2018 Quarter 3 Market Commentary

The Stock Market: A Leading Economic Indicator

The stock market tends to be a leading economic indicator.

Last week offered some insight to economics and stock market behavior. The U.S. unemployment rate reached its lowest level since 1969 and wages moved higher, yet major U.S. stock indices lost value.

Why didn’t stock markets move higher?

The answer is stock prices tend to be leading indicators. They reflect investors’ expectations for the future. Last week, investors may have been thinking like this:

  • When unemployment is low, companies cannot always hire enough workers…
  • To hire more workers, companies raise wages…
  • Higher wages give workers more spendable income…
  • More spendable income produces higher demand for goods and services…
  • Higher demand for goods and services leads to higher prices…
  • Higher prices (inflation) cause the Federal Reserve to increase the Fed funds rate…
  • An increase in the Fed funds rate pushes interest rates higher…
  • Higher interest rates make borrowing more expensive…
  • Higher borrowing costs may slow business spending…
  • Slower business spending may cause profits to fall…
  • Falling profits may cause investors to sell shares…
  • When investors sell shares, stock prices may drop…

In general, “…while it usually takes at least 12 months for any increase or decrease in interest rates to be felt in a widespread economic way, the market’s response to a change (or news of a potential change) is often more immediate,” explained Mary Hall on Investopedia.com.

At the end of last week, 10-year Treasuries yielded 3.2 percent. Daniel Kruger of The Wall Street Journal reported, “U.S. government bond yields rose to their highest level in years Friday as investors reconsidered the strength of the U.S. economy while selling off stocks that could be hurt by higher borrowing costs.”

One way to manage stock market volatility is to have a well-allocated and diversified portfolio.

Data as of 10/5/181-WeekY-T-D1-Year3-Year5-Year10-Year
Standard & Poor’s 500 (Domestic Stocks)-1.0%7.9%13.1%13.2%11.5%10.6%
Dow Jones Global ex-U.S.-2.8-7.8-
10-year Treasury Note (Yield Only)3.2NA2.
Gold (per ounce)1.4-7.2-5.61.8-1.93.2
Bloomberg Commodity Index2.0-1.42.7-0.7-7.5-5.4
DJ Equity All REIT Total Return Index-2.9-

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.

Market Commentary | October 8, 2018 | WMBC



https://www.barrons.com/articles/dow-tumbles-180-points-jobs-report-inflation-gauge-1538774927?mod=hp_DAY_3 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-08-18_Barrons-Dow_Tumbles_180_Points_Because_the_Jobs_Report_is_Really_an_Inflation_Gauge-Footnote_2.pdf)



https://www.wsj.com/articles/bond-yields-reach-new-highs-on-growth-outlook-1538774696 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/10-08-18_WSJ-Bond_Yields_Reach_New_Highs_on_Growth_Outlook-Footnote_5.pdf)




These views are those of Carson Group 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 Group Coaching. Carson Group 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. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. 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 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. 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.

Consult your financial professional before making any investment decision.

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