View from the Observation Deck 

1. Commodity prices declined in six of the 10 calendar years (full-year) featured in the table, as measured by the Thomson Reuters/CoreCommodity CRB Commodity Index. Prices are up markedly so far in 2019.
2. From 12/31/08-12/31/18, commodity prices fell 23.12%, according to Bloomberg. For comparative purposes, commodity prices rose 152.84% the previous decade (12/31/98-12/31/08).
3. The U.S. Dollar Index (DXY) posted gains in six of the 10 calendar years (full-year) in the table. From 12/31/08-12/31/18, the index rose 18.28%, according to Bloomberg. For comparative purposes, the index declined 13.66% the previous decade (12/31/98-12/31/08). 
4. Commodity prices tend to have an inverse relationship with the U.S. dollar over time. A strengthening U.S. dollar can put downward pressure on commodity prices, while weakness in the dollar can help boost prices.
5. The low rate of inflation over the past decade may have contributed to the downward pressure on commodity prices. From 2009-2018, the Consumer Price Index (CPI) headline rate never closed a calendar year higher than 3.0% (2011) on a year-over-year basis, according to the Bureau of Labor Statistics. From 1999-2008, the CPI reached as high as 4.1% (2007) and was 3.0% or higher a total of four times. From 1926-2018, the CPI averaged 3.0% per year, according to Bloomberg. It stood at 1.5% in February 2019, below the Federal Reserve's ("Fed") 2.0% target level. 
6. The Fed has acknowledged that it is factoring in the slowdown in global economic growth into U.S. monetary policy. As of 3/20/19, it is projecting zero federal funds rate hikes for the rest of 2019 and just one in 2020. In addition, it will soon end the process of reducing the size of its bloated balance sheet.
7. Investors funneled an estimated net $151 million into Commodities (Broad Basket) mutual funds and exchange-traded funds in the first two months of 2019, and an estimated net $625 million for the 12-month period ended 2/28/19, according to Morningstar.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The Thomson Reuters/CoreCommodity CRB Commodity Index is an average of commodity futures prices with monthly rebalancing, while the U.S. Dollar Index (DXY) indicates the general international value of the U.S. dollar relative to a basket of major world currencies.

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1. From 3/9/09-3/18/19 (current bull market), all four of the technology-related indices featured in the chart outperformed the S&P 500 Index.
2. As of 3/18/19, Information Technology accounted for approximately 21.00% of the S&P 500 Index, up from 17.84% on 3/9/09, according to Bloomberg and Bespoke Investment Group. It is the most heavily weighted sector in the index, followed by Health Care at approximately 14.70%. For comparative purposes, Information Technology held a weighting of 29.18% at the close of 1999, just prior to the bursting of the tech bubble in March 2000.
3. The average annualized total returns shown in the chart are as follows: ISE Cloud Computing Index (28.79%); Dow Jones Internet Composite Index (27.54%); Philadelphia Semiconductor Index (24.02%); S&P 500 Information Technology Index (22.11%); and S&P 500 Index (17.79%), according to Bloomberg.
4. Year-to-date through 3/18/19, the S&P 500 Information Technology Index posted a total return of 18.69%, compared to 13.53% for the S&P 500 Index, according to Bloomberg. It was the top-performing sector index, followed by the S&P 500 Energy Index, up 16.93%.
5. While cloud computing has performed exceptionally well in the current decade-long bull market, Gartner believes we are in the early stages of the second decade of cloud computing, according to Dataquest. Cloud is being adopted for such benefits as instantaneous availability of compute resources, scalability, and pay-as-you-go.
6. International Data Corporation's (IDC) Worldwide Quarterly Cloud IT Infrastructure Tracker reported that vendor revenue from sales of infrastructure products (server, storage and Ethernet switch) for cloud IT grew 47.2% year-over-year to $16.8 billion in Q3'18, according to its own release. IDC notes that Q3'18 marked the first time that vendor revenues from infrastructure product sales into cloud environments topped revenues from sales into traditional IT environments.

