Commentary

Fisher Investments Editorial Staff
Across the Atlantic

Italian Referendum Fails, Stocks Smile

By, 12/05/2016
Ratings64.833333

Time and again in 2016, pundits warned major political events would cause an earthquake for markets. Brexit. Donald Trump winning the US election. And now Italy’s Senate reform referendum, which failed Sunday, taking Prime Minister Matteo Renzi down with it. Yet each time, after the widely feared thing actually happened, stocks were fine. Sometimes within a couple days, as with Brexit, and sometimes within a couple minutes, as with Italy, giving investors another chance to learn a crucial lesson: Don’t overrate political events.

Markets are efficient and very, very good at discounting widely discussed events before they happen. Such was the case with Italy’s referendum. Unlike Brexit and the US election, referendum polls pretty soundly signaled the referendum’s defeat weeks beforehand. Conversation has long since moved from, “Will it pass or fail?” to, “What happens after it fails?” Even the related “if” over whether Renzi would stay in power seemed mostly resolved before the vote. After flip-flopping on whether the vote was also a referendum on his leadership (first he said it was, then—after seeing David Cameron go down post-Brexit vote—walked it back), in the campaign’s final days, Renzi made it pretty clear he’d go if he lost. Hence markets weren’t shocked when, after 60% of voters rejected the ballot measure, Renzi announced his intent to mozie over to President Sergio Mattarella’s office and hand in his papers.

Italian stocks dipped as much as -2.1% intraday Monday, but by day’s end they’d clawed most of it back, and the benchmark FTSE MIB closed just -0.2% down on the day. Most everywhere else, markets were buoyant. The UK’s FTSE 100, Germany’s DAX and France’s CAC 40 all topped 1% (in local currencies), enjoying pleasant mornings. The S&P 500 was up all day, finishing 0.6% higher.[i] Finance blogger (and CNBC pundit) Josh Brown—aka “The Reformed Broker”—sums the reaction up as “crisis fatigue. If everything is a crisis, then nothing is.” Calling it “the boy who cried wolf” would be a bad analogy, so we won’t do it, but you get the drift: When people repeatedly hear events are certain negatives for stocks, and reality proves the warnings wrong, at some point, people get wise and start brushing them off.[ii]

Commentary

Fisher Investments Editorial Staff
Personal Finance, Taxes

Year-End Guide 2016: Things to Consider Before the Ball Drops

By, 12/02/2016
Ratings784.076923


Reviewing these today might help you save money later. Photo by yuriz/Getty Images.

For many, the holiday season means getting together with family and friends. But as the new year approaches, consider spending some quality time with your tax adviser as well—some simple moves may save you a bundle.[i] We’ve compiled a few items below that may make 2017’s tax season a bit cheerier.[ii]

Take Your RMD

Commentary

Fisher Investments Editorial Staff
GDP, Corporate Earnings

Golly Gee Whiz Willikers, It’s Q3 GDP!

By, 12/02/2016
Ratings493.94898

Coming off the Thanksgiving weekend (perhaps with some new gizmos and gadgets from Black Friday), investors were treated with more positive news on Tuesday: The US economy grew a little quicker than initially projected—and the advance estimate was already the fastest rate in two years! So proclaimed the Bureau of Economic Analysis (BEA) in its second estimate of Q3 GDP. While this says nothing about America’s near-term prospects, it does provide further evidence the economy stands on solid ground.     

The second estimate of Q3 GDP was revised to 3.2% annualized, slightly higher than the advance estimate’s 2.9%. Personal consumption expenditures (consumer spending), which comprise approximately two-thirds of economic output, was revised up from 2.1% to 2.8%. On the not-as-positive front, business investment was shaved down from 1.2% to 0.1%. Real estate investment was revised up from the initial estimate’s -6.2%, but still negative (-4.4%).

Exhibit 1: Advance vs. Second Estimates of Q3 2016 GDP and Select Components 

Research Analysis

Brad Rotolo
Reality Check

What Does OPEC’s Production Cut Mean for Oil?

By, 12/01/2016
Ratings584.008621


There’s more where that came from. Photo by yodiyim/Getty Images.

