MARKET COMMENTARY 12/11/2017

MARKET COMMENTARY 12/11/2017

The Markets

“It’s the hap- happiest season of all.”

While holidays don’t make everyone happy, investors should be feeling festive. The Standard & Poor’s 500 Index is up more than 18 percent year-to-date. The Dow Jones Global ex U.S. Index is up about 21 percent year-to-date (refer to the table), and Treasury bond yields are lower than they were at the start of the year.

In addition, the CBOE Volatility Index (VIX), a measure of how unpredictable investors expect the S&P 500 Index to be over the short-term, finished the week below 10. A low VIX reading means investors expect calm markets through the end of the year.

Some are wary of the optimism that pervades markets, though. Barron’s wrote:

“In fact, everything’s going well right now – really well…The Citigroup U.S. Economic Surprise Index – a metric designed to measure the extent to which economic data have been beating or missing expectations – is near its highest level since January 2014, a sign of just how smoothly everything’s been going. The problem is that once the data have been surprising by this much, for this long, it gets hard for good news to provide much more of a boost…”

There was a disappointing piece of economic news last week concerning wages. Unemployment has fallen to a 17-year low (4.1 percent), and unemployment in the manufacturing sector is at 2.6 percent, an all-time low. It appears demand for labor is high and supply is low. That should translate into higher wages, but it hasn’t yet. Average hourly earnings are up 2.5 percent year-on-year. That’s an improvement on October, but not much of one.

A lot of folks are scratching their heads wondering when inflation is going to move higher. The Fed has been expecting it to happen for a while. Maybe 2018 will be the year.

Data as of 12/8/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.4% 18.4% 18.0% 8.8% 13.3% 5.8%
Dow Jones Global ex-U.S. 0.0 21.0 20.8 4.1 4.7 -0.8
10-year Treasury Note (Yield Only) 2.4 NA 2.4 2.3 1.6 4.2
Gold (per ounce) -2.0 7.9 6.8 1.6 -6.1 4.5
Bloomberg Commodity Index -2.9 -4.0 -4.1 -9.2 -9.9 -7.2
DJ Equity All REIT Total Return Index -9.5 -1.1 -0.1 3.8 8.3 5.7
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.

ARE YOU CONCERNED ABOUT HUMAN OBSOLESCENCE?Researchers from the University of Oxford and Yale University asked experts at several artificial intelligence (AI) conferences how long it would be before machines became better than humans at various tasks. The answers weren’t encouraging.

Overall, researchers think there is a 50 percent chance that AI will outperform humans at all tasks within 45 years. They also said it’s possible many jobs humans do now will be automated within 120 years. Asian survey participants expect the change to happen more quickly than North American participants do.

Wondering if this might affect you? Here are a few of the time frames as determined by averaging survey participants’ answers. Machines may be better at:

  • Translating languages by 2024
  • Writing high-school essays by 2026 (Would this be cheating?)
  • Driving trucks by 2027
  • Working in retail by 2031
  • Writing bestselling books by 2049
  • Working as surgeons by 2053

While the idea of human employment prospects becoming more limited is disturbing, there is still time to capitalize on shorter-term opportunities. For example, eSports is a booming industry. FactSet reported, “Last year’s League of Legends World Championship sold out the Los Angeles Staples Center in less than an hour…an additional 43 million tuned in online – for context, the 2016 NBA Finals Game 7 broke records with 30 million viewers…” The League of Legends champions took home about $1.5 million in 2017.

If you can’t picture yourself encouraging your loved ones to spend hours playing video games, perhaps an online or bricks and mortar eSports store is an option. According to reports from Statista, the eSports market is growing 40 percent year-over-year globally and is expected to generate about $1.5 billion by 2020.

Weekly Focus – Think About It

“Gamers always believe that an epic win is possible and that it’s always worth trying, and trying now. Gamers don’t sit around.”

Jane McGonigal, American game designer and author

MARKET COMMENTARY 12/04/2017

MARKET COMMENTARY 12/04/2017

The Markets

What will it take to shake investors’ confidence?

From the perspective of unsettling events, last week was jam-packed. North Korea claimed to have the capability to strike the United States with a nuclear missile, tax reform continued to travel a controversial path through the House and Senate, and former national security adviser Michael Flynn pled guilty to lying to the FBI about conversations with Russia’s ambassador.

U.S. stock markets weren’t immune to these events and some lost value. However, the Dow Jones Industrial Average and the Standard & Poor’s 500 Index didn’t stay down for long. Both indices finished the week higher.

Barron’s reported black-box trading may have been the reason “…the Dow shed 400 points from peak to trough in a matter of minutes. The drop happened so quickly that some opined that humans couldn’t have been responsible for the tumble. ‘No way real traders were moving that fast,’ says Andrew Brenner, head of international fixed income securities at NatAlliance Securities. ‘Clearly, it was algorithms taking over.'”

Investor sentiment remained largely undented. The AAII Sentiment Survey showed slightly more investors were bullish near week’s end than had been the previous week. Bearishness was also up, gaining 2.6 percent. Fewer investors were neutral about markets. Despite an increase in bullish sentiment, the level was below the historic average for bullishness for the 39th time in 2017. (The AAII survey runs from Thursday to Thursday, so it did not reflect any changes in sentiment that may have occurred after reports of Michael Flynn’s indictment and cooperation with special investigators.)

