As Maxwell Smart used to say…
Missed it by THAT much! After a rocky start, the Standard & Poor’s 500 Index came within 1 percent of an all-time high last week, reported Ben Levisohn for Barron’s. It’s significant because the Standard & Poor’s 500 Index has been trading below its January record all year. The article suggested the lack of progress begs the question: Are we still in a bull market?
It’s the old ‘Shrink Global Markets with Corporate Buybacks’ trick. Last week, Robin Wigglesworth of Financial Times reported, “The global equity market is shrinking at the fastest pace in at least two decades, as a wave of corporate share buybacks swamps the overall volume of companies going public, issuing new stock or selling convertible debt.”
The value of the global equity market is increasing despite the reduction in volume. In part, this is because stock buybacks help push share prices higher.
There is a potential downside to buybacks, though. Nasdaq.com explained, “…rewarding current shareholders so liberally can lead to a systemic extraction of value from companies on a macroeconomic scale. Throw in dividends and little is left for growth and expansion.”
Would you believe…the President asked for it? “President Trump on Friday asked regulators to review a decades-old requirement that public companies release earnings quarterly, a change some executives support to promote longer-term planning but that some investors worry could reduce market transparency,” reported Dave Michaels, Michael Rapoport, and Jennifer Maloney of The Wall Street Journal.
While transparency is essential to investors, critics suggest quarterly reporting “distracts companies from focusing on longer-term financial and strategic goals and may deter companies from going public,” wrote Andrew Edgecliffe-Johnson and Mamta Badkar for Financial Times.
Data as of 8/17/18
Standard & Poor's 500
Dow Jones Global ex-U.S.
10-year Treasury Note (Yield Only)
Gold (per ounce)
Bloomberg Commodity Index
DJ Equity All REIT Total Return Index
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.
Remember that saying about the forest and the trees?
Some pretty good numbers have been posted for 2018. They’re the type of numbers that inspire confidence. For example:
4.1 percent. The United States experienced strong economic growth during the second quarter. The advance estimate for U.S. gross domestic product (the value of all goods and services produced by a nation) during the second quarter of 2018 was 4.1 percent. That was the highest rate of growth since the first quarter of 2014.
24.6 percent. 2017’s tax reform, which lowered corporate tax rates from an average of 35 percent to an average 21 percent, boosted corporate earnings, reported Nasdaq.com. With 91 percent of companies reporting in, the blended earnings growth rate for the S&P 500 was 24.6 percent during the second quarter of 2018.
$1 trillion. What are companies doing with their tax windfall? U.S. companies are rewarding shareholders by buying back stock, reported Nasdaq.com, which suggested buybacks could total $1 trillion in 2018.
3,453 days. Depending on how precisely you define the last bull market, August 22 may be the day that marks this one as the longest bull market in history.
While positive economic and market numbers are nice to see, they are trees in a forest and don’t necessarily provide a full or an accurate picture. For instance, the length of a bull market is interesting, but it has no predictive value, reported Barron’s. The length of the current economic expansion is far more important.
Barron’s cited Dr. Ed Yardeni, chief investment strategist at Yardeni Research, who said, “All I’m interested in is how long the expansion lasts…Because the longer it lasts, the longer the bull market lasts.”
It’s important to understand which numbers are important and how they relate to one another. If you would like to learn more, give us a call.
Weekly Focus – Think About It
“There is no truth. There is only perception.”
--Gustave Flaubert, French novelist
Scott & Jess Peterson
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* 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.
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* All indexes 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
* 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.
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https://www.barrons.com/articles/will-jpmorgan-tank-when-jamie-dimon-leaves-1534433537(or go tohttps://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-20-18_Barrons-The_Bull_Market_Rumbles_On_Despite_Turkey_Turmoil-Footnote_2.pdf)
https://www.ft.com/content/5a359796-a18e-11e8-85da-eeb7a9ce36e4(or go tohttps://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-20-18_FinancialTimes-Global_Equity_Market_Shrinks_as_Buybacks_Surge-Footnote_3.pdf)
https://www.wsj.com/articles/trump-directs-sec-to-study-six-month-reporting-for-public-companies-1534507058(or go tohttps://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-20-18_WSJ-Trump_Asks_SEC_to_Study_Six-Month_Reporting_for_Public_Companies-Footnote_5.pdf)
https://www.ft.com/content/c1d133aa-a211-11e8-85da-eeb7a9ce36e4(or go tohttps://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-20-18_FinancialTimes-Trump_Asks_SEC_to_Study_Scrapping_Quarterly_Earnings_Reports-Footnote_6.pdf)