US Consumer Riding High

• Economic slowing may be offset by its secondary effects — lower energy costs and interest rates.
• Facts about consumer behavior could justify optimism about US growth.
• US consumers alone represent the biggest economy in the world.

While I was traveling in Michigan and Minnesota last week, several things became apparent to me. Concerns about the economic slowdown in China and the rest of the world are real, but I also saw signs that these fears may be overpowered by a true sense of life improving in the United States.

Rocked Up and Down

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If corporate earnings flatten in the middle of the US expansion, we can chalk that up to global excess capacity and the strong dollar.         

After Waves of Weakness, Is World Recession Next

• Asian neighbors and commodity exporters were the first to feel the effect of China’s waning economy.
• The stronger US dollar and weaker global growth have had a second-order impact on US manufacturers.
• Lower energy prices may serve to accelerate consumer spending in the third wave after China’s slowdown.

China’s spectacular pace of economic expansion has ebbed, and the tides of this slowdown have washed over other countries and markets in a series of waves. Let’s consider the impacts for global growth and the US economy in particular.

Caution is the Byword

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Now that the Fed has decided to take no action, Jim Swanson considers what this means for the business cycle and the financial markets.

Watch the Data Flow Out of China

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After the recent episode of market turbulence, Chief Investment Strategist James Swanson considers whether China’s slowing growth — but not contraction — could be enough to derail the acceleration we’re seeing in the eurozone and the United States.

What Really Matters

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As long-term investors, we focus on the economic or business cycle. The drivers that determine when the cycle begins and ends matter more to us at MFS than near-term market fluctuations.

Thinking Twice About Profits, Currency and Opportunity Risk

• Markets may be focused on China’s devaluation, but I’m still paying attention to US profits.
• A commodity-driven earnings recession has plagued capital-heavy sectors like energy and materials.
• I think missing out on a renewed market advance could be the biggest risk for equity investors.

While the markets have been fixated recently on China’s currency moves, I have other things on my mind. I’ve been thinking that it has now been six years since the end of the last recession — making this expansion one year older than the average life span of business cycles after World War II. And for most of these six years, the United States has been on an impressive ride, both for company profits and the equity markets.

Why Worry About China?

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Chief Investment Strategist James Swanson outlines his reasons for believing that China’s slowdown is not enough to subtract real economic growth from the rest of the world. Even the dramatic decline in Chinese equities and the potential bursting of the housing bubble may have a limited wealth effect on the population. Admittedly, faltering demand from China has put downward pressure on commodity prices, but this could actually have an upside.

Recorded August 5, 2015. For more market commentary from MFS, visit our YouTube channel. 

Our World After Greece

• As Greece moves out of the headlines, what does the rest of the world look like?
• Crude oil prices, still well off last year's highs, should be a boon to global growth.
• I expect this cycle to progress as revenues and profits at large multinationals gain traction.

For months now, the Greek debt repayment saga has been front-page news. At long last, an agreement has been reached between the country and its creditors. Efforts to meet the conditions of this bailout deal will play out over the next few days and weeks, with economic and political consequences in Greece and across Europe.

If the past is any guide, this issue will probably resurface again, reminding investors everywhere of the long-running battle between creditors and over-indebted governments. But until then, we can get back to the business of understanding the economic cycle.

Still in Midcycle at Midyear

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With steady growth in US jobs — and now wages — boosting consumer confidence and pushing the business cycle forward, there’s more talk of the US Federal Reserve raising rates. Chief Investment Strategist James Swanson explains why starting to tighten gradually — say, 25 basis points in September — might not be so bad for the US economy or investors. Recorded June 2015.

For more market commentary from MFS, visit our YouTube channel.             

Let's Hear It for Mediocrity!

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While Chief Investment Strategist James Swanson is no proponent of mediocrity, he does think a slower pace of economic growth could help prolong the US business cycle, and that would be good news for company profits and equity markets. Recorded May 2015.

For more market commentary from MFS, visit our YouTube channel. 

Earnings Season's Greetings

Earnings have taken a hit from a combination of lower oil prices and a higher US dollar.
But similar episodes in history suggest that we may still have some clear sailing ahead.
Economic activity and equity valuations tend to pick up in the first phases of Fed rate cycles.

As earnings season commences for the first quarter, we’ve been thinking about the current slowdown and the interest rate trajectory — with the US Federal Reserve’s first hike still likely to occur later in 2015. What does this backdrop mean for equity valuations and earnings?

Profits Recession

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Jim Swanson considers similar historical episodes with lower energy prices and a strong US dollar, which hampered earnings in the near term but boosted growth in the longer term. Recorded April 2015.

For more market commentary from MFS, visit our YouTube channel. 

Rising Fortunes of US Consumers

The latest reports on retail sales have been disappointing.
But I’m still optimistic about the health of US consumers.
I expect consumer spending to sustain this business cycle.

During the first quarter of 2015, the list of economic worries has been long — slow business investment, subpar production growth in many sectors, weaker trade and central bank–driven currency dislocations, just to name a few. On top of that, financial pundits have been writing off US consumers, repeatedly describing them as overstretched, hobbled by low wages and too much debt, and discouraged about job prospects.

React to Facts, Not Emotions

Chief Investment Strategist James Swanson talks about the direction of the economy and the markets, and how investors act in response to news events and commentary.

For more market commentary from MFS, visit our YouTube channel.

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Never Dive for Yield

In this low-rate environment, everyone is in the hunt for yield.
When looking for yield, take the time to ask the key questions.
It is important to remember that excess yields often have excess risks.

The interest rates we’ve experienced during our lives have declined, and the yield on bank deposits and certificates of deposit has fallen to almost zero. As investment income becomes scarcer, we face the temptation to reach or, more precisely, dive for yield. This is a quest with deep risks.

Should the Markets be Worried?

Put economic progress in Europe together with low interest rates and energy costs, and we have a recipe for a continued world business cycle with some more propulsion than we had a year ago, says Jim Swanson, MFS Chief Investment Strategist.

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Jobs, Jobs, Jobs

US payrolls have been expanding consistently.
The mix of jobs and wages has been improving.
Even the “worry zones” are seeing employment growth.

Of course investors ought to avoid complacency, but facts — not rumor and speculation — are their best guard against investment mistakes. Despite the worries we see around the world, one of the most critical considerations for investors is the health of the business cycle. And the most important feature of any business cycle is the employment situation.

Some Gears Slip, Others Align

Lower oil prices and the stronger US dollar are hurting some companies but helping others.
With correlations across investment options falling, picking the right spots will matter more.
My assessment is that these changes and disruptions could turn out to be a net benefit.

The ramifications of 2014’s dramatic events in the oil and currency markets are spinning different effects around the globe. Let’s examine some of the basic concerns and uncertainties, as well as the opportunities we see for 2015.

Don't Blame the Business Cycle

MFS Chief Investment Strategist James Swanson reflects that a higher dollar, lower energy prices, and a lower cost of capital tend to perpetuate business cycles, which may bode well for fundamental long-term investors in 2015.

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Pulled Apart or Pushed Ahead?

There may be things to worry about, but there’s also good news.
In my view, the global economy is not being pulled apart in 2015.
Low energy prices, interest rates and inflation could push the world ahead.

At the beginning of 2015, the worry machines of the world are working full time. We hear that China is a bubble, Japan cannot be fixed, Europe is a mess again and the United States is showing signs of slowing.

There may be some truth in all this, but there are other truths that we should also consider.