January 7, 2014

What's in Store for 2014?

Like a half-full bottle of champagne that was left uncorked overnight, stock markets were anything but effervescent during the first few days of 2014.

On Tuesday, December 31, the Standard & Poor's 500 Index (S&P 500) bubbled upwards, finishing 2013 at an all-time high. On Wednesday, markets were closed as Americans celebrated the New Year. On Thursday, despite relatively positive economic news, the S&P 500 suffered its worst first-day-of-the-new-year performance since 2008. Is it a hangover? Is it lethargy? Are people still on holiday?

Some folks think a key issue is concern about the Fed's changing monetary policy. MarketWatch suggested investors are wary about the timing of and reasoning behind the Federal Reserve's decision to taper quantitative easing (QE) this month, as well as conflicting comments made by Fed officials. Last Friday, Philly Fed President Charles Plosser suggested the U.S. central bank may need to become aggressive about raising rates. His comments don't square with those of outgoing Chairman Ben Bernanke who has said rates will remain near-zero for some time to come.

Plosser's comments raise red flags because tapering QE is not the same as tightening monetary policy. Tapering is simply providing less economic stimulus. If the Fed raises rates, it will be tightening monetary policy. Generally, tighter monetary policy is used to constrict too-fast economic growth or curb rising inflation. Barron's may have provided some insight into Plosser's statement when it declared:

"...We also suspect U.S. and global economic growth will quicken more than most anticipate...Stronger economic growth combined with a further tightening in the resource markets (i.e., expect the unemployment rate to decline toward 6% by year-end and for the factory utilization rate to rise above 80% during the year) may lead to a modest rise in the U.S. inflation rate and produce the first "inflation scare/overheat/can the Fed exit fast enough" panic of the recovery."

Hold onto your hats! The minutes of the Fed's Open Market Committee meeting will be available this Wednesday and the way in which they're interpreted could buffet markets.

Data as of 1/3/14 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) -0.6% -0.9% 25.5% 12.9% 14.6% 5.0%
10-year Treasury Note (Yield Only) 3.0 NA 1.9 3.3 2.5 4.4
Gold (per ounce) 1.7 2.8 -26.5 -3.4 7.7 11.4
DJ-UBS Commodity Index -2.1 -0.7 -9.9 -8.4 0.7 -1.2
DJ Equity All REIT TR Index 0.3 0.7 1.9 9.2 18.2 8.7

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.

Top Inventions from 2013

What makes a great invention? It probably depends on who you ask. The angel investors (a.k.a. sharks) on the television reality show Shark Tank share their opinions on air, and Time Magazine recently revealed its thoughts in print when it published, "The 25 Best Inventions of the Year 2013." The article suggested a great invention solves either a problem people thought couldn't be solved (such as helping quadriplegics walk) or a problem they didn't realize needed to be solved (who knew we needed a cronut - the offspring of a croissant and a donut - or an invisible skyscraper). Among Time's top inventions for 2013 were:

  • The Smart Lens: (slide 5) Ever been frustrated by the low resolution of photos snapped with your mobile phone? Now, you can attach a smart lens and your smart phone will take pictures like a high performance camera and save them online automatically.
  • The edible password pill: (slide 10) Nope. It's not on the market yet but, sometime in the future, you'll be able to swallow a pill with breakfast. The chip inside will be powered by stomach acid and make your body into its own unique personal password every single day. The FDA has already approved it.
  • The 3Doodler: (slide 12) If you think 3D printing is neat, check out the 3Doodler. It's a pen that melts and cools colored plastic so you can sketch and scribble actual structures. It's the more sophisticated brethren of Popsicle sticks and pipe cleaners.
  • Artificial memories: (slide 14) It's likely to be just as controversial as cloning and the human genome, but scientists at MIT have managed to implant false memories in mice. They hope human applications will help treat depression and post-traumatic stress.

From the wheel to disposable diapers to the worldwide web, inventions have powered new industries and changed lives. So, are our most inventive days behind us? There are a few pessimists out there, but the Time Invention Poll found more than one-half of respondents think there are plenty of great inventions ahead. Where will they be discovered? Those polled said the United States, China, Japan, India, South Korea, and other nations.

Weekly Focus - Think About It

"Creativity requires the courage to let go of certainties."

—Erich Fromm, German psychologist and philosopher

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

Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

  • 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.
  • You cannot invest directly in an index.
  • The 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.
  • Consult your financial professional before making any investment decision.
  • This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.
  • Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
  • Stock investing involves risk including loss of principal.

http://online.barrons.com/article/SB50001424053111904742804579284810328140946.html?mod=BOL_article_full_popview#text.print(or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/01-06-14_Barrons-Splits_Dive-Cheap_Stocks_Thrive-Footnote_1.doc)

http://www.marketwatch.com/story/stock-market-to-find-out-if-the-fed-made-the-right-move-2014-01-05

http://www.investopedia.com/terms/t/tightmonetarypolicy.asp

http://online.barrons.com/article/SB50001424053111903675404579298633659690604.html?mod=googlenews_barrons#articleTabs_article%3D1(or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/01-06-14_Barrons-How_to_Play_2014s_Surprise_Economy-Footnote_4.doc)

http://techland.time.com/2013/11/14/the-25-best-inventions-of-the-year-2013/

http://www.sony.co.uk/hub/lens-style-camera

http://techland.time.com/2013/11/14/the-time-invention-poll/

http://www.brainyquote.com/quotes/quotes/e/erichfromm151839.html


ADV & Investment Objectives: Please contact The Dowling Group if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account. Our current disclosure statement is set forth on Part II of Form ADV and is available for your review upon request.

IRS Circular 230 Disclosure: Pursuant to requirements imposed by the Internal Revenue Service, any tax advice contained in this communication (including any attachments) is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code or promoting, marketing or recommending to another person any tax-related matter. Please contact us if you wish to have formal written advice on this matter.