Briefings and Commentaries Archive

Gary Schlossberg is Wells Capital Management's senior economist. His publications assess the economic environment and financial markets in order to provide expert insight to our investment teams and a broader understanding to our clients. Below is a collection of his investment commentaries, which provide detailed analyses of the current economic climate and investment conditions.

January 4, 2019 – Market Comment (PDF/New Window)
January 4, 2019 | Market Comment (PDF/New Window) January 4, 2019 | Market Comment
A Hail Mary! Fed Chairman Powell and the Labor Department joined forces for an eleventh-hour save, turning a near-certain relapse by S&P 500 stocks into a second straight weekly rise. Friday’s rally, leaving the benchmark with broad, deep gains on the week across 9 of 11 S&P 500 sectors and 100 of its 125 constituent industry groups, triggered a rotation out of Treasury securities that lifted the yield on the benchmark ten-year note from a January 2018 low of little more than 2.55% the day before—not enough, however, to prevent its third straight weekly decline—to 2.67%, that left the yield nearly a quarter percentage point below its average since peaking in early November. The dollar followed yields lower, contributing to broad-based gains in commodity prices with the important exception of economically sensitive copper still vulnerable to global growth concerns. The rally in a narrow group of risk assets—paced by S&P 500 stocks, high-yield and emerging-market bonds—produced a first weekly rise against their safe-haven counterpart in three, lifting the relative value ratio from an April 2017 low.
December 21, 2018 — Market Comment (PDF/New Window)
December 21, 2018 — Market Comment (PDF/New Window) December 21, 2018 — Market Comment
Grinched! Stocks suffered a one-two punch late in the week from what was viewed as a less-than-dovish interest rate hike and from worries over a partial government shutdown (materializing over the weekend and likely to last through Christmas), leaving the S&P 500 Index’s 17.5% decline perilously close to the 20% threshold for a rally-ending bear market. Compounding the impact of monetary and fiscal policy uncertainties on market stability have been the festering U.S.-China trade war (aggravated by China President Xi’s hardline speech this week), ongoing Brexit concerns, plus the growth slowdown abroad aggravating the slump in oil prices. Even Italy’s budget truce with the European Union (EU) was taken with a grain of salt, laying the foundation for future problems by failing to tackle the economy’s structural weaknesses and budget problems created by new income-transfer programs.
December 7, 2018 — Market Comment (PDF/New Window)
December 7, 2018 — Market Comment (PDF/New Window) December 7, 2018 — Market Comment
Requiem for a bull market? A roller-coaster week for the stock market left the S&P 500 Index within a hair of its November 23 low. The worst December start in a decade risks upending what historically has been the market’s second-best month of the year, a reminder of the limits to seasonal strengths. Monday’s short-lived trade-truce rally gave way to a host of concerns over trade and Federal Reserve (Fed) policy and geopolitical concerns atop uncertainties over the outlook for economic growth, inflation, and interest rates. The broad, deep sell-off extended across 9 of the 11 S&P 500 sectors and 115 of the benchmark’s 126 constituent industry groups in volatile trading lifting the VIX fear gauge above its long-term average most of the week. Yield-sensitive utilities and real estate bucked the sell-off, supported by a bond rally sending the yield on competing 10-year notes to a late-August low of less than 2.85%. Bottom-dwelling financial services were hurt by those same declines, threatening banks’ net interest margins and profitability. Close behind were trade-sensitive industrials, materials producers, and technology, hurt by the worrisome aftermath of last week’s trade truce with China.
November 30, 2018 — Market Comment (PDF/New Window)
November 30, 2018 — Market Comment (PDF/New Window) November 30, 2018 — Market Comment
A Powell "put"? Stocks posted their best weekly rally in seven years on Federal Reserve Chair Powell’s seemingly dovish policy tilt, reinforced by optimism over prospects for a trade truce ahead of critical talks between Presidents Trump and Xi on Saturday. The S&P 500 Index closed Friday at a three-week high in a broad, deep rally across all 11 sectors and 118 of 125 constituent industry groups, taking some of the edge off red October’s 6.8% loss. The benchmark’s forward price/earnings multiple ended at a 2.5-year low of less than 16 times next year’s projected earnings despite lower interest rates elevating prices, providing an opening for further market gains despite next year’s more subdued earnings outlook. The S&P 500 Index paced a rebound from the previous week’s decline in a narrow group of risk assets against their safe-haven counterparts, largely reversing the previous week’s decline.
November 9, 2018 — Market Comment (PDF/New Window)
November 9, 2018 — Market Comment (PDF/New Window) November 9, 2018 — Market Comment
A déjà vu moment? A late-period reversal of an encouraging postelection rally—reminiscent, at times, of October’s steep sell-off—wasn’t enough to prevent a second straight up week for stocks, overcoming a hawkish spin to the Fed’s latest policy announcement, plus fresh signs of a global growth slowdown seemingly confirmed by ongoing declines in oil prices to a six-month low from a near four-year high a little more than a month ago. Market valuation, based on the S&P 500 Index’s forward price/earnings (P/E) multiple of 16 times projected 12-month earnings, was back to a 2.5-year low at the end of the week. This was still up from the worst of the October slump, however, and more than 8.5% above its long-term average despite the past year’s surge in earnings. More broadly, a second straight weekly rally by risk against more conservative safe-haven assets was led by—but not confined to—U.S. stocks, leaving its value against the more conservative portfolio at its highest in more than a month.
October 12, 2018 — Market Comment (PDF/New Window)
October 12, 2018 — Market Comment (PDF/New Window) October 12, 2018 — Market Comment
Rope burn. Welcome to October, a month known for above-average returns but notorious for top-ranked volatility punctuated by some of the deepest slumps in the market’s history. The month hasn’t disappointed this year with two weeks still to go. The S&P 500 Index’s 5.5% decline from its September 20 peak (over 4% of which was in the latest week) is well short of the near-11% correction early this year and pales by comparison with the month’s deep dives in 1929, 1987, 1998, and 2008. The setback in stocks helped lift investment-grade bonds on the week, accompanied by a decline in high-yield securities of just a fraction of the S&P 500 Index’s slump.
October 5, 2018 — Market Comment (PDF/New Window)
October 5, 2018 — Market Comment (PDF/New Window) October 5, 2018 — Market Comment
October blues. Stocks’ two-day sell-off had investors eyeing the calendar in a reminder of October’s reputation as a market with above-average returns but notorious for steep declines. The S&P 500 Index’s 1.50% drop from its record high just over a week ago pales in comparison to the month’s deep dives in 1929, 1987, 1998, and 2009. However, the latest setback was jarring enough for a market coming off another in a series of seemingly one-way rallies leaving its rich valuations all the more vulnerable to a reversal.
October 1, 2018 — Market Comment (PDF/New Window)
October 1, 2018 — Market Comment (PDF/New Window) October 1, 2018 — Market Comment
Fed riven, Fed driven. U.S. stocks are on a roll coming off the best quarter for the S&P 500 Index since late 2013 in a rally supercharged by news of a North American Free Trade Agreement replacement agreement raising hopes for an early end to the trade wars with China. Bedrock support for stocks and other risk assets also is coming from ongoing optimism over the economic and earnings outlook propelling the S&P 500 Index’s valuation to a 7-month high of over 17 times forecasted earnings during the next 12 months, 15.5% above its long-term average. Investors have shrugged off worries over extended interest rate hikes by the Federal Reserve (Fed), keying, instead, on improving financial stress indices (based on risk premiums and market volatility) approaching those during the late-January melt-up on the eve of the market’s correction. Yields in the final week of the third quarter steadied enough to support a first gain across the bond market in over a month, paced by foreign developed and emerging market securities and, here in the U.S., by investment-grade corporate issues. It was the rebound in emerging market debt issues that led the rise in a narrow group of risk assets to a record high against their safe-haven counterparts as the quarter came to an end, overcoming slippage in U.S. stocks.
September 21, 2018 — Market Comment (PDF/New Window)
September 21, 2018 — Market Comment (PDF/New Window) September 21, 2018 — Market Comment
… and full speed ahead. Stocks are plowing through a historically difficult month in climbing to record highs on economic and earnings optimism reinforced by a more upbeat spin to an escalating trade war between the U.S. and China. Risk-on trading has given added support to a fairly typical rally into the early and middle stages of an interest rate up cycle, drawing on safe-haven demand suppressing bond yields enough to lift the S&P 500 Index’s price/earnings (P/E) multiple back to a February 2018 high of over 17 times projected 12-month earnings. Market optimism also has helped propel a narrow portfolio of risk assets to a seven-week high against their more conservative, safe-haven counterparts, paced by solid gains in U.S. and emerging market stocks. The tug-of-war between stock market positives and negatives has combined with still-ample market liquidity to suppress volatility, much like early this year. A below-average VIX index of implied volatility more recently has been accompanied by a reversal from a historically high level in the skew index, a VIX cousin, effectively measuring the chances for outsized declines by stocks.
September 10, 2018 — Market Comment (PDF/New Window)
September 10, 2018 — Market Comment (PDF/New Window) September 10, 2018 — Market Comment
Rolling thunder. Successive declines in a holiday-shortened week left the S&P 500 Index at an August 23 low on body blows from worries over emerging markets, trade policy, and the tech-sector outlook before staging a partial recovery Monday. It was news Friday of a jump in wages that struck at the heart of the market’s strength, threatening to shave earnings growth beyond a cut of more than one-half as the boost from lower taxes washes out of year-ago comparisons. Energy and tech bore the brunt of the declines since the end of August. Energy stocks have been hurt by price declines in a losing tug of war between worries over future supply shortages and concern over the outlook for global oil demand amid signs of slowing overseas economic growth. Tech has suffered from a confluence of worries over trade protectionism, regulation, and doubts over the pricing sector’s outlook. Dual-purpose utilities and consumer staples have been wearing their defensive sector caps in outperforming the S&P 500 Index despite rising yields on competing bonds normally weighing on interest-sensitive sectors.
September 3, 2018 — Market Comment (PDF/New Window)
September 3, 2018 — Market Comment (PDF/New Window) September 3, 2018 — Market Comment
The best of times, the worst of times. Stocks ran their weekly winning streak up to three and to eight of the past nine in a show of resilience to ongoing policy uncertainties at home and to fresh turbulence abroad, capped by another record high at midweek. The latest rise contributed to the best August performance in three years, including a healthy 3.25% return accompanied by the lowest August volatility since 1967—impressive for what historically has been among the most highly charged months of the year. The outsized gain also extended the string of solid S&P 500 Index increases to a fourth month, leaving the benchmark’s total return at close to 10.50% since the end of April.
August 24, 2018 — Market Comment (PDF/New Window)
August 24, 2018 — Market Comment (PDF/New Window) August 24, 2018 — Market Comment
Eyes on the prize. Repeated attempts at a record S&P 500 Index high succeeded before the clock ran out Friday, cementing the bull market’s position as the longest on record. Last week’s assault wasn’t easy, surmounting jitters over a looming trade war, fresh tremors from Turkey and other emerging market countries, along with policy criticism from the president and within the Federal Reserve (Fed) itself, plus new revelations of possible campaign irregularities and conflict reaching deeper into the administration. Short-lived optimism over U.S.-China trade talks evaporated, punctuated by a fresh round of a mutual $16 billion in import tariffs. Still, market fundamentals ultimately prevailed, most importantly optimism over economic and earnings growth combined with interest rates suppressed by the same safe-haven demand at times working against stocks and other risk assets.
August 16, 2018 — Market Comment (PDF/New Window)
August 16, 2018 — Market Comment (PDF/New Window) August 16, 2018 — Market Comment
Bulls in a china shop. Dog days of summer have proven to be anything but for yet another year, leaving asset markets caught between Turkey’s financial problems, the trade war’s ebb and flow, plus solid economic and earnings reports. In fact, an ironic twist to its dog days of summer moniker has saddled August with one of the worst track records during the year, joining September as the only period averaging losses since 1985. Thin trading helps explain why declines are the steepest of any month when the market is down. Bad timing has hurt, too, featuring the 1990 Iraqi invasion of Kuwait; the 1998 upending of the Long-Term Capital Management hedge fund tied, in part, to the Russian default that same month; the 2011 U.S. debt downgrade by Standard & Poor’s; and China’s financial problems in 2015.
August 8, 2018 — Market Comment (PDF/New Window)
August 8, 2018 — Market Comment (PDF/New Window) August 8, 2018 — Market Comment
Juggernaut! The S&P 500 Index climbed to within a whisker of its record late-January high on solid earnings growth and more mixed, but still supportive, economic data, shrugging off trade worries and fresh hints of a tilt from aggressive stimulus by foreign central banks responding to normalizing economic and financial conditions. Technology has paced a rally not overly broad or deep thus far this month across 8 of 11 S&P 500 Index sectors and just 78 of the 125 constituent industry groups on earnings reports solid enough to overcome disappointing results at a few highly visible companies. Market gains have contributed to an increase in the benchmark’s forward price/earnings multiple to a 6-month high of 16.8 times projected earnings over the next 12 months, or nearly 10% above the average of the past 20 years. Well below its ultra-frothy peak during the dot-com boom in late 1999, rich valuations nonetheless are more dispersed across non-tech sectors now than they were nearly 20 years ago.
July 30, 2018 — Market Comment (PDF/New Window)
July 30, 2018 — Market Comment (PDF/New Window) July 30, 2018 — Market Comment
A fair trade? Usually supportive earnings reports and protectionist worries traded places late in the week on profit shortfalls and a truce in a gathering trade war between the U.S. and the European Union. The net has been to reverse a market rally over the past two weeks carrying S&P 500 stocks to less than 1% of their record, late-January high despite another batch of supportive economic data. The still-elevated benchmark, despite today’s third straight setback, belies investors shaken by setbacks at several large-cap tech “FANG” stocks at the heart of the market’s rally, accounting for nearly 54% of this year’s gains by the S&P 500 prior to last week’s setback. Countering worries over market declines by a few key companies in the group have been broad based earnings and revenue growth for the second quarter underpinning other sectors of the market, not to mention upward revisions to consensus 2019 earnings growth to 10% for S&P 500 companies, according to the latest Thomson Reuters survey.
June 29, 2018 — Market Comment (PDF/New Window)
June 29, 2018 — Market Comment (PDF/New Window) June 29, 2018 — Market Comment
Better than it felt. Stocks overcame policy and geo-political anxieties, keying, instead on still solid economic and earnings fundamentals in chalking up a respectable, front-loaded return of 3.4% on the quarter. Punctuating the second quarter's narrow rally was the near-45% share of the second quarter's rise by the benchmark's top five performers—all so-called FANG tech / Amazon.com companies—compared to about a 25% share of the gain in last year's fourth quarter and for the entire year. The spring period went out like a lamb, suffering back-to-back weekly declines on trade protectionism and its fallout that left June's total return at just 0.6%. Oil prices, trade policy, and the Fed all had a hand in shaping performance during the period, propelling energy stocks to the top spot during the opening months on rising oil prices, whipsawing interest-sensitive sectors on rising, then falling rates and weighing on trade-sensitive industrials and, ultimately, tech with a trade-policy soap opera. Tech's growing share of the cap-weighted S&P 500 is changing the face of an increasingly NASDAQ-like benchmark, in the process adding to its sensitivity to protectionism both through tech's high dependence on foreign-based revenue and through gathering restrictions on China's access to cutting-edge technology.
June 22, 2018 — Market Comment (PDF/New Window)
June 22, 2018 — Market Comment (PDF/New Window) June 22, 2018 — Market Comment
Whistling softly past the graveyard. A Dr. Jekyll year of tax cuts and lighter regulatory touch in 2017 has given way this year to a worrisome Mr. Hyde combination of economically debilitating trade protectionism and restrictive immigration policy. The market's slow-motion acceptance of a looming trade war was apparent on the week in a stepwise descent that left the S&P 500 at a 2½-week low, despite Friday's oil-led rebound on an unexpectedly modest output accord by major producers and first signs of a European growth recovery from its recent soft patch. The S&P 500's first weekly decline in four still left it within striking-distance 4.1% of its late-January peak in the kind of narrow, shallow sell-off across 7 of 11 sectors and just 84 of 125 industry groups typically lacking conviction. The positive spin to what, thus far, has been a grudging decline in U.S. stocks and other risk assets is strong economic growth underpinning a consensus S&P 500 earnings-growth forecast above 20% in the second half. The negative spin to the market's resilience is an overly optimistic outlook for proliferating and deepening trade disputes on the assumption that tit-for-tat restrictions are just a bargaining ploy.
June 8, 2018 — Market Comment (PDF/New Window)
June 8, 2018 — Market Comment (PDF/New Window) June 8, 2018 — Market Comment
Great moderation II. Upbeat fundamentals outlasted policy and geopolitical uncertainties in sending the S&P 500 to less than 3-1/2% of its January 26 high in a third straight weekly rise. Among the more notable themes during the benchmark’s broad, fairly deep gains over the three-week span across 9 of 11 sectors and 90 of 125 industry groups: remarkable, retailing-led strength in the benchmark’s consumer discretionary sector joined by an earnings-driven rise in tech powerful enough to stanch the usual rotation toward economically sensitive sectors during periods of strong growth. Cyclicals have been sandbagged by middling performance of industrials, hurt by trade-policy concerns and by higher fuel costs weighing on transportation stocks, countering strength in consumer cyclicals. Tech’s rally has played itself out in further gains by Russell 1000 Growth to a 17-1/2 year high against its more cyclically oriented Value counterpart by the end of last week.
June 1, 2018 — Market Comment (PDF/New Window)
June 1, 2018 — Market Comment (PDF/New Window) June 1, 2018 — Market Comment
More than just a relief rally? A solid jobs report and improved clarity on Southern Europe’s political situation triggered an end-of-week rally breaching the top of the S&P 500’s trading range of recent weeks. An up-and-down week kept benchmark gains narrowly based and vulnerable to future headwinds. Bonds largely mirrored the stock market’s moves in nudging the ten-year yield down to just over 2.90%. Lower interest rates outweighed periodic safe-haven support from European uncertainties in pulling the dollar lower, but not by enough to prevent commodity-price declines on weakness in oil, gold, and grains. Interest-rate swings left yield-sensitive stocks mixed on the week. Encouraging economic reports weren’t enough to counter worrisome trade-policy developments in preventing industrials from moving lower, while tech was lifted by favorable earnings prospects. Even back-to-back slippage in a narrow group of risk versus safe-haven assets was less than it appeared, largely on declines in emerging markets stocks and bonds and still elevated against the more conservative asset group.
May 25, 2018 — Market Comment (PDF/New Window)
May 25, 2018 — Market Comment (PDF/New Window) May 25, 2018 — Market Comment
Mere distractions? Rapid-fire geo-political uncertainties propelled safe-haven assets to a three-week high against more modest gains in a portfolio of riskier investments. Stocks were among the risk assets edging higher on the week in choppy trading, confining narrow and shallow gains to just 7 of 11 S&P 500 sectors and 60 of 125 industry groups in keeping with a narrow rally thus far in the second quarter. The benchmark’s top five performers have accounted for over 36% of the market’s quarter-to-date gain through Friday compared to less than 25% during last year’s rise. Interest-rate declines were a main stock-market support, reflecting both risk-unfriendly safe-haven demand and a more supportive, positive spin to the early-May FOMC minutes signaling a go-slow policy toward rate increases even if inflation remains above target. A more benign approach to future price pressures risks leaving the Fed forced into more abrupt, catch-up rate increases if they fall behind an inflation curve, exposing the economy and financial assets to added turbulence.
May 4, 2018 — Market Comment (PDF/New Window)
May 4, 2018 — Market Comment (PDF/New Window) May 4, 2018 — Market Comment
Caught in a crosswind. More important than the market's second weekly decline in as many weeks was another seesaw pattern shaped by the ongoing struggle between market strengths and weaknesses. In one corner were fresh signs of consumer price pressures, trade-policy uncertainties, lingering geo-political concerns, and increased Treasury financing needs threatening still higher interest rates in the wake of recent tax cuts and spending increases. In the other were a dovish communique at the Wednesday FOMC meeting and mixed economic reports capped by signs of reduced wage pressures lessening the threat of economic overheating. Symptomatic of the market's drift was the narrow, shallow decline on the week across just 7 of 11 S&P 500 sectors and only 78 of 125 industry groups, tempered by tech's solid gain on upbeat large-company earnings reports for the first quarter.
April 13, 2018 — Market Comment (PDF/New Window)
April 13, 2018 — Market Comment (PDF/New Window) April 13, 2018 — Market Comment
A waiting game. The stock market's race for the gold at the start of the year has evolved into trench warfare between policy uncertainties, geo-political strains, and a more clouded economic outlook versus a still-upbeat outlook for 2018 profits. The S&P 500 last week retraced the previous period's decline in posting its best finish nearly four weeks ago, tethered to the ebb and flow of trade and Middle East developments in a rise with run-of-the-mill breadth and depth across 8 of 11 sectors and 90 of the benchmark's 125 constituent industry groups. International stocks in developed and emerging markets lagged the U.S. benchmark in both local-currency and dollar terms, restrained in developed markets by even-more-noticeable signs of a growth slowdown than in the U.S. Lagging performance by emerging markets was a break from this year's relatively strong performance through early April, raising hopes that the group can weather higher interest rates and financial turbulence likely to accompany it than the group did in 2013.
March 30, 2018 — Market Comment (PDF/New Window)
March 30, 2018 — Market Comment (PDF/New Window) March 30, 2018 — Market Comment
More questions than answers in a bumpy, pre-Easter ride. The stock market's happy ending to a bumpy, pre-holiday ride broke a two-week losing streak, nonetheless leaving many with an empty feeling heading into the long holiday weekend. Investors still had to contend with the S&P 500's first back-to-back monthly decline in total return since the turn of the year in 2016 and its first quarterly loss since July-September 2015. Even with Thursday's rebound, the bench¬mark ended the week more than 5% below its most recent, March 9 high, just over half way to another correction. Moreover, unsettled market conditions were apparent from the S&P 500's realized volatility above its average during the turbulence of the past two months and more than double its longer-term norm of the past five years.
