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.”
Last week, the Federal Reserve made headlines after raising their benchmark interest rate by 0.25%. This week, the Fed remains in the spotlight due to comments made by Chairman Jerome Powell at Monday’s National Association for Business Economics annual conference.
With this week’s latest rebound, the S&P 500 has now closed up or down more than 1 percent 27 times year-to-date ‒ this is more than three times the daily volatility that investors experienced in 2017. Accompanying higher stock prices, safe-haven bonds retreated modestly.
In the face of unquestionably strong economic data, global equities declined nearly 5 percent on the week with the S&P 500 falling close to 6 percent. The sharp selloff can be attributed to a confluence of factors, none of which will have any impact on near-term earnings momentum.
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.
After rallying into the end of the year, both interest rates and the market took a little breather this week. The S&P 500 finished the week basically flat, while the yield on the U.S. 10-year Treasury finished at 2.40 percent. A quiet week as we head into earnings season.
Originally appeared on Bloomberg.com on September 28, 2016
Stumpf’s Pay Cut Eclipsed by Fury as Yellen, State Join In
Wells Fargo & Co. Chief Executive Officer John Stumpf gave up $41 million to buy a reprieve from the bank’s widening scandal.
by Shawn Narancich, CFA
Executive Vice President of Research
Suspended Animation
Despite an improving job market and a spring thaw that appears to be lifting the economy out of its winter doldrums, U.S. equity investors felt the chill of a sell-off that left benchmark stock indices underwater for the year. Confronted by the dawning reality that the Fed’s ultra-accommodative monetary policy is going away and, by implication, that projected inflation premiums are rising, high-flying tech stocks like Facebook, Twitter, and Amazon have been particularly hard hit. In contrast, amid a bond market rally that few foresaw at the start of the year, interest-sensitive stocks within the utility sector and REIT space have performed quite well. In general, value stocks are outperforming growth and, from out of the blue, emerging market stocks have begun to excel. Despite the distinct possibility that tighter monetary policy in countries like Brazil, South Africa and India could push these economies into recession, the markets of these BRICS constituents have rallied recently. For our part, we expect waning fiscal headwinds and a renewal of fortunes in the energy and manufacturing sectors to produce faster U.S. economic growth as the year progresses.
Shoulder Season
With the dawn of April, U.S. natural gas markets have officially transitioned from heating season to what is known as “injection season.” Commonly, the clean burning commodity falls in price this time of year as cold weather wanes and heating demand disappears (often referred to as “shoulder season”), allowing natural gas producers to start injecting gas into underground storage caverns in preparation for next winter. Front-month gas prices are down from the $6.00/Mcf level reached in February, but prices have been notably firm around the $4.50 level recently, and are much higher than the $2.00 lows reached in 2012. Prices have risen because of demand growth from utilities using more gas to generate electricity, but more immediately because of an unusually cold winter that has depleted storage inventories to 10-year lows. Surprisingly, a more than doubling of gas prices has happened without a lot of fanfare, as gas bears beat the drum of supply response from “gas behind pipes.”
Gas Bulls
The key question now is whether a domestic energy industry more focused on drilling for shale oil will be able to replenish gas supplies in time for the next heating season. At current prices, count us as skeptics. Natural gas directed drilling is at the lowest level since 1992, and while associated gas from oil directed drilling has provided a key source of supply, we doubt it will be enough to adequately refill depleted storage caverns. The reality is that curtailed gas flow doesn’t exist on any meaningful scale, and with the typical shale oil project still much more profitable for producers, we don’t expect adequate gas drilling to materialize until futures prices reach the $5.00-to-$5.50 level. Because of the substantial lead times necessary to transport drilling rigs and hydraulic fracturing equipment from oil to gas basins, combined with the time it takes to actually drill and complete new gas wells, the industry will not be able to turn on a dime. As a result, price spikes could occur until adequate new supplies materialize.
A Tradition Unlike Any Other
As the world’s best tee it up at Augusta National this week, money managers are gearing up for a pursuit of their own, less affectionately known as earnings season. Aluminum producer Alcoa kicked things off in acceptable fashion earlier this week and, following early reports from Wells Fargo and JP Morgan, reporting starts to kick into a higher gear next week.
Our Takeaways from the Week
