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Weekly Market Commentary
June 10, 2013 |
| | Like a Funhouse Mirror... |  | |
...investors' concerns about whether and when the Federal Reserve will begin to end its quantitative easing program contorted market responses to economic news last week. Unexceptional economic reports were treated as good news and pushed stock markets higher; strong economic reports were treated as bad news and pushed stock markets lower.
Markets headed south mid-week, but responded positively to the U.S. May jobs report. It was a Goldilocks report - neither too weak nor too strong - which showed the Labor Department added slightly more jobs than expected in May. Apparently, investors thought the increase was not large enough to spur the Federal Reserve to early action on quantitative easing, and U.S. stock markets finished the week higher. The Dow Jones Industrial Average was up 0.9 percent, the Standard & Poor's 500 Index gained 0.8 percent, and the NASDAQ rose 0.4 percent.
Uncertainty about the future of quantitative easing has created volatility in U.S. bond markets during the past few weeks. Concerns the Fed could begin tapering sooner rather than later, triggered a sharp increase in bond yields during that period. In addition, several new offerings in the municipal bond market - issued by cities and states, municipal bonds typically are exempt from federal tax - have been scaled back or postponed because of market uncertainty.
If concerns about the end of quantitative easing continue to dominate, it's possible markets may continue to respond to economic news in unexpected ways. So, what's on deck for next week? Economic news should include the May retail sales report, initial June consumer sentiment reading, and inflation data.
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 | Weekly Market Update | |
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Data as of 6/7/13 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year | |
Standard & Poor's 500 (Domestic Stocks) |
0.8% |
15.2% |
25.0% |
16.1% |
3.8% |
5.4% | |
10-year Treasury Note (Yield Only) |
2.2 |
N/A |
1.7 |
3.2 |
4.0 |
3.3 | |
Gold (per ounce) |
-0.6 |
-18.2 |
-12.6 |
4.5 |
9.1 |
14.4 | |
DJ-UBS Commodity Index |
0.5 |
-5.6 |
1.6 |
2.4 |
-9.9 |
0.9 | |
DJ Equity All REIT TR Index |
-0.1 |
7.9 |
18.5 |
19.5 |
6.6 |
11.2 |
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.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable. |
| What Are Commodities? | | |
According to Investopedia, there are two types of commodities: hard commodities, which are natural resources that must be mined or extracted (such as gold, rubber, or oil), and soft commodities, which are agricultural products (such as corn, coffee, or beef).
For centuries, people have argued rising populations would create greater demand for commodities and, eventually, these resources would be depleted. The Reverend Thomas Malthus voiced this idea in 1798. His sentiments were echoed by Paul Ehrlich in his 1968 book, The Population Bomb. These types of fears generally have been dismissed by economists who believe higher demand will lead to higher prices which, in turn, will lead to increases in supplies.
Recently, David Jacks of the National Bureau of Economic Research explored commodity pricing trends during the past 160 years. He found real commodity prices have risen by about 252 percent since 1900 and 192 percent since 1950. The Economist evaluated the data from Jacks' paper and found during 1950 through 2012, real prices for petroleum, gold, natural gas, beef, iron ore, and copper increased, while those for aluminum, sugar, rice, corn, cocoa, wheat, and others had declined. The March 2013 article stated:
"Long-run rises have been most pronounced for commodities that are "in the ground", like minerals and natural gas. Energy commodities especially have boomed, soaring by roughly 300% since 1950. In contrast, prices for resources that can be grown have fallen. The inflation-adjusted prices of rice, corn and wheat are lower now than they were in 1950. Although the global population is 2.8 times above its 1950 level, world grain production is 3.6 times higher."
Mr. Jacks also found a consistent pattern of commodity price super-cycles - upswings in commodity prices which last for roughly 10 to 35 years. Super-cycles tend to correspond with historical periods of mass industrialization and urbanization when constrained supply pushes prices higher at rates which are well above the normal trend. The extended period of these super-cycles is owed to the fact new sources for resources - wells, mines, etc. - cannot be developed overnight. One-half of the super-cycles identified in the study began between 1994 and 1999 and resulted from growing demand in emerging markets countries.
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"I've learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel."
--Maya Angelou, American author and poet | | |
Best Regards,
Wade Carpenter |
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* Securities offered through Commonwealth Financial Network, Financial Member FINRA/SIPC.
* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.
* Diversification does not protect against loss or assure a profit and there is no guarantee a diversified portfolio will outperform a non-diversified portfolio.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.
* 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.
* Past performance does not guarantee future results.
* You cannot invest directly in an index.
* Consult your financial professional before making any investment decision.
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Sources:
http://online.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on link, then Simply Economics)
http://finance.yahoo.com/news/just-jobs-data-could-help-003913615.html
http://www.reuters.com/article/2013/06/07/markets-municipals-deals-idUSL1N0EH0W120130607
http://www.marketwatch.com/column/bond%20report
http://www.investorwords.com/3162/municipal_bond.html
http://www.investopedia.com/terms/c/commodity-market.asp
http://www.economist.com/news/finance-and-economics/21578992-short-term-gyrations-commodity-prices-may-do-more-damage-long-run
http://www.sfu.ca/~djacks/papers/workingpapers/w18874%20%28typology%29.pdf
http://www.economist.com/blogs/graphicdetail/2013/06/daily-chart-3
http://www.brainyquote.com/quotes/authors/m/maya_angelou.html
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