Weekly Update: July 21, 2014

Geopolitical Headwinds Trip Up Rally

One can look to the market's resilience of late and only be impressed with the strength of how each and every dip in stock prices is being snapped up by investors eager to add to equity holdings. In a normal world, the phenomenal wave of mergers and better-than-expected high-profile earnings that are crossing the tape would have the S&P 500 trading up through the 2,000 level like a hot knife through butter.

In light of the events in Ukraine and Israel/Gaza, both of which are worsening by the day, the fact that the major averages are trading higher shows that, despite the ugly nature of these highly fluid scenarios, neither situation will seriously affect the global economy. With more than 700 companies set to report earnings in the next two weeks and the likelihood of more merger activity also prevalent, any downside move in equities will, in my view, be well-contained.


Bulls Having Fun in the Sun

Weekly Update: July 7, 2014

Those who are constructive on the stock market -- myself being one of them -- were treated to a solid employment report last Thursday, which inevitably set the stage for the benchmark S&P 500 index to challenge the psychological level of 2,000 in the near future. The pre-holiday rally put all four of the major averages (Dow, S&P, Nasdaq and Russell 2000) in technical overbought territory, whereby the chartist's playbook would call for some consolidation before a run to S&P 2,000 is warranted.

The euphoria U.S. markets experienced had a minor positive effect on foreign markets Friday, but failed to spill over into overnight trading. Here, too, most global markets have rallied smartly during the latter half of June and deserve a rest. Today's lack of mega merger news also left pre-market participants groping for a fresh catalyst to keep the party going, hence it only makes logical sense to see some back-and-filling take hold.


Mid-Year High-Yield Gut Check

Weekly Update: June 30, 2014

Today officially marks the halfway point for the 2014 calendar year -- and it is also a symbolic point by which every professional fund manager makes game-changing decisions about how to position assets for the next quarter and for the second half of the year. I've noted before that I expected the market to reward prudent stock-picking this year, but for many fund managers, these efforts have not gone well.

According to research by Morningstar concerning actively managed mutual funds that invest in large U.S. companies, so far in 2014, more than 74% of these funds are trailing the S&P 500. That's up from 50% last year, and is in fact more than in any full year since 2011, as well as the second-worst performance since 2004. This situation is a big source of frustration for many stock pickers who have been unable to surpass market benchmarks for years but were hopeful that things would turn around in 2014.


Energy Sector Leading Market to New Highs

Weekly Update: June 23, 2014

The S&P 500 is grinding out a series of new highs on small but steady daily gains and, thanks to positive economic news and low interest rates, has set a new record for the last three sessions. The benchmark index has been rising for more than a year as potential trouble spots fade away and bullish events arise.

For the last three months, energy has dominated the other sectors. West Texas Intermediate (WTI) crude, one of the benchmarks for oil pricing, is trading between $106-$107 per barrel as Sunni militants took at least three more towns in western Iraq -- but rather than hurting overall investor sentiment, the insurgency has increased the appeal of domestic-energy stocks, if anything. Of course, that includes our high-yield MLPs, many of which are posting record highs. There has also been notable recent strength in solar, liquefied natural gas and oil refiners.


Middle East Getting Messy

Weekly Update: June 16, 2014

For the past thousand years and for probably the next thousand years, the Middle Eastern region of the world will be the unfortunate focus of geopolitical disruption, strife, war, economic turmoil and the export of terrorism on the rest of the world that cannot be ignored or avoided.

If that region wasn't responsible for 40% of the world's oil production under the umbrella of OPEC, and didn't hold roughly 80% of the world's proven reserves, very little attention would be given to what has been a history of irreconcilable differences rooted in sectarian hate, where peace accords are temporary if not fleeting altogether.

In other market-moving headlines, the International Monetary Fund (IMF) lowered its forecast for 2014 U.S. GDP growth to 2% from 2.8%, citing a slow first half due to severe weather, while maintaining its 3% forecast for 2015. The IMF's lower adjustment provides further fodder to the camp that is touting that interest rates will remain low for much longer than most investors anticipate. It is actually good news for the Fed in its endeavor to taper QE, as well as good news for consumer and business lending.


Elevating Into Summer

Weekly Update: June 2, 2014

After the closing bell rang Friday, the last trading day of May, it turned out that the motto that should have circulated in late April was 'buy in May and get out of the way.' I think the price action of the past four weeks caught the majority of investors (both professional and retail) flat-footed and off guard. The high-beta meltdown that characterized the front end of the year was seen as an anchor that would take the rest of the market into a steep correction, exacerbated by Fed tapering, slowing growth in China and geopolitical disruptions.

This bear-case scenario just didn't play out. Instead, we are entering what is typically the slow time of the year for market participation with the Dow and S&P 500 posting new all-time highs as capital flows into blue-chip and dividend-paying stocks have dominated the investing landscape. The rotation into high-yield assets has also been highly prevalent among fund managers seeking yields that simply can't be had in conventional government-backed, investment-grade, fixed-income products.