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 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.
Stocks finished the last week of December relatively flat resulting in a 20+ percent total return for the S&P 500 for 2017. Interest rates were steady with the yield on the 10-year U.S. Treasury ending the year at 2.41 percent, down slightly from a year ago.
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.
Oregon stocks stumble as market plunges
by Matthew Kish
The stocks of 18 of Oregon's 20 biggest public companies dropped Monday as the stock market tumbled. The S&P 500, Dow Jones industrial average and the Nasdaq Composite each closed down nearly 4 percent.
Northwest Pipe Co. (NASDAQ: NWPX) and Lattice Semiconductor Corp. (NASDAQ: LSCC) were the only large Oregon stocks to post gains. Each ended the day up less than 1 percent.
While there's no consensus on the market stumble, local analysts pointed to weakness in the Chinese economy and uncertainty about central banks and interest rates.
"I would venture to guess it’s more people being skittish about the direction of the Fed right now," said Chris Abbruzzese, chief investment officer for Portland's Rain Capital Management. "The Federal Reserve is going to be less supportive of equities markets going forward.”
They also said the market was due to hit a speed bump.
"The markets had been unusually stable and had come up quite a bit over the past three years," said Kraig Kerr, a senior vice president and financial adviser at D.A. Davidson in Portland. "So most people were expecting a correction at some point and were surprised it hadn’t happened earlier."
Shawn Narancich, executive vice president of equity research and portfolio management at Ferguson Wellman Capital Management, said the firm doesn't see anything "sinister" happening.
"Our mantra continues to be keep calm and carry on," Narancich said.
Ferguson Wellman expects the U.S. economy to continue growing in the second half. The economy is adding jobs and inflation is low. Consumer spending, which accounts for roughly 66 percent of the economy, remains strong.
"Gas prices are going to start dropping," he said. "Unemployment is low. Disposable incomes are up."
Rain Capital’s Abbruzzese said there’s also “quite a bit of evidence” that “we’re due, if not overdue,” for a resurgence in spending on capital projects that would stimulate the economy.
Kerr said D.A. Davidson's advice for clients depends on circumstances.
"Clients that are going to need cash in the near term may want to consider locking in gains," he said. "For the most part if a client has a well balanced portfolio we're not doing anything."
Abbruzzese said Monday's market volatility highlights the need for investment strategies that minimize risk.
“This is the type of market where we really thrive,” he said. “The approach thrives because we are more mindful of risk factors in portfolio construction.”
Here's a look at how Oregon's biggest stocks fared:
Nike Inc. (NYSE: NKE) — down 2.81 percent to $103.87
Precision Castparts Corp. (NYSE: PCP) — down 1.95 percent to $228.85
Lithia Motors Inc. (NYSE: LAD) — down 2.82 percent to $101.89
StanCorp Financial Group Inc. (NYSE: SFG) — down 0.85 percent to $112.59
Schnitzel Steel Industries Inc. (NASDAQ: SCHN) — down 2.66 percent to $16.10.
by Ralph Cole, CFA
Executive Vice President of Research
The Federal Reserve delivered some early Christmas cheer with a new policy statement on Wednesday, and by Thursday afternoon the Dow average had advanced 700 points. Please excuse us for being frustrated by the constant attention to the Fed and the parsing of every statement they utter. This tends to happen during any Fed tightening cycle. The chart below shows the average S&P 500 performance around the last five Fed tightening cycles. As you can see, about six months before the Fed starts raising rates the market goes through a correction of 5–7 percent and volatility rises.
The U.S. economy continues to hum along, and there is no lack of positive economic indicators. We believe that the Fed will be raising short-term interest rates in the middle of next year and they are doing their best to signal that move to the markets well in advance. The most recent examples last week were jobless claims, which dropped to a six-week low, consumer comfort climbing to a seven-year high, leading economic indicators rising an additional .6 percent and retail sales increasing by the most they have in eight months. In short, there is plenty of good economic news to go around, and enough momentum for the Fed to justify raising rates next year.
Wind of Change
While oil prices fell modestly this week, energy stocks began to rally. Since the peak in oil prices in June, the S&P energy sector fell 25 percent. This week oil prices are down another 2 percent, but oil stocks in the S&P were up 7 percent. We can’t say that we are surprised. Whenever you get such a dramatic drop in prices, it tends to produce bargains. Financial buyers aren’t necessarily brave enough to step into these situations, but strategic buyers are. This week Repsol, a Spanish oil company, made an offer to buy Talisman Energy for $12.9 billion. Talisman’s share price was as low as $3.96 on December 8, and now trades for just over $9.00 per share. We made the case last week that the sell-off in oil was overdone, and it appears others are coming to the same conclusion.
Our Takeaways from the Week