March 23, 2018 — Market Comment (PDF/New Window)
March 23, 2018 — Market Comment (PDF/New Window) March 23, 2018 — Market Comment
Tapped out? Trade and Fed-policy uncertainties, worries over tech, oil prices, and global economic growth over-rode signs of economic revival after a weak start to 2018, leaving the S&P 500 with its worst weekly setback—nearly 6%—since China's financial crisis II at the start of 2016. The take-no-prisoners decline extended across all 11 S&P 500 sectors and to all but 3 of its 125 industry groups. Energy stocks were most resilient to the carnage, on higher oil prices supported by fresh geo-political uncertainties tied to the appointment of the hawkish John Bolton as National Security Advisor. Tech again was hit hard by social-media concerns as was financial services by flight-driven yield declines squeezing banks' net interest margins and insurance companies' net interest-income stream. A less friendly global outlook was kindest to domestic-oriented small caps in lifting them past the mega-cap, more international-oriented S&P 100 index to an October 2017 high in a fourth straight week of out-performance. Overseas stocks were better insulated by unsettling U.S. trade-policy and other international news, out-performing the U.S. market a second straight week despite the importance of more export-oriented companies in key European stock indexes.
March 9, 2018 — Market Comment (PDF/New Window)
March 9, 2018 — Market Comment (PDF/New Window) March 9, 2018 — Market Comment
It's policy. Stocks marked their rally's ninth anniversary with a stunning rise Friday, lifting the S&P 500 to within 3½% of its record January 26 close in the week's broad, deep rally across all 11 sectors and 109 of its 125 industry groups. Triggering the high note, and ending a week of policy ups and downs, were stunning reports on February employment and reaction to a forthcoming meeting between the U.S. president and North Korea's Kim Jong-un. Utilities and other yield-sensitive sectors drew the short straw, Friday and on the week, from a backup in Treasury yields to nearly 2.9% on the 10-year Treasury note on the strong jobs data and earlier Fed-policy concerns. The stock market's second powerful rally in the last four weeks paced a rise in a simple portfolio of risk assets leaving them at a late January high against their safe-haven counterparts. The dollar's rise with interest rates on the week masked more unusual, intra-week counter-moves to daily rate changes. More predictable were commodity prices, edging lower in response to the dollar's rise and to signs of slowing growth in key consumers China and Europe.
February 23, 2018, — Market Comment (PDF/New Window)
February 23, 2018 — Market Comment (PDF/New Window) February 23, 2018 — Market Comment
Losing the battles, winning the war. Stock-market "bulls" ended triumphant after struggling most of a holiday-shortened session, propelled by a powerful rally Friday lifting the S&P 500 back to a February 2 high in a second straight weekly gain. A steady retreat in VIX-based volatility left this "fear gauge" only slightly above its long-term average. That, plus a second straight gain in a narrow, risk-based portfolio against a similar collection of "safe-haven" investments signaled a return of market confidence after the upheavals early this month. However, a changing interest-rate outlook was the asset market's main driver much of the period. Interest-rate worries weighing on the market much of the week cleared with a seemingly benign semi-annual policy report from the Federal Reserve ahead of Chairman Powell's Congressional testimony next week, easing concern over the pace of this year's rate increases. The report took a measured view of a tight labor market, firming wage-price inflation, and rising asset values without breaking new ground or investor confidence in a "normalizing" economic environment gradual enough to steady the financial markets. Added support to the end-of-week rally came from upbeat earnings reports and other company news, a reminder of stocks' main source of strength behind their impressive rise from a week ago.
February 9, 2018, — Market Comment (PDF/New Window)
February 9, 2018 — Market Comment (PDF/New Window) February 9, 2018 — Market Comment
Wringing out, or ringing out? Stocks were decked a second time in as many weeks in a no-contest tug of war between inflation worries and rising bond yields versus an upbeat economic and earnings growth outlook. The S&P 500 Index's steepest decline in over two years was broad and deep across all eleven S&P 500 sectors and all but seven of the benchmark's 125 industry groups. An unsurprising pop in VIX volatility, to double its long-term norm on the week, was the tip of an iceberg containing massive losses on bets against volatility that have become the poster child for the week's sell-off in stocks. Bonds were caught in their own tug of war between debilitating increases in inflation expectations plus deficit-related supply concerns versus safe-haven demand for government securities. Safe-haven support wasn't enough to prevent three weak auctions last week of government notes and bonds further undercutting the market. Foreign demand for U.S. securities at times may have reversed the usual cause-and-effect relationship between the dollar and U.S. interest rates during currency swings contributing to opposing moves with interest rates rather than the usual parallel changes. Widening quality spreads in corporates, lifting the yield premium on non-investment over investment grade securities to a one-year high, still left the benchmark with a loss just a fraction of the 5.2% S&P 500 decline.
February 2, 2018, — Market Comment (PDF/New Window)
February 2, 2018 — Market Comment (PDF/New Window) February 2, 2018 — Market Comment
Not-so-distant drums. Inflation worries and rising interest rates shadowing stocks throughout the week came to a head Friday, sending the S&P 500 to a 2½-week low in a steep decline across all 11 sectors and 119 of the 125 constituent industry groups. Volatility, measured by the VIX “fear gauge,” move above its average for the first time since last August in climbing to a November 2016 high. Solid economic reports supporting the rally in recent months were turned on their head as their impact on stocks now was seen through more their impact on bond yields than on profits. Fed and Treasury announcements weighed on the markets, too, the Fed with nuanced “hawkishness” in its FOMC communique and the Treasury's response to an unusual, late-cycle rise in the budget deficit with increased quarterly debt sales skewed toward shorter-term securities likely squeezing an already narrowing gap between yields on shorter-and longer-term rates.
January 19, 2018 — Market Comment (PDF/New Window)
January 19, 2018 — Market Comment (PDF/New Window) January 19, 2018 — Market Comment
Parting company. Asset markets largely treated a looming government shutdown as a sideshow in moving stocks to yet another record high, contributing to further gains in a portfolio of highly charged assets against their safe-haven counterparts. Market complacency stems from the limited impact of past shutdown-related disruptions to the economy, because of non-essential spending's small—roughly 15%—share affected by the move and tempered further by subsequent catch-up spending when the disruption ends. Troubling this time is the degree of partisanship risking a more prolonged and damaging shutdown, perhaps setting the stage for a potentially disruptive debt-ceiling impasse when the limit is reached as early as March. Ironically, the safe-haven role of Treasury securities—ground zero for a debt impasse's default risk—made it one of the chief beneficiaries when the issue was at its most visible in August 2011.
January 5, 2018 — Market Comment (PDF/New Window)
January 5, 2018 — Market Comment (PDF/New Window) January 5, 2018 — Market Comment
A fast start. Stocks burst out of the starting block in the opening week of the year, never looking back (or down) in posting successive highs throughout a holiday-shortened week. Impressive performance by the second-longest stock-market rally on record continued to draw support from the economy's seemingly ageless expansion, fresh tax cuts, and from synchronized growth abroad—all just ahead of fourth-quarter earnings reports centered on a likely double-digit rise in S&P 500 Index profits from a year ago. The market's rendezvous with destiny either will have it breaking the rally's 1990–2000 longevity record (by avoiding a correction through August) or colliding with rising interest rates in a worst-case market correction.
December 31, 2017 — Market Comment (PDF/New Window)
December 31, 2017 — Market Comment (PDF/New Window) December 31, 2017 — Market Comment
A bundle of potential late-cycle surprises in 2018. Challenges to the assets markets this year, coming off a remarkably strong and placid 2017, ironically are being elevated less by an aging economic cycle than by the return of broad-based, respectable growth. Economic strength increases the chances for a turn from last year's disinflation and lower interest rates—2017's big surprise for stocks, supporting rich valuations and reinforced by unexpectedly strong earnings growth plus the resurrection of growth-friendly tax reform late last year. A key outlook uncertainty this year is the interplay of policy, inflation, and interest rates, all central to asset performance. At issue for fiscal policy is the inflation threat from tax-related stimulus in an economy already operating near full capacity. For monetary policy, the issue is its re-coupling with bond yields, likely dependent, in part, on the timing and trajectory of inflation's turn higher.
December 22, 2017 — Market Comment (PDF/New Window)
December 22, 2017 — Market Comment (PDF/New Window) December 22, 2017 — Market Comment
A tough act to follow. It has been a long time coming, but the global economy is on the cusp of a bona fide expansion last sighted briefly in the immediate aftermath of the deep, 2008-09 recession. The world economy is coming off its strongest and broadest expansion period since 2010-11, capped by a return of world trade as a growth engine and by double-digit earnings gains here and in many other parts of the world normally reserved for the strong “bounce” from a recession. Ongoing “disinflation,” accentuated by the after-effects of the deep, “balance-sheet” recession, is the most visible legacy of that economically troubling time. Nonetheless, overall improvement has been supported by prolonged adjustment to the financial “meltdown,” facilitated by extraordinary central-bank stimulus and, most recently, by positioning ahead of U.S. tax cuts set to go into effect next year. Economic conditions in 2017 have produced an unusually supportive, late-cycle combination of respectable growth, subdued inflation, historically low interest rates and a weak dollar contributing to a 22% return on the S&P 500 through late December and international (EAFE) stocks nudged past the U.S. gain by sizable currency gains from the dollar's depreciation.
December 15, 2017 — Market Comment (PDF/New Window)
December 15, 2017 — Market Comment (PDF/New Window) December 15, 2017 — Market Comment
Pre-Christmas cheer! Tax reform's pre-holiday gift from Washington to Wall Street capped a seesaw week for stocks, lifting them to another record close in what has become an historic rally in a remarkable year for the asset markets. Gains were propelled by the same combination of solid economic reports, prospects for growth-friendly tax reform, and a dovish spin to the Fed's latest rate hike supporting risk assets throughout the year. The latest move higher by the benchmark S&P 500 Index lifted valuation, measured by the price-earnings (P/E) multiple, to a new 13-year high of 18.6 times projected earnings over the next 12 months—over 26% above its long-term norm. The message from below-average sector-returns correlation and dispersion accompanying the market's latest rise: divergent price moves, but too narrow to support active management fully. A rally that lacked overwhelming breadth and depth during the market's up-and-down moves much of the week, across just 7 of 11 S&P 500 sectors and 67 of 125 industry groups, gained plenty of both on Friday amid signs of an imminent tax compromise in Congress. The week's top-ranked telecom services were well out in front on sector restructuring prospects and on a reversal of the “net neutrality” rule favoring carriers, while bond-like utilities brought up the rear on the less sanguine interest-rate outlook associated with a strengthening economy.
December 8, 2017 — Market Comment (PDF/New Window)
December 8, 2017 — Market Comment (PDF/New Window) December 8, 2017 — Market Comment
Ever higher. Stocks overcame their longest "soft patch" since March with a late-week rally, lifting the S&P 500 to a third straight weekly gain capped by another record high Friday. Optimism over a growth "friendly" tax bill by year end, entering the home stretch with a House-Senate Joint Conference Committee to iron out differences in the two versions, was just the most visible in an array of supports including another round of solid economic data here and abroad propelling a consensus earnings growth forecast to a six-year high. Added support also came from interest rates steadied by fresh signs of subdued wage-price inflation. However, improved earnings-growth prospects couldn't keep pace with rising stock prices, leaving the S&P 500's forward price-earnings multiple at a new February 2004 high of 18.5 times forward earnings, or more than 25% above its long-term average. Market seesawing kept the rally narrow and shallow on the week, across seven of 11 S&P 500 sectors and only 78 of 125 industry groups. Industrials and financials led the way on fresh signs of economic strength and, for financial services, prospects for a materially lower tax rate and higher interest rates under a growth "friendly" tax bill that kept bond-like utilities at the bottom of the week's rankings.
December 1, 2017 — Market Comment (PDF/New Window)
December 1, 2017 — Market Comment (PDF/New Window) December 1, 2017 — Market Comment
Rising to the occasion. Stocks responded well to an event-filled week, building on an earlier advance and propelling key benchmark indexes to new highs. The S&P 500's rise wasn't enough to counter an even larger decline in emerging-market stocks, however, sending a narrow basket of risk assets lower against their "safe-haven" counterparts paced by a gain in German government securities. Doubts over stock-market volatility's future were dispelled by end-of-week turbulence from the tax debate's ebb-and-flow and by an investigation of White House links to Russian influence peddling. Market conviction was apparent from the breadth and depth of the rally across 9 of 11 S&P 500 sectors and 93 of its 125 industry groups. Telecommunications and financial services led the way, the former on potential sector restructuring triggered by recent takeover news and the latter on looming fiscal reforms benefiting high-tax financials directly, by lifting after-tax earnings, and indirectly, through a potential inflation-driven rise in interest rates.
November 17, 2017 — Market Comment (PDF/New Window)
November 17, 2017 — Market Comment (PDF/New Window) November 17, 2017 — Market Comment
A glass half-full market. Stocks seesawed lower, leaving the benchmark S&P 500 Index with a rare, back-to-back weekly decline in trading unsettled enough to lift VIX-based volatility to an early- September high. The Treasury market took its cue from stocks throughout the week in its role as a haven investment, countering risk-asset moves, again demonstrating its diversification value in balanced portfolios. Still, chatter about an overdue reversal of an increasingly frothy market seemed premature. A simple portfolio of haven assets did out-perform its risk counterpart for a second straight week. However, risk-asset declines centered narrowly on the S&P 500 and on commodity prices (the latter on China's growth slowdown signs), masking gains in emerging markets stocks and other highly charged groups. Moreover, the S&P 500 ended the week little more than a half percentage point below its early-November high, in a fairly narrow and shallow decline across 7 of 11 sectors and only 53 of 125 industry groups. Big market moves up or down were contained by healthy economic and earnings growth, progress on tax reform, and still-ample liquidity conditions supporting rich valuations, countered by hints of firming inflation threatening supportive interest rates, China's credit-induced growth slowdown, and concern over market stability raised by the sell-off in the high-yield sector still centered disproportionately on ailing telecommunications services.
November 3, 2017 — Market Comment (PDF/New Window)
November 3, 2017 — Market Comment (PDF/New Window) November 3, 2017 — Market Comment
A crowded field. Policy, profits and a full data calendar propelled the S&P 500 to an eighth straight weekly rise and to another in a succession of record highs. Gains on largely market friendly news were part of a broader rally in riskier, or more highly charged asset groups, besting an equally narrow "safe-haven" portfolio a third straight week on broad based gains across all components except emerging-market bonds. Adding to support from better-than-expected economic data and earnings reports was the market-supportive Powell nomination to replace Janet Yellen as Fed Chair and release of the House's market "friendly" tax reform bill—paramount in the latest leg of the rally nearly a year after the president's surprise election victory touched off a similar market response on much the same theme.
October 27, 2017 — Market Comment (PDF/New Window)
October 27, 2017 — Market Comment (PDF/New Window) October 27, 2017 — Market Comment
A fistful of issues. S&P 500 stocks were lifted to a seventh straight weekly high—capped by yet another record Friday—by a potent combination of better-than-expected corporate earnings, market “friendly” policy developments and by economic data solid enough to validate investor optimism. Earnings-growth expectations for the third quarter were bested by a procession of upbeat company results into the heart of the reporting season, lifting the Bloomberg Financial News tally of year-to-year increases to just over 8% for the 272 companies with results through Friday—nearly double expectations on the eve of the reporting season. Earnings growth has been accompanied by a healthy 6.2% gain in revenues, raising hopes for sustained, topline-driven increases in profits favored by investors. Difficult negotiations over revenue offsets to proposed tax cuts failed to dim optimism over a reform package before year-end. Underscoring market support from the latest economic data was the biggest weekly improvement in the Citigroup Economic Surprise Index (measuring actual versus expected data results) in five years, leaving the measure at its healthiest since mid-April. Icing on the cake came from a tilt in the nomination sweepstakes for a new Fed chairman toward “dovish” insider Powell, increasing the chances for policy continuity during interest-rate “normalization.” Support also came from an announced pullback from quantitative easing by the European Central Bank (ECB) gradual enough to support a bond rally spilling over to the U.S. market.
October 13, 2017 — Market Comment (PDF/New Window)
October 13, 2017 — Market Comment (PDF/New Window) October 13, 2017 — Market Comment
A potent brew. Stocks chalked up a fifth straight week of gains and another record high at mid-week on fresh interest-rate optimism and a strong start to third-quarter earnings reports in breezing through what, historically, has been the most difficult time of the year for the market. Third-quarter earnings were up more than 8% for the 32 S&P 500 companies reporting through Friday, according to estimates by Bloomberg Financial News, Inc. Even more important support, at this early stage of the earnings-reporting cycle, came from a bond rally sending the benchmark 10-year Treasury yield to a two-week low, accommodating S&P 500 valuations at a 13-year high. Propelling the bond market was the mid-week release of the September 20 FOMC minutes revealing unexpectedly deep divisions over policy implications of subdued inflation and news Friday of another month of surprisingly modest inflation in the CPI's "core" component (i.e., excluding food and energy). The latest interest-rate decline triggered a rotation of strength toward yield-sensitive real estate, consumer staples and utilities from more highly charged materials, financial services and economically sensitive, "big-ticket" consumer goods during the early part of the month, amid prospects for stronger growth, higher inflation and a less sanguine interest-rate outlook. The bond rally also encouraged an added move along the bond market's credit-risk "curve," leaving the yield premium on investment-grade corporate issues to comparable Treasury securities at a 10-year low.
October 6, 2017 — Market Comment (PDF/New Window)
October 6, 2017 — Market Comment (PDF/New Window) October 6, 2017 — Market Comment
Transitioning? Tax-cut talk's "reflation II" provided an added wrinkle to the sea change slowly enveloping the asset markets, atop the pivot by the Fed and other major central banks from aggressive stimulus. Events of the past week also were a reminder that the transition likely won't be a smooth one, disrupted by fresh North Korea tensions, Germany's muddled election result pointing toward a weak governing coalition, and by fresh signs of subdued inflation. The net effect was a further uncoupling by stocks and other risk assets from historically low, but rising interest rates in a down-and-up week, lifting the S&P 500 to back-to-back record highs late in the period and powering risk assets to a third strong weekly gain against their "safe haven" counterparts.
September 29, 2017 — Market Comment (PDF/New Window)
September 29, 2017 — Market Comment (PDF/New Window) September 29, 2017 — Market Comment
Transitioning? Tax-cut talk's "reflation II" provided an added wrinkle to the sea change slowly enveloping the asset markets, atop the pivot by the Fed and other major central banks from aggressive stimulus. Events of the past week also were a reminder that the transition likely won't be a smooth one, disrupted by fresh North Korea tensions, Germany's muddled election result pointing toward a weak governing coalition, and by fresh signs of subdued inflation. The net effect was a further uncoupling by stocks and other risk assets from historically low, but rising interest rates in a down-and-up week, lifting the S&P 500 to back-to-back record highs late in the period and powering risk assets to a third strong weekly gain against their "safe haven" counterparts.
September 22, 2017 — Market Comment (PDF/New Window)
September 22, 2017 — Market Comment (PDF/New Window) September 22, 2017 — Market Comment
A not-so-boring high-wire act. Muted asset-price reaction to seemingly far reaching policy developments in the latest week had less to do with lethargy than it did with cross currents hemming in prices. Seeming calm was the result of a stand-off between a less market-"friendly" Federal Reserve and the latest "spike" in North Korea tensions versus prospects for still ample market "liquidity" plus optimism on economic growth, inflation and third-quarter profits ahead of the early-October start to the earnings-reporting season. Outlook positives out-weighed negatives in producing another big week for risk over broadly declining safe-haven assets, lifting risk's total return index to its highest against safe-haven in at least the last 16.5 years on gains paced by commodities and emerging-market stocks. Market strengths also boosted confidence enough to nudge the VIX volatility gauge down toward its late-July low for the year. Even the CBOE "SKEW" index in the options market—effectively measuring so-called "tail" risk of a significant market "shock"— converged with its historic norm from a red-zone level the week before.
September 15, 2017 — Market Comment (PDF/New Window)
September 15, 2017 — Market Comment (PDF/New Window) September 15, 2017 — Market Comment
"…And full speed ahead." What started as a relief rally over Irma's milder-than-expected damage and a brief North Korean missile pause took on a life of its own as the week progressed in propelling S&P 500 stocks to two record highs. Gains late in the week were all the more impressive amid another North Korean missile lob over Japan and less "friendly" CPI data raising doubts over the outlook for a remarkable combination of adequate growth and slowing inflation supporting the latest leg of the market's unusually long rally. When the dust settled, a narrow basket of risk assets had climbed to a six-week high against a broadly weaker "safe-haven" portfolio that included declines by longer-dated Treasury securities in five of the last six days. What normally is the most difficult month of the year for stocks is turning out to be one of the best since February despite the shocks seemingly common at this time of the year.
September 8, 2017 — Market Comment (PDF/New Window)
September 8, 2017 — Market Comment (PDF/New Window) September 8, 2017 — Market Comment
Seeking shelter. More than hurricanes bracketing the week roiled investors in a "risk-off" trade sending a small group of highly charged assets to their steepest decline against their "safe-haven" counterparts in about a month. Compounding hurricane-related and other economic uncertainties were ongoing tensions with North Korea, along with a policy landscape left uncertain by the resignation of Fed Vice Chairman Fischer, conflicting views of "hawks" and "doves" on the FOMC plus agreement between the president and Congress on a three-month extension to the Federal debt-ceiling and spending-authority deadline. A narrow portfolio of "risk" assets was hurt by declines in the S&P 500 and, to a lesser extent, emerging-market stocks countering modest gains elsewhere in the group. "Haven" strength was broad based and led by the Swiss franc and Japanese yen, out-pacing a more moderate rise in gold prices that still left the precious metal's near-17% gain as its best year-to-date rise since 2010 and among the top returns across asset classes.
