0.2
10-year Treasury Note (Yield Only) 3.0 NA 2.4 2.3 1.9 3.8
Gold (per ounce) 1.1 2.2 8.3 3.7 -1.5 4.1
Bloomberg Commodity Index 0.1 2.1 8.3 -4.5 -7.4 -8.3
DJ Equity All REIT Total Return Index 1.2 -3.7 3.1 6.0 5.8 6.4

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

 

What do you wish you had known before you became a parent?  Mother’s Day is behind us and Father’s Day is ahead.  It seems like a good time to consider the challenges and responsibilities of parenting.  National Public Radio’s Science Desk introduced a new series called, ‘How To Raise A Human.’ They kicked off the show by asking bloggers, “What’s the one thing you wish someone had told you before you became a parent?” Here are a few of the answers:
“I wish someone told me that there are going to be moments where you’re playing chess with speed metal music in your ears. You’re trying to make intricate choices but there’s so much chaos.”
–Alan Lawrence, That Dad Blog

“I wish someone had told me to block out the outside voices that come when you become a parent – and pay more attention to the children and what their needs are.”
–Saira Siddiqui, Confessions of a Muslim Mom

“I wish someone had told me that even though your life changes when you become a parent, you still get to create the path you want.”
–Drea Duclos, OhDearDrea

“Parents always told me to brace myself for the teen years, because that’s when they’ll hate you, be disrespectful to you, be sassy, talk back to you, be rude, be generally awful people. But I wish that someone had told me that’s completely wrong.”
–Karen Walrond, Chookooloonks

One of the many challenges parents face is helping their children understand financial issues. If you would like some ideas about how to talk with your children about money, contact your financial professional.


Weekly Focus – Think About It
“I’m relieved I don’t work at SNL [right now]…The level of outrage is so high. It feels like talking to anyone, anywhere in 2018 is just landmine hopscotch.”
–Tina Fey, American actress, comedian, writer, and producer

 

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:

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html?mod=BOL_Nav_MAR_other (Click on U.S. & Intl Recaps, then click on “The unemployment lines are shrinking”; for market performance, click on “Iran and Korea overshadow economics”)

https://www.bloomberg.com/news/articles/2018-05-11/no-the-u-s-economy-isn-t-overheating

https://www.bls.gov/news.release/realer.nr0.htm?mod=article_inline

https://www.economicshelp.org/blog/2637/economics/real-wages-in-uk/

http://www.nfib.com/surveys/small-business-economic-trends/

https://www.npr.org/sections/goatsandsoda/2018/05/11/609470215/your-turn-what-do-you-wish-youd-known-before-becoming-a-parent

https://www.thewrap.com/tina-fey-screwed-up-charlottesville-rally-snl-weekend-update/

 

8 Things to Know About the USA-China Trade Dispute

by | Apr 24, 2018 | Stock Market News

The headlines are filled with rumors of a trade war between the United States and China. You’ve probably heard by now that both nations have announced tariffs on many of each other’s goods.  This has many economists concerned about a trade war.  A trade war, in case you’re not familiar with the term, is “an economic conflict in which countries impose import restrictions on each other in order to harm each other’s trade.”
In response, the markets are doing their best impression of a see-saw – falling and then rising again.  Because this story probably won’t go away any time soon, let’s break it down.

Eight Things to Know about the USA-China Trade Dispute

ONE: The U.S. has announced tariffs on almost $50 billion in Chinese exports.1
The list, which stretches to over 1300 items, includes goods like medical equipment, chemicals, televisions, and automobile parts.1  This is on top of an earlier spate of tariffs on Chinese steel and aluminum.  However, many of the most commonly-used goods Americans use, like shoes, clothing, and phones, are not included.

TWO: China has retaliated with tariffs of their own.
On April 4, China announced plans to levy a 25% tariff on roughly $50 billion worth of American goods.1  This includes airplanes, cars, soybeans, and other vegetables.  Earlier, China had already declared tariffs on $3 billion worth of agricultural exports, like fruit, nuts, and pork.

