Investment Commentary – March 25, 2015
Dow – 17,718.54 (3/25/15 close) (-.0.55% YTD)
S&P 500 – 2,061.05 (3/25/15 close) (0.10% YTD)
NASDAQ – 4,876.52 (3/25/15 close) (2.96% YTD)
10-year Treasury – 1.92% (3/25/15 close) (-11.52% YTD)

  • U.S. stocks plunged today, closing more than 1% lower as investors weighed the impact of the strong dollar on the economy and the coming earnings season.
  • Investors started the year with this thesis: U.S. growth would drive company earnings higher, which in turn would push stocks higher. So far this year, events have not played to script. Instead, a rising dollar has forced analysts to lower their forecasts of companies’ earnings, with Tiffany the latest example of an export-dependent company struggling with a rapidly appreciating currency.
  • At the same time, the abrupt rise in the dollar has coincided with a slowdown in U.S. manufacturing and business sentiment, although a brutally cold February and a West Coast port strike is also to blame. With the notable exception of the labor market, U.S. economic data are generally running below expectations.
  • Although growth is not materializing as expected, investors are taking solace in the fact that low inflation and the moderating economic growth may lead the Fed to increase interest rates at a slower, gentler pace.
  • The Fed stressed a rate increase would only come after further improvement in the labor market and when the Committee had “reasonable confidence” inflation would hit 2% in the medium term. The Fed lowered its forecasts for both the long-run unemployment and near-term economic growth, signaling the Fed sees more slack in the economy that previously thought.
  • Analysts would remain overweight stocks relative to bonds which they continue to think are more attractive.
  • Analysts expect volatility to continue to be high. While U.S. stocks have managed to advance so far this year, the volatility of daily returns is already 25% higher than it was last year. Expect a continued bumpy ride in the months ahead.
  • Analysts still favor Technology.
  • Many investors withdrew from European stocks on concerns about Europe’s economy. As a result, quality European companies with high potential appear attractively valued. These companies may stand to benefit from economic developments in Europe.
  • There are 3 macroeconomic factors throughout Europe that should help those companies realize their growth potential and achieve higher valuations:
  1. A historically weak Euro, which could help boost European exports
  2. Accommodative monetary policy by the European Central Bank that’s expected to stimulate the European economy
  3. Labor market reforms that may lower costs, potentially enhancing productivity and corporate profitability.

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.