At long last, the Organization of the Petroleum Exporting Countries (OPEC) reached an agreement to cut production on Wednesday. While details are scarce, comments from oil ministers indicate the group will cut oil production to 32.5 million barrels per day (Mbpd), from recent levels of 33.5 Mbpd. Despite the hype, however, the change is basically window-dressing. It probably won’t much alter global supply or improve the outlook for Energy firms. Their earnings are tied to oil prices, which likely remain lackluster for the foreseeable future (albeit with short-term volatility).

This is OPEC’s first official action of this sort since oil began crashing in 2014. OPEC surprised markets that November by declining to cut production, as had been widely expected at the time. Oil supplies were growing briskly, primarily due to new output from US shale production, which got a boost from developments like horizontal drilling and hydraulic fracturing. The resulting oversupply led to the last two years of oil weakness. With Wednesday’s agreement to cut production, OPEC is arguably moving back to its traditional role of attempting to target a price range for oil.

Commentary

Fisher Investments Editorial Staff
MarketMinder Minute, Media Hype/Myths

Black Friday's Overstated Importance

By, 11/30/2016
Ratings243.6875

This MarketMinder Minute evaluates the overstated importance of Black Friday.

Research Analysis

Scott Botterman
Into Perspective, Reality Check

Italian Referendum

By, 11/30/2016
Ratings523.990385

In a year where populism has swept the ballot box, is Italy next? On December 4, the country will hold a referendum on whether to reform the size, powers and appointment process for Parliament’s upper house, the Senate. If the referendum is approved, the Senate’s powers would be greatly curtailed and size reduced. It would shrink from 315 members to 100, the government would no longer have to win a Senate confidence vote, fewer measures would require Senate approval and senators would be appointed by Italy’s Regional Councils instead of directly elected. If passed, it would foster government stability and make it easier to pass badly needed reforms. But if it fails, many fear it will destabilize Italy’s pro-euro government, potentially propelling anti-euro populists to power and raising the risk of a domino effect across the eurozone. In our view, however, fears of broader market impact are likely overstated.

Prime Minister Matteo Renzi proposed the referendum to mitigate the Senate’s ability to block legislation and increase the Italian government’s stability, through elimination of one confidence vote. However, he also indicated his government will step down if the referendum is defeated. Opposition parties, such as the Five Star Movement (M5S), are against the referendum, as they believe it gives too much control to the Prime Minister. Many believe a Renzi resignation could give M5S an opening to enter the national government.

Italy doesn’t allow the publication of polls 15 days prior to an election or referendum, but the last polls indicated the “No” vote was ahead by about three points. PredictIt, a betting website similar to the late, great InTrade, puts the odds of the “No” vote prevailing at ~80%. But as US elections and the Brexit vote showed, polling and prediction have been unreliable lately. The considerable number of undecided voters (~20%) also suggests any poll isn’t conclusive.

Commentary

Fisher Investments Editorial Staff
Commodities, Into Perspective

Coal’s Trump Card a Bust

By, 11/25/2016
Ratings1344.339552

Coal country has struggled in recent years: A just-released report by the International Energy Agency notes that firms in various stages of bankruptcy control over half of US production. The sector employs just 50,000 people now, down from over 250,000 in 1980. The bulk of the losses are concentrated in Appalachian states like West Virginia and Kentucky, where mining hours are plummeting and local budgets are squeezed. Given this backdrop, it isn’t surprising coal became a political issue in 2016’s race, particularly since many claim the Obama Administration declared war on coal through a series of Environmental Protection Agency (EPA) emissions-trimming rules. Whatever you think of this argument, President-elect Trump garnered broad support in America’s industrial heartland[i] in part by promising to roll back restrictions and bring back jobs. Coal, therefore, is frequently cast as a “winner” in his election, which may lead some to wonder whether now isn’t a buying opportunity in this old economy mainstay. But while a lighter regulatory hand may be a small boon for the industry, cheaper and more plentiful natural gas poses a threat even a coal-friendly president can’t fix.