The CNN/Money Fear & Greed Index is an investor sentiment gauge that relies on seven market indicators – stock price momentum, strength, and breadth, put and call options, junk bond demand, market volatility, and safe haven demand – to measure whether fear or greed is driving the market. Last week, the needle was in the Greed range, as it has been for some time.

 

Data as of 12/1/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 1.5% 18.0% 20.6% 8.8% 13.4% 6.0%
Dow Jones Global ex-U.S. -1.6 21.1 23.8 3.8 4.9 -0.7
10-year Treasury Note (Yield Only) 2.4 NA 2.4 2.2 1.6 3.9
Gold (per ounce) -1.2 10.0 9.8 2.2 -5.8 5.0
Bloomberg Commodity Index -0.6 -1.2 -0.5 -9.0 -9.6 -6.9
DJ Equity All REIT Total Return Index -0.5 9.2 15.8 7.5 10.7 7.3
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.

RETIREMENT REQUIREMENTS. For a number of years, policymakers have been focused on finding ways to help Americans become better financially prepared for retirement. Studies have found having access to payroll-deduction retirement savings plans at work makes it 15 times more likely Americans will save for the future. Consequently, policymakers have focused their attention on smaller companies. About 36 percent of Americans work for companies with fewer than 100 employees, and many of these businesses do not offer retirement plans.

Last July, Oregon launched OregonSaves, the state’s auto-IRA program. Companies that don’t have workplace retirement plans are required to facilitate the program by:

  • Providing information to set up Roth IRA accounts for employees
  • Making payroll deductions to the Roth accounts
  • Delivering updated employee information

California, Connecticut, Illinois, Maryland, and Massachusetts are working on similar programs.

Some business owners have embraced the auto-IRA opportunity, while others object to having the government involved. A Pew Charitable Trusts survey of 1,600 small and mid-sized business owners found 51 percent would prefer to sponsor their own retirement plans rather than participate in a state-run plan.

Many employers who participated in focus groups were not aware low-cost retirement plan options are available in the marketplace. Pew researchers noted:

“Most [small and medium-sized employers] did not have a full understanding of how 401(k) plans work, and few were familiar with plans or incentives designed for small businesses, such as the Simplified Employee Pension (SEP) Plan, the Savings Incentive Match Plan for Employees (SIMPLE), or the small employer tax credit for retirement plan startup costs.”

If you’re interested in learning more about retirement plan options for small businesses, sole proprietorships, or freelancers, contact your financial professional.

Weekly Focus – Think About It

“Humanity is a lot like me. It’s an aging movie star, grappling with all the newness around it, wondering whether it got it right in the first place and still trying to find a way to keep on shining regardless.”

–Shah Rukh Khan, Indian film actor

MARKET COMMENTARY 11/27/2017

MARKET COMMENTARY 11/27/2017

The Markets

There was a lot to be thankful for last week.

Stock markets around the world may have ripened to full-slip sweetness this year. Emerging markets have delivered the most attractive returns year-to-date. The MSCI Emerging Markets Index was up 34 percent year-to-date, last week. The United States and Europe have marched higher, too. The Standard & Poor’s 500 Index was up about 16 percent year-to-date, while the Euro Stoxx Index was up 11.3 percent, reported Barron’s and The Wall Street Journal.

The question is, “Have markets become overripe?’ As you might expect, opinions on the matter vary:

  • Jim Paulsen, chief investment strategist at the Leuthold Group, told CNBC, “I don’t see the elements of a bear market but I certainly think 2018 can bring us a correction or at least just a more challenging market.”
  • David Lebovitz, global market strategist with J.P. Morgan Asset Management, wrote in Barron’s, “Healthy earnings growth suggests that there is still upside in U.S. equities, but this area of the global equity market is most expensive relative to its long-term average. However, history has shown us that expensive stock markets can get more expensive before they get cheaper, as multiples tend to expand in the final stages of a bull market.”
  • Peter Boockvar, chief market analyst at the Lindsey Group, told CNBC, “This boat is now standing room only…I still can’t figure out why some think there is no euphoria in markets when one has to go back 30 years to see this wide a spread between bulls and bears.”

Boockvar was referring to an early November Investors Intelligence Sentiment Survey, which gauges the attitudes of U.S. advisors. CNBC reported 63.5 percent of those surveyed were bullish and just 14.4 percent were bearish. A gap of 30 points is a sign of elevated risk, while a 40-point difference suggests defensive measures may be appropriate.

Individual investors aren’t quite as confident. Last week’s AAII Sentiment Survey showed 35.5 percent were bullish, 29 percent were bearish, and the remainder were neutral. It’s important to note, there was a distinct shift toward bullishness and away from bearishness in last week’s survey.

 

Data as of 11/24/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.9% 16.2% 17.6% 7.9% 13.1% 6.3%
Dow Jones Global ex-U.S. 1.8 23.0 25.8 4.1 5.5 -0.3
10-year Treasury Note (Yield Only) 2.3 NA 2.4 2.3 1.7 3.9
Gold (per ounce) 0.5 11.3 8.8 2.5 -5.9 4.5
Bloomberg Commodity Index 0.3 -0.6 2.3 -9.5 -9.5 -7.1
DJ Equity All REIT Total Return Index 0.5 9.8 14.5 8.1 10.9 8.1
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.

