Mixed effects of lower oil

James Swanson, Chief Investment Strategist, wonders about the sustained impact of the dramatic plunge in oil prices on global financial markets and the business cycle.

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Market Insights 2015

Collaboration is part of the culture here at MFS and a key component of what drives our long-term approach to investing. Last week my colleagues Bill Adams and Kevin Beatty joined me to present our Market Insights webcast. At the beginning of 2015, Bill will be taking on the new role of Chief Investment Officer for Global Fixed Income and Kevin will become our first Chief Investment Officer for Global Equities.

During the webcast, we explored the economic, fixed income and equity trends that we think will drive the markets in the new year. Here are some highlights.

Credit market fundamentals

Chief Investment Strategist James Swanson says that investing in the high grade and high yield markets requires diligence and vigilance, taking both fundamentals and valuations into account.

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Fearing the Fed

Now the talk is that by doing less, the Fed could trigger a market collapse.
I suspect there are limits to how high US rates will go when the Fed is on the sidelines.
The US economy’s forward momentum should also continue to support the stock market.

The US central bank, the Federal Reserve, is the subject of criticism, no matter what it does. It has been roundly criticized for making money too easy and creating bubbles everywhere — in short, that its actions aren’t working. If its actions are working, then the talk is that this artificial support will have to be removed, and the Fed will trigger a market collapse by doing less.

I suspect, however, that the easy money accusation against the Fed — and the implication that stock prices have to fall without its efforts to keep rates low — may be erroneous. Here are my reasons:

No fooling

Those who say the Fed has inflated an equity bubble are not telling the whole story.
I see five reasons why the stock market’s five-year rise may not be due to easy money alone.
Higher profitability and the US economy’s ability to move forward on its own are also important.

I often hear about the connection between the bond-buying actions of the US Federal Reserve and the rise in stock prices. Indeed, the two do appear to have moved higher in tandem. The S&P 500 Index is up almost 200% since 2009, while the Fed has added trillions to its balance sheet to provide the US economy with extra liquidity to fuel growth and create jobs.

Ready to take flight

With US economic and earnings fundamentals suggesting that markets could turn upward again, Chief Investment Strategist James Swanson wonders if staying on the sidelines may be another risk.

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What's been troubling the markets?

James Swanson, Chief Investment Strategist, talks about Europe, emerging markets, ISIS and Ebola — four factors that have roiled global financial markets in October.

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