Oct 20

Volatile weeks for equities in over five years

Market Recap:

In what turned out to be one of the most volatile weeks for equities in over five years, investors found themselves a bit befuddled as there really was no fundamental reason for any of the violent market action last week. Fears over the Ebola virus, weakening economic conditions in Europe and some saber-rattling by Mr. Putin in Russia were all part of the cause, however strong corporate earnings releases and decent U.S. economic data should have abated concerns. Instead, it was the Fed that came to the rescue of investors, as St. Louis Fed President James Bullard indicated on Thursday afternoon that he was in favor of the Central Bank continuing its bond purchases. While many interpreted this to mean that the Fed might be contemplating another round of quantitative easing, QE 4, we believe Dr. Bullard’s statement was taken out of context, as he most likely meant to indicate that the ending of QE hardly signified a deleveraging of the bank balance sheet or the end of easy monetary policy (see our post from last Friday for further explanation). Dr. Yellen clarified and to some extent reiterated Dr. Bullard’s comments on Friday morning.  This, coupled with much lower (better) than expected jobless claims, helped markets rally over 1%.

Looking Ahead:

Corporate earnings and economic data will be the rain-makers this week, as blue-chip stocks such as IBM, Apple, McDonalds, Elli Lilly and Microsoft are among some 300 companies releasing earnings this week. On the economic front, manufacturing and industrial production figures from China and Japan along with Housing data in the United States are likely to be the key drivers of activity. We suspect investors are wise to keep their seatbelts fastened and expect a bit more volatility – after all, it is hurricane season, and there is a monsoon of activity heading our way.

Make sure to tune into CNBC this Thursday afternoon at 3:45 PM when our President, Oliver Pursche, joins Bill Griffith on the floor of the New York Stock Exchange to discuss our latest market views. And tune into Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM Radio to hear our complete economic analysis and market commentary. Visit www.ggfs.com for details.

Oct 17

QE 4 or not?

Market Recap:

Volatility declined on Thursday as investors started coming back to the market and selectively took advantage of the buying opportunity the near 10% sell-off created. Energy, Industrial and Consumer Discretionary shares all fared well on Thursday, as fears over a significant slowdown in the global economy abated. Economic news was mixed, as home-builder sentiment unexpectedly fell, while jobless claims also fell to their lowest levels in over 2 ½ years. In a somewhat surprising move, Fed Governor James Bullard (a voting member of the FOMC) indicated that he would be in favor of continued bond purchases by the Fed.

QE 4 or not?

President Bullard’s comments on Thursday afternoon that he is in favor of the Fed continuing its bond buying (QE) program caused market participants to wonder whether he and the Fed were contemplating another round of Quantitative Easing. In our view this is highly unlikely – the Federal Reserve will conclude its QE policy in November or December. However, as the Fed has very clearly stated, it is their intent to continue to reinvest proceeds of their current Treasury and Bond holdings. Hence, while the Federal Reserve is no longer intending to expand its balance sheet, it is also not reducing it at this time – as their current bond (mortgage securities and treasuries) mature, they will take those proceeds and “roll” them into new similar or possibly shorter dated bonds. The likely effect of this is to allow for a very gradual rise in interest rates, with longer-term rates rising at a greater pace than short-term rates.

Looking Ahead:

Pre-market futures are indicating a sharply higher open in early morning trading, giving investors some reprieve. In addition to Housing Starts and Consumer Sentiment data, market participants will tune into Federal Reserve Chairwoman Yellen’s scheduled speech at 8:35 AM in the hope of hearing comments that echo President Bullard’s supportive comments made on Thursday. Furthermore, traders will keep an eye on Oil and the US dollar, both of which have stabilized a bit in the past 2 days, helping to reduce overall volatility. While down-side volatility may be coming to an end, we suspect that overall volatility will remain part of the landscape through the current earnings reporting season and possibly beyond.

Next Week’s Market Moving Events:

  • Monday: Chinese GDP, Industrial Production and Retail Sales are reported, as are German Producer Prices. There are no major economic releases in the U.S. Apple (APPL), Halliburton (HAL) and IBM (IBM) report earnings
  • Tuesday: U.S. Same Store Sales, Redbook report and Existing Home Sales are reported. Coca Cola (KO), Lockheed Martin (LMT), Kimberly Clark (KMB) and McDonalds (MCD) report.
  • Wednesday: US Consumer Prices, Mortgage Application, and Chinese Manufacturing data are released. Abbott Labs (ABT), ATT (T), and Leggett & Platt (LEG) report.
  • Thursday: Home Prices, Leading Indicators, PMI Manufacturing data and the Kansas City Fed Manufacturing Index are released. 3M (MMM), Amazon (AMZN), Caterpillar (CAT), Eli Lilly & Co (LLY) and Microsoft (MSFT) are amongst over 200 companies releasing earnings today.
  • Friday: New Home Sales data is released. Ford Motor (F) and Proctor & Gamble (PG) report earnings.

