George Hosfield, CFA, discusses Ferguson Wellman's quarterly strategy titled, "Inflation's Flame Flickers," which addresses the narrow market leadership, the impact of higher interest rates on inflation and how assets are priced at this stage of the economic cycle.
George Hosfield, CFA, discusses the firm's quarterly strategy titled "Stalemate," which highlights the Fed's ongoing battle to tame inflation along with our views on the health of the banking industry and capital market expectations for the balance of the year.
Director and Chief Investment Officer George Hosfield, CFA, discusses the Fed raising interest rates, peaking inflation and our view on equities and volatility across all asset classes in our Investment Strategy titled, “Balancing Act.”
Our clients regularly ask about the financial impact of elections, especially as Election Day nears. We do know that, on average, the market is up 11 percent in election years, which is akin to the long-term average return. History has shown that markets (i.e., investors) dislike uncertainty. While
When we met with clients in January of this year we highlighted our thesis that while 2015’s equity returns were anemic and there were concerns at the outset of 2016, we maintained that the equity bull market was not over. This
Someone once told me that the secret to a happy life is low expectations. While a melancholy motto, it aptly captures the mood of the current earnings season. The S&P 500 has rallied from the depths of January, and is now positive for the year - this despite earnings estimates dropping rather precipitously
U.S. unemployment claims at a 43-year low, manufacturing PMI’s back in positive territory, and a five percent unemployment rate are key reasons why recent recession fears have receded. Against this backdrop, stocks are above water for the year. While retail sales, including this week’s print, have been lackluster, four
f you Google the word, “fiduciary,” you will find that the definition states, “involving trust.” As a fiduciary of your investments, you should expect your investment adviser to put your interests before theirs when it comes to advice and selection of investment strategies. For many institutions, this
Today, the Bureau of Labor Statistics published its monthly employment statistics. Especially with the presidential election in full swing, the state of the jobs market is on people’s minds. Let’s step back from today’s numbers and look at the employment over this economic cycle.
The resilience of the equity markets has been quite impressive. At the time of the February lows, pessimism was rampant. Faith in the Chinese economy was shaken, gold was on the rise and there were faint whispers of imminent recession. Fast forward six weeks and the S&P 500 has rallied
The S&P 500 rallied again this week and is back to even for the year. Our original outlook came under pressure from the first day of trading in 2016. We expected rates to be slightly higher for the year and within six weeks the U.S. 10-year Treasury yield had fallen from 2.30 percent to 1.66 percent. We expected stocks to have a modest return of between 5 to 8 percent this year
With change at the economic margin beginning to improve (e.g. recent U.S. payrolls, durable goods orders and manufacturing PMI), investors are beginning to see cyclical elements of the equity market improve. Oil prices are now up year-to-date, energy and industrials are all of a sudden outperforming the broader market, and financials, which so far this year have pulled up the rear, are starting to get a bid.
There are only a handful of retailers left to report their earnings this quarter and thus far, it appears that companies’ results reflect a tough year in 2015. Profit growth declined just over 1 percent from 2014 as weak commodity prices and a strong dollar were major headwinds. This resulted in earnings per share (EPS) for the S&P 500 of $116. There were pockets of strength
State and local governments have finally emerged from the shadows of the Great Recession. This debilitating time period had drastic effects on regional economies – high unemployment and low corporate profits shrunk government coffers. Cash flow that would usually flow to infrastructure and pension plans was diverted to aid unemployed voters and plans to spur economic recovery. Government spending was
Currently, nearly 30 percent of the world's sovereign debt has a negative yield. Said differently, owners of $7 trillion worth of government bonds issued by countries all over the world will get less money than they invested if they hold the bond to maturity.
With U.S. large cap stocks down over 10 percent, it hasn’t been a happy new year for investors. The Fed tried to alleviate fears this week on Capitol Hill by stating that they realize the current volatility may lead to slower economic growth and thus there will be no March rate hike. While the talking heads weren’t impressed with the statement, we believe that it was a positive and highlighted the fact
At first glance, what some investors thought might by a perfect U.S. labor report for January met with a resounding thud in financial markets Friday. It seemed to be one without so many jobs created that the Fed would be forced into raising rates at an uncomfortably fast pace, yet a report that was still strong enough to
As of Thursday this week, roughly one-third of the S&P 500 companies have reported earnings for the fourth quarter of 2016. Of the 171 companies that have reported earnings 8 percent were in-line with expectations, 19 percent had a negative surprise and 72.6 percent reported a positive
That’s the message we heard loud and clear from the markets this week. As economies and markets around the world wobble to start the new year, they were looking to central banks to bail them out. Mario Draghi gave markets around the world some solace with his dovish news conference yesterday.
Earlier this week we lost a music icon. While I was not a big fan of David Bowie, there are a few songs of his that I enjoy. My favorite is “Under Pressure” which he co-wrote with the band Queen in 1981. The title is very appropriate for what we
As we observe U.S. stocks down roughly 5 percent in the first week of 2016, we are reminded of what occurred last fall when Chinese growth concerns and a strong dollar reverberated around the globe. While China accounts for only
Santa Claus left investors with a lump of coal this December. Historically, the S&P 500 is positive in the month of December with a return of roughly 2 percent. 2015 resulted in a flat return, summing up the entire year for investors. There
by Brad Houle, CFAExecutive Vice President
Last week, Third Avenue Management announced that they were freezing withdrawals from a leveraged credit fund. This announcement sent a wave of fear of broader contagion through the high-yield bond market. This fund bought bonds that were both illiquid and very risky from a credit quality perspective. Also, the fund employed leverage (borrowed money) in an attempt to enhance returns. This fund was swinging for the fences and not for risk adverse investors. This turbulence has bled over into the broader category of below investment grade bonds also referred to as high-yield.
Bonds that are below investment grade are often referred to as junk bonds due to the lower credit quality of the issuing companies. Junk bond is a somewhat of a pejorative description of an important part of the bond market. Small companies that are growing, a large engine for the U.S. economy, often fit into the category of below investment grade credit. It is important that there are public market debt financing options available for these entities. Because of the lower credit quality, investors demand more compensation in the form of interest in order to loan these companies money. Due to the lower credit quality there is a higher potential default risk for these bonds.
The genesis of this recent sell-off in the high-yield bond market has been the decline in the price of oil. Many smaller oil and gas companies use the high-yield debt market to finance their operations. When the price of oil declines these small oil and gas companies make less money and have more difficulty paying back the money they have borrowed. As a result, the prices on high-yield bonds in that segment of the market declined. Retail investors in mutual funds became nervous, withdrawing money from high-yield mutual funds and, to meet redemptions, the fund managers had to sell what they could to meet the investor demand for money. This dynamic has caused other parts of the high-yield bond market to decline as well.
Another wrinkle to this negative situation has been the decline in liquidity in the bond market. The Dodd-Frank Wall Street Reform and Consumer Protection Act that came from the financial crisis with the intention of reforming Wall Street has helped to create this predicament. Dodd-Frank severely limits the ability of large bank bond trading departments to inventory bonds, making building an effective market difficult due to capital requirements.
The higher quality investment grade market is where we invest our clients’ fixed income assets. Thus far, the investment grade bond market has only been modestly impacted by the sell-off. By comparison, the Barclays High Yield Index has declined 4.7 percent this year versus the Barclays Investment Grade Intermediate Credit Index which has returned 1 percent.
Our Takeaways from the Week
