Commentary

Fisher Investments Editorial Staff
Into Perspective, Media Hype/Myths, Across the Atlantic

Brexit: One Year Later

By, 06/22/2017


Breaking up is hard to do. Photo by Chris Ratcliffe/Bloomberg via Getty Images.

Do you remember where you were when Britain turned its back on Europe? It was headline writers’ time to shine! After “Little England Beat Great Britain” and “opened Pandora’s Box,” pundits reflected on the “24 Hours in Which the World Has Changed.” Some said Brexit was “the biggest blow to a united Europe since the Second World War” and the Continent “may be plunged into the worse crisis in its history.” Though a few outlets weren’t quite so apoplectic—“Brexit won’t be as bad as people think[i]”—many were freaking out over the surprising result and what it meant not just for the UK, but the world. Yet a year after Brexit, the UK is still in the EU. We know, shocker! (Kidding, of course.) With a year now behind us, the present seems like a good time to recap what has—and, perhaps more importantly, hasn’t—happened.   

After the vote, fear abounded. Stocks’ sharp selloff drove bear market dread. The business environment suddenly looked iffy, with uncertainty allegedly icing potential mergers. Others predicted businesses would spend less and inflation would crimp consumers, rendering recession. Across the channel, EU-types feared losing a major trading partner as well as a potential domino effect if increasingly popular anti-EU political parties gained power.

Commentary

Jamie Silva
Interest Rates, MarketMinder Minute

When to Fret the Fed

By, 06/22/2017
Ratings64.333333

In this Market Insights video, we discuss when investors should start worrying about the Fed. The time to fret the Fed is when it takes action impacting the yield curve and most folks neither see nor appreciate it.

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths

Survey Says: Media Still Dour

By, 06/20/2017
Ratings124.416667

A recent study found 82% of surveyed fund managers don’t think Tech is currently a bubble. And media, in reviewing these findings, cited the vast rationality of this huge majority of professional investors, called it a day and decided not to publish anything. Kidding! They fixated on the 18%—and the others who fretted slightly less about valuations—that did. If some experts are worried stocks are partying like it’s 1999, should regular investors be concerned? In our view, no. Surveys can roughly indicate sentiment since they show how one segment of investors feels at a specific time, but they can’t tell you where the market is headed—a point media seems to miss.  

The survey in question—Bank of America Merrill Lynch’s Global Fund Manager Survey (FMS)—asks participants[i] about their current views on stock valuations, popular trades, tail risks[ii] and portfolio positioning, among other topics. June’s report is making headlines because 44% of 210 respondents say equities are overvalued: the highest response on record. Combine this tidbit with other findings—like 57% believing Internet stocks are expensive, 18% calling them “bubble-like” and 38% thinking the most popular trade right now is a play on Tech rising for the foreseeable future (via being long the Nasdaq)—and the comparisons to the late 1990s Tech Bubble seem obvious.[iii]  

While we have no qualms with the FMS itself, we are generally skeptical about drawing any big takeaways from surveys because of their natural limitations. Surveys reflect how respondents feel at one particular time, which is often tied to what just happened or what they’re hearing. But feelings can change quickly! If stocks enjoyed a week-long hot streak, investors are probably feeling pretty good. They’ll probably feel the opposite way (and then some) if markets pulled back a bit. Or, for a bunch of contrarian fund managers, maybe a big run sparks fears of “crowded trades,” while a pullback inspires visions of opportunities.

Commentary

Elisabeth Dellinger
Capitalism, Media Hype/Myths

Technology: Coming for Your Job Since John Kay

By, 06/20/2017
Ratings264.519231

The printout that started it all. Note the dust. Photo by Elisabeth Dellinger.

“Will you lose your job because of a machine?”

Research Analysis

Christo Barker
Into Perspective

Victory to En Marche!