Make sure to tune into Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM Radio to hear our latest economic analysis, interviews with some of today’s most respected business leaders, as well as our ongoing market commentary. Visit www.ggfs.com for details.

Oct 16

Nerve racking volatility over the past few weeks

Market Recap:

Selling pressure came to a boil on Wednesday, as the Dow Jones Industrial Average fell as much as 460 points by 1:30 PM. Weaker than forecast Retail Sales data as well as a down-tick in manufacturing activity, coupled with weak Eurozone data caused markets to plunge over 1 ½% at the open. On the flip side, business inventories rose less than forecast, and the Beige Book report – which forecasts future business activity – showed increasing positive momentum in the fourth quarter. On the earnings front, news was mixed as Intel, PNC Bank and St Jude Medical all beat, while Bank of America earnings came in below expectations.

Don’t throw the baby out with the bathwater!

The persistent volatility over the past few weeks has certainly been, and continues to be, nerve racking. And, of course, hindsight tells us we should have sold on September 19th as markets hit their all-time highs. But that’s only part of the story – the reality is that while there has been some negative news, as well as some media-hyped hysteria, the overall landscape continues to improve. Corporate earnings are rising, the U.S. economy continues to grow at a steady pace (4.6% in the second quarter), and projections for consumer spending and overall economic activity for the upcoming holiday shopping seasons are pretty solid. So while there is always plenty to worry about, and news-headlines can raise all sorts of alarms and cause some to what to “sell everything,” the smart and patient investors realizes that a long-term view should be driven by fundamentals as opposed to short-term events. While the current cycle is likely to last a little longer, we don’t believe investors should throw the baby out with the bathwater. Rather, investors should stick to their disciplines and investment process and may well want to remember the sharp sell-off in the third quarter of 2011. Remember, the biggest mistake investors made in the last five years was to allow their emotions to get the best of them, sell in September 2011, and miss the subsequent rally in the fourth quarter and 2012.

Where to put your money now:

We maintain our view that one of the best places for long-term investors to put capital to work is high-quality dividend paying stocks. Companies with fortress like balance sheets, predictable and consistent earnings growth, and a history of raising their dividends, may not be immune to this correction, however they have historically declined less than the overall market and when including their dividends have outperformed the overall market in the long-run. More conservative or risk averse investors may also consider insuring a portion of their portfolio by utilizing a managed variable annuity strategy as a portion of the equity component of their overall portfolio.

Looking Ahead:

Earnings, which have been solid so far, are unlikely to come to the rescue of markets and investors on Thursday, as there was some additional selling pressure in the latter part of the trading day on Wednesday. Industrial Production and Housing data will be key reports on Thursday, but the real market sentiment shifter will come on Friday when Janet Yellen speaks before the market open. Incidentally, Dr. Yellen did pronounce a level of confidence in the US economy and the sustainability of our growth.

Make sure to tune into Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM radio to hear our latest economic analysis and our ongoing market commentary. Visit www.ggfs.com for details.

Oct 15

Stocks rebound from heavy losses

Market Recap:

Stocks rebounded from heavy losses on Tuesday, although the rally fizzled in the late afternoon as weak energy prices weighed on the Energy sector as Oil prices dropped by 4 ½%. Concerns over weakening global demand remained an over-arching theme throughout the day, causing Treasury Yields to fall below 2.2% (10 Year Treasury), while Gold and other safe haven assets traded mildly higher. Although major indexes declined, the underpinnings of the market were a bit more positive as 6 sectors of the S&P rose, 2 sectors were flat, and 2 declined (Energy and Health Care). Most significantly, corporate earnings were mostly better than expected as CSX Corp (CSX), Intel (INTC), Citi Group (C) all beat, while JP Morgan (JPM) missed earnings as a result of higher than expected legal costs – however, Operating Income was better than forecast. Generally speaking, market sentiment improved.

