Commentary

Benjamin Lederer
Neuro-economics

Better, Faster, Cheaper, Easier … and Worse?

By, 05/25/2017
Ratings704.014286

Earlier this year, someone placed a $100 million trade with a mobile app—that’s either a lot of trust in a cell network or a costly fat-finger. Advancements in online trading platforms have enabled investors to check their accounts virtually anytime anywhere, aside from the occasional subway tunnel or hiking trail. In the past five months alone, some discount brokerage houses slashed commissions as low as $5 per trade and the SEC reduced trade-settlement periods from three days to two. In short, trading is getting cheaper, easier and far faster. Investors can read an article about the next hot stock, fire up their brokerage app and buy within seconds. While convenience and low costs are essentially good things, it seems to me they also increase investors’ need to fight the urge to place myopic trades. Simpler trading can mean more trading, which studies show often leads to worse returns.

Trading stocks is way less of a hassle than it was 40, 30, even 20 years ago. Before May 1, 1975, trade commissions were a fixed rate per share, regardless of share quantity. So where you might have paid $100 to trade 100 shares, you would then pay $1000 to trade 1000 shares—despite the fact it likely wasn’t any harder for the brokerage to execute that larger quantity. The process was also far slower. First, you called your broker to place a trade order, which probably involved some phone tag and messages left with assistants. Your broker would then fill your order, which probably took a while since his traders had to go physically buy your shares on the exchange. Once it was all done, he’d call you back to tell you how much you owed, and you’d pay by sending in a check. Once they received payment, they’d draw up a stock certificate in your name and store it in a physical cage until it was time to sell (unless mob thugs broke in and stole it, which happened). Selling was equally cumbersome. Even as electronic trading took off in the 1980s, most orders still required a phone call. The New York Stock Exchange required companies to issue certificates until 2001.

The laborious process was one incentive against frequent trading. Cost was another. One broker claimed the average commission in the late 1980s, even after May Day ended fixed commissions, was $45, with some trades much more depending on the order’s size. As a general rule, the more expensive you make something, the less of it you get—high commissions were an incentive against frequent trading. They encouraged discipline.

Commentary

Fisher Investments Editorial Staff
Emerging Markets

China’s False Choice

By, 05/25/2017
Ratings274.388889

2017 has had a lot going on, but until recently, one thing had been missing: China hard landing fears. They’ve taken center stage annually during this bull market, but all was quiet on the China front earlier this year as GDP growth beat expectations and capital markets didn’t do anything wacky. But now, this is changing. First April economic data disappointed as credit tightened, sparking fears China can’t have it both ways. Then the folks at MSCI, who are weighing whether to include mainland Chinese stocks in Emerging Markets benchmarks this year, gave the country’s capital markets a dismal progress report. Capping it off Wednesday, credit ratings agency Moody’s downgraded Chinese debt for the first time since 1989. Aaaaaaaand, cue hard landing fears! If anything, however, a notoriously late-to-the-game ratings agency’s acknowledgment of China’s question marks should be a sign that markets have already considered all of this and more over the last eight years of hard landing fears. In our view, there aren’t material, negative fundamental changes in China this time around—the hard landing is unlikely as ever.

Those widely bemoaned April numbers did show decent growth, but industrial production (6.5% y/y), retail sales (10.7% y/y) and fixed investment (8.9% year-to-date compared to the same period in 2016) all slowed. The likely culprit: the government’s efforts to curb junky debt, which include interest rate hikes, a crackdown on refinancing distressed debt and new curbs on opaque high-yielding debt investments. Meanwhile, the MSCI China A Index—which tracks most mainland stocks—slid -7.5% from early April to early May,[i] which some interpret as a sign the economy can’t take the pressure.

Despite the slowdown, we don’t think April’s data should ring alarm bells. As Exhibits 1 – 3 show, industrial production, fixed investment and retail sales growth rates have zig-zagged lower for years. April’s figures actually exceed most 2016 – 2017 figures. Monthly data volatility is normal.

Commentary

Fisher Investments Editorial Staff
Currencies, Inflation

Will Inflation Pound UK Growth?

By, 05/24/2017
Ratings234.217391

Among the economics community, this was—and remains—a common assumption: Britain’s vote to leave the EU will have economic consequences. In particular, many pundits point to the pound’s post-vote fall and argue inflation’s coming, with dire effects on consumption. While consumption remained firm the first few months following the vote, early 2017 retail sales data were soft as inflation jumped—spurring claims Brexit bears’ calls weren’t wrong, just early. But now data are emerging suggesting this slowdown was temporary and broader fears overblown. To us, this saga illustrates how detached sentiment—largely tied to Brexit—is from reality.

