June 17th Market Commentary

June 17, 2019

The Markets

Are we on the cusp of change?

The United States is doing quite well. Randall Forsyth of Barron’s reported:

“…the U.S. economy and stock market both seem to be doing better than OK, thank you, as the expansion and bull market celebrate their 10th anniversaries. Unemployment is around the lowest level in a half-century. The worst thing seems to be that inflation continues to run slightly below the Fed’s 2 percent target, a problem that might strike some as similar to being too rich or too thin.”

The economic facts are encouraging, but recent events have potential to knock the U.S. economy off its tracks. The most significant threat may be a second round of oil tanker explosions in the Gulf of Oman. The U.S. accused Iran and Iran denied responsibility, reported The Economist. Tensions in the region are on the rise.

U.S.-China trade rhetoric heated up, too, which has some analysts concerned. It’s difficult to discern what’s truly happening, though. Reuters reported the United States stopped the World Trade Organization investigation of China’s treatment of intellectual property in early June. Some believe the action signaled a thaw in trade relations.

This week new concerns may rise to the fore. The Federal Reserve’s Open Market Committee meets Tuesday and Wednesday. Some hope it will decide to lower rates, while others believe a rate cut is unnecessary.

Major U.S. stock indices gained value last week, despite a spate of bad news, but change may be coming.

 

PLASTIC GOES WHERE FEW HAVE GONE BEFORE. In 2012, filmmaker James Cameron brought attention to the Mariana Trench, the deepest point on Earth (6.8 miles down), when he took a solo dive into its depths. The seafloor of the abyss also has been visited by at least one plastic bag, according to the Deep Sea Debris Database on ScienceDirect.

The Mariana Trench is just one of many unlikely places where plastic has been found. Jesse Li of Axios reported, “A marine biologist found 373,000 toothbrushes and 975,000 shoes on the beaches of a remote string of islands in the Indian Ocean.” In addition, the manmade material has made the trip to Point Nemo, the most remote location on Earth. Point Nemo is more than 1,000 miles from civilization in every direction – the farthest a person can get from dry land without heading into space, according to Atlas Obscura.

The pervasiveness of plastic is not too surprising. There is a lot of it in the world. Globally, almost 400 million tons of plastic were produced in 2015. Fifty-five percent of it was discarded, 25 percent was incinerated, and 20 percent was recycled, according to Our World in Data.

The glut of plastic pollution inspired Canada to ban single-use plastics last week. The goal is to eliminate use by 2021. The European Union has taken similar steps. As plastic use ebbs, new packaging materials are being developed. Biodegradable seaweed bubbles may replace plastic water bottles. Paper made from stone may wrap food products and fresh fruit may arrive to market wrapped in palm leaves.

Innovation creates opportunities for investors.

Weekly Focus – Think About It

“Growth for the sake of growth is the ideology of the cancer cell.”
--Edward Abbey, American author and essayist

* These views are those of Carson Coaching, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.
* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named broker/dealer.
* 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.
* 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 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 Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* 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.
* Stock investing involves risk including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.

Sources:
https://www.barrons.com/articles/the-rate-cut-the-economy-doesnt-need-but-the-markets-do-51560557553?mod=hp_DAY_1 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/06-17-19_Barrons-The_Rate_Cut_the_Economy_Doesnt_Need_but_the_Markets_Do-Footnote_1.pdf)
https://www.economist.com/middle-east-and-africa/2019/06/13/who-is-blowing-up-ships-in-the-gulf (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/06-17-19_TheEconomist-Who_is_Blowing_Up_Ships_in_the_Gulf-Footnote_2.pdf)
https://www.reuters.com/article/us-usa-trade-china-wto/united-states-and-china-suspend-intellectual-property-litigation-at-wto-idUSKCN1TF1ER
https://www.barrons.com/articles/dow-jones-industrial-average-gains-as-interest-rate-decision-looms-51560555002?mod=hp_DAY_3 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/06-17-19_Barrons-The_Dow_Gains_Again_as_a_Decision_Looms_for_the_Federal_Reserve-Footnote_4.pdf)
https://news.nationalgeographic.com/news/2012/03/120325-james-cameron-mariana-trench-challenger-deepest-returns-science-sub/
https://www.sciencedirect.com/science/article/pii/S0308597X17305195
https://www.axios.com/plastics-places-found-608053d3-eb2d-4fc3-9ffc-8c66eda65ed6.html
https://www.atlasobscura.com/places/point-nemo
https://ourworldindata.org/plastic-pollution
https://www.nationalgeographic.com/environment/2019/06/canada-single-use-plastics-ban-2021/
https://www.innovationexcellence.com/blog/2018/07/02/13-plastic-packaging-alternatives/
https://www.goodreads.com/quotes/21664-growth-for-the-sake-of-growth-is-the-ideology-of

