Investment Commentary – February 4, 2015

Dow – 17,666.40 (2/3/15 close) (-0.88% YTD)
S&P 500 – 2,050.03 (2/3/15 close) (-0.44% YTD)
10-year Treasury – 1.78% (2/3/15) (-17.97%)

· Financial Markets remain highly volatile, with violent swings in the oil price and interest rates adding to the angst. With stocks remaining under pressure, investors continued to favor Treasury bonds, causing interest rates to grind lower.

· Last week, the yield on the 10-year Treasury broke below 1.70%, the lowest level since the spring of 2013. U.S. rates continue to be suppressed by a combination of persistently low supply of U.S. bonds and even paltry yields in Europe and Japan

· Sales of new cars and trucks roared off to a fast start in January, towed by Americans’ renewed love affair with trucks and SUVs as low fuel prices mean the gas-thirsty models aren’t so expensive to fill up. Trucks – a category that consists of pickups, vans and SUVs –were 54% of January sales; cars were the remainder. Automakers sold 1.51 million new vehicles last month, up 13.7% from sales the year before. The seasonally adjusted annual sales rate was 16.66 million – a bit undershooting the widespread optimistic forecasts of 16.7 million to 17 million. But it was well ahead of the January pace of 15.29 million in 2014, and was the highest January annual rate since 2006.

· Analysts believe that growth in the U.S. economy is poised to step up to roughly +3-3.5% in 2015 after rising by roughly +2.5% in 2014. With wage growth beginning to pick up and employment growth remaining relatively strong, analysts expect consumer income to improve, which should lead to an improvement in consumer spending. Lower gas prices should provide a further boost to consumer spending in the 1st half of the year. Capital spending has seen improvement over the past 2 years, and analysts expect that to continue. However, any increase in U.S. capital spending is likely to be tempered by a drag on energy-related capital spending due to the dramatic decline in oil prices.

· Inflation is likely to come down further on the back of lower oil prices. While we believe the Fed will begin to hike rates in 2015, the low inflation environment and global risks mean the hikes will likely take place later rather than sooner. Analysts believe any hikes will be limited and gradual.

· Analysts continue to like U.S. large cap stocks.

· Analysts prefer U.S. 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