Weekly Market Commentary, May 22, 2018

May 22, 2018  | By Robare & Jones

The Markets

 

Concerns over trade and global politics pushed markets lower last week. The S&P 500 slipped 0.5 percent. Global stocks, as measured by the MSCI ACWI, dropped 0.7 percent. The Bloomberg BarCap Aggregate Bond Index declined 0.5 percent based on solid U.S. economic data and concerns increasing oil prices may push other prices higher.

As interest rates continue to increase, some investors are becoming concerned the higher yields available from bonds will cause investors to rotate out of stocks. For the first time since 2007, an investment in ultra-short-term government debt pays more interest than the same investment in stocks pays in dividends.

This type of analysis can help gauge the value of one investment relative to another. As rates increase, bonds become more competitive than stocks and investors who have taken on more risk in search of yield are able to rotate toward safer investments.

However, focusing on dividends ignores the changing nature of corporations’ cash returns to investors. The accompanying chart shows companies are buying back their own stock at higher levels than what they are paying out in dividends. The chart also shows stock buybacks didn’t become meaningful until the 1980s, so historical analyses of dividends understate how much money corporations typically return to investors.

Corporate tax reform has provided additional cash to reinvest in businesses, pay dividends, and buy back stock. Not only are taxes lower, but many companies are bringing cash currently kept in overseas accounts back to the United States. When the analysis includes buybacks in addition to dividends, bonds don’t offer the same level of competition as stocks when only dividends are counted.

 

Data as of 05/18/2018 1-week YTD 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) -0.5% 1.5% 14.7% 8.4% 10.2% 6.6%
Dow Jones Global ex-U.S. -0.9 -0.5 11.9 2.7 3.2 -0.2
10-year Treasury Note (Yield Only) 3.1 NA 2.2 2.2 2.0 3.8
Gold (per ounce) -2.7 -0.6 2.6 1.7 -1.0 3.6
Bloomberg Commodity Index 0.4 2.5 8.4 -4.9 -7.4 -8.3
DJ Equity All REIT Total Return Index -3.0 -6.5 -0.4 4.3 4.8 5.9

S&P 500, 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.

Download Market Data Table

 

Did You Know There’s a Billionaire Census?

Last week, the fifth edition of the Billionaire Census was released. Apparently, the wealth of billionaires increased by 24 percent during 2017. In addition, the billionaire population, which had suffered reduced numbers since 2015, expanded. It now includes 2,754 individuals. The previous high was 2,473 in 2015. According to Wealth-X:

  • 816 live in the Asia-Pacific region
  • 884 live in the Americas
  • 1,054 live in Europe, the Middle East, and Africa

There is a bit of disagreement about the size of the ‘Three-Comma Club’ and the rate at which its wealth is increasing. In March 2018, Forbes reported there were “…2,208 billionaires from 72 countries and territories including the first ever from Hungary and Zimbabwe. This elite group is worth $9.1 trillion, up 18 percent since last year. Their average net worth is a record $4.1 billion. Americans lead the way with a record 585 billionaires, followed by Mainland China with 373.”

Two hundred and fifty-six women made the list, including 42 new additions.

The Giving Pledge is another exclusive group that some billionaires have joined. The objective of the Pledge is to “…help address society’s most pressing problems by inviting the world’s wealthiest individuals and families to commit more than half of their wealth to philanthropy or charitable causes either during their lifetime or in their will.”

As of February 2018, 175 billionaires from 22 countries had joined.

Fun Story of the Week

Woman accidentally tipped a café her pin number
Olesja Schemjakowa of France recently enjoyed a slice of cake and cup of coffee at a small café in Switzerland where her bill was $23.76. So, you can imagine her surprise when her bank statement later read she had a $7,732 charge. Turns out when entering the tip, Schemjakowa accidentally entered in her pin number: 7686. The transaction is legally binding, so she contacted the café owner, who agreed to refund her. Contact then ceased between the two parties, after which Schemjakowa discovered the café had closed its doors. She has yet to receive her money.

 

 

 

Newsletter Sources

https://www.ft.com/content/584a9610-5ab8-11e8-b8b2-d6ceb45fa9d0 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-21-18_FinancialTimes-US_Stocks_Mixed_Treasuries_Rally_as_Markets_Eye_Trade_Talks-Footnote_1.pdf)

http://press.vatican.va/content/salastampa/en/bollettino/pubblico/2018/05/17/180517a.html

https://bridebook.co.uk/article/harry-and-meghan-royal-wedding-cost

https://www.washingtonpost.com/amphtml/news/wonk/wp/2018/05/18/oil-was-the-only-thing-keeping-venezuela-afloat-now-the-government-is-too-dysfunctional-to-even-pump-it/?noredirect=on

https://www.ft.com/content/1e4ae576-5ac4-11e8-b8b2-d6ceb45fa9d0 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-21-18_FinancialTimes-The_Week_in_Energy-Regulations_Unintended_Consequences-Footnote_5.pdf)

https://www.ft.com/content/a4049438-5aa0-11e8-bdb7-f6677d2e1ce8 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/05-21-18_FinancialTimes-Disillusioned_Venezuelans_Set_to_Shun_Election-Footnote_6.pdf)

https://www.msn.com/en-us/travel/news/aaa-415m-travelers-for-memorial-day-weekend-a-5-25-hike-despite-higher-gas-prices/ar-AAxgCMK

https://www.wealthx.com/report/the-wealth-x-billionaire-census-2018/?utm_campaign=billionaire-census-2018&utm_source=press&utm_medium=referral&utm_term=bc-2018-press&utm_source=press&utm_medium=referral&mod=article_inline

https://www.forbes.com/billionaires/#1d1efa68251c

https://www.forbes.com/sites/jenniferwang/2018/03/06/richest-women/#446741af81f1

https://www.givingpledge.org/About.aspx (Click on “How many people have joined the Giving Pledge, and where are they from?”)

http://www.philanthropicpeople.com/2013/10/14/10-inspiring-philanthropy-quotes/