Investment Commentary – November 19, 2014

Dow – 17,685.73 (11/19/14 close)
S&P 500 – 2,048.72 (11/19/14 close)
10-year Treasury – 2.35% (11/19/14 close)

· The broad equity markets have remained resilient in the face of lower energy prices because it is widely understood that the falling price of oil has more to do with the supply side of the equation than demand. Lower oil prices, on the one hand, provide an economic benefit as lower gas prices at the pump translate to cash in the pockets of consumers, just in time for the holiday shopping season.

· U.S. home builders are seeing more buyer traffic through their model homes, and that was enough to boost their overall confidence in November far higher than expected. Builder sentiment in the single-family housing market jumped 4 points to a level of 58 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). Anything higher than 50 is considered positive.

· Low interest rates, affordable home prices and solid job creation are contributing to a steady housing recovery analysts say.

· At this juncture, stock market volatility has drifted lower, but we do not expect the relative calm to last. Although seasonal strength may keep volatility below normal for the remainder of the year, the situation is likely to change in 2015. A shift in U.S. monetary policy next year (i.e., Fed action to raise short-term interest rates) is likely to lead to spikes in volatility of the type we witnessed in September and October.

· Europe’s recovery remains fragile and fractured on a country-by-country basis, despite signs of improvement. Long-awaited steps toward quantitative easing (European central bank stimulus) should help stem the deflationary tide.

· Slowing growth in China and inflationary pressures should continue to handcuff emerging markets, despite solid performance relative to developed markets and generally favorable earnings news.

· Analysts are starting to have a more favorable view toward U.S. small-cap stocks.

· Analysts also like industrials and financials.

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.


Click to access global-equity-outlook-4q-2014-inst-uk-hk.pdf