Investment Commentary – September 3, 2014
Dow – 17,078.28 (9/3/14 close)
S&P 500 – 2,000.72 (9/3/14)
10-year Treasury – 2.41% (9/3/14 close)
· Stocks advanced last week, leaving equities significantly higher in August.
· Analysts think stocks can trend higher as we enter the fall but with more volatility.
· Still, a strengthening economy, low inflation and stagnant Treasury yields suggest that stocks can and probably should move higher by year’s end.
· Strong economic data helped push stocks higher last week brought still more evidence of a recovering U.S. economy. The majority of the U.S. data were strong, with the notable exception of still sluggish spending and income – personal spending in July unexpectedly dropped for the 1st time in 6 months. But 2nd quarter GDP was revised higher, with fixed investment increasing at its fastest pace since the 3rd quarter of 2011. And in another sign that lower mortgage rates are supporting the housing market, pending home sales rose by 3.3% last month. In addition, stocks were supported by continued mergers and acquisition activity and stubbornly low long-term interest rates.
· In fixed income, analysts believe that the Fed and other central banks are likely to remain accommodative and keep interest rates abnormally low for an extended period of time.There remains excess capacity across global economies and labor markets, and shifting demographics, which will contribute to lower growth and reduce inflationary pressure.
· The shale revolution in the U.S. is based on rapidly growing oil production from the Bakken (North Dakota), Eagle Ford (Texas), and Permian (Texas) and other shale basins across the country. In general, output from these fields is growing faster than expected. This revolution is creating heavy spending on the energy industry’s infrastructure to exploit, handle and transport the additional oil and gas.
· Analysts think the shale revolution also is supporting what they call an industrial renaissance in the U.S., led by low energy costs. In their view, this renaissance is creating opportunities for companies across the oil and gas industry, as well as for many outside the energy sector.
· In addition, lower energy costs provide benefits to consumers, help hold down inflation and contribute to reducing the U.S. trade deficit. The increased production can boost revenue for energy-producing states and for the federal government.
· Analysts like energy, healthcare, technology, and financials in the equity market.
· In bonds analysts favor select credit opportunities globally such as emerging market opportunities and senior secured corporate bonds.
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.
Disclosures:
http://www.blackrock.com/investing/insights/weekly-commentary
https://www.ivyfunds.com/perspectives/us-oil-industry-economy-feel-effects-shale-revolution
http://www.pimco.com/EN/Insights/Pages/Investing-as-Capital-Markets-Evolve.aspx
