WMC- Blame the Fed... or China?

Follow us on   Weekly Market Commentary   August 31, 2015

The Markets

U.S. stock markets finished last week higher than they started it, but the five-day ride was awfully bumpy. Concerns about China's slowing growth, shifting currency valuations, and falling stock markets, coupled with uncertainty about the Federal Reserve's next monetary policy move, contributed to malaise in world markets early last week. After falling by about 6 percent the previous week, U.S. stocks spiraled even lower early last week. They flirted with correction status (a correction is a 10 percent drop from previous highs) before moving higher. By midweek, markets were on the rebound, bolstered in part by the comments of New York Fed President William Dudley who indicated a September rate hike might not be all that compelling. Strong U.S. economic data also soothed some investors. Barron's reported: "The economic data, however, have been good enough to suggest that the market is too pessimistic. There was that strong second-quarter gross-domestic-product reading, which even included signs of stronger capital spending, while good housing data suggest that third-quarter GDP could be better than many observers expect." Market whiplash left investors feeling pretty shaky, as did late-week comments from Fed Vice Chairman Stanley Fischer who indicated it was too soon to know what the Fed would decide about interest rates in its September meeting. He indicated the decision would depend on economic data that is still being collected. While the market's end of week bounce was welcome, The Wall Street Journal reported traders and investors appear to be ready for additional volatility. Whether markets are volatile or calm this week, it's important to remember that it's impossible for any of us to control what happens in Washington, on Wall Street, or on Main Street. We can, however, control how we prepare for and respond to market volatility. As you know, we believe thoughtful goal identification, risk tolerance education, and a disciplined approach can help investors reach their long-term financial goals. We understand that market volatility is uncomfortable, but it is not unusual or unexpected. If you have any questions or would like to discuss recent events, please contact your financial advisor. HOW BAD IS TRAFFIC CONGESTION IN THE UNITED STATES? It's so bad, the average American spends the equivalent of about five vacation days sitting in traffic every year - and that's just the tip of the iceberg. As it turns outs, the Great Recession had a silver lining - less traffic and less congested roads. Today, according to researchers at the Texas A&M Transportation Institute, employment is up and so is the number of commuters on the road: "According to the 2015 Urban Mobility Scorecard, travel delays due to traffic congestion caused drivers to waste more than 3 billion gallons of fuel and kept travelers stuck in their cars for nearly 7 billion extra hours - 42 hours per rush-hour commuter. The total nationwide price tag: $160 billion, or $960 per commuter." Of course, in some cities, people spend a lot more time inching along freeways. In Washington, D.C., drivers spend about 82 hours each year commuting; in Los Angeles, 80 hours; in San Francisco, 78 hours; and in New York, 74 hours. Across the nation, by 2020, commuter delays are expected to increase from 42 hours to 47 hours on average, raising the cost of congestion from $160 billion to $192 billion. What's to be done? Cities like Singapore, London, San Diego, Stockholm, and Milan have adopted "congestion pricing." In San Diego, express toll-lanes allow drivers to bypass gridlocked free lanes, if they are willing to pay a fee. Other cities have cordon pricing. Drivers are charged a fee each time they enter a congested area, such as a city center. The state of Oregon is charging per mile driven (a system the state may use to replace fuel taxes in the future) and may begin to charge a higher rate for miles traveled during periods of congestion on heavily used roads. Weekly Focus - Think About It "If opportunity doesn't knock, build a door." --Milton Berle, Comedian        * Securities offered through LPL Financial Member FINRA/SIPC. * 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 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. *This newsletter was prepared by Peak Advisor Alliance * 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.   * This information in not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. * The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basked of consumer goods and services.   * Harmonized Indexes of Consumer Prices are measures of consumer price inflation that have been standardized across multiple countries based on European Union definitions. A monthly report compiles HICP trends for 16 economies, alongside conventional Consumer Price Indexes (CPI) as measured by national governments.    * To unsubscribe from the Weekly Market Commentary please write to us at 60 Four Mile Drive, Suite 9, Kalispell, MT 59901. * To unsubscribe from the Weekly Market Commentary  please reply to this e-mail with   "Unsubscribe" in the subject line, or write us at 60 Four Mile Drive, Suite 9, Kalispell, MT 59901        Market http://www.barrons.com/articles/dow-ends-higher-after-global-tumult-1440826661?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/08-31-15_Barrons-Dow_Ends_Higher_After_Global_Tumult-Footnote_1.pdf) http://www.marketwatch.com/story/case-for-september-rate-hike-was-pretty-strong-before-china-devaluation-fischer-says-2015-08-28 http://www.wsj.com/articles/global-stocks-stabilize-after-u-s-data-commodities-rally-1440748637 (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/08-31-15_WSJ-US_Stocks_Cap_Volatile_Period_with_Weekly_Gains-Footnote_3.pdf) http://www.barrons.com/articles/two-bulls-keep-the-faith-on-u-s-stocks-1440826633?mod=BOL_hp_we_columns (or go to http://peakclassic.peakadvisoralliance.com/app/webroot/custom/editor/08-31-15_Barrons-Two_Bulls_Keep_the_Faith_on_US_Stocks-Footnote_4.pdf) https://www.transportation.gov/sites/dot.gov/files/docs/Draft_Beyond_Traffic_Framework.pdf http://mobility.tamu.edu/ums/media-information/press-release/ http://thisbigcity.net/five-cities-with-congestion-pricing/ http://ops.fhwa.dot.gov/publications/congestionpricing/sec2.htm http://www.brainyquote.com/quotes/quotes/m/miltonberl105306.html#MwdKlmheRGbltkyK.99--