THREE: The two countries aren’t actually in a trade war – yet.
Notice how often I’ve used the word “announced”?  As of this writing, none of these tariffs have gone into effect yet.  The U.S. intends to hold public hearings sometime in May, and has 180 days after that to decide whether to go through with the tariffs.2  China, meanwhile, has avoided mentioning any specific dates.  It’s possible both sides are hoping to engage in talks before the tariffs are in place.  If successful, there’s a chance the tariffs never will.
In other words, a trade war has been declared, but the “fighting” hasn’t started yet.

FOUR: Both sides see the situation very differently.
It’s safe to say neither country wants a trade war – hence the delay.  But that doesn’t mean negotiations will be simple or easy.

The issue, at least from the U.S. administration’s standpoint, is a $375 billion trade deficit2 with China, which many see as being due to unfair or even illegal trade practices.  China has a long history of forcing American companies to share their technology in order to do business there, making these companies less competitive than they might otherwise be.  In some cases, Chinese companies are alleged to have outright stolen American intellectual property.  The administration believes that tariffs will stop these practices and reduce the deficit.  China, of course, doesn’t see it the same way.  The Brookings Institution, a well-known think tank, describes it like this: “From Beijing’s perspective, the U.S.-China trade imbalance is a result of many factors—automation, evolving global supply chains, increased competitiveness of Chinese firms, the Federal Reserve’s normalization of interest rates, and the Congress’s deficit-increasing tax cuts. Because the trade balance is the difference between savings and investment, Beijing also views U.S. fiscal and monetary decisions as contributing to America’s overall trade deficit—including with China.”3

Overcoming this basic difference in opinion will probably need to happen before the two countries can strike a new deal.

FIVE: Trade wars can impact markets…
Again, we’re not yet in a trade war.  But should these tariffs go through, history suggests it will have an impact on the markets.

Tariffs are a tax on imported goods and services.  They essentially make it costlier and more difficult to import certain things, like metals, foodstuffs, consumer products, and so on.  That can be a major boon to industries that produce those same things, because it forces consumers to buy domestically.  On the other hand, China’s tariffs could make it harder for U.S. companies to sell their own goods.  For those companies that do a lot of business in China, this can have a major effect on their bottom line.  As a result, some companies’ stock price could suffer.

SIX: But that doesn’t necessarily mean the markets are going to plummet.
To give you an example, take this past Wednesday, April 4th.  When the markets opened, the news out of China caused the Dow to drop 510 points.  But the Dow rallied later in the day, ending up 300 points.4

While a trade war can be unsettling for investors, it’s important to remember that the day-to-day movement of the markets is based on many factors.  Trade is only one of these.  The overall economy is still doing well, unemployment remains low, corporate earnings continue to be solid – you get the idea.

The point is, the U.S.-China trade dispute is important, but not the be-all and end-all.  It’s something to keep an eye on, but not something to overreact to.  And again, we’re not yet in an actual trade war!  If history is any judge, there will be a lot more twists and turns to this story.  A lot can change over the next few weeks and months.

SEVEN: This is an opportunity to practice discipline.
The markets are in the habit of jumping at the slightest sound – but we’re not.  We rely on the news to stay informed and up-to-date, but not to dictate our every decision.

As a financial advisor, I can’t tell you what President Trump will do, or what China will do, or whether a trade war will happen.  I can say that we’ll keep seeing a lot of headlines on this.  Remember the see-saw metaphor?  As the situation develops, it’s not unlikely the markets will continue to rise and fall as investors digest the news coming out of Washington.  For that reason, it’s wise to expect more volatility – but let’s bear in mind that volatility doesn’t equal catastrophe. 

All this means we have a wonderful opportunity to practice discipline.  To avoid getting caught up in the day-to-day.  To not let headlines – and the emotions they evoke – control us.  The more we do this, the more we’ll keep moving toward our goals.

EIGHT: We here at Research Financial Strategies are monitoring your portfolio.
This is our job: to monitor your portfolio.  If at any point we feel the trade situation could harm your holdings and impede your progress towards your goals, we’ll let you know immediately.

In the meantime, remember: My team and I love hearing from you!  Please let us know if you have any questions or concerns.  Our door is always open.  Have a great month!