By, 06/19/2017

The fourth and final round of French national elections concluded over the weekend, clearing a major milestone in the year of falling political uncertainty. President Emmanuel Macron’s centrist La République En Marche! party and its ally, the Democratic Movement (MoDem), gained a clear majority in the National Assembly after winning 61% of the seats (350 of 577) in the second round of the French parliamentary election. (Exhibit 1)

At a surface level, this result technically reduces political gridlock in France. However, the En Marche party is itself an exercise in gridlock, as it is essentially a blend of center-left and center-right politicians. It includes lawmakers that defected from both of the traditional Socialist and Republican Parties. A centrist coalition likely pursues more moderate policies aimed at incremental change rather than broad, sweeping legislation with the potential to really shock markets. For example, the party’s primary policies likely include reforming labor laws, cutting corporate taxes, reducing a bloated civil sector and promoting entrepreneurship. Yet none of the proposals unveiled thus far appear terribly radical. Labor market reforms, for example, appear to dance around third rails like France’s 35-hour workweek. Plus, En Marche is also just over a year old, and over half of its National Assembly members haven’t held any political office before. How well these political novices work with the old guard—and how well the center-right and center-left can agree on policy details—will be worth monitoring, but intraparty gridlock likely creates additional hurdles to legislation.

While one could argue French gridlock could dash hopes for big pro-business reforms, potentially setting up stocks for disappointment, Macron’s relatively watered-down agenda is already widely known. Moreover, having less potential for radical legislation means less chance for new laws to create winners and losers, which reduces one source of risk for markets.  

Commentary

Elisabeth Dellinger
Currencies

Dennis Rodman and Bitcoin Walk Into a Dutch Coffee Shop

By, 06/16/2017
Ratings334.454545

So here’s the thing about Bitcoin: Yah, it had a big run, and yah, its sharp slide this week might look like a buying opportunity, but really, what are you actually buying? And is it worth it?

For those not in the know, Bitcoin is the most famous cryptocurrency—basically, funny money for cyberspace. It isn’t backed by governments or created by central banks. Instead, a dude or dudette going by the pseudonym Satoshi Nakamoto wrote a computer program that basically spits out one Bitcoin at a predetermined rate, and capped the amount available. To get Bitcoins, cyber whippersnappers would fire up mega-powerful computers and run an algorithm to “mine” them, with the winning miner getting whichever Bitcoin was up for grabs based on Nakamoto-san’s program. Once in possession of Bitcoins, you can either hoard them—a popular choice—or spend them wherever they are accepted. While that includes an array of stores and websites, Bitcoin’s real allure is its untraceability—transactions are logged on this thing called “blockchain,” and they don’t include details like who exchanged them, where or for what. Hence, Bitcoin has become the currency of choice on the Dark Web, which is where, according to media reports, unsavory folks go to do unsavory things. (DISCLOSURE: WE DON’T RECOMMEND YOU PARTICIPATE IN UNSAVORY THINGS.)

Now, purportedly unsavory folks’ conducting transactions in an untraceable currency wouldn’t be a noteworthy story for a finance website, but for this wrinkle: The price of one Bitcoin rose from about $10 in 2012 to $2,871 last Friday.[i] Even as recently as March 31, it was at only $1,074. A 167% gain in just two months and nine days? Yowza. But here’s another yowza: Since then, in just four days, it tumbled near $2,000 in intraday trading. The boom giveth, the afterboom taketh away.

Commentary

Fisher Investments Editorial Staff
Others

Ken Fisher and Jim Cramer to Chat in Upcoming TheStreet Webcast

By, 06/16/2017
Ratings533.188679

Next week, Fisher Investments’ founder and Executive Chairman Ken Fisher will sit down with TheStreet founder Jim Cramer in a new webcast titled “Investing For Your Future.” This special, online-only event will be streamed live from TheSteet’s studio in New York City at 11:00 AM EDT/ 8:00AM PDT on June 21, 2017. UPDATE: The event has now concluded. However, a replay of the webcast is available for a limited time at the link below. Please note: Registration is required.

During the webcast, Fisher and Cramer will discuss how today’s market trends are shaping retirement planning. Topics covered will be diverse, but are expected to include how you can generate retirement income through stocks, the current investment landscape and how current geopolitical events are influencing the economic and investing environment.

You can sign up for the webcast at TheStreet.com by clicking here.

