Investment Commentary – April 20, 2015

Dow – 17,826.30 (4/17/15 close) (+0.02% YTD)
S&P 500 – 2,081.18 (4/17/15 close)(+1.07% YTD)
10-year Treasury – 1.85% (4/17/15 close) (-14.75% YTD)

  • Stocks struggled last week amid more evidence that economic growth is not accelerating as expected. Renewed worries over the future of Greece also contributed to last week’s market action.
  • Despite last week’s 8% jump in oil prices, analysts estimate that lower energy prices have left an extra $33 billion in the pockets of consumers since October, with more on the way. Most data suggests consumers have been a bit stingy with this windfall thus far, but last week’s retail sales report from the Census Bureau offered some encouragement; despite a 22% decline in gasoline station sales, overall sales were up modestly year-on-year. In fact, with the exception of electronics and gasoline, all of the underlying components of the report saw gains. Leading the way was a strong 7.7% year-over-year increase in restaurant spending; an indication that consumers are starting to put their new found energy savings to use.
  • For investors, elevated consumer confidence, a tightening labor market, lower oil prices and warmer weather could lead to healthier spending headed into the summer – good news for markets.
  • Analysts believe it will be difficult for the Fed to raise interest rates much, if at all, in 2015 given its fear of causing potential market disruptions.
  • Last week, European Central Bank (ECB) President Mario Draghi reiterated his commitment to Europe’s quantitative easing program. The 60-billion-euro-a-month bond-buying spree pushed 10-year German Bund yields down to nearly 0%.
  • Europe is emerging from its 2014 slowdown. Positive cyclical momentum in recent months has been led by Germany and Spain. Improved business sentiment is also broad based, as a growing number of businesses across the Eurozone expect conditions to improve exports to the U.S. by 14% year over year. The periphery has become more competitive, with unit labor costs declining more than 10% since 2009 in Spain, Ireland, and Greece. Eurozone consumer confidence has eclipsed pre-2008 levels amid lower oil prices, easier access to credit, and modest improvement in the labor markets.
  • European stocks remain strong. Positive fundamentals should continue to prop up European stocks. The outlook for corporate earnings is recovering amid a weaker euro and improving macro backdrop, and valuations remain in line with their historical averages and lower than current U.S. multiples.
  • Analysts continue to like the technology sector and large integrated oil companies.

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.