AND SOME PEOPLE WORRY ABOUT ZOMBIES. Turkeys have played a central role in the history of the United States. In a letter to his daughter, Ben Franklin offered praise for the bird, which he called, “…a true original native of America…(though a little vain and silly tis true, but not the worse emblem for that) a bird of courage, and would not hesitate to attack a grenadier of the British guards who should presume to invade his farm yard with a red coat on.”

He was correct about turkeys’ aggressive streaks, but lately they haven’t been after the British. Nope. Turkeys have been terrorizing Americans. WBUR in Boston reports turkeys, which had disappeared from New England in the 1800s, have been successfully reintroduced to the region.

The victory isn’t being celebrated in all quarters, though. According to reports, turkeys seem to prefer suburbia where they’ve been “clashing with residents who say they destroy gardens, damage cars, chase pets, and attack people.”

The problem isn’t unique to Massachusetts.

In fact, turkey aggression has become so acute wildlife officials have offered the equivalent of a wild turkey survival guide. First, they recommend, cover windows and shiny objects (turkeys may respond aggressively to sparkly items and their own reflections). Second, Americans who are being intimidated by turkeys should not “…hesitate to scare or threaten a bold, aggressive turkey with loud noises, swatting with a broom, or water sprayed from a hose. A dog on a leash is also an effective deterrent.”

Climbing trees is not an effective way to escape the menacing fowl. Domestic turkeys cannot fly, but wild turkeys can soar at speeds of up to 55 mph for short distances, according to LiveScience.com. Next time you spot a rafter of turkeys, remember: “Turkeys in the wild are far stronger and faster than the ones that land on Thanksgiving tables.”

Weekly Focus – Think About It

“Three econometricians [people who prepare economic statistics] go hunting, and they spot a large deer. The first econometrician fires but his shot goes three-feet wide to the left. The second econometrician, he fires also, but he misses. His shot goes three feet to the right. The third econometrician starts jumping up and down shouting: We got it! We got it!”

Planet Money, radio show

 

MARKET COMMENTARY 11/20/2017

MARKET COMMENTARY 11/20/2017

The Markets

Are investors more like tigers or African wild dogs?

It appears investors – retail and institutional – have become rather like predators. They patiently stalk shares, waiting for a dip, and then they strike – buying stocks when prices fall.

Consider last week. Barron’s described it like this: “The Dow traded down nearly 80 points on Monday, 170 points on Tuesday, and 170 points on Wednesday, but each time the blue-chip benchmark finished off its lows. That was followed by the Dow’s 187-point rally on Thursday, as everyone bought the dips.”

Investors’ remarkable behavior led the publication to speculate, “What if higher volatility, instead of scaring investors away from the stock market, brings them in? In that case, this bull market could still have a long way to go.”

Buying low and selling high is a foundational principle of investing. However, it remains to be seen how successful buying dips will prove to be in a market that some believe is too highly valued.

One measure of valuation is the 12-month trailing price-to-earnings (P/E) ratio, which tracks a company’s current share price against its earnings during the previous 12 months. Last week, FactSet reported the trailing P/E ratio for the Standard & Poor’s 500 Index was 22. The five-year average is 18.2, and the 10-year average is 16.9. Some prefer to look at forward P/E ratios, which compare share price to expected future earnings. The forward P/E ratio for the Standard & Poor’s 500 Index was 18, while the five-year average is 15.7, and the 10-year average is 14.1.

Only time will tell whether investors’ dip buying will more closely resemble the hunts of tigers or those of African wild dogs. When hunting prey, tigers are successful 5 to 10 percent of the time. African wild dogs take down prey 85 percent of the time, according to BBC’s Discover Wildlife.

As always, much will depend on the investments selected.

Data as of 11/17/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -0.1% 15.2% 17.9% 8.1% 13.2% 6.1%
Dow Jones Global ex-U.S. -0.4 20.8 24.5 3.9 5.6 -0.4
10-year Treasury Note (Yield Only) 2.4 NA 2.3 2.3 1.6 4.1
Gold (per ounce) 0.0 10.8 4.7 2.8 -5.8 5.1
Bloomberg Commodity Index -0.6 -0.9 4.9 -9.6 -9.5 -7.0
DJ Equity All REIT Total Return Index -0.6 9.3 16.2 8.3 11.0 7.5
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.

AND NOW FOR SOMETHING COMPLETELY DIFFERENT. Online sales aren’t the only threat to traditional brick-and-mortar retailers. Direct-to-consumer (DTC – also abbreviated as D2C) companies have been implementing a brand new business model. They’re skipping retailers and selling direct to consumers. Early entries in the DTC space targeted product areas dominated by big, established companies that have been enjoying high profit margins. DTC firms often are offering better price points and far superior customer service, reports Forbes.

In the future, some may remember the emergence of DTC as the onset of the razor wars. In 2010, the world’s largest razor blade company had 70 percent market share in the United States. Its gross margins (sales minus the cost of the product) were as high as 60 percent, reported The Economist. Soon after, the company found itself competing with two subscription razor blade services offering no cost trials and money-back guarantees. The DTC business model proved to be attractive and the market share of the world’s largest maker of razor blades has fallen to 54 percent.

Will DTC have staying power? The Economist wrote:

“…a growing number of startups are reimagining everyday household items – from pants and socks to toothbrushes and cookware. These [DTC] companies bypass conventional retailers and bring their products straight to customers via their online stores. They began several years ago to catch the attention of venture-capital (VC) firms, which have poured in more than $3bn since 2012. But the success of some [DTC] firms has attracted a lot of wannabes, making this a crowded market and leaving some wondering whether the boom has reached its limits.”

