Schwartz Financial Weekly Commentary 7/2/18

The Markets

There’s a bear in China – and it’s not a panda.

The Shanghai Stock Exchange (SSE) Composite Index, which reflects the performance of all shares that trade on the Shanghai Stock Exchange, dropped into bear market territory last week, reported CNBC. The Index has fallen more than 20 percent from its previous high. It appears some investors saw an opportunity and bought the dip since the SSE Index bounced higher last Friday, gaining more than 2 percent.

Slower economic growth and rising trade tensions were responsible for much of the red ink in China, reported Barron’s, but the Chinese government may be playing a role, too:

“What’s got global market watchers worried is that China’s stocks are sliding in tandem with its currency, the renminbi or yuan…That suggests China is using the exchange rate as a weapon. ‘The most effective way for China to retaliate [against] rising U.S. tariffs is to weaken the yuan,’ according to the July Bank Credit Analyst. That could roil financial markets, however. The dual declines in China’s equity market and currency are raising concerns of a repeat of 2015. Treasury strategists at NatWest Markets recall that the drop in the yuan that summer sparked severe equity market losses, including a 10.5 percent correction in the S&P 500.”

That may explain, in part, why U.S. Treasury bills were so popular last week, although it probably didn’t hurt the yield on short-term Treasuries was roughly equivalent to the dividends paid by the Standard & Poor’s 500 Index.

The coming weeks may deliver more excitement than Fourth of July fireworks.

 

Data as of 6/29/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -1.3% 1.7% 12.3% 9.7% 11.0% 7.8%
Dow Jones Global ex-U.S. -1.1 -4.9 4.9 2.9 3.8 0.5
10-year Treasury Note (Yield Only) 2.9 NA 2.3 2.3 2.5 4.0
Gold (per ounce) -1.5 -3.6 0.6 2.1 0.1 3.0
Bloomberg Commodity Index 0.1 -0.9 7.5 -4.6 -7.0 -9.3
DJ Equity All REIT Total Return Index 0.9 1.3 4.9 9.4 9.0 8.3
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.

from asia with love. Sometimes the hottest trends in other regions of the world are similar to those in the United States and sometimes they’re very different. Here are three recent chapters in the book of Asian cultural trends.

Improving your future wife’s ROI. Single men in the Land of the Rising Sun are trying to increase their value on the marriage market by taking parenting classes. The lessons include developing empathy for future spouses by wearing pregnancy suits. The Atlantic reported, “The man in the traditional kimono is having difficulty…The weight of the belly strains his back. Simply walking around the room – a party room in a Tokyo condo building – is more like lumbering. Lying down and getting up again is a struggle. The rest of the men in the Ikumen class laugh as he tries to adjust to the new reality.”

Shopaholics rejoice. ‘Shopstreaming’ is a little bit e-commerce and a little bit live streaming, reports Trendwatching Quarterly. “Asians are social shoppers – they rely on social media recommendations for their purchase decisions. For many, the ability to talk to sellers and buyers can build trust and allay fears about counterfeit goods. In Southeast Asia, 30 percent of e-commerce sales are started on social media and completed in messaging apps…”

It’s not just puppy love. Newly minted middle classes in developing nations are turning to pets for comfort and companionship. In emerging markets in the Asia Pacific region, Spire Research reports, “Changes in consumer lifestyles and rising disposable income are driving acceptance for pets and boosting the entire pet-related industry along the way.”

Trends are entertaining. As in any industry, they also can help business owners unearth expansion opportunities and help asset managers discover companies with potential.

Weekly Focus – Think About It

“I learned to make my mind large, as the universe is large, so that there is room for contradictions.”

Maxine Hong Kingston, Chinese American author

Value vs. Growth Investing (6/30/18)

Name 1-Week YTD 4-Week 13-Week 1-Year 3-Year 5-Year
US Market -1.43 3.08 0.65 3.71 14.70 11.65 13.31
US Core -1.36 -1.27 -0.11 1.71 8.53 10.45 12.40
US Growth -1.92 12.03 1.62 7.71 26.23 14.27 16.70
US Large Cap -1.29 2.88 0.50 3.57 14.87 12.15 13.52
US Large Core -1.24 -1.97 -0.32 1.08 7.56 11.09 12.48
US Large Growth -1.58 12.34 1.65 7.01 27.24 15.21 17.72
US Large Val -0.80 -2.68 -0.03 0.47 8.76 9.68 10.04
US Mid Cap -1.57 3.01 1.12 3.12 13.83 10.33 12.92
US Mid Core -1.51 -0.45 0.62 1.62 10.47 8.68 12.41
US Mid Growth -2.12 8.50 1.45 4.98 20.54 10.70 13.41
US Mid Val -1.06 0.90 1.17 2.56 10.23 11.50 12.85
US Small Cap -2.38 5.33 0.86 7.02 15.52 10.19 12.11
US Small Core -2.37 3.26 0.34 6.28 12.62 9.39 11.78
US Small Growth -2.58 11.57 1.43 7.89 23.70 11.84 13.66
US Small Val -2.15 1.31 0.79 6.85 10.40 9.16 10.76
US Value -0.95 -1.67 0.28 1.33 9.24 10.05 10.69
2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.

