Investment Commentary – October 29, 2014
Dow – 17,005.75 (10/28/14 close)
S&P 500 – 1,985.05 (10/28/14 close)
10-year Treasury – 2.28% (10/28/14 close)
- The Federal Reserve ended is QE (Quantitative easing) program today, ceasing the final $15 billion of bond purchases it had made in an effort to keep the economic recovery going. Though it ended the program, the Fed kept the “considerable period of time language” that investors had considered crucial in the central bank’s map for when it would raise interest rates. To that end, it said it would keep its short-term target funds rate anchored near zero until it can see more improvement from the economy.
- Volatility in the stock and bond markets has picked up over the past few weeks after weaker economic data out of Europe and China led to investor concerns over the stability and sustainability of global growth.
- The S&P 500 saw a peak-to-trough decline of over 7%, as weak retail sales and PPI data fueled concerns that U.S. economic growth had slowed through the end of the 3rd quarter and into the 4th.
- Last week, equities benefited from a number of catalysts, including better-than-expected earnings in the U.S. So far, with 30% of S&P 500 companies having reported, earnings have grown 11.3% and revenue by 5.1%, beating expectations of 5% and 1% respectively. Notable winners included Apple and Caterpillar, which raised its full-year guidance on expectations for better global growth. All of this was welcome news for investors worried about how a stronger dollar and slower growth might impact U.S. earnings.
- Investor sentiment continued to improve last week with investors taking solace in the potential for expanded bond buying by the ECB (European Central Bank), a respectable Chinese GDP report and more buying of domestic stocks by Japanese pension funds.
- Analysts think that the U.S. economy is stronger than most. U.S. stocks appear to offer the best opportunity for positive returns.
- After the recent sell-off in the stock market, the consumer discretionary sector is looking more attractive, helped by lower energy prices and the drop in interest rates.
- Analysts also continue to like high yield in fixed income.
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.