While analysts ponder the viability of the new business model, the behemoths of consumer goods and retailing have begun buying DTC firms. Consequently, we may see a steady stream of new entrants to the market.

We hope you have a wonderful Thanksgiving celebration!

Weekly Focus – Think About It

“Intelligence alone does not get us where we need to go or even necessarily where we want to go. For that, the human creature must exercise harder-won capacities of wisdom, and wise action.”

–Krista Tippett, American journalist and author

MARKET COMMENTARY 11/13/2017

MARKET COMMENTARY 11/13/2017

The Markets

Selling it overseas.

Most of the companies in the Standard & Poor’s 500 (S&P 500) Index have reported third quarter earnings per share (EPS), which is the profit earned per share of stock outstanding during the period. Many have done quite well.

With more than 90 percent of companies reporting, the total EPS growth rate for the S&P 500 has exceeded expectations, reported FactSet. In aggregate, the growth rate accelerated from 3.1 percent on September 30 to 6.1 percent last week.

It’s interesting to note companies that sell more products and services outside the United States experienced significant increases in EPS when compared to companies that sell more at home. S&P 500 companies with:

  • More than one-half of sales in the United States had an aggregate growth rate of 2.3 percent.
  • Less than one-half of sales in the United States had an aggregate growth rate of 13.4 percent.

The disparity owed much to the weaker U.S. dollar and faster economic growth in other countries, including emerging markets.

Investors weren’t all that appreciative of strong corporate performance. They rewarded positive EPS surprises less than average and penalized negative EPS surprises more than average. On November 10, FactSet explained:

“…it may be due to the high valuation of the index relative to recent averages. As of today, the forward 12-month P/E [price-to-earnings] ratio for the S&P 500 is 18.0… Prior to the month of October, the forward 12-month P/E had not been equal to (or above) 18.0 since 2002. Thus, despite the number and magnitude of positive earnings surprises in recent quarters, the market may be reluctant to push valuations even higher in aggregate.”

Last week, major U.S. stock indices ended their multi-week winning streaks and finished lower.

Data as of 11/10/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -0.2% 15.3% 19.1% 8.2% 13.4% 6.0%
Dow Jones Global ex-U.S. -0.3 21.3 23.0 4.0 5.7 -0.5
10-year Treasury Note (Yield Only) 2.4 NA 2.1 2.4 1.6 4.2
Gold (per ounce) 1.4 10.8 1.3 3.4 -5.8 4.8
Bloomberg Commodity Index 0.5 -0.3 4.1 -9.2 -9.1 -7.1
DJ Equity All REIT Total Return Index 2.7 9.9 17.9 8.2 11.1 7.3
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.

THE WINTER HOLIDAYS ARE ALMOST HERE. It’s that time of year when people search and search for just-the-right gifts at just-the-right-prices for friends and loved ones. The National Retail Federation expectsholiday sales to rise by 3.6 percent to 4.0 percent this year and total about $680 billion. The average consumer expects to spend about $970 on the holidays. Here are a few gift ideas for the hard-to-buy-for individuals on your list:

  • For coffee lovers. It’s an experience shared by coffee drinkers everywhere. You pour a cup, doctor it up, and before you can take a sip, you are called away. By the time you return, the coffee is cold. A ceramic mug with a microprocessor-controlled heating system can solve the problem.
  • For the outdoorsy. Anyone who spends time in the sun knows the importance of sunscreen. The mystery is when to reapply it. The outdoorsy folks in your family may appreciate a UV patch. It’s a wearable decal that changes color when it’s time to reapply sunscreen.
  • For the indoorsy. Series bingers and show streamers will love ‘wallpaper’ television. It’s a new kind of TV that viewers ‘peel and stick’ to their walls using magnetic mats.
  • For the fashion-conscious environmentalist. Soon, clothing may be made of synthetic spider silk and bio-manufactured leather. It’s unlikely they’ll be available this winter, but you could give tickets to the Museum of Modern Art in New York City. Clothing made of these fabrics is on display through January 2018.
  • For the insomniac. Know someone who has trouble sleeping? A white noise machine or an air purifier with a fan can provide constant, soothing sound that may help lull them to sleep.
    For the vision impaired. There are all kinds of gadgets that can make life a little easier for people with low or no vision. Try a wristband that shakes to give directions or a new ‘feeling fireworks’ display that simulates the visual experience through touch.

If you’re stressing because you cannot find the right gift, remember the best gift is time. Instead of buying things, invite the people on your gift list to join you for an event or an activity.

Weekly Focus – Think About It

“I slept and I dreamed that life is all joy. I woke and I saw that life is all service. I served and I saw that service is joy.”

–Kahlil Gibran, Lebanese writer and poet

MARKET COMMENTARY 11/06/2017

MARKET COMMENTARY 11/06/2017

The Markets

“Taxes are what we pay for a civilized society.”

U.S. Supreme Court Justice Oliver Wendell Holmes’s statement is engraved on the front of the Internal Revenue Service building in Washington, D.C. Some people agree with the sentiment. Others believe it to be a logical fallacy.