Commentary

Fisher Investments Editorial Staff
Monetary Policy

The Fed’s Diet Plan

By, 06/15/2017
Ratings724.458333

On Wednesday, the Fed raised rates for the fourth time in this bull market, no one cared, and everyone went home and enjoyed a summer evening walk. Oh, wait, sorry, Janet Yellen and friends also released their roadmap for getting all of those trillions of quantitative easing-related assets off their balance sheet, and made a loose pledge to start the process sometime this year. In other words, another Fed-related thing people have feared for years is about to finally happen. Yet markets took the news in stride, as they have most Fed “tightening” in recent years. Seems about right to us: Not only is shrinking the Fed’s balance sheet not inherently negative for the economy (or stocks or bonds), but this is shaping up to be one of the slowest monetary policy moves in central banking history.

The Fed’s plan pretty much matches what the bank has telegraphed for months: A slow, steady unwinding that doesn’t involve outright selling anything—just not replacing bonds as they mature. We pointed out earlier this year that if the Fed simply let everything roll off its balance sheet as it matured, it would constitute a gradual move that shouldn’t shock markets. Well, turns out they’re going to go even more slowly, capping the amount allowed to roll off each month. From the official statement:

  • For payments of principal that the Federal Reserve receives from maturing Treasury securities, the Committee anticipates that the cap will be $6 billion per month initially and will increase in steps of $6 billion at three-month intervals over 12 months until it reaches $30 billion per month.
  • For payments of principal that the Federal Reserve receives from its holdings of agency debt and mortgage-backed securities, the Committee anticipates that the cap will be $4 billion per month initially and will increase in steps of $4 billion at three-month intervals over 12 months until it reaches $20 billion per month.
  • The Committee also anticipates that the caps will remain in place once they reach their respective maximums so that the Federal Reserve's securities holdings will continue to decline in a gradual and predictable manner until the Committee judges that the Federal Reserve is holding no more securities than necessary to implement monetary policy efficiently and effectively.

In other words, they’ll start by letting $10 billion roll off each month, and increase the cap by another $10 billion quarterly until it hits $50 billion, where it will stay until the balance sheet has shrunk to where they want it, which isn’t specified here. They also hedged a lot and left a few get-out clauses at the end of the statement, giving them plenty of wiggle room to stop the process or (goodness gracious please no) restarting QE if they think they need to.

Commentary

Fisher Investments Editorial Staff
Across the Atlantic

Europe’s Bank Bail-In Roadmap Yields Two Routes

By, 06/14/2017
Ratings254.48

Financial media around the world spent last Wednesday celebrating Banco Santander’s purchase of failing Spanish lender Banco Popular, billing it as a successful first test of the eurozone’s new system for dealing with failed banks. Known as the “Single Resolution Mechanism,” (SRM) it is supposed to be a clear, predictable process for winding down banks without tapping taxpayer funds. When Santander bought Popular for €1 after shareholders and junior creditors were bailed in, markets simply shrugged, leading observers to conclude the system had passed with flying colors. For now, the Banco Popular acquisition does help clear some of the lingering uncertainty over eurozone Financials, and it has clearly helped sentiment—both positive. However, over time, we believe there remain several details to iron out, and we’d caution against presuming the SRM will magically fix the next banking crisis whenever it occurs.

The SRM has been around since 2014, but until now, it remained largely untested. Italy had a chance to use it when determining how to address Monte dei Paschi di Siena and other struggling lenders, but instead the government got special permission to inject state funds into the bank to keep it afloat (a move the European Commission just rubber-stamped June 1). The SRM requires banks’ junior bondholders to take losses as part of any formal resolution. In Italy, this was politically untenable since most junior bondholders are retail depositors—normal mom and pop savers—who were sold bonds pitched as safe, high-yield alternatives to a traditional bank account. When a smaller Italian bank failed in 2015, wiping out bondholders, there was a huge public backlash. One saver committed suicide, blaming the bank in his note. This tragedy and the general outcry took a bail-in for the much larger Monte Paschi off the menu.

No such drama surrounded Banco Popular. Consistent with the SRM, shareholders, junior bondholders like contingent-convertible (coco) bondholders and even holders of AT-2 bonds—higher in the pecking order than cocos—were wiped out (depositors and senior bondholders were spared). Instead of injecting capital into Banco Popular to allow it to remain a going concern, regulators brokered its sale to Santander, which is raising €7 billion in new capital to handle Popular’s obligations. Spanish stocks ticked down on June 7, the day the deal was announced, but Spanish Financials rose 0.3%.[i] Investors didn’t panic, depositors didn’t flee banks, and the entire process seemed seamless.

