Investment Commentary – January 14, 2015

Dow – 17,613.68 (1/13/15 close) (-1.18% YTD)
S&P 500 – 2023.03 (1/13/15 close) (-1.75% YTD)
10-year Treasury – 1.89% (1/13/15 close) (-12.9% YTD)

· Despite a strong job report last Friday, wage growth which tends to have an inverse relationship with the unemployment rate declined. This surprised the market because the unemployment rate has fallen to the point where wage growth should begin to kick in. Structurally lower participation in the labor force accompanied by higher-skilled jobs should also contribute to wage growth. The decline in wages overshadowed the otherwise sunny jobs report, causing a sell-off in the market and a rally in the 10-year Treasury.

· Analysts expect market volatility in 2015 to be elevated compared to the levels witnessed from 2012-2014 given geopolitical issue and a pending interest rate hike by the Fed.

· The yield on the U.S. 30-year Treasury bond fell to a record low Wednesday and the 10 year treasury fell below the October 2014 lows to hit a full-year low today as a surprise drop in a measure of retail sales in December sparked fresh bets the Fed might not raise interest rates in 2015.

· Analysts think that U.S. growth will remain robust over the next couple of years due to increasing consumption driven by the narrowing unemployment gap and increase in disposable incomes.

· Consumer income should continue to increase on 2 fronts. First, as the employment gap closes, wages should increase. Second, the recent oil price drop acts as a tax cut for consumers with the highest propensity to spend.

· Analysts believe that broad stock market gains are probably over although less attractive valuations and near-record profit margins may limit the upside, high levels of corporate cash are expected to continue supporting U.S. stock performance via dividends, buybacks, and mergers and acquisitions.

· Analysts like Healthcare and REITS.

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.


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