September 1, 2017 — Market Comment (PDF/New Window)
September 1, 2017 — Market Comment (PDF/New Window) September 1, 2017 — Market Comment
Take your pick. A something-for-everyone rally was supported in the latest week by an unusual combination of respectable growth and subdued inflation keeping interest rates at or near their lows for the year. “Safe-haven” returns edged out a broad-based rally in “risk” assets, paced by increased gold prices overcoming slippage in Swiss francs and Japanese yen. Gold overcame the dollar's irregular rise on the week to close at a September 2016 high, on subdued interest rates plus geo-political, policy, and weather-related uncertainties. Dollar resilience extended to industrial metal and grain prices, the former lifted by fresh signs of strength in China's manufacturing activity and supply-related worries in aluminum and zinc markets.
August 18, 2017 — Market Comment (PDF/New Window)
August 18, 2017 — Market Comment (PDF/New Window) August 18, 2017 — Market Comment
Safety first. Steep, late-week declines in a jittery market left the benchmark S&P 500 at a July low, suffering a one-two punch from a terrorist attack in Barcelona, violence in Virginia, and fall-out from the latest political soap opera in Washington—all atop simmering tensions with North Korea. The late-week "safe-haven" trade wasn't enough to overcome a rotation back to risk assets earlier in the period as North-Korea tensions dipped, allowing them partially to retrace earlier losses against a safe-have portfolio. Emerging-market stocks and bonds were the main supports for "risk," while the safe-haven group was sand-bagged by declines in German government bonds, Swiss francs, and gold. Dollar declines during the latest bout of market turbulence against the yen and the Swiss franc were one indication of their reduced safe-haven role. Another was the positive correlation between dollar and U.S. interest-rate changes, suggesting interest-driven moves in the U.S. currency. A negative correlation between the two often signals a reverse causation, as foreign demand for dollars needed to purchase U.S. securities lifts our exchange rate and bond prices enough to lower interest rates. Still, U.S. "Treasurys" drew enough late-week support from the same "dovish" spin to the mid-week FOMC minutes supporting stocks and from a "risk-off" trade spurred by political disturbances at home and abroad.
August 11, 2017 — Market Comment (PDF/New Window)
August 11, 2017 — Market Comment (PDF/New Window) August 11, 2017 — Market Comment
A wake-up call from Asia. The flight to quality triggered by the war of words between North Korea and the U.S. sent a simple portfolio of risk assets down to a seven-week low against their ”safe-haven” counterpart. S&P 500 stocks ended the week at a one-month low, aggravated by retailers' disappointing earnings reports. By contrast, the 10-year Treasury yield slipped below 2.2% for the first time since late June in a flight-driven rally reinforced by fresh signs of “disinflation.” Gold finished at a two-month high, the safe-haven yen's dollar rate at a level not seen since April and the stock market's VIX index of market volatility “spiked” to its highest reading since November. The S&P 500's broad and deep sell-off from Monday's record high extended to 10 of 11 sectors and to 105 of the 127 reporting industry groups, aggravated by a narrowing rally relying on just five companies for nearly 40% of the benchmark's gain in the thirty days through Monday's high versus less than 28% by the top five year-to-date through early July. Equally narrow was the second quarter's impressive, double-digit earnings growth—the first such back-to-back gain since 2011— supporting the market's rise, with tech, energy and financial services accounting for over 70% of the profits gain.
August 4, 2017 — Market Comment (PDF/New Window)
August 4, 2017 — Market Comment (PDF/New Window) August 4, 2017 — Market Comment
Quick pivots. Stocks drew on several themes in staying afloat for a fourth weekly gain in five. Another solid week of second-quarter earnings reports for S&P 500 companies—up 11.8% for the 419 companies reporting through Friday, according to Bloomberg Financial News—briefly lifted the benchmark to within a whisker of its July 26 record high. Dollar weakness and strengthening global growth weighed in with support for large-cap, internationally-oriented companies benefited both from stronger overseas sales volumes and from currency-related gains on foreign incomes converted or translated into depreciating dollars that helped lift the multinational-laden Dow Jones Industrial Average to a second week of successive daily highs. Those twin themes had just the opposite effect in Europe, where a rising euro weighed on the market much of the week by dampening competitiveness of export-oriented companies and foreign income of multinationals together accounting for a larger share of the benchmarks there than here.
July 28, 2017 — Market Comment (PDF/New Window)
July 28, 2017 — Market Comment (PDF/New Window) July 28, 2017 — Market Comment
‘Tis the season. Stocks moved to the beat of second-quarter earnings results in the heart of the reporting season, keeping a watchful eye at the same time on the economic data, Fed-policy, and overseas market developments. Late-week earnings disappointments took the air out of a rally lifting the S&P 500 to back-to-back record highs, leaving the benchmark virtually "flat" on the week. However, the sideways move belied a still-solid backdrop for the market. First, Bloomberg's estimated 11.6% earnings growth for the 286 S&P 500 companies reporting through Friday was well ahead of the expected 8% on the eve of the reporting season in early July. The double-digit gain, made all the more satisfying by the pickup in more open-ended revenue growth adds to market confidence among investors, forced to settle for cost-driven gains during much of this recovery. Much of that top-line strength is coming from abroad, driven both by the global economic recovery and by currency-related gains associated with recent dollar declines. These same internationally driven companies helped propel Russell 1000 Value stocks past their Growth counterpart for the first time this month, sparking a debate over just where we are in a seemingly aging economic cycle typically led by Growth.
July 21, 2017 — Market Comment (PDF/New Window)
July 21, 2017 — Market Comment (PDF/New Window) July 21, 2017 — Market Comment
"High noon" delayed. Crosscurrents behind the stock market's halting rally in the latest week fostered successive highs by the S&P 500 through Wednesday, bracketed by periods of consolidation leaving the benchmark up a second straight week. Lingering fall-out from news of June "disinflation" nudged the yield on the 10-year Treasury note from the upper end of this year's trading range back to its mid-point, compounded by mixed economic data on the week adding to uncertainty over the timing and pace of the Fed's interest-rate "normalization." Countering uncertainties over the growth and inflation outlook was a start to the second quarter's earnings reporting season strong enough to lift the consensus income-growth estimate for all S&P 500 stocks to 9.6% from 8% at the start of the month. Investors also were whipsawed by the "dovish" outcome to the European Central Bank (ECB) policy meeting followed quickly by President Draghi's more "hawkish" comments at a post-meeting press conference. Also weighing on stocks and other assets were yet another political distraction in Washington dimming already fading prospects for fiscal stimulus.
July 14, 2017 — Market Comment (PDF/New Window)
July 14, 2017 — Market Comment (PDF/New Window) July 14, 2017 — Market Comment
A "friendlier" Fed. Stocks were propelled to a second record high in less than a month by double-barrel support from Chairwoman Yellen's more ambivalent inflation outlook in Congressional testimony, punctuated by June's "soft" CPI and retail sales reports. The latest developments perpetuated the stock market's "liquidity" driven rally by depressing bond yields enough to support valuations at, or above, "already rich" prevailing levels. Worries over prospects for consumer-led growth from June's disappointing retail sales report took a back seat, for now, to the start of an earnings reporting season expected to produce 8% growth in the S&P 500's second quarter profits. Still intact is the case for an announced balance-sheet wind down at the September FOMC meeting and another rate increase before year-end. However, "qualifiers" in Yellen's two-day policy testimony—acknowledging more than one-time factors possibly behind subdued inflation and targeted "neutral" rates closer to current levels than anticipated earlier—are capable of slowing interest-rate "normalization" if justified by the data, adding to a looming October debt-ceiling deadline as a threat to the Fed's timetable for lifting rates.
July 7, 2017 — Market Comment (PDF/New Window)
July 7, 2017 — Market Comment (PDF/New Window) July 7, 2017 — Market Comment
Opening skirmishes. Asset markets are turning grudgingly from years of market "friendly" "disinflation" and central banks' aggressively stimulative policies to reverse it, limiting their reaction to Friday's solid jobs report and to "hawkish" minutes of policy meetings by the Federal Reserve and the European Central Bank. The dollar and commodity prices were in line with their average of the past month, the latter with the notable exception of gold. Another sizable rise in Treasury interest rates merely lifted the benchmark 10-year yield back to its mid-point for the year. S&P 500 stocks remained well above their year-to-date average, and less than 1.2% below their June 19 high in eking out a modest gain during an up-and-down week. Tension between a looming policy change and still-ample market "liquidity" supporting financial assets also had a muted effect on market turbulence, lifting the VIX and MOVE indexes of implied volatility in stocks and bonds, respectively, but to a still-historically low level.
June 30, 2017 — Market Comment (PDF/New Window)
June 30, 2017 — Market Comment (PDF/New Window) June 30, 2017 — Market Comment
A “teflon” market? The “glass-half-full” spin to the S&P 500's second “down” week in three was a muted, see-saw response to a series of body blows, entering a long July 4 holiday for many off less than 1.25% from its record June 19 high. Mixed economic data, punctuated by an IMF downgrade to its U.S. forecast, a disappointing turn to the health-care debate and another global cyber-attack contributed to an unsettled end to the best first half for the benchmark stock index since 2013. Most important were “hawkish” comments by central bankers here and abroad suggesting an end-of-era tilt away from aggressive monetary stimulus, effectively supporting asset markets with ample “liquidity” as they combated “disinflation.” European and U.S. government bonds, at ground zero in the central-bank policy tilt, were hit hardest, with the loss by the 10-year U.S. Treasury note more than double that of the S&P 500 in the latest week.
June 16, 2017 — Market Comment (PDF/New Window)
June 16, 2017 — Market Comment (PDF/New Window) June 16, 2017 — Market Comment
Bending, but not breaking. The stock market's resilience to disappointing economic data and a surprisingly “hawkish” FOMC policy outcome left the benchmark S&P 500 slightly higher on the week and still within shouting distance of Tuesday's record high. The gain was about as narrow and shallow as you would expect in an up-and down week, spread across just 7 of 11 S&P 500 sectors and only 79 of 143 constituent industry groups. “Risk” remained in style. A portfolio of those assets edged past a group of “safe haven” investments for a second straight week on gains in stocks, corporate investment- and non-investment grade bonds met by declines in haven gold, Swiss francs and Japanese yen. Performance by stocks on the week again showed their ability to toggle between a “reflation” trade of growth strong enough to build on the first quarter's impressive gains and “liquidity”-driven support from historically low interest rates and ample funds supporting “rich” valuations. The yield on the benchmark 10-year Treasury note was up from Wednesday's low for 2017 but, at little more than 2.15%, still near the bottom of its year-to-date range. Low yields allowed stocks to accommodate a price-earnings multiple (a common valuation measure) on the S&P 500 at a 13-year high of 17.8 times expected earnings over the next two years, well above its long-term average of 14.7 times.
May 26, 2017 — Market Comment (PDF/New Window)
May 26, 2017 — Market Comment (PDF/New Window) May 26, 2017 — Market Comment
Back on top! The stock market's seven-day rally was a reminder of why political disturbances, like the most recent D.C. follies, are viewed by investors more as distractions than as enduring threats. Largely overlooked in the latest run up of stocks and other risk assets were tremors from a China sovereign-debt downgrade, the U.K. bombing, a less-than-cordial meeting between President Trump and other G-7 leaders plus unexpected oil-price uncertainties tied to oil producers' extended production-sharing agreement. Investors opted, instead, to key on strong earnings growth and a positive spin to the interest-rate outlook in sending the S&P 500 to successive highs in a broad, but not overly deep rally across 9 of its 11 sectors but just 90 of the 143 constituent industry groups. High and rising investor confidence in the rally's strength also brought the VIX "fear gauge" of implied market volatility to within shouting distance of its multi-decade low earlier this month.
May 19, 2017 — Market Comment (PDF/New Window)
May 19, 2017 — Market Comment (PDF/New Window) May 19, 2017 — Market Comment
That ‘70s show? Washington elbowed aside Main Street and Wall Street with Watergate-like intrigue, triggering a mid-week drubbing of stocks just days after another record high. Also stirring the pot were ongoing tensions in North Asia, a fresh confrontation between China and the U.S. in the skies over the East China Sea and Brazil's second presidential corruption scandal in a year. Market "bulls" had the final word, however, retracing much of the decline in a two-day rally that left the S&P 500 with a second moderate setback in as many weeks. Caution bordering on confusion was apparent from the pattern of performance across markets and market sectors. The narrowly based sell-off within the S&P 500—across just 7 of 11 sectors and 80 of 143 industry groups—suggested a lack of "risk-off" conviction, as did an end-of-week ratio of "risk"- to "haven"-asset prices still hovering near its highest level in over 12 years. That said, lingering caution also was visible in the solid gains by haven gold, Swiss francs, Japanese yen and, to a lesser extent, U.S. government bonds.
May 5, 2017 — Market Comment (PDF/New Window)
May 5, 2017 — Market Comment (PDF/New Window) May 5, 2017 — Market Comment
How high is too high? The stock market's end-of-week high on a solid jobs report was a reminder of its underlying optimism, punctuated by resilience to so-so data prior to the employment news and to the threat of higher interest rates from a Fed seemingly intent on "normalizing" them regardless of the economy's earlier signs of slowing growth and renewed "disinflation." The Fed funds futures market responded by lifting an already high probability of a rate hike at the June FOMC to a virtual certainty, triggering a modest rise in the yield on the policy-sensitive two-year Treasury note. Inflation-sensitive, longer-term yields bucked that rise, slipping, a bit, on lingering disinflation concerns in a reminder of the unusual combination of Fed-induced increases in short-term rates and restraint on inflation- and foreign-centric long rates during the first year of the last interest-rate "up cycle" in 2004- 05. Inflation-related support out-weighed any debilitating pullback in foreign demand for U.S. securities on optimism over the outcome of the weekend's presidential elections in France. "Risk" assets, like stocks and other highly charged, economically sensitive investments, were in command a second straight week, lifting a narrow sample to a mid-March high against a similar, small grouping of "haven" assets including high-quality government securities, gold , Swiss francs, and Japanese yen.
April 28, 2017 — Market Comment (PDF/New Window)
April 28, 2017 — Market Comment (PDF/New Window) April 28, 2017 — Market Comment
"Three-p" support. Profits, policy, and politics took center stage in the latest week, powering S&P 500 stocks to their best weekly gain since mid-February in a fairly broad, but not overly deep rally across 8 of 11 sectors but only 88 of 143 industry groups. An early-week relief rally on French election results gave way to a more muted response to the mid-week preview of the president's tax plan, nonetheless potentially supportive to the economy, corporate earnings gains and to the asset markets. Generally disappointing economic reports on the week still were strong enough to support adequate economic and late-cycle earnings growth plus "risk-on" trading strong enough to carry stocks and other highly charged investments past so-called "haven" assets for a second straight week to their highest reading against that group in over a month. Still, lingering outlook caution may have been signaled by leading-edge tech and health care within the S&P 500's rally, sectors valued as much for their reliable earnings performance during periods of weak economic and profits growth. Also signaling investor concern was the lagging performance by economically sensitive Russell 2000 small caps versus the S&P 500, despite sensitivity to Trump tax cuts and to lower interest rates. Relatively strong performance of developed- and emerging-market stocks were supported by foreign central banks' market "friendly" policy announcements, global economic optimism and, to some extent, firmer commodity prices more important to markets in both regions than to U.S. equity performance.
April 21, 2017 — Market Comment (PDF/New Window)
April 21, 2017 — Market Comment (PDF/New Window) April 21, 2017 — Market Comment
Full circle. Stocks finished higher in a seesaw week, capped by a late-Friday sell-off ahead of a tight Sunday presidential election in France with ramifications for the euro, the eurozone, and global financial stability. Pre-election jitters contributed to another good week for "haven" assets, paced by a second straight solid return by German government bonds in out-performing a narrow portfolio of "risk" assets. Steep declines in commodity prices—bringing their cumulative slump to over 4% on the year—overshadowed modest gains elsewhere on worries over a China-led growth slowdown out-weighing the usual support from a weakening dollar. Still, fewer surprises on the week lowered VIX index volatility from its early- November high, leaving it still elevated by this year's standards but well below its long-term average. Likewise, low volatility combined with "risk-on/ risk-off" trading to leave sector dispersion across the 11 S&P 500 sectors at its narrowest since early December and well below its long-term average, a difficult backdrop for "active" investors in their competition with passive indexes.
April 7, 2017 — Market Comment (PDF/New Window)
April 7, 2017 — Market Comment (PDF/New Window) April 7, 2017 — Market Comment
Showing their mettle. Stocks retreated grudgingly last week amid not-so-pleasant surprises from the Fed's "hawkish" March FOMC minutes, fresh talk of delays to fiscal stimulus, a terrorist attack in Russia, the U.S. missile strike on Syria plus a disappointing payroll increase in Friday's March jobs report. Tremors there, along with apprehension ahead of Thursday's Trump-Xi summit failed to reverse even half the previous week's rise in calm trading, leaving the S&P 500 just 1.7% below its March 1 peak. Declines were as narrow and shallow as you would expect from the market's near-sideways move, extending to just four of the benchmark's 11 sectors and to only 74 of its 143 industry groups. Small caps lagged the benchmark in a see-saw pattern shaped by changing views on the economy, interest rates, and tax relief.
March 24, 2017 — Market Comment (PDF/New Window)
March 24, 2017 — Market Comment (PDF/New Window) March 24, 2017 — Market Comment
A domino effect? The health-care debate stole the show in the latest week, leaving stocks seesawing lower on a decision to pull the GOP reform bill from a vote Friday. The market's setback was on the leading edge of declines across "risk" assets included in our simple investment basket, leaving the group at a four-week low against a similarly constructed "safe-haven" portfolio. The S&P 500 ended the week at a mid-February low with its steepest decline since just before the election in a fairly broad, deep sell-off across nine of 11 sectors and 109 of 143 constituent industries. Gains confined to dividend-rich utilities and real estate were supported by a drop to a one-month low of 2.42% on the competing 10-year Treasury yield, responding to the rotation from stocks, subdued inflation expectations and to lingering fall-out from a soothing communique accompanying the Fed's mid- March rate increase. Lower yields and a narrowing gap between those on short- and longer-term securities left financial services well behind the pack on concern over the implications for net interest margins steering bank profitability.
March 17, 2017 — Market Comment (PDF/New Window)
March 17, 2017 — Market Comment (PDF/New Window) March 17, 2017 — Market Comment
Neither rain nor sleet… Asset markets overcame their own version of the postal workers' creed (not to mention obvious comparisons to a mercifully "blown" Northeast weather forecast) in navigating potentially unsettling central-bank policy meetings, Dutch elections and a heavy flow of top-tier economic data. Stocks held on to finish up on the week, despite slippage from a post-FOMC rally keyed more to weakening oil prices than to a batch of upbeat economic reports. Lower Treasury yields, to 2.5% on the benchmark 10-year note from a post-election high of nearly 2.6% at the start of the week, shaped sector rankings in fairly broad but shallow gains across nine of 11 S&P 500 sectors and just 87 of 143 industry groups. Dividend-rich real estate, utilities, and telecom services were lifted to the top of the week's sector rankings, while financial services brought up the rear on net interest margins (a profitability gauge) pressured by the rate declines. Cyclically sensitive stocks held their own on investor confidence in the U.S. and global economies, supporting relatively strong returns by Russell 2000 small-caps, particularly, by emerging-market stocks responding to interest-driven declines in the dollar and an associated, broad-based rise in commodity prices. Translation gains on overseas income from the dollar's decline have been substantial, adding nearly 1.4 percentage points to local-currency returns on both emerging-market and developed-country stock indexes of over 2.9% and 0.7%, respectively, last week alone.
March 10, 2017 — Market Comment (PDF/New Window)
March 10, 2017 — Market Comment (PDF/New Window) March 10, 2017 — Market Comment
A foot race. Stocks were lower for the first week in seven, failing to rally sufficiently on Friday's solid, but unspectacular jobs report. Only tech and health care escaped a broad, fairly deep setback across nine of 11 S&P 500 sectors and 91 of 143 constituent industry groups. Higher interest rates on a more "hawkish" Fed-policy outlook left yield-sensitive real estate and utilities at the bottom of the sector rankings with energy stocks, hurt by a material break in oil prices finally responding to top-heavy inventories. The S&P 500's grudging decline, leaving the benchmark less than a percentage point from its record March 1 high, reflected a tug-of-war between threatened interest-rate increases and fiscal-policy uncertainties on the one hand, vs. adequate economic growth and earnings optimism on the other. Overseas, developed-country markets bucked the U.S. decline despite hints by President Draghi of an approaching end to aggressive stimulus after Thursday's meeting of the European Central Bank (ECB). Emerging markets failed to join that rally, however, hurt by broad-based commodity-price declines shrugging off dollar weakness. Dollar slippage signaled reduced foreign demand for U.S. securities on talk of less aggressive ECB stimulus and rising interest rates abroad, reinforcing policy-related increases that sent U.S. bonds down a second week and the benchmark 10-year Treasury yield near mid-December's 2.6% peak.
