Instead of trying to beat the market, index funds attempt to be the market. Index funds track household names, such as the Dow Jones Industrial Index and the S&P 500 Index. Creating and operating a passively managed index fund is far less expensive than a traditional, actively managed fund run by a highly compensated fund manager. Index funds don't have active fund managers.
The SPDR Gold Trust ETF (NYSEARCA:GLD) has trounced the stock market over the past 10 years. Recently, however, the price of gold has fallen and the stock market has recovered. This relative performance is consistent with economic theory, which holds that adding gold could help diversify portfolio risk.
Some are calling for the break up of International Business Machines (NYSE: IBM). However, it is the behemoth company's integrated portfolio of products and services that help create IBM's competitive advantage. IBM offers enterprise hardware, software, and services.
Crude oil prices have fallen to their lowest level since the financial crisis. Increased oil supplies along with weak demand, due to international economic woes, help to explain what's driving the decrease. Oil stocks have been clobbered in the financial markets. But cost savings from lower oil prices could boost the global economy and the rest of the stock market, outside the energy sector.
The ruble has lost over 23% of its value relative to the U.S. dollar over the past 12 months. Western sanctions in response to Russia's conflict with Ukraine, falling oil prices, and uncertainty over the ability of Russia's central bank to stop the run on the ruble have escalated the situation into a full-blown currency crisis.
After years of determined effort, the Federal Reserve has phased out its bond-buying stimulus program, often referred to as quantitative easing. In deciding to terminate the stimulus initiative, the Fed stated that, "there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program." Today's unemployment rate stands at 5.9%, down from 10% at the height of the financial crisis.
Since Russia annexed the Crimean peninsula, western governments have responded with highly restrictive sanctions. These sanctions are taking a toll on the Russian economy. In addition, Russia has been negatively affected by falling oil prices. Energy makes up a disproportionate share of the Russian economy.
The U.S. stock market has soared to new highs since the financial crisis. It seemed that investors were beginning to forget about risk. But global economic woes and a series of mini flash crashes have rattled the markets in the last few days.
In the financial markets, the month of October often brings darkness. The U.S. stock market tumbled downwards by about 2% today, spooked by signs of global economic weakness. While the U.S. and Great Britain have growing economies and reason for hope going forward, the rest of the world has gloomy economic prospects. Even Germany is experiencing weakness, along with France, China, Japan, and others.
The headline unemployment rate has dropped below 6%, according to the latest report from the U.S. Department of Labor. Standing at 5.9%, the official unemployment rate is now at its lowest point since July of 2008. Nonetheless, the Federal Reserve continues to fret about weakness or "slack" in the labor market.
Political operatives from the left and right debate how much credit, if any, President Barack Obama should get for an improving economy. The political debate will continue no matter what happens. In the financial markets, however, foreign currency traders appear to be voting in favor of President Obama's policies.
The latest figures from the U.S. Government indicate that the budget deficit is shrinking. For the first 11 months of the fiscal year, which runs from October 1 through September 30, the government's budget deficit fell to $589 billion.
By the end of August, the deficit was 22% lower than it was this time last year. In addition, the deficit is now at its lowest point since 2008.
The plot thickens as European central bankers experiment with negative rates. In a surprise move, the European Central Bank decided to push interest rates lower. Already in negative territory, the E.C.B. felt compelled to lower deposit facility rates to negative 0.2%.