4th Quarter 2017

Market Rally continues into 2018

After a very strong 2017, U.S. equity markets again started 2018 in an exceptionally positive manner. In fact the year to date increase in January has already exceeded some analyst predictions for the entire year. Once more, the question arises, how sustainable is this rally?

The U.S. stock market has benefited from a strong global economy. The global markets are rising in concert with one another, in a convergence not often seen. Indeed, some foreign stock markets have performed even better than the U.S. However, during this time, the U.S. dollar has dropped dramatically in comparison to other currencies.  So gains realized in other markets have to be discounted when recorded in U.S. dollars.

These currency risks are one of the reasons we choose to invest primarily in U.S. based companies. Another reason we are not investing directly in overseas markets is that the majority of our companies are themselves already doing business globally. These multinational companies carry our exposure to international markets, and they manage their own currency exposures.

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January 24th, 2018|Categories: Quarterly Client Newsletters|Comments Off on 4th Quarter 2017

2nd Quarter 2017

The U.S. economy muddles on, neither too hot nor too cold, but no Goldilocks either. The market continues its ascent, barely, with the economy growing about the same as it did under President Obama. Gross Domestic Product growth inches up toward 2%, meager by any measure, and not the 3-4% promised by candidate Trump. The ISM Purchasing Managers Index of Manufacturing, a key indicator of growth, grew to 57.8% in June, a 2.9% increase over May and its highest level in three years. The PMI services index increased for the 90th consecutive month, to 57.4%, a 0.5% increase over May’s level. The recent jobs report was positive, up 3.7% in the manufacturing sector over May, but jobs growth overall remains at about the level where it was during the Obama administration.

The new President promised accelerated GDP growth through infrastructure spending and reduced regulation. Some of that has occurred, and we have seen a positive impact on bank stocks. Still, we have not seen the robust growth that the market was expecting. Now, we have an expectation of higher interest rates and some tightening of monetary supply. What can we expect from the markets as the recovery looks ever longer in the tooth?


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August 7th, 2017|Categories: Quarterly Client Newsletters|Comments Off on 2nd Quarter 2017

1st Quarter 2017

U.S. equity markets experienced an unusually strong showing in the first quarter of 2017, with a 6.1% increase, as measured by the S&P 500 index. Bond markets were also up, 0.8% according to the Barclays Aggregate Bond Index, as prices rose and yields fell even as the U.S. Federal Reserve raised interest rates.  The desire for a safe haven investment overcame the Fed rate rise.

Business optimism surged after the Trump election; now many are wondering if the optimism got ahead of reality and was misplaced.  Hard data is replacing euphoria.  The failure of health care reform and other strategic missteps have given rise to doubts about the ability of President Trump to deliver on his promises.  Economists and legislators remain skeptical

Business lending is muted and capital spending has slowed.  Estimates for GDP growth are being lowered, Retail sales have been weak and Inflation fell in March.

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August 7th, 2017|Categories: Quarterly Client Newsletters|Comments Off on 1st Quarter 2017

3rd Quarter 2016

The market hates uncertainty.

And this year we have had more than our share. For instance:

Interest Rates: Will the Fed raise rates? If so when? It appears that December is the time.

Will the dollar strengthen? It seems to be. What does that mean for business and consumers?

Who will win the election? Which candidate will be good for the market? Which candidate will provide stability?

What happens to the price of oil?

What about the conflict in the Middle East?

Terrorist attacks?

And so on.

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November 3rd, 2016|Categories: Quarterly Client Newsletters|Comments Off on 3rd Quarter 2016

2nd Quarter 2016

This year began with a decided down draft for the markets. An improvident rate increase by the Federal Reserve of 25 basis points in December sent an already weak market into a tailspin. Indeed, the indices dropped nearly ten percent into correction territory, the worst start for the markets in history. The market bottomed this year on February 11 and then began an upward climb. Stocks leading the way were interest- sensitive Utilities, because bond yields had dropped so low. Also strong were the previously beaten down Energy stocks. They recovered on the theory that they had dropped so far that they would not go down further, and were due for a recovery. Although this does not always work as an investment strategy, in this case it did. Despite a slowing growth rate for petroleum worldwide, Energy is up 15.3% for the year through July 12.

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September 9th, 2016|Categories: Quarterly Client Newsletters|Comments Off on 2nd Quarter 2016

1st Quarter 2016

Uncertainty Prevails. Stay Tuned.