This is a tale of two energy sources. As coal firms around the world shut down, wade through bankruptcy or require state support, natural gas continues to benefit from the American shale boom. Coal used to be America’s most abundant source of domestic energy—enjoying a cost advantage that kept it fueling power plants, whether folks like the associated emissions or not. But natural gas production has risen massively since the Financial Crisis, and prices are down 60% since 2008, to the point that coal’s historical cost advantage is essentially gone. As a result, natural gas is gaining US market share at coal’s expense—and the trend started years before the EPA’s actions. Most coal-producing states were already on track to exceed the new standards when they were issued, thanks to natural gas’s ongoing ascent. That’s right—the EPA fired a dud in its alleged “war on coal.”[ii]

Exhibit 1: US Primary Energy Consumption by Fuel Source, 1960 – 2016

Commentary

Fisher Investments Editorial Staff
Into Perspective, The Big Picture

11 Reasons to Be Grateful This Thanksgiving

By, 11/23/2016
Ratings803.85

With Turkey Day looming, your friendly MarketMinder editorial staff is in a thankful mood. As eventful—and at times, difficult—as 2016 has been, there are lots of positives, too. Here are 11[i] things investors can be thankful for.

The Election Is Over

Whatever your feelings about President-elect Donald Trump, we are thankful election coverage is finally over. Besides the contentious presidential election, state and local elections—and their accompanying talk and hyperbole—are done, which is itself worthy of thanks.[ii] Even for politics aficionados, the sheer amount of noise has likely been a bit much. However, don’t expect the media to quiet down. Though election advertising and campaign-trail mudslinging is over, the media has already started attacking the president-elect, and the critiques will probably only intensify. It is likely we will see a much more aggressively anti-administration media than in the last eight years, so those hoping for quiet will have to look elsewhere.

Commentary

Fisher Investments Editorial Staff
Into Perspective

Don’t Chase Heat: Defensive Sector Edition

By, 11/23/2016
Ratings583.887931

During early 2016’s volatility, many flocked to the perceived safer shores of Consumer Staples, Telecom and Utilities stocks—defensive sectors that tend to be less subject to the whims of the global economy. After all, you are going to need deodorant and toilet paper whether the economy is booming or destined to bust.[i] So, given the fears of renewed recession that were so prevalent then, these three sectors unsurprisingly built up huge outperformance early on. But with the benefit of hindsight, it’s clear this was a headfake. Investors who chased big returns in seemingly “safer” stocks have officially been taught a harsh lesson.

In the year’s first six weeks—the correction out of the gate—Staples, Utilities and Telecom massively outperformed the MSCI World. Exhibit 1 shows this, plotting each MSCI World sectors’ return with net dividends from 12/31/2015 through 2/11/2016, the correction’s low.

Exhibit 1: Defensive Sectors’ Early Outperformance Was Big

Commentary

Ken Liu
US Economy, GDP

Don’t Fret Low Productivity

By, 11/18/2016
Ratings424.047619

What ails the US economy? No one can say exactly, but many arguments boil down to a lack of productivity growth. Many call it the great economic scourge of our time, consigning America (and maybe the world) to permanently low growth[i] and weak stock returns. In reality, however, productivity simply isn’t predictive—not of stocks, economic growth or future productivity.

First, some background. Labor productivity is value-added output per hour. If you totaled all hours worked every year and then multiplied the result by productivity, you would get GDP. Or, flip it around: If you divided GDP by total hours worked, you get productivity. Higher productivity theoretically allows folks’ incomes and living standards to rise without their working more hours, while weak productivity supposedly means stagnant wages, since companies would have to protect margins.

Adding up hours worked is relatively straightforward, but measuring output is fuzzier. Government statisticians simply limit themselves to tallying up the value of monetary transactions (i.e., sales and investment).[ii] The problem isn’t so much with the concept of GDP itself—it does what it’s supposed to do—but how it’s (mis)used and (mis)interpreted. For example, it isn’t a measure of well-being. It also excludes a lot of work, as non-market activity and non-transactional output like, um, MarketMinder articles, don’t count, even if they make you happy. As a statistic, it is built for the industrial era, not the technology/services-driven economy.

Commentary

Fisher Investments Editorial Staff
Into Perspective, The Big Picture

11 Reasons to Be Grateful This Thanksgiving

By, 11/23/2016
Ratings803.85

With Turkey Day looming, your friendly MarketMinder editorial staff is in a thankful mood. As eventful—and at times, difficult—as 2016 has been, there are lots of positives, too. Here are 11[i] things investors can be thankful for.

