Womack Weekly
Commentary
April 3,
2017
The Markets
Happy birthday!
Toward
the end of the first quarter, the bull market celebrated its eighth birthday.
David Kelly, Chief Global Strategist at J.P.
Morgan Asset Management wrote:
“Eight
years ago, on March 9, 2009, the S&P 500 closed at 677, down 57 percent
from where it had been just 18 months earlier. 10-year Treasury yields had
fallen from 3.6 percent to 2.9 percent over the previous year…Investors were
depressed and scared. However, good long-term returns from stocks were almost
inevitable at that point since economic and market fundamentals were at
unsustainably low levels…Eight years later, the financial landscape has changed
completely…it still makes sense to be in long-term investments including both
domestic stocks and bonds. However, it is time to adopt a more diversified and
thoughtful approach that recognizes the importance of valuations…”
Valuations
were heady during first quarter
Stock
valuations reflect how much a share of a company’s stock, or shares of
companies in an index, may be worth. Valuations can help investors understand
whether shares are expensive, reasonable, or inexpensive. One way to measure
valuation is to look at trailing 12-month price-to-earnings (P/E). This gauge reflects
how much an investor must pay to receive one dollar of the company’s earnings.
For
instance, on March 31, FactSet
reported the trailing 12-month P/E of the Standard & Poor’s 500 Index was
21.8. That’s well above the 10-year average of 16.6 and the five-year average
of 17.1. This suggests shares of the overall index are expensive. Keep in mind,
even when the index appears to be expensive, the valuations of specific
companies or sectors within the index may still be attractive.
Animal
spirits abounded
The
CEO of JPMorgan attributed investors’
enthusiasm for stocks during the first quarter to ‘animal spirits,’ reported CNN Money. Animal spirits is a term
coined by John Maynard Keynes. It describes “…a
spontaneous urge to action rather than inaction, and not as the outcome of a
weighted average of quantitative benefits multiplied by quantitative
probabilities." Investors were inspired by the new administration’s
growth agenda, including promises of lower taxes and less regulation.
The U.S. economy
grew (but we’re not sure how much)
People
and businesses may have been more enthusiastic than data suggests they should
be. Financial Times cited research
from Morgan Stanley that shows a
growing gap between ‘hard’ economic data (like slowing corporate spending and lower
retail sales) and ‘soft’ economic data (like consumer and business optimism).
The disparity has created uncertainty about the pace of economic growth during the
first quarter of 2017. “The Atlanta Federal Reserve’s model, which…focuses on
hard data, projects an annualized rate of just 1 percent. However, the New York
Fed’s model, which ‘incorporates soft data into its tracking,’ forecasts 3
percent growth.”
The Federal
Reserve acted
With
employment and inflation data approaching Fed targets, the Federal Open Market
Committee raised rates in March, pushing the Fed funds target rate into the
0.75 percent to 1 percent range, reported Financial
Times. More rate hikes are expected during 2017.
Brexit was launched
The
end of the first quarter of 2017 marked a new beginning for Britain. On March
29, Prime Minister Theresa May officially launched Britain’s exit from the
European Union. The United Kingdom now has two years to negotiate terms with the
European Union (unless all members of the EU unanimously approve an extension).
When you consider how long trade agreement negotiations normally
take, it appears the task ahead for Britain and the EU is akin to running a
marathon in 30 minutes. For example, Canada
and the EU began discussing a trade agreement in 2007. It has yet to be finalized.
United States and European national stock market
indices finished the quarter higher.
Data as of
3/31/17
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
0.8%
|
5.5%
|
14.7%
|
7.8%
|
10.7%
|
5.2%
|
|
Dow Jones Global ex-U.S.
|
-0.4
|
7.4
|
10.6
|
-1.2
|
2.1
|
-1.0
|
|
10-year Treasury Note (Yield Only)
|
2.4
|
NA
|
1.8
|
2.7
|
2.2
|
4.6
|
|
Gold (per ounce)
|
-0.2
|
7.4
|
0.6
|
-1.2
|
-5.8
|
6.6
|
|
Bloomberg Commodity Index
|
1.0
|
-2.5
|
8.3
|
-14.1
|
-9.9
|
-6.7
|
|
DJ Equity All REIT Total
Return Index
|
1.0
|
2.5
|
5.2
|
10.6
|
10.2
|
4.9
|
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.
the tooth fairy is awfully generous these
days. Since 1998, an insurance firm
has conducted a poll to determine how much swag the tooth fairy or, depending
on your country, the magical mouse, elf, brownie, or tooth rat has been leaving
behind for children who’ve lost their teeth.
When
the poll began, the going rate for a tooth was about $1.50. The most recent
survey found that, in the United States, a tooth was pulling in about $4.66!
The going rate in other nations was similar:
·
C$6.11 in Canada
($4.59 U.S.)
·
¥525.82 in Japan
($4.72 U.S.)
·
€4.38 in Ireland
and Spain ($4.67 U.S.)
·
£3.75 in England
($4.70 U.S.)
·
R$14.47 in Brazil
($4.63 U.S.)
·
₡2613.42 in Costa Rica
($4.66 U.S.)
NPR’s Planet Money examined whether the value of lost teeth has kept
pace with inflation. They posited a tooth was worth about $0.50 in the 1970s. If
the value of a tooth had risen with inflation, it would be worth less than
$3.00 today. So, the value of a lost tooth has increased faster than the rate
of inflation – similar to college tuition!
Weekly
Focus – Think About It
“But the real
magic and the secret source behind collaborative consumption marketplaces…isn't
the inventory or the money. It's using the power of technology to build trust
between strangers…Because, at its core, it's about empowerment. It's about
empowering people to make meaningful connections, connections that are enabling
us to rediscover a humanness that we've lost somewhere along the way…”
--Rachel
Botsman, Business consultant
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
Website: www.womackadvisers.com
P.S. Please feel free to forward this commentary
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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.
* To unsubscribe from the Womack
Weekly Commentary please reply to this e-mail with “Unsubscribe” in the subject
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Sources:
https://www.ft.com/content/24843018-c6fc-36cf-aa0c-87a1bf6a61f5 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/04-03-17_FinancialTimes-Morgan_Stanley_Flags_Record_Gap_Between_Hard_and_Soft_US_Economic_Data-Footnote_6.pdf)
https://www.ft.com/content/6723f69c-09a4-11e7-ac5a-903b21361b43
(or
go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/04-03-17_FinancialTimes-Fed_Increases_Interest_Rates_as_Inflation_Pressures_Loom-Footnote_7.pdf)
http://www.economist.com/news/britain/21719758-it-leaves-britain-little-time-get-through-bulging-contentious-agenda-two-year-countdown
(or
go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/04-03-17_TheEconomist-The_Two-Year_Countdown_to_Brexit_has_Begun-Footnote_8.pdf)
http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html
(Click on U.S. & Intl Recaps, "The clock is ticking,” and scroll down
to Global Stock Market Recap) (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/04-03-17_Barrons-Global_Stock_Market_Recap-Footnote_9.pdf)
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