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.”
With global governments and central banks providing liquidity at an unprecedented pace, you would expect global growth to be growing synchronously. But, as has been the case from the beginning of the pandemic, the virus and the multitude of government responses to combat the virus have varied from country to country.
Maybe it’s human nature, news coverage or it’s just a self-preservation mechanism, but I’ve decided to start calling this the “yeah, but….” recovery. “The global economy is going to boom in the second half of the year,” say the economists. And then comes, “Yeah, but…’
All day and every day we are bombarded by economic, company and political news. And not just U.S. news, but global news as well. Even in normal times this can seem overwhelming, and especially so during a pandemic.
Stocks finished higher for the fifth-straight week, while bond prices were flat. Although Fed comments and more discussion of tax reform dominated the capital markets headlines, but there was little movement in the large indices.
The S&P 500 was up nearly 1 percent again this week as economic data continues to confirm a growing economy. An underwhelming jobs report on Friday took yields on 10-year U.S. Treasuries to a new low on the year of 2.15 percent.
First quarter earnings season kicked into high gear this week and investors were treated to a smorgasbord of blue-chip results across a range of industries. As they typically do, numbers for most companies have exceeded Wall Street expectations, but with almost 20 percent of the S&P 500 now having reported, the .75:1 ratio of “beats” is modestly better than where it has been over the last several quarters.
Stocks posted a 0.5 percent return this week as investors became more confident in economic and fiscal policies. The Dow Jones Industrial Average passed 21,000 for the first time and equities posted their first 1 percent day in over four months.
Friday’s jobs numbers propelled stocks to roughly break even on the week. While the gain of 227,000 jobs in January was meaningfully above the estimate of 175,000, the unemployment rate ticked up and wage growth ticked down. The increase from 4.7 percent to 4.8 percent in the unemployment rate was due to more people entering the labor force, thus not much of a negative.
As we came into the week, markets were continuing to sell off in response to the U.K.’s vote to leave the EU. After falling 1.8 percent on Monday, the S&P 500 began to rally on Tuesday. Through today, the market was up over 3 percent this week. International stock marke
The resilience of the equity markets has been quite impressive. At the time of the February lows, pessimism was rampant. Faith in the Chinese economy was shaken, gold was on the rise and there were faint whispers of imminent recession. Fast forward six weeks and the S&P 500 has rallied
by Shawn Narancich, CFA
Executive Vice President of Research
Spring is Finally Here
True to our outlook for the quarter and in-line with anecdotes from the mass of companies reporting first quarter earnings, the U.S. economy appears to be gaining speed after a weather-induced slowdown earlier in the year. While investors were disappointed to learn that first quarter GDP barely budged in the U.S., their disappointment was short-lived, as the blue-chip Dow Jones Industrial Average traded to new highs this week, with the benchmark S&P 500 not far off its best-ever levels. Merger and acquisition deal flow has picked up markedly, signaling greater confidence in corporate America to deploy near-record levels of idle cash. To our surprise, benchmark 10-year Treasury bonds remain remarkably well bid, with yields that held stable after a bullish jobs report likely reflecting continued geopolitical risk in Eastern Europe.
Green Shoots
Investors were encouraged to see that the U.S. jobs market kicked into a higher gear, producing substantially better than expected growth of 288,000 net new jobs in April. Previously reported jobs numbers were revised higher and the unemployment rate fell to a 5-and-one-half-year low of 6.3 percent. Bears will argue that a drop in the labor force participation rate to 36-year lows was responsible for the falling jobless rate, as discouraged workers gave up the hunt for jobs. We would argue that an accelerating economy will produce more job opportunities for disaffected workers, pulling them off the sidelines and tempering the decrease in unemployment. Average hourly earnings remain subdued, rising at the slowest pace of the year, and likely heartening the Fed, which earlier in the week left its QE3 tapering on course for conclusion by year-end. In addition to healthier labor markets, equities are responding favorably to further strengthening of the U.S. Purchasing Managers Index, a benchmark gauge of manufacturing health; it rose for the fourth consecutive month in April and dovetails with the rising levels of manufacturing and construction employment seen in the payroll report. U.S. auto production in March rising at the fastest pace since 2007 is another data point confirming for us the renaissance in domestic manufacturing. Finally, we were encouraged to see March consumption spending increase by nearly 1 percent sequentially, indicating that shoppers are beginning to spend at healthier rates following a brutal winter.
The Urge to Merge
All of a sudden, deal-making abounds: the planned combination of orthopedic device makers Zimmer and Biomet, Comcast’s proposed acquisition of Time Warner Cable, GE’s bid for Europe’s Alstom, Exelon’s planned acquisition of fellow utility Pepco Holdings, and Pfizer’s $106 billion bid for British drug maker AstraZeneca. This sample of proposed combinations highlights companies attempting to grow their bottom lines through sales and cost synergies at a point later in the economic cycle, when organic growth is harder to come by.
Only time will tell whether these deals actually get consummated as antitrust issues and nationalistic sentiment could foil at least a couple of them. For investors, the bidding activity shines a positive light on the economy and corporate valuations that we believe will continue to expand.
Late Innings of Earnings Season
Nearly 75 percent of the S&P 500 Index has now reported first quarter earnings. With forecasts that initially called for a decline in earnings now morphing into the reality of low single-digit growth, we observe that corporate America is once again proving its ability to under-promise and over-deliver.
Our Takeaways from the Week
