Womack Weekly
Commentary
March 13,
2017
The Markets
Rate hike ahead…maybe.
Last week’s U.S. employment report was better
than expected. The United States added 235,000 jobs in February, which was a
few more than economists had forecast.
It may seem counter-intuitive, but the
positive economic data helped push U.S. stock markets lower. The jobs report
was a sign the American economy continues to be strong and indicates a rate
hike may be on the horizon. Barron’s
reported:
“If anything, the data just confirms what
we’ve known for a while now: The economy is growing, and one rate hike is
unlikely to do much damage…There’s still a strong likelihood of some sort of
economic stimulus plan from the Trump administration sometime this year…But the
fact that tax cuts and infrastructure projects are even being considered at a
time when the U.S. economy is adding 200,000-plus jobs a month is ‘unprecedented’…”
Federal Reserve (Fed) interest rate hikes affect
stock markets because they make borrowing more expensive. Higher borrowing
costs may reduce the amounts people and companies spend and affect companies’ profitability
and share values.
At the end of last week, CME’s FedWatch Tool, which gauges the likelihood of changes in U.S.
monetary policy, indicated there was better than an 88 percent chance of a rate
hike when the Fed meets on March 15.
It’s interesting to note investor sentiment has
become less optimistic. Last week, the AAII
Investor Sentiment Survey showed investor pessimism had reached its highest
level since February 2016. Bearish sentiment increased by almost 11 points,
finishing at 46.5 percent. That’s significantly higher than the historic
average of 30.5 percent. Bullish sentiment fell by almost eight points to 30
percent. That’s below the historic average of 38.5 percent. The AAII survey is often used as a
contrarian indicator.
Data as of
3/10/17
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard & Poor's 500 (Domestic
Stocks)
|
-0.4%
|
6.0%
|
19.3%
|
8.1%
|
11.6%
|
5.4%
|
Dow Jones Global ex-U.S.
|
0.1
|
5.2
|
11.7
|
-1.7
|
1.9
|
-0.9
|
10-year Treasury Note (Yield Only)
|
2.6
|
NA
|
1.9
|
2.8
|
2.0
|
4.6
|
Gold (per ounce)
|
-1.9
|
3.8
|
-5.0
|
-3.6
|
-6.7
|
6.4
|
Bloomberg Commodity Index
|
-3.4
|
-3.7
|
6.2
|
-14.6
|
-10.3
|
-6.6
|
DJ Equity All REIT Total Return Index
|
-4.2
|
-1.1
|
8.3
|
9.8
|
10.3
|
4.4
|
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.
They’re all on the pro rodeo circuit. They all grow corn
and soybeans. They all have renowned universities. In addition, according to The Economist, Texas, Iowa, Nebraska,
Mississippi, Alabama, and Michigan are likely to experience the biggest
increase in tariffs – as a percent of state gross domestic product (GDP) – if
and when the North American Free-Trade Agreement (NAFTA) is revised.
Under NAFTA, goods are imported from and
exported to Mexico and Canada without tariffs, which are essentially taxes on imported
goods. Tariffs typically increase the cost of imports, making them less
attractive to consumers. This can help support the market for domestically
produced goods and help protect domestic jobs and industries. Currently, the
United States sends about $240 billion worth of goods to Mexico, each year, and
Mexico sends even more to the United States.
The Economist’s analysis measured potential increases in tariffs, in tandem with the
volume of state exports to Mexico, to determine the possible impact on a
state’s economy. (The analysis did not include Canadian exports, even though Canada
is also a NAFTA participant.) While the effect on the majority of states’
economies would be relatively small, the impact on others could be more
significant:
“In 2015, Iowa’s farmers shipped $132M of
high-fructose corn syrup to Mexico. Without NAFTA, Mexico would slap a
tooth-aching 100 percent tariff on the stuff…Among this group, Texas stands
out. It faces an average tariff of only 3 percent, but its exports to Mexico
are worth nearly 6 percent of its GDP (compared with 1.3 percent nationally)…Michigan
also fits this category. Its exports of cars and parts – many of which end up
back in America – would attract tariffs averaging only about 5 percent. But,
with such shipments totaling $4.1B, the bill would be painfully large.”
No one yet knows how renegotiating NAFTA may affect
any of the countries involved because talks are not expected to begin for
several months.
Weekly
Focus – Think About It
“Making good decisions involves hard work.
Important decisions are made in the face of great uncertainty, and often under
time pressure. The world is a complex place: People and organizations respond
to any decision, working together or against one another, in ways that defy
comprehension. There are too many factors to consider. There is rarely an
abundance of relevant, trusted data that bears directly on the matter at hand.
Quite the contrary – there are plenty of partially relevant facts from disparate
sources – some of which can be trusted, some not – pointing in different
directions. With this backdrop, it is easy to see how one can fall into the
trap of making the decision first and then finding the data to back it up
later. It is so much faster. But faster is not the same as well-thought-out.”
--Thomas C. Redman, “the Data Doc”
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
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
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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/major-indexes-suffer-their-first-loss-in-weeks-1489210563?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/03-13-17_Barrons-Major_Indexes_Suffer_Their_First_Loss_in_Weeks-Footnote_1.pdf)
http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/03-13-17_CMEGroup-Countdown_to_FOMC-Footnote_3.pdf)
http://www.economist.com/news/united-states/21716057-rural-republican-states-have-most-lose-farmers-and-texans-would-lose-most (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/03-13-17_TheEconomist-Farmers_and_Texans_Would_Lose_Most_from_Barriers_to_Trade_with_Mexico-Footnote_9.pdf)
https://www.economist.com/blogs/graphicdetail/2017/02/daily-chart-2 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/03-13-17_TheEconomist-Which_American_Producers_Would_Suffer_from_Ending_NAFTA-Footnote_10.pdf)
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