March 3, 2017 — Market Comment (PDF/New Window)
March 3, 2017 — Market Comment (PDF/New Window) March 3, 2017 — Market Comment
Breathless. Stocks extended their weekly winning streak to six in a "mini-melt-up" through Wednesday, partially reversed, grudgingly, the following day. Declining volatility much of the week left the "VIX" "fear" gauge approaching its late-January bottom by the end of the week, accompanied by slippage in still-elevated S&P 500 sector returns dispersion to a 10-week low. Equities were the stand-out performer in a generally lackluster showing by our basket of risk assets, virtually "flat" on the week due to declines in commodity prices, corporate bonds, and emerging-market stocks. Nonetheless, the group's sideways move out-performed broad-based declines in "safe-haven" gold, U.S. and German government securities and the Japanese yen in lifting "risk" to its highest reading against the comparable safe-haven index since the height of the pre-"meltdown" "boom" in July 2007.
February 17, 2017 — Market Comment (PDF/New Window)
February 17, 2017 — Market Comment (PDF/New Window) February 17, 2017 — Market Comment
Juggernaut! Stocks marked the anniversary of last year's reversal of a dismal start with four record highs in five trading days, supported by upbeat economic data, encouraging earnings reports, a positive "spin" to Yellen's moderately "hawkish" Congressional testimony and lingering reaction to the president's tax-reform pep talk. Higher interest rates lifted financial services to the top of the heap in a broad, but fairly shallow rally across 10 of 11 S&P 500 sectors and a less impressive 98 of 143 industry groups. Energy was the only sector to lose ground on higher crude inventories weighing on oil prices. Overseas, the European rally was held back by fresh election jitters and by lower commodity prices weighing on the important materials sector. Emerging markets also lagged the U.S. rally on a second straight weekly rise in the dollar's trade-weighted exchange rate, undercutting commodity prices and kindling dollar-debt repayment worries.
February 10, 2017 — Market Comment (PDF/New Window)
February 10, 2017 — Market Comment (PDF/New Window) February 10, 2017 — Market Comment
More than just "melt up" markets? The power of the presidency was on display late last week, lifting major benchmark indexes to record highs on talk of corporate tax reform by the president. Gains were part of a full-blown move back to risk assets overcoming earlier sluggishness on policy-related doubts. A supporting role in a broad, fairly shallow rally came from improved earnings reports after mixed reviews early in the week, increases in oil prices and Chinese exports, both global economic bellwethers, and news of a fresh, 43-year low in initial jobless claims cementing labor's position on the leading edge of the growth recovery. An up-and-down week for Treasury securities included a four-day rally—the longest since the June "Brexit"-vote— on a more sanguine inflation outlook, "safe-haven" demand from European political uncertainties and doubts over the Trump tax plan, reversed by the president's late-week announcement but still leaving the benchmark 10-year Treasury yield at a three-week low of little more than 2.4%. Gradual, but steady dollar gains were supported first by safe-haven demand out of Europe and, later, by the tax-related improvement in the economic outlook. Commodities shrugged off dollar increases in another show of risk-asset strength, propelled to a mid-2016 high by rallies in oil, gold, and grains.
February 3, 2017 — Market Comment (PDF/New Window)
February 3, 2017 — Market Comment (PDF/New Window) February 3, 2017 — Market Comment
More than just a sideways market. There was more to the asset markets' flat performance on the week than met the eye. The strong finish by S&P 500 stocks raised hopes for a good follow-through this coming week, drawing on multifaceted support from a "dovish" Fed-policy announcement, a have-it-both-ways jobs report featuring strong employment growth and reduced wage pressures, a strong finish to the week's fourth-quarter earnings reports, and on Trump's market-"friendly" rollback of financial regulations countering worrisome announcements earlier on trade and immigration. A first January rise by the S&P 500 since 2013 provided icing on the cake from a bellwether month, associated with full-year rallies more than two-thirds of the time since 1960, averaging nearly 19%, when January was up versus little more than 0.5% during years of opening-month declines. Bonds enjoyed three-fold support from "flight"-driven demand responding to unsettling policy pronouncements, the friendly outcome to the Fed's mid-week policy announcement and from Friday's jobs report lowering inflation expectations. Commodity prices failed to capitalize on an accelerated dollar decline in holding steady on the week, caught in a stalemate between higher oil and precious metals prices versus declines in most industrial metals and grains. The dollar was, in fact, the week's most visible casualty, breaking from the pack on subdued interest rates at home and doubts over future overseas stimulus in an accelerated decline reversing most of its powerful, post-election gain.
January 27, 2017 — Market Comment (PDF/New Window)
January 27, 2017 — Market Comment (PDF/New Window) January 27, 2017 — Market Comment
Two-faced markets. S&P 500 stocks broke through their tight trading range with a record high at mid-week, then settled back on mixed earnings and headline economic reports plus early fall-out from not-so-neighborly policy pronouncements on Mexican trade. Support from fourth-quarter earnings announcements faded with slowing year-ago growth to 5.7% for the 159 S&P 500 companies reporting through early Friday, based on a UBS tally. That's about a percentage point below a Thomson Reuters consensus forecast, on a modest, sub-3% gain in revenues that signaled little progress toward more satisfactory, top-line driven earnings growth. Administration policy pronouncements were even more potent in lifting stocks early with talk of stepped-up infrastructure spending, then undercutting gains with unsettling trade-related comments later in the week. A choppy, more highly charged market is contributing to above-average S&P 500 returns dispersion typically supporting active over passive (or indexed) performance, a point just now appearing in Goldman Sachs functional indexes showing a bottoming ratio of high- vs. low hedge-fund concentration stocks in the latest week and an elevated ratio of stocks with high vs. low mutual-fund weightings since November.
January 20, 2017 — Market Comment (PDF/New Window)
January 20, 2017 — Market Comment (PDF/New Window) January 20, 2017 — Market Comment
Still a glass-half-full market. Muted optimism in the stock market greeted the Friday inauguration of the new president, nudging the S&P 500 back near its record high after see-sawing much of the holiday-shortened week. Range-bound trading was the result of a tug-of-war between support from higher oil prices and encouraging economic reports vs. Yellen's "hawkish" policy speeches and apprehension over incoming administration policies, underscored by Trump's disappointing press conference early in the week. Investors could take some comfort in the benchmark's a broad, but shallow decline, across the eight of 11 sectors, but just 65 of 143 industry groups suggesting a lack of conviction in an easily swayed market. More encouraging were early fourth-quarter earnings reports, showing better-than-expected growth from 54 of the 500 companies reporting through Friday. Revenues were up 7.2% on revenue growth of less than 3.5% implying improved "pricing power" sufficient to lift margins.
January 13, 2017 — Market Comment (PDF/New Window)
January 13, 2017 — Market Comment (PDF/New Window) January 13, 2017 — Market Comment
Paradigm lost…paradigm found? A running battle over the "great rotation" from bonds to stocks was on display during the year's first full week of trading, with the issue still in doubt at week's end. A shift toward bonds underway since the latter part of December, on a winding down of post-election euphoria over economic stimulus, abruptly reversed with Friday's batch of upbeat economic data. The stock market's bounce back from a disappointing Trump press conference, raising fresh doubts over thoroughgoing fiscal stimulus, was not enough to reverse slippage by the benchmark on the week. However, it was a reminder of more fundamental support beyond policy expectations for a "friendly" backdrop to the fourth-quarter reporting season just now getting underway. A simple ratio of risk assets to "safe-haven" investments fell on the stock market's full-week setback plus solid gains in gold and the Japanese yen, but continued to hover near its June 2007 high.
January 6, 2017 — Market Comment (PDF/New Window)
January 6, 2017 — Market Comment (PDF/New Window) January 6, 2017 — Market Comment
It's show time! Early hesitation by the S&P 500 gave way to an end-of-week lift-off to a fresh record high, rekindling a stalled rally during the late-December holiday period and lifting a basket of stocks and other "risk" assets to an October 2007 high against a group of "safe-haven" investments. What had the potential of becoming an enduring role reversal between struggling stocks and rallying bonds fizzled amid more upbeat economic data, fortifying prospects for stronger economic growth and higher interest rates favoring stocks and weighing on bonds. The stock market's strong start to 2017 contrasted with its return to "risk-off" trading a year ago, under pressure from China's renewed financial turbulence and fresh doubts about the U.S. growth recovery that kept S&P 500 volatility considerably higher then but returns dispersion at just a fraction of its current, seven-month high.
December 30, 2016 — Market Comment (PDF/New Window)
December 30, 2016 — Market Comment (PDF/New Window) December 30, 2016 — Market Comment
Trading places. Stocks and bonds traded places during the last two weeks of 2016, the final leg of what had been a bumpy year for both markets. A retreat from a record, mid-month high by the S&P 500 ended with the benchmark at a 3.5-week low as the market closed out the year. Bonds continued to track stocks in a mirror-image rally during the period, sending the yield on the benchmark 10-year Treasury note from a September 2014 high of nearly 2.6% at mid-month to a three-week low of less than 2.45%. However, gains weren't enough to counter earlier declines in an up-and-down year, wiping out the benchmark 10-year Treasury note's peak return of more than 9.5% in early July by the end of the year. The stock market's end-of-year setback, by contrast, still left the S&P 500 with a monthly gain respectable enough to support a fourth annual double-digit return in the last five years.
December 16, 2016 — Market Comment (PDF/New Window)
December 16, 2016 — Market Comment (PDF/New Window) December 16, 2016 — Market Comment
Collision course? S&P 500 stocks see-sawed lower from yet another record high on the Fed's "hawkish," mid-week policy announcement and a Sino-U.S. incident in the South China Sea, overshadowing earlier support from an OPEC-inspired production accord, encouraging news on Italy's hard-pressed banking sector and from the European Central Bank's "friendly" policy announcement the week before. The "glass-half-full" spin to the S&P 500's latest decline is its resilience to the "spike" in interest rates—preceding, but supercharged by Trump's unexpected election victory—leaving the index less than 0.75% below its record high at the end of the week. Mixed economic data provided cover in the latest week for at least a temporary shift toward "defensive" health care plus yield-oriented utilities, telecomm services, and consumer staples from financials and economically sensitive materials, industrials along with "big-ticket" consumer goods industries. The story for highly charged sectors was much the same elsewhere, capped by lagging small caps and most emerging markets. Weakening exchange rates allowed developed-country markets to buck the U.S. sell-off on improved export competitiveness, though gains for U.S. investors continued to be largely offset by currency-related losses from that same dollar strength.
December 9, 2016 — Market Comment (PDF/New Window)
December 9, 2016 — Market Comment (PDF/New Window) December 9, 2016 — Market Comment
Home-stretched? Stocks rallied at the start of the week and never looked back in hitting successive highs beginning Wednesday, on a muted reaction to Italy's constitutional “no” vote, a new producer accord lifting oil prices, encouraging economic reports and on a positive “spin” to the European Central Bank's (ECB) latest policy decision on “quantitative easing” (QE). All this reinforced a more supportive post-election backdrop on the strength of expected tax cuts, spending increases and a regulatory rollback. A rebound to an eight-month high in sector returns dispersion (or disparity) across the S&P 500 provided more fertile ground for “active” investors parsing the market for stand-out companies or themes deviating from indexes, already taking a first step with relatively strong returns earlier this year toward restoring investor confidence in their ability to out-perform “passive” (index-based) investing.
November 4, 2016 — Market Comment (PDF/New Window)
November 4, 2016 — Market Comment (PDF/New Window) November 4, 2016 — Market Comment
Pre-game jitters. Election-year uncertainties came home to roost this past week, stoked by an FBI-induced tightening of the presidential campaign heightening uncertainties over the post-election investment environment. An encouraging third-quarter earnings recovery was too modest and cautious to support broad market sentiment, as were the latest economic data. Political turbulence had a predictable effect on broad asset classes, overriding "technical" and "fundamental" drivers in touching off the worst decline by "risk" vs. "safe-haven" assets since mid-February and reversing a 2.5-month run streak to mid-October in which our "risk" portfolio out-performed the safe-haven group by nearly 6%. Gold and Swiss francs has led the most recent safe-haven charge at the expense of emerging-market and U.S. stocks, plus oil-centered declines in commodity prices.
October 28, 2016 — Market Comment (PDF/New Window)
October 28, 2016 — Market Comment (PDF/New Window) October 28, 2016 — Market Comment
Good company. Friday's news of an eleventh hour re-opening of the "Clinton files" by the FBI was the coup de grace for stocks and a source of relief for bonds in a difficult week that left stocks with first loss since February and a third straight setback for the benchmark U.S. Aggregate Investment-Grade Taxable Bond Index. Mixed third-quarter earnings reports diluted the reporting season's market impact, countering, as well, the usual market lift from a record week of takeover activity. Still, modest earnings growth by the 290 S&P 500 companies reporting through Friday was a welcome relief from the modest decline expected on the eve of the reporting season, hopefully ending a five-quarter drought in earnings growth when all the results are in.
October 21, 2016 — Market Comment (PDF/New Window)
October 21, 2016 — Market Comment (PDF/New Window) October 21, 2016 — Market Comment
Point counterpoint. Stocks rallied for the first week in three, supported, at times, by cash-heavy investors contributing to a seemingly modest gain made impressive by the market's ability to navigate past an array of uncertainties. Counterpoints checked concerns in enough instances to suppress already low stock and bond volatility. The World Bank's market-"friendly" oil-price outlook and reported U.S. inventory declines tempered worries over OPEC's production accord, at one point, for example, while increased takeover activity and better-than-expected third-quarter earnings countered guarded outlook comments by highly visible companies. Emerging election clarity here tempered uneasiness over the U.K.'s "Brexit" debate, while foreign demand for U.S. Treasury securities, responding to a "dovish" spin to Thursday's policy meeting of the European Central Bank (ECB), helped reverse an earlier rise in U.S. long-term rates triggered by heightened inflation concerns. Overseas demand for U.S. securities, supported by looming Fed-ECB policy divergence, lifted the dollar to a February high, good news for trading partners' export-led growth, but ultimately less so for commodity-oriented, dollar indebted emerging markets. Dollar returns on U.S. overseas investments and multinationals' foreign income already are being hurt, sending "mega" cap stocks down against smaller, more U.S.-oriented companies in the latest week.
October 14, 2016 — Market Comment (PDF/New Window)
October 14, 2016 — Market Comment (PDF/New Window) October 14, 2016 — Market Comment
Strange bedfellows, contradictions and a fed curveball. Stocks failed to overcome a wall of worry in retreating a second straight week to a one-month low, pressured by fresh global uncertainties, a mixed start to third-quarter earnings reports and by worries over fresh signs of adequate economic growth supporting a less "friendly" Fed policy after the elections. An October setback in fairly calm trading has bucked the month's usual above-average returns in volatile conditions. The stock market's latest setback was part of broad-based asset declines, leaving a "risk" portfolio at a high for the year against a basket of safe-haven investments. Widening returns dispersion across S&P 500 sectors bucked still-converging performance across broader asset classes, an unhealthy by-product of "risk-on/ risk-off" trading. Economic data continue to affect stocks and other asset groups more through their effect on interest rates and market valuations than through their more direct impact on economic growth and corporate profits. Earnings prospects still are a question mark early in the reporting season, as investors await signs of relief from narrowing profit margins, weak revenue gains, and the drag from both on earnings.
October 7, 2016 — Market Comment (PDF/New Window)
October 7, 2016 — Market Comment (PDF/New Window) October 7, 2016 — Market Comment
Another run at central bank "normalization." Rising interest rates shaped asset-market performance last week, driven by a looming policy tilt at global central banks undercutting a "liquidity"-driven rally much of this year. Upbeat economic data propelled U.S. longer-term interest rates to a post-"Brexit" high—a near "all clear" for a December rate hike sinking a "rich," interest-vulnerable stock market in a sell-off led, within the S&P 500, by its yield-oriented sectors. The one-two punch of higher interest rates and a firmer dollar sent gold prices to a four-month low. And interest-rate sensitivity trumped exposure to a strengthening U.S. economy in triggering a leading-edge decline by Russell 2000 small caps, denting only slightly a still-impressive, double-digit gain on the year. "Risk" wasn't a four-letter word throughout the market. Financial services' solid gain rested on a prospective lift to profitability from higher rates and a widening spread between asset yields and funding costs. A still-orderly decline in U.S. stocks kept the "VIX" index of volatility below its high for the week and well short of its long-term average. And "risky" emerging-market stocks were a surprising winner, bucking the decline here with local-currency and dollar-denominated gains in extending a rally built on earlier rate declines.
September 23, 2016 — Market Comment (PDF/New Window)
September 23, 2016 — Market Comment (PDF/New Window) September 23, 2016 — Market Comment
Rescued by another central-bank "put?" A reach for yield in a "liquidity"-driven rally was back in play last week, supported by central banks' market-"friendly" decisions countering questionable earnings and other "fundamentals" weighing on the market. The shift to "risk-on" trading following Wednesday policy announcements by the Federal Reserve and the Bank of Japan produced the biggest one-week gain in a basket of highly charged assets since late June, led by emerging-market stocks and bonds plus commodities. Safe-haven assets matched that gain, paced by gold, Swiss francs, the yen and, to a lesser extent, German government bonds. Interest-rate relief was common to all strong-performing sectors, underscored in the stock market by the leadership of yield-oriented stocks in overcoming a Friday setback on profit-taking encouraged by lower oil prices and disappointing company news. The newly detached real estate sector led the way in a broad and reasonably deep rally on the week across all 11 S&P 500 sectors and 101 of its 143 industry groups, propelled to the top of the week's rankings by an apparent rotation among under-weighted investors reinforcing lower bond yields.
September 16, 2016 — Market Comment (PDF/New Window)
September 16, 2016 — Market Comment (PDF/New Window) September 16, 2016 — Market Comment
Punch drunk. Equities staggered through the week like a punch-drunk fighter, meandering higher in marking time ahead of the Fed's key policy announcement Wednesday. Lower oil prices, company news, tightening presidential-election polls plus bottom-fishing and profit-taking, all shaped performance against a backdrop of reduced confidence in central-bank support for risk assets through aggressive stimulus. Chances for a Fed rate hike at the upcoming FOMC faded with the latest batch of disappointing economic data, focusing attention on the first post-election policy meeting in mid-December as the best opportunity for a rate "hike" to counter worsening distortions in the financial market. Also at issue have been actions by foreign central banks—first by the Bank of Japan just hours before the Fed's Wednesday decision—frustrated enough with the costs versus benefits of aggressive stimulus to temper or subordinate policy to fiscal stimulus in a way that undercuts foreign demand for U.S. securities by boosting overseas interest rates. The one-two punch from a less sanguine policy outlook here and abroad already has taken its toll on long-term rates, reversing their post-"Brexit" rally in a week in which the 10-year Treasury yield temporarily breeched 1.7% for the first time since Britain's June poll. "Rich" stock valuations—an estimated 16.8 times forward earnings for S&P 500 stocks versus a long-term, 14.6 multiple—are keeping investors on high alert for further interest-rate increases, even from these historically low levels.
September 9, 2016 — Market Comment (PDF/New Window)
September 9, 2016 — Market Comment (PDF/New Window) September 9, 2016 — Market Comment
What central bankers giveth… Central-bank actions supporting stocks at near-record highs faded late in the week, sending the benchmark S&P 500 to a two-month low in "VIX" market volatility at a late-June high but still below its long-term average. Fresh talk of a September rate increase by one former "dove" and speculation of more to come in a Monday speech proved too much for a market already grumbling over the non-announcement by the European Central Bank (ECB) at its Thursday policy meeting. ECB inaction on a rate cut, and/or modifications to "quantitative easing" (QE) added to disappointment over a similar decision by the Bank of Japan. That, combined with the Fed's recent tough talk, reinforced the market's less sanguine view of central-bank support for the asset markets, striking at the heart of, what had been, a "liquidity"-driven rally through mid-summer. "Rich" valuations were left out to dry by the back-up in Treasury yields to a post-"Brexit" high, lowering the S&P 500's price-earnings (P/E) multiple to 16.7 times projected earnings at week's end—still above average and vulnerable to more bad news on interest rates, earnings projections or to other market-related developments.
September 2, 2016 — Market Comment (PDF/New Window)
September 2, 2016 — Market Comment (PDF/New Window) September 2, 2016 — Market Comment
Threading the needle. The stock market was lifted to its first weekly rise in four on a positive spin to Friday's so-so jobs report for August, seemingly consistent with adequate economic and earnings growth but not strong enough to trigger an early rate increase by the Fed. The Fed funds futures market opted for that view in lowering slightly the probability of a September FOMC rate increase to less than one in three from a 60% chance at the December policy meeting. Market confusion on outlook uncertainties ahead of the long holiday weekend were suggested both by fairly narrow, shallow gains on the week, across just seven of 10 S&P 500 sectors and 93 of 143 industry groups, and by mixed rankings between “defensive,” yield-oriented and economically sensitive sectors. However, sector returns dispersion at a July 2015 low, in calm, thin trading, signaled macro conditions continued to prevail over company “fundamentals” in “risk-on/risk off” trading.
August 26, 2016 — Market Comment (PDF/New Window)
August 26, 2016 — Market Comment (PDF/New Window) August 26, 2016 — Market Comment
Dogged days... Policy apprehension trumped higher oil prices and firmer economic data in sending stocks lower much of the week. Janet Yellen's Jackson Hole speech did what it was designed to do—build on earlier remarks by Fed officials in nudging expectations toward an early rate hike. "Dovish" comments on gradual rate increases were old news, and talk of non-traditional policy tools to jump-start longer-term growth was tomorrow's story. Resonating with the market was her view that labor-market and other data strengthened the case for an early interest-rate hike, shifting the debate from "if" to "when." To some, the speech put the burden of proof on a policy "pause" beyond the September 21 Federal Open Market Committee (FOMC). The Fed funds futures market filled in the blanks left by Yellen's open-ended timeline by more squarely targeting the mid-December FOMC as ground zero for a move, for now, with much likely riding on the August jobs report, out Friday, for a go/ no-go decision on next month's meeting. The political also could encourage an early Fed move, data permitting. Parachuting at its November 2 meeting into the gun lap of the presidential campaign, absent compelling economic justification, could be problematic enough for a Fed already under intense political pressure effectively to stretch its inter-meeting gap to mid-December.
