Monday, June 26, 2017

Womack Weekly Commentary: June 26, 2017



Weekly Market Commentary

 
June 26, 2017

The Markets

It has been a very good year, so far.

Through the end of last week, the Standard & Poor’s 500 Index posted 24 record highs and delivered returns in the high single digits. The MSCI World ex USA Index was up more than 11 percent, and the MSCI Emerging Markets Index gained more than 17 percent.

After reading those numbers, many people would assume bond markets are down for the year. After all, stock and bond markets tend to move in different directions. Zacks explained,

“Stock and bond prices usually move in opposite directions. When the stock market is not doing well and becomes risky for investors, investors withdraw their money and put it into bonds, which they consider safer. This increased demand raises bond prices. When stocks rally and the risk seems justified, investors may move out of bonds and into stocks, driving stock prices up further.”

That hasn’t been the case recently. Bonds have been delivering attractive returns, too. The Bloomberg Barclay’s U.S. Aggregate Bond Index is up 2.9 percent year-to-date, while its Global Aggregate Bond Index is up 4.7 percent, and its Emerging Markets Aggregate Bond Index is up 5.5 percent.

So, why are stock and bond markets both showing attractive gains for the year?

There are a number of possibilities. Zacks described one of the most straightforward. “When stocks are doing well but investors remain skeptical about how long they will do well, stock and bond prices can rise together. This is because investors continue to put money in stocks but also put money into bonds just in case the stock market drops.”

There is nothing wrong with a little skepticism.


Data as of 6/23/17
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
0.2%
8.9%
15.4%
7.5%
13.2%
5.0%
Dow Jones Global ex-U.S.
0.1
12.8
14.2
-1.0
6.1
-1.1
10-year Treasury Note (Yield Only)
2.1
NA
1.7
2.6
1.6
5.1
Gold (per ounce)
0.0
8.3
-0.5
-1.5
-4.4
6.8
Bloomberg Commodity Index
-2.0
-9.0
-9.9
-16.4
-9.4
-7.3
DJ Equity All REIT Total Return Index
0.0
6.0
4.7
9.5
11.2
6.4
S&P 500, Dow Jones Global ex-U.S., 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 live in Norway, Denmark, Iceland, Switzerland, or Finland, then you’re among the happiest people in the world. On the other hand, if you reside in Sierra Leone, Bulgaria, Egypt, Palestinian Territories, or Tunisia, you’re among the least happy, according to the United Nation’s World Happiness Report 2017.

The report relies on six measurements to “explain happiness differences among countries and through time.” These include:

·         Income (GDP per capita)
·         Healthy life expectancy (Relative to other nations)
·         Social support (Having someone to count on in times of trouble)
·         Generosity (Charitable donations)
·         Freedom (To make life choices)
·         Trust (Defined as the absence of corruption in business and government)

While measuring ‘happiness’ or ‘satisfaction with life’ may seem frivolous to some, others believe it should be a cornerstone of governance. The report’s authors explained, “Happiness is increasingly considered to be the proper measure of social progress and the goal of public policy.”

For instance, Norway, which is an oil-rich nation, is the happiest country in the world even though oil prices are relatively low. The World Happiness Report 2017 suggests the country “achieves and maintains its high happiness not because of its oil wealth, but in spite of it. By choosing to produce its oil slowly, and investing the proceeds for the future rather than spending them in the present, Norway has insulated itself from the boom and bust cycle of many other resource-rich economies.”

The United States ranks 14th in the world. While our country’s income and healthy life expectancy remain high, keeping us at the top of the list, other factors have caused Americans’ happiness to deteriorate. The study found “less social support, less sense of personal freedom, lower donations, and more perceived corruption of government and business.” America’s issues, the report opines, are social, rather than economic.

Weekly Focus – Think About It

“Brigadier General Wilma Vaught spearheaded…the Women in Military Service for America Memorial, a museum-style memorial on the outskirts of Arlington National Cemetery…There are the thigh-high black leather boots worn by enlisted women to protect their legs from mosquitos before they were allowed to wear pants. The cape of a nurse working at a frontline casualty cleaning station in World War I. Army-issue glasses painted with red nail polish worn by the only African-American WAC unit dispatched overseas in World War II—sent to sort letters under the motto ‘No Mail, Low Morale.’”
-- National Geographic, May 2017

Best regards,

Womack Investment Advisers, Inc.

WOMACK INVESTMENT ADVISERS, INC.
Oklahoma / Main Office: 1366 E. 15th Street - Edmond, OK  73013
California Office: 4660 La Jolla Village Dr., Ste. 500 - San Diego, CA 92122

Phone (405) 340-1717 - Toll Free (877) 340-1717

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.
* 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 the 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 Womack Weekly Commentary please reply to this e-mail with “Unsubscribe” in the subject line, or write us at megan@womackadvisers.com
Sources:
or go here: https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/Fn+1.pdf
[3] https://www.msci.com/end-of-day-data-search or go here: https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/Fn+3.pdf

Friday, June 23, 2017

What Comes Next: Bull, Bear, or Correction?



The bull market in U.S. stocks has been charging ahead for more than eight years.1

While that’s young in people years, it’s ancient in bull market terms. Since World War II, the longest bull market in U.S. stocks lasted for almost nine-and-a-half years. The shortest sputtered out after just 13 months. On average, bull markets last for slightly less than five years, according to Fortune.2

So, how much longer will this bull market persist? No one knows for certain.

In fact, financial professionals have different opinions about the future of the markets. Some believe this bull market will plod ahead, while others believe a bear may be prowling. Often, these beliefs reflect specific aspects of the market. For example:

Economic factors: In late May 2017, Chief Investment Officer and founding member at Advisors Capital Management, Charles Lieberman, wrote in Bloomberg View he expects the bull market to continue:3

“The market has it essentially right: U.S. economic growth is continuing at a moderate pace, an economic recovery is finally underway in Europe, inflation is under control, corporate profits are rising, and there is some prospect for tax reform and deregulation, even if whatever gets implemented is less than what is really needed. These conditions imply continued growth in corporate profits.”

Lieberman believes investors are holding an avalanche of cash and waiting for an opportunity to invest. If that money begins to move into stocks, he wrote, “That’s when we should really start to worry the market might be getting vulnerable."3

Stock market valuations: While fundamentals are a critical component in assessing company value, earnings must be considered in conjunction with stock price to determine whether a company’s shares are fairly priced.

It’s also possible to consider whether an index is fairly priced. The cyclically adjusted price-to-earnings (CAPE) ratio measures stock market valuations. In early June 2017, it was well above its long-term average, which may indicate the stock market is expensive and a downturn is ahead.4, 5

Nobel laureate Robert Shiller, Sterling Professor of Economics at Yale University and creator of the CAPE ratio, told CNBC:6

“[The U.S. stock market] hasn’t been this overvalued except for a couple of times in history – around 1929, around 2000…The CAPE ratio was about the same in 1998 but it continued skyward as the dot-com froth escalated into a full-fledged bubble. We could go back up there. And we’re in an oddball enough mood that we might. So, I’m not saying pull out of the market – I’m saying it looks dangerous now, but it could keep going up.”

Corporate profitability: Jeremy Grantham of GMO thinks high market valuations are, in part, owed to corporations’ “increased monopoly, political, and brand power.” He doesn’t expect a significant adjustment in valuations until interest rates begin to move higher, a change that may take place over an extended period of decades. Grantham writes:7

“…if you are expecting a quick or explosive market decline in the S&P 500 that will return us to pre-1997 ratios (perhaps because that is the kind of thing that happened in the past), then you should at least be prepared to be frustrated for some considerable further time: until you can feel the process of the real interest rate structure moving back up toward its old level…”

Grantham advises investors, “There are two important things to carry in your mind: First, the market now and in the past acts as if it believes the current higher levels of profitability are permanent; and second, a regular bear market of 15 percent to 20 percent can always occur for any one of many reasons.”7

The one thing we know for certain is bull markets are often interrupted by corrections, which are declines of 10 percent or more in the value of the market. In addition, we know that, eventually, bull markets end and bear markets begin. Typically, the start of a bear market is signaled by a 20 percent or greater decline in the value of the market.8

When the market corrects, or a bear market arrives, it’s important to keep your wits about you. A drop in stock market valuations often creates buying opportunities. Selling during a correction or bear market may not be a winning strategy. It may be better to stay calm and refuse to sell low. Historically, after all, bull markets follow bear markets.

What should you be doing now? Take some money off the table by taking profits in positions that have had a nice run. Keep your losses to a minimum by using sell stop orders. These actions will help you raise some cash to reinvest when a correction or bear market occurs. Start a list of potential buys that you would invest in if they were to pull back significantly. Be prepared and be proactive—get your game plan ready for execution before the “game” begins.

Click here to watch this informative video to see if you are on the right track with your portfolio.

Best Regards,

Greg Womack, CFP


Sources:

Monday, June 19, 2017

Womack Weekly Commentary: June 19, 2017



­Weekly Market Commentary


June 19, 2017

The Markets

All eyes on inflation!

Inflation is the way economists measure changes in the prices of goods and services. The United States has enjoyed relatively low inflation for a significant period of time. Last week, the consumer price index indicated inflation had moved lower in May.

Inflation is our focus because it is at the core of two very different opinions that currently are influencing markets and investors. A commentary on the Kitco Blog explained:

“One of the most important economic debates today is whether the economy will experience reflation or deflation (or low inflation) in the upcoming months. Has the recent reflation been only a temporary jump? Or has it marked the beginning of a new trend? Is the global economy accelerating or are we heading into the next recession?”

Another key factor is employment. Traditional economic theory holds when unemployment falls (i.e., when more people are employed) inflation will rise because demand for workers will push wages higher. That hasn’t happened yet in the United States even though unemployment has fallen significantly.

In fact, inflation remains stubbornly below the Federal Reserve’s 2 percent target, reported The Economist. Regardless, the Federal Reserve believes higher inflation is ahead, so it raised the Fed funds rate last week and indicated it was preparing to shrink its balance sheet if the economy continues to grow as expected.

There is a group that disagrees with the Fed. They believe inflation will remain low regardless of employment levels. Barron’s wrote:

“In the theoretical world, low unemployment threatens to unleash a torrent of inflation, which needs to be staved off by tighter monetary policies. Back in the real world, disruption, innovation, and competition relentlessly drive down prices while wage growth is hard to come by.”

The difference of opinion was apparent in stock and bond markets last week. In the bond market, yields on 10-year Treasuries moved lower after the Federal Reserve raised rates. In the U.S. stock market, the top-performing sectors were Industrials, which tend to do well when investors are optimistic about growth, and Utilities, which tend to do well when investors are worried about the future.


Data as of 6/16/17
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor's 500 (Domestic Stocks)
0.1%
8.7%
17.1%
7.9%
12.6%
4.7%
Dow Jones Global ex-U.S.
-0.4
12.7
19.7
-0.8
5.6
-1.2
10-year Treasury Note (Yield Only)
2.2
NA
1.6
2.6
1.6
5.3
Gold (per ounce)
-0.9
8.3
-4.2
-0.6
-4.9
6.7
Bloomberg Commodity Index
-1.4
-7.1
-6.8
-15.5
-9.0
-7.4
DJ Equity All REIT Total Return Index
1.4
6.0
5.8
10.1
10.8
6.0
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

a century-old medicine may help with autism. Estimates from the Centers for Disease Control suggest one in every 68 American children has been identified with autism spectrum disorder. Few effective treatments have been found, but a medicine that has been around for more than a century may prove helpful.

The Economist reported a very small human trial – only 10 boys were involved – showed a drug used since 1916 to treat the sleeping sickness spread by tsetse flies, may help children with autism. The trial paired the participating boys by age, IQ, and their level of autism. In each pair, one boy received the drug and the other received a placebo:

“Every participant given suramin showed statistically significant improvements in their performance on the tests at seven days. Those on the placebo showed no significant improvement. At 45 days, the boys who were given the drug were performing better on the tests than they had before the infusion, but it was clear that as suramin was leaving their system, their autistic traits were returning.”

The study’s results were published in the Annals of Clinical and Translational Neurology in late May; however, the research summary did not include parent’s personal statements. The study’s first author Dr. Robert Naviaux published those statements on his website.

One parent wrote, “Immediately after the infusion, a kind of inner cheerfulness started to come out. When we were walking back to the car, he was holding me hand. He started giggling and looked up at me and said, ‘I just don’t know why I’m so happy.’”

Another wrote, “In fact, his teachers at school were unaware of the trial and one day we got a note from the teacher asking about what we had changed. We were naturally concerned and when we asked they told us that, 'He has completed 3 weeks of schooling in 3 days!'”

Let’s hope larger trials prove the drug to be safe and its positive effects enduring.

Weekly Focus – Think About It

“If you’ve met one person with autism, you’ve met one person with autism.” 
--Dr. Stephen Shore, Autistic professor of special education at Adelphi University

Best regards,

Womack Investment Advisers, Inc.
  
WOMACK INVESTMENT ADVISERS, INC.
Oklahoma / Main Office: 1366 E. 15th Street - Edmond, OK  73013
California Office: 4660 La Jolla Village Dr., Ste. 500 - San Diego, CA 92122

Phone (405) 340-1717 - Toll Free (877) 340-1717

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.
* 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 Womack Weekly Commentary please reply to this e-mail with “Unsubscribe” in the subject line, or write us at michelle@womackadvisers.com
Sources:
http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on U.S. & Intl Recaps, then "Central banks move markets")