Research Analysis

Fisher Investments Editorial Staff
Into Perspective

Market Insights Podcast: Energy Sector - June 2017

By, 06/13/2017
Ratings273.351852

In this podcast, Communications Group Manager Naj Srinivas talks to Research Analysts Luis Casian and Brad Rotolo about the Energy sector’s recent developments and our current outlook.

00:56 - Major Energy stories
01:48 - OPEC vs. US production
03:50 - What could cause oil to venture out of its recent norm near $50?
05:30 - Recent globalized nature of oil production
07:03 - Technological improvements in fracking
09:15 - Natural gas byproducts
10:13 - US production meets demand

Commentary

Fisher Investments Editorial Staff
Others

Ken Fisher and Jim Cramer to Chat in Upcoming TheStreet Webcast

By, 06/16/2017
Ratings533.188679

Next week, Fisher Investments’ founder and Executive Chairman Ken Fisher will sit down with TheStreet founder Jim Cramer in a new webcast titled “Investing For Your Future.” This special, online-only event will be streamed live from TheSteet’s studio in New York City at 11:00 AM EDT/ 8:00AM PDT on June 21, 2017. UPDATE: The event has now concluded. However, a replay of the webcast is available for a limited time at the link below. Please note: Registration is required.

During the webcast, Fisher and Cramer will discuss how today’s market trends are shaping retirement planning. Topics covered will be diverse, but are expected to include how you can generate retirement income through stocks, the current investment landscape and how current geopolitical events are influencing the economic and investing environment.

You can sign up for the webcast at TheStreet.com by clicking here.

Commentary

Fisher Investments Editorial Staff
Monetary Policy

The Fed’s Diet Plan

By, 06/15/2017
Ratings724.458333

On Wednesday, the Fed raised rates for the fourth time in this bull market, no one cared, and everyone went home and enjoyed a summer evening walk. Oh, wait, sorry, Janet Yellen and friends also released their roadmap for getting all of those trillions of quantitative easing-related assets off their balance sheet, and made a loose pledge to start the process sometime this year. In other words, another Fed-related thing people have feared for years is about to finally happen. Yet markets took the news in stride, as they have most Fed “tightening” in recent years. Seems about right to us: Not only is shrinking the Fed’s balance sheet not inherently negative for the economy (or stocks or bonds), but this is shaping up to be one of the slowest monetary policy moves in central banking history.

The Fed’s plan pretty much matches what the bank has telegraphed for months: A slow, steady unwinding that doesn’t involve outright selling anything—just not replacing bonds as they mature. We pointed out earlier this year that if the Fed simply let everything roll off its balance sheet as it matured, it would constitute a gradual move that shouldn’t shock markets. Well, turns out they’re going to go even more slowly, capping the amount allowed to roll off each month. From the official statement:

  • For payments of principal that the Federal Reserve receives from maturing Treasury securities, the Committee anticipates that the cap will be $6 billion per month initially and will increase in steps of $6 billion at three-month intervals over 12 months until it reaches $30 billion per month.
  • For payments of principal that the Federal Reserve receives from its holdings of agency debt and mortgage-backed securities, the Committee anticipates that the cap will be $4 billion per month initially and will increase in steps of $4 billion at three-month intervals over 12 months until it reaches $20 billion per month.
  • The Committee also anticipates that the caps will remain in place once they reach their respective maximums so that the Federal Reserve's securities holdings will continue to decline in a gradual and predictable manner until the Committee judges that the Federal Reserve is holding no more securities than necessary to implement monetary policy efficiently and effectively.

In other words, they’ll start by letting $10 billion roll off each month, and increase the cap by another $10 billion quarterly until it hits $50 billion, where it will stay until the balance sheet has shrunk to where they want it, which isn’t specified here. They also hedged a lot and left a few get-out clauses at the end of the statement, giving them plenty of wiggle room to stop the process or (goodness gracious please no) restarting QE if they think they need to.

