September 26, 2014

Calling the fundamentals behind the markets

News and emotion can drive the markets in the short term.
Over time the market gyrations tend to sort themselves out.
What interests me is the fundamental picture for the business cycle.


My seatmate on a recent flight asked about my job. When I told her, she sympathized, saying that it must be hard to call the markets. After thinking about that phrase, I replied that I don’t think my job is to call the markets, but rather to call the fundamentals behind the markets.

If financial markets express what businesses are worth at any one time, then calling the markets is the pursuit of someone who thinks and acts in the near term. In the role of chief investment strategist, I see myself as another type of investment professional — one who tries to work in the long term.
 

September 16, 2014

As the taper ends

If the Fed’s QE taper ends in October, as expected, what will the impact be?
Demand/supply dynamics have helped to keep bond prices high and yields low.
Interest rate tightening is typically positive for stocks, at least in the initial phase.


If the taper of quantitative easing (QE) continues at its current pace, the US Federal Reserve’s purchases of mortgage-backed and Treasury securities will end in October. What then?

Many market watchers have said that the Fed’s heavy hand has manipulated interest rates lower, but I think this is only part of the story. The rest of the story suggests to me that rates will not lurch upward and bond prices will not collapse when QE ends.
 

September 11, 2014

Two things we learned last summer



According to Chief Investment Strategist James Swanson, the summer of 2014 was notable for the persistence of US corporate profitability and the divergence of the US economy from the rest of the world.

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August 27, 2014

What are credit markets telling us?



James Swanson, Chief Investment Strategist, describes how the credit markets have been early indicators of equity market excesses, but are providing little evidence of a bubble now.

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August 19, 2014

A curious investing conundrum



US growth is accelerating and profits are rising, says James Swanson, Chief Investment Strategist, while China and Japan are slowing, and Europe’s recovery is faltering.

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August 13, 2014

Wrapping up the earnings season

Market watchers have claimed that this summer’s selloff is a long overdue correction in US equities.
We believe that in the long run, market movements tend to align with earnings and revenue growth.
Based on second-quarter reports, the S&P 500 Index has actually been moving with fundamentals.


Earlier this year, pundits in the financial media lamented when the stock market hit new highs — as if that was a bad thing. Then the summer selloff came, and these authorities on the market asserted that US equities had been due for a correction all along.

Whatever these commentators choose to think, we believe that market movements tend to align with earnings and revenue growth over long periods of time. Accordingly, this year’s highs are not surprising but rather, actually in line with history. From June 2009, when the recession ended, through 8 August 2014, the price-only S&P 500 Index (before dividends) and operating earnings on this benchmark both rose about 180%.
 

July 30, 2014

Implications of tight credit spreads



Chief Investment Strategist James Swanson adds to his tenets of investing for the long run, pointing out that the credit markets may provide valuable information about the direction of equity markets.

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