August 5, 2016 — Market Comment (PDF/New Window)
August 5, 2016 — Market Comment (PDF/New Window) August 5, 2016 — Market Comment
Toggling higher. Stocks were launched to a record high Friday, supported by another solid jobs report rekindling optimism over second-half growth strong enough to support a revenue-driven earnings recovery preferred by investors to the yield-driven rally inflating valuations much of the year. Growth prospects eclipsed interest rates in shaping end-of-week performance, judging from the tilt toward riskier assets and the market's non-response to changed Fed funds futures expectations of a second rate hike to next March from an earlier November 2017. Economic support to stocks allowed them to shrug off the rise in Treasury yields, much as they usually do in the early stages of an interest-rate "up cycle." Still, the backup in the benchmark 10-year Treasury yield to nearly 1.6% from 1.45% a week ago combined with an increase in the S&P 500's forward price-earnings (P/E) multiple to a new 12.5-year high in leaving stocks overvalued about 6.5% against bonds by our estimate.
July 29, 2016 — Market Comment (PDF/New Window)
July 29, 2016 — Market Comment (PDF/New Window) July 29, 2016 — Market Comment
Parting company? "Smoking guns" were in short supply last week, as investors struggling with mixed earnings reports, economic data, and central-bank policy announcements opted to limit their rotation from "risk" to better-performing "safe-haven" assets. Second-quarter earnings have been running ahead of a lowered bar as the reporting season winds down, but second-half guidance has been mixed enough to leave doubts about the strength of the second-half recovery. The market opted for a positive spin to the Federal Open Market Committee (FOMC) communique in sending interest rates lower, despite the Fed's cautiously upbeat comments seemingly laying the groundwork for a second rate increase sometime later this year or in early 2017. And a weak headline gross domestic product (GDP) number for the second quarter touched off a strong bond rally by investors ignoring underlying strengths, propelling a yield-driven rise by the S&P 500 back near its record July 22 high and with its best monthly return since March.
July 22, 2016 — Market Comment (PDF/New Window)
July 22, 2016 — Market Comment (PDF/New Window) July 22, 2016 — Market Comment
Sobering up? S&P 500 stocks capped a four-week rally with multiple highs in the latest week, on reasonably upbeat economic data and an encouraging start to second-quarter earnings reports, out-weighing periodic interest-rate increases, keyed to reduced post”-Brexit” “flight” capital, and a less “friendly” backdrop for bonds. Further gains by the market against a backdrop of so-so earnings came with a cost—literally—as the S&P 500's price-earnings (P/E) ratio climbed to a new 12.5-year high, based on projected earnings. Firmer yields much of the week lifted the dollar which, in turn, helped send commodity prices to a two-month low.
July 15, 2016 — Market Comment (PDF/New Window)
July 15, 2016 — Market Comment (PDF/New Window) July 15, 2016 — Market Comment
Stampede! Double-barrel support from upbeat economic data, ample market “liquidity” and encouraging earnings announcements early in the reporting season propelled stocks to a third straight weekly gain—including four record highs in as many trading days. Higher interest rates accompanying another in a series of strong data reports finally took their toll Friday in a market retreat. Tempering any sense of rally fatigue from that decline, plus fairly shallow support on the week from just 97 of 143 S&P 500 industry groups, were leading edge gains in cyclically sensitive materials producers and industrials amid fresh signs of economic strength. Joining “cyclicals” out front were highly charged, U.S.-sensitive small caps. Higher interest rates did affect S&P 500 sector performance, adding to financial-services support from generally encouraging profits releases while sending previously high flying, yield-oriented S&P 500 consumer staples and utilities to the bottom of the week's performance rankings.
July 8, 2016 — Market Comment (PDF/New Window)
July 8, 2016 — Market Comment (PDF/New Window) July 8, 2016 — Market Comment
A something-for-everyone-rally. Investors seemingly had it both ways Friday in propelling S&P 500 stocks to a high for the year and within a whisker of their May 2015 closing record. June's solid employment report, atop upbeat data just ahead of the release, eased concern over yet another in a series of growth slowdowns. That, plus ongoing confidence in central-bank market support since the “Brexit” dust-up reinforced calm emerging in the asset markets, allowing the so-called VIX “fear gauge” of market volatility to fall to a three-month low by the end of the week. U.S. economic reports, lowering the bar for an early rate move by the Fed, are being countered by overseas market conditions still unsettled enough to keep policy on hold in the foreseeable future. In fact, the probability of a second rate increase in the Fed funds futures market, though up from its reading just before the employment release, still is well below 50% through the September 2017 FOMC meeting. Second-half rate-change probabilities in the Fed funds futures market will depend on how the balance of those two forces plays out. The sanguine policy outlook combined with ongoing yield- and “flight”-driven foreign demand to drive the benchmark 10-year Treasury to a record close Friday of little more than 1.35%.
July 1, 2016 — Market Comment (PDF/New Window)
July 1, 2016 — Market Comment (PDF/New Window) July 1, 2016 — Market Comment
A round tripper. The stock market's rally in the latest week, nearly as stunning as the Brexit-related sell-off that preceded it, provided interesting insights to the “shock” itself and to investors' reaction to it. The near “round tripper” for stocks and other highly charged investments lifted a simple risk-asset composite past a comparable “safe-haven” index for the first time since late May. “Haven” assets were carried higher, too, however, by lingering uncertainties over “Brexit” negotiations between Britain and the European Union (EU) and by prospects for more accommodative central-bank policies supporting riskier investments, in a rally understated by central-bank intervention against the Swiss franc and, perhaps, the Japanese yen to maintain export competitiveness. By contrast, gold's interest-induced rise to the leading edge of the safe-haven rally left it at a 2.5-year high Friday.
June 17, 2016 — Market Comment (PDF/New Window)
June 17, 2016 — Market Comment (PDF/New Window) June 17, 2016 — Market Comment
Risky business. It was a “risk-off” week for asset markets laboring under Brexit-related uncertainties plus nagging doubts over the global economic outlook and central banks' ability to shape it. Complacency over Thursday's U.K. referendum on European Union (EU) membership was upended by the tilt toward the “leave” camp. The high-stakes vote stems not just from Britain's future relations with the rest of Europe, but also from London's future as a global financial center, the cohesiveness of the United Kingdom and even the future role of the euro, the Euro-zone and the larger European Union as unifying forces in what still is the world's largest economic bloc. Adding to investor worries—and to “safe haven” demand—have been ambivalent comments on the economic outlook at the past week's FOMC meeting, their lowered interest-rate projections and professed uncertainty over the timing of a second rate increase. All that translated to a futures market probability of a second rate increase well short of 50% through early 2017, a marked change from the 75% chance for a December 2016 FOMC move in late May.
June 10, 2016 — Market Comment (PDF/New Window)
June 10, 2016 — Market Comment (PDF/New Window) June 10, 2016 — Market Comment
A two-act play. A changing interplay between interest rates and the dollar sent riskier investments higher, then lower in two distinct phases on the week. Act I featured declines in both interest rates and the dollar reacting to a more sober economic outlook, lifting commodity prices and sending the S&P 500 to a 10-month high led by energy and materials producers. Further interest-rate declines in Act II were driven by foreign yield- and “flight”-driven demand reacting to European Central Bank (ECB) corporate-bond purchases, increasingly negative interest rates abroad plus lowered risk tolerance ahead of potentially market-moving central-bank meetings, a decision on Chinese mainland stocks in MSCI benchmark indexes and the U.K.'s June 23 referendum on membership in the European Union. An influx of foreign funds lifted the dollar, triggering lower commodity prices and U.S. yields, and a rotation of stock-market leadership from energy and materials to yield-oriented telecomm services, utilities, and consumer staples.
June 3, 2016 — Market Comment (PDF/New Window)
June 3, 2016 — Market Comment (PDF/New Window) June 3, 2016 — Market Comment
Dodging a June swoon? Friday's impressive resilience to a disappointing jobs report left stocks down only modestly from the previous day's high for the year and virtually unchanged on the week. The data's unexpected weakness, extending beyond May employment to the month's purchasing managers' survey of dominant non-manufacturing, raised fresh doubts about the outlook for growth and Fed policy as the economy headed toward the second half of the year. That sparked a "round tripper" by the Fed funds futures market in effectively pushing back the timing of a second rate increase from July to December.
May 27, 2016 — Market Comment (PDF/New Window)
May 27, 2016 — Market Comment (PDF/New Window) May 27, 2016 — Market Comment
What Fed? Stocks posted their best showing since early March in lifting the benchmark S&P 500 to within a whisker of their late-April high in a remarkable display of resilience to a more "hawkish" outlook for Fed policy. That may change as volume normalizes after unusually light, pre-holiday trading and investors add a less sanguine interest-rate outlook to "rich" valuations and still-uncertain economic and earnings growth prospects. For now, the rally has been supported by rising oil prices, still a global-economic bellwether, and, in the view of investors, by enough economic strength to absorb looming rate increases by the Federal Reserve.
May 6, 2016 — Market Comment (PDF/New Window)
May 6, 2016 — Market Comment (PDF/New Window) May 6, 2016 — Market Comment
Sell in May? A strong finish by stocks, on a positive "spin" to a mixed April jobs report, wasn't enough to prevent a second weekly decline in the benchmark S&P 500 and the first slippage since early April in a composite index of stocks and other risk assets. Weighing on the stock market during its early-week decline were concerns ranging from disappointing first-quarter earnings reports and lackluster economic data here and in China to an oil-price rally showing signs of fatigue and an uncertain outlook for monetary policy here and abroad. "Rich" valuations were a persistent concern, too: even with back-to-back declines, the S&P 500 ended the week more than 16.5 times projected earnings over the next two years, a July 2015 high, and about 14% above its long-term norm. And Friday's lackluster employment report for April contained enough warm spots to sustain investor anxiety over at least one prospective rate increase by the Fed this year, judging from the rise in the policy-sensitive yield on the two-year Treasury note after the report, even as a June FOMC policy change seemingly was taken off the table.
April 15, 2016 — Market Comment (PDF/New Window)
April 15, 2016 — Market Comment (PDF/New Window) April 15, 2016 — Market Comment
Built to last? Stocks powered out of a Monday setback then largely held their ground at a four-month high on encouraging global-economic and oil-market news, plus favorable economic reports from China. Added support came from a rise in oil prices to levels not seen since late last year, first, on hopes for a market-"friendly" outcome to Sunday's production-freeze talks among key oil-producing countries, then, more tangibly, from signs of a production pullback by U.S. shale and other high-cost producers. The impact of positive earnings surprises was on display, too, lifting hard-pressed financial services to a leading-edge role in the week's solid rally.
March 25, 2016 — Market Comment (PDF/New Window)
March 25, 2016 — Market Comment (PDF/New Window) March 25, 2016 — Market Comment
A curveball from the Fed. The stock market's first weekly setback in six almost seemed inevitable after the powerful rally since mid-February, triggered in part by less "dovish" comments from Fed officials lifting interest rates and the dollar enough to aggravate declines in commodity prices already laboring under excess supply. Stocks again took their cue from lower oil prices, viewed as a barometer of global economic activity, and from position-squaring ahead of the long holiday weekend. All things considered, however, the market held up well amid a series of body blows from the Brussels terrorist attack, oil's setback and a more cautious view of the Fed that left the S&P 500 up more than 11.5% from its February 11 low and (just barely) in the black on the year. Losses in the latest period were fairly narrow, but deep, across just seven of 10 sectors but 112 of 143 industry groups. Rotation back to "defensive" health care, utilities and telecom services probably was due more to profit taking and caution ahead of the long Easter weekend than to a more guarded view of the economic outlook.
January 2016 — Market Comment (PDF/New Window)
January 2016 — Market Comment (PDF/New Window) January 2016 — Market Comment
Reviewing the “known unknowns” for 2016. It was as tough a year for forecasters as it was for the stock market. A much-delayed start to the Fed's interest-rate “normalization” finally landed on our doorstep in mid-December, creating a new set of uncertainties for 2016. Slumping oil prices from resilient shale output and weak global growth, led by China, left investors bracing in the coming year for the inevitable fall-out from an unusually long and deep energy-price decline. And a related “dog” that didn't “bark”— a boost to consumer spending from cheaper oil's “tax cut”—is raising concern about deep-seated weakness in this critical growth engine at the start of 2016.
March 18, 2016 — Market Comment (PDF/New Window)
March 18, 2016 — Market Comment (PDF/New Window) March 18, 2016 — Market Comment
A “round tripper.” “Risk on” still was the name of the game in the asset markets last week, reinforced by a surprisingly “dovish” policy statement at the mid-week FOMC meeting. Surprised investors, in a less-than-“show-me” mood, took their cue from the Fed rather than economic “fundamentals” in propelling the stock market's rally through a fifth straight week on a policy-induced decline in Treasury yields to a multi-week low. The S&P 500 returned to its end-2015 level, an impressive “round tripper” capped by a powerful, 12.3% return from a February 11 bottom. An added dimension to the round-tripper moniker came from an investor tilt back to past central-bank success in inflating asset values from earlier “fatigue” over their inability to jump-start lagging economies. Investors celebrating at least a temporary break from the central-bank “divergence” theme casting a cloud over international financial stability, under the weight of global financial strains earlier this year, lowered the probability of a June rate increase to less than 39% Friday from nearly 54% just prior to the FOMC announcement. Alignment of Fed policy with those of other central banks is part of—and a trigger for—reduced “deflationary” pressure on the global financial market, including dollar depreciation, higher commodity prices, narrowing credit-quality spreads, and a rise in the monetary base (the Fed's raw material for money creation).
March 11, 2016 — Market Comment (PDF/New Window)
March 11, 2016 — Market Comment (PDF/New Window) March 11, 2016 — Market Comment
Back on track? More than a few surprises capped a week that ended with the stock market's powerful rally, sending the S&P 500 to an early-January high. The market shrugged off a rise in interest rates, to a two-month high on a less sanguine inflation outlook, in sustaining its rise through a fourth week, much like the dollar in responding more to the euro's surprising resilience in moving lower. An unexpectedly aggressive stimulus package by the European Central Bank (ECB) was the big attention-getter late in the period, but credit for the rally also goes to improvement in three of four concerns sinking risk assets early this year. First, oil prices—still a bellwether of global growth and "disinflation"—have extended their recovery from an early-February low on an International Energy Agency (IEA) report that the worst of the market's price declines are behind it. Second, China's latest stimulus package successfully has taken the economy off the front pages, at least for now. And U.S. recession concerns have faded with the latest batch of economic data. Still at large: the effect of the Fed's looming rate hikes on the economy, still-fragile stocks and other risk assets.
February 26, 2016 — Market Comment (PDF/New Window)
February 26, 2016 — Market Comment (PDF/New Window) February 26, 2016 — Market Comment
Hello "Risk On?"…Stocks signaled an early tilt from a global- to a more data-driven market in extending their rally for a second week in thin but calmer trading. One indication: the market's ability to rally through periodically worrisome reports from China, the oil sector, and through uncertainties tied to Britain's looming "Brexit" vote. Another: a good response by stocks to upbeat data late in the week, signaling a first-quarter growth recovery from the modest pace late last year. The rally stalled at the session's end amid fresh signs of higher inflation accompanying encouraging activity data, increasing the risk of early interest-rate increases rippling across asset markets keyed toward "disinflation" and subdued yields. In fact, the Fed funds futures market ended the week priced for a second rate hike by the Fed at its December FOMC meeting, the first time since early February that investors expected another such move this year. Rising stock prices have lifted the S&P 500's forward price-earnings (P/E) multiple to an early-January high, leaving benchmark stocks increasingly vulnerable to an interest-rate backup, disappointing earnings or other adverse "shock."
February 19, 2016 — Market Comment (PDF/New Window)
February 19, 2016 — Market Comment (PDF/New Window) February 19, 2016 — Market Comment
What Goes Up…Propelling the stock market's best weekly performance this year was a temporary unwinding of oil, China and Fed-policy concerns, with a helping hand from improved U.S. economic data and "short-covering" of bets on further market weakness. Short-lived support succumbed to fresh concerns over an oil glut, on news of a further inventory build and skepticism over a proposed output freeze by Russia and Saudi Arabia. A third straight decline in quarterly profits during the final three months of the year also weighed on a market no longer satisfied with positive surprises from lowered expectations. The 3.8% earnings decline for the 431 S&P 500 companies reporting through Friday included a 75% energy-sector slump overshadowing double-digit increases in telecommunication services and "big-ticket" consumer goods.
February 12, 2016 — Market Comment (PDF/New Window)
February 12, 2016 — Market Comment (PDF/New Window) February 12, 2016 — Market Comment
Jolted By A Sub-Zero Financial Market. From malaise to near-capitulation and back, again, left asset markets dazed and confused ahead of a gratifyingly long Presidents' Day weekend. An abrupt swing from "risk-off" to "risk-on" trading late in the week wasn't enough to prevent a second straight decline in the S&P 500, leaving it with a year-to-date decline of 8¾%. Even steeper declines overseas left international stocks down 15%, based on the local-currency "EAFE" benchmark, and losses by Russell 2000 small caps and the tech-laden NASDAQ of 14¼% and 13¼%, respectively. "Safe-haven" Treasurys and gold earned their keep, by contrast, the latter free of strengthening dollar and rising U.S. interest-rate restraints in notching up a sixth straight weekly gain and a cumulative 17% increase on the year. The 5¾% year-to-date return by the benchmark 10-year Treasury note also cushioned the S&P 500's loss in a balanced portfolio.
February 5, 2016 — Market Comment (PDF/New Window)
February 5, 2016 — Market Comment (PDF/New Window) February 5, 2016 — Market Comment
That sinking feeling. What a difference a week makes! Hope from a powerful, end-of-January rally gave way to despair Friday on nagging concern over the economy, the oil market and the outlook for Fed policy. The S&P 500's month-to-date loss of just over 3.5% in February's first five trading days was a cruel beginning for investors expecting relief from January's near-5% setback. The latest decline was deep enough to leave the benchmark index at a two-week low, but shallow and narrow enough—across just 7 of 10 S&P 500 sectors and 102 of 143 industry groups—to hint at the tug-of-war between intra-week sell-offs and rallies preventing even more sizable declines.
January 29, 2016 — Market Comment (PDF/New Window)
January 29, 2016 — Market Comment (PDF/New Window) January 29, 2016 — Market Comment
Out Like A Lion. The powerful, two-day rally late last week was built on a trifecta of market-"friendly" surprises. First, there was the Fed's "half-a-loaf" communique at the end of Wednesday's FOMC policy meeting, leaving the door open for postponement of a second rate increase scheduled for March if global market conditions, investors' lowered inflation expectations and/ or the economy warrant it. Next came talk of an OPEC-Russia meeting on production cuts to shore up an ailing oil market serving as a barometer of market sentiment toward the global economy. The "closer" was the Bank of Japan's (BOJ's) announcement Friday of a limited negative interest-rate strategy, aimed at jump-starting Japan's ailing economy through a weaker yen but, more broadly, shoring up confidence, with the European Central Bank's earlier hints of additional stimulus to come, in central-bank support for yet another "liquidity"-driven rally capable of inflating market valuations.
January 22, 2016 — Market Comment (PDF/New Window)
January 22, 2016 — Market Comment (PDF/New Window) January 22, 2016 — Market Comment
Central banks to the rescue? Stocks stepped away from the great January sell-off late in the week with impressive back-to-back gains in a broad, deep rally reinforced by "short covering" from a seemingly oversold position. Catalysts for the rebound were higher energy prices—now a barometer of global economic conditions—plus talk of added central-bank stimulus in the eurozone and in Japan, a delayed start to U.K. rate increases and, perhaps, push-back of a second rate hike by the Federal Reserve beyond the scheduled March FOMC. The S&P 500's healthy, 1.4% gain on the week—besting U.S. small caps, international developed-country and emerging-markets stocks—still left the benchmark with a 6.7% month-to-date loss that pointed up the market's poor a start to 2016. The influential role of "risk-on, risk-off " trading throughout the month has been apparent from below-average dispersion and above-average correlation across the benchmark's 10 sectors.
January 15, 2016 — Market Comment (PDF/New Window)
January 15, 2016 — Market Comment (PDF/New Window) January 15, 2016 — Market Comment
All join in. Stocks ratcheted lower for their third straight weekly loss, leaving the S&P 500 at a 5½-month low and on the threshold of another 10% "correction" from its late December peak. The latest slump's silver lining is a price-earnings (P/E) multiple at a 15-month low of less than 15 times forward earnings, within shouting distance of its long-term, 14.7 times norm, and back to a discount to bond valuations. The market has followed the ebb and flow of oil prices and its interplay with developments in China's stock and foreign-exchange markets, as turbulence in both highlight uncertainty and concern over the effect on a fragile global economy. Adding to end-of-week pressure were disappointing earnings reports and mixed economic data hinting at a spillover of manufacturing weakness to more resilient consumer- and housing-led activity.
January 8, 2016 — Market Comment (PDF/New Window)
January 8, 2016 — Market Comment (PDF/New Window) January 8, 2016 — Market Comment
Falling stars. Stocks began the year the way they finished 2015—with a thud. The S&P 500's record, near-6% decline for a first week of trading was particularly painful, just ahead of the start to fourth-quarter earnings reports and because of early-January's role as a bellwether for full-year returns. Since 1960, the S&P 500 has gone on to full-year losses nearly half the time the year opened with a monthly loss. The latest setback moved the benchmark closer to a second "correction"--a 10% decline from its most recent peak--in a year. An already uncertain transition from aggressive monetary stimulus to a more "fundamentals"-based market helps explain the heightened sensitivity to China, aggravated by fresh geo-political uncertainties in the Mid-East and from North Korea.