Commentary

Fisher Investments Editorial Staff
Across the Atlantic

Europe’s Bank Bail-In Roadmap Yields Two Routes

By, 06/14/2017
Ratings254.48

Financial media around the world spent last Wednesday celebrating Banco Santander’s purchase of failing Spanish lender Banco Popular, billing it as a successful first test of the eurozone’s new system for dealing with failed banks. Known as the “Single Resolution Mechanism,” (SRM) it is supposed to be a clear, predictable process for winding down banks without tapping taxpayer funds. When Santander bought Popular for €1 after shareholders and junior creditors were bailed in, markets simply shrugged, leading observers to conclude the system had passed with flying colors. For now, the Banco Popular acquisition does help clear some of the lingering uncertainty over eurozone Financials, and it has clearly helped sentiment—both positive. However, over time, we believe there remain several details to iron out, and we’d caution against presuming the SRM will magically fix the next banking crisis whenever it occurs.

The SRM has been around since 2014, but until now, it remained largely untested. Italy had a chance to use it when determining how to address Monte dei Paschi di Siena and other struggling lenders, but instead the government got special permission to inject state funds into the bank to keep it afloat (a move the European Commission just rubber-stamped June 1). The SRM requires banks’ junior bondholders to take losses as part of any formal resolution. In Italy, this was politically untenable since most junior bondholders are retail depositors—normal mom and pop savers—who were sold bonds pitched as safe, high-yield alternatives to a traditional bank account. When a smaller Italian bank failed in 2015, wiping out bondholders, there was a huge public backlash. One saver committed suicide, blaming the bank in his note. This tragedy and the general outcry took a bail-in for the much larger Monte Paschi off the menu.

No such drama surrounded Banco Popular. Consistent with the SRM, shareholders, junior bondholders like contingent-convertible (coco) bondholders and even holders of AT-2 bonds—higher in the pecking order than cocos—were wiped out (depositors and senior bondholders were spared). Instead of injecting capital into Banco Popular to allow it to remain a going concern, regulators brokered its sale to Santander, which is raising €7 billion in new capital to handle Popular’s obligations. Spanish stocks ticked down on June 7, the day the deal was announced, but Spanish Financials rose 0.3%.[i] Investors didn’t panic, depositors didn’t flee banks, and the entire process seemed seamless.

Commentary

Fisher Investments Editorial Staff
Into Perspective, Media Hype/Myths

Searching for Meaning in Bouncy Tech

By, 06/12/2017
Ratings704.35

How do you know when it’s a slow news stretch in the world of finance? Easy: When one sector has a bad day and headlines still haven’t stopped talking about it three days later. So it went after S&P 500 Tech stocks fell -2.7% Friday, sparking fears that the trend was no longer investors’ friend and this crowded momentum trade had hit a wall, or some such jargoney mumbo jumbo.[i] Media even spilled more pixels Monday, when Tech opened down and finished the day -0.8% lower, a daily move even the media probably wouldn’t point out without Friday’s.[ii] We wouldn’t normally devote space to such short-term swings in one sector, but there is an avalanche of coverage trying to draw forward-looking conclusions, and we believe it is our duty to attempt to set the record straight. One day’s volatility simply isn’t predictive, even if the sliding sector is the market’s year-to-date leader.

Tech has been hogging headlines most of the year—partly because it has done quite well, and partly because five of its largest constituents were responsible for 41% of the S&P 500’s year-to-date market cap increase until they took a pounding Friday. That pounding, we’re warned, is potentially evidence investors are out of cash or unwilling to “buy the dips,” sapping these Tech giants’ ability to prop up the market moving forward. Never mind that Tech has had steeper falls since this rally began on February 11, 2016, when the last correction ended. Observers argue those don’t count, since they occurred during broad-based drops. Friday was unique, we’re told, because it was out of the blue and otherwise a mostly fine day for markets, with 7 of the S&P 500’s 11 sectors positive.  

Now, we didn’t buy into the “five Tech companies are driving the market while everyone else stinks” story, so don’t take any of our next 535 words as an argument for five firms’ continued dominance. That isn’t what we do. But we also don’t think it’s fair to declare Tech’s longer run dead based on one day. This isn’t the only time Tech has had a short burst of underperformance since last February. Exhibit 1 shows the S&P 500 Information Technology Index’s returns since February 11, 2016, divided by the S&P 500. When the line is rising, Tech is outperforming. As you’ll see, there are steep, deeper drops in November and April 2016. Neither prevented Tech from outperforming moving forward, because past performance does not predict or drive future returns. Often a blip is just a blip.

