Investment Commentary – September 24, 2014
Dow – 17,089.88 (9/23/14 close) (+3.09% as of 9/23/14)
S&P 500 – 1,982.77 (9/23/14 close) (+7.25% as of 9/23/14)
10-year Treasury – 2.54% (9/23/14 close)
- August new home sales surged, rising more than 18% to the highest level in more than 6 years, the Census Bureau reported today. Sales came in at a seasonally adjusted annual rate of 504,000, up from July’s revised rate of 427,000 and 33% above August 2013. It was the highest rate since May 2008.
- The new home sales report was the brightest piece of news about the housing market this month. The strength of the housing recovery has disappointed forecasters this year, but builders are fairly bursting with optimism about the months ahead.
- While market volatility is likely here to stay and stocks certainly aren’t cheap, a strengthening economy, low inflation and range-bound yields suggest that U.S. and global equities can moderately advance by year-end. Plus, stocks still look more attractively priced than bonds and cash.
- Assuming economic data continues to come in strong, the Fed is likely to begin raising rates in the 1st half of 2015, potentially as early as March analysts’ note.
- Geopolitical tensions from Ukraine and the evolving trade war with Russia are threatening what is already a weak recovery in Europe, and could shave approximately 0.3% – 0.4% off Eurozone growth. Should the situation escalate, analysts expect an even greater drag with potential to push the Eurozone back into recession. The largest impact on growth is likely to come from energy. Russia is the 2nd largest producer of both gas and oil in the world, and Europe imports around a quarter of its gas and oil consumption from Russia.
- Analysts continue to see value in large and mega-cap companies and select international markets like Japan and emerging Asia.
- With the economic recovery in Europe still fragile, the European Central Bank (ECB) is likely to enact further stimulus, just as the U.S. Federal Reserve did during the U.S. recovery. Also mimicking the US, analysts believe central bank accommodation is likely to bolster equity prices ahead of economic improvements. Economic uncertainty is likely to favor stocks that pay high-dividend yield or have a history of raising dividends.
- Analysts believe headwinds from China’s economy, weakness in commodity prices, technical factors and other influences will dampen the recent upward momentum in emerging markets.
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:
http://www.blackrock.com/investing/insights/investment-directions
http://www.usatoday.com/story/money/business/2014/09/24/august-new-home-sales/16143633/