It’s likely the tax plan proposed by House Republicans last week had all of them talking, regardless of position on the opinion spectrum. Some of the changes suggested in the proposal include:

  • Reducing current marginal income tax brackets from seven to four (12, 25, 35, and 39.6 percent). The New York Times reported, “While the lowest income rate would increase, typical families in the existing 10 percent bracket would most likely be better off because of a larger child tax credit and an increase in the standard deduction.”
  • Repealing the Alternative Minimum Tax.
  • Increasing the standard deduction to $12,000 for individuals and $24,000 for married couples, while eliminating personal exemptions (the $4,050 exemptions you claim for yourself, your spouse, and your dependents).
  • Repealing state and local tax deductions.
  • Reducing (and eventually eliminating) estate taxes.
  • Setting the corporate tax rate at 20 percent. Financial Times wrote, “This will not increase wages or growth by much, and nowhere near the wild claims made by its proponents. But a lower rate combined with a broader tax base is not a terrible idea…To pay for the cuts, the tax law writers have gone after corporate deductions…”
  • Eliminating medical expense deductions. The Hill explained, “Under current law, the IRS allows individuals to deduct qualified medical expenses that exceed 10 percent of a person’s adjusted gross income for the year. The bill would repeal that itemized deduction, effective in 2018.”

In addition to headline news about tax reform, investors contemplated the appointment of Jerome Powell as the next Chair of the Federal Reserve and embraced strong earnings. The Standard & Poor’s 500 Index, Dow Jones Industrial Average, and NASDAQ closed at record highs last week.

Data as of 11/3/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.3% 15.6% 23.9% 8.7% 12.8% 5.6%
Dow Jones Global ex-U.S. 0.9 21.6 22.9 4.0 5.4 -0.9
10-year Treasury Note (Yield Only) 2.3 NA 1.8 2.4 1.7 4.3
Gold (per ounce) 0.1 9.3 -2.6 2.8 -5.5 4.6
Bloomberg Commodity Index 1.2 -0.7 3.9 -9.6 -9.1 -7.1
DJ Equity All REIT Total Return Index 1.2 7.0 14.0 7.2 10.2 6.8
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.

ARE YOU BULLISH ABOUT PET TECH? Early in the last century, authors like Anna Sewell (Black Beauty) and Jack London (White Fang) wrote stories that encouraged readers to understand and empathize with animals. Today, entrepreneurs are developing devices to help people better understand pets. Here are a few innovations in the pet-tech space that may (or may not) become household necessities or in-demand holiday gifts:

  • Remote control pet interaction. You may be sitting in your office, miles from home, but that doesn’t mean you can’t pull out your smartphone and fling a treat to Fido or shine a laser for Boots to chase. That’s right, interactive pet cameras let you see, feed, talk to, and play with your pet when you’re far away.
  • Pet insight software. A tech writer at Slate wrote, “For the most part, [my cat’s] feelings, daily activities, and health are a black box to me.” Apparently, it’s a common issue. Entrepreneurs have invested $10 million to develop “deep learning software that can analyze the huge quantities of pet video…to learn more about animal behavior and how it’s linked to animal health issues and moods.”
  • Fitness trackers for pets. Pet owners who suspect their animals are too sedentary may want to invest in smart collars for their pets. Some collars track temperature, heart rate, heart rate variability, activity, calories burned, and more. Once a normal baseline has been established, pet owners may be able to spot anomalies that signal health issues.
  • Robotic pets with artificial intelligence. Perhaps, you just don’t have the time to feed, walk, and play with a pet. Maybe, you travel too much or dislike the household wear and tear associated with pets. If you want a pet that behaves perfectly and requires less care, you may want to consider a robotic alternative that’s “packed with an array of sensors, cameras, microphones, and internet connectivity, as well as far more advanced AI backed by cloud computing to develop the dog’s personality,” according to The Guardian.

It’s a high-tech world, after all.

Weekly Focus – Think About It

“Lots of people talk to animals…. Not very many listen, though…. That’s the problem.”

–Benjamin Hoff, Author of The Tao of Pooh

MARKET COMMENTARY 10/30/2017

MARKET COMMENTARY 10/30/2017

The Markets

The last full week of October was a box full of surprises.

First, U.S. economic growth exceeded expectations. The devastation wrought by Hurricanes Harvey, Irma, and Maria was widely expected to stifle U.S. quarterly growth, according to NPR. The Atlanta Federal Reserve predicted 2.5 percent gross domestic product (GDP)* growth for third quarter, down from 3.1 percent the previous quarter. Instead, U.S. GDP grew by 3.0 percent.

In fact, productivity has been flourishing around the globe. The Financial Times reported:

“…activity has again broken upwards in recent weeks, with growth in the advanced economies close to the highest rates seen since before the Great Financial Crash (GFC), apart from in the immediate recovery phase in 2010. Furthermore, world trade volume has now joined the recovery, and corporate expenditure on jobs and machinery is picking up. Overall, it seems that some of the symptoms of “secular stagnation” are beginning to fade…”

Tech companies were a sensation last week, too. Several of the biggest firms beat earnings estimates by wide margins, pushing share values higher, reported CNBC. Despite tech’s strong performance, the Standard & Poor’s 500 Index (S&P 500) has delivered third quarter earnings growth of 4.7 percent with more than half of companies reporting.

Earnings are lower than they would have been without the hurricanes, according to FactSet. With insurance industry earnings excluded, the S&P 500’s earnings growth pops from 4.7 percent to 7.4 percent.