U.S. equity markets hit an all-time high in May of 2015; this occurred after a long recovery from the Great Recession. The recovery was slow and weak. Incomes have barely reached the levels before the Recession. Unemployment rates have returned to about 5%, but are uneven throughout the country. The labor participation rate has only recently begun to recover. Then in May 2015, markets began a decline. A confluence of factors led to the decline. The economy of China began to slow. This slowdown led to a collapse of commodity prices, especially oil, throughout the world. Normally lower oil prices would be considered good news, a tax cut really. But in this case, the drop was so significant and rapid, that producers were caught off guard. Commodity producers of all kinds had expected the Chinese economy to continue to grow; they invested and created overcapacity. In the case of oil, the U.S. became a net exporter, which had not been the case for decades. Emerging markets began to falter. Banks were under pressure again. Equity markets decided to steer clear of all this risk. Central banks throughout the world cut interest rates, some into negative territory. Currencies weakened as central bankers tried to reflate their economies with a weak currency. Into this witches brew stepped the U.S. Federal Reserve with a benighted policy to raise interest rates. They forecast four rate increases for 2016. Then having painted themselves into a corner, they did raise rates in December of 2015. The markets responded immediately tumbling more than 10% in the worst start ever to a new year. Remember the adages, “As January goes, so goes the year” and “Don’t fight the Fed”. Investors […]

September 9th, 2016|Categories: Quarterly Client Newsletters|Comments Off on 1st Quarter 2016

4th Quarter 2015

Of Sheiks and Shale

”None of the postwar expansions died of old age; they were all murdered by the Fed.”
-Rudi Dornbusch, MIT economist

In May 2015, the markets hit an all-time high. By August the markets were down 11%. The decline was due to an apparent slowing in the Chinese economy and a surprise devaluation of the yuan by China. While the Chinese economy, the second largest in the world, appeared to be slowing, confirmation was hard to obtain owing to the opaque nature of Chinese economic reporting. But, there was no mistaking the yuan devaluation; it caught everyone by surprise. Another sign that the Chinese economy was slowing was the decline in commodity purchases by China. Lacking many resources, China is a big buyer of commodities on the world stage, and producers were definitely seeing a slowing of purchases. With the yuan falling and commodities weakening, Chinese investors began to pull money from their markets and move money out of China. Companies did the same. The Chinese equity markets tumbled. This upheaval was felt throughout the world, as prices of commodities fell sharply. Extraction of natural resources, except for oil, was cut back. The price of oil fell dramatically.

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January 21st, 2016|Categories: Quarterly Client Newsletters|Comments Off on 4th Quarter 2015

3rd Quarter 2015

More Uncertainty
In March of this year the markets were hitting new highs. All indices shared in the festivities. The unemployment rate dropped to nearly 5%. Oil prices dropped too, giving hope to the consumer economy and diminishing inflation expectations, as inflation all but disappeared. In general, the outlook for the economy was positive. Then, slowly, the outlook began to change.

The International Monetary Fund spoke frequently of the declining outlook for the global economy. We had noted that previously, and we moved our money back to the U.S., saying the U.S. was the “best house on a bad block”. Commodity prices, other than oil, began to decline in response to China’s slowing growth rate.

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January 11th, 2016|Categories: Quarterly Client Newsletters|Comments Off on 3rd Quarter 2015

2nd Quarter 2015

June Swoon

S&P Quarterly results were plus 0.3% through June 30, 2015. Year to date results were positive 1.2% through June 30, 2015. Year to date the market has been volatile, barely holding on to gains for the year. Volatility will continue. Upward moves during the first half were later given up over geopolitical concerns.

At home, GDP growth has been slow, profits so-so and the markets have just not had the catalyst for gains. Headlines have complicated matters. The long dance regarding interest rates has teased investors. Overseas, Greece and China have loomed large. Each time Greece has appeared about to default or leave the Eurozone, or both, the markets have reacted negatively. Each time it appeared a deal between Greece and its creditors might be imminent, the market reacted positively.

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July 22nd, 2015|Categories: Quarterly Client Newsletters|Comments Off on 2nd Quarter 2015

1st Quarter 2015

Global economy slows
In this past quarter volatility increased in markets throughout the globe. The Chinese economy, second largest in the world, saw its growth slow even as its equity market doubled. Germany, France, Italy and the U.K. also slowed. Even the U.S. economy, long the strongest in the world has slowed, having been battered by ferocious winter storms and a West Coast port strike. The response in the ex U.S. countries has been to cheapen their currency in an effort to grow exports and grow their economies. Interest rates have been slashed. Europe has embarked on its own version of Quantitative Easing to promote its economies. This strategy has yet to work. Meanwhile, the U.S. Federal Reserve has played with raising interest rates in the U.S., but so far has not had the courage to do so. Talk of raising rates has had the effect of increasing anticipation that interest rates will rise, and the U.S. Dollar has strengthened. Although equities in many countries have increased, the increase relative to U.S. investments has been diminished by the stronger dollar. The dollar has increased 18% against a basket of currencies in the past year and up 30% year on year to the Euro.

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April 28th, 2015|Categories: Quarterly Client Newsletters|Comments Off on 1st Quarter 2015