Commentary

Fisher Investments Editorial Staff
Others

Ken’s Latest in USA Today—and Some News!

By, 06/12/2017
Ratings184.583333

Greetings, Readers! We’re writing today to share Fisher Investments’ founder and Executive Chairman Ken Fisher’s latest USA Today article, published this morning in the Money section. This is Ken’s first piece for USA Today since they reached an agreement to publish a column every other week. So, you can anticipate seeing much more of his work there going forward.

The latest:

Don’t Roll Over for This 401(k) and IRA Ripoff

Commentary

Fisher Investments Editorial Staff
Into Perspective, The Global View

The World Beyond Covfefe, Comey and GE2017

By, 06/12/2017
Ratings374.364865

A fresh batch of economic data—May purchasing managers’ indexes, or PMIs—largely tell this tale: Businesses around the world are expanding. This isn’t breaking news if you follow these monthly releases religiously, but most regular folks don’t.[i]  However, when media flash a story on the latest, they often pen a headline focused on a single, eye-grabbing tidbit that omits more important context and details. Focusing only on headlines or even just the one month of data usually obscures the more telling bigger picture—something we recommend investors keep in mind when consuming financial media.

Brexit Still Hasn’t Hurt UK Services 

Media Reaction: The May IHS Markit/CIPS Services PMI disappointed some who had hopes of an economic rebound. Others blamed the lower reading on General Election jitters and weak consumer spending.   

Research Analysis

Fisher Investments Editorial Staff
Into Perspective

Market Insights Podcast: 2017 Market Outlook

By, 03/13/2017
Ratings203.925

In this podcast, Fisher Investments’ Investment Policy Committee discusses their views on capital markets and the economy in 2017.

Research Analysis

Fisher Investments Editorial Staff
Reality Check

Market Insights Podcast: Talking Trump and Trade

By, 02/15/2017
Ratings373.27027

In this podcast, we interview Content Analyst Elisabeth Dellinger on recent talk of protectionism, border taxes and trade.

Research Analysis

Scott Botterman
Into Perspective

2017: The Year of Falling European Political Uncertainty

By, 01/31/2017
Ratings724.159722

Falling uncertainty gave stocks a tailwind in 2016 as investors moved past the Brexit referendum and US presidential election. By year end, persistent skepticism gave way to budding optimism, and the proverbial “animal spirits” stirred. This year, it should be continental Europe’s turn. France, Germany and the Netherlands all hold national elections, while Italy is expected to call snap elections as well. Many fear populist, non-traditional, anti-EU parties on both the far right and left are on the rise and will grab national power. Though these parties are gaining in polls and winning local elections, they still lack the political infrastructure to meaningfully impact policy or make the market’s most-feared scenarios—like another country’s exit from the EU or even the eurozone—a reality. Thus, when the “worst-case” scenario doesn’t come to pass, the likely result is relief.

European politics are factionalized and scattered. In the US, the two-party system dominates, with minor third party movements cropping up occasionally. But in the parliamentary system—used often in Europe and elsewhere around the globe—there is room for more parties and more platforms. Lately, parties with minority support have popped up across Europe, forcing fragile coalitions and muddying the legislature’s ability to take decisive policy action. This feature alone screams more gridlock than widely imagined, reducing legislative risks for stocks.

Italy

Research Analysis

Ben Thistlethwaite
Reality Check

Infrastructure Isn’t Always Industrial Grade

By, 01/23/2017
Ratings1274.03937

In the wake of Donald Trump’s election, many attributed Industrials stocks’ rise to expectations for increased US infrastructure spending—one of Trump’s big campaign promises. However, that doesn’t make it wise to pile into infrastructure-related sectors solely based on Trump’s pledges. It’s still too soon to say exactly what the administration focuses on as the new president formally takes the reins, but expectations for an outsized infrastructure impact have likely outpaced reality.

