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.