June 3rd Market Commentary

June 3, 2019
The Markets

Tariff trouble.

Just two weeks ago, the U.S. government lifted tariffs on Mexico and Canada. So, it was a surprise last week when President Trump tweeted the United States would impose an escalating tariff on all goods imported from Mexico until the flow of migrants to the United States’ southern border stops.

The pending tariffs have potential to hurt both American and Mexican economies, reported The Economist. “Two-thirds of American imports from Mexico are between related parties, where one partner owns at least 10 percent of the other, so any tariff will cause problems along tightly integrated supply chains.”

In 2018, Mexico was the second largest supplier of imported goods to the United States. It provided 13.6 percent of U.S. imports. In addition, Mexico was the second largest importer of U.S. goods. The country took in 15.9 percent of overall U.S. exports, including machinery, electrical machinery, mineral fuels, vehicles, and plastics, according to the Office of the United States Trade Representative.

The new tariffs (a.k.a. import taxes) may increase costs for ordinary Americans. Last week, Liberty Street Economics explained the costs associated with Chinese tariffs:

“U.S. purchasers of imports from China must now pay the import tax in addition to the base price. Thus, if a firm (or consumer) is importing goods for $100 a unit from China, a 10 percent tariff will cause the domestic price to rise to $110 per unit…it is not a true cost for the U.S. economy because the money is simply transferred from buyers of imports to government coffers and thus could, in principle, be rebated.”

A different type of cost occurs when companies find new suppliers. For example, a company that chooses not to pay tariffs can buy goods elsewhere. They might choose to pay a Vietnamese firm $109 for a product rather than pay a Chinese firm $110 ($100 plus a 10 percent tariff). In this situation, the consumer pays a higher price and there is no tariff revenue that could be rebated. This is called a deadweight loss.

In total, Liberty Street Economics estimated the cost of 2018 tariffs on Chinese goods at $419 a year for the typical household ($132 in deadweight loss). The tariffs imposed in 2019 are expected to cost $831 a year ($620 in deadweight loss).

Liberty Street Economics did not estimate the potential consumer cost of new tariffs on Mexico.

Major U.S. stock indices finished lower last week. Yields on U.S. Treasuries moved lower, too, suggesting investors may have been seeking safe havens.

LET’S HEAR IT FOR THE DOGS. Some people love cats. Some people love dogs. Some people believe your preference offers insight to your personality. You have probably heard variations on this idea. WebMD offered the example that cat owners are open, curious, creative thinkers, while dog owners are outgoing, enthusiastic, self-disciplined planners.

Recently, a bit of data emerged that may please dog owners in Britain. It seems canines in the United Kingdom are outstanding personal trainers. A University of Liverpool study, published in April in Scientific Reports, found:

“The odds of [dog owners] meeting current physical activity guidelines of 150 minutes per week were four times greater than for [people who don’t own dogs]. Children with dogs reported more minutes of walking and free-time (unstructured) activity. Dog ownership is associated with more recreational walking and considerably greater odds of meeting [physical activity] guidelines…It is recommended that adults undertake at least 150 minutes of moderate-to-vigorous intensity physical (MVPA) activity per week.”

British dogs are better at ensuring their owners get enough exercise than American and Australian dogs. In both the United States and Australia, a significant number of dog owners reported their dogs live outside and exercise on their own.

