George Hosfield, CFA, discusses Ferguson Wellman's quarterly strategy titled, "Inflation's Flame Flickers," which addresses the narrow market leadership, the impact of higher interest rates on inflation and how assets are priced at this stage of the economic cycle.
George Hosfield, CFA, discusses the firm's quarterly strategy titled "Stalemate," which highlights the Fed's ongoing battle to tame inflation along with our views on the health of the banking industry and capital market expectations for the balance of the year.
Director and Chief Investment Officer George Hosfield, CFA, discusses the Fed raising interest rates, peaking inflation and our view on equities and volatility across all asset classes in our Investment Strategy titled, “Balancing Act.”
This week, the equity market had a “shoot first, ask questions later” response to news surrounding DeepSeek, a Chinese artificial intelligence startup company that claimed to achieve ChatGPT-level performance at a fraction of the cost. This news sent a shockwave through the technology sector, sparking a frenzy of speculation and questions about AI innovation.
When my family gathers around the holidays, we enjoy catching up on Jeopardy episodes with our two daughters. As they are both educators, it can be difficult for my wife and me to keep up, but it can also get pretty competitive. In one episode, I had the upper hand as the category was the “Magnificent Seven.” Luckily, this didn’t refer to the movies but to the seven stocks dominating the stock market. In investing circles, the term “Magnificent Seven,” or Mag-7, is well known, and I was surprised it had become recognizable enough to be a Jeopardy category. Unfortunately, while I was the first to “buzz in” and answer correctly in this category, I wasn’t as fortunate the rest of the game.
Chocolate-loving parents may be in for a sour surprise as they rummage through their children’s Halloween candy this year. With cocoa prices double the levels seen last year, food companies are getting creative, reducing the size of chocolate bars and adding more non-chocolate treats to their Halloween candy bags for sale. Trick-or-treaters weren’t the only ones to experience an eventful week, as an action-packed capital markets provided investors with their own bag of surprises to unpack.
As expected, the Federal Reserve raised its target interest rate this week by 0.25% to 5.25 – 5.50%, marking the eleventh increase since March of 2022, bringing the interest rate to its highest level in 22 years.
In an otherwise quiet week on Wall Street, the benchmark S&P 500 turned the page on one of its longest-running bear markets. Rebounding by over 20% from its October lows, the blue-chip index has officially surpassed the threshold marking a new bull market. What is notable about the advance from last fall’s lows is how few stocks have participated in the upturn.
Some while ago as I was preparing for my first solo overseas flight, I told a friend in the aviation industry that I disliked turbulence; the stomach-churning drops and swings were too sudden and unpredictable for my appetite.
On the back of the strongest election week returns since 1932, markets rallied sharply to begin this week as Pfizer announced 90 percent efficacy on a COVID-19 vaccine. Even more, the industries performing best were those most sensitive to economic momentum, instead of the “stay-at-home” trade that has dominated the market for the majority of the year with Amazon, Apple, Microsoft, Facebook and Google accounting for around 80 percent of the S&P 500 return.
For many, 2020 has been a year to forget. Headlined by the COVID-19 pandemic and the ensuing global response, stimulus from central banks and governments has helped limit the damage, as the U.S. economy has now experienced its shortest and steepest recession ever.
This week, Alphabet Inc., parent company to Google, became the fourth company to join the “trillion-dollar market value club,” that includes Apple, Microsoft, and Amazon. Besides the significance of their “trillion dollar” size, why do we care so much about the market value of these companies?
This week we experienced something we haven’t in some time: a down week. Stocks struggled to a close, down 3.8 percent with no help from blue-chip names. Alphabet (GOOGL) and Apple reports weren’t favored by Wall Street, driving the stocks down 5.2 and 4.3 percent, respectively.
Friday revealed strong earnings in large cap tech-fueled stocks, resulting in a slightly positive week for the market. This leaves the S&P 500 at another all-time high. Interest rates ticked up as well, as economic data continued to show improvements. The 10-year U.S. Treasury ended the week with a yield of 2.43 percent, up from 2.35 percent.
by Jason Norris, CFAExecutive Vice President of Research
Back in Business Again
It has been a volatile year for equities and as we head into the holiday season, that doesn’t look to dissipate. After the 12 percent sell-off investors went through over the past few months (Fed rate hike concerns, China market crash, Greek debt issues and the constant geo-political flare-ups), the S&P 500 has rallied back, culminating with its best week of the year. While 2014 proved to be a narrow market, 2015 is even more so. When you look at the 10 largest U.S. companies (see table below), you notice the majority of them, have enjoyed significantly greater returns than the 3 percent for the S&P 500.
Source: FactSet data through Nov 20, 2015
What is even more dramatic is that three stocks were responsible for all of this return: Amazon, Alphabet/Google and Facebook.
There have been prior periods of large cap driven markets, coupled with a handful of names driving that performance. But what we have experienced this year is less than a handful of mega cap names delivering all the index returns.
One thing to note on this narrow focus is the emphasis on “growth.” The sell-off we experienced this summer was a classic “growth” scare. Investors believed that due to the strong dollar and the slowdown in China would cause global economic growth to slow. While we’ve seen some stabilization in the equity market, there is still concern over global economic growth. As such, investors have been willing to “pay up” for growth companies and avoid cheaper names that are tied to the face of economic growth. For instance, the three stocks mentioned earlier trade at substantial premiums to the overall market.
Source: FactSet data through Nov 20, 2015
Investors are paying a lot more for a dollar of earnings for a select few names due to the concern over growth. This has resulted in growth stocks returning roughly 7 percent this year, while value stocks are down 2 percent.
Takeaways for the Week:
Our Takeaways for the Week
