Investment Commentary – March 11, 2015

Dow – 17,662.94 (3/10/15 close)
S&P 500 – 2,044.16 (3/10/15 close)
Nasdaq – 4,859.79 (3/10/15 close)
10-year Treasury – 2.13% (3/10/15 close)

  • February’s jobs report last Friday confirmed the strength in the U.S. labor market. New jobs numbered 295,000, well above expectations, with gains particularly evident in cyclical sectors. Over the past 7 months, the U.S. has created 2 million net new jobs. While job creation is running at its best levels since the late 1990’s, structural issues persist and both labor force participation and hourly earnings fell last month.
  • All told, however, the employment picture is predominantly strong—strong enough to suggest a growing likelihood that the Fed will hike interest rates in June or September. The prospect for an earlier than expected hike pushed interest rates higher and stocks lower last Friday.
  • Historically, equity markets tend to outperform the bond markets in times of rising interest rates. Therefore, as we move towards the 1stinterest rate increase by the Fed in the U.S. sometime in 2015, analysts are more constructive on stocks.
  • There are plenty of U.S. businesses that are doing well and able to grow free cash flow and deploy capital towards growth – whether it is growth in share price, through share buybacks or mergers and acquisitions (M&A).
  • Rising dividends and increasing share buybacks among large multinational companies are another positive for stocks. Looking at the S&P 500, if you take the dividend yield along with the buyback yield, it’s around 4%. Which analysts believe is a pretty healthy number.
  • Analysts continue to like the following sectors: technology, healthcare, and consumer discretionary.
  • Analysts think that direct exposure in emerging markets remains unattractive for a few reasons. First of all, it’s very difficult to find specific companies that have clear and transparent corporate governance, good profitability and good business models and whose stocks sell at attractive prices. Instead, they are getting exposure to emerging markets through companies like Daimler, the parent of Mercedes-Benz; Diageo, the spirits company; and Richemont which owns luxury brands like Cartier, Piaget and JaegerLeCoultre. All of these companies are well exposed to the emerging-markets consumer, especially in Asia.
  • In fixed income, analysts believe that with attractive valuations and solid credit fundamentals, bank loans deserve consideration. The slowly improving U.S. economy has contributed to strong corporate earnings. This has allowed issuers to improve their balance sheets gradually over the course of the past year.

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.