Markets “In a Nutshell” for September 3, 2019

Investment Week at a Glance

Stocks were up last week. The Dow Jones Industrial average was up 3.0% while the S&P 500 gained 2.8%. The New York Stock Exchange Composite (2,000 stocks) rose 2.6%. The “average investor’s index” (Value Line index) was up 2.7%. Foreign stocks (EAFE index) were up 0.9%. Bond yields dropped (bond prices up) as the 10 year Treasury ended at 1.50%. (Data sources: Barron’s Financial, Wall Street Journal)

A 100 Year Treasury Bond?

U.S. Treasury Secretary Steven Mnuchin has floated the idea of issuing a 100 year Treasury Bond (currently the longest maturity is 30 years). Why would the U.S. want to issue a 100 year bond? Well, with interest rates at historic lows locking in long dated bonds can lower long term borrowing costs. Austria issued 100 year bonds in June of this year with great success. So what kind of annual yield do Austrian investors get for 100 years? 1.17%. Shocking as it may seem, a positive 1.17% is juicy compared to the $17 trillion of negative yielding bonds in the world today. Thus the attraction for the U.S. to issue 100 year bonds.

Diversification is Back

Historically it has been considered a prudent investment practice to “diversify” an investment portfolio. A mixture of U.S. and foreign stocks, bonds, and other types of assets (such as precious metals, real estate) was the recommendation of most investment advisors. But with the U.S. stock market leading the way the past 5 years over just about any other asset class, the concept of diversification has waned. Read on…

Diversification … Part II

Investors who have been diversified over the past 12 months (through August 31) have been rewarded while those loaded with stocks have lagged. With U.S. and foreign stocks negative the past 12 months (down 2%), investors in bonds (average bond fund up 8% the 12 months), precious metals (up 37%) and real estate (up 12%) have shown that diversification is still a sound strategy.

Can Stocks Beat the Curse of September?

According to Baron’s Financial, September has historically been the worst performing month for the stock market. Since 1950 the average September return for the S&P 500 has been a minus 0.5%. But considering U.S. and foreign stocks both lost 2.5% in August, perhaps September can beat the curse.

Quiz:

According to Bloomberg, the U.S. bond market has returned 9% for 2019 (through 8/31). At that pace, the gain would be 13% for the entire year. When was the last time bonds returned over 10% on a calendar year basis?

 

a. 1988

b. 1994

c. 2002

d. 2011

e. 2018

 

 

Answer is below…

 

Have a good week!

 

 

 

 

 

 

 

Answer:    c. 2002