What time is it?
The yield curve may be the pocket watch of economic indicators. It’s been around for a long time and it’s often right, but not always.
The yield curve is the difference between the interest paid on two-year government bonds and 10-year government bonds. In normal circumstances, an investor would expect to earn a higher rate of interest when lending money to a government for 10 years than when lending money for two years because there is more risk associated with lending for a longer period of time.
When the yield curve flattens or inverts, it suggests a shift in investors’ expectations. Financial Times explained:
“The slope made up of bond yields of various maturities has a record of predicting recessions that would make even the savviest econometrician turn pea-green with envy. It is not perfect, but the curve has become flat and inverted – when short-term bond yields are actually higher than long-term ones – ahead of most economic downturns in most major countries since the second world war.”
In the United States last week, the difference between yields on 2-year Treasuries (2.56) and 10-year Treasuries (2.90) flattened. The gap narrowed to 34 basis points (a basis point is one-hundredth of one percent). The change reflects higher short-term rates, courtesy of the Federal Reserve. It also suggests tariffs and trade issues have made bond investors more pessimistic about prospects for U.S. growth, reported The Wall Street Journal.
Globally, the yield curve is inverted. “The average yield of bonds in JPMorgan’s broadest Government Bond Index that mature in seven to 10 years last week slipped below the average yields of bonds maturing in one to three years for the first time since 2007…that indicates that investors have a pretty grim view of where the world economy and equity markets are heading,” reported Financial Times.
We’re keeping an eye on developments in the financial markets and will keep you informed.
|Data as of 6/22/18||1-Week||Y-T-D||1-Year||3-Year||5-Year||10-Year|
|Standard & Poor’s 500 (Domestic Stocks)||-0.9%||3.0%||13.2%||9.1%||11.9%||7.7%|
|Dow Jones Global ex-U.S.||-1.2||-3.8||6.5||2.2||4.9||0.5|
|10-year Treasury Note (Yield Only)||2.9||NA||2.1||2.4||2.6||4.2|
|Gold (per ounce)||-1.3||-2.1||1.5||2.3||-0.3||3.7|
|Bloomberg Commodity Index||-0.4||-1.0||10.0||-4.4||-7.1||-9.2|
|DJ Equity All REIT Total Return Index||2.4||0.3||3.4||7.8||9.7||7.9|
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.
You knew carrots were good for your eyes, and a newly discovered use for the orange veggie may help farmers and/or food processing companies find a new source of revenue. That’s because carrots can make concrete stronger – and so do sugar beets.
Engineers at Lancaster University in the United Kingdom are infusing nano platelets from discarded carrots and root vegetable peels into concrete. This strengthens the material in an environmentally friendly way. Durability + Design reported:
“These vegetable-composite concretes were also found to out-perform all commercially available cement additives, such as graphene and carbon nanotubes and at a much lower cost…The root vegetable nano platelets work both to increase the amount of calcium silicate hydrate – the main substance that controls the performance of concrete – and stop any cracks that appear in the concrete.”
The Economist reported adding 500 grams of platelets reduced the amount of cement required to make a cubic foot of concrete by 10 percent. In addition to reducing the amount of building material needed for a project, carrot concrete also reduces CO2 emissions.
Another natural material is getting a makeover, too. Researchers at the University of Maryland are refining processes that make wood stronger than steel, reported Scientific American. It may compete with titanium alloys and have applications beyond building:
“A five-layer, plywood-like sandwich of densified wood stopped simulated bullets fired into the material – a result Hu and his colleagues suggest could lead to low-cost armor. The material does not protect quite as well as a Kevlar sheet of the same thickness, but it only costs about 5 percent as much, he notes.”
If demand for carrots (and sugar beets and wood) increases and supply remains constant when we may see prices for those goods increase.
Weekly Focus – Think About It
“A person with a new idea is a crank until the idea succeeds.”
–Mark Twain, American author and humorist
Value vs. Growth Investing (6/22/18)
|US Large Cap||-1.00||4.23||1.21||4.73||15.71||11.61||14.01|
|US Large Core||-1.31||-0.74||-0.51||2.55||8.37||10.36||12.94|
|US Large Growth||-0.95||14.14||4.01||7.97||27.39||14.91||18.32|
|US Large Val||-1.05||-1.89||-0.85||1.64||10.06||8.99||10.40|
|US Mid Cap||-0.52||4.66||2.22||4.85||15.89||9.79||13.69|
|US Mid Core||-0.54||1.08||1.45||3.59||12.39||8.13||13.09|
|US Mid Growth||-1.06||10.85||3.92||6.41||22.78||10.34||14.32|
|US Mid Val||0.09||1.98||1.10||4.49||12.30||10.77||13.57|
|US Small Cap||0.41||7.89||3.72||9.23||19.39||9.92||13.07|
|US Small Core||0.28||5.77||2.68||8.62||16.54||9.27||12.77|
|US Small Growth||0.04||14.52||5.22||9.59||26.65||11.60||14.63|
|US Small Val||0.94||3.54||3.17||9.45||15.09||8.70||11.69|
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.
On October 31, 2003, an aspiring professional surfer named Bethany Hamilton went onto the ocean near her home in Hawaii. As she had done many times before, she lay down on her board and trailed her left arm through the warm water, watching nearby sea turtles.
That’s when the shark came.
Within seconds, what started as an idyllic day turned into a nightmare. The shark attacked Bethany’s arm. Some nearby friends pulled her from the water and fashioned a tourniquet before an ambulance arrived to rush her to the hospital. Bethany’s father was already there, scheduled to have surgery that morning, but he promptly gave up his place in the operating room for his daughter. To save her life, doctors were forced to amputate.
Why am I sharing this harrowing story? That’s what I wondered when someone first shared it with me. But the truth is, it’s not harrowing, but inspiring – because of what came after.
Whenever disaster happens, it would be perfectly normal and understandable for someone to “cut their losses” and move on. But not Bethany. The incident may have taken her arm, but it could not take her love of surfing. She returned to the water less than a month later, surfing week after week on a modified board her father built.
Twenty months later, in June of 2005, she won her first national championship.
Today, experts consider her one of the top surfers in the world.
Bethany not only fulfilled her dream of becoming a professional surfer, but began sharing her story and outlook on life as a writer and inspirational speaker. In interviews and her autobiography, Soul Surfer, her faith and can-do attitude inspired thousands.
Bethany’s story highlights how it’s possible to overcome almost any obstacle. The trauma and loss of limb she suffered did not stop her from pursuing her passion. If anything, it only drove her more. It is this attitude that has made Bethany such an inspiration to so many. Through determination and personal faith, Bethany achieved her dreams. She also used adversity as a platform to raise money for disabled children. Her foundation, Friends of Bethany, reaches out to amputees to provide the support they need to overcome adversity in their own lives.
As we travel on the road to our life goals, I hope we can remember Bethany’s example whenever adversity rears its ugly head. I hope we can remember that on that road, adversity is a speed bump, not a stop sign. Most of us will never experience what she did, but we will all experience times that will test our resolve.
When those times happen, remember Bethany – and get back in the water.
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.
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