The Election Is Over

Whatever your feelings about President-elect Donald Trump, we are thankful election coverage is finally over. Besides the contentious presidential election, state and local elections—and their accompanying talk and hyperbole—are done, which is itself worthy of thanks.[ii] Even for politics aficionados, the sheer amount of noise has likely been a bit much. However, don’t expect the media to quiet down. Though election advertising and campaign-trail mudslinging is over, the media has already started attacking the president-elect, and the critiques will probably only intensify. It is likely we will see a much more aggressively anti-administration media than in the last eight years, so those hoping for quiet will have to look elsewhere.

Commentary

Fisher Investments Editorial Staff
Into Perspective

Don’t Chase Heat: Defensive Sector Edition

By, 11/23/2016
Ratings583.887931

During early 2016’s volatility, many flocked to the perceived safer shores of Consumer Staples, Telecom and Utilities stocks—defensive sectors that tend to be less subject to the whims of the global economy. After all, you are going to need deodorant and toilet paper whether the economy is booming or destined to bust.[i] So, given the fears of renewed recession that were so prevalent then, these three sectors unsurprisingly built up huge outperformance early on. But with the benefit of hindsight, it’s clear this was a headfake. Investors who chased big returns in seemingly “safer” stocks have officially been taught a harsh lesson.

In the year’s first six weeks—the correction out of the gate—Staples, Utilities and Telecom massively outperformed the MSCI World. Exhibit 1 shows this, plotting each MSCI World sectors’ return with net dividends from 12/31/2015 through 2/11/2016, the correction’s low.

Exhibit 1: Defensive Sectors’ Early Outperformance Was Big

Commentary

Ken Liu
US Economy, GDP

Don’t Fret Low Productivity

By, 11/18/2016
Ratings424.047619

What ails the US economy? No one can say exactly, but many arguments boil down to a lack of productivity growth. Many call it the great economic scourge of our time, consigning America (and maybe the world) to permanently low growth[i] and weak stock returns. In reality, however, productivity simply isn’t predictive—not of stocks, economic growth or future productivity.

First, some background. Labor productivity is value-added output per hour. If you totaled all hours worked every year and then multiplied the result by productivity, you would get GDP. Or, flip it around: If you divided GDP by total hours worked, you get productivity. Higher productivity theoretically allows folks’ incomes and living standards to rise without their working more hours, while weak productivity supposedly means stagnant wages, since companies would have to protect margins.

Adding up hours worked is relatively straightforward, but measuring output is fuzzier. Government statisticians simply limit themselves to tallying up the value of monetary transactions (i.e., sales and investment).[ii] The problem isn’t so much with the concept of GDP itself—it does what it’s supposed to do—but how it’s (mis)used and (mis)interpreted. For example, it isn’t a measure of well-being. It also excludes a lot of work, as non-market activity and non-transactional output like, um, MarketMinder articles, don’t count, even if they make you happy. As a statistic, it is built for the industrial era, not the technology/services-driven economy.

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths

Looking for Some Retail Therapy?

By, 11/17/2016
Ratings363.75

Tis the season … to shop till you drop? The Black Friday shopping rush has begun, with advertisements bombarding airways and inboxes. Accompanying the bells and whistles, retailers are also forecasting whether consumers will feel naughty or nice the day after Thanksgiving—and what this bodes for the industry. However, we remind investors not to get caught up in any short timeframe: What matters more is the longer-term trend, which currently looks fine.

Given Black Friday’s reputation as the year’s biggest shopping bonanza, retail experts go crazy trying to forecast customers’ behavior. This year, some wonder if events like the presidential election will hurt spending. Yet for all the hype, one day doesn’t determine the industry’s health. Plus, Black Friday is no longer a one-day phenomenon, as US holiday shopping is now more marathon than sprint[i]folks even plan for the best days (plural) to buy certain products.

Moreover, from a global perspective, America’s Black Friday isn’t the only big “one-day” retail event around, either. The UK imported Black Friday relatively recently, and it’s already a big deal for our friends across the Atlantic. In China, shoppers recently participated in “Singles’ Day” on November 11.[ii] Started as a lighthearted way to celebrate single life, it is now a huge commercialized production promoted by Western celebrities. This year, Singles’ Day generated an astounding $17.8 billion in sales, according to an estimate of China’s biggest online retailer, blowing away 2015’s $14.3 billion. Or, as one analyst pointed out, China’s 11/11 online sales exceed Brazil’s total projected 2016 e-commerce sales. Note, we aren’t saying this is predictive—again, no single day[iii] indicates future trends. But a mega shopping frenzy is inconsistent with the ever-feared hard landing. If China were truly in trouble, it seems unlikely young folks would fork over nearly $18 billion in one day. Similarly, if political events or aging expansions really endangered consumers in the US and UK—as some have argued—retailers wouldn’t be gearing up for a shop-till-you-drop mania, and industry experts wouldn’t be anticipating a pickup in holiday shopping from last year.

