February 23, 2016

March Rate Hike Not Off the Table

And the economic data says...

The United States economy is doing pretty well. So well that a March rate hike by the Federal Reserve is not entirely out of the question. Barron's described the situation like this:

"Squawking pessimism can't drown out what is a very respectable start to 2016. Economic data so far this year, apart from predictions of deflation and negative interest rates, could justify what was scheduled to be, but what soon seemed impossible, a rate hike at the March FOMC. Yes, global factors are a risk and are hurting the factory sector but service prices are definitely on the climb and vehicle prices and vehicle production, reflecting strength in domestic demand, are back up. Ignore the cacophony of doubt and look at the economic data for yourself!"

U.S. economic data was generally positive last week, but that wasn't the primary driver behind the rally in U.S. stock markets, according to Reuters. Nope, that had more to do with oil prices. Despite serious political differences, Iran and Saudi Arabia appeared to reach an accord on oil production last week, when Iran endorsed a plan by Saudi Arabia to stabilize global oil prices, according to The Guardian. The agreement pushed oil prices higher mid-week.

However, late in the week, news that oil stockpiles in the U.S. were at record levels reignited worries about oversupply and oil prices fell at week's end. U.S. stock markets followed, giving back some of the week's gains on Friday, but all of the major indices finished more than 2 percent higher for the week.

Economic data may dominate the news next week. We'll get more information on housing, durable goods orders, jobless claims for February, and a revised estimate for fourth quarter's gross domestic product growth. Barron's suggested a strong employment report in tandem with rising prices could influence the Fed's interest rate decision.

Data as of 2/19/16 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor's 500 (Domestic Stocks) 2.8% -6.2% -8.6% 7.8% 7.8% 4.1%
Dow Jones Global ex-U.S. 4.4 -8.4 -17.6 -4.3 -3.2 -0.7
10-year Treasury Note (Yield Only) 1.8 NA 2.0 2.0 3.5 4.6
Gold (per ounce) -0.7 15.9 1.8 -8.5 -2.6 8.3
Bloomberg Commodity Index -0.4 -4.4 -27.2 -18.6 -14.2 -7.6
DJ Equity All REIT Total Return Index 4.1 -5.8 -6.2 6.4 9.2 5.8

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.

The World of Tomorrow

Wondering what the next decade may bring? America is renowned for innovation - originating ideas that change the ways in which people live and work. From the cotton gin to the assembly line, the transcontinental railroad to the automobile, the telephone to the Internet, ideas and inventions have spurred America's economic growth during the past two centuries. Here are a few inventions that are on the horizon:

  • The Superman memory crystal: Imagine a tiny piece of glass etched by a laser that has the capacity to save an enormous amount of data for more than 13 billion years, according to LiveScience.com. One tiny disc currently holds the Magna Carta, Universal Declaration of Human Rights, and King James Bible.
  • A transparent antipeep piezoelectric nanogenerator (TAPN): It may have a tongue twister of a name right now, but the TAPN could become as familiar as your phone charger in the future. All you'll have to do is place a transparent film on the touchscreen of a smartphone or another device, and then every tap on the screen will generate electricity. Which begs the question: Could texting teenagers power the world?
  • A braille printer: A 12-year-old used Legos to build an inexpensive printer for people who are blind or suffering from macular degeneration or other conditions that affect eyesight. It used a thumbtack to punch braille dots into paper. Newer prototypes don't rely on thumbtacks, and are expected to translate words from a computer screen into braille very quickly.
  • A fry pan that teaches cooking: Cooking will not become a lost art if a couple of hungry and cooking-challenged college students are successful. They've developed a smart frying pan. The pan transmits temperature data to the cook using a smartphone app that also lets the cook know when it's time for the next step in a recipe.

The human brain is an engine for innovation, and innovation is a driver of economic growth. Let's hope the outlook is good for brainstorms in the United States and across the globe.

Weekly Focus - Think About It

"Software innovation, like almost every other kind of innovation, requires the ability to collaborate and share ideas with other people, and to sit down and talk with customers and get their feedback and understand their needs."

—Bill Gates, Founder of Microsoft

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.

  • Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
  • Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
  • These views are those of Peak Advisor Alliance, and not the presenting Representative or the Representative's Broker/Dealer, and should not be construed as investment advice.
  • 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. 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.
  • 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.

Sources:

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on U.S. & Intl Recaps and select "The year of the chicken")

http://www.reuters.com/article/us-global-markets-idUSKCN0VS03O

http://www.theguardian.com/business/2016/feb/20/oil-price-plunging-saudi-arabia-iran-alliance-enemies

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on U.S. & Intl Recaps and select "A better week for equities")

http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (2016 Economic Calendar for the week of February 22, 2016)

http://www.brookings.edu/blogs/future-development/posts/2015/10/12-europe-america-innovation-khan

http://www.history.com/topics/inventions

http://www.livescience.com/53783-superman-memory-crystal-data-storage.html

http://onlinelibrary.wiley.com/doi/10.1002/smll.201502453/full

http://www.livescience.com/53565-touch-screen-coating-generates-electricity.html

http://www.popsci.com/braille-printer-born-lego

http://www.popsci.com/frying-pan-teaches-you-cook

http://www.brainyquote.com/quotes/quotes/b/billgates626265.html?src=t_innovation


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.

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.