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    Markets "In a Nutshell" for May 22, 2018

    May 22, 2018

    Investment Week at a Glance

    Stocks were mixed last week. The Dow Jones Industrial average and the S&P 500 both dropped 0.5%. The New York Stock Exchange Composite (2,000 stocks) was down 0.3% and the “average investor’s index” (Value Line index) increased 0.8% (due to energy stocks moving up). Foreign stocks (DJ Global ex U.S.) dropped 1%. Bond yields were on the move up again with the 10 year Treasury yield ending at 3.07%. (Data sources: Barron’s Financial, Wall Street Journal)

     

    Are index funds destabilizing the stock market?

    Index fund pioneer Jack Bogle was interviewed in Barron’s this week. Index funds (which are funds that mimic investment in an index such as the S&P 500) have seen massive inflows since 2008 with $2.2 trillion invested while actively managed funds (funds where the managers buy and sell different stocks) have seen outflows of $1.0 trillion. Critics say investors in index funds are unwittingly investing large blocks of their money in just a few stocks as the biggest stocks in the indexes become a bigger percentage of the index. Critics also worry about a meltdown in those big company stocks (such as Microsoft, Apple, Wal-Mart) if investors get spooked and sell. Read on...

     

    Index funds part II

    Mr. Bogle doesn’t see it that way, stating that indexing is not destabilizing because the purchases of the stocks in the index funds are offset by the sales in the actively managed funds. The debate over index funds will likely rage on. We believe index funds can play a positive role for those who are willing to invest for the long term and not change risk profiles. The problem we have seen throughout the years is that when the indexes go through down performance periods, investors have a hard time leaving their investment alone and make changes at inopportune times. 

     

    Jobless rate under 4% a rarity

    April’s jobless rate of 3.9% was only the 6th time in the last 40 years that the unemployment rate dipped below 4%. The low unemployment figure is another milestone for this amazingly long economic recovery which is now in its 107th month, second longest on record (going back to 1845). The downside to this has been the lack of vigor to the recovery as witnessed by the weakest GDP growth of any recovery since World War II. 

     

    Quiz:

    According to a Gallup poll, what percent of Americans under the age of 35 are invested in the stock market? a. 37% b. 48% c. 61% d. 77%...Answer is below…

     

    Have a good week!

     

     

     

     

     

    Answer to quiz:

    a. 37%