Looking Ahead:

Economic data will come into focus on Wednesday, as Retail Sales, Business Inventories, Mortgage Applications, and the Beige Book data are all being released. On the earnings front, EBay (EBAY), Netflix (NFLX) and a few dozen small cap companies all report earnings. From a short-term perspective, investors should keep an eye on the Transportation Sector as well as Small-Cap stocks – a shift to positive momentum in these two areas could signal an end to the short-term market sell-off we have been experiencing. For more patient and long-term investors, the recent broad sell-off has created some additional attractive valuations – especially for investors seeking high-quality dividend paying stocks.

Make sure to tune into Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM radio to hear our latest economic analysis, interviews with some of today’s most respected business leaders as well as our ongoing market commentary. Visit www.ggfs.com for details.

Oct 13

This Week’s Market Moving Events

Market Recap: 

Two weeks ago the prospect of an overheating economy and a soon to be hawkish Fed made investors uneasy and caused an early October sell-off. Last week fears of slowing growth even with the prospect of the Fed remaining dovish caused more investor anxiety and the most volatility since September 2011. While the recent bout of volatility is highly unpleasant and stomach churning, it is also approaching the irrational and is largely unfounded.

  • Ebola fears are exaggerated and will not impact the U.S. economy
  • Fed will maintain its accommodative monetary policy, thereby keeping a floor under markets
  •  Corporate earnings could rise by 10% this quarter
  •  Europe is in a recession – it has been for 5 years and will likely stay there for 5 more

While there are endless scenarios and risks to be conjured up by the faint of heart, the smart, long-term investor will stay calm and carry on. More volatility is likely, but I suspect strong corporate earnings will ultimately turn the tide.

Looking Ahead: 

Monday’s market action could be erratic given that bond markets are closed for the Columbus Day holiday, and Tuesday morning’s release of Eurozone Industrial Production and German Business Sentiment could prove pivotal – sentiment and expectations are very low, so an upside surprise is possible. In either case, it will come down to earnings, which are off to a decent start and could rise by 10% year-over-year. If they do, the fourth quarter could prove very rewarding for patient investors.

This Week’s Market Moving Events:

  • Monday: It’s Columbus Day and little news will be released
  • Tuesday: Eurozone Industrial Production, German Business Sentiment, US Small Business Optimism, Chinese Producer and Consumer Prices. Citi Group (S: C), CSX Corp (S: CSX), Intel (S: INTC), Johnson & Johnson (S: JNJ), JP Morgan (S: JPM) and Wells Fargo (S: WFC) all report
  • Wednesday: Mortgage Applications, Producer Price Index, Empire Manufacturing Survey, Business Inventories, Beige Book. EBay (S: EBAY) and Netflix (S: NFLX) report.
  • Thursday: Industrial Production and the Philly Fed Survey are released. Delta Airline, Goldman Sachs (S: GS), Philip Morris (MO) report
  • Friday: Housing Starts and Consumer Sentiment are reported. GE (S: GE) reports

Make sure to tune into Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM Radio to hear our latest economic analysis and ongoing market commentary. Visit www.ggfs.com for details.

Oct 10

Investor fears cause sharp sell-off

Market Recap: 

UNCERTAINTY – uncertainty wreaked havoc on markets on Thursday as investor fears caused a sharp sell-off reversing Wednesday’s gains as major indexes lost over 1 ½%. Markets started on a weak note after another disappointing economic report from Germany sent international bourses lower. Later in the morning ECB President Mario Draghi disappointed investors more when he stated that in addition to levers the Central Bank can pull, individual countries must reform their fiscal policies to allow their economies to be more constructive. The combination of weak European economic data, overall concerns over the global economy, as well as the rising nervousness relating to the Ebola outbreak and a late afternoon statement by Fed Vice-Chair Stanley Fisher that the Fed Funds’ Rate will likely start rising in mid-2015, proved too much to take for market participants. All sectors of the S&P fell, with energy shares falling almost 3% as Oil traded at its lowest level since 2012. Consumer Staple shares were the best performing sector for the day, falling less than 1%, on the commodity front Gold and other precious metals rose over 1%, while energy futures fell sharply and agricultural commodities were mixed. The U.S. dollar strengthened while Treasury Yield closed relatively flat.