1 “All the Goods Targeted in the Trade Spat,” The Wall Street Journal, April 5, 2018.  https://www.wsj.com/articles/a-look-at-which-goods-are-under-fire-in-trade-spat-1522939292

2 “U.S. Announces Tariffs on $50 Billion of China Imports,” The Wall Street Journal, April 3, 2018.  https://www.wsj.com/articles/u-s-announces-tariffs-on-50-billion-of-china-imports-1522792030

3 “How to avert a trade war with China,” The Brookings Institution, February 27, 2018.  https://www.brookings.edu/blog/order-from-chaos/2018/02/27/how-to-avert-a-trade-war-with-china/

4 “Trade war? Not so fast. Why stocks are rallying again,” CNN Money, April 5, 2018.  http://money.cnn.com/2018/04/05/investing/stocks-rebound-trade-war-us-china/index.html

Weekly Market Commentary – April 2, 2018

by | Apr 2, 2018 | Weekly Stock Market Commentary

In like a lion…
Investors roared into 2018.  During the first week of the first quarter of the New Year, the Dow Jones Industrial Average rose above 25,000 for the first time ever. Less than two weeks later, it closed above 26,000. The Standard & Poor’s (S&P) 500 Index and NASDAQ Composite also reached new all-time highs.

Strong performance was supported by strong fundamentals. In December 2017, Mohamed A. El-Erian wrote in BloombergView economic and policy fundamentals, including synchronized global recovery, progress on U.S. tax reform, improved certainty around Brexit, and orderly acceptance of changing U.S. monetary policy, “…reinforce the prospects for better actual and future growth, thereby increasing the possibility of improved fundamentals validating notably elevated asset prices.”

During the first quarter, the global economy remained robust, reported Forbes. American companies were profitable (profitability is measured by earnings) and earnings per share for the S&P 500 Index are expected to increase during 2018. FactSet reported analysts currently estimate the S&P 500 Index will deliver double-digit earnings growth (18.5 percent overall) during 2018. Here’s what the analysts anticipate each quarter:

  • Q1: Earnings growth of 17.3 percent
  • Q2: Earnings growth of 19.1 percent
  • Q3: Earnings growth of 20.9 percent
  • Q4: Earnings growth of 17.1 percent

Improving expectations for American companies can be credited, in large part, to tax reform, which lowered corporate tax rates significantly. In addition, rising oil prices may help companies in the Energy sector, and rising interest rates may give a boost to companies in the Financials sector.

Despite a robust global economy, strong earnings, and improving earnings per share (EPS) expectations, the major U.S. stock indices delivered negative quarterly returns for the first time since 2015. On March 29, the last trading day of the quarter, the Dow closed at about 24,100.  If fundamentals are strong, why did major indices in the United States (and many indices around the world) finish the quarter lower? Financial Times suggested uncertainty might have something to do with the retreat:

“The tax cut has been achieved. We are no longer so sure that [President Trump’s] remaining ideas are so good, and most investors think his ideas about trade are downright terrible. And so the market has started reacting to presidential tweets… Most importantly, though, key assumptions have been stripped away. We can no longer rely on low volatility. And critically, the positive view of a low-inflation strong-growth future has been called into question – but only after the stock market had priced in that assumption as a done deal.”

Market declines may also reflect concern about valuations. One financial professional told Financial Times many asset classes have gone from being very expensive to being expensive. They haven’t yet gotten inexpensive.

Out like a lamb…
The last week of the quarter was a good one for U.S. stock markets, which pushed higher. However, the major indices were unable to overcome deficits accumulated earlier in the quarter. The Dow Jones Industrial Average gained 2.4 percent last week, finishing the quarter down 2.5 percent. The S&P 500 Index was up 2.0 percent last week, down 1.2 percent for the quarter. Likewise, the NASDAQ bounced 1.0 percent last week, but ended the quarter down 2.3 percent, reported Barron’s.

Data as of 3/29/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 2.0% -1.2% 11.9% 8.2% 10.1% 7.2%
Dow Jones Global ex-U.S. 0.6 -1.5 13.6 3.9 3.9 0.6
10-year Treasury Note (Yield Only) 2.7 NA 2.4 2.0 1.8 3.4
Gold (per ounce) -1.7 2.1 5.8 3.8 -3.5 3.6
Bloomberg Commodity Index 0.0 -0.8 2.4 -4.1 -8.5 -8.0
DJ Equity All REIT Total Return Index 3.7 -6.7 -0.3 2.7 6.7 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.

