Weekly Update: January 26, 2015

ECB Delivers Upside Surprise

The lead story last week was all about the European Central Bank (ECB) embarking on its own version of quantitative easing (QE), announcing that it will purchase sovereign government bonds as part of a more than $1 trillion asset purchase program centered on various classes of bonds. After several months of jawboning his intent to enact QE, ECB President Mario Draghi didn't disappoint the markets, saying that the central bank's plan is to buy roughly 60 billion euros of bonds each month going out to September 2016.

Setting a long-term date up front demonstrates the ECB's commitment to tackling a stagnant eurozone economy while at the same time pushing against the deflationary forces that are endemic to that region. The U.S. template for QE has proved a worthy model for stimulating economic growth; that growth may be uneven for some sectors of the economy, but couple central-bank intervention with cheap energy prices and the odds favor a resumption of GDP growth north of 2% going forward. Foreign markets are applauding the ECB's actions as well. Shanghai and Mumbai led the gains overnight in Asia with moves of about 1%.


Gettin' Nothin' but Static

Weekly Update: January 20, 2015

The 2015 investing year started with the S&P 500 at 2,055, after which, true to 2014 form, the broad market index rose for a couple of days -- and then traded like a bull being hit with a stun gun, erasing 60 points like a hot knife through butter. Friday's upbeat action was more characteristic of how the market should be trading in light of current events and the economy.

Last week's string of data reports, as well as the first glimpse of earnings season, shows that as long as the oil sector is in ultimate turmoil, the greater impact of cheap energy on industrial growth, future hiring trends, inflation and consumer spending will be significant. Low crude input prices have only begun to stoke the fire of enhanced top- and bottom-line growth for tens of thousands of companies that will invariably hang out the 'jobs for hire' signs nationwide.


New Year Volatility

Weekly Update: January 5, 2015

So, Santa Claus pretty much conducted a stealth hit-and-run rally this past month, taking the S&P from 1,975 to 2,093 in the span of a week. It stalled at 2,100 and has now retraced half those gains in just the past four trading sessions. Volatility, which a nice phrase for bearish uncertainty, is making a very similar showing. Not surprisingly, too much optimism tends to invite sudden bouts of volatility.

Recent memory would remind us how 2014 got started. Following a big finish to 2013, bullish sentiment was loaded for a powerful start to 2014. Counter to what was conventional thinking at the time, that being the 10-year yield was a lock to rise up to and through 3%, the S&P would advance another 25% on organic earnings growth and Europe would be well into QE by now.


Sticking with What's Working in 2015

Weekly Update: December 30, 2014

Investors have keyed in on the positive data points arising out of the United States, European and Asian economies that make up over 70% of global GDP. The big economic picture has improved to the point that fund managers are moving into European equities that still sharply lag U.S. and Asian stock market performance.

Fresh initiatives by the European Central Bank (ECB) to commit to the purchase of government bonds as part of its fiscal stimulus package have been widely endorsed by European bond markets, as yields have tumbled on the news. The U.S. 10-year Treasury Note yields 2.17% and, compared with its European counterparts, looks dirt cheap.


'Don't Blink' Rally Lifts Holiday Spirits

Weekly Update: December 22, 2014

At just the point when the bottom looked like it was going to fall out, two events took place in the past week to where investor sentiment got a hold of itself. The FOMC meeting produced a hugely market-friendly forward fiscal policy statement, and market participants surmised that cheap energy was, in fact, a major positive for not just the U.S. economy, but also for the struggling global economy that was in desperate need of a catalyst bigger than any central bank could deliver in time for Christmas.

And thus the 'whoosh down' turned into the 'whoosh higher' that has the S&P right back to its high of year, at 2,075. From here, 2,100 is in sight even as WTI crude still struggles in the $55$56 per barrel range that is only a couple dollars off the recent low of $53.60 set early last week. As the U.S. economy continues to churn out upbeat statistics, inflation remains a minimal threat that translates into a low-interest-rate landscape both here and abroad, which in turn keeps feeding the equity markets as yield on invested capital, ex-energy, becomes more attractive.


The Upshot of a Down Oil Market

Weekly Update: December 15, 2014

Markets around the globe are retrenching some hard-fought gains in lockstep with the rapid decline of crude oil prices. The drop in crude prices is nothing short of a crash as Saudi Arabia, Iran, Kuwait and other smaller oil-rich nations that are bringing oil to markets as low as $10 per barrel. They are attempting to orchestrate a strategy to curb U.S. production from the shale energy boom that has America importing the least amount of oil in the past 10 years. The table below illustrates the pace with which OPEC imports have been reduced during just the past five years.

While consumers are cheering lower gasoline prices, currently averaging $2.50/gallon on a national basis, stock investors are feeling pain from how the market is responding to cheaper fuel, as it's viewing the free fall in oil prices as a net negative for global growth. Whether this perceived notion of oil is pointing to a global slowdown or whether the market has it wrong and this is simply a supply glut that will act like a massive catalyst for global economic growth isn't known as the oil correction has been so swift.