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Investing Specialists

Morningstar Runs the Numbers

We take a numerical look through this week's Morningstar research. Plus, our most popular articles and videos for the week ended April 7.

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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.

The Labor Department said Friday that the economy added only 98,000 jobs in March, below most market-watchers' expectations. However, unemployment rate dropped two-tenths of a percentage point to 4.5%--the lowest level since May 2007. Director of economic analysis Bob Johnson says while month-to month employment numbers aren't too concerning in themselves, rising inflation paired with stagnant total wage growth hints that economic growth could be slow for rest of the year.  

"We're looking at something like 4%, a little bit under 4%, nominal total wage growth… but the bad news is inflation has come up a fair amount, eating into that number. And that's our big concern for 2017. Certainly, I think that the number is consistent with a relatively weak year, and a little bit softer consumer in 2017, but it's consistent with GDP growth of 1.7% to 2%, which is where we're at and I think the numbers are relatively consistent; no surprise here."

The Federal Reserve raised rates in March, but it didn't have much of an effect on the long end of the curve, explains Sarah Bush, director of manager research for fixed-income strategies. The result? The yield curve flattened over the first quarter of 2017.  

"By the time the Federal Reserve hiked rates in March, the markets had widely priced in the move and, as a result, the reaction was relatively muted. Notably, yields on intermediate- and long-term bonds barely budged over the quarter after seeing a sharp increase in the second half of 2016 that accelerated in the weeks after the election. The yield on the 10-year finished the quarter at 2.4%, down just a few basis points from where it finished 2016. That, combined with an increase in short-term yields, which are most sensitive to Fed policy, led to a flattening of the yield curve."

Vice president of research John Rekenthaler explored a study by Arizona State University's Hendrik Bessembinder titled "Do Stocks Outperform Treasury Bills?" The study found that half of U.S. stock market wealth creation has come from just 0.33% of listed companies. The takeaway? Diversify widely and broadly.

"Most stocks will be poor investments. However, assuming that the future roughly resembles the past, such that equities retain a return premium, most stock portfolios will do just fine."

The New York Times reported that the Food and Drug Administration will allow 23andMe, a DNA genetic testing and analysis service, to sell genetic tests for disease risk directly to consumers. The analyses will provide people with information about whether they have risk genes for 10 diseases, including Parkinson's and Alzheimer's, and the likelihood that they could develop these conditions. 

"The move … is a turnaround for [the FDA], which had imposed a moratorium in 2013 on disease tests sold by the company, 23andMe, which is based in Mountain View, Calif. The decision is expected to open the floodgates for more direct-to-consumer tests for disease risks, drawing a road map for other companies to do the same thing."

60 days, 5 takeaways
The Department of Labor says the application of its fiduciary rule would be delayed 60 days, to June 9 from April 10. Director of policy research Aron Szapiro offers five takeaways as the Labor Department prepares to publish the final rule.

Financial planner Michael Kitces explains the four sources of cash flow in retiree portfolios, and best practices for extracting it.

"And so, by the time we mix those together with very different tax treatments, we end up with interests, dividends, capital gains, and the principal itself, and those become the four pillars that can use to draw our cash flows from a portfolio in retirement."

17 percentage points
An article on the St. Louis Fed's On The Economy blog found that the earnings gap between the median earnings for a man and those of a woman has narrowed 17 percentage points over the past 30 years, to an average of 80% from 63%. The authors further attempted to answer the question, will the gender pay gap get smaller? The answer, it seems, is that the jury is still out, as women continue to be more responsible for child care.

"Data for the past five years suggest the earnings gap has remained unchanged at around 80 percent. The part of the earnings gap that existed due to differences in men's and women's skills has largely been eliminated. The earnings gap that still exists, however, continues to be driven by household dynamics and the arrival of children."

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