Medicare Costs

The average married coupe will need an estimated $283,000 to cover their out-of-pocket healthcare costs during retirement.

Did you know healthcare expenses typically account for 13% of income after age 65? Give us a call if you have any retirement or investment questions, we're always happy to help.

Market Mayhem

Correction? The Dow Jones Industrial Average lost about 6 percent last week. That puts the benchmark index about 10 percent below its record high on May 19, 2015, according to Barron's. A drop of that magnitude from a new high may be a correction - a brief but jarring drop in value that often causes investors to reassess the state of the market and the health of the companies they hold. If investors judge markets and holdings to be sound, a correction may represent a buying opportunity. Of course, there is a chance markets could fall further. A drop of 20 percent or more is considered a bear market. The Standard & Poor's 500 Index lost about the same amount as the Dow last week and is down almost 8 percent from its May high. Technically, it's not yet in correction territory. A dip greater than 5 percent and less than 10 percent is a pullback. Many factors contributed to U.S. stock markets' performance last week. Concerns about global recovery were top of mind for many investors. China's slowdown may significantly reduce demand for commodities, and emerging markets that are dependent on commodity exports are struggling. CNN Money reported: "China's economic slowdown and currency devaluation have investors worried that things could get worse as the year goes on. Developing countries like Brazil and Russia are struggling to revive their economies as their currencies depreciate dramatically against the dollar. Brazil's currency value has declined over 20 percent and Russia's over 40 percent, hurting imports and everyday citizens. It's also a huge worry for America's biggest companies. About 44 percent of the revenues from S&P 500 companies come from outside the United States." Currency depreciation (not to be confused with devaluation, which is a government's deliberate downward adjustment in currency value) is market-driven and sometimes causes investors to pull assets out of a country, which can put more pressure on the currency. Uncertainty about the timing of a rate hike in America didn't help matters. CNBC reported, after the minutes of the July Federal Open Market Committee meeting were released last week and indicated "almost all members" had some concerns about the strength of U.S. economic growth, the CME FedWatch barometer put the likelihood of a September increase at 24 percent - a 45 percent drop from the prior day. FROM ABSTRACT TO REALITY: THE POTENTIAL EFFECTS OF RISING RATES. When the economic data align, and the Federal Reserve pulls the trigger on tighter monetary policy, rising interest rates may affect everything from mortgage rates to bond yields to economic growth. Here are a few of the possible consequences: * Higher demand for short-term bonds. When interest rates rise, bond values fall, and vice versa. However, changes in bond values will be influenced by the speed and magnitude of the rate change. A sharp increase over a short period would have a greater effect than a gradual rise over a longer period. To date, the Fed has indicated the fed funds rate will rise gradually. Experts cited by The Wall Street Journal suggest shorter-term bonds and cash will be more attractive than longer-term bonds for a period of time. * Less attractive loan terms and credit card incentives. By raising the fed funds rate, the Fed will increase borrowing costs. That's likely to affect mortgage rates as well as automobile and other consumer loan rates. The Journal cautioned homebuyers to be wary of adjustable-rate mortgages and indicated zero percent introductory offers on credit cards may disappear. * Slow improvement in savings account returns. Over the longer term, rising rates may prove to be a boon for savers, but there is likely to be little immediate change in the yields offered on savings accounts. That's because banks set these rates. In general, banks raise rates to attract deposits and few banks need to do that right now, according to an expert cited by The Wall Street Journal. While it seems counterintuitive, tightening monetary policy will not affect interest rates equally across all markets. Weekly Focus - Think About It "The individual investor should act consistently as an investor and not as a speculator." --Benjamin Graham, American economist