The final surprise for the week was the doldrums. October is supposed to be the most volatile month of the year, according to Barron’s. Instead, we’ve experienced the calmest October since 1928.

The S&P 500 and the NASDAQ both finished last week at new all-time highs.

*GDP is the value of all goods and services produced in a region.

Data as of 10/27/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.2% 15.3% 21.0% 9.6% 12.8% 5.3%
Dow Jones Global ex-U.S. -0.2 20.5 20.2 4.4 5.2 -1.2
10-year Treasury Note (Yield Only) 2.4 NA 1.8 2.3 1.7 4.4
Gold (per ounce) -1.2 9.3 0.0 1.0 -5.8 4.9
Bloomberg Commodity Index 0.7 -1.9 -0.4 -9.8 -9.6 -7.2
DJ Equity All REIT Total Return Index -1.4 5.8 9.8 7.5 10.0 6.2
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.

AND THE LEADER IN BIOMETRIC IDENTIFICATION IS INDIA! Remembering passwords, especially if you follow best practices and have unique 12- to15-character passwords for each account, can be challenging.

Even when you follow best practices, which many people do not, passwords are vulnerable to data breaches. The Harvard Business Review recently reported password insecurity is one reason businesses have been opting for biometric technology such as:

  • Fingerprint readers
  • Eye scanners
  • Voice recognition systems
  • Hand geometry

For instance, in Hangzhou, China, a “health-food concept restaurant” belonging to an American fast food chain, relies on facial recognition software to allow diners to pay with a smile, according to c|net.com. It’s a lot to digest.

India is a leader in the new technology. Ninety-nine percent of adults in the country have been enrolled in Aadhaar, a biometric identification program that has collected the fingerprints and iris scans of more than a billion people since 2010, according to The Economist.

When given permission, Indian government bodies and private businesses can match the fingerprints or irises of individuals to their unique 12-digit numbers, facilitating purchases, payments, and other processes. The system has some glitches, though:

“Unlike reading an ID card, checking someone’s identity through Aadhaar requires an internet connection and, often, electricity. Ration-shop owners in out-of-the-way places are known to march their customers to the top of a hill, roof, or tree – wherever a phone signal can be found – to check their identity. Even then, samples seem to show that roughly a third of authentications come back negative, an extraordinarily high failure rate for a technology that people rely on for necessities.”

Regardless, Morgan Stanley believes “digitizing its predominantly cash-based economy and reforming its archaic tax system” will help put India on the economic fast track. “The country was already on a strong trajectory, but digitization puts India’s nominal GDP growth on track to compound annually by more than 10 percent in U.S. dollar terms over the coming decade.”

Weekly Focus – Think About It

“There is probably no pleasure equal to the pleasure of climbing a dangerous Alp; but it is a pleasure which is confined strictly to people who can find pleasure in it.”

–Mark Twain, American novelist

MARKET COMMENTARY 10/23/2017

MARKET COMMENTARY 10/23/2017

The Markets

And the hits just keep on coming.

Last week was the anniversary of Black Monday. On October 19, 1987, the Dow Jones Industrial Average (Dow) lost 508 points, or more than 20 percent of its value, as it fell from the previous trading day’s closing value of 2,247 to 1,739. The culprits behind the historic drop are widely thought to be program trading, high valuations, and market psychology.

The anniversary didn’t put a hitch in the markets’ giddy up last week, though. The Dow closed above 23,000 for the first time ever on Wednesday. That’s the fourth thousand-point milestone the Dow has passed this year, according to Reuters.

The Standard & Poor’s 500 Index also finished the week at a new high. Strong earnings, along with optimism about fiscal and monetary policy, contributed to investors’ optimism. Financial Times wrote:

“U.S. stocks hit record highs yet again and the dollar touched its strongest level against the yen for more than three months as growth bulls applauded news that the Senate had adopted a fiscal 2018 budget resolution, opening the way for tax reform. U.S. Treasuries fell – most sharply at the longer end of the curve – as participants fretted about the prospect of increased federal borrowing and potentially higher inflation.”

It’s interesting to note, despite major U.S. stock markets hitting new highs, bullish sentiment has been below the historical average 36 times this year, including last week. The AAII Investor Sentiment Survey showed bullish sentiment down 1.8 percent, while bearish sentiment gained 1 percent and neutral sentiment was up 0.8 percent. Of course, some consider this survey to be a contrarian indicator.

Data as of 10/20/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.9% 15.0% 20.3% 10.6% 12.4% 5.5%
Dow Jones Global ex-U.S. -0.4 20.8 19.4 4.6 5.0 -0.6
10-year Treasury Note (Yield Only) 2.4 NA 1.8 2.2 1.8 4.4
Gold (per ounce) -1.4 10.5 0.8 1.0 -5.8 5.5
Bloomberg Commodity Index -0.7 -2.6 -0.9 -9.9 -10.1 -7.1
DJ Equity All REIT Total Return Index -1.0 7.3 7.2 8.9 10.1 6.4
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.

KNOW WHAT CAN BE REALLY SCARY? WAREHOUSE CLUBS. Like horror flick fodder (extras and co-stars who ignore their gut instincts and venture into places they shouldn’t), people go into warehouse clubs thinking they’ll be able to buy just the items they need and escape without serious injury to their budgets. In reality, only shoppers with the preternatural ability to avoid impulse purchases manage it, reports AARP Magazine.

