Investment Commentary – March 3, 2015

Dow – 18,288.63 (3/2/15 close)
S&P 500 – 2,117.39 (3/3/15 close)
NASDAQ – 5,008.10 (3/2/15 close)
10-year Treasury – 2.08% (3/2/15 close)

  • U.S. equities were largely unchanged last week in what was a relatively quiet 5 days, although the tech-heavy Nasdaq Composite Index continued to push toward a new high. Yesterday the NASDAQ crossed and closed above the 5000 barrier for the 1st time in 15 years. Its 1st record close came back in the dot com bubble days in early 2000, when it posted a record close of 5,048.62 on March 10, 2000.
  • European assets have also performed well so far in 2015. European equities are benefiting from a string of better-than-expected economic numbers, as well as a reduction in the risk associated with Greece and Ukraine. The gains are not just a function of the stronger economies, like Germany, but are extending to the weaker countries on the periphery. Spain notched its fastest GDP growth in 7 years.
  • For the 1st time since the recession in 2009, people in the U.S. believe they are hearing good news about the job market (28%) versus bad news (22%) according to the Pew Research Center. Hiring has been accelerating at the fastest pace since 1997 and is strong in the construction and finance/insurance industries. The number of available jobs posted by employers in the U.S. reached a 14-year high in December 2014.
  • The U.S. appears squarely in the middle of a real estate recovery which started in earnest in 2010 and has picked up steam since then. It has been driven by solid job growth that has spurred demand for space across the property spectrum. Occupancies and rental rates have been rising. When that happens, landlords can raise rents and cash flows, which in turn can provide benefits to real estate investors. In addition, there is very little new construction in any property type other than apartments now. Analysts think these factors mean there is ample runway for continued recovery in commercial real estate for the foreseeable future.
  • Analysts think many of the tailwinds and themes that supported REITS in 2014 will carry over to 2015. They believe that GDP will remain strong, supported by further capital spending, strengthening of leading economic indicators and improved consumer spending. They think job growth will continue and perhaps accelerate in 2015. In addition, lower oil prices are serving as a de facto tax cut for consumers, which they think is a positive sign for consumer spending and retail real estate.
  • In fixed income, based on current valuation measures, the bank loan sector offers potentially attractive relative returns almost regardless of when the Fed chooses to hike rates analysts believe.
  • In each of the last 3 intervals of Fed rate hikes since 1994, bank loans outperformed the Barclays U.S. Aggregate Bond Index (which is a broad barometer of the U.S. fixed-income market) and the 2-year U.S. Treasury note.

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.