Market Commentary August 12, 2019


Global selloff. Quick comeback.

Investors boomeranged from stocks to safe havens and back as trade tensions between the United States and China intensified last week. The Economist reported:


"On August 1st President Donald Trump warned that he would soon impose a 10 percent levy on roughly $300bn-worth of Chinese goods that have not already been hit by the trade war. Four days later China responded by giving its exchange rate unaccustomed freedom to fall. The yuan weakened past seven to the dollar, an important psychological threshold, for the first time in over a decade. And stock prices in America duly fell..."


Asia Times explained, "Beijing has signaled that it is prepared to endure a long and debilitating trade war with the United States...A reported directive to Chinese companies to refrain from buying U.S. farm products seems an in-your-face challenge to the U.S. president."


The possibility of a prolonged trade war triggered worries about global recession and set off a selloff. Global stock markets experienced the biggest one-day decline since February 2018, according to Bloomberg, and U.S. stocks delivered the worst one-day performance of 2019, reported MarketWatch.


Stocks staged an impressive recovery on Tuesday. Then, central banks in India, Thailand, and New Zealand announced unexpected rate cuts. The moves incited concern about the health of the global economy and stocks dropped again - and recovered again. By the end of the week, nearly all losses in U.S. stock markets had been erased.


If recent volatility has triggered a desire to change your investments, please get in touch with us before you do.

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.


CAN YOU BELIEVE IT?

The global bond market deserves a spot in a believe-it-or-not museum, right next to the bathythermograph, radioactive vodka (brewed with Chernobyl grain), and 526 extra teeth recently removed from a youngster's jaw.


Here's why: Approximately one-fourth of all bonds issued by governments and companies around the globe are trading at negative yields, according to an index cited by The Economist.


Just imagine. You want to borrow money. An acquaintance agrees to lend you the money and then offers to pay you for borrowing it.


It sounds like a Monty Python skit, right?


It's not. All over the world, bonds issued by governments and companies are offering negative interest rates. Investors who purchase the bonds are paying governments and companies to borrow their money. For instance, in Germany, investors are paying one-half of a percentage point annually for the assurance their money will be returned when the bond matures.


Why are so many bond yields in negative territory?


Strangely enough, retirement and longevity may play a role. Joachim Fels of PIMCO theorized a 'savings glut' could be the reason for low and negative yields. He explained:

"...it can be argued that in affluent societies where people can expect to live ever longer and thus spend a significant amount of their lifetimes in retirement, more and more people demonstrate negative time preference, meaning they value future consumption during their retirement more than today's consumption...they are thus willing to accept a negative interest rate and bring it about through their saving behavior."


We live in interesting times.


Weekly Focus - Think About It

"Why do you go away? So that you can come back. So that you can see the place you came from with new eyes and extra colors. And the people there see you differently, too. Coming back to where you started is not the same as never leaving."

--Sir Terence David John Pratchett, English author

Best regards,

Greg C.

Greg Clifton, ChFC, CFP®, MBA


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* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* 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 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.

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Sources:

https://www.economist.com/finance-and-economics/2019/08/05/why-a-weakening-yuan-is-rattling-markets(or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/08-12-19_TheEconomist-Why_a_Weakening_Yuan_is_Rattling_Markets-Footnote_1.pdf)

https://www.asiatimes.com/2019/08/article/trade-wars-part-two-the-empire-strikes-back/

https://www.bloomberg.com/news/articles/2019-08-06/asia-stocks-to-start-mixed-u-s-shares-climb-markets-wrap

https://www.marketwatch.com/story/what-a-falling-chinese-yuan-means-for-the-stock-market-and-the-trade-war-2019-08-05

https://www.barrons.com/articles/dow-jones-industrial-average-whipsawed-by-trade-tensions-finishes-week-down-modestly-51565396072?mod=hp_DAY_3 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/08-12-19_Barrons-The_Dow_Whipsawed_by_Trade_Tensions_Finishes_the_Week_Down_Modestly-Footnote_5.pdf)

https://www.ripleys.com

https://www.economist.com/finance-and-economics/2019/08/08/as-yields-turn-negative-investors-are-having-to-pay-for-safety(or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/08-12-19_TheEconomist-As_Yields_Turn_Negative_Investors_are_Having_to_Pay_for_Safety-Footnote_7.pdf)

https://www.barrons.com/articles/how-this-market-will-end-51565369599?mod=hp_DAY_1 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/08-12-19_Barrons-How_This_Bull_Market_Will_End-Footnote_8.pdf)

https://blog.pimco.com/en/2019/08/interest-rates-naturally-negative

https://www.goodreads.com/author/quotes/1654.Terry_Pratchett

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