That doesn’t mean you won’t find good deals at warehouse clubs. You will, but you have to exercise tremendous self-discipline. AARP Magazine and Kiplinger’s offered insight to some of the better values at warehouse clubs. They include:

  • Wine. Here’s a shocker: One warehouse club is the biggest wine retailer in the country, according to MarketWatchMag.com. Reasonably priced, signature brands of quality wines and alcohol have been helping warehouse clubs attract members and improve sales.
  • Movie tickets. There are some films that should be watched in the theater. If you pick up a packet of discount movie tickets at a warehouse club instead of the theater, the show will cost approximately $8.50 per ticket instead of $13 per ticket.
  • Batteries. With the holidays approaching, you’re going to need batteries for everything from drones to remote controls to digital games. Warehouse clubs often have competitively priced options.

If you’re determined to save money by shopping at warehouse clubs, Fox News suggested a mindset adjustment could help:

“Buying an item you don’t need because it was marked down from $125 to $50 is not saving $75. It’s spending $50. That’s a lesson that, if taken to heart, should save all [warehouse club] members money. That doesn’t seem to be the case for most people, however, so these money-saving memberships probably end up being a drain on people’s finances.”

Here’s another way to avoid impulse purchases: Make your choices online and then choose in-store pick-up or delivery.

Weekly Focus – Think About It

“Today [Amy] starts shopping from her couch by launching a videoconference with her personal concierge at…the retailer where she bought two outfits the previous month. The concierge recommends several items, superimposing photos of them onto Amy’s avatar. Amy rejects a couple of items immediately, toggles to another browser tab to research customer reviews and prices, finds better deals on several items at another retailer, and orders them. She buys one item from [the retailer] online and then drives to the…store near her for the in-stock items she wants to try on. As Amy enters [the retailer], a sales associate greets her by name and walks her to a dressing room stocked with her online selections – plus some matching shoes and a cocktail dress. She likes the shoes, so she scans the bar code into her smartphone and finds the same pair for $30 less at another store. The sales associate quickly offers to match the price…”

–Darrell K. Rigby, The Future of Shopping

MARKET COMMENTARY 10/16/2017

MARKET COMMENTARY 10/16/2017

The Markets

There’s a new kid in town: narrative economics.

Last week, Richard Thaler was awarded the Nobel Prize in economics. His work in behavioral economics and finance recognizes not all economic and financial decisions are made after rational reflection. In Nudge, he wrote:

“The workings of the human brain are more than a bit befuddling. How can we be so ingenious at some tasks and so clueless at others?…Many psychologists and neuroscientists have been converging on a description of the brain’s functioning that helps us make sense of these seeming contradictions. The approach involves a distinction between two kinds of thinking, one that is intuitive and automatic, and another that is reflective and rational.”

Yale professor Robert Shiller, another Nobel laureate in economics, is exploring a field of study related to Thaler’s. It’s called narrative economics. Narratives are the stories we share with each other. They are fuel for conversation and popular narratives often become viral. During a presentation at the University of Chicago, Schiller explained narrative economics is “the study of the spread and dynamics of popular narratives, the stories, particularly those of human interest and emotion, and how these change through time, to understand economic fluctuations.”

Today, a popular narrative in financial circles focuses on Professor Shiller’s cyclically-adjusted price-earnings (CAPE) ratio, which suggests the market may be overvalued. Barron’s reported, “The CAPE, which is based on average inflation-adjusted earnings over the trailing 10 years, stands at 31, versus 32.5 in 1929 and 44 in late 1999.”

If stocks are overvalued, why do investors keep buying shares? It’s a question narrative economics hopes to help answer in the future.

Data as of 10/13/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.2% 14.0% 19.7% 10.8% 12.1% 5.1%
Dow Jones Global ex-U.S. 1.7 21.3 21.8 5.0 5.4 -0.9
10-year Treasury Note (Yield Only) 2.3 NA 1.7 2.3 1.7 4.7
Gold (per ounce) 3.0 12.1 3.1 1.9 -5.6 5.5
Bloomberg Commodity Index 2.4 -1.8 -0.4 -10.3 -10.0 -7.1
DJ Equity All REIT Total Return Index 1.6 8.4 8.8 10.4 10.3 6.1
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.

SELF-DRIVING CARS, LIFE-LIKE ROBOTS, ARTIFICIAL INTELLIGENCE, AND VIDEO PHONES. Millennials and members of Gen Z may find the original Blade Runner movie a bit dated. After all, many of the tech innovations imagined have become a part of our daily lives and others, like mood organs, are in the works.

Mood organs were among the human enhancements imagined by Philip Dick in Do Androids Dream of Electric Sheep? (The book upon which Blade Runner was based.) A recent c|net.com article explained:

“Dick doesn’t describe the design of the mood organ or how it works, only specifying that it can stimulate or sedate the user’s cerebral cortex. Users simply dial up the emotion they want, such as 481 (awareness of the manifold possibilities open in the future) or 594 (pleased acknowledgement of a spouse’s superior wisdom).”

Neural implants are a reality already, although they’re not used to control human emotion. Thousands of people with Parkinson’s have implants to manage tremors and applications to help with epilepsy and depression are being explored, according to IEEE Spectrum.