Who Should Pay for College?

Should parents pay for their child's college education?

The message you send can be a lesson in itself.

As The Wall Street Journal columnist Sue Shellenbarger once wrote, "Do student loans teach responsibility or foster a lifelong over-reliance on debt? Are parents who pay their kid's way through college modeling self-sufficiency or martyrdom? Does requiring a student to get a job during the academic year instill work ethic or workaholism?"  

Many families have no alternative but to rely on student loans, part-time college jobs, and student and parental savings. What about those who can afford to pay for college? Does paying the bill really produce entitled children? Eileen Gallo offers the following advice.

Meet periodically with your adult child to establish a clear understanding - preferably in writing - of the economic arrangement. Some of the issues that should be covered include: Will the parents require a minimum grade point average? What is the student's financial contribution to his/her education and how will the student earn money? The Gallos strongly recommend the student work part-time, but no longer than 15 hours per week. Alternatively, the student could work full-time during the summer.

In conclusion, be aware of the messages and values that parental decisions send to the college-age child. What message are you sending?

WMC: What Does the Future Hold?

Stock markets in the United States got off to a good start last week, heading higher before stumbling over China's currency news. 

China, which has one of the world's largest and fastest growing economies, is experiencing a slowdown in economic growth. The Economist reported data released last week showed, "...an 8 percent fall in Chinese exports in July and a 5.4 percent drop in factory-gate prices. Output prices have fallen for 41 straight months, a symptom of overcapacity in much of China's heavy industry." MarketWatch suggested China may be in (or on the verge of) recession.

In an effort to slow its slowdown, China announced an unexpected devaluation of its currency, the renminbi, last week. Don't confuse the terms renminbi and yuan. Renminbi is the name of China's currency. Yuan describes a unit of that currency. For instance, when shopping in China, you would not ask how many renminbi you owed, you would ask how many yuan you owed.

Barron's questioned whether China's relatively small currency adjustment would be enough to help its economy and speculated last week's devaluation could be the tip of the iceberg:

"One wonders what a 3 percent adjustment in the yuan will do to spur China's economy... To a longtime observer of finance ministers and central bankers, the claim that the initial moves to tweak currencies will suffice is a familiar refrain. The larger the underlying imbalance, the larger the eventual exchange-rate adjustment."

A Fed spokesman told The Wall Street Journal China's new currency policy has significant implications for the world economy and it probably won't affect the Fed's impending rate hike.

The currency devaluation didn't have a sustained affect on U.S. stock markets last week. Major U.S. stock markets finished the week higher. China's benchmark national index was up for the week, too.

What Does the Future Hold?

It's not stuff most of us think about every day, but we may soon be a lot more familiar with terms likebrain organoids, megascale desalination, Internet balloons, liquid biopsies, and more. At least, that's what the MIT Technology Review reported in Breakthrough Technologies 2015:

"Not all breakthroughs are created equal. Some arrive more or less as usable things; others mainly set the stage for innovations that emerge later, and we have to estimate when that will be. But we'd bet that every one of the milestones on this list will be worth following in the coming years."

