Monthly Commentary

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April 2016
  • Good domestic economic data on top of more accommodative Fed policy served as a double-whammy boost for markets, driving a risk asset rebound after a dismal January.
  • Given the global economic weakness, the Fed seems to believe there is greater risk to being early in normalizing rates than there is to being late.
  • With nearly half of S&P 500 revenue derived from overseas, weakness in the global economy is showing up in U.S. corporate earnings and is likely to result in a fourth consecutive quarter of negative growth.
March 2016
  • Stabilizing oil prices inspired a global relief rally in February as market volatility eased.
  • U.S. economic growth has been supported by a resilient consumer segment, while manufacturing is sluggish but improving.
  • Earnings growth for S&P 500 companies has contracted for three consecutive quarters, and first quarter 2016 also looks challenging.
  • A rebound in growth — both in corporate earnings and the global economy — is the catalyst needed to move the markets into positive territory.
February 2016

Global markets plummeted in January, kicked off by a historically bad year-opening week of U.S. stocks. The downdraft was prompted by continued uncertainty around the seemingly bottomless oil markets. China’s unusual policy actions added to the tumult, while the potential for central bank intervention continued to lurk in the background as a potential wild card to either the upside or downside.

  • Seemingly bottomless oil prices conspired with a skittish China and central bank uncertainty to drive markets sharply lower in January.
  • China’s unusual policy approach is raising concerns that the country is in bigger trouble than official economic data suggest.
  • Central banks still have extraordinary power to support economies and markets.
  • Fundamentals light the way in an uncertain world; while 2015 earnings look negative, the outlook for 2016 is positive.
  • December 2015

    In recent years “normalization” has been associated primarily with central bank monetary policy, which remains in the highly accommodative state first entered into as the financial crisis emerged. The U.S. Federal Reserve of late has taken very slow, measured steps to return to more-normal policy and now has hiked the Federal Funds rate for the first time in ten years — even as its global counterparts grow increasingly accommodative in the face of sluggish economic growth and elusive inflation. It is critical that the U.S. is successful in transitioning back to a freer market economy, as its approach ultimately will be replicated by other nations seeking to normalize in the context of what should be a faster growing global economy.

    But normal extends beyond the FOMC and its international policy setting analogs. Normal is also about organic, sustainable economic growth. While central banks can help jump-start economies with easy money and asset purchases, it’s up to legislators to foster the conditions that help promote sustainable growth via tax reform, labor market liberalization and reduced regulatory burdens.

    November 2015
    • Central banks continue to supply extraordinary levels of stimulus, to the delight of stock markets.
    • While earnings growth may decline for a second consecutive quarter, corporate America has been remarkably resilient given the headwinds.
    • While markets are paradoxically paying up for declining earnings, valuations remain reasonable.
    • The recent rally’s sustainability depends on how the private economy can turn exogenous support into earnings growth.
    October 2015
    • Equity markets slumped in the third quarter, as the ongoing commodities rout, uncertainty about a slowing China and negative corporate earnings growth had investors on edge.
    • A change of direction in corporate earnings historically has signaled trouble ahead for equity markets.
    • The end of the commodity “supercycle” is being felt in financial markets and in the real economy.
    • The U.S. consumer has been resilient, highlighting that the directions of the economy and the markets can differ.
    September 2015
  • There may be a lot of ugliness out there — China, oil prices, currencies — as free markets re-assert control, but such normalization reduces broader risks to the economy and markets.
  • The U.S. economy’s march toward normalization, led by the consumer, has been the bright spot around the world.
  • Without strong earnings growth and the artifice of fed stimulus, markets currently are behaving as normal markets do.
  • Investors should stick to the plan made in calmer times, as it is the best defense from irrational — and often self-defeating — actions.
  • August 2015
    • Developed markets have demonstrated awe-inspiring resilience in the face of emerging market struggles.
    • Emerging market currencies are plunging. U.S. monetary policy is partly to blame but the true culprit is China.
    • U.S. interest rate hikes are likely to be gradual. Investors who exit bonds may miss income opportunities.
    • Energy sector problems cloud the Q2 earnings season. It could be the first quarter of negative growth since Q3 2012.
    • Despite China’s recent selloff, keep in mind that volatility may be rewarded.
    July 2015
      • In the first half of 2015, the long-running bull market continued to overcome a variety of potential stumbling blocks.
      • With ECB stimulus blazing, Europe has been a pleasant surprise this year.
      • While the mechanics of policy normalization can test near-term resolve, investors must remain focused on their long-term goals.
      • If the bull market that arose out of the Great Recession taught us anything it’s that waiting on the sidelines for a precise entry point is pure — and costly — folly.


    June 2015
    • Beginning to normalize the policy rate should actually bolster confidence in the economy and the markets and allow us to once and for all leave the Great Recession behind.
    • M&A activity has been red hot in 2015, suggesting confidence in executive boardrooms.
    • Earnings surprised mightily to the upside in 1Q, but 2Q expectations remain dim.
    • While the math of rising rates discounts financial assets, the growth that prompts the rate hikes should be far more important in sustaining this bull market in the long run.


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