Investment Commentary – December 17, 2014
Dow – 17,356.87 (12/17/14 close)
S&P 500 – 2012.89 (12/17/14 close)
10-year Treasury – 2.14% (12/17/14 close)
· U.S. stocks surged today after the Federal Reserve retained the phrase “considerable time” in its policy statement, and also introduced another word, “patient,” as the central bank readies to raise interest rates next year.
· Analysts think the Fed will continue to be supportive of the economy which is ultimately good for the stock market, at least in the short term. Longer term, equities are driven by earnings growth, and an economy that continues to improve will help earnings growth.
· Fed Chair Janet Yellen said the new language was not a change in policy, and that a rate increase was unlikely for the next several meetings.
· U.S. consumer inflation posts largest decline in 6 years in November as gasoline prices tumbled. Gasoline prices fell 6.6%, the biggest drop since December 2008, after declining 3% in October. Gasoline has now declined for 5 straight months.
· Plunging crude oil prices, which hit a fresh 5-1/2 year low this week on increased shale production in the U.S. and slowing global demand, are keeping overall inflation in check for now. While inflation is trending lower, job growth has shifted into higher gear and the pace of slack absorption in the economy has accelerated in recent months.
· Analysts continue to favor equities over bonds and think the U.S. will continue to lead.
· Analysts prefer the technology and industrial sectors, which are beneficiaries of better global growth with overall valuations that are not expensive. They also favor high-quality and large-cap stocks.
· Pharmaceutical companies, along with other parts of the health care sector, offer attractive income opportunities.
· Analysts believe the recent price correction in oil, should it sustain, will serve to moderate crude oil production growth rates in aggregate, but that the impact for the majority of midstream focused MLP’s will be minimal. Further, they continue to believe that the North American energy renaissance will sustain modest, but consistent, production growth trends for the foreseeable future.
· Analysts are cautious on Europe in the near term and think there will be headwinds in emerging markets.
· In fixed income, analysts like intermediate treasuries and high-quality muni bonds. They also see opportunities in emerging market debt and senior bank loans.
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.