Looking Ahead: 

Stay Calm and Carry On is our message to investors. While the recent bout of volatility is highly unpleasant and stomach churning, it is also approaching the irrational and is largely unfounded. First and foremost, our view is that while the Ebola outbreak is serious, it is serious for West Africa, and must be put into context as it pertains to the United States. Media hysteria aside, the Ebola crisis should not be viewed as an economy-impacting event. Second, the sharp fall in oil prices will ultimately prove beneficial to the U.S. economy and will keep inflationary pressures subdued. This will allow the Fed to maintain its current easy monetary policy, including low interest rates for an extended period of time (most likely longer than most expect). The combination of 2.5% to 3% economic growth, low interest rates, and an absence of overall inflation will prove beneficial to corporate earnings. Third, while the economic developments, or lack thereof, in Europe are disappointing, they are hardly new or surprising. Europe is in a mild recession, just as it has been for several years, and is likely to remain for several more. There is a valid concern by investors that the persistent weakness will continue to be a drag on global growth and will likely have a negative impact on corporate earnings from some Multi-Nationals who will be negatively impacted by the weakening Euro / strengthening Dollar. However, it is important to recognize that most Eurozone economies, especially the larger ones, are export driven economies. Hence, this impact is likely to be company specific as opposed to systemic and broad. Lastly, as we have stated over and over again, it will come down to corporate earnings – we’ll find out soon enough as the earnings reporting season is just getting going, but our estimates indicate strong earnings growth. As a result we believe that while volatility will remain high, and a further short-term correction is possible, the three to six month outlook for stocks is in fact constructive.

Make sure to tune into Fox Business Friday afternoon at 4:00 PM when our Co-Portfolio Manager, Oliver Pursche, joins Liz Claman and David Asman to discuss our economic and earnings outlook in detail. And don’t miss Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM Radio to hear our complete analysis and market commentary including an interview with Dick Morris. Visit www.ggfs.com for details

Oct 09

The Fed not prepared to shift monetary policy anytime soon

Market Recap:

Dr. Yellen and the Fed came to the rescue of investors once again on Wednesday, as major indexes rallied about 1 ¾% after the FOMC minutes showed that the Fed retained its dovish stance and was not prepared to shift monetary policy anytime soon. All sectors of the S&P were higher, with Healthcare shares rising by over 2 ½% as a group, the Utilities sector rising by over 2% while the defensive Telecom sector trailed with a meager 0.1% gain. Oil prices and other commodities also rose, albeit mildly, while Treasury Yields set a new low for the year as the Ten-Year Treasury fell to 2.29%.

Looking Ahead:

After a stronger than  expected earnings report by ALCOA on Wednesday afternoon and a better than expected release by PepsiCo on Thursday morning, market bulls look to regain the upper hand as U.S. equity futures point to a higher open. Investors are likely to pay closer attention to the 10:00 AM release of Consumer Sentiment data over the early morning Jobless Claims data. While economic data will clearly continue to matter a great deal, corporate earnings will be the main driver of market action – so far the news has been good for investors.

Make sure to tune into Fox Business Network Friday afternoon at 4:00 PM when our Co-Portfolio Manager, Oliver Pursche, joins Liz Claman and David Asman to discuss our fourth quarter market outlook, why we expect earnings to be much better than most forecast, and our overall take on the economy. And don’t miss Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM radio to hear a great interview with Dick Morris, our detailed economic analysis, as well as our ongoing market commentary. Visit our website www.ggfs.com for details.

Oct 08

Monetary Policy & Strong Corporate Earnings could easily help drive markets

Market Recap:

Although markets started on an uptick on Tuesday, weak German manufacturing data, increasing concerns over the upcoming earnings season, and a down-grade of global growth forecasts by the IMF shook investor confidence causing major indexes to fall by about 1 ½%. As we discussed on CNBC’s Closing Bell yesterday afternoon (watch here), while the current environment might appear fragile, supportive monetary policy and strong corporate earnings could easily help drive markets to new all-time highs by year-end. The classically defensive Utilities sector performed best on Tuesday, only losing 0.1%, while the economically sensitive Industrial sector fell most – by 2.37%. Oil and other commodities retreated as well as fears of weakness in Europe and a general global slowdown instigated demand fears. Treasuries hit a new high on Tuesday, with the Ten-Year Benchmark Treasury Yield trading at 2.34% – some experts are now predicting that yields could fall below 2% by year-end. While we don’t believe that bonds are likely to rally much more, the current environment is certainly a reminder to all investors that no asset class should ever be abandoned all together.