Commentary

Fisher Investments Editorial Staff
Into Perspective, The Global View

A Post-Election Economic Palate Cleanser

By, 11/14/2016
Ratings643.570313

Political news continues hogging investors’ attention, keeping recent economic data under the radar. We think that’s a shame, because data are fun and—most importantly—economic drivers probably matter more for stocks globally than the political leadership of a country that contributes just 25% of world GDP. So here is a rundown of the latest and greatest economic haps. Overall, stocks’ economic backing remains solid.

China Grows Again

China’s economy got off to a fine start in Q4, extending the major trends from summer and last month—robust government infrastructure and investment spending and an ongoing housing recovery helped shore up activity. Private investment remains weak, but high public fixed investment shows the government remains committed to supporting growth as needed. Lending and broad money supply also continue expanding apace.

Commentary

Fisher Investments Editorial Staff
Politics

Topsy-Turvy Politics Aren’t Just Made in America

By, 11/14/2016
Ratings264.25

America elected its next president last Tuesday. That’s a yuuuge deal.[i] Outside the US, meanwhile, other nations face their own political trials and tribulations. Some are “politics as usual,” while others are downright scary—reminders that a lot is happening beyond our shores, both in developed nations and Emerging Markets (EM). For investors, it is vital to tune out the noise and focus on what—if anything—is actually changing. Despite the chaos, the rule of law is still alive and well in developed countries, and besides some tiresome theatrics, those governments are mostly gridlocked—an underappreciated bullish political driver. Emerging Nations are (as usual) iffier, but the issues seem isolated.

Brexit Goes to Court

The London High Court ruled in early November that Parliament must weigh in before Britain can trigger Article 50 of the Lisbon Treaty—the formal mechanism that kicks off the two-year period for EU exit negotiations. This wrinkle has prompted speculation Brexit may not happen, but that’s premature. This (and related cases) now go to the UK’s Supreme Court, and even if the London ruling holds, it seems unlikely Parliament goes against the people’s will.

Research Analysis

Fisher Investments Editorial Staff
Into Perspective

MarketMinder Podcast - Emerging Markets Update

By, 10/11/2016

MarketMinder’s editorial staff sits down with Fisher Investments Capital Markets Analyst Austin Fraser.

Research Analysis

Scott Botterman
Into Perspective

Fear and Loathing and European Politics

By, 09/15/2016
Ratings284.035714

Political uncertainty is stoking fear across much of the developed world. In the US, pundits pontificate about the potential negative market impact from either a Donald Trump or Hillary Clinton presidency. Similarly, recent and upcoming votes in the eurozone’s four biggest economies—Spain, Italy, France and Germany—have contributed to an environment of fear and loathing across the Continent, causing many to miss the region’s overall fine economic results.  Time and again, forecasted political “disasters” have had a limited impact on the fundamental environment in Europe. The Brexit vote increasingly appears to have had little economic impact, with the most recent data pointing to the 14th consecutive quarter of expansion in Q3. Even long-beleaguered European Financials stocks are doing better, as issues like negative interest rates and regulatory changes have failed to live up to fears. While the upcoming votes might bring minor political shifts, all appear unlikely to result in big, sweeping change. Instead, they likely push governments deeper into gridlock—an underappreciated positive—which reduces uncertainty and legislative risk. 

Spain

Spain is likely headed to its third general election in a year after its fragmented parliament failed to form a government following June’s election. Prime Minister Mariano Rajoy of the center-right Popular Party (PP) was unable to win a confidence vote to form a minority government with upstart, centrist Ciudadanos. If neither Rajoy nor the opposition Socialist Party is able to form a government by Halloween, Spanish voters will return to the voting booth—potentially on Christmas Day.

