The Markets
It was a bumpy week for stock
markets. Early on, markets in many countries were negatively affected by the
outcome of Italian elections. Italy’s anti-establishment Five-Star Movement,
led by comedian Beppe Grillo, won about one-fourth of the votes in both the
country’s upper and lower houses. Markets lost value as investors anticipated
political gridlock could delay Italian economic reforms. Since Italy is the
third largest economy in Eurozone and its public debt is significantly higher
than its Gross Domestic Product, political stalemate in Italy could negatively
affect the Eurozone.
As the week progressed, events
in Italy were eclipsed. Ben Bernanke reiterated the U.S. Federal Reserve’s intention
to keep monetary policy loose until unemployment levels drop. This helped stock
markets recover some lost ground. Positive economic news, including higher
pending home sales and a rise in consumer sentiment helped push the Dow Jones
Industrials, NASDAQ, and Standard & Poor’s 500 Indices even higher, and
they finished the week in positive territory.
Concerns about Italian
election results affected bond markets, too, pushing yields on 10-year
Treasuries lower during the week. Lower yields were also driven by uncertainty
about the potential impact of sequestration – $85 billion in automatic spending
cuts – on America’s economic growth.
Despite great political
hullaballoo, no action was taken to prevent or modify the spending cuts and
they took effect on Friday, March 1. Over the next decade, sequestration is
expected to cut government spending by about $1.5 trillion. The cuts will reduce
defense discretionary spending, including weapons purchases, base operations,
construction work, and more. Cuts also will shrink mandatory and discretionary
domestic spending. Two of the domestic programs affected are the unemployment
trust fund and Medicare (specifically, Medicare’s provider payments).
Data as of 3/1/13
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
Standard
& Poor's 500 (Domestic Stocks)
|
0.2%
|
6.5%
|
10.5%
|
10.8%
|
2.7%
|
6.2%
|
10-year
Treasury Note (Yield Only)
|
21.9
|
N/A
|
2.0
|
3.6
|
3.5
|
3.7
|
Gold (per
ounce)
|
0.4
|
-6.6
|
-7.7
|
12.4
|
9.9
|
16.4
|
DJ-UBS
Commodity Index
|
-0.7
|
-2.4
|
-8.6
|
0.7
|
-9.0
|
1.1
|
DJ Equity
All REIT TR Index
|
0.2
|
5.3
|
18.8
|
19.8
|
7.5
|
12.5
|
Notes: S&P 500, Gold, DJ-UBS 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
TR 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 National Retirement Risk Index
(NRRI) measures whether Americans will be able to maintain the
same standard of living they enjoy today after they retire. When it was updated
for 2012, the index showed the number of “at risk” households had increased by
nine percentage points – from 44 percent to 53 percent – between 2007 and 2010.
In its explanatory comments the Center for Retirement Research at Boston
College (the group that compiles the index) attributed the change to the
combined effects of the financial crisis, poor investment returns, low interest
rates, and the continuing rise in Social Security’s full retirement age.
Americans are not unaware
of the situation. The 2012 Retirement Confidence Survey found almost one-half
of working Americans are ‘not too’ or ‘not at all’ confident they’ll have
enough money to live comfortably throughout retirement. If you fall into either
of these categories – and even if you don’t – it’s important to evaluate your
current retirement plan in light of key risks that may influence its
effectiveness. These include:
·
Longevity
risk. A recent headline suggested that 72 is the new 30. The
scientists who made the determination meant that modern man, at age 72, has the
same chance of dying as primitive man did at age 30. That makes longevity risk
– the chance you'll outlive your savings – an essential consideration when
planning for retirement. One way to address longevity risk is by developing a retirement
income plan that will allow you to generate income for as many years as you may
need it.
·
Inflation
risk
is the chance your savings and investment will grow more slowly than inflation,
reducing your purchasing power. For example, a gallon of milk that cost about
$2.00 in 1990 would have set you back $3.50 in 2012 – and that was after a
period of relatively low inflation. One way to address inflation risk is to
consider investing in a well-allocated and well-diversified portfolio that may
have the potential to outperform inflation over time.
If
you have any questions about saving for retirement, or would like to review
your retirement plan, please give us a call.
Weekly Focus – Think About It
When planning for a year,
plant corn. When planning for a decade, plant trees. When planning for life,
train and educate people.
--Chinese proverb
Office Notes:
Regards,
,
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,
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Michael
L. Schwartz, RFC®, CWS®, CFS, offers securities through First Allied
Securities, Inc., A Registered Broker/Dealer, Member FINRA-SIPC. Advisory Services offered through First
Allied Advisory Services, A Registered Investment Advisor.
Schwartz Financial
Service is not an affiliate of First Allied Securities, Inc.
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.
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