Weekly Market
Commentary
July 3,
2017
The Markets
This is the way the quarter ends – with a central bank
scare.
Central
bankers are stodgy. They speak carefully. For many, reading the words ‘Federal
Reserve’ is enough to cause boredom to set in and web surfing to ensue.
Last
week, though, the European Central Bank and Bank of England cracked the ‘open
secret’ (i.e., central banks will provide less stimulus and increase rates at
some point), and investors did not like what they heard.
Central
bankers were quick to say they didn’t necessarily mean what people had heard,
but the rumor of less accommodative monetary policy was already moving markets.
Barron’s wrote:
“But
make no mistake: Last week was a game changer. Federal Reserve Chair Janet
Yellen fretted about the high level of asset prices, the Bank of England’s Mark
Carney hinted at a rate hike, and Mario Draghi suggested the European Central
Bank could be nearing the end of its bond buying…The market didn’t take it
sitting down. Long-term Treasury yields surged, resulting in a wider spread off
of short-term bond yields.”
A
wider spread between short- and long-term Treasuries could be good news. The Federal Reserve Bank of Cleveland explained:
“The
slope of the yield curve – the difference between the yields on short- and
long-term maturity bonds – has achieved some notoriety as a simple forecaster
of economic growth. The rule of thumb is that an inverted yield curve (short
rates above long rates) indicates a recession in about a year, and yield curve
inversions have preceded each of the last seven recessions…”
Central
bankers comments affected U.S. stock markets, too. The technology sector lost its
allure, while the possibility of rising interest rates made the financials sector
more attractive. It didn’t hurt that all major institutions passed the Fed’s
stress tests for the first time. That could translate into share buybacks and
higher dividends, reported Financial
Times.
There
were some notable statistics during the second quarter of 2017. For instance:
Investors
were preternaturally calm
Throughout
second quarter, investors have been confident the Standard & Poor’s 500
Index would offer a smooth ride. The CBOE Volatility Index (VIX), a.k.a. the
fear gauge, has only closed below 10 sixteen times; seven occurred during the
second quarter of 2017.
Consumer
sentiment was quite positive
Consumers
were feeling highly optimistic throughout the quarter. In June, the University of Michigan Consumer Sentiment
Survey reported, “Although consumer confidence slipped to its lowest level
since Trump was elected, the overall level still remains quite favorable. The
average level of the Sentiment Index during the first half of 2017 was 96.8,
the best half-year average since the second half of 2000…”
Investor
sentiment shifted into neutral
Last
week, the number of investors who were neutral (rather than bullish or bearish)
about markets hit its highest level in a year. The AAII Blog reported:
“This
year’s record highs for the S&P 500 and the NASDAQ have encouraged some
individual investors, but the Trump administration’s ability (or lack thereof)
to move forward on economic and tax policy remains on the forefront of many
others’ minds. Also playing a role in influencing sentiment are earnings,
valuations, concerns about the possibility of a pullback in stock prices, and
interest rates/monetary policy.”
The
U.S. economy appears to be growing, albeit slowly. Last week, the Federal Reserve Bank of Atlanta forecast
real GDP (Gross Domestic Product) growth during the second quarter of 2017 at
2.7 percent.
Data as of
6/30/17
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
-0.6%
|
8.2%
|
15.5%
|
7.3%
|
12.2%
|
4.8%
|
|
Dow Jones Global ex-U.S.
|
-0.2
|
12.6
|
17.4
|
-1.1
|
5.1
|
-1.2
|
|
10-year Treasury Note (Yield Only)
|
2.3
|
NA
|
1.5
|
2.5
|
1.6
|
5.0
|
|
Gold (per ounce)
|
-1.1
|
7.2
|
-5.9
|
-1.9
|
-4.8
|
6.6
|
|
Bloomberg Commodity Index
|
3.7
|
-5.6
|
-7.0
|
-15.0
|
-9.5
|
-7.0
|
|
DJ Equity All REIT Total
Return Index
|
-1.0
|
4.9
|
0.2
|
9.0
|
9.7
|
5.9
|
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.
You say potato, i say potato. A
persistent debate among the geek set is how to pronounce the abbreviation for
Graphics Interchange Format (GIF). You know, GIFs, the animated images you see
online. Graphics starts with a hard ‘g’ sound, but pronunciation conventions
suggest that ‘g’ makes a soft sound before the vowel ‘i.’ The Economist wrote:
“Some
questions will be pondered for all eternity. What is the meaning of life? Where
do you go when you die? And, even more puzzlingly, what is the right way to
pronounce “GIF?”…Debates over whether it begins with a hard “g,” as in “gift,”
or a soft one, as in “giraffe,” can make discussions about religion or politics
look civil by comparison. Well aware of the risk that taking a side could lead
to protests, boycotts, or worse, the Oxford English Dictionary and
Merriam-Webster have maintained strict neutrality. They proclaim that both
pronunciations are acceptable, betraying nary a hint of favoritism.”
It’s
interesting that dictionaries, those arbiters of correct spelling and
pronunciation, would stake out neutral ground. After all, in the early days of
the United States correct spelling was open to interpretation. In the American Constitution,
the word ‘choose’ is spelled ‘chuse’ and ‘Pennsylvania’ was spelled
‘Pensylvania’ (the Liberty Bell inscription has one ‘n,’ as well). Also, ‘defense’
was spelled ‘defence.’
The
first American dictionary wasn’t published until 1806. Its author, Noah
Webster, decided many spelling conventions were artificial, so he imposed the
standards he preferred, changing ‘musick’ to ‘music,’ ‘centre’ to ‘center,’ and
‘women to wimmen.’ Not all of his changes were accepted.
This year, in an effort to resolve the GIF issue once and for all,
a forum for computer programmers surveyed 50,000 users in 200 countries.
Sixty-five percent believed a hard ‘g’ pronunciation was correct, while 26
percent believed the soft ‘g’ was right.
The survey results inflamed soft ‘g’ users,
who claim it was rigged.
Weekly
Focus – Think About It
“My seven-year-old grandson sleeps
just down the hall from me, and he wakes up a lot of mornings and he says, ‘You
know, this could be the best day ever.’ And other times, in the middle of the
night, he calls out in a tremulous voice, ‘Nana, will you ever get sick and
die?’ I think this pretty much says it for me and most of the people I know,
that we're a mixed grill of happy anticipation and dread.”
--Anne
Lamott, American novelist and non-fiction writer
Best regards,
Womack
Investment Advisers, Inc.
WOMACK INVESTMENT ADVISERS, INC.
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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/a-game-changing-week-for-markets-sees-nasdaq-fall-2-1498887177?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-03-17_Barrons-A_Game-Changing_Week_for_Markets_Sees_NASDAQ_Fall_2_Percent-Footnote_2.pdf)
https://www.ft.com/content/d7c47dae-5dd7-11e7-9bc8-8055f264aa8b (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-03-17_FinancialTimes-Second_Quarter_Ends_with_Fierce_Rotation_Away_from_Tech_Stocks-Footnote_4.pdf)
http://www.cboe.com/products/vix-index-volatility/vix-options-and-futures/vix-index/vix-historical-data (click on “VIX data for 2004 to present”)
http://www.sca.isr.umich.edu (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-03-17_SurveysOfConsumers-Final_Results_for_June_2017-Footnote_7.pdf)
https://www.economist.com/blogs/graphicdetail/2017/06/daily-chart-21 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-03-17_TheEconomist-How_Do_You_Pronounce_GIF-Footnote_11.pdf)
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