Investment Commentary – April 15, 2015 (Tax day)

Dow – 18,036.70 (4/14/15 close)
S&P 500 – 2,095.84 (4/14/15 close)
NASDAQ -4,977.29 (4/14/15 close)
10-year Treasury – 1.90% (4/14/15 close)

  • S&P 500 1st quarter earnings season kicked off last Wednesday. Estimates have been significantly revised down over the quarter due to continued U.S. dollar strength and low oil prices, leaving room for companies to surprise to the upside. 31 companies are set to report this week, a handful being in the financial sector.
  • Stocks rose last week, with U.S. markets finally showing some signs of strength. The increasing prospect that the Fed’s path toward higher interest rates will be gentle, as well as continued merger-and-acquisition (M&A) activity, has helped stocks.
  • Analysts still like U.S. stocks but would suggest tilting toward sectors and geographies offering relative value.
  • In particular, analysts believe investors should consider European equities and large, integrated oil companies, which are rallying despite the volatility in oil prices.
  • Oil experienced another wild ride last week, buffeted between signs of weaker U.S. production and still surging Inventories (crude oil supply grew at a 14-year record rate for a single week, with inventories hitting new highs). Oil price volatility is now roughly 5 times the level it was last summer.
  • Integrated oil company stocks appear to be bottoming. A basket of global energy companies is up roughly 8% from the March lows. Investors seem to be reacting to the relative value in the space. Stocks in this group are trading with an attractive average yield of nearly 4%. Given analysts outlook for stabilization in oil by year’s end, current prices may represent good long-term value.
  • Europe remains a cause of great trepidation for investors again in 2015. Even as European equities are off to one of the strongest starts to the year in almost a decade, they face one of the longest periods in history of underperformance in relation to the U.S., but analysts think this period bodes well for the region going forward.
  • European stocks look compelling to analysts for a few key reasons. First, there is still significant pessimism reflected in overall low valuations. Second, companies there have gained earnings momentum because of the significant decline in the euro. And finally, most investors are still underweight Europe. Analysts believe these are the right ingredients for finding long-term growth at compelling prices.
  • In fixed income, while the Fed is expected to increase interest rates from near 0% in June or September, most other central banks are headed in the opposite direction and are decreasing rates (30+ central banks lowered interest rates as of March 2015). A few of the world’s most important central banks, including the European Central Bank (ECB) and Bank of Japan (BOJ), have engaged in massive quantitative easing (QE) programs of their own. In fact, both the ECB and BOJ are now buying up bonds in excess of their country’s deficits. In this case, the exhaustion of available debt supply has forced European and Japanese investors into U.S. Treasuries, bidding up the U.S. dollar along the way – a process exacerbated by the Fed’s anticipated exit from its zero interest-rate policy of the past 6 years.

 

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.

Disclosures:
https://www.blackrock.com/investing/insights/weekly-commentary
https://www.jpmorganfunds.com/cm/Satellite?pagename=jpmfVanityWrapper&UserFriendlyURL=contentdet_module&smID=1159383786125
https://www.oppenheimerfunds.com/advisors/article/quarterly-investment-outlook?lnksrc=ILBO3
https://www.oppenheimerfunds.com/advisors/article/consumer-revival-boosts-mid-cap-growth-companies?lnksrc=ILBO3
https://www.fidelity.com/viewpoints/market-and-economic-insights/market-outlook-Timmer-april2015