Commentary

Fisher Investments Editorial Staff
Personal Finance, Taxes

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

By, 12/02/2016
Ratings294.258621


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
Ratings224.181818

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
Ratings313.967742


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
Ratings173.705882

This MarketMinder Minute evaluates the overstated importance of Black Friday.

Research Analysis

Scott Botterman
Into Perspective, Reality Check

Italian Referendum

By, 11/30/2016
Ratings284.107143

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
Ratings1304.342308

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
Ratings783.833333

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
Ratings563.919643

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
Ratings414.02439

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

Don’t Chase Heat: Defensive Sector Edition

By, 11/23/2016
Ratings563.919643

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
Ratings414.02439

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.

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths, Politics, Behavioral Finance

When Not to Trade

By, 11/14/2016
Ratings744.331081

Editor’s Note: Our political commentary is nonpartisan and non-ideological by design as political bias is a dangerous investing error. We favor no political party or candidate and assess politics solely for potential market impact.

On Tuesday night, most TV networks flipped between two visuals: the electoral map, and plunging S&P 500 futures markets. For extra flavor, some threw in the freefalling Mexican peso, sharp dives in foreign stock markets and rising gold prices (allegedly a safe haven during times of crisis).[i] The media seized on these snapshot trends and the obvious conclusion: Investors were fleeing to safety, and those who didn’t join them would suffer steep losses Wednesday and beyond. Yet within a few hours of markets’ opening, that theory was bunk. Most of those moves reversed, and stocks finished the day up. Volatility could very well resurge, but for now, consider this crucial lesson: Don’t trade around major news events expecting markets to respond a certain way to the outcome.

The following charts detail some of foreign markets’ (and gold’s) hourly moves on November 8 – 9. They show Tuesday evening’s fears of a sustained decline were overwrought—after just a few hours, the trends garnering so much attention had disappeared. S&P 500 futures pared many of their losses before the opening bell on November 9. The index itself did open lower, but by day’s end, it was up. Foreign markets lost ground as the votes were counted, but they, too, bounced back swiftly.

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 , The Washington Post, 12/02/2016

MarketMinder's View: Look, we’re happy for the 1,000 people who get to keep their jobs because the President-elect jawboned one company into keeping a plant open and a state government forked over millions in sweetheart tax breaks. But markets are colder, and this is the sort of thing markets tend not to like if done repeatedly on a broad scale. Governments picking winners and losers while steering trade policy to favor national champions is nineteenth century mercantilism (and modern Japan), not modern capitalism. We know capitalism is a dirty word to many folks, but markets have overwhelmingly done best (and society has advanced the most, and poverty has fallen the most) where it flourishes freely. Intervention of this sort distorts competition, creates confusion, raises uncertainty and eventually discourages risk-taking. Married with trade policy aimed at punishing corporations for moving production abroad, it risks hollowing out the economy and starving the country of investment. Don’t take our word for it: Read Tyler Cowen’s most excellent Bloomberg column explaining how it (wouldn’t) work. For investors, this isn’t a reason to be bearish today. Numerous pundits are criticizing the move for the exact reasons we’ve outlined here, and the more chatter there is, the more the risk gets baked in to stocks, reducing surprise power. Plus, it is entirely possible the next administration moves on to other issues once in office, leaves Corporate America alone, and preserves free trade where it exists. But it is a thing to watch. Closely.

By , The New York Times, 12/02/2016

MarketMinder's View: Here is a winner from the author of our Econ 2 textbook, explaining why policies aimed at reducing the trade deficit are solutions in search of a problem. For one, they will probably make it bigger by driving demand for US assets—and as a general rule, inbound foreign investments equal imports. Two, trade deficits aren’t problematic. We’ve run one for over 30 years, through good times and bad, and there is just no correlation with economic growth or stocks. “Rather than reflecting the failure of American economic policy, the trade deficit may be better viewed as a sign of success. The relative vibrancy and safety of the American economy is why so many investors around the world want to move their assets here. (And similarly, it is why so many workers want to immigrate here.)”

By , The Wall Street Journal, 12/02/2016

MarketMinder's View: Here’s how: It could boost “S&P 500 earnings, which have been dragged down in recent quarters in part by oil. Profits can fluctuate based on a many factors, but the decline of crude has been a key piece of the puzzle. Much of that has been due to the impact of energy companies on the broader index. As the average price of oil dropped from $103.01 per barrel in the second quarter of 2014 to $33.69 in the first quarter of this year, S&P 500 energy sector earnings dropped from $29.5 billion to minus-$0.9 billion, according to FactSet. But its impact was felt on the index as a whole. S&P 500 profits dropped from $268.1 billion in the second quarter of 2014 to $242.8 billion in the January-through-March period of this year, per FactSet.” As Energy earnings stabilize, that drag wanes, making strength in the other nine sectors more visible. Higher oil prices aren’t necessary for this, as even stable earnings would look fine on a year-over-year basis once earlier high profits fall out of the calculation, but they sure help.

By , Bloomberg, 12/02/2016

MarketMinder's View: Here is a wonderful thrashing of some fallacious comparisons of high-end real estate returns to stocks—including one arguing a single luxury home’s potential  (based on asking price) 8.7% annualized inflation-adjusted return since 1976 outstripped stocks’ 4.1%. While we have some issues with adjusting long-term returns for inflation, this is a salient debunking all the same: “As an investor, I have spent the past few decades watching my costs go down. As a homeowner, I have spent the past few decades watching my costs go up. As for that Standard & Poor's 500 Index 4.1 percent annualized inflation-adjusted return. Yes, that may be accurate, but only if you omit dividends. Include them and the return jumps to 7.4 percent.  That’s pretty close to the fictional 8.7 percent return cited above. Taxes, mortgage interest, insurance, maintenance, utilities? Although mortgage rates may be near historical lows, that probably is temporary. Meanwhile, the cost of almost everything else has gone up. Yale economist Robert Shiller pegs annual inflation-adjusted residential real estate returns, after costs, at 0.2 percent.”

Global Market Update

Market Wrap-Up, Thursday, December 1, 2016

Below is a market summary as of market close Thursday, December 1, 2016:

  • Global Equities: MSCI World (-0.2%)
  • US Equities: S&P 500 (-0.3%)
  • UK Equities: MSCI UK (+0.6%)
  • Best Country: Norway (+1.6%)
  • Worst Country: Belgium (-2.5%)
  • Best Sector: Energy (+1.3%)
  • Worst Sector: Information Technology (-2.1%)

Bond Yields: 10-year US Treasury yields rose 0.06 percentage point to 2.45%.

 

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.