Here are a few of the items included on the list:

• Brain organoids: In greatly oversimplified terms, these are miniature brains that can be grown from an adult's cells. They may help researchers better understand brain disorders and develop effective treatments.
• Megascale desalinization: The world does not have enough fresh water. One solution is seawater desalination. Thanks to engineering improvements, reverse-osmosis desalination has become cost-effective.
• Internet balloons: Imagine 15-meter helium balloons with solar-powered electronics hovering 20 kilometers in the air (far above commercial airline flights) and making the Internet available to people who currently have no access.
• Liquid biopsies: Someday soon, annual blood tests may help diagnose cancer early. Gene sequencing machines decode millions of fragments of DNA in the bloodstream, looking for specific DNA patterns that indicate cancer. Knowing the DNA mutation behind a cancer may also help physicians choose the most effective treatments.

It's important to keep track of developing technologies because they have the potential to disrupt industries and change the way business is done.

Weekly Focus - Think About It

"Any sufficiently advanced technology is indistinguishable from magic."

 --Arthur C. Clarke, British science fiction writer

Surprising Errors in Credit Reporting

According to a 2013 study from the Federal Trade Commission, more than 25 percent of consumers who took the time to check their credit reports identified errors that might affect their credit scores.

This might partially explain why, according to an article in Time magazine, a whopping 56 percent of Americans have subprime credit. Looks like more people should be taking advantage of their free yearly credit reports.

The Fair Credit Reporting Act requires each of the three nationwide credit reporting companies - Equifax, Experian and TransUnion - to provide a free copy of your credit report once every 12 months, upon your request.  

Are You Overwhelmed at Work?

Back to school...back to higher interest rates?

 

After a solid July jobs report arrived on Friday - 215,000 new jobs were created and unemployment remained at 5.3 percent - analysts were pretty confident there would be ample support for a Federal Reserve rate increase (a.k.a. liftoff) in September. Bloomberg reported the odds of a September liftoff shot from 38 percent to 52 percent just last week.

 

The pending rate increase was not a surprise, but investors were ruffled and U.S. stock markets moved lower. According to Barron's, the Dow Jones Industrial Index has lost value for seven days - its longest losing streak in four years.

 

However, nobody was reaching for a panic button:

 

"...The decline in U.S. stocks has raised few alarms in part because it's been gradual and doesn't seem tied to any fundamental flaws in the economy. The natural drift of the market now is lower because, frankly, there are few obvious catalysts to lift stocks higher. Large-company U.S. stocks fetch valuations well above their historical averages and their earnings aren't growing. Paying more for these stocks ahead of a Fed rate increase equates to "fighting the Fed," a prospect investors look upon almost as favorably as sticking their fingers in an electrical outlet."

 

The Fed rate increase is expected to be slow and gradual, but no one is certain what will happen after it begins. Russ Koesterich, Chief Global Investment Strategist at BlackRock, expects, "Short-term bonds will be most affected by higher rates, while longer-term bond yields should inch up at a gentler pace. High-dividend stocks that have served as "bond market proxies" are also likely to suffer, but overall, stocks' reaction to liftoff should be relatively tempered."

 

Are You Overwhelmed at Work?

Last year, the most popular chapter in Deloitte University Press' Global Human Capital Trends 2014report was titled, "the overwhelmed employee." It's not all that hard to understand when you consider just these facts from the 2015 report:

• 100 billion emails are exchanged every day.
• About 14 percent of those emails are vitally important.
• One-fourth of the average workday is spent reading and answering email.
• We check mobile phones 150 plus times each day, on average, for work/personal information.
   

In addition to technology and round-the-clock work demands, the complexity of workplace practices, processes, and jobs contribute to employee inundation. According to Deloitte, approximately three-fourths of survey participants said their workplaces were complex or highly complex.

 

Now, a new wind is blowing. It's simplification. The Global Human Capital Trends 2015 report found 10 percent of companies surveyed have programs in place to simplify work practices and another 44 percent plan to put these programs in place.

 

It's a trend that could have an effect on companies that aren't taking action. The bottom line, according to the report:

 

"Technology, globalization, and compliance needs continuously add complexity to work. Left unaddressed, this can lead to an organizational environment that damages employee engagement, lowers quality, and reduces innovation and customer service."