January 1, 2016 — Market Comment (PDF/New Window)
January 1, 2016 — Market Comment (PDF/New Window) January 1, 2016 — Market Comment
Year-end blues. Christmas without Santa was more fact than fantasy in a holiday season missing the usual late-year rally leaving the S&P 500 with its first loss since 2011. A bumpy, final week of trading was emblematic of a year in which a record, springtime high was followed three months later by the market's first "correction" in four years, saved only by the S&P 500's dividend yield of just over 2%. Behind the market's bumpy ride to nowhere was a tug-of-war between satisfactory economic and job growth at home vs. worries over the Fed's looming interest-rate hikes and a China-led growth slowdown abroad. Still, skeptics could be excused for shrugging off 2015's lackluster return—its worst since the 2008 "meltdown" year— considering the impressive, three-year gains averaging more than 15% annually in 2012-14.
December 18, 2015 — Market Comment (PDF/New Window)
December 18, 2015 — Market Comment (PDF/New Window) December 18, 2015 — Market Comment
Short shrift. The Federal Reserve's start to a policy sea-change turned out to be more of a brief market diversion than a momentous, game-changing event in the latest week. The post-FOMC rally was propelled by the positive spin to the Fed's expressed confidence in the economy's strength and its emphasis on a "gradualist" approach toward future rate increases. However, it quickly gave way to investor concern over fall-out from dollar strength on commodity prices and the implications for "deflation" weighing on a still-fragile global economy. The late-week slide left the S&P 500 at a two-week low and down nearly 3.5% for the month, threatening to turn the usual year-end "Santa rally" on its head. Despite the decline, the indexes' price-earnings (P/E) multiple remained moderately "rich" and vulnerable, at 15.8 times forward earnings vs. a 14.7 times long-term average.
December 11, 2015 — Market Comment (PDF/New Window)
December 11, 2015 — Market Comment (PDF/New Window) December 11, 2015 — Market Comment
A not-so-wonderful time of the year. Investor anxiety trumped holiday cheer in a "risk-off" rotation from stocks and commodities to the safety of Treasury securities in the latest week. The S&P 500 ended a three-week rally with its steepest decline since August, leaving the benchmark at a two-month low in trading volatile enough to lift the VIX "fear gauge" decisively above its long-term average for the first time since September. Friendly "seasonals," normally supporting the best monthly returns of the year, have been brushed aside in sending the S&P 500 to its worst December decline in a decade with more than half the period still ahead.
December 4, 2015 — Market Comment (PDF/New Window)
December 4, 2015 — Market Comment (PDF/New Window) December 4, 2015 — Market Comment
A confidence game. Investors threaded the needle with a jobs report deemed strong enough to support a growth cycle bracing for the Fed's first rate increase in nearly a decade, but still consistent with a gradual approach to future rate changes supporting bonds and stock valuations. Stocks extended their largely sideways move a second straight week in "choppy" trading whipsawed by economic data, central-bank policy developments and by slumping oil prices capped by an OPEC decision to eliminate all pretense of production quotas in what has become a producer free-for-all. A moderate rise in Treasury yields wasn't enough to prevent a dollar decline on the week, centered against a euro lifted by disappoint over the latest stimulus from the European Central Bank (or ECB). And dollar slippage helped support a rise in commodity prices, overcoming a slumping oil market awash in supply.
November 6, 2015 — Market Comment (PDF/New Window)
November 6, 2015 — Market Comment (PDF/New Window) November 6, 2015 — Market Comment
All "fundamentalists" now? Earnings season was quickly supplanted by Fed watching this week on "hawkish" policy comments by Fed Chair Yellen punctuated by a strong October jobs report Friday. Late-period damage to stocks was limited enough to propel the S&P 500 to a sixth straight weekly gain, leaving it just 1.7% short of its late-May high in a fairly narrow rally across just six of 10 S&P 500 sectors and 72 of 143 industry groups. Investors facing diminished "liquidity" tailwinds from less aggressive Fed stimulus were able to fall back on a string of more favorable economic data supporting economic "fundamentals"—capped by solid employment news preceded by last month's equally impressive auto sales and purchasing-manager activity reports for dominant non-manufacturing—in cushioning the market from an abrupt change in policy expectations. Third-quarter earnings also provided back-handed support with a 1% decline from the 349 companies reporting through Friday, despite steep declines in energy and to a lesser extent, other materials, but on a worrisome, 4% drop in revenues.
October 31, 2015 — Market Comment (PDF/New Window)
October 31, 2015 — Market Comment (PDF/New Window) October 31, 2015 — Market Comment
Assets ascendant. Nearly lost in the debate over the timing of the Fed's first interest-rate hike has been the risk of heightened asset-price volatility and its threat to economic and financial stability—a surprising oversight after housing's universally accepted role as a catalyst for the deep recession seven years ago. Nearly a decade of aggressive monetary stimulus since then has been a double-edge sword in supporting housing and other interest-sensitive sectors while distorting asset values, investing and borrowing decisions at home and abroad. Asset-price increases driving wealth and spending have been inflated by an investor rotation from less attractive Treasury and other "quality" securities to stocks, non-investment-grade bonds and other highly charged, often opaque assets in a worrisome replay of the excesses ultimately contributing to the financial "meltdown" in 2008-09. Low yields also have inflated liabilities, spurred by ample, low-cost financing from yield-hungry investors to highly charged sectors at home and abroad, leaving overseas borrowers exposed to the same currency risk that sank Asian economies during the financial crisis in the late 1990s.
October 23, 2015 — Market Comment (PDF/New Window)
October 23, 2015 — Market Comment (PDF/New Window) October 23, 2015 — Market Comment
All Join In. The S&P 500 fired on multiple cylinders in muscling its way to a two-month high Friday, reversing most of the summer's losses and leaving the benchmark little more than 2½% below its late-May peak in a month better known for historic market crashes. Concerns weighing on the market during the summer melted away during the period in lifting the benchmark to a fourth straight weekly gain and already to its best monthly return—nearly 8.2%--in four years. Global economic worries were soothed by China's further monetary easing, signs that the country's growth slowdown is bottoming, and by talk of more aggressive stimulus by the European Central Bank (ECB) at Thursday's policy meeting. Third-quarter earnings reports came on strong as companies moved into the heart of the reporting season, with better-than-expected earnings at 173 S&P 500 companies up more than 6%, according to Bloomberg Financial News estimates, vs. a projected decline of 7% in their poll on the eve of the releases. Market-"friendly" news was all the more potent against a benign Fed-policy backdrop, on expectations of yet another delay in a first interest-rate hike by the Federal Reserve until 2016.
October 9, 2015 — Market Comment (PDF/New Window)
October 9, 2015 — Market Comment (PDF/New Window) October 9, 2015 — Market Comment
Shorted Out. A tentative rally at the start of the month blossomed into the strongest weekly gain this year during the latest period, sending stocks to a seven-week high in a broad, deep rally across all ten S&P 500 sectors and 121 of the 132 reporting industry groups. "Short-covering" by "bearish" hedge funds and other investors may have exaggerated the latest tilt toward "risk-on" trading, a view seemingly corroborated by sizable inflows to money funds and by demand at last week's three-month Treasury-bill auction strong enough to drive the auction rate to zero for the first time on record. However, rates there also have been pressured lower by a pullback in supply, as the Treasury positions for a threatened debt-ceiling-related disruption to financing next month.
October 2, 2015 — Market Comment (PDF/New Window)
October 2, 2015 — Market Comment (PDF/New Window) October 2, 2015 — Market Comment
All's well that ends well. The financial market began its quarterly "bell lap" to a forgettable year, greeted by a potentially game-changing employment report Friday. September's disappointing jobs data signaled a possible hand-off from emerging markets to the U.S. economy—until now, a key source of market support--as the main worry. International conditions have been winning the battle with the Fed for the hearts and minds of investors. Fall-out from China's growth slowdown on commodity and other emerging-market trading partners has been at center stage in recent months, with a helping hand from Fed waffling on a first interest-rate hike. The threat to the U.S. from emerging-market financial strains has been indirect, less through the economy than though a more pervasive, but oblique impact on risk tolerance and credit availability in its financial market.
September 25, 2015 — Market Comment (PDF/New Window)
September 25, 2015 — Market Comment (PDF/New Window) September 25, 2015 — Market Comment
Post-FOMC jitters. Unsettling company and industry news compounded ongoing policy and global uncertainties in propelling a second straight weekly sell-off that left the S&P 500 at a three-week low. Bonds abruptly reversed course after trading higher much of the week on lower interest rates and on flight-related support from abroad, sunk by fresh warnings of a 2015 rate increase by Fed Chair Yellen in a speech Thursday. The dollar had it both ways, benefiting first from "safe-haven" demand and then from higher yields Friday. Commodities were the big surprise, moving higher despite dollar strength, on oil prices lifted by signs of cuts in U.S. shale-producing areas.
September 11, 2015 - Market Comment (PDF/New Window)
September 11, 2015 - Market Comment (PDF/New Window) September 11, 2015 - Market Comment
A bumpy ride to…? Asset markets moved with the ebb and flow of events here and overseas in choppy trading ahead of the Fed's all-important policy announcement next Thursday, partially re-tracing moves the previous week. The broad, deep rally in S&P 500 stocks extended across nine of 10 sectors and 111 of 132 industry groups, supported, at times, by talk of fresh stimulus in China and in Japan in the absence of market-moving news here. Sector rankings within the benchmark tilted toward economically-sensitive stocks, paced by tech, in a cautious vote of confidence in the growth recovery. Energy was the sole loser on the week, followed by weak gains in interest-sensitive and "defensive" consumer staples, utilities, and telecomm services. The combination of above-average volatility, narrowing sector returns dispersion and rising correlations across the 10 S&P 500 sectors signaled a return to "risk on/ risk off" trading more challenging to "active" investors.
September 4, 2015 - Market Comment (PDF/New Window)
September 4, 2015 - Market Comment (PDF/New Window) Spetember 4, 2015 - Market Comment
A triple threat. A weeklong struggle between "bulls" and "bears" ended with investors looking for cover ahead of the long holiday period by rotating into Treasury securities from stocks and other riskier assets. The shift benefitted the dollar as a conduit for foreign capital moving here, reacting to talk of more aggressive "quantitative easing" (QE) announced by the European Central Bank (ECB) depressing yields there. Friday's setback left the S&P 500 down 3.4% on the week in a broad-based decline across all 10 sectors and 133 of its constituent industry groups. Economically sensitive consumer "cyclicals" and industrials did unexpectedly well, however, at the expense of bottom-ranked, "defensive" utilities and health care. Surprisingly resilient commodities were down less than 1% on the week, despite dollar strength and global uncertainties, amid energy-led gains extending to industrial metals. Gold lost ground despite lower interest rates, however, on heightened fears of "deflation," or declining prices, out-weighing uncertainties not severe enough to spark a wholesale move into "safe haven" assets.
August 28, 2015 - Market Comment (PDF/New Window)
August 28, 2015 - Market Comment (PDF/New Window) August 28, 2015 - Market Comment
"Bull," "bear," or something in between? The asset markets' recovery from an early-week free-fall left as many questions as answers ahead of a not-so-restful weekend for investors. Was the sell-off all about China and emerging-market fallout, or did it reflect more deep-seated concern over trouble spots here and in developed-country markets abroad? Can the asset markets' rebound be sustained and a rally rekindled, or was it just a whistle stop on the way to a bear market? What are the implications of the latest turmoil for the Federal Reserve's monetary policy and for the U.S. growth cycle? How will markets react in the immediate aftermath of the turmoil, and what is the best strategy in dealing with it?
August 21, 2015 - Market Comment (PDF/New Window)
August 21, 2015 - Market Comment (PDF/New Window) August 21, 2015 - Market Comment
Washing ashore. "Risk-off" trading ignited by overseas jitters abruptly moved beyond front-line emerging markets to the U.S., sending the S&P 500 down to a seven-month low, Friday, in its steepest weekly decline since November 2011. China's slowing growth, earlier stock market correction, and surprise currency devaluation have been the catalyst for an Asian tsunami-smothering commodity market and sending emerging market growth prospects, stocks, and bonds into a tailspin U.S. investors taking few prisoners in the latest week left all 10 S&P 500 sectors and 128 of the benchmark's 132 constituent industry groups in the "red," rotating within the market to the relative safety of "defensive," yield-oriented utilities, telecommunications services, and consumer staples.
August 7, 2015 - Market Comment (PDF/New Window)
August 7, 2015 - Market Comment (PDF/New Window) August 7, 2015 - Market Comment
Bracing for the "big one." Stocks may have begun to back away from a highly supportive financial backdrop, slumping Friday on a July employment report strong enough to bring a first rate increase by the Federal Reserve in over a decade more clearly into view. The retreat followed declines much of the week on disappointing earnings reports and periodic soft spots in the economic data, leaving the S&P 500 at a near two-week low. Signs of a sea change in the investment environment come nearly eight years to the day after funding problems keyed to U.S. subprime mortgages held by at a midsized German bank first raised the specter of systemic problems culminating in a financial "meltdown" just over a year later.
July 31, 2015 - Market Comment (PDF/New Window)
July 31, 2015 - Market Comment (PDF/New Window) July 31, 2015 - Market Comment
A glass half full. Stocks bent, but didn't break in the latest week, overcoming mixed earnings reports, Fed policy concerns, fresh worries over China's stock market, and slumping commodity prices to reverse much of the previous period's decline. The S&P 500 finished the month less than 1% off its late May high in a broad, fairly deep final week rally across nine of the benchmark's 10 sectors and 101 of the 132 constituent industry groups. The group's second-quarter profits, though uneven, have been running well ahead of expectations, with a 2.7% gain among the 341 companies reporting through Thursday well ahead of projected declines and including impressive, 6.2% growth excluding hard-pressed energy fi rms. However, a 1.1% decline in revenues (or a still modest, 1.3% non-energy rise) pointed up the difficulty in rotating from cost-driven to more satisfying revenue-driven gains in profits.
July 17, 2015 - Market Comment (PDF/New Window)
July 17, 2015 - Market Comment (PDF/New Window) July 17, 2015 - Market Comment
Back in the game. Powering the stock market's relief rally last week, lifting the S&P 500 to within shouting distance of its late May high and the tech-oriented NASDAQ to successive records, were signs of a turning point (for now) in Greece's debt crisis, a two-day reversal of China's stock market freefall and early second-quarter earnings reports besting expectations. Investors refocusing on economic and earnings "fundamentals" driving asset markets were met by a near-7½% cap-weighted earnings gain among the 61 S&P 500 companies reporting through Friday, upping the odds for yet another quarterly outperformance against an expected 4%-4½% decline in the final tally. Lagging revenues continue to be the Achilles heel of company results, preventing top-line revenue growth reinforced by above average operating leverage.
July 10, 2015 - Market Comment (PDF/New Window)
July 10, 2015 - Market Comment (PDF/New Window) July 10, 2015 - Market Comment
A "round tripper." Week-to-week end points tell little of the turbulence cutting across asset markets in the latest period, gyrating with the ebb and flow of twin crises in Greece and China seasoned with an extended shutdown of the New York Stock Exchange and Greek-like debt problems closer to home in Puerto Rico. In the end, stocks and most other asset classes came full circle on hopeful signs of a Greek debt deal and a two-day rally in Chinese stocks, leaving them back near their starting point a week ago and raising hopes for a shift from market "noise" to "fundamentals" in the weeks ahead. At the very least, the latest developments were a reminder of "international's" growing influence on economic, financial market and investment performance here, via changes in the dollar, interest rates, and other asset market performance accentuated by "flight" capital.
July 3, 2015 - Market Comment (PDF/New Window)
July 3, 2015 - Market Comment (PDF/New Window) July 3, 2015 - Market Comment
Waiting For The Next "Big Thing." Asset markets undulated with U.S. data reports and developments in Greece during a holiday-shortened week, ultimately leaving stock prices and bond yields lower and commodity prices higher. From despair to hope and back again essentially summarized Greece's debt situation ahead of a Sunday referendum effectively determining the country's place in the Euro-zone. U.S. economic data had much the same effect, first lifting stocks and depressing bonds on signs of economic strength then flip-flopping with a mildly disappointing jobs report ahead of the long holiday weekend. Higher-quality bonds out-performed BBB-rated issues during the market's rally last week, though yield premiums to comparable Treasury issues still remain greater there compared to their 12-month average than they do for lower-quality, investment-grade securities.
June 26, 2015 - Market Comment (PDF/New Window)
June 26, 2015 - Market Comment (PDF/New Window) June 26, 2015 - Market Comment
Greece still the word… Hopes for a Greek bailout gave way to apprehension at midweek, as countervailing rejections by both sides left the market in limbo at the end of the week. Investor fatigue with endless false starts and stops translated to complacency and a muted response to uncertainties, leaving the S&P 500 less than 1½% from its May 21 peak and down little more than 0.1% on the month. Interest and economically sensitive sectors were scattered across the performance rankings in a less than convincing decline across seven of 10 sectors and just 98 of 132 industry groups.
June 19, 2015 - Market Comment (PDF/New Window)
June 19, 2015 - Market Comment (PDF/New Window) June 19, 2015 - Market Comment
Don't fight the Fed. Greece battled Fed policy for the hearts and minds of investors most of the week, winning a few skirmishes but not the war. A surprisingly "dovish" FOMC meeting lifted the NASDAQ to a new record and the S&P 500 to within shouting distance of its late May high, before settling back ahead of a make-or-break emergency eurozone summit Monday to resolve the Greek debt issue. Fed-induced, "risk on" activity combined with thin trading to leave returns dispersion across S&P 500 sectors at its lowest in over 25 years, a headwind for "active" manager efforts to outperform their benchmarks.
June 5, 2015 - Market Comment (PDF/New Window)
June 5, 2015 - Market Comment (PDF/New Window) June 5, 2015 - Market Comment
Not so distant drums. Stocks seesawed much of the week, influenced more by the ebb and flow of increasingly proximate Greek debt talks and other developments affecting European interest rates than by a heavy slate of top-tier U.S. data, before breaking lower on fresh pessimism over Greece and a negative "spin" to a strong U.S. jobs report for May. Resulting optimism on the economic and earnings growth outlook was outweighed by worries over a once-distant interest-rate "hike" by the Fed. A more pleasant surprise was a "richly" valued stock market's resilience to the jump in U.S. long-term rates, which climbed to a seven-month high on rising European yields and the bond "unfriendly" jobs report. Back-to-back weekly declines left the benchmark S&P 500 within just 1½% of its May 21 record high and up 2.7% on the year. Commodities joined stocks and bonds in moving lower on the week, as grain price increases were trumped by declines in energy, precious, and industrial metals hit by a trifecta of weak market conditions, a cut to the IMF's global growth forecast, and, late in the week, by a rebounding dollar.
May 29, 2015 - Market Comment (PDF/New Window)
May 29, 2015 - Market Comment (PDF/New Window) May 29, 2015 - Market Comment
Buying in May and not going away. Add "rich" valuations to a lack of market moving economic data, and you're left with light, stop-go trading by investors looking for direction. Subdued activity frustrated "active" managers contending with low market volatility and sector returns dispersion at a seven-month low. Choppy trading hasn't prompted investors to follow the old adage of selling in May and going away, despite a seasonal bias limiting average monthly returns in the May-October period to less than a third the November-April average of 1.4% in the last 55 years. For one thing, market drift had an upward bend last month, lifting the S&P 500 to four record highs. The S&P 500 overcame Greek-related uncertainties, a steep, late-month sell-off in China's Shanghai market, and "soft" economic data raising fresh uncertainties over the outlook for the economy and Fed policy in returning 1.3%, a three-month high, and closing the period within 1% of its May 22 peak. Second, disappointing economic news much of the month lessened the chances of "rich" valuations being tested early by the Fed's interest-rate "normalization." And third, support from dividend payouts, stock buy backs, and heightened takeover activity are providing the needed bridge of support until the economy regains its footing.
May 22, 2015 - Market Comment (PDF/New Window)
May 22, 2015 - Market Comment (PDF/New Window) May 22, 2015 - Market Comment
Unappreciated, unloved. Investors alternated between upbeat company news and Fed policy optimism in propelling stocks to record highs, marking another leg of a stop-go, unappreciated rally. Outlook uncertainties kept enough investors on the sidelines to leave trading volume at its lightest since December and "bullish" respondents to one survey at a two-year low of just 25%. Takeover news lifted the S&P 500 to a record high at the start of the week, and again Thursday on a positive "spin" to disappointing economic data favoring ongoing Fed stimulus. Less friendly reports on April housing starts and consumer prices were countered, respectively, by "dovish" minutes to the April FOMC, Wednesday, and by Fed Chair Yellen's ambivalent, but reasonably soothing speech on the economic and policy outlook Friday. Even higher bond yields couldn't sidetrack the rally in stocks, lifted by a fresh shift of funds to Europe and by a less than comfortable increase in the April CPI that left the end of week yield on the benchmark, 10-year Treasury note at 2.1%. The dollar followed rising U.S. interest rates to a three-week high, creating enough of a headwind to undo an equally extended rally in commodity prices.
May 8, 2015 - Market Comment (PDF/New Window)
May 8, 2015 - Market Comment (PDF/New Window) May 8, 2015 - Market Comment
On Again? S&P 500 stocks rebounded to within a whisker of their April 24 high Friday on a Fed-"friendly" jobs report--another leg of an on-again, off-again rally, leaving the benchmark largely unchanged in a week marked by often-disappointing economic data, "unfriendly" comments by Fed Chairwoman Yellen, and a rethink of the U.S. market by foreign investors. "Choppy" trading left gains narrow and fairly shallow, extending across just 6 of 10 sectors and only 82 of the benchmark's 132 constituent industry groups. A mixed vote of confidence in the U.S. economy left economically sensitive sectors occupying only the middle rungs of the S&P 500's performance rankings. However, U.S.-sensitive small caps out-performed the benchmark, despite large-cap support from a weaker dollar. Relatively strong U.S.-investor returns on international stocks centered on translation gains from a weaker dollar than on modest local-currency returns. Emerging-market stocks lagged in local-currency and in dollar terms on an unusual combination of disappointing U.S. economic data and generally rising interest rates.
