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Week Ending 3/24/2017

Summary

  • A diversified portfolio once again helps investors
  • U.S. stocks decline for five consecutive days with Tuesday’s loss the worst yet in 2017
  • Investments other than U.S. stocks held up well and some posted gains
  • Real estate stocks were leaders while financials were the biggest losers

Notable Market Headlines

It was another week that demonstrated the great value and significant impact of having a diversified portfolio. U.S. stocks declined while a variety of other asset classes posted gains for the week.

The Dow Jones Industrials were lower all five days with Tuesday being the worst day so far in 2017 with a loss of -238 points or -1.14%. Although a 238-point loss on the Dow sounds significant, the Dow is down -1% or more about once every hundred days on average so a -1.14% loss is actually relatively common. It’s important to note that the other four daily losses during the week were relatively small.

The S&P 500, the broad measure for large U.S. stocks, fell -1.34% for the week while small U.S. stocks suffered a -2.87% decline. Financials, a sector benefiting greatly from the Trump Rally and hopes of deregulation and better economic growth, were the worst performing sector for the week with a loss of -3.1%. The House’s inability to pass a healthcare reform bill was pointed to as the reason for the losses and concerns that other Trump initiatives may also face serious roadblocks.

While U.S. stocks declined, stocks around the world held up with international developed country stocks down just -0.15% and stocks in emerging markets gained +0.81%.

With U.S. stocks declining, investors flocked to the traditional save havens of both gold and bonds, up +1.6% and 0.5% respectively. Both of these investments have been among the worst performers since the election last November. Real estate stocks held up well overall, down just a fraction of a percent, and commodities continued their decline with another loss this week of -1.1%.

Investor Trivia Question

Just how big of a difference is there between the average market return and the average investor returns? During the 20-years of 1996-2015 the S&P 500 gained 8.19% compounded annually and bonds gained 5.34%. International stocks, gold, and oil were also all higher. During this same time, what was the compounded annual return for the average investor?

Market Leaders

Micron Technology (MU), a leading chip maker, provided sales and earnings guidance above Wall Street expectations that suggests the computer memory market is healthy. The stock rallied +10.2% for the week and is higher by +131% during the past 12 months. As the graph below shows, Micron’s stock performance has far outpaced that of the industry leader Intel Corp that is up just +14% the past 12 months.

Many of the winners this week were real estate stocks. One of the attraction investors tend to have these stocks is their high dividend yields. Some of the winners this week were:

  • Ventas Inc. (VTR): +5.5%
  • Crown Castle International (CCI): +4.3%
  • Welltower Inc. (HCN): +3.6%

The dividend yields on all three stocks are above 4% or nearly double the average stock in the S&P 500.

Market Laggards

H & R Block (HRB), our nation’s largest tax preparer, saw its stock fall 4 of the 5 days last week for a cumulative loss of -8.3%. The stock is giving back some of its gains from earlier in the month when it jumped on positive news. At this lower price, the stock now has a dividend yield of 4.3% and has a multi-decade history of paying consistent and often higher dividends.

Three of the ten biggest losers this week were retail stocks on fears the economy may not grow as fast as earlier expected. These three stocks are:

  • Macy’s (M): -7.8%
  • Kohl’s (KSS): -7.6%
  • L Brands (LB): -7.2%

$17.8 Billion Decline – Bank of America (BAC)’s market value of $236 billion was lower by nearly $18 billion this week as its stock fell -7.0%. It feel along with many others as investor fear Trump’s plan for less regulation may be challenged.

Economic Indicator - Reported

Durable Goods Orders, items such as cars, airplanes, and furniture (things with a life of 3 years or more), grew by 1.7% in February. The headline number was slightly ahead of expectations but, when digging deeper into the data, there are some concerns that point to a possible slowing economy in coming months.

February saw New Home Sales up by a better than expected 6.1% to 592,000 and bodes well for the economy. Existing Home Sales, a much larger component of the housing market, fell -3.7% to 5.48 million homes. This was on the low range of economists’ expectations. This existing home sales drop was a combination of single-family sales down -3.0% while condo sales slid -9.2%.

Economic Indicators – Upcoming

The third update on fourth quarter Gross Domestic Product will be reported. It was previously reported at +1.9% and is expected to be inch higher to 2.0%.

Consumer confidence has been at recent highs following the election. March’s number will be reported and is expected to be slightly below February’s level. It will be interesting to see if the failed healthcare reform bill will impact this trend going forward.

Investor Trivia ANSWER

2.11%! That’s the compounded annual return for the average investor from 1996-2015 while stocks rallied 8.19% and bonds by 5.34%. Investors face a host of emotions about investing that all tend to result in poor decision making and poor returns. Investors with a well-diversfied portfolio are more likely to not experience the same degree of volatility in their portfolio and, therefore, less likely to make the same poor decisions.

Source: BlackRock, Investment Insight, Investing and Emotions https://www.blackrock.com/investing/literature/investor-education/investing-and-emotions-one-pager-va-us.pdf

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