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February 23, 2016

The Markets

 

And the economic data says…

 

The United States economy is doing pretty well. So well that a March rate hike by the Federal Reserve is not entirely out of the question. Barron’s described the situation like this:

 

“Squawking pessimism can't drown out what is a very respectable start to 2016. Economic data so far this year, apart from predictions of deflation and negative interest rates, could justify what was scheduled to be, but what soon seemed impossible, a rate hike at the March FOMC. Yes, global factors are a risk and are hurting the factory sector but service prices are definitely on the climb and vehicle prices and vehicle production, reflecting strength in domestic demand, are back up. Ignore the cacophony of doubt and look at the economic data for yourself!”

 

U.S. economic data was generally positive last week, but that wasn’t the primary driver behind the rally in U.S. stock markets, according to Reuters. Nope, that had more to do with oil prices. Despite serious political differences, Iran and Saudi Arabia appeared to reach an accord on oil production last week, when Iran endorsed a plan by Saudi Arabia to stabilize global oil prices, according to The Guardian. The agreement pushed oil prices higher mid-week.

 

However, late in the week, news that oil stockpiles in the U.S. were at record levels reignited worries about oversupply and oil prices fell at week’s end. U.S. stock markets followed, giving back some of the week’s gains on Friday, but all of the major indices finished more than 2 percent higher for the week.

 

Economic data may dominate the news next week. We’ll get more information on housing, durable goods orders, jobless claims for February, and a revised estimate for fourth quarter’s gross domestic product growth. Barron’s suggested a strong employment report in tandem with rising prices could influence the Fed’s interest rate decision.

 

OUR INVESTMENT STRATEGES remain on the conservative side.  While we did add to our stock holdings in most models a couple weeks back the only other changes we have made is that in certain models we have been “selling covered calls” on a S&P 500 exchange traded fund which produces extra income for these accounts. Our current strategy is to do this monthly while the market bounces up and down.

We continue to implement alternative types of funds and strategies that aren’t necessarily tied to the traditional stock and bond market.  A couple areas we are looking at is the lack of upside volume when the market turned higher a couple weeks ago.  Without significant upside volume it is hard to have a lot of confidence in the current rally:

Source:  stockcharts.com

 

Another area we are focusing on is the correlation between stocks and oil.  The price of oil has been a leading indicator of stocks and we continue to monitor this as well as research ideas to take advantage of this correlation.

Source: stockcharts.com

Lastly, mutual fund flows are also concerning as it was the worst start of the year for fund outflows since 2008. 

 


Data as of 2/19/16

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor's 500 (Domestic Stocks)

2.8%

-6.2%

-8.6%

7.8%

7.8%

4.1%

Dow Jones Global ex-U.S.

4.4

-8.4

-17.6

-4.3

-3.2

-0.7

10-year Treasury Note (Yield Only)

1.8

NA

2.0

2.0

3.5

4.6

Gold (per ounce)

-0.7

15.9

1.8

-8.5

-2.6

8.3

Bloomberg Commodity Index

-0.4

-4.4

-27.2

-18.6

-14.2

-7.6

DJ Equity All REIT Total Return Index

4.1

-5.8

-6.2

6.4

9.2

5.8

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.

 

wondering what the next decade may bring? America is renowned for innovation – originating ideas that change the ways in which people live and work. From the cotton gin to the assembly line, the transcontinental railroad to the automobile, the telephone to the Internet, ideas and inventions have spurred America’s economic growth during the past two centuries. Here are a few inventions that are on the horizon:

 

  • The Superman memory crystal: Imagine, a tiny piece of glass etched by a laser that has the capacity to save an enormous amount of data for more than 13 billion years, according to com. One tiny disc currently holds the Magna Carta, Universal Declaration of Human Rights, and King James Bible.
  • A transparent antipeep piezoelectric nanogenerator (TAPN): It may have a tongue twister of a name right now, but the TAPN could become as familiar as your phone charger in the future. All you’ll have to do is place a transparent film on the touchscreen of a smartphone or another device, and then every tap on the screen will generate electricity. Which begs the question: Could texting teenagers power the world?
  • A braille printer: A 12-year-old used Legos to build an inexpensive printer for people who are blind or suffering from macular degeneration or other conditions that affect eyesight. It used a thumbtack to punch braille dots into paper. Newer prototypes don’t rely on thumbtacks, and are expected to translate words from a computer screen into braille very quickly.
  • A fry pan that teaches cooking: Cooking will not become a lost art if a couple of hungry and cooking-challenged college students are successful. They’ve developed a smart frying pan. The pan transmits temperature data to the cook using a smartphone app that also lets the cook know when it’s time for the next step in a recipe.

 

The human brain is an engine for innovation, and innovation is a driver of economic growth. Let’s hope the outlook is good for brainstorms in the United States and across the globe.

 

Weekly Focus – Think About It

 

“Software innovation, like almost every other kind of innovation, requires the ability to collaborate and share ideas with other people, and to sit down and talk with customers and get their feedback and understand their needs.”

--Bill Gates, Founder of Microsoft

 

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:

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on U.S. & Intl Recaps and select "The year of the chicken")

http://www.reuters.com/article/us-global-markets-idUSKCN0VS03O

http://www.theguardian.com/business/2016/feb/20/oil-price-plunging-saudi-arabia-iran-alliance-enemies

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on U.S. & Intl Recaps and select "A better week for equities")

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (2016 Economic Calendar for the week of February 22, 2016)

http://www.brookings.edu/blogs/future-development/posts/2015/10/12-europe-america-innovation-khan

http://www.history.com/topics/inventions

http://www.livescience.com/53783-superman-memory-crystal-data-storage.html

http://onlinelibrary.wiley.com/doi/10.1002/smll.201502453/full

http://www.livescience.com/53565-touch-screen-coating-generates-electricity.html

http://www.popsci.com/braille-printer-born-lego

http://www.popsci.com/frying-pan-teaches-you-cook

http://www.brainyquote.com/quotes/quotes/b/billgates626265.html?src=t_innovation

 

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.