Third Quarter 2017 Earnings Preview

Third quarter earnings season gets underway this week (October 9–13) and it should be another good one. The S&P 500 Index has exceeded earnings expectations 33 straight quarters and we see no reason why the third quarter won’t make it 34. However, as seen in Figure 1, earnings growth should fall short of the stellar results and double-digit pace of the past two quarters.

Download the Full Article

Time For A Stronger Dollar?

The U.S. dollar has lagged other currencies so far this year, as persistently low inflation suggested that the Federal Reserve (Fed) would not be as aggressive as global investors originally feared. However, recent Fed announcements—including an official start to long-awaited balance sheet normalization, as well as a refusal to back away from a potential rate hike in December—have caused market participants to reexamine the dovish Fed thesis, which has led to a stronger dollar over the past month. So, where does the dollar go from here? We believe that the combination of fundamental factors, such as disparities in major central bank policies and technical indicators, could lead to dollar strength in the near term.

Download the Full Article

The Bull Market Appears Alive and Well

The steady bull market—now the second largest—continues. The Dow just had its third nine-day win streak of 2017, which hasn’t happened within a single year since 1955. Can the rally continue? While longer-term technicals do look very healthy, a closer look suggests that it has been a historically long time since even a modest correction, thus increasing the chances of a rise in volatility soon.

Download the Full Article

Fed Versus The Market – Round 2

In its September 20 policy statement, the Federal Reserve (Fed) suggested that it will increase interest rates once more this year and three times in 2018. But the market is predicting that the Fed will only raise rates two times between now and the end of 2018—and it isn’t even certain that the Fed will raise rates this December, though according to fed fund futures it is likely. One reason for this skepticism is the Fed’s history of being overly aggressive in estimating its own future actions.

Download the Full Article

Update on Growth and Value Stocks

Growth has been on a roll. Based on the Russell 3000 style indexes, growth’s 18% year-to-date gain is 14% ahead of value’s 4% advance. Looking further back, this growth outperformance is nothing new. Over the past 10 years, including the entire financial crisis period of 2008 and 2009, growth has outpaced value by about 50% [Figure 1], representing the longest period of growth outperformance since style indexes began to gain a following about 40 years ago. Using Fama-French* data back to the 1930s, before the Russell indexes were created, this is the longest bull market ever for growth stocks

Download the Full Article

Why Isn’t Inflation Higher?

The Federal Reserve’s (Fed) next Federal Open Market Committee (FOMC) meeting will take place on Tuesday and Wednesday (September 19–20) and will be followed by the release of the FOMC policy statement on Wednesday at 2:00 p.m. ET. Along with the statement, the FOMC will release a new set of economic forecasts (gross domestic product [GDP], the unemployment rate, inflation, and fed funds projections, also known as the “dot plots”). Fed Chair Janet Yellen will also hold a press conference—the third of four in 2017—at 2:30 p.m. ET.

Download the Full Article

Beige Book: Window on Main Street

The latest edition of the Federal Reserve’s (Fed) Beige Book, released Wednesday, September 6, 2017, continued to deliver a positive view of the U.S. economy. The Beige Book is a qualitative assessment of the domestic economy and each of the 12 Fed districts individually. The report is prepared eight times per year, ahead of each Federal Open Market Committee (FOMC) meeting. We believe the Beige Book is best interpreted by measuring how key words change over time. The qualitative inputs for the September 2017 Beige Book were collected in the weeks prior to August 28, 2017.

Download the Full Article

Strong European Earnings Are Keeping Europe Cheap

After years of diminished earnings ended in the third quarter of 2016, European companies have begun seeing sustained growth in their bottom lines. Ultimately, earnings drive stock prices, but the market is always trying to look forward; having strong earnings is not enough if the growth is fully priced in. That is the fundamental question with regard to stock market valuation—what are you paying for future earnings? Solid earnings in Europe are keeping price-to-earnings ratios (PE) static, while PEs on domestic stocks have been rising. This makes European equities increasingly attractive; however, currency remains a concern, as much of the recent performance of European stocks has been due to a strong euro relative to the dollar.

Download the Full Article

September Preview

As the pace of life tends to pick up in September with kids back at school, the market is following suit with a month packed full of global events. The S&P 500 Index managed another gain in August, marking 10 consecutive months of gains on a total return basis. The global economy continues to improve and corporate earnings have been very strong across the globe, but how much longer can this calm continue? As we enter September, it is important to remember that no month has a worse average return for the S&P 500 (-1.0% going back to 1928*), and some of the most volatile moves ever have taken place this month. To help navigate the current environment, we’ve created this guide to the September 2017 market calendar, providing an overview of the key events.

Download the Full Article

Putting The North Korean Threat Into Perspective

Investors have become increasingly concerned about the escalating North Korean threats, and understandably so. After initially shrugging off the risk, financial markets have shown increased concern over the past several weeks as the threats have become more direct (Guam) and the range of missile tests has increased (over Japan). In the latest development over the weekend, North Korea conducted its largest nuclear test and claims to have a hydrogen bomb capable of being delivered on a long-range missile. While the future of this conflict is very much uncertain, and we are sympathetic to the potential human impact of military engagement, from a market perspective, a look back at past geopolitical and military events offers a reassuring view

Download the Full Article