May 1, 2015 - Market Comment (PDF/New Window)
May 1, 2015 - Market Comment (PDF/New Window) May 1, 2015 - Market Comment
A Choppy Week In A Choppy Year. Asset markets were roiled on the week by shifting economic outlooks here and abroad, abruptly reversing "crowded" trades that had sent stocks, bonds and the dollar higher and commodity prices lower before the reversal. Hardly "flash-crash" related, abrupt market changes nonetheless had all the earmarks of strong involvement by hedge funds and other high-powered, institutions. More traditional investors seemingly were content to ride out the storm and await clarity on the economy and on Fed policy. As important as abrupt changes in market performance and outlook assumptions in the latest week was fresh evidence of more balanced integration between U.S. and overseas financial markets, allowing foreign investors not only to reinforce prevailing trends in the market here, but, at times, to dominate them.
April 28, 2015 - Market Comment (PDF/New Window)
April 28, 2015 - Market Comment (PDF/New Window) April 28, 2015 - What Can Go Right, and What Can Go Wrong in a Seemingly Benign Economic and Financial Market Outlook
What follows is a brief review of the more apparent risks to the outlook—positive and negative—that could alter our largely consensus forecast for the economy, interest rates, and asset market performance. The more visible of these tend to operate through such performance "levers" as economic growth, inflation, interest rates, the dollar, oil prices, and economic policy, in addition to geopolitical and other "shocks."
April 17, 2015 - Market Comment (PDF/New Window)
April 17, 2015 - Market Comment (PDF/New Window) April 17, 2015 - Market Comment
Hemmed in. S&P 500 stocks closed lower for the first week in three, ending the latest run at early March's record high on a one-two punch from generally disappointing activity data and fresh signs of higher inflation. Back-to-back increases in the CPI's "core," or underlying rate through March disrupted the "bad news is good news" link between a subpar growth recovery and prospects for an unexpectedly enduring, "liquidity"-driven rally, courtesy of the Federal Reserve. It also complicated the central bank's debate over the timing of a first interest-rate increase, still scheduled for later this year. Adding to the sell-off were worries over a Greek debt stalemate and its potential ramifications for Europe and the global financial market, China's crackdown on "shadow bank" equity financing fuelling the country's booming stock market, and a reminder of a challenging earnings backdrop from disappointing end-of-week reports.
April 10, 2015 - Market Comment (PDF/New Window)
April 10, 2015 - Market Comment (PDF/New Window) April 10, 2015 - Market Comment
Don't look back. Investors shrugged off a disappointing jobs report at the start of the week and rarely looked back, propelling the S&P 500 to less than a percent of its early March high. Investors could draw on several supports countering potential headwinds from looming first-quarter earnings declines, a rotation into overseas markets, plus signals from the March FOMC minutes and subsequent comments by Fed officials that a June rate "hike" still is on the table. "Friendlier" economic data in the latest week took the "sting" out of a disappointing jobs report. Second, fresh takeover news and a GE restructuring overshadowed Alcoa's disappointing earnings release marking the unofficial start of the first-quarter reporting season. And third, rising oil prices and encouraging news from Europe eased concern over energy-led "deflation" in a weakening global economy. Elsewhere, bonds and the dollar responded in a predictable way to more encouraging data during the week, lifting Treasury yields and rekindling a rally lifting the U.S. currency's trade-weighted rate to a three-week high. Dollar gains won a tug of war with improving market and macro conditions most noticeably affecting oil, in suppressing commodity prices on the week.
April 3, 2015 - Market Comment (PDF/New Window)
April 3, 2015 - Market Comment (PDF/New Window) April 3, 2015 - Market Comment
Saved by the bell. Stocks were lifted in thin, holiday-shortened trading by stepped-up takeover activity and by patches of blue in generally disappointing economic data, saved by the Good Friday holiday from a steep end of week slump on news of a disappointing jobs report for March. That left investors with a "wait ‘til your father gets home" moment, bracing for a long weekend ahead of, what likely will be, a punishing response to the latest economic data when trading resumes. A bond rally on Friday's employment surprise and other weak economic data sent Treasury yields to a two-month low before the market closed at midday, touching off a chain reaction weighing on the dollar and lifting gold and most other commodities.
March 20, 2015 - Market Comment (PDF/New Window)
March 20, 2015 - Market Comment (PDF/New Window) March 20, 2015 - Market Comment
Risky business. Instant gratification from last week's surprisingly "dovish" FOMC outcome is leaving investors increasingly exposed to an emerging asset "bubble" stoked by aggressive "liquidity" creation. A sub-2% yield on the benchmark 10-year Treasury note and an S&P 500 price/earnings (P/E) multiple at an 11-year high leave both "core" investments vulnerable to a setback from higher interest rates, disappointing economic and earnings growth or to another unanticipated "shock." Talk of a threat to financial market stability from an early shift away from aggressive stimulus—including a repeat of a 1930s-style market relapse— fails to acknowledge policy's central role in worsening imbalances leaving markets exposed in the first place.
March 13, 2015 - Market Comment (PDF/New Window)
March 13, 2015 - Market Comment (PDF/New Window) March 13, 2015 - Market Comment
Jostled! Unsettling moves in the dollar, U.S. interest rates, and oil prices contributed to a third straight weekly decline in a stock market already grappling with disappointing economic data, lowered earnings expectations, and a looming Fed policy meeting viewed as a potential first step toward a first rate increase in nine years. U.S. sensitive small caps sidestepped "rich" valuations and economic uncertainties in sustaining their lead over the S&P 500 throughout the week, providing a clearer snapshot of investors' upbeat sentiment than the narrowly based sell-off by an S&P 500 lacking a clear tilt toward economically sensitive versus defensive sectors. Overseas, lower interest rates, oil prices, and exchange rates propelling Europe's impressive local currency returns were translated into sizable dollar losses by a plummeting euro. Translation losses on emerging market stocks compounded local currency declines from a strengthening dollar's impact on commodity prices and, in some cases, on local interest rates, and from weak export markets in China and elsewhere.
March 6, 2015 - Market Comment (PDF/New Window)
March 6, 2015 - Market Comment (PDF/New Window) March 6, 2015 - Market Comment
Still a policy-driven market. Investors looked past economic data to their implications for Fed policy and market "liquidity" in sending stock and bond prices to their lowest levels since Christmas. Details of the February jobs report, though short of the headline numbers, were strong enough to change ultra-accommodative forward guidance in the communique to the March 16-17 FOMC meeting as a prelude to a first rate increase by the Fed in June from September.
February 27, 2015 - Market Comment (PDF/New Window)
February 27, 2015 - Market Comment (PDF/New Window) February 27, 2015 - Market Comment
From fear to "fundamentals." A fairly calm week for stocks and several other asset groups belied a further transition toward more "fundamentals"-based trading, keyed to growth, inflation, and interest rates carrying important implications for returns, performance dispersion (or variability), active versus passive management and market volatility. The main event in the latest week was Fed Chairwoman Yellen's "something-for-everyone" testimony to Senate and House finance committees, in which the central bank signaled a shift from an open-ended guarantee of aggressive stimulus to a policy keyed toward traditional economic "drivers" of monetary policy. Other market movers on the week were in line with the "fear-to-fundamentals" rotation, as oil- and Greece-related worries were filled by optimism over a turn from the "deflation" and gradual economic improvement in Europe.
February 20, 2015 - Market Comment (PDF/New Window)
February 20, 2015 - Market Comment (PDF/New Window) February 20, 2015 - Market Comment
Short view, long view. Investors opted for the shorter-term view in following the daily ups and downs of oil prices and Greek debt negotiations in a week rewarded Friday with enough progress on a new debt accord to send the S&P 500 to another record high. The benchmark's near-6% return since the end of January, if maintained, will be the best monthly gain in nearly 3½ years. Also shoring up market sentiment were surprisingly "dovish" minutes to the late- January FOMC meeting, adding to the drama ahead of Fed Chairwoman Yellen's two-day policy testimony before the Senate Banking and House Financial Services committees next Tuesday and Wednesday.
February 13, 2015 - Market Comment (PDF/New Window)
February 13, 2015 - Market Comment (PDF/New Window) February 13, 2015 - Market Comment
Trading places. Economic and geopolitical worries melted away in the latest week, stoking a "risk on" trade extending across broad asset markets and lifting the S&P 500 to a new high. Oil's ongoing price recovery was joined by news of better than expected eurozone economic growth late last year in shoring up confidence in the global economic outlook. Hopeful signs from the Greek debt renegotiation and a ceasefire in Ukraine allowed investors to exhale into a global market rally supported by proliferating central bank stimulus. Encouraging news out of Europe overshadowed another disappointing batch of U.S. economic data, however, questioning anew the strength and staying power of leading edge U.S. economic growth.
February 8, 2015 - Market Comment (PDF/New Window)
February 8, 2015 - Market Comment (PDF/New Window) February 8, 2015 - Market Comment
Risky business. The stock market's broad, deep, and powerful rally last week nearly wiped out its steep January decline, in another leg of a "risk on-risk off" cycle unsettling the asset markets periodically since the end of the recession nearly six years ago. Gold, the dollar, U.S. Treasury securities, and other instruments of "flight" capital suffered from the rotation, in favor of more highly charged, economically sensitive stocks, oil, industrial metals, and high-yield securities. S&P 500 tech and "cyclicals" led the indexes' "defensive" (less economically sensitive) sectors for a third straight week, with added confidence in the economic outlook signaled by back-to-back strength in U.S. sensitive small caps compared to more internationally exposed large-cap stocks. The rotation to riskier assets was less than wholehearted, however, as international stocks lagged the S&P 500 benchmark despite support for dollar-based returns in developed country markets from a weakening U.S. exchange rate.
January 30, 2015 - Market Comment (PDF/New Window)
January 30, 2015 - Market Comment (PDF/New Window) January 30, 2015 - Market Comment
Too high of a "wall." The market picked up where it left off in 2014 with a first back-to-back decline in the S&P 500 since 2012 and its worst setback since the opening month of last year in a "wall of worry" too high for investors to climb. "Risk off" trading also engulfed commodities, while sending bonds and the dollar still higher in a "flight to quality." Big moves in oil, the dollar, global interest rates, and other key performance "levers" stirred up uncertainties seemingly validated by disappointing economic and, at times, earnings reports. Investors also had to digest a bumpy start to negotiations between the new Greek government and its creditors, added to concerns, as did an uncertain outlook for Fed policy and for the eurozone economy ahead of freshly minted "quantitative easing" (QE) by the European Central Bank (ECB).
January 23, 2015 - Market Comment (PDF/New Window)
January 23, 2015 - Market Comment (PDF/New Window) January 23, 2015 - Market Comment
Pumped up. Stocks overcame Friday's retreat on profit taking, disappointing earnings reports, and caution ahead of potentially disruptive Greek elections Sunday to post their first weekly gain since Christmas. Propelling the market higher were prospects (and Thursday's reality) of unexpectedly aggressive "quantitative easing" (QE) by the European Central Bank (ECB) and emerging doubts over the timing of a first interest-rate "hike" by the Federal Reserve, in a broad and deep rally spread across nine of 10 S&P 500 sectors and 105 of 132 constituent industry groups. Top-tier performers read like a who's who of economically sensitive sectors in a sign of outlook optimism, paced by tech, industrials, and consumer "cyclicals," followed by hard-pressed energy and financial services stocks and, finally, the market's "defensive" sectors. Fourth-quarter earnings of S&P 500 companies have weighed in with support early in the reporting season, with 90 S&P 500 companies posting a slightly better than expected, 1.4% gain understated by a sizable decline in the financial services sector.
January 11, 2015 - Market Comment (PDF/New Window)
January 11, 2015 - Market Comment (PDF/New Window) January 11, 2015 - Market Comment
Spooked! Stocks struggled to regain ground lost through Tuesday, ultimately falling short on a negative "spin" to Friday's jobs report for December. Potentially double-barrel support to the market, from another solid job gain and Fed policy implications of an unexpected decline in wages, was trumped by worries over the implications of that setback for income and spending growth. In effect, this typically subordinate part of the jobs report struck at the heart of investor worries over global "deflation" and the risk of "spill over" to the U.S. Deflation fears—just a part of accumulating worries over global economic weakness, punctuated by the free-fall in oil and other commodity prices, worries over the implications of Greek political uncertainties for eurozone financial stability, plus doubts about the scope and efficacy of looming "quantitative easing" by the European Central Bank (ECB) "quantitative easing"—were too much for a market laboring under rich valuations, a threatened rate hike later this year by the Fed, and upcoming earnings reports for the fourth quarter.
January 4, 2015 - Market Comment (PDF/New Window)
January 4, 2015 - Market Comment (PDF/New Window) January 4, 2015 - Market Comment
Out like a lamb. Stocks retreated from another record high Monday on year-end position-squaring serious enough to leave the S&P 500 with its first monthly loss since September and the first setback, in what historically has been a seasonally strong month for the market, since 2007. The decline was an anti-climactic end to an impressive full year rally lifting the benchmark to a third straight double-digit return, buoyed by double-barrel support from strong economic and earnings growth plus a "liquidity" tailwind from the Fed's aggressive stimulus.
December 26, 2014 - Market Comment (PDF/New Window)
December 26, 2014 - Market Comment (PDF/New Window) December 26, 2014 - Market Comment
High road, low road. Asset markets went their separate ways in a holiday-shortened week, with much of the good news for stocks and the dollar sending bond and commodity prices lower. Three-fold support from economic optimism, a positive "spin" to the Fed's policy outlook, plus year-end "window-dressing" by lagging money managers propelled key stock indexes to successive highs. Gains broadened as they strengthened, lifting Russell 2000 small caps beyond their early-July record and the NASDAQ index to less than 5% from its March 2000 high.
December 14, 2014 - Market Comment (PDF/New Window)
December 14, 2014 - Market Comment (PDF/New Window) December 14, 2014 - Market Comment
The Grinch takes wall street. It wasn't supposed to be this way. High-flying stocks were riding a strong updraft little more than a week ago, hitting another all-time high in the opening week of the market's favorite month of the year and supported by signs of economic strength unmatched in this recovery. A spirit of compromise descending over Washington made unlikely another disruptive government shutdown this month over a budget impasse. Overseas, the European Central Bank (ECB) was laying the groundwork for even more stimulus which, if nothing else, would add to the tailwind for stocks and other asset prices.
November 28, 2014 - Market Comment (PDF/New Window)
November 28, 2014 - Market Comment (PDF/New Window) November 28, 2014 - Market Comment
Tug of war. Stocks were pulled in two directions at the end of the week by accelerated oil price declines triggered by the standoff over OPEC's production cuts. The S&P 500 was modestly lower in thin, post-holiday trading Friday, as the direct, adverse effect on energy stocks outweighed the more diluted lift to energy-intensive airlines, hotels, retailers, and other consumer "cyclicals" buoyed by the prospect of increased "discretionary" income. The decline was outweighed by earlier gains—impressive amid disappointing economic data earlier in a holiday-shortened week—extending the market's winning streak to a sixth week. The S&P 500's near-14% return this year leaves it on track for a third straight double-digit gain, achieved less than 10% of the time since 1926.
November 21, 2014 - Market Comment (PDF/New Window)
November 21, 2014 - Market Comment (PDF/New Window) November 21, 2014 - Market Comment
Fuel for the fire. Stocks were propelled to successive highs on the week by signs of broadening U.S. growth, still subdued inflation, and by fresh stimulus announced or suggested by foreign central banks, reinforcing the "liquidity tail wind" suppressing global interest rates and encouraging a rotation into riskier stocks and other assets. The market's seasonal "sweet spot" provided added support: average November-December returns since 1960 have been double the 12-month average and have had the lowest loss probability of any month of the year.
November 14, 2014 - Market Comment (PDF/New Window)
November 14, 2014 - Market Comment (PDF/New Window) November 14, 2014 - Market Comment
A "what have you done for me lately" market. Stocks settled into a holding pattern after hitting successive highs early in the week, losing the afterglow of solid third-quarter earnings reports and shrugging off satisfactory activity data plus subdued, Fed-"friendly" wage-price inflation. Investor uneasiness beneath a fourth straight weekly gain was evident in the narrow, shallow breadth of last week's rise, spread across just seven of 10 S&P 500 sectors and 71 of the bench-mark's 132 constituent industry groups, along with lagging returns by U.S. sensitive small caps for a second straight week. Sector performance within the S&P 500 did offer a more positive spin, with tech and a few economically sensitive groups clustered at the top of the rankings, behind top-performing, "defensive" telecommunications services. And despite investor caution, the benchmark's return through mid-month was on track to match October's healthy, near-2½% gain.
November 7, 2014 - Market Comment (PDF/New Window)
November 7, 2014 - Market Comment (PDF/New Window) November 7, 2014 - Market Comment
A nod toward stocks and the dollar. Stocks enjoyed a rare combination of record highs across multiple benchmarks in the latest week, propelled by more good news on third-quarter earnings, adequate economic growth, mid-term election gains by seemingly business-"friendly" Republicans, and by talk of even more aggressive stimulus from the European Central Bank (ECB). The rally's latest leg has left the benchmark S&P 500 with a near-12% gain on the year atop the 32% return in 2013, on track to add to the near-50% of instances since 1926 in which double-digit returns have followed years of 30%-plus gains. Propelling the rally in S&P 500 stocks were broad-based increases across eight of 10 sectors and 92 of the constituent 132 industry groups. Lingering caution over the outlook was apparent from muddled sector performance, intertwined between "defensive" and economically-sensitive market sectors. The lack of outlook conviction also was apparent in the lagging performance on the week by U.S. sensitive small caps versus the S&P 500. Small caps' sub-2% gain on the year still leaves the sector's price-earnings (P/E) valuation "rich" against its historic average and the S&P 500.
October 31, 2014 - Market Comment (PDF/New Window)
October 31, 2014 - Market Comment (PDF/New Window) October 31, 2014 - Market Comment
Over the top. Stocks powered to a record high on solid third-quarter earnings reports, economic-outlook optimism and on a fresh round of monetary stimulus by the Bank of Japan (BoJ), viewed as a counter to an increasingly fragile global economy. The latest leg of this remarkable rally left the benchmark S&P 500 up nearly 11% on the year, cut¬ting volatility to little more than half its mid-October peak by creating enough of a one-way bet with its momentum. "Mega" caps showed signs of stabilizing against the smaller-cap stocks within the benchmark, despite the well-publicized travails of several highly visible "blue chip" companies.
October 24, 2014 - Market Comment (PDF/New Window)
October 24, 2014 - Market Comment (PDF/New Window) October 24, 2014 - Market Comment
Back to basics. Asset markets settled down in the latest week, refocusing on economic growth, corporate earnings, inflation, and interest rates. Stock market volatility slipped back below its average after spiking to a 2½-year high the previous week, joined by slightly more subdued fluctuations in bonds and in the dollar. Stocks and bonds continue to enjoy an unusual combination of respectable growth and slowing inflation supporting an increasingly "friendly" interest-rate outlook, propelling stocks to a near three-week high and limiting an associated sell-off in bonds. Interest rates edged up enough to help end a two-week slide by the dollar, adding to pressure on commodity prices still suffering from weak demand and an overhang of supply. Still, asset markets are responding to the same backdrop of "disinflation" fostering the secular "bull" market in financial assets dating back to the early 1980s. One difference now is that declining interest rates supporting the stock and bond rally have morphed into more of a "liquidity"-driven engine, suppressing rock-bottom yields enough to encourage a rotation toward riskier assets.
October 17, 2014 - Market Comment (PDF/New Window)
October 17, 2014 - Market Comment (PDF/New Window) October 17, 2014 - Market Comment
A walk on the wild side. Stocks and other asset markets were whipsawed in the latest week by global economic pessimism and "deflation" fears abruptly giving way to more upbeat U.S. economic data, encouraging third-quarter earnings reports, and more "dovish" comments by Fed officials responding to weakening inflation. When the dust settled, stocks were down a fourth straight week, despite an impressive rally Friday, and the dollar suffered its first back-to-back decline since June. Treasury securities extended their rally a fifth week, and at least one commodity price index was back to a June 2010 low despite a second weekly increase in gold prices. The "VIX" index of stock market volatility finished the week at an eight-month high despite slippage from a 2014 peak, a hopeful sign for "active" investors still hemmed in by narrow returns dispersion across the S&P 500's 10 sectors.
October 10, 2014 - Market Comment (PDF/New Window)
October 10, 2014 - Market Comment (PDF/New Window) October 10, 2014 - Market Comment
Risk off. Worries over the U.S. impact of worsening global economic conditions sent S&P 500 stocks to a near-five-month low in their steepest dive since May 2012, part of a broader impact on asset markets through economic growth's effect on such "levers" as interest rates, the dollar, and, in part, energy prices. October is living up to its reputation as the year's most volatile month, lifting the "VIX" index of market volatility to its highest reading since the eve of the "fiscal cliff" nearly two years ago. The good news is a respectable 4.8% by the S&P 500 since the start of the year, all the more impressive atop 2013's 32+% surge. Less encouraging is the indexes' 5.1% decline from its mid-September peak, putting it more than halfway toward a rule-of-thumb "correction" of -10% encompassing 39 of its 132 constituent industry groups and the Russell 2000 small-cap benchmark.