 

Companies that are reducing complexity and focusing on what really matters may gain a competitive edge, said Deloitte.

Weekly Focus - Think About It

 

"In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497."

--Warren Buffett, legendary investor

Retirement vs. College Fund

A comfortable retirement or the best head start for your kids? It could be the modern American family's most agonizing financial quandary. No one wants their kids to commence adult life towing hefty college debt, and everyone wants the healthiest nest egg possible.

Thankfully, you will find a range of savings vehicles designed to accommodate both. It comes down to making the most intelligent savings decisions for your family. 

And regardless of your account "formula," the sooner you start the better. 

Putting your money to work not only improves the likelihood of a prosperous financial future - for you and your kids.

Sleep More, Earn More.

The market is flat.

That's right. It's a rare occurrence - something that has happened just 12 times since 1926, according toFortune - but the Standard & Poor's 500 Index (S&P 500) has remained in a narrow trading range for seven months. For every sector that has delivered performance gains (for instance, healthcare, software, and consumer discretionary), there has been one with losses that have offset those gains (for instance, energy, materials, and industrials).
The S&P 500's unremarkable gains year-to-date are owed to just a handful of stocks, which Barron'ssaid means the market has bad breadth. That's not a good sign, but it's not a bad sign, either. Less breadth doesn't always signal the end of a bull market:
"Big downturns are almost always preceded by a lack of breadth, which is one reason some folks are preparing for the end. There's only one problem: Declining breadth doesn't always signal the end of a bull market. From September 4 to October 13 of last year, the S&P 500 outperformed the equal-weighted version of the index by more than 1.5 percentage points [a measure indicating lack of breadth], leading to similar calls that it was time to bail. The S&P 500 gained 8.5 percent during the next three months."
Fortune's analyst reviewed the historical data for the dozen years that offered similar market performance during the first seven months of the year and found that a range of outcomes is possible. The S&P 500 Index could:

* Remain relatively flat: It happened in 1994.
* Deliver a loss over the full year: It happened in 1930, 1941, and 1990.
* Deliver a gain over the full year: It happened during the remaining eight years.
The median return for the twelve years was 6 percent.
Reading stock market tea leaves is no easy task. That's why it's important to remain focused on your financial goals and the strategies you've selected to help pursue them.
 

IF YOU SLEEP MORE, YOU MAY EARN MORE MONEY.

Researchers were trying to evaluate the importance of sleep so they focused on two American cities in a single time zone: Huntsville, Alabama (on the eastern edge of the central time zone) and Amarillo, Texas (on the western edge of the same time zone). The sun sets an hour later in Amarillo, so the assumption was made that people get less sleep in Amarillo than they do in Huntsville.
The findings reported in Time Use and Productivity: The Wage Returns to Sleep, by Matthew Gibson of Williams College and Jeffrey Shrader of the University of California-San Diego, were people who get one hour less shuteye, over a long period of time, earn about 4.5 percent less.
From an economic perspective, the idea may seem counterintuitive. After all, when you're snoozing you're not producing. However, from a psychological point of view, it makes a lot more sense. A British study of 21,000 employees found those who slept six hours or less each night were less productive than employees who slept for seven or eight hours.
Of course, sleep wasn't the only issue that lowered productivity. According to the study, physical inactivity, financial worries, mental health issues, musculoskeletal issues, bullying, impossible deadlines, and unpaid caregiving all negatively affected workers' output.
Sleep issues, however, may become more important as we become attached to devices like tablets, laptops, and smart phones. Research described in Scientific American found two hours of tablet use before bedtime suppressed melatonin release. Melatonin is a hormone that lets us know it's time to sleep.
So, if you're having trouble getting to sleep and use a smart phone or tablet before bed, you may want to turn down the brightness of your glowing screens before bed - or switch back to good old-fashioned books.

Weekly Focus - Think About It

"I do not think there is any thrill that can go through the human heart like that felt by the inventor as he sees some creation of the brain unfolding to success... such emotions make a man forget food, sleep, friends, love, everything."

--Nikola Tesla, Inventor of the Tesla Coil