Already moderating his promises a bit, Trump has lowered his infrastructure spending plan from the campaigned $1 trillion to $550 billion—roughly 3% of GDP. Now $550 billion worth of spending could be impactful if spent all at once (and presuming it didn’t crowd out private investment in the process). However, it’s likely spread out over many years—muting its stimulative power—and probably wouldn’t start until 2018, just in time for midterms. It’s also unrealistic to expect an infrastructure bill—or any bill— to pass through Congress undiluted or without bringing up other political landmines like raising taxes or deficit spending. In other words, there is a lot of potential for gridlock to get in the way.

Updating infrastructure has benefits, but the economy doesn’t need a massive infrastructure bill to keep growing—the private sector has done fine driving most of the growth this expansion. Past infrastructure spending bills haven’t moved the needle because they require years of planning, and spending typically gets bogged down across myriad national government agencies—not to mention conflicts with state and municipal needs. Consider the 2009 American Recovery and Reinvestment Act, which lacked readily available projects and drove little meaningful revenue for Industrials companies. And 2015’s five-year, fully funded (by the Fed’s dividends) $305 billion Highway Bill has thus far had a muted effect, going almost unnoticed.

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What We're Reading

By , The Wall Street Journal, 06/22/2017

MarketMinder's View: “The largest US banks survived a hypothetical ‘stress test’ and could continue lending even during a deep recession, the Federal Reserve said Thursday, a strong report card that could bolster the industry’s case for cutting back regulation.” We included the last part of that sentence not because we agree, but because it is such a reach that it show just how un-newsworthy these stress tests are. We’ll concede they may have helped shore up confidence in the crisis’s immediate wake, but how very healthy banks in the middle of an expansion might handle a hypothetical crisis dreamed up by regulators using arbitrary criteria tells you nothing about what actually will happen the next time things go south. Sorry, but you can’t model this stuff. There is no way to know now how banks will actually fare in the next crisis, because there is no way to know what will cause it, where its epicenter will be, or what knock-on effects various markets will experience. Sorry to be all Debbie Downer, but that’s just the way it is.

By , CNBC, 06/22/2017

MarketMinder's View: Note, the drop in Citigroup’s Economic Surprise Index does not mean US economic indicators are falling left and right. They aren’t. Rather, it is a sign of sentiment (one slice of sentiment—pros) and relatively higher expectations for the US economy compared to other places, like Europe. Europe’s taller “wall of worry” is a key reason we expect the region to outperform over the foreseeable future (though we expect US stocks to do fine, too).

By , Bloomberg, 06/22/2017

MarketMinder's View: Real estate isn’t our forte, so we have no opinion on whether Canadian real estate is in a bubble and, if it is, when said bubble might burst. But we highlight this piece because it makes two key points: 1) Real estate is usually a levered investment, which magnifies risk—you can lose more than your initial investment. 2) Stocks beat home prices long-term. Here is Yale professor Robert Shiller: “Here is the harsh truth about homeownership: Over the long haul, it’s hard for homes to compete with the stock market in real appreciation. That’s because companies whose shares are traded on a stock exchange retain a good share of their earnings to plow back into the business. The business should grow and its real stock price should also grow through time.” Meanwhile, “real home prices should decline with time, except to the extent that households shell out some money and plow back some of their incomes into maintenance and improvements, because homes wear out and go out of style.” Own a home for the roof over your head, but in our view, real estate is not a great investment option for long-term investors.

By , New York Times , 06/22/2017

MarketMinder's View: Now this is all about one person, and we aren’t here to take pot shots, but it does highlight a key point for investors considering “smart beta” strategies: They are active, not passive. Also, it’s just a fun article.

Global Market Update

Market Wrap-Up, Wednesday, June 21, 2017

Below is a market summary as of market close Wednesday, June 21, 2017:

  • Global Equities: MSCI World (-0.1%)
  • US Equities: S&P 500 (-0.0%)
  • UK Equities: MSCI UK (+0.0%)
  • Best Country: Italy (+1.4%)
  • Worst Country: Australia (-2.1%)
  • Best Sector: Health Care (+0.9%)
  • Worst Sector: Energy (-1.1%)

Bond Yields: 10-year US Treasury yields were unchanged at 2.15%.

 

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.