 Office Happenings:

Independence Day – JFK Speech

Everyone knows that July 4th is “America’s birthday.”  It’s the commemoration of our national independence.  A day for fireworks and fun, patriotism and pie.  A celebration of America itself.

But in a sense, the Fourth of July is even more than that.

Two-hundred and forty-two years ago, a group of Americans gathered together to sign one of the most extraordinary documents ever written.  I’m referring, of course, to the Declaration of Independence.  Historians debate which day the signing actually took place, but in the grand scheme of things, details like that don’t matter.

What matters is what came next.

A Trumpet Call of Freedom

President John F. Kennedy explained it best in a speech he gave on July 4, 1962.1 Standing inside Independence Hall, the same place the founders gathered almost two centuries before, he said:

[The Declaration of Independence] was, above all else, a document not of rhetoric but of bold decision.  It was, it is true, a document of protest – but protests had been made before.  It set forth grievances with eloquence – but such eloquence had been heard before.  But what distinguished this paper from all the others was the final irrevocable decision that it took – to assert the independence of free States in place of colonies, and to commit to that goal their lives, their fortunes, and their sacred honor. 

That Declaration, whose yellowing parchment and fading, almost illegible lines I saw in the past week in the National Archives in Washington, is still a revolutionary document.  To read it today is to hear a trumpet call.  For that Declaration unleashed not merely a revolution against the British, but a revolution in human affairs.  Its authors were highly conscious of its worldwide implications, and George Washington declared [later]that liberty and self-government everywhere were, in his words, ‘finally staked on the experiment entrusted to the hands of the American people.’ 

This prophecy has been borne out.  For 186 years this doctrine of national independence has shaken the globe – and it remains the most powerful force anywhere in the world today.  There are those struggling to eke out a bare existence in a barren land who have never heard of free enterprise, but who cherish the idea of independence.  There are those who are grappling with overpowering problems of illiteracy and ill-health and who are ill-equipped to hold free elections.  But they are determined to hold fast to their national independence. 

In 1861, Abraham Lincoln spoke in this hall, [paying] a brief but eloquent tribute to the men who wrote, who fought for, and who died for the Declaration of Independence.  Its essence, he said, was its promise not only of liberty ‘to the people of this country, but hope to the world…hope that in due time, the weights should be lifted from the shoulders of all men, and that all should have an equal chance.’  

The theory of independence is old as man himself, and was not invented in this hall.  But it was in this hall the theory became practice; that the word went out to all, in Thomas Jefferson’s phrase, that “the God who gave us life, gave us liberty at the same time. 

When word first came out that the United Colonies were henceforth free and independent States, it didn’t stop at this country’s borders.  As if carried on the wind, it flew across oceans and over mountains.  It rang in valleys and swept across desert plains.  It penetrated walls and fortresses and iron curtains.  It launched revolutions and birthed democracies.  It was a trumpet call that reached every corner of the world – one that still echoes to this day.

When we celebrate the Fourth of July, we’re observing more than just our nation’s birthday.  We’re commemorating an event that shook the world off its old axis.  We’re participating in a grand, ongoing experiment.  An experiment to maintain, to protect, to uphold certain truths – that all people are created equal.

This Independence Day, take a moment to look over at your friends and family as they look to the skies.  And when the first glint of rockets reflects in their eyes, ask them if they hear it.  The word.  The prophecy.  The trumpet call.

Because there’s no sound more beautiful.

On behalf of all of us at Schwartz Financial, I wish you a safe and happy Independence Day!

1 “President Kennedy at Independence Hall, 4 July 1962,” John F. Kennedy Presidential Library & Museum.  https://www.jfklibrary.org/Asset-Viewer/RrjaDhW5B0OYm2zaJbyPgg.aspx

Regards,

Mike

Michael L. Schwartz, RFC®, CWS®, CFS

P.S.  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 email with their email address and we will ask for their permission to be added.

Michael L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and advisory services through Independent Financial Group, LLC., a registered broker-dealer and investment advisor.  Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.

This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.

 

* 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.

 

* 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.

 

* To unsubscribe from our “market commentary” please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at “mike@schwartzfinancial.com”.

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