Investment Commentary – November 5, 2014

Dow – 17,383.84 (11/4/14 close)

S&P 500 – 2,012.10 (11/4/14 close)

10-year Treasury – 2.34% (11/4/14 close)

  • Republicans captured majority control of the Senate Tuesday, gaining at least 7 seats as Democrats faced strong political headwinds in midterm elections where discontent with President Obama was a decisive theme.  In the House, Republicans appeared headed to their biggest majority in decades.
  • Stocks advanced last week, after positive economic reports and an encouraging earnings season for U.S. companies.  3rd quarter GDP came in better than expected at 3.5% versus 3.0%.  There are also more signs that the labor market continues to gain momentum.  Over the past month, fewer Americans have filed for unemployment benefits than at any time in more than 14 years.  While labor market gains have still not translated into faster wage growth, the U.S. economy appears to be on stable footing for now, particularly compared to other developed countries.
  • With the economies in Japan and Europe struggling, their central banks are being forced to ease monetary policy at the same time the Fed needs to start contemplating raising U.S. interest rates.
  • The recent acceleration in the U.S. economy is also helping to support corporate earnings.  With nearly 70% of S&P companies reporting their earnings, 60% have exceeded analysts’ estimates of sales, and 80% have beaten on earnings.  Despite predictions to the contrary, corporate profit margins remain elevated.
  • Oil prices fell to a 3 year low Tuesday as Saudi Arabia cut prices of crude exported to the U.S., raising the chance of a bruising battle for market share that threatens the U.S. energy boom but could bring ultra-low gasoline prices.  West Texas Intermediate crude oil is now deeply in bear market territory (defined as a decline of 20% or more), having tumbled nearly 30% since its June high of nearly $108 per barrel.
  • The Saudi price cut comes amid slowing growth in Europe and China that already had sharply driven down oil and gasoline prices this year.  Meanwhile, global oil supplies have soared partly as a result of the U.S. drilling boom in states such as North Dakota and Texas.
  • The drop in oil and gasoline prices would be an overall boon for the U.S. economy, analysts say, even though it would hobble oil company investments and hiring that have helped support the U.S. recovery.
  • Stocks have staged a rapid recovery following the recent turbulence as the Dow and S&P 500 indexes hit all-time highs last Friday.
  • Analysts continue to favor Large and mega-cap companies
  • In fixed income, analysts like high yield bonds.

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

http://www.usatoday.com/story/news/politics/elections/2014/11/04/election-roundup/18483117/

http://www.usatoday.com/story/money/business/2014/11/04/oil-prices-swoon/18457295/

https://advisor.fidelity.com/app/literature/view?itemCode=9860189&renditionType=pdf&pos=R