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April 11, 2016

The Markets

 

We all learned a thing or two about Panama last week.

 

The country is not the home of the Panama hat, which is made in Ecuador. However, it is the only place in the world where you can watch the sun rise on the Pacific Ocean and set on the Atlantic Ocean.

 

It’s also home to a lot of offshore companies, according to the millions of records leaked from the world’s fourth largest offshore law firm. The Guardian reported 12 national leaders were among 143 politicians, athletes, and wealthy individuals (including family members and associates) who were participating in offshore tax havens.

 

It’s not illegal to hold money in an offshore company, unless the company facilitates tax evasion or money laundering, reported The New York Times. Further investigation will be required to know whether that was the case. CNBC suggested financial markets could be affected if the findings lead to greater regulation of foreign banks or prosecutorial action against them.

 

While the Panama scandal captured a lot of attention, it didn’t have much of an impact on markets. News that the U.S. Treasury was cracking down on corporate inversions, along with indications the U.S. Federal Reserve may raise rates twice during 2016, caused stocks to dip late in the week. Some major U.S. indices finished the week lower. (Corporate inversions are mergers that give U.S. companies a foreign address and lower their tax rates.)

 

We may be in for another round of market volatility. Corporate earnings season is here. That’s the period when publicly traded companies report how well they performed during the previous quarter. CNBC said, “Over the past 10 years, the emergence of first-quarter earnings reports has generally corresponded with a rise in volatility.”

 

OUR INVESTMENT STRATEGIES were slightly changed recently.  First, for many models we added a fund that uses “put options” to generate income.  This fund sells puts on securities “at-the-money” (meaning they collect a premium for the option and if the security declines they may end up owning it) and to protect the downside they “buy an out-of-the-money put” to protect the downside.  According to Morningstar the goal is to produce an 8% annual distribution although it has been closer to 12% since the fund was incepted.  Because of the lower volatility in this fund to the stock market we are using this fund as a bond replacement fund to lower our exposure to traditional bonds.  Our SecurTrend™ strategy went to cash last week and awaits a new trend.  For most models me have reduced SecurTrends™ allocations until an identifiable trend arrives.  The past 18 months have only produced short-term up and down markets and no clear trends.

On our radar is gold as central banks continue to support currency manipulation, emerging markets as their valuations are far lower than US equities as well as other alternative investments that don’t necessarily correlate with traditional stocks and bonds.  Our market cycle analyst feels we could be entering into a more difficult period so we remain cautious on equities. 

 


Data as of 4/8/16

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor's 500 (Domestic Stocks)

-1.2%

0.2%

-1.7%

9.4%

9.0%

4.7%

Dow Jones Global ex-U.S.

0.3

-2.5

-14.2

-1.5

-2.5

-0.7

10-year Treasury Note (Yield Only)

1.7

NA

1.9

1.7

3.6

5.0

Gold (per ounce)

2.1

16.7

2.7

-7.7

-3.4

7.6

Bloomberg Commodity Index

1.4

0.6

-20.4

-16.2

-14.6

-7.3

DJ Equity All REIT Total Return Index

-0.4

5.7

4.3

8.7

11.9

7.0

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.

 

as carly simon used to sing, “we can never know about the days to come…” However, that doesn’t stop anyone from making educated guesses about the future of companies, financial markets, and economies. As we enter the second quarter, investment and business professionals have been offering their insights:

 

  • McKinsey & Company’s March Economic Conditions Snapshot indicated 80 percent of surveyed executives “…expect demand for their companies’ products and services will grow or stay the same in the coming months, and a majority believe (as they have in every survey since 2011) their companies’ profits will increase.” However, they are not as optimistic about the global economy as they were in December. About one-half of executives in developed and emerging markets said economic conditions globally are worse than they were six months ago.
  • The Wall Street Journal’s April 2016 Economic Forecasting Survey, which queries 60 economists, reported three-of-four survey participants expect a Fed rate hike in June. Few expect a recession during the next 12 months, putting the odds at 19 percent. Almost one-half stated global risks were the greatest threat to the U.S. economy, followed by financial conditions, a slowdown in consumer spending, falling corporate profits, and U.S. politics.
  • PIMCO’s Cyclical Outlook predicts China’s gross domestic product (GDP) growth may be in the 5.5 to 6.5 percent range. The target is 6.5 percent. In addition, a gradual devaluation of the yuan is possible, although China’s currency policy often produces unexpected twists and turns.
  • BlackRock Investment Institute’s second quarter outlook centered on three themes. First, returns are likely to remain muted in the future. Second, monetary policies appear to be less divergent, which could be a positive for some markets. Third, volatility may persist as the Federal Reserve normalizes monetary policy. Diversity and careful asset selection are likely to be critical in this environment.

 

While it’s interesting to read experts’ predictions and expectations for coming months and years, it’s important to remember forecasts are not always accurate. An organization that tracked forecasting results through 2012 found forecasts were correct about 47 percent of the time.

 

Weekly Focus – Think About It

 

“Do the right thing. It will gratify some people and astonish the rest.”

--Mark Twain, American author

 

Best regards,

 

The GPS Team

 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

 

* 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.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. 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.

Sources:

https://www.quora.com/What-trivia-and-or-little-known-facts-do-you-find-interesting-about-Panama

http://www.theguardian.com/news/2016/apr/03/what-you-need-to-know-about-the-panama-papers

http://www.nytimes.com/2016/04/05/world/panama-papers-explainer.html

http://www.cnbc.com/2016/04/04/what-is-the-impact-of-the-panama-papers-on-global-markets.html

http://www.freep.com/story/money/personal-finance/susan-tompor/2016/04/05/panama-papers-investors-questions/82651316/

http://www.cbsnews.com/news/stock-market-bulls-are-running-into-reality/

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html?mod=BOL_Nav_MAR_hpp (Click on U.S. & Intl Recaps, then “Jittery investors”)

http://finance.yahoo.com/news/earnings-season-often-brings-volatility-180251909.html

http://www.metrolyrics.com/anticipation-lyrics-carly-simon.html

http://www.mckinsey.com/global-themes/employment-and-growth/economic-conditions-snapshot-march-2016-mckinsey-global-survey-results 

http://projects.wsj.com/econforecast/#qa=20160401001

https://www.pimco.com/insights/economic-and-market-commentary/cyclical-outlook/challenges-remain-for-asias-economies

https://www.blackrockblog.com/2016/04/06/3-themes-shape-markets-quarter/

http://www.cxoadvisory.com/22478/investing-expertise/guru-grades-project-milestones/

http://www.brainyquote.com/quotes/quotes/m/marktwain122044.html

 

 

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Spire Wealth Management, LLC), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Spire Wealth Management, LLC.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Spire Wealth Management, LLC is neither a law firm nor a certified public accounting firm and no portion of the website content should be construed as legal or accounting advice.  A copy of the Spire Wealth Management, LLC’s current written disclosure statement discussing our advisory services and fees is available upon request.

 

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