Morningstar Runs the Numbers

Inspired by Harper's Index (with a tip of the hat to FiveThirtyEight's Significant Digits blog), Morningstar Runs the Numbers uses a numbers-based approach to highlight recent Morningstar research, along with some outside news stories.

25 Basis Points As widely expected, the Fed raised interest rates a quarter point on Wednesday. Morningstar director of economic analysis Bob Johnson explained that the so-called dot plots took some people off-guard:

"I think, the street certainly felt just a little bit surprised that the so-called dot plots that shows where all the various governors felt we would have rate increases over the next year and it seemed to indicate we'd have three instead of two. Again, that's not their policy goals, or the official--that's averaging a bunch of people's private opinions. And I think that clearly surprised a few people. I don't think it was really a big surprise to us. But now, they are clearly thinking about three rate increases instead of two, and I think that's why we've had a little bit of a sell-off today."

2.48% Morningstar senior analyst Eric Jacobson points out that despite the sell-off in the bond market this year, bond yields are about in line with where they began the year.

"…despite that painful sell-off--and the degree to which it has been described by many as the market rout that's been waiting in the wings for several years--yields aren't very far from where they were at the beginning of 2016. The 10-year Treasury, for example, began the year with a 2.28% yield, and it registered at a modestly higher 2.48% as of Dec. 12."

20% Morningstar vice president of research John Rekenthaler looked at stock and bond returns, factoring in inflation, decade by decade and found that investing in bonds is riskier than many investors think.

"Not only did bondholders lose the contest during the worst of the decades, but they also posted the next two lowest results, shedding 4% annually during the 1970s and almost as much, 3.9%, during the 1940s. (World wars, it turns out, are bad for asset prices... Who knew?) That makes three clattering bond-market catastrophes in 15 chances—a 20% failure rate. Meanwhile, stocks had a second losing decade of their own, but the cumulative effect was a modest 10% loss. The 2000s weren't much fun for stockholders, but they weren't a disaster for those who bought and held."

$60 Morningstar analysts this week raised their near-term forecasts for commodity prices, but the long-term outlook is unchanged.

"OPEC's recent announcement of production cuts is a positive near-term development for world oil markets, removing more than 1 million barrels per day from an oversupplied system. Even after factoring in the inevitable U.S. shale response to higher crude prices, OPEC's cuts point to a meaningful supply deficit next year. Consequently, we have raised our 2017 West Texas Intermediate price to $60 per barrel from $50."

1 Upgrade, 2 Downgrades In November, Morningstar manager research analysts upgraded the Morningstar Analyst Rating on one fund, downgraded three funds, affirmed ratings on 79 funds, and assigned new ratings to 89 mutual funds and 105 exchange-traded funds. Click here to read November's highlights and the full list of ratings activity.

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