7/17/2017 Weekly Market Commentary
It was a good week for a lot of stocks but not bank stocks.
The Standard & Poor’s 500 (S&P 500) Index and the Dow Jones Industrial Average (DJIA) both finished at record highs last week.1 Barron’s indicated investors owe Federal Reserve Chair Janet Yellen a debt of gratitude:2
“The main force behind the rally was the dovish performance by Federal Reserve Chair Janet Yellen in Congress on Wednesday and Thursday when she reiterated that rate hikes would most likely be gradual. On balance, her remarks were interpreted as evidence of continued accommodative monetary policy and, from there, stocks were off to the races. The ignition of the rally can almost be time-stamped to her appearance. Before her speech, the market was down for the week.”
Of course, some sectors of the stock market did better than others last week. In the S&P 500, Real Estate, Information Technology, and Consumer Staples stocks had the highest percentage gains at the close on Friday, while Financials, Telecommunications, and Consumer Discretionary stocks lagged, according to Fidelity.3
In the Financials sector, banks were the weakest performers, finishing Friday almost a full percent lower.3 It was a bit of a mystery, wrote Financial Times (FT), since several banks beat earnings expectations. FT reported:4
“Perhaps the most important factor that weighed on bank stock prices, however, had nothing to do with the comments from executives nor the quarterly financial results. Macroeconomic data published on Friday showed U.S. inflation at the consumer level cooled last month while retail sales fell short of estimates, pushing Treasury bond yields lower. Lower interest rates are bad news for banks, which make more money if they can charge borrowers more.”
Investors appear to believe there is smooth sailing ahead. The CBOE Volatility Index remained below 10.5
MERRIAM WEBSTER DEFINES ‘DISRUPT’ AS ‘TO BREAK APART,’ AND ‘TO THROW INTO DISORDER.’6 While disruption doesn’t sound like something anyone would enjoy much, it has the potential to create investment opportunities for those who share a vision and are willing to take risks.
Morgan Stanley recently wrote, “It’s hard to think of an industry that won’t be touched in some way by technological disruption over the next decade.”7 Here are a few of the trends that may really stir things up during the next few decades:
• Machine learning. “The transportation and medical industries are likely to be first in line for disruption,” Morgan Stanley suggested. A disruptive change researcher wrote, “If we think about what machine learning really is, it’s pattern recognition. We might see radiology and scans detecting cancers earlier than they’re detected today. And it’s possible that in the future we can also use machine learning to scan for genes that might predispose us to certain kinds of diseases.”7
• Autonomous vehicles. The auto industry, as we know it, is likely to change in some significant ways when self-driving vehicles become more prevalent. Other industries will be affected, too. For instance, insurance could change dramatically. After all, who do you insure when software is driving?8
In addition, cities may lose a source of revenue if there is less need for parking. CNBC wrote, “Reports estimate self-driving vehicles have the potential to reduce parking space by about 61 billion square feet, which is about the size of Connecticut and Vermont combined.” This may also be a boon for the real estate market.8
The responsibilities of law enforcement may change, too, and crash test dummies may be out of work.8
• Augmented reality. Imagine a surgeon being able to practice a surgery, a rigger learning their craft without scaling heights to lift heavy objects, or a teacher making students’ textbooks come alive. Augmented reality has the potential to help professionals refine their skills, make dangerous training safer, and fascinate students at all levels of learning.9
Morgan Stanley also pointed out that Blockchain, which enables electronic contracts and custody, may change the financial industry, and Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR) may help cure disease at the genetic level.7, 10
We live in interesting times!
Weekly Focus – Think About It
“Companies don’t have ideas. Only people do. And what motivates people are the bonds of loyalty and trust they develop around each other.” –-Margaret Heffernan, International businesswoman and author11
* 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. * Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.
2 http://www.barrons.com/articles/dovish-yellen-spurs-markets-to-soar-1500094950?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-17-17_Barrons-Dovish_Yellen_Spurs_Markets_to_Soar-Footnote_2.pdf)
3 https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/sectors_in_market.jhtml (Click + sign next to Financials to expand)
4 https://www.ft.com/content/4ad6fe30-689a-11e7-9a66-93fb352ba1fe (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-17-17_FinancialTimes-If_Earnings_Were_So_Good_Why_Did_Bank_Shares_Fall-Footnote_4.pdf)