July 9, 2013

Positive Growth Rate Predictions in the US and Other Countries

The second quarter offered a level of drama often found in homes with teenagers.

When investors realized their good friend, quantitative easing, might have an earlier-than-expected curfew, they threw a hissy fit that resounded through global markets. The outburst interrupted the trajectory of Standard & Poor's 500 Index, which finished June lower after hitting record highs in May. As stocks fell, yields on the benchmark 10-year Treasury bond hit a 22-month high.

Higher treasury yields and a strengthening greenback proved attractive to investors and capital flowed out of emerging markets during the quarter. As interest rates moved higher, the cost of borrowing rose sharply in many emerging countries. That may impede economic growth, which has slowed already, in many developing countries. Economies in emerging Asia, Latin America, and Europe grew by about 4 percent on average year-on-year during the first quarter as compared to 6.4 percent on average during the past decade.

When compared to growth rates in developed countries, such as the European Union (EU), that's still a pretty attractive growth rate. The EU has suffered seven consecutive quarters of recession. It's hard to say the recovery is going well, but experts are hopeful because the Spanish economy is contracting at a slower rate, Italian business activity isn't declining as fast as it once did, the French downturn is moderating, and the German economic growth is in positive numbers.

It's a different story in the United States. By the end of second quarter, economists were predicting 2014 could prove to be the best year for U.S. economic growth since 2005. The Wall Street Journal's monthly survey found that, "Economists... expect gross domestic product to expand at a 2.3 percent annual pace this year and 2.8 percent next year. The Federal Reserve edged up 2014 growth forecasts to between 3 and 3.5 percent, from a March estimate of 2.9 to 3.4 percent." Encouraging economic signs include:

  • Housing market vigor: Experts say housing market strength will be critical to economic performance in the second half of the year.
  • Employment gains: Unemployment has dropped from double-digits to 7.6 percent, although there are still about2.4 million fewer jobs than there were before the recession.
  • Confident consumers: After years of paring spending and paying down debt, Americans are feeling optimistic. Consumer confidence now stands at a five-year high.

While optimism about the American economy is good news, it's important to remember world economies are like members of a family. What happens to one country or region often has a significant influence on what happens in the others.

Data as of 7/5/13 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) 1.6% 14.4% 19.3% 16.7% 5.4% 5.0%
10-year Treasury Note (Yield Only) 2.7 N/A 1.6 2.9 3.9 3.7
Gold (per ounce) 1.7 -28.4 -24.4 0.1 5.8 13.3
DJ-UBS Commodity Index 0.9 -9.7 -10.4 0.4 -11.5 0.7
DJ Equity All REIT TR Index 0.0 5.6 8.8 19.8 8.5 10.5

Notes: S&P 500, Gold, DJ-UBS 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 TR 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.

SHE CAN BRING HOME THE BACON AND FRY IT UP IN A PAN...From 1960 through 2011, the percentage of households with children under the age of 18 and mom as the primary or sole breadwinner increased from 11 to 40 percent. According to the Pew Research Center report, 'Breadwinner Moms' fall into two distinct groups: married moms who earn more than their husbands (37 percent) and single mothers (63 percent). The earnings gap between the two groups tends to be very large:

"The median total family income of married mothers who earn more than their husbands was nearly $80,000 in 2011, well above the national median of $57,100 for all families with children, and nearly four times the $23,000 median for families led by a single mother."

It's interesting to note an educational gap has been developing between husbands and wives, as well. A growing proportion of married women are better educated than their husbands. According to Pew Research, "the share of couples in which the mother has attained a higher education than her spouse has gone up from 7 percent in 1960 to 23 percent in 2011." This probably shouldn't be a surprise since more women than men have been receiving college degrees of all types - associates, bachelors, masters, and doctorates - every year since 1982.

Perceptions about women's roles in both the workplace and the family appear to be changing, too. According to another Pew report, almost three-fourths of American adults say having more women in the workforce has been a change for the better. About 60 percent say family life is more satisfying when both spouses work and they share responsibility for housework and child care.

Weekly Focus - Think About It

"If we become increasingly humble about how little we know, we may be more eager to search."

Sir John Templeton, Global investing pioneer

Best regards,
Sean M. Dowling, CFP, EA
President, The Dowling Group Wealth Management

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  • 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 DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.
  • 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.
  • This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.
  • 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.
  • You cannot invest directly in an index.
  • Consult your financial professional before making any investment decision.












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