Few cats are willing be leashed and taken for walks, so cat ownership is less likely to help owners meet physical activity goals. Regardless, cat owners may realize some health benefits. A University of Minnesota study found cat owners were 30 percent less likely to die from heart attacks or strokes than non-cat owners. It remains unclear whether cats help lower stress and anxiety or cat owners tend to have low-stress personalities.

Weekly Focus – Think About It

“Owners of dogs will have noticed that, if you provide them with food and water and shelter and affection, they will think you are god. Whereas owners of cats are compelled to realize that, if you provide them with food and water and shelter and affection, they draw the conclusion that they are gods.”
--Christopher Hitchens, Author and columnist

* These views are those of Carson Coaching, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.
* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named broker/dealer.
* 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.
* 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 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 Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* 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.
* Stock investing involves risk including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.

 Sources:
https://www.npr.org/2019/05/17/724357441/u-s-to-lift-tariffs-on-canadas-and-mexico-s-steel-and-aluminum
https://twitter.com/realdonaldtrump/status/1134240653926232064
https://www.economist.com/finance-and-economics/2019/05/31/donald-trump-vows-to-use-tariffs-to-punish-mexico-for-migrants (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/06-03-19_TheEconomist-Donald_Trump_Vows_to_Use_Tariffs_to_Punish_Mexico_for+Migrants-Footnote_3.pdf)
https://ustr.gov/countries-regions/americas/mexico
https://libertystreeteconomics.newyorkfed.org/2019/05/new-china-tariffs-increase-costs-to-us-households.html
https://www.barrons.com/articles/dow-jones-industrial-average-drops-for-sixth-straight-week-on-tariff-tumult-51559351582?mod=hp_DAY_4 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/06-03-19_Barrons-Dow_Drops_for_Sixth_Week_Because_Tariffs_Arent_Just_for_China_Anymore-Footnote_6.pdf)
https://www.marketwatch.com/story/2-year-treasury-yield-slumps-to-2-after-trump-wields-tariff-threat-against-mexico-2019-05-31
https://pets.webmd.com/ss/slideshow-truth-about-cat-people-and-dog-people
https://www.nature.com/articles/s41598-019-41254-6
https://www.medicalnewstoday.com/articles/98432.php
https://www.goodreads.com/quotes/tag/pets

May 28th Market Commentary

May 28, 2019
The Markets

U.S. stocks have had a great run.

During the past decade, the profitability of U.S. companies increased rapidly. Strong corporate earnings helped the U.S. stock market outperform markets in other nations by a significant margin. According to Capital Economics, “Since the start of this decade, the average annual return from the MSCI USA index of mid- and large-capitalization U.S. equities, which closely tracks the S&P 500, has been roughly 13 percent. This compares to only 7 percent from the MSCI World ex USA index of comparably-sized equities in 22 other developed economies.” Performance was measured in local currency.

Through the end of April, year-to-date returns for U.S. benchmark indices were soaring. T. Rowe Price reported, “Stocks recorded solid gains in April, continuing their strong start to the year. The S&P 500 and Nasdaq Composite Indexes hit new all‑time highs at the end of the month, while the other major benchmarks remained modestly below the peaks they established in the fall of 2018…Renewed confidence in the global economy seemed to be a primary factor boosting sentiment in April.”

Since early May, when trade discord resumed between the United States and China, major U.S. stock indices have lost value. Ben Levisohn of Barron’s reported the Dow Jones Industrial Average has fallen 3.5 percent since May 5, the Standard & Poor’s 500 Index is down 4.1 percent, and the Nasdaq Composite has surrendered 6.5 percent.

There are reasons to believe stock performance may not be as strong in the future. Last week, there were signs U.S. and global economies may be slowing. Randall Forsyth of Barron’s reviewed some indicators. “Long-term U.S. Treasury yields…fell on Thursday to their lowest levels since October 2017, before ticking up on Friday. At the same time, copper and crude-oil prices fell on the week. Those indicators of economic weakness were underscored by a drop in the flash IHS Markit Purchasing Managers Indexes to a shade above 50, the dividing line between expansion and contraction for the economy. Whatever the factors at work, the U.S. economy is slowing.”