Research Analysis

Christo Barker
Debt, Into Perspective

Four False Financials Fears

By, 03/28/2016
Ratings2214.28733

Financials stocks took it on the chin during 2016’s first six weeks, as investors freaked out over banks’ Energy exposure, eurozone banks’ capital ratios and bad loans, and negative interest rates. While these issues have impacted sentiment, in our view, they are overstated or misperceived.  Energy loans lack the balance sheet exposure to ripple systemically. Negative interest rates are poor monetary policy but apply only to a tiny portion of global bank reserves. Bank lending is improving in most of the world, including the US and Europe, and bank balance sheets are the healthiest they’ve been in a generation. We believe the US and European financial systems are quite healthy and the risk of another near-term financial crisis is extremely low.

1. Potential Energy Loan Defaults Lack Scale

In the US, Energy loans account for just 3% of total loans—tiny. Overall, US banks were already conservatively positioned with 1.5% of loans set aside to cover all potential bad debts. Even with this conservative buffer, banks modestly stepped up these provisions as a precautionary measure, further limiting potential energy fallout. Just 6% of outstanding Energy debt globally is on bank balance sheets, while 86% is in the bond market. (Exhibits 1 and 2)

Some compare Energy loans today to subprime mortgages and 2008’s financial panic, but these fears lack credibility. Banks’ real estate exposure in 2007 amounted to 110 times their Energy exposure today. Plus, that 3% balance sheet exposure to Energy includes loans to huge integrated firms and state oil companies—neither have legitimate default risk. Even if half of the outstanding Energy loans were to default—extremely far-fetched—the conservative position of bank balance sheets is well-positioned to limit any major fallout from such an event.

Research Analysis

Pete Michel
Into Perspective

Illusions of Bond ETF Illiquidity

By, 02/11/2016
Ratings304.65

Over the past year bond market liquidity—the ability to quickly redeem an asset for cash without moving the price muchhas gone from an obscure, seldom-mentioned topic to one of the financial press’s favorite fears. Worries centered on high-yield exchange-traded funds (ETFs), with pundits and prominent investors frequently warning they operate on the illusion of liquidity. We’ve addressed this issue several times on MarketMinder (here, here and here). I won’t rehash those points in full, but for a quick refresher, regulatory changes made bond dealers less willing to hold large inventories and act as intermediaries. This, pundits theorize, makes bonds less liquid. Compounding the issue is the increased use of ETFs that promise equity-like liquidity but are backed by much less liquid bonds. This “mismatch” is the alleged liquidity illusion, and many claim a high-yield selloff and the accompanying high volumes will reveal a rough reality: that investors can’t redeem quickly without accepting dramatically lower prices. Yet despite a deep correction and record volumes in high-yield ETFs in 2015, we’ve seen no signs of liquidity issues. High-yield ETFs’ liquidity isn’t an illusion. These fears miss ETFs’ ability to create very real liquidity of their own.

To better understand why these liquidity concerns are false, let’s first consider bond ETFs’ size relative to their underlying benchmarks. High-yield ETFs are a fairly new investment tool—the first launched in 2007. Since then, they have gained popularity and, as of November, had over $42 billion in assets.[i] Yet despite the rise in high-yield ETF assets, they represent only a small portion of the US dollar-denominated high-yield market. In other words these ETFs are too small to dictate what happens to the overall index—it’s the other way around.

Exhibit 1: Total Value of High-Yield ETF Assets as a Percentage of High-Yield Index Market Value

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What We're Reading

By , Bloomberg, 12/05/2016

MarketMinder's View: 20 years ago today, then Fed head Alan Greenspan uttered the following words: “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?” (Boldface ours.) This piece conjures up that anniversary and imagery to argue markets are looking frothy today, based on the post-US election rally and valuations, which it argues are at their highest levels since 2000’s bubble. The trouble with this logic: Markets have been largely flat for two years, which is kind of un-bubble-like and that Trump rally amounts to a 3% up move at this juncture. Valuations may be higher than at points since 2000, but they are only about half of what they were then and just barely above their long-term average. That’s not frothy, it’s pretty typical. As it pertains to bonds, is anybody anywhere euphoric about the outlook for fixed income? We find mostly fear, as expressed in this piece. Sorry, but signs that “irrational exuberance” has returned are few and far between. Oh, and might we add: Greenspan uttered those words more than three years before the 1990s bull market peaked. Exiting stocks because of his “warning” could have been quite costly. And we’re not singling him out—no policymaker we are aware of, including the present Fed, has a track record of successfully forecasting markets.

