U.S. Economic & Financial Markets Outlook- Consumer Confidence at 10 Year High As GDP Growth Remains Below Normal! (Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research possible investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
In March, the Dow Jones Industrial Average fell 1.63%, the S&P 500 lost .86%, while the NASDAQ bucked the downtrend and grew .70%. For the first quarter, the Dow increased 4.56%, the S&P jumped 5.53%, and the NASDAQ gained 9.82%. When one compares the current U.S. annual GDP growth rate of 1.9% to the yearly average (since 1948) of 3.22%, you realize how stagnant economic growth has become in recent years. Both businesses and members of government would relish more economic expansion but the pertinent question is how to make it happen? Skeptics point to overcapacity in retail, poor infrastructure investment, the large problem of student debt obligations, and the most costly health care system in the world as some long term impediments. The current economic conditions remain relatively calm and attractive with low energy and commodity prices, interest rates significantly below typical levels (2.4% on 10-Year Treasury- though slowly moving higher), and consumer confidence at 16 year highs (Confidence Board Consumer Index-125.6). At the corporate level, profit are seen growing for the first time in a few years as S&P 500 estimates for 2017 hover around the $130 level. Based on that number, the 2360 level of the S&P 500 Index gives the broad market a multiple of 18.15, a touch higher than traditional levels (15-16 ish).
Of course, the wild card in this picture is the country’s perpetually warring and ineffectual government. Based on the first meager attempt at a health care overhaul (doesn’t even get through a House which spent seven years vowing to repeal the Affordable Care Act), it is hard to believe massive issues like reforming the tax code (corporate and individual) or an infrastructure bill can get done. It remains to be seen if unshackling the business world from the large regulatory burden will encourage domestic investment versus international possibilities, or stock buybacks and mergers. Time will tell, as always, but keep those expectations about a return to average GDP growth on hold.
Global Economic & Financial Markets Outlook-World Markets Firm Up As Asia Leads the Way! (All country index data provided by the market data section of the Wall St Journal, March 30, 2017.) The first quarter for global markets was very strong for investors. Most continents saw returns anywhere from five to ten percent. The strongest figures were found outside North America. The most obvious standout from a comprehensive standpoint was Asia as several countries saw +10% returns on their indexes (India, Hong Kong, Singapore). Other solid numbers in the area were found in the Philippines (+7.1%), South Korea (+6.9%), Taiwan (+6.5%), and Indonesia (+5.6%). Of note were a few strong performances in Europe like Poland (+13.4%), Turkey (+14.2%), and Spain (+10.9%). Down south, Argentina (+19.4%) and Chile again attracted strong capital flows to their free market economies. Brazil was also solid with a 8.8% return for the quarter. Other than Israel (-4.8%) and Norway (-1.2%), toss in Sri Lanka as well, and investors saw positive returns in nearly every country. Looking ahead, it will be interesting to see if uniformly positive results will be found during the rest of the year.
Y H & C Investments: Sector Analysis: Consumers, Health Care Show Strength As Financials, Energy Lag!(All sector data is provided by the market data section of the Wall St Journal, March 30, 2017. Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research possible investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
It is no secret that nearly 70% of the U.S. economy is based on consumer spending. With consumer confidence at a sixteen year high, it is perfectly reasonable to find the strongest sectors of the U.S. equity market are related to the consumer- namely services and goods. Both have a wide variety of sub-components and there were obvious standouts among each group. In goods, where the overall return was 7.97% for the three month period, home construction (+21.49%), Toys (19.72%), Tobacco (15.66%), Leisure goods (15.65%) stood out. Clothing (-.09%) was the only category in the red. Services saw an overall return of 6.14% as Travel (+17.13%), Recreation (14.18%), Hotels (11.69%) and Broadcasting (9.11%) led the pack. The only loss was found in Food Retailing (-2.76%). A few other strong groups included Health Care (+8.33%), Utilities (+5.72%), and Technology (+12.38%). Tech was paced by Internet (+12.99%) and Software (+11.29%) related companies. Lagging groups included Energy (-7.33%) and Financials (+.95%). As these two industries represent historically strong elements of many major indexes, it would be expected to see them start to have better performance when market conditions change (weaken?).
Y H & C Investments: The Art of Contrarian Thinking: The Harder You Look, The More You Find! (Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research possible investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
The prevailing attitude in the investment world is to focus on the downside risk of any potential investment, asset class, or instrument. As a result, you see experts constantly referring to the risk of recession, valuation risk, political risk, uncertainty risk, competitive risk, corporate governance risk, debt risk, business risk, liquidity risk- notice the commonality- the r word. In any investment possibility there are aspects which can go wrong. Good investment analysis takes those into consideration and evaluates the probability of them occurring and the overall effect. Still, one cannot invest in fear as something can always go wrong. Many let these fears prevent them from making excellent investments. There are plenty of methods to use to help you look for these situations. You can target specific companies and compile a list of those symbols to track the stock prices. You might hone in on certain CEO’s, or use keywords to target specific financial conditions like cash levels, stock buybacks, or merger possibilities. You probably have to look at 10 or 20 candidates to locate something that fits your criteria. Of course, it also has to fit your portfolio and risk tolerance as well. Anyway, work hard to find what you want and not be influenced by those who would dissuade you from potentially profitable investments.
Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder