Monday, January 20, 2020

Investing In An Elevated Market

Two years ago to the day on January 20, 2018 I wrote a post, Will The Stock Market Ever Decline Again?, and it seems in January 2020, investors are faced with the same question. Written commentary today is mirroring commentary of two years ago as January's market has gotten off to a strong start just like in 2018. Historically, strong starts to a January are a positive predictor for market returns in the balance of the year. That was not the case in 2018 as that year was a down year for the S&P 500 Index.

Tuesday, January 14, 2020

Small Business Doing Its Part To Sustain Economic Growth

In August 2018 the NFIB Small Business Optimism Index hit a high of 108.8. Since then the NFIB Index has declined to 102.7 as reported in the December NFIB Small Business Optimism report today. In January 2018 though, the NFIB Index level was 101.2 and today's reading shows an improving trend. Noted in the December report was the fact "an increased number of small business owners reported better business conditions and expect higher nominal sales in the next three months. While frequency of plans to raise compensation fell 2 points, it remains one of the highest readings in the survey’s 46-year history. Small businesses continued to hire and create new jobs with actual job creation matching November’s reading, the highest since May."

Wednesday, January 08, 2020

Winter 2019 Investor Letter: A Recovery And New Decade

In the fourth quarter of 2019 the S&P 500 Index rose nearly 10% in contrast to 2018 where the Index was down 13.5%. What a difference a year can make. Our Winter 2019 Investor Letter looks at the Decade of 2000's versus the Decade of 2010's and certainly the most recently completed one was rewarding to investors. As the new year and decade unfold the market will grapple with headlines associated with Brexit, the ongoing trade and tariff situation, Central Banks around the world easing again and additional conflict in the Middle East. The market won't move higher in a straight line, but the market's bias over time is one where it does trend higher. Climbing a "Wall of Worry" may be the result in the coming year. Since the decade of the 1980's, only the decade of 2000's saw multiple calendar year declines. The 1980's, 1990's and 2010's each only saw one down year out of ten. So in those thirty years, the market was down in only three of the years.

More insight on our views are covered in the Investor Letter accessible at the below link.

Sunday, January 05, 2020

Shocks And Market Impact

From time to time investors are faced with unanticipated shocks to the market. With tensions in the Middle East, and specifically Iran, elevated again, the market will undoubtedly react to events over the course of the next few days, weeks and months. Investors should know though, the shock and damage to the equity market from these shocks historically are short-lived.

Wednesday, January 01, 2020

Dow Dogs 2019 Return Unable To Keep Pace With Broader Market

First of all I want to wish everyone a Healthy and Prosperous New Year as a new decade unfolds. The  just completed decade certainly ended with a bang with the S&P 500 Index (SP500) up 31.49% and the Dow Jones Industrial Average Index (DJIA) up 25.34%. One strategy that significantly underperformed both the DJIA and the SP500 was the Dogs of the Dow investment strategy. Readers may recall from earlier posts the Dogs of the Dow strategy is one where investors select the ten stocks that have the highest dividend yield from the stocks in the Dow Jones Industrial Average Index after the close of business on the last trading day of the year. Once the ten stocks are determined, an investor invests an equal dollar amount in each of the ten stocks and holds that portfolio for the entire next year. The popularity of the strategy is its singular focus on dividend yield.

Sunday, December 29, 2019

Just Own Something: Hyman & McLennan Global Outlook Part 2 Interview

Consuelo Mack of WealthTrack conducts Part 2 of her interview with Ed Hyman, Vice Chairman of Evercore and Matthew McLennan of First Eagle Investment Management. I published highlights and a link to Part I of the interview last week that focused on the U.S. outlook and below is the link to the Part 2 interview that focuses on the Global outlook. Not surprisingly, China gets a lot of attention from Ed and Matt, but Ed Hyman is cautious on the outlook for China, i.e., growth but slowing growth. Ed does not believe China and trade issues are a game changer to his positive 2020 outlook.

Thursday, December 26, 2019

A Steeper Yield Curve Should Benefit Financial Stocks

In 2018 the Federal Reserve pursued an interest rate policy the led to the yield curve (10y/2y) inverting. This year the Federal Reserve Bank has reduced the Fed Funds rate three times in response to a slowing economy that developed in 2018. The last 25 basis point rate cut occurred in October and some now believe this may be the last cut of this cycle. Coinciding with the last cut was a paper released by the San Francisco Fed that discussed the economic growth benefit of pursuing a negative interest rate policy. One outcome of a lower rate, flatter yield curve policy is the fact banks have difficulty earning an adequate spread on their loans. Now that the Fed seems to be on hold for the moment, and an economy that seems to be improving, the yield curve has begun to steepen with the 10-year Treasury yield rising nearly 30 basis points to near a 2.0% yield. The below chart shows the yield curve from six months ago (red line) to today (green line.) Clearly, the curve has steepened from six months ago.

Wednesday, December 25, 2019

Sentiment Tends To Provide Insight Into Future Market Returns

In investing no one metric tends to provide 100% certainty into the future direction of the market or individual stock or bond for that matter. Though sentiment measures do provide insight into the so-called mind of the market, or better yet the mind of the individual or institutional investor. This is one reason I report on sentiment and fund flows from time to time during the year.

Tuesday, December 24, 2019

Top Economist Ed Hyman Has Favorable 2020 Outlook For The U.S.

WealthTrack's Consuelo Mack is in the midst of conducting her annual year end interview with Ed Hyman, Vice Chairman of Evercore and this year, Matthew McLennan of First Eagle Investment Management. Part I of the interview below focuses on the U.S. with a later Part 2 interview focusing on the international outlook. As noted by WealthTrack, "Ed Hyman is the Founder and Chairman of its Evercore ISI division and leads its economic research team. He has been voted Wall Street’s Number One Economist for an unprecedented 39 years in Institutional Investor’s annual survey."

Friday, December 20, 2019

Buybacks Resume Growth In The Third Quarter

Buybacks for companies in the S&P 500 Index turned higher in the third quarter to $175.89 billion after declining from a peak of $222.98 billion in Q4 2018 as represented by the red line in the below chart. With a resumption of higher buybacks, the total of dividend and buybacks increased in Q3 to $299.01 billion versus $284.14 billion in Q2 2019. Quarterly totals for dividend payments consistently maintained growth on a year over year basis, unlike the decline in buybacks.