Since the pound plunged in the Brexit vote’s wake, folks have feared it would bring high inflation and sink consumer spending—and, by extension, the UK’s consumer-driven economy. All last year, the country looked resilient. Even as inflation inched up, household spending and the broader economy stayed strong. But earlier this year, folks worried the tide was turning. Before April, retail sales fell in four of five months, and GDP growth slowed to 0.3% in Q1 as services output—the biggest recipient of consumer spending—also slowed to just 0.3%.[i] Meanwhile, inflation kept marching higher, hitting a three-year high of 2.7% y/y in April. (Exhibit 1) Retail sales volumes rose 2.3% m/m that month,[ii] but most observers couched it as a one-off with more weakness to come as inflation keeps rising and biting.

Exhibit 1: UK Consumer Prices Index

Commentary

Fisher Investments Editorial Staff
Into Perspective, Media Hype/Myths, Personal Finance

Don’t Lose Sight of the Investment Forest for the Trees

By, 05/23/2017
Ratings554.163636

Editors’ Note: MarketMinder does not recommend individual securities. The below merely represent a broader theme we wish to highlight.

Do stocks outperform Treasury bills? The widely accepted answer is yes—and by a significant margin over the long term. However, one paper recently challenged this conventional wisdom, arguing most stocks aren’t great investments because only a sliver—less than 4%—have generated all the return. This prompted responses from financial pundits, with some asking if stock investing is a futile exercise akin to finding a needle in a haystack. However, in our view, this conclusion misses some important context and wrongly focuses on the importance of individual stocks—not the most critical ingredient to successful long-term investing.

The paper in question found, “The positive performance of the overall market is attributable to large returns generated by relatively few stocks.” Specifically, the author tracked 25,782 stocks since 1926 and found the top 1,000 performers—less than 4% of the total—accounted for all of the stock market’s wealth creation. Even more striking: 86 companies generated more than half of those returns. With positive performance overly skewed by a handful of high-flyers, the paper argued most common stocks—about 4 out of 7—don’t outperform Treasurys over their lifetime, and that less than half (49.2%) have a positive lifetime return over a holding period of ten years. Thus, the paper concludes actively picking good stocks is a futile task since the odds are overwhelmingly against it.

Commentary

Fisher Investments Editorial Staff
Politics, The Global View

Your Best Hedge Against Beltway Theatrics

By, 05/23/2017
Ratings674.455224

At the risk of stating the obvious, things have been rather eventful in Washington, DC the last couple weeks, and stock market volatility has accompanied the theatrics. The S&P 500 suffered its worst day in months on Tuesday and even with a late-week comeback, it inched downward for the second week in a row. As we wrote a few days ago, political scandals aren’t inherently bearish, nor are heads of states’ impeachments or resignation (not that we believe either is likely, as we also explained). However, if you’re worried about the goings on, that is not a reason to exit stocks. Rather, in our view, your best hedge against all the leaks, innuendo and rumors in DC is a global portfolio.

Global investing’s biggest benefit is diversification—including diversification against political risk in any one country. Case in point: While US stocks dipped a bit recently, non-US stocks rose. Non-US stocks are handily beating the US year to date, and their lead widened as America’s political theatrics heated up. As we type, their year-to-date return is nearly double the S&P 500’s.

Exhibit 1: To Hedge Against US Political Risk, Invest Globally

Commentary

Austin Fraser
Emerging Markets

Brazil’s Temer Gets Hosed in Car Wash

By, 05/19/2017
Ratings194.394737

In a re-run of events from last year, it seems a Brazilian president faces corruption charges that will likely put an end to their presidency. Indeed, a year after the Senate opened impeachment proceedings against former President Dilma Rousseff, it is now current President Michel Temer’s turn to go through the “Car Wash”—the name of Brazil’s huge corruption scandal that has ensnared many politicians and business executives. Brazilian markets plunged on the news as Temer’s chances of advancing necessary reform now look less likely. For investors, this is a keen reminder of how fleeting sentiment-driven rallies can be—particularly when other fundamental drivers are weak.      

On Wednesday, Brazilian newspaper O Globo broke news that Temer was secretly recorded endorsing a bribe. The story claims Joesley Batista, executive of the meatpacking[i] company JBS, reached a plea deal with Car Wash investigators two months ago, providing a list of the bribes paid to politicians over 10 years and agreeing to wear a wiretap to incriminate politicians. On March 7, he met with Temer and Batista admitted to paying a monthly “allowance” to former Lower House Speaker Eduardo Cunha in exchange for Cunha’s silence on other politicians potentially involved. Temer indicated he knew of the payments and essentially authorