Womack Weekly Commentary
February
13, 2017
The Markets
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,
Womack Investment Advisers,
Inc.
WOMACK
INVESTMENT ADVISERS, INC.
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California Office: 4660 La Jolla Village Dr., Ste. 500 - San Diego, CA 92122
Phone (405) 340-1717 - Toll Free (877) 340-1717
Website: www.womackadvisers.com
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*
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.
*
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Sources:
http://www.barrons.com/articles/magical-mystery-tax-plan-1486794351?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-13-17_Barrons-Magical_Mystery_Tax_Plan-Footnote_1.pdf)
http://www.sca.isr.umich.edu (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-13-17_UniversityofMichigan-Surveys_of_Consumers-Footnote_3.pdf)
http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html?mod=BOL_Nav_MAR_hps (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-13-17_Barrons-Yellen_to_Give_Semiannual_Monetary_Policy_Testimony-Footnote_4.pdf)
https://www.ft.com/content/7c25dd1c-ee1f-11e6-930f-061b01e23655 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-13-17_FinancialTimes-MPs_Give_Green_Light_for_Theresa_May_to_Trigger_Brexit-Footnote_5.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 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-13-17_TheEconomist-The_Multi-Billion-Euro_Exit_Charge_that_Could_Sink_Brexit_Talks-Footnote_7.pdf)
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