Looking Ahead:

Yesterday’s report by the IMF, which downgraded global growth forecasts, rattled investors, but should also provide some comfort. In her lengthy speech, IMF President Christine LaGarde singled out the United States economy as being the strongest and steadiest amongst developed nations and that the current supportive monetary policy steps taken by the Federal Reserve continue to be appropriate and are paramount to continued strength and sustainable growth. This statement matches up well with previous statements made by former Fed Chair Ben Bernanke and current Chair Janet Yellen. In our view, as we have consistently stated (and often with some rebuke from readers), interest rates will remain very low for many more years, and the Fed will continue to be involved in “propping-up” the U.S. economy in one way or another for the next decade or so. On Wednesday Investors will focus on new mortgage applications as well as the FOMC minutes release. More significantly, earnings season “officially” kicks off this afternoon when ALCO reports, Monsanto and Costco Wholesale also report today. Next Tuesday’s (10/14) earnings releases by Citigroup (C), JP Morgan (JPM), Wells Fargo (WFC), CSX Corp (CSX), Hunt Transportation (JBHT), Johnson & Johnson (JNJ), and Intel (INTC) could prove pivotal for markets trying to gauge the strength of corporate earnings. While we expect further market volatility in the short-term, we maintain our view that stocks, in particular large-cap high-quality dividend paying stocks, should perform well through the end of the year. Gains will be driven by better than expected corporate earnings, which could rise 10% year-over-year, as well as a realization that the Fed will remain accommodative much longer than most expect.

Make sure to tune into Fox Business Network this Friday afternoon at 4:00 PM when our Co-Portfolio Manager, Oliver Pursche, joins Liz Claman and David Asman to discuss next week’s market moving events, our latest take on the upcoming earnings season and what three key events we are watching to help us make smarter decisions heading into the end of the year. And don’t miss Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM Radio to hear our complete economic and market analysis as well as a great interview with Dick Morris. Visit www.ggfs.com for details.

Oct 07

Corporate Earnings strong enough to propel stocks higher by years-end

Market Recap:

Stocks started the week off on a mildly negative note as investors grew more anxious about the upcoming earnings season and Wednesday’s release of the latest FOMC minutes. As we wrote in WSJ Marketwatch yesterday (read the article here) while we expect some heightened volatility to persist for a couple of weeks, we expect corporate earnings to be strong enough to propel stocks higher by years-end. As for yesterday, the three defensive sectors – telecom, consumer staple and energy – were the sole gainers for the day, as commodities drifted slightly higher and Treasury Yields fell, with the benchmark Ten-Year Treasury yield briefly trading below 2.4%.

Trading Deck Image

Looking Ahead:

Tuesday will likely bring similar action as Monday, as investors look towards Wednesday’s economic data releases, the FOMC minutes and the official kick off to earnings season as ALCOA reports after the close. There has been much discussion amongst market participants about the state of the U.S. economy and the overall strength of the global recovery. While it is certainly correct to point to various data points that have fallen short of expectations and have indicated a slowing of progress, it would be a mistake to construe this as a decline. For instance, home prices are growing at a slower pace than they have in previous quarters or last year – but they are growing none-the-less. It is inaccurate to equate the slowing of the pace of appreciation to a decline in value. We believe that ultimately markets will recognize this misinterpretation and will correct for this in a positive manner.

Make sure to tune into CNBC this afternoon at 3:45 PM when our President, Oliver Pursche, joins Kelly Evans and Bill Griffith on the floor of the New York Stock Exchange to provide our latest economic outlook and earnings forecasts. And don’t miss Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM radio to hear our complete analysis and interviews with some of today’s most respected business leaders, as well as our ongoing market commentary. Visit www.ggfs.com for details.

Oct 06

This Week’s Market Moving Events

Market Recap:

The events of last week caused equity markets around the world to experience some heightened volatility. While unpleasant to most, it is equally important the markets appeared to act rationally and appropriately given the series of events and news that unfolded. As such, there is little reason to expect a shift in sentiment of overall market direction, until… earnings start coming in. Q3 Earnings season kicks off on Wednesday with ALCOA reporting after the close.

Looking Ahead:

Stay calm and carry on – expect markets to drift slightly higher with little reason to make a run in either direction. Don’t allow market noise to cause emotional reactions, as such, doing nothing and simply staying put is likely the best strategy this week.

This Week’s Market Moving Events:

  • Monday: Bank of Japan Announcement, U.S. Consumer Spending data
  • Tuesday: German Industrial Production (manufacturing data recently slumped), Goldman Same Store Sales, JOLTS (Job Opening and Labor Turnover Statistics), Consumer Credit and Chinese PMI
  • Wednesday: Mortgage Applications, FOMC Minutes and ALCOA reports
  • Thursday: Chain Store Sales, Jobless Claims and Wholesale Trade
  • Friday: Import / Export Prices

And don’t miss Money Matters with Gary Goldberg this Saturday at 2:00 PM and Sunday at 11:00 AM on WOR 710 AM to hear our latest market outlook and economic analysis. Visit www.ggfs.com for details.

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