Investment Commentary – February 18, 2015
Dow – 18,047.58 (2/17/15 close) (1.26% YTD)
S&P 500 – 2,100.34 (2/17/15 close) (1.99% YTD)
NASDAQ – 4,899.27 (2/17/15 close) (3.44% YTD)
10-year Treasury – 2.14% (2/17/15 close) (-1.38% YTD)
- Stocks continued to advance last week and are now ahead of bonds for the year. On a global basis, equities are being helped by signs of economic stabilization in Europe and Japan. For now, investors are looking past some still noticeable soft spots and potential headwinds.
- The January jobs report rose by 257,000 and the unemployment rate rose to 5.7%.
- A slow upward trend in corporate earnings (despite special factors depressing 4th quarter numbers), coupled with low average inflation and interest rates, still make stocks look attractive.
- Analysts see opportunities in technology and energy. Last week, Cisco posted strong earnings and a 7% jump in revenue, and Apple became the 1st company to reach a milestone $700 billion market capitalization last week, the U.S. technology sector was up over 4%. The recent strength in technology has helped push the Nasdaq Composite Index to its highest level since early 2000. The Nasdaq Composite is a stock market index comprised of more than 3,000 companies. Technology and Healthcare stocks make up the majority of the index.
- Another sector worth considering is energy, specifically the large integrated oil companies, which analysts believe will be the beneficiary of the marginally improved global economic outlook. The catalysts: a further drop in the U.S. oil rig count, which indicates supplies may tighten and push prices higher, as well as GDP acceleration in Europe. Analysts believe this signals some stabilization in the global economy and, by extension, demand for oil. With the recent surge in oil prices benefiting large, global companies, the S&P Global Energy Index is up roughly 13% from its recent lows and is now positive year-to-date. They continue to see value.
- Analysts view fixed-income markets in the U.S. as attractive compared to European and Japanese bonds. Yields on Treasury bonds, for example are near historical lows, but even so, they are paying much more than comparable bonds in Europe and Japan.
- Although the U.S. fixed-income market remains somewhat concerned about a rate hike by the Fed later in 2015, for the high-yield market that may be less risk according to analysts. Over the past 20 years, when the Fed raised interest rates, spreads on high-yield bonds have tightened. While this is no guarantee against a loss, it does indicate that in addition to providing higher income, U.S. high-yield bonds have enjoyed price performance during periods of Fed tightening.
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.