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.”
Stocks climbed in the U.S., Asia and Europe as the U.S. government averted a shut down and the jobs report reinforced optimism. The U.S. added 228,000 jobs in the month of November, higher than the expected addition of 195,000 jobs, due to an accelerating hiring trend which economists expect to continue into the next year. The S&P 500 hit new highs today, trading above 2,650.
Financial markets were volatile this week, influenced by mixed messages from the Federal Reserve. The Fed minutes released on Wednesday were dovish, suggesting little chance of a Fed rate hike, while San Francisco Fed President Williams
U.S. stocks ended the week near record highs with the S&P 500 trading above 2,170 and the Dow above 18,545. A gain for the week would mark the fourth consecutive weekly advance.
State and local governments have finally emerged from the shadows of the Great Recession. This debilitating time period had drastic effects on regional economies – high unemployment and low corporate profits shrunk government coffers. Cash flow that would usually flow to infrastructure and pension plans was diverted to aid unemployed voters and plans to spur economic recovery. Government spending was
by Jason Norris, CFA
Senior Vice President of Research
Good Mourning Black Friday, Welcome Cyber Monday
Black Friday shopping numbers were not much to write home about, but it is uncertain if it is the state of the consumer or the “expansion” of Thanksgiving weekend specials to the day of turkey day or even before. Thirty-three percent of “Black Friday” shopping occurred on Thursday, up from 13 percent in 2011. Over the entire weekend, traffic remained healthy; however, sales were a bit below expectations (up 2.3 percent) and would have been negative if not for 15 percent growth in online sales over the weekend. The weakness was most notable in the Northeast.
The other phenomenon is the growth of Cyber Monday. Online sales that day (the Monday following Thanksgiving weekend) were up over 19 percent and are projected to be up 15 percent this holiday season. Online sales will account for 14 percent of the $600 billion expected to be spent this season. While Amazon.com continues to be the main beneficiary of this trend, valuation metrics can’t get us excited about the stock, but as consumers we continue to benefit.
Learning to Fly
Speaking of Amazon, its CEO Jeff Bezos was interviewed on 60 Minutes and pulled off a great publicity stunt to keep the e-commerce retailer in the news all week. If you haven’t already heard, Mr. Bezos announced that Amazon was looking at using unmanned drones to deliver packages. While Amazon has a reputation of being a visionary and willing to invest in growth, the near-term applications of this announcement seem more or less PR rather than delivery. We just hope it doesn’t get to the point where our kids can’t enjoy the snow during the holidays because they will have to be avoiding all the Amazon package deliveries from the sky.
Detroit Rock City
Looks like we are witnessing a slow motion car accident with the approval of a federal bankruptcy filing by the city of Detroit. Deidra Krys-Rusoff, Ferguson Wellman’s municipal bond analyst and portfolio manager, believes that with U.S. Bankruptcy Judge Steven Rhodes ruling that Detroit is eligible to file for bankruptcy protection it may permit them to emerge from $18 billion of debt. This ruling grants the city the power to establish a financial plan which will allow the city to provide public services while meeting adjusted debt obligations. Judge Rhodes also ruled that pensions may be adjusted under federal bankruptcy, despite the fact that Michigan’s constitution does not allow for cuts to established pension obligations. This ruling may permit the trimming of pensions and retirement benefits, taking away the “protected” status usually afforded to the plans and placing them on an equal platform to other creditors (such as bondholders). We expect unions to fully challenge this decision, and the local union has already filed an appeal.
We believe that this event is isolated and should not have an overarching effect on the muni market. Any way you look at it though, this may end the same way as the 1976 classic song at some parties.
Stagefright
This week was the 17th anniversary of FED Chairman Greenspan’s “irrational exuberance” speech, and investors are anxious for what to expect in 2014 after a 25 percent+ move in equities this year. While this week we have seen some weakness in stocks as rates have risen, we still don’t foresee a major sell off. Putting history in context, in the bull market run from 1990 through 1996, equities DID NOT have a 10 percent correction, and we didn’t peak until March 2000. We are not saying that history will repeat itself, but with the U.S. economy improving and inflation remaining tepid, we would be buyers of equities on any major pullback.
Our Takeaways for the Week:
