U.S. Economic & Financial Markets Outlook- U.S. Economy Crawls Along As the Presidential Election Approaches!
(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 August, the Dow Jones Industrial Average gained .25%, the S&P 500 rose .33%, and the NASDAQ grew 1.04%. When second-quarter U.S. GDP growth came in at a lower than expected 1.1% (annualized), the reading confirmed many economists belief that domestic activity remains sluggish. On the positive side, consumer spending remains a strength as it grew 4.4%, the fastest rate since 2014. Strength in housing, auto sales, health care, and some pick up in certain segments of retail give reason to be optimistic about future growth during the rest of the year. Places which have been struggling for further expansion at the margin include the problems in energy, lower business and government spending, and the uncertainty in the health care space about the viability of Obamacare and increased scrutiny on the pharmaceutical industry related to pricing policies. Still, the status quo regarding economic conditions is firmly embedded in the psychological approach of investors. Interest rates stay at rock bottom levels (1.5% on the 10-year Treasury), inflation muted at sub two percent, and commodity prices relatively controlled. Gold has seen a nice spike this year over fear of dollar weakness and negative nominal yields overseas. In the capital markets, while merger and acquisition activity is not as robust as last year, the IPO pipeline has improved a great deal and the last few months of the year should see plenty of liquidity as young technology firms enter the public arena. The financial sector remains in the cross hairs of regulators and politicians eager to please an angry public. Large banks anxiously await a change in interest rate policy as it would improve their lending margins immediately. Naturally, the outcome of the upcoming Presidential and congressional elections will give certainty to the status of policy directions our new leadership will pursue. How much cooperation and the effectiveness of the government will be based on control and the relative degree of it in both the House and Senate. Meanwhile, investors remain in the position of having to look at bond yields which return very little, and a stock market on a nice eight-year run. Multiples remain at the high end of historical ranges but not egregious relative to periods of notable bubbles. All in all, unique conditions make capital allocation decision making difficult and something which must be considered with much thought. What is new, right?
Global Economic & Financial Markets Outlook- Low And Behold, Negative Yielding Countries Showing Poor Market Performance! (All country index data provided by the market data section of the Wall St Journal, August 31, 2016.)
If a studious investor were to make a policy recommendation based on global equity index performance, they might tell central bankers engaged in quantitative easing to end it, now! Of course, to draw a conclusion about the effectiveness of a countries monetary policy based on a single data point might not be the way to go, either. It probably can also be surmised the economic growth in these countries is subpar, or why would they be engaging in these kinds of monetary stimulus programs? Nonetheless, let's look at the data.
European indexes (Austria, Belgium, Czeckoslavakia, Denmark, Finland, France, Italy, Netherlands, Portugal, and Norway), range anywhere from a maximum return of five percent (Norway) to -21.1% (Italy). The average return for these indexes came in at a tough -5.3%. Even more negative is Japan, where the indexes lost from 12-15% year to date. Switzerland lost 6.6% as well. All are areas where quantitative easing is being implemented, in some cases, quite aggressively.
As for sunnier skies, look down south, where the political changes in Argentina and Brazil have led to a massive rally in both indexes. They are up 35% for the year. One should not forget Canada, either, ahead by nearly 13%. However, with the lingering price problems in the oil patch and the ongoing chatter about massive real estate bubbles in Toronto and Vancouver, be careful about investing up north. Looking ahead, Asia, with strong performers in Thailand (+20%) and the Philippines (+12.9%), will be a continued focal point for the globe.
Y H & C Investments: Sector Analysis: Industrials, Materials, Utilities, Energy, and Real Estate Lead a Scattered Market!(All country index data is provided by the market data section of the Wall St Journal, August 31, 2016. 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) You may have read the old saying a guy throwing darts has the same chance of investing well as an active fund manager. Based on year to date performance of many industries, the proverb may actually have merit. In looking at the best-performing sectors, the overwhelming winner is in mining, up nearly 100% (93% to be exact). Other strong areas include basic materials (+13.96%), industrials (+11.64%), equipment (+9.55%), construction (+11.20%), toys (+15.49%), utilities (+13.01%), real estate (+9.95%), and telecom (+15.15%). On the opposite side of the coin, underperformers include airlines (-17.89%), recreational services (-17.97%), alternative and renewable energy (-48.64%), and biotechnology (-9.82%). Peering ahead, the key areas to keep your eyes on are banks and energy as it is consistent with the tradional idea they lead the way in bull markets.
Y H & C Investments: The Art of Contrarian Thinking: Arbitrage: Fishing For A Lifetime of Value! (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)