It Was Not a Good Week for Stocks

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stock exchangeLast week, stock markets around the world lost value. In the United States, the Standard & Poor’s 500 Index (S&P 500), Dow Jones Industrial Index (Dow), and NASDAQ all finished lower.

Some pundits have been drawing comparisons between the performance of the Dow last Friday and Black Monday, the memorable day in 1987 when the index shed 508 points in a single day.

They may be barking up the wrong tree.

Yes, the Dow lost more than 600 points on Friday. That was about 2.5 percent of its value. On Black Monday a lesser drop equated to a 22 percent loss for the Dow. In addition, Black Monday was widely attributed to program trading gone awry. The culprit behind last Friday’s fall is likely to be bonds, according to Barron’s.

Last week, the U.S. Treasury announced it would begin selling more short-term government bonds to fund the rising budget deficit. That sparked concerns about the impact of a bigger bond supply on interest rates. When bond supply exceeds demand, interest rates typically go up to attract investors. The United States already has ample bond supply since the Federal Reserve curtailed its bond buying program. Financial Times reported:

“Equity investing involves a delicate balance of three things: earnings, interest rates and valuation. Over the past decade, low long-term bond yields have played a crucial role in helping elevate equity valuations… ‘You have to consistently show economic and earnings growth to justify these valuations at higher rates,’ says Nicholas Colas, cofounder at DataTrek. ‘People forget how closely tied economic and profit growth is to rising rates – it is a horse race and profit growth has to win – even if just by a little.’”

News about employment and wage gains added fuel to the fire of investor worries. In January, the United States experienced its strongest wage growth since 2009. While that’s good news for workers, it may cause the Fed to raise rates more aggressively in an effort to keep inflation manageable.

Market Feb 5

Sources:

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-05-18_Barrons-Global_Stock_Market_Recap-Footnote_1.pdf

https://www.marketwatch.com/story/all-30-dow-stocks-fall-as-the-point-decline-exceeds-that-of-black-mondays-2018-02-02

https://www.investopedia.com/ask/answers/042115/what-caused-black-monday-stock-market-crash-1987.asp

https://www.barrons.com/articles/risk-roars-back-1517626616 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-05-18_Barrons-Risk_Roars_Back-Footnote_4.pdf

https://www.ft.com/content/08f29ca6-07f3-11e8-9650-9c0ad2d7c5b5 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/02-05-18_FinancialTimes-Stock_Bulls_Fret_that_Bad_News_Comes_in_Threes-Footnote_5.pdf

https://www.cnbc.com/2018/02/02/best-wage-growth-since-2009-spurs-talk-of-more-fed-rate-hikes.html

Disclaimer

*These views should not be construed as investment advice. * 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. * The Standard & Poor’s 500 (S&P 500) is an unmanaged index. 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. * This newsletter was prepared in whole or in part by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with Skygate Financial Group. * 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. * Consult your financial professional before making any investment decision. * Stock investing involves risk including loss of principal.

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