If you asked Artificial Intelligence (AI) to bake, what would it make? Janelle Shane at PopSci.com wrote, “When computers try to imitate humans, they often get confused. But simulated brain cells in so-called neural networks can mimic our problem-solving skills. An AI will look at a dataset, figure out its governing rules, and use those instructions to make something new. We already employ these bots to recognize faces, drive cars, and caption images for the blind. But can a computer cook?”

Shane addressed the question by training a computer’s neural network to write a recipe. The computer reviewed a dataset of more than 24,000 online recipes (647 of them began with the word chocolate and 8 included blood as an ingredient). After two days of processing, the network delivered a remarkable recipe that includes a title, category, ingredients, and directions, although the nonsensical word choices are likely to leave bakers uncertain about how to proceed:

 

CHOCOLATE BUTTERBROTH BLACK PUDDING
cheese/eggs
4 oz cocoa; finely ground
1teaspoon butter
½ cup milk
¼ teaspoon pepper
¼ cup rice cream, chopped
1 lb cream
1 sesame peel

– Date Holy –
1 large egg
1 powdered sugar serving barme
¼ cup butter or margarine, melted

Brown sugar, chocolate; baking powder, beer, lemon juice and salt in chunk in greased 9×2 inch cake. Chill until golden brown and bubbly. Place serve garlic half by pieoun on top to make more use bay. Place in frying pan in preheated oven. Sprinkle with fresh parsley for cooking. Eating dish to hect in pot of the oil, pullover half-and half…Yield: 1 cake”

AI seems to have missed an important governing rule for recipes: Instructions should not include unlisted ingredients and all ingredients should be included in the instructions. DATE HOLY is particularly baffling. The author suggested the neural network might have been trying for frosting. It is a cake, after all.

Weekly Focus – Think About It

“We are surrounded by hysteria about the future of artificial intelligence and robotics – hysteria about how powerful they will become, how quickly, and what they will do to jobs…Mistaken predictions lead to fears of things that are not going to happen, whether it’s the wide-scale destruction of jobs, the Singularity, or the advent of AI that has values different from ours and might try to destroy us. We need to push back on these mistakes.”

–Rodney Brooks, Australian robotics entrepreneur

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.

Securities offered through 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 line.

 

Sources:

https://www.barrons.com/articles/dow-25-000-how-high-can-it-go-1515213968

https://www.bloomberg.com/view/articles/2017-12-11/4-developments-to-watch-in-global-economy

https://www.forbes.com/sites/kenrapoza/2018/03/27/sorry-bears-these-big-market-corrections-are-not-evidence-the-end-is-near/#307d2be9fa38

https://insight.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_032918.pdf

https://insight.factset.com/record-high-increase-in-sp-500-eps-estimates-for-q1-and-cy-2018

https://finance.yahoo.com/quote/%5EDJI/history?p=%5EDJI

https://www.ft.com/content/05a60e04-3357-11e8-ac48-10c6fdc22f03

https://www.ft.com/content/1e6c15e4-3359-11e8-ac48-10c6fdc22f03

https://www.barrons.com/articles/dow-gains-569-points-but-falls-for-the-quarter-1522454402

https://www.popsci.com/neural-network-bakes-a-cake

https://www.technologyreview.com/s/609048/the-seven-deadly-sins-of-ai-predictions/

Weekly Market Commentary – January 29, 2018

by | Jan 29, 2018 | Weekly Stock Market Commentary

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

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

by | Jan 22, 2018 | Weekly Stock Market Commentary

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/ http://online.wsj.com/public/resources/documents/b-econoday.htm (Click on U.S. & Intl Recaps and select “Data reinforce global growth expectations”) 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 https://www.economist.com/news/leaders/21735024-whether-currency-cheap-or-dear-not-always-good-guide-its-fortunes-it-now-value  http://www.imf.org/external/pubs/ft/fandd/basics/ppp.htm https://www.brainyquote.com/quotes/john_burroughs_150290

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