The Markets

Behind the dark clouds of volatile markets there appears to be a silver lining. That may be hard to believe when so many are focused on whether economic weakness is due to bad weather or, well, economic weakness, but here are a few of the signs that things may take a turn for the better:

  • Business climate: On February 20, The Economist/FT Global Business Barometer, which surveys 1,500 business leaders around the world, found more than one-half of them expect the global business climate to improve during the next six months and more than one-third plan to increase capital investment in the coming year. A slight majority believe America will have a greater influence on their regional growth than China.
  • Consumer confidence: Consumer confidence climbed for the second month in January 2014. The Director of The Conference Board Consumer Confidence Index® said,“Consumers’ assessment of the present situation continues to improve, with both business conditions and the job market rated more favorably. Looking ahead six months, consumers expect the economy and their earnings to improve, but were somewhat mixed regarding the outlook for jobs. All in all, confidence appears to be back on track and rising expectations suggest the economy may pick up some momentum in the months ahead.”
  • Cashrich companies: Corporate America is sitting on a lot of cash – about 91 weeks’ worth of net income, according to Barron’s. It has been using that cash primarily for stock buybacks, but could use it for other things. An economist quoted in Barron’s said, “The purpose of the capital markets is to fund growth… it’s difficult to call this de-equitization an economic equilibrium: Public companies should not make money just to buy back stock.”

Of course, positive prospects don’t mean everything is coming up roses (especially not in this weather). Consider one of the effects of stock buybacks which is there is a lot less stock in our stock markets than there used to be. As Barron’s pointed out, “The Wilshire 5000 may have seen its list of components shrink by half since 1998, but its total market cap has doubled from $11.7 trillion to $22.5 trillion in that span. Unless you’re a government statistician, you just might call that inflation.” Oh! Inflation. That’s something we may need to think more about soon.


Data as of 2/21/14

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

-0.1%

-0.7%

22.2%

11.8%

19.8%

4.9%

10-year Treasury Note (Yield Only)

2.7

NA

2.0

3.5

2.8

4.1

Gold (per ounce)

0.3

10.1

-16.1

-1.9

6.1

12.7

DJ-UBS Commodity Index

2.3

6.3

-2.3

-6.2

5.4

-0.6

DJ Equity All REIT TR Index

0.5

7.2

5.6

9.9

28.6

8.8

Notes: S&P 500, Gold, DJ-UBS 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 TR 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.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.  You cannot invest directly in this 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 London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ 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 TR 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.

Sources:

http://www.economist.com/blogs/graphicdetail/2013/11/economistft-survey

https://www.conference-board.org/data/consumerconfidence.cfm

http://online.barrons.com/article/SB50001424053111903506304579383263701727796.html?mod=BOL_hp_we_columns#articleTabs_article%3D2 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/02-24-14_Barrons-Now_Its_the_Wilshire_3666.pdf)

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