The Federal Reserve Bank of Atlanta’s May 24 GDPNow forecast, which is a weekly estimate of potential economic growth for the year, projected the U.S. economy will grow 1.3 percent in 2019.

After a great decade and a stellar start to 2019, U.S. stock markets may be cooling off.

 

IT’S NOT CAPTURE THE FLAG. Like competitive gaming and Ultimate Frisbee, some may categorize pillow fighting as an activity rather than a sport. Jack Tarrant and Yoko Kono of Reuters described the last week’s All Japan Pillow Fighting Championship qualifier in Shizuoka Prefecture in this way:

“A mix between dodgeball and chess, the aim is to protect each team’s ‘King’ from being hit by pillows whilst trying to hit the opposition’s ‘King’ during two-minute sets. One player on each team can also use a duvet as a shield.”

Japan isn’t the only country to embrace pillow fighting. Since 2008, when International Pillow Fight Day was established, annual pillow fights have been launched in cities around the world, according to Awareness Days. Since the first World Pillow Fight Day in March 2008, the activity has gained popularity “…with pillow fighting flash mobs fighting it out in more and more cities every year…”

NOTE: Pillow fighting is not without risk. In 2015, West Point banned its annual pillow fight after 30 participants were injured.

Weekly Focus – Think About It

“The first colleges to make sports a major part of student life, in addition to the Ivies, were the military academies. They did so for some of the same reasons as the elite schools – athletics instilled character, etc. – but also because Army and Navy endorsed the old General Wellington idea that battles were won and lost on the playing fields of youth. The better the sports program, they reasoned, the better the soldier…”
--Steven Stark, Cultural commentator

* These views are those of Carson Coaching, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.
* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named broker/dealer.
* 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.
* 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 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 FTSE Nareit All Equity REITs Index tracks the performance of the U.S. Real Estate Investment Trust (REIT) industry at both an industry-wide level and on a sector-by-sector basis.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* IHS Markit is a London-based global information provider that was formed in 2016 when Information Handling Services, Inc. and Markit Ltd. merged. It combines information and analytics to provide solutions for business, finance, and government.
* The Purchasing Managers’ Index (PMI) is a measure of the prevailing direction of economic trends in manufacturing and is based on a monthly survey of supply chain managers across 19 industries covering both upstream and downstream activity.
* 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.
* Stock investing involves risk including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.

Sources:
https://research.cdn-1.capitaleconomics.com/faf89b/relentless-outperformance-of-us-equities-likely-to-end.pdf (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-28-19_Capital_Economic_Global_Markets_Update-Footnote_1.pdf)
https://www.troweprice.com/financial-intermediary/us/en/insights/articles/2019/q2/monthly-market-review.html
https://www.barrons.com/articles/dow-jones-industrial-average-drops-for-fifth-straight-week-51558749330?mod=hp_DAY_3 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-28-19_Barrons-The_Dow_Celebrates_Five_Weeks_of_Futility-Footnote_3.pdf)
https://www.barrons.com/articles/trade-talks-take-an-ominous-new-turn-51558747006?mod=hp_DAY_1 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-28-19_Barrons-The_Trade_War_Takes_an_Ominous_New_Turn-Footnote_4.pdf)
https://www.frbatlanta.org/cqer/research/gdpnow.aspx?mod=article_inline
https://www.reuters.com/article/us-pillowfighting-japan/duvets-discarded-cushions-thrown-at-japans-pillow-fighting-championship-idUSKCN1SV063
https://www.awarenessdays.com/awareness-days-calendar/international-pillow-fight-day-2019/
https://www.usatoday.com/story/news/nation/2015/11/25/west-point-bans-cadets-pillow-fight-after-30-injured-plebes/76382394/
https://www.theatlantic.com/entertainment/archive/2010/09/drill-and-kill-how-americans-link-war-and-sports/63832/