1. This marks the eighth calendar year in which we have tracked the asset growth of the four major types of packaged products since the close of 2007 (prior to financial crisis in 2008-2009).
2. The percentage change in the total assets invested in packaged products from 2008 to 2018 were as follows (see chart): Exchange-Traded Funds (ETFs) (+454%); UITs (+32%); Mutual Funds (+48%); and Closed-End Funds (-20%).
3. With respect to mutual funds, Morningstar data indicates that assets held in passive funds rose six-fold from 2008 through 2018, while active assets roughly doubled, according to InvestmentNews.  
4. From 2017 to 2018, total assets in each of the four major types featured in the chart fluctuated as follows: ETFs ($3.40 trillion vs. $3.37 trillion); UITs ($85 billion vs. $70 billion); Mutual Funds ($18.75 trillion vs. $17.71 trillion); and Closed-End Funds ($275 billion vs. $250 billion).
5. In 2018, investors favored passive investing over active management. Data from Morningstar shows that estimated net flows to all "Active" long term mutual funds and ETFs totaled -$300.7 billion, while estimated net flows to all "Passive" funds and ETFs totaled $457.7 billion.
6. We have noted in previous blog posts that some industry pundits have predicted that ETFs, in time, will supplant mutual funds as the most popular packaged product. While ETF assets have grown substantially over the past decade, thus far it has not come at the expense of mutual funds.  

1. Today's blog post is intended to provide some historical perspective as to where three key benchmark interest rates/yields stood prior to U.S. equities, as measured by the S&P 500 Index, succumbing to bear markets.
2. A bear market in stocks is defined as a decline of 20% or more in the price level of a benchmark index, such as the S&P 500 Index, from its recent peak.  
3. Brian Wesbury, Chief Economist at First Trust Advisors L.P., has noted through the years that bear markets tend to occur when the Federal Reserve ("Fed") becomes too tight with its monetary policy.  
4. As indicated in the chart, the upper bound of the federal funds target rate is currently 2.50%. While up from 0.25% in late 2015, it is still well below its 30-year average of 3.14%, according to Bloomberg.  
5. Wesbury believes that even if the Fed raises rates a couple of times in 2019, it would simply make its policy less loose, not tight. The lack of any serious inflationary pressure (see CPI column in table) in the current climate could allow the Fed to delay its next increase for some time, in our opinion. 
6. A March 22, 2012, article in Businessweek stated that data from Standard & Poor's revealed that, since 1953, U.S. stocks posted their best returns when the yield on the 10-Year Treasury Note (T-Note) rose to around 4.00%.
7. As of 2/28/19, the 10-Year T-Note yielded just 2.72%, or 128 basis points below that 4.00% mark. 

1. From 3/9/09 through 3/5/19 (current bull market), small-capitalization (cap) stocks outperformed both mid- and large-cap stocks, as measured by the S&P 500 Index, S&P MidCap 400 Index and S&P SmallCap 600 Index (see "Index" line in table).
2. We are encouraged by the fact that small-cap stocks have outperformed mid-cap stocks, which in turn have outperformed large-cap stocks, because it indicates that the traditional risk-return dynamic  (the greater the risk taken the greater the return expected) is alive and well.
3. Sector performance can vary widely by market cap and several of the sectors reflect a huge disparity in performance. A quick glance at the returns in the table should at the very least help the average investor appreciate the merits of asset allocation and diversification, in our opinion.
4. The S&P 500 Index had six sectors (Communication Services, Consumer Discretionary, Energy, Financials, Information Technology and Real Estate) post the highest cumulative total returns, by market cap, for the period captured in the table. The S&P MidCap 400 Index had three (Industrials, Materials and Utilities) top-performers, while the S&P SmallCap 600 Index had just two (Consumer Staples and Health Care).
5. Click here to see how investors have their capital allocated by market cap and style. 

1. Today's blog post shows the yields on a couple of benchmark government bond maturities from key countries/economies around the globe.
2. Investors need to be cognizant of the fact that interest rates are still at low levels relative to their historical averages. 
3. Even though the yield on the 10-year Treasury-note (T-note) has doubled from its all-time closing low of 1.36% on 7/8/16, at 2.72% (2/28/19), it is still 344 bps below its historical average yield of 6.16% since 1/5/62, according to Bloomberg.
4. Over the past 12 months, the yield on the 10-year T-note hit or surpassed the 3.00% mark three times but could never hold the level for much more than a couple of months.
5. The absence of any inflationary pressure in the U.S., despite the acceleration in economic growth in 2018, and the exceptionally low interest rate climate in Europe and Japan has enabled the yield on the 10-year T-note to remain artificially low, in our opinion.
6. Bond yields in Japan and parts of Europe are still in negative territory despite stimulus efforts from their respective central banks. As of mid-February 2019, Forbes estimated that 20% of all global debt sported a negative yield.
7. We have been waiting for interest rates and bond yields to normalize in the U.S. a while now. It looks as though we won't get there without some help from abroad.