Based on Trump’s campaign statements and his record as a businessman, here are some things we can watch for from his administration: Borrow to Fund #Infrastructure Spending-helps industrial companies, raises #Inflation expectations and hurts bond prices. #Banks profit margins will improve while lending accelerates. #Deregulation-helps most industrial companies. Much of #Defense spending should be safe from cuts. #Pharmaceutical and #Biotech can breath a sigh of relief. #Mergers and #Acquisitions should benefit from a reigned in Justice Department. Some #Exporters could be vulnerable to changes in #TradeDeals.
The markets got a lift in the third quarter from continued job gains and, surprisingly, a striking improvement in wage growth. Domestic politics and Brexit fallout didn’t seem to hurt much. The S&P 500 was up nearly 4% and the Dow up nearly 3% in the quarter. Balanced indices returned generally 2-3.5% in the quarter. U.S. bonds generally returned less than .5% but international bonds showed improvement, returning nearly 3%. Q4 is starting off with a little more concern about stock valuations and bonds being vulnerable to a probable rate hike before year end. As well, the markets seem somewhat uncertain about potential power shifts in congress as a result of the elections and the effects on big banks, pharma and biotech. Both stocks and bonds have sold off some since the end of Q3 and we could be in for continued weakness leading up to the holidays. However, assuming the current earnings season is not worse than expected, consumers remain buoyant going into the holidays, and oil prices stay near current levels, we feel we’re probably seeing a normal market pullback. It continues to be a good time to clean out underperformers in fixed income and equities, as well […]
July and August were good to stock investors after the Brexit dip. In the end, Q2 earnings came in mixed. That is; some stocks in each sector turned in good earnings and some stocks in each sector turned in not so good earnings. The market seemed to like most of it, and the S&P was up nearly 10% off the July low. Then, this week, we hear from the Fed that the second interest rate hike is imminent. There was a bit of a delayed reaction, but market participants seem to agree, all at once, that stock and bond prices need to get cheaper. The S&P is off by 2.3% and small caps by nearly 3.3% as I type. We suspect the weakness will continue a bit as the market continues to adjust to the not-so-new reality of a rate hike. It’s a good time to look at our allocations to stocks, bonds and other interest rate sensitive investment to see if we’ve gotten too enthusiastic about any asset class or sector; if we’ve got any positions we’ve become concerned about longer term; or if we’ve got any positions that have had big moves that we may want to trim. The […]
We’re up 9% off the #Brexit bottom on June 27. What is the market saying? Here are some possibilities: * Britain is going to be able to strike important economic accords with their trading partners on the Continent. * Second quarter corporate earnings may be better than we’ve expected. Last night #Microsoft reported surprising growth across most of their business lines including their PC related businesses. This probably would not have happened in a weakening global economy. (Let’s see how Intel earnings look tonight.) * Institutional investors may be developing more confidence in the #Fed ‘s ability to manage monetary policy in this period of transition. * These same investors may be less concerned about the outcome of the #election. (The conventions could still provide some surprises.)
Based on the recent regulatory changes mandating more fiduciary standards for stock brokers, the issue has been in the news a lot lately. The standard has a fairly basic regulatory definition when pertaining to investment advice. Regulations require fiduciaries’ advice given to be in the BEST interest of the client, not just suitable for the client. Fee-only Registered Investment Advisors and Certified Financial Planners have been held to the fiduciary standard for years and we feel they have (and still do) hold a strong competitive advantage over brokers because of this higher standard of care. But we feel acting in the clients’ best interest is just the start of the role for the independent fiduciary investment advisor to retain that competitive advantage over not only brokers, but DIY and Robo solutions as well. As fee compression persists thanks to the investment management efficiencies gained from the latest fin-tech tools and because of more transparency and news coverage on advisor compensation, the fiduciaries’ role will likely have to expand further to justify that 1% management fee that is currently commonplace in the industry. A full-service fiduciary advisor of the future charging 1% should: Be an informed confidant in times of financial […]
Of course we probably have many ups and downs to go in the process of Europe working out the problems created by the Brexit Referendum. But, if you’re wondering whether your stock portfolio is going to continue going down from here, here’s a tip for possibly figuring that out. Yesterday’s low was 1991 on the S&P 500, and today we’re getting a nice bounce. We hope it continues. The more trading days we trade above yesterday’s low the more our odds improve that we could be forming a bottom. If the market turns south and we don’t hold the low, we’re probably going to have another sell off, and the market will attempt to form another bottom at lower levels.
Brexit, Oil Prices, Uncertain Fed, Slow Economy; is this a wall of worry we will climb over, market summer doldrums, or a coming storm? Anybody who says they know is someone we should not be listening to. But, let’s breathe a little, add up the positives, and see if we can get less nervous Interest rates are low and seem to support current stock valuations under 20 times earnings on the S&P. Several industry sectors are still down 5-10% from their highs over the summer of 2015. Of course, energy and biotech are down significantly from their highs, so there seems to be some good stock values around. As well, the Fed, in the voice of Janet Yellen, has consistently said that their interest rate decisions are data dependent, and more than one rate hike in 2016 doesn’t seem to be in the cards. Remember, they originally planned multiple rate hikes this year, but the data hasn’t supported that. Seems responsive and responsible to us. Low rates support the housing market which remains an important driver of our economy. Corporate balance sheets are still stuffed with cash and our largest companies in most industry sectors are buying back stock, raising […]
In early December last year we posted that tech and biotech probably warranted some additional emphasis in 2016. Well, tech. as represented by the Technology Select Sector SPDR ETF (XLK,) is off 5% and biotech, as represented by the iShares Nasdaq Biotechnology (IBB,) is off 22% from our post. Bad call or bad timing? The timing was certainly not good in retrospect, however the fundamentals of each group were, and still seem to be, mostly solid long term. Although earnings season has been mixed for tech, most of the stocks do not appear to be carrying high price to earnings multiples. And, most of the big tech companies are paying reasonable dividends that are generally rising, an important long term investment theme. The industry move to cloud and mobile is still in process and seems to be, along with a struggling global economy, adding to recent volatility. As well, the largest biotech companies looked to be trading at reasonable valuations in early December. These are the companies that most analysts believe are the future of medicine. Many are hugely profitable enterprises, which may be part of the reason for their current price weakness. They, of course, are under attack in this […]
So the Fed, seeing that growth is a bit elusive, thinks two hikes this year instead of four is the appropriate number. On cue the dollar headed down and stocks and bonds headed up today. This decision takes a lot of pressure off leading equity markets and helps large U.S. exporting companies by raising the relative value of their customers’ currencies. Adding to last week’s announcement from the ECB that extraordinary measures will be taken to stimulate Euro banks to lend creates a much friendlier sales environment for our exporters, especially big tech. Now we get to watch economic numbers from the U.S., Europe and China to see if this “re-loosening” gains some economic traction. However, markets will vote before the event so we need to keep our buy lists at the ready.
It now seems we were premature in our December blog post about banks being well positioned and valued for the coming Fed rate hikes. Investors now seem to think our big banks are going to have trouble with energy loans and financial commitments in a slowing China, as well as predictions that the Fed may be “one and done” on rate hikes in 2016. The Financial Select Sector Index, an index made up principally of large and medium size banks, is down 15.7% from its December 4 close. Definitely not good timing on our part. With several banks now trading at or even below their tangible book value we still feel their is a future of rising profits and dividends in store for bank investors but, as always, timing is key and our timing was certainly off.