By , The New York Times, 12/05/2016

MarketMinder's View: This piece does a smashing job demonstrating the global supply chain at work. Consider the recliner described herein, made in the US using many American products. Designers in Michigan create the chair plan—American intellectual property. Local workers affix wood from Wisconsin timber to an American-steel frame—and it’s all assembled in a factory in the States. However! The fabric for the chair, and the electronics that make the recliner actually recline, are imported from Germany and China. The reason: Because those countries currently have the infrastructure and workforce to produce those goods as quickly and cheaply as possible. If one country were to disrupt the supply chain (e.g., through tariffs or import restrictions), that would cause some displacement and unintended consequences. While some economists argue that punitive tariffs from the US would bring jobs back here, that seems unlikely. Automation is already claiming many manufacturing roles, and plus, companies may just shift operations to countries without those barriers. As one business owner quoted here says, “Money and goods will always find their way, regardless of what barriers you put up. You just make it more difficult and more expensive.” This is why we say following trade policy developments—separating talk from action—is key.

By , Financial Times, 12/05/2016

MarketMinder's View: Yesterday, Italian voters overwhelmingly rejected Prime Minister Matteo Renzi’s referendum on constitutional reform (59% to 41%). As promised, Renzi announced he would resign, and talking heads are already speculating about the fallout. The result is an avalanche of articles like this one, pondering questions that seem quite a stretch from where things stand today. Questions like: Will the populist Five Star Movement now sweep into power, putting Italy’s future in Europe at risk? Will the uncertainty roil Italy’s banking system, causing a financial crisis? Is the European Project doomed? But realistically, this vote doesn’t mean any of those things. For Italy’s near-term political future, President Sergio Mattarella will likely tap a caretaker government rather than call snap elections, and that means gridlock—more of the same for Italy. More importantly, the referendum’s result also resolves some broader political uncertainty, which is a common theme for this year—that falling uncertainty will help investors see a better-than-appreciated reality. Finally, consider: Markets discount all widely known information, and the referendum’s result wasn’t a huge surprise, as polls showed “No” winning. That’s probably why markets barely batted an eyelash. For more, see today’s commentary, “Italian Referendum Fails, Stocks Smile.”       

By , The Wall Street Journal, 12/05/2016

MarketMinder's View: For evidence populists aren’t running roughshod over in Europe, see Austria’s presidential election—a re-run from May’s contested election. Granted, a couple caveats: The victor, center-left candidate Alexander Van der Bellen, was the former head of Austria’s Green Party and ran as an independent, so this isn’t an “establishment” triumph. (But he is very pro-EU, so in that sense, it’s not in keeping with the narrative of populists upsetting the international status quo.) Also, the presidency is largely ceremonial, with the more important parliamentary elections to come in 2018. Those conditions aside, Van der Bellen’s victory over far-right candidate Norbert Hofer of the Freedom Party is another counterpoint to the narrative of a populist wave sweeping across Europe. Despite all the headlines they command, populists aren’t uniformly grabbing power. Some examples: After 10 months of no government in Spain, the establishment parties formed a minority government, sans far-left Podemos’ support. While France’s far-right Front National will contend for the presidency next year, it has yet to score a major national victory. Elections in France and Germany next year will be telling about populists’ staying power and influence, but for now, concerns about a populist uprising seem overwrought.      

Global Market Update

Market Wrap-Up, Friday, December 2, 2016

Below is a market summary as of market close Friday, December 2, 2016:

  • Global Equities: MSCI World (+0.0%)
  • US Equities: S&P 500 (+0.0%)
  • UK Equities: MSCI UK (+0.0%)
  • Best Country: Belgium (+0.6%)
  • Worst Country: Hong Kong (-1.5%)
  • Best Sector: Utilities (+0.7%)
  • Worst Sector: Consumer Discretionary (-0.4%)

Bond Yields: 10-year US Treasury yields fell 0.06 percentage point to 2.39%.

 

Editors' Note: Tracking Stock and Bond Indexes

 

Source: Factset. Unless otherwise specified, all country returns are based on the MSCI index in US dollars for the country or region and include net dividends. S&P 500 returns are presented including gross dividends. Sector returns are the MSCI World constituent sectors in USD including net dividends.