Medical treatments are not the only applications for neural implants. Elon Musk is developing ‘neural lace,’ a brain-computer interface (BCI) that may be injected into the human body, travel through the bloodstream, and settle over the cerebral cortex. While neural lace someday may be used to treat or diagnose neurological issues, The Economist reports Mr. Musk has argued, “human beings need to embrace brain implants to stay relevant in a world which, he believes, will soon be dominated by artificial intelligence.”

Musk is not the only entrepreneur pursuing brain interfaces. IEEE Spectrum reported Mary Lou Jepsen, an MIT alumnus and tech executive, has founded a company which is working on non-invasive BCIs “for imaging and telepathy (the latter could conceivably be done by reading out thought patterns in the brain).”

It’s possible the idea of humans with superpowers may seem quaint to future generations.

Weekly Focus – Think About It

“The real question is, when will we draft an artificial intelligence bill of rights? What will that consist of? And who will get to decide that?”

–Gray Scott, Futurist philosopher

MARKET COMMENTARY 10/09/2017

MARKET COMMENTARY 10/09/2017

The Markets

Slow and steady…

It has been 332 days since the Standard & Poor’s 500 (S&P 500) Index experienced a 5 percent drop, reported Barron’s. If there isn’t a selloff on Monday or Tuesday, this will become the longest rally without such a drop.

During this period, the Index has gained 33 percent. Think about that for a moment: 33 percent over 332 days. By Barron’s calculations, the market has gained less than 0.1 percent per day. That’s a very slow rate of increase, relatively speaking. The longest-ever rally without a 5 percent drop, which began in November 1994, was accompanied by a gain of 56 percent or 0.17 percent per day.

The most recent issue of The Economist pondered the phenomenon of the slow-as-molasses bull market that has pushed asset prices higher:

“No one would mistake the bloodless run-up in global stock markets, credit, and property over the past eight years for a reprise of the ‘roaring 20s,’ or even an echo of the dotcom mania of the late 1990s. Yet only at the peak of those two bubbles has America’s S&P 500 been higher as a multiple of earnings measured over a ten-year cycle. Rarely have creditors demanded so little insurance against default, even on the riskiest ‘junk’ bonds. And rarely have property prices around the world towered so high…the world is in the throes of a bull market in everything.”

It would be a mistake to assume asset prices will continue to move higher indefinitely. One characteristic that may signal the onset of a bear market is investor euphoria, and we haven’t seen that. The most recent American Association of Individual Investors’ Sentiment Survey showed 2.3 percent more investors were bullish last week, pushing the total to 35.6 percent. That’s still well below the historic average of 38.5 percent.

Last week was punctuated by a senseless shooting. Our hearts and prayers are with the people of Las Vegas.

Data as of 10/6/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 1.2% 13.9% 18.0% 9.1% 11.9% 5.1%
Dow Jones Global ex-U.S. 0.5 19.3 17.5 3.3 4.8 -1.0
10-year Treasury Note (Yield Only) 2.4 NA 1.7 2.4 1.8 4.6
Gold (per ounce) -1.7 8.9 0.6 1.8 -6.6 5.6
Bloomberg Commodity Index -0.6 -4.1 -1.9 -11.1 -10.6 -6.9
DJ Equity All REIT Total Return Index 0.5 6.6 8.6 10.2 10.1 5.6
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.

ZOMBIE TOURISM AND ZOMBIE COMPANIES. Zombies have a special place in the heart of pop culture. The undead are pivotal characters in books, movies, games, and television shows. The practical can read The Zombie Survival Guide. Thrill seekers can binge on The Walking Dead. Romantics have Pride and Prejudice and Zombies. Anyone looking for a laugh can watch Shaun of the Dead or Zombieland.

If you’re one of those people who just can’t get enough of roamers, rotters, biters, and crawlers, you’re in for a treat: zombie tourism. National Geographic has identified several travel destinations that are steeped in zombie legend:

  1. Haiti. American zombie culture appears to have origins in Haiti, where slaves believed death would reunite them with their gods and homelands. The exception was suicide. If slaves took their own lives, they “would be forced to remain in their bodies, soulless, and continue to work the plantations.”
  2. Greece. In Greece and elsewhere, folklore historians have found anyone who died of plague or was cursed, murdered, or born on an inauspicious day, could potentially rise from the dead. Some archeology digs have found graves with skeletons weighted by rocks or millstones.
  3. Georgia (in Europe). You won’t find any zombies here – and that’s the point. Apparently, Georgia boasts some of the world’s most promising zombie-proof dwellings. The village of Chazhashi, at the confluence of the lnguri and Black Rivers, has more than 200 nearly impenetrable medieval tower houses.

Zombies aren’t always undead humans. There are zombie companies, too. A zombie company is debt-laden and on the edge of bankruptcy. In fact, the Organization for Economic Co-operation and Development (OECD) thinks zombie firms may be one reason economic growth has been so slow. The Economist reported:

“We know that a few companies are still producing substantial productivity gains but it may be that monetary policy, by keeping rates low, has stymied the forces of creative destruction; ‘zombie’ companies have been kept alive, dragging down the productivity numbers. Whatever the reason, economic growth won’t rebound until productivity perks up.”

Perhaps National Geographic should add some quarterly earnings calls to its zombie tourism list.

Weekly Focus – Think About It

“Fear is the main source of superstition, and one of the main sources of cruelty. To conquer fear is the beginning of wisdom.”

–Bertrand Russell, British philosopher