It’s déjà vu all over again!

Courtesy of 2nix / FreeDigitalPhotos

Courtesy of 2nix / FreeDigitalPhotos

Last year, pundits and analysts tried to discern when the Federal Reserve might begin to end quantitative easing by reading economic tea leaves. For months, bad economic news proved to be good news for stock markets. This year, investors are seeking signs which might indicate when the Fed will begin to raise interest rates and, once again, bad news has become good news. Last week’s weaker-than-expected unemployment report helped push U.S. stock markets higher, according to Reuters, because it was interpreted to mean the Fed would not raise rates soon.

The week before, the Commerce Department announced household spending slowed during July. Consumer spending was up just 3.2 percent annualized through mid-summer which is the smallest increase in spending in five years. As it turns out, spending fell because Americans are saving more. During July, households set aside 5.7 percent of income, on average. While that’s good news with respect to American households’ financial security, it’s not such good news for U.S. gross domestic product, according to Barron’s:

“Unfortunately for the U.S. economy, a penny saved is not a penny earned. While the decision by Americans to cut back on their profligate ways isn’t necessarily a bad thing – it was spending beyond our means that helped spur the Great Recession in the first place – it’s only consumer spending, not saving, that counts when computing gross domestic product. So when consumers spent less in July than they did in June, it caused economists to ratchet down their third-quarter economic-growth forecasts which now sit below 3 percent.”

Some experts say slower growth is good news because economic expansion may last longer. While that’s all well and good, Robert Shiller, Sterling Professor of Economics at Yale, suggested in The New York Times that U.S. stock markets are looking a little pricey by some measures. He suspects the reason investors remain interested in buying highly-priced shares may ultimately be found, “…in the realm of sociology and social psychology – in phenomena like irrational exuberance, which, eventually, has always faded before.”


Data as of 9/5/14

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

0.2%

8.6%

21.3%

19.9%

14.4%

6.0%

10-year Treasury Note (Yield Only)

2.5

NA

3.0

2.0

3.5

4.3

Gold (per ounce)

-1.5

5.4

-8.6

-12.6

5.0

12.2

Bloomberg Commodity Index

-1.4

-0.7

-3.8

-8.2

-0.1

-1.3

DJ Equity All REIT Total Return Index

1.0

21.3

26.8

16.9

19.2

9.0

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.reuters.com/article/2014/09/05/us-markets-stocks-idUSKBN0H013X20140905

http://online.barrons.com/news/articles/SB51885783724964273656104580129832001021868?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-08-14_Barrons-Too_Much_Thrift-Footnote_2.pdf)

http://www.nytimes.com/2014/08/17/upshot/the-mystery-of-lofty-elevations.html?_r=0&abt=0002&abg=0 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/09-08-14_NewYorkTimes-Mystery_of_Lofty_Stock_Market_Elevations-Footnote_3.pdf)

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