October 3, 2014 - Market Comment (PDF/New Window)
October 3, 2014 - Market Comment (PDF/New Window) October 3, 2014 - Market Comment
All's well… Another weekly decline by stocks left the benchmark S&P 500 at a mid-August low, masking an encouraging end-of-week rebound on a mixed, but market "friendly" jobs report for September. For bonds, the news flow was more of a one-way street, supported much of the week by the same geopolitical worries (now engulfing Hong Kong), fresh signs of weakness in Europe and in China, plus disappointing U.S. data weighing on stocks. What's more, Friday's jobs report contained enough soft spots to mute the sell-off in bonds. Dollar "drivers"—including relatively attractive U.S. growth prospects and interest rates, along with ongoing "flight" capital, lifted the dollar to a new, 4½- year high against a group of major currencies. Market drivers continued to work in reverse for commodities, however, as the strengthening dollar and a worsening supply-demand balance in most markets triggered further declines in energy, precious, and industrial metals in sending key price indexes to a new, June 2012 low.
September 12, 2014 - Market Comment (PDF/New Window)
September 12, 2014 - Market Comment (PDF/New Window) September 12, 2014 - Market Comment
Tipping point? Good news for the economy was bad news for most asset classes in the latest week, perhaps signaling the beginning of the end to a six-year period of extraordinarily Fed stimulus. Worries over a less "dovish" tilt to the policy outlook at this week's FOMC meeting lifted the benchmark yield on 10-year Treasury notes above 2.6% for the first time since early July, cutting short a five-week rally in S&P 500 stocks.
September 8, 2014 - Market Comment (PDF/New Window)
September 8, 2014 - Market Comment (PDF/New Window) September 8, 2014 - Market Comment
Rough and tumble. Stocks closed at yet another high, ending a week marked by record intraday peaks, steadily lower finishes, and a "U"-turn reaction to Friday's disappointing jobs report for August. Mini-gyrations were driven by a flip-flop in the economic data and associated monetary policy expectations, periodic concern over Ukraine giving way to relief over reports of a cease fire, and a fear of heights by investors concerned over the market's continuing rally atop August's impressive gain. Policy expectations still trumped the economic outlook, judging from the stock market's declines on strong data and the rally on Friday's weak jobs report.
August 22, 2014 - Market Comment (PDF/New Window)
August 22, 2014 - Market Comment (PDF/New Window) August 22, 2014 - Market Comment
Above the clouds. A third straight weekly rally sent the S&P 500 to its twenty-eighth record high of the year, before succumbing at the end of the week to fresh Ukraine-related concerns and to less "dovish" policy guidance in Friday's Jackson Hole speech by Fed Chairwoman Yellen. Friday's setback didn't prevent the S&P 500 from posting its best weekly gain since mid-April, as encouraging economic data countered worries over an early rate hike kindled by the Yellen speech and by the midweek release of minutes to the late-July FOMC meeting. Thin summertime trading may have overstated the gain, but its powerful (4.25%) rise from an early August stumble was apparent both in market volatility's steady decline (as measured by the "VIX" index) and in the breadth of a rally extending across all but one of the ten S&P 500 sectors and 115 of its 132 constituent industry groups.
August 17, 2014 - Market Comment (PDF/New Window)
August 17, 2014 - Market Comment (PDF/New Window) August 17, 2014 - Market Comment
Heads I win… Who said you can't have it both ways? S&P 500 stocks were propelled to a two-week high by a broad, deep rally extending across nice of 10 S&P 500 sectors and 103 of 132 constituent industry groups, despite a Friday stumble on fresh concern over Ukraine. Investors opting for a "heads I win, tails you lose" strategy viewed disappointing economic reports as "friendly" to more extended Fed stimulus supporting a "liquidity"-driven rally fuelled the week before by signs of economic strength. Ample liquidity—and the prospect of more of it—hung like a wet blanket over market volatility, lifted by the latest geopolitical jolt at the end of the week to just two-thirds of its long-term average. No clearly defined ordering between the S&P 500's economically sensitive and "defensive" sector performance served as a tip-off to a market still looking for direction amid ongoing geopolitical worries and uncertain growth prospects.
August 8, 2014 - Market Comment (PDF/New Window)
August 8, 2014 - Market Comment (PDF/New Window) August 8, 2014 - Market Comment
War games. Stocks regrouped Friday after struggling most of the week on worsening geopolitical conditions and their effect on a still-fragile European economy, trumping encouraging economic and earnings reports in the U.S. Friday's mini-rally—the best single-day gain since March—left the S&P 500 up slightly on the week and with a respectable 5.8% on the year, despite a near-2¾% decline from its July 24 peak. Market disturbances lifted volatility (as measured by the VIX index) to a six-month high at one point during the week, though the measure remained well below its long-term average.
August 1, 2014 - Market Comment (PDF/New Window)
August 1, 2014 - Market Comment (PDF/New Window) August 1, 2014 - Market Comment
More than just a reset? Little things mean a lot, especially when they coincide. Geopolitical tensions, Argentina's latest default, and recurring problems at a Portuguese bank combined with a mildly disappointing jobs report and doubts about future monetary stimulus in triggering a fairly broad sell-off across asset groups. Still unclear is whether long awaited declines are just a whistle stop on the way to something more severe, or simply an overheated market's onetime adjustment of "rich" valuations to surprises of any kind. The dollar was among the few asset groups spared by the sell-off, propelled by economic data strong enough to kindle talk of a long-awaited rise in interest rates before suffering a first decline in over two weeks Friday on July's mildly disappointing employment numbers. Policy-sensitive, two-year Treasury notes were another, boosted by Friday's optimistic shift in Fed expectations outweighing earlier declines on central bank "tightening" fears. End-of-week gains by longer-dated Treasuries weren't as strong, leaving them with a loss paling next to harder hit parts of the market.
July 25, 2014 - Market Comment (PDF/New Window)
July 25, 2014 - Market Comment (PDF/New Window) July 25, 2014 - Market Comment
A "round tripper." Stocks failed to hold earlier gains at the end of the week, leaving the benchmark S&P 500 virtually back where it started after temporarily hitting yet another high the day before. Second-quarter earnings pretty much told the tale, sending stocks higher on upbeat reports cut short by Friday's disappointing news from two highly visible, consumer-driven firms on company-specific weaknesses. Investors could draw support ahead of another full earnings calendar in the coming week from the relatively high, 79% of the 229 S&P 500 companies reporting profits through Friday exceeding expectations, leaving growth on track for a mid- to, perhaps, an upper-single digit rate. An earnings-driven market shrugged off other potential "drivers," including ongoing tensions in Ukraine and in Gaza plus mixed economic data. The Fed nearly was as ambivalent as investors, combining market-"friendly" stimulus with warnings of an early, labor-induced rate hike that largely froze policy sensitive bond yields and weighed on other, riskier assets.
July 18, 2014 - Market Comment (PDF/New Window)
July 18, 2014 - Market Comment (PDF/New Window) July 18, 2014 - Market Comment
Unbowed. Asset markets showed impressive resilience on the week to a geopolitical one-two punch from news of a downed commercial airliner over eastern Ukraine and the Israeli incursion into Gaza. Stocks closed higher in a week that included its steepest one-day decline since April and brief "spikes" in VIX index volatility, plus "safe-haven" gold and the Japanese yen. Among the few telltale signs of the week's turbulence: a sub-2½% yield on the benchmark 10-year Treasury note, near its low on the year, and a decline in the German government's 10-year benchmark (the eurozone's safe-haven vehicle) to 1.16%.
July 11, 2014 - Market Comment (PDF/New Window)
July 11, 2014 - Market Comment (PDF/New Window) July 11, 2014 - Market Comment
Just when you thought it was safe… Summer complacency was interrupted briefly last week by signs of financial stress in Portugal, rekindling fears of 2011-style "contagion" across Europe and the global financial market, and triggering a "safe haven" bid for U.S. Treasury securities, the dollar, and gold. Investor reaction to the latest tremor was a reminder of still-fragile investor psychology and skittish markets here and abroad, vulnerable to distraction from U.S. second-quarter earnings, economic reports, and the outlook for U.S. monetary policy. The difference from two years ago is the financial back-stopping by the European Central Bank (ECB), effectively "ring-fencing" local problems before they become more of a systemic threat.
July 3, 2014 - Market Comment (PDF/New Window)
July 3, 2014 - Market Comment (PDF/New Window) July 3, 2014 - Market Comment
Parting company. Asset markets went their separate ways at the start of the second half, breaking from an unusually uniform rally late last month. Stocks were propelled to new highs, including a Dow "print" of more than 17,000, drawing on three-pronged support from economic data, takeover activity, and, most importantly, fresh encouragement from the Federal Reserve and from the European Central Bank (or ECB). Bonds moved lower on strengthening growth and less sanguine inflation expectations outweighing "dovish" central bank comments, leaving the yield on the bench¬mark 10-year Treasury note at a two-week high of 2.64%. Elsewhere in the bond market, fallout was limited in the broader muni sector from passage of a new debt-overhaul law by Puerto Rico and its ensuing credit downgrade, with investment-grade tax-exempts outperforming their taxable counterparts on the week. Bad news for bonds was good news for the dollar, whose trade-weighted rate climbed to a one-week high on the combination of upbeat economic news and higher U.S. interest rates. And in the commodity market, higher interest rates and a rising dollar combined with an easing of supply worries in energy and in agriculture to nudge prices lower, despite higher costs for industrial metals on improved prospects for the global economy.
June 27, 2014 - Market Comment (PDF/New Window)
June 27, 2014 - Market Comment (PDF/New Window) June 27, 2014 - Market Comment
Topping out. The stock market's rally showed signs of fatigue at mid-year, retreating from the previous week's record high in thin trading. Much of the weakness came from soft spots in the latest economic data, raising fresh doubts about the second-quarter growth recovery's strength and staying power. Stock and other asset market support increasingly is becoming a "liquidity" driven by-product of aggressive monetary stimulus. That much is clear from near uniform, first-half gains across the spectrum of conventional and "alternative" (or non-traditional) asset groups, paced by REITS and extending to both stocks and bonds less prone to in-tandem moves. Fighting in Iraq and other geopolitical hot spots has had a muted effect on market performance because of its limited impact, thus far, on the flow and cost of oil, while supportive takeover activity has been subordinate to the economic data flow and to Fed policy.
June 20, 2014 - Market Comment (PDF/New Window)
June 20, 2014 - Market Comment (PDF/New Window) June 20, 2014 - Market Comment
Don't fight the fed. Stocks never looked back last week in posting successive highs during a six-day winning streak unmatched since April. The rally is becoming increasingly Fed-centered in the wake of the chairwoman's "dovish" remarks after the latest FOMC meeting, with a helping hand from an encouraging—but still unspectacular—growth recovery, supportive buy-backs, double-digit dividend growth and, most recently, from stepped-up takeover activity. For now, at least, market strengths are steamrolling threats from Iraqi-related oil-price increases, inflation's more visible rise and equity valuations now at a nine-year high.
June 6, 2014 - Market Comment (PDF/New Window)
June 6, 2014 - Market Comment (PDF/New Window) June 6, 2014 - Market Comment
Riding the wave. Stocks surfed to record highs Wednesday through Friday after a brief pause early in the week, propelled by fresh central bank stimulus in Europe atop ample global "liquidity" and an improved tone to U.S. economic data. Market volatility responded to both by hitting a seven-year low. The rally was broad, deep, and unlike the previous week, aligned in a way signaling investor confidence in the economic outlook. Gains in the benchmark S&P 500 extended across nine of 10 sectors and 113 of the 132 industry groups, with industrials, consumer "cyclicals," and other economically sensitive sectors bunched at the top and "defensive" telecommunications services, consumer staples, and health care at the bottom of the week's performance rankings. Small caps also moved to the pole position after lagging the S&P 500 the previous week in another vote of confidence in the economy by investors.
May 30, 2014 - Market Comment (PDF/New Window)
May 30, 2014 - Market Comment (PDF/New Window) May 30, 2014 - Market Comment
Temperature's rising. Stocks extended their rally for a second, holiday-shortened week, propelling the S&P 500 to successive highs and to its best full-month return (2.35%) since February. Investors shrugged off mixed economic data in favor of a "dovish" Fed-policy outlook promising the kind of liquidity "tailwind" propelling the market last year. The past week's rally in stocks was broad and deep, extending across all 10 S&P 500 sectors and 119 of its 132 industry groups. Leadership was a bit muddled. Tech led the way, contributing to Russell 1000 Growth's lead over Value, but "defensive" utilities and consumer staples occupied two of the next three performance rankings. Economically sensitive Russell 2000 small caps lagged the S&P 500, in another sign of investor caution, even as they pushed the larger-cap S&P 500 benchmark further into record territory. Overseas, both the EAFE index of international, developed country stocks and the MSCI Emerging Market Index lagged the S&P 500 on the week, but not by enough to prevent both from outperforming the U.S. benchmark on the month.
May 23, 2014 - Market Comment (PDF/New Window)
May 23, 2014 - Market Comment (PDF/New Window) May 23, 2014 - Market Comment
The kindness of strangers. Stocks broke from their tight trading range of recent weeks, lifting the S&P 500 to a record high Friday on "dovish" minutes to the April FOMC and enough strength in a mixed batch of economic data to keep alive hopes for an adequate, second-half growth recovery. That same policy optimism fostered a "reach" for yield in the bond market largely steadying non-Treasury yield premiums to a rallying government sector. Added support to bonds came from relatively low yields abroad and from prospects for fresh stimulus by the European Central Bank at its early- June meeting.
May 19, 2014 - Market Comment (PDF/New Window)
May 19, 2014 - Market Comment (PDF/New Window) May 19, 2014 - Market Comment
A bumpy ride to nowhere for stocks... Stocks ended the week little changed in a largely data-driven market, initially lifting the benchmark S&P 500 and Dow Jones Industrials to record highs before pulling them lower on more mixed economic reports that raised fresh doubts about the strength and staying power of the economy's growth recovery. Unwinding of "long" positions encouraged by expectations of a strong post-winter "bounce" likely aggravated the mid-week sell-off. The market's split personality on the week was apparent both from its modest decline and from the narrow breadth and depth of the change, extending across just 62 of the S&P 500's 132 constituent industry groups. Performance rankings across the benchmark's 10 sectors, split evenly between gainers and losers, were interspersed between "defensive" and more economically sensitive sectors.
May 9, 2014 - Market Comment (PDF/New Window)
May 9, 2014 - Market Comment (PDF/New Window) May 9, 2014 - Market Comment
Churning. Stocks struggled through a week of moderate, choppy trading on a lack of confidence in the economy and on better-than-expected first-quarter earnings tainted by a good dose of outlook caution among reporting companies. Geopolitical tensions in Ukraine and in the China Sea, plus global economic uncertainties stoked by China's struggling economy, added to anxiety overshadowing a "dovish" spin to Fed Chair Yellen's Joint Economic Committee testimony. .
May 2, 2014 - Market Comment (PDF/New Window)
May 2, 2014 - Market Comment (PDF/New Window) May 2, 2014 - Market Comment
Ready, set… ? Stocks overcame Ukraine-related slippage Friday to close the week higher, on signs of a weather-related, economic rebound early in the second quarter, "dovish" signals at the Fed's latest FOMC policy meeting and better-than-expected first-quarter earnings reports. With 377 of the S&P 500 companies reporting through Friday, group earnings appeared headed for a first-quarter, year-to-year gain in the low single digits—modest by historic standards, but encouraging amid near-zero economic growth and compared to the slight decline expected on the eve of the reporting season. Volatility remained subdued, much like in the foreign exchange and bond markets, signaling outlook optimism and ample "liquidity" growth keeping the market within shouting distance of its record high in early April but viewed by some as a precursor of a market "bubble."
April 25, 2014 - Market Comment (PDF/New Window)
April 25, 2014 - Market Comment (PDF/New Window) April 25, 2014 - Market Comment
A "back-seat" economy. Stocks ended lower on the week in a choppy, but reasonably firm performance capped by a steep sell-off Friday. Mixed economic data took a back seat to uneven reports on first-quarter profits and to Ukraine-related worries in nudging investors toward "defensive," yield-oriented stocks, "safe-haven" gold and Treasury bonds. The economy made its mark indirectly, however, by keeping valuation concerns visible enough to encourage a further tilt toward "value" stocks. And "flight"-related declines in Treasury interest rates also stoked demand for non-Treasury bonds, keeping the yield premium on investment- and non-investment-grade securities "tight" to comparable Treasury issues.
April 17, 2014 - Market Comment (PDF/New Window)
April 17, 2014 - Market Comment (PDF/New Window) April 17, 2014 - Market Comment
What correction? A seemingly inevitable correction was put on hold during a holiday shortened week by the strongest rally in nine months, allowing stocks to recoup most of the steep decline just days before. The rebound was enough to swing the S&P 500 benchmark back into the "black" on the year with a near-1.5% return, leaving it little more than 1.3% below its record high early this month. Earnings announce­ments and the week's economic data shared the heavy lifting, providing enough positive news in a mixed bag for both to rekindle the rally. Investors also put a positive spin on the week's international events, looking past heightened tensions in Ukraine and disappointing economic reports from China and Japan to prospects for fresh stimulus in both countries.
JApril 11, 2014 - Market Comment (PDF/New Window)
April 11, 2014 - Market Comment (PDF/New Window) April 11, 2014 - Market Comment
Deep dive. The stock market's on-again, off-again rally was off late in the week. A parting upswing in the benchmark S&P 500 Wednesday, on market-"friendly" minutes to the March FOMC meeting, was followed closely by its worst two-day sell-off since June. A take-no-prisoners mini-correction extended across all 10 S&P 500 sectors and all but one (ag products) of the benchmark's 132 industry groups. When the dust settled, the index was at a two-month low, down more than 3.9% from its April 2 peak.
April 7, 2014 - Market Comment (PDF/New Window)
April 7, 2014 - Market Comment (PDF/New Window) April 7, 2014 - First Quarter Economic and Investment Commentary
Snowbound! The economy was sidetracked from yet another run at satisfactory, self-sustaining growth during the closing months of 2013 by the harshest winter in over fifteen years. First-quarter growth may have slowed to less than 2% from a respectable 3.3% rate during last year's second half, with weakness most noticeable in weather-sensitive housing, manufacturing, and auto sales. "Yellow flags" in the U.S. economic data combined with a deepening slowdown in China to weigh on emerging markets directly and indirectly, by triggering "flight" capital and currency depreciation in several countries, requiring sizable, growth debilitating interest-rate "hikes" to stabilize conditions. Europe remained calm by comparison, as internal adjustment fostered a modest economic recovery extending to the region's hard-pressed, "peripheral" economies.
April 4, 2014 - Market Comment (PDF/New Window)
April 4, 2014 - Market Comment (PDF/New Window) April 4, 2014 - Market Comment
A market "two-step." Two steps forward and one step back was the mantra of equity investors sorting through lukewarm support from recent economic data, a "dovish" policy tilt in a speech Monday by Fed Chairwoman Yellen, an easing of tensions in Ukraine and ECB talk of aggressive, "non-traditional" policy stimulus. S&P 500 stocks responded with a three-day rally to a record high Wednesday before backpedaling toward the benchmark's close two weeks ago, as economic data—though encouraging—failed to provide a "smoking gun" for a satisfactory growth recovery.
March 28, 2014 - Market Comment (PDF/New Window)
March 28, 2014 - Market Comment (PDF/New Window) March 28, 2014 - Market Comment
Out like a lamb. Stocks are at a crossroad, awaiting clearer signals from the economy. The S&P 500's decline in the latest week capped an up-and-down month, leaving the index virtu­ally "flat" in March and headed toward its weakest quarterly gain (little more than 1%) in over a year. The market's lack of direction was apparent from the narrow breadth and depth of last week's decline, confined to just five of 10 S&P 500 sectors and only 80 of its 132 constituent industry groups. Caution throughout the month and quarter has been signaled by the relatively strong performance of the benchmark's "defensive," yield-oriented sectors. High-flying "momentum" stocks, centered on bio-tech and on high tech's emerging sectors, were hit hardest by a consolidation spilling over to parts of the IPO market and hitting the tech-oriented NASDAQ particularly hard.
March 21, 2014 - Market Comment (PDF/New Window)
March 21, 2014 - Market Comment (PDF/New Window) March 21, 2014 - Market Comment
Changing horses. Stocks showed early success in shifting from a "liquidity"- to a growth-driven rally in rebounding from the previous week's decline, overcoming Friday's positioning-squaring, heightened tensions over Crimea, sobering news on China's financial market, and the Fed's surprisingly "hawkish" communique and press conference following Wednesday's FOMC policy meeting. The Fed's surprising tilt toward "hawk­ishness" may have been triggered by gathering evidence of a post-winter "bounce" in activity. Intended or not, however, the move's greater significance for the market ultimately may be to counter growing asset-price inflation associated with aggressive policy stimulus.
March 14, 201 - Market Comment (PDF/New Window)
March 14, 201 - Market Comment (PDF/New Window) March 14, 2014 - Market Comment
…And yet another step back. Worsening tensions in Ukraine and more disappointing economic news from China trumped mixed U.S. data in sending stocks in the latest week to their steepest decline since January. The sell-off, coming just a week after the S&P 500's record high, extended a saw-tooth pattern leaving the benchmark down slightly on the year. This year's up-and-down performance has prompted a "glass-half-empty-half-full" debate between those seeing a struggling market on the verge of a long-overdue "correction" after last year's powerful rally and those seeing a resilient market capable of rallying further. Evidence of investor confidence (or complacency) has been apparent in a still-subdued "VIX" index of market volatility, running well below its rule-of-thumb "turbulence threshold" through mid-month.

Gary Schlossberg

Senior Economist

Gary SchlossbergAs senior economist, Gary Schlossberg is responsible for assessing the economic environment and providing input to the equity and fixed-income portfolio management teams at Wells Capital Management.

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