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.”
By March, our feelings of excitement for a new year have generally worn off and we have settled into our winter routines. The hope of an early spring and longer days are normally what carries us through the season, but this year, more excitement is brewing.
The most prominent news for the markets this week came from semiconductor company Nvidia, as they announced their most recent earnings. Nvidia is at the tip of the spear for the excitement surrounding artificial intelligence investing. The company’s dominant market share in the chips used to train artificial intelligence models and build out artificial intelligence infrastructure has driven exorbitant growth for the company in the last couple of years.
In a 1981 interview, a skeptical Todd Koeppel questioned 26-year-old Steve Jobs about the dangers of using computers and whether they would eventually be able to control humans (aside from current social media addiction, not yet). Jobs proceeded to explain that the personal computer is the “bicycle of the 21st century” and referred to a study that measured the locomotion efficiency of various species.
While we continue to see a daily deluge of headlines highlighting layoffs in the tech space, the rest of U.S. labor market appears fairly resilient. This morning, the Department of Labor released the monthly jobs report and what was quite unexpected was the gain of over 500,000 new jobs. This brought the unemployment rate down to 3.4%, the lowest since May of 1969.
As investors, the best thing about earnings season is it filters a lot of the other noise out of the market. A month ago, a tweet, tariff headlines or even a longshot tax proposal would have moved the equity markets. But now that we are in the throes of earnings season, equity investors are focused on the most important factor in investing: earnings.
by Jason Norris, CFA
Executive Vice President of Research
Take Me to the Top
The most common question we have been getting as of late is when is the market pullback going to occur? Stocks are up over to 200 percent from the March 2009 bottom and 75 percent from the most recent market correction (of 15 percent) in October 2011. While it has been almost three years since a major correction, history has shown this trend can continue for quite a bit longer. To that point, Cornerstone Macro Research gathered some data on previous market pullbacks which are highlighted in the chart below.
History shows that there have been numerous periods of much longer durations when stocks have climbed without a major pullback. If you simply look at the fundamentals of the stock market, an argument can be made that the S&P 500 can continue to move higher without a meaningful pullback. First, U.S. economic growth is improving and global GDP should continue to trend in the mid-single digits, resulting in continued earnings growth. Second, with low inflation and low interest rates, the valuation of the equity market is still attractive and the Price-to-Earnings multiple of the S&P 500 still has room for upside from 15.6x at present. While there will always be unforeseen shocks, the risks in the system are not as predominate as we saw in 2011 (Europe debt crisis, U.S. debt downgrade, Fiscal austerity) or 2000 (stretched valuation, falling consumer sentiment, manufacturing data weakening). However, risks that investors should be cognizant of are a spike in oil prices due to Middle East tensions, China’s economic growth slowing meaningfully, and an adverse reaction to Federal interest rate hikes in 2015.
What Do You Do For Money?
Earnings kicked off this week with mixed results from large cap technology. Specifically, there was divergence within the internet ad space, with Google growing and Yahoo stagnant. One wonders how long the Yahoo board will give CEO Marissa Mayer to achieve the turnaround. Intel delivered a strong quarter due to PC upgrades primarily from businesses as Microsoft sunsets its client support for Windows XP. This strength is allowing the company to return cash to shareholders through an announced $20 billion repurchase plan. While Intel stock reacted very favorably to the announcement, it was disconcerting that their mobile business continues to underachieve. This division lost over $1 billion while grossing a mere $51 million in revenue (down from $292 million a year ago). Intel’s move into this area looks to have been a failure which leads us to speculate where they will have to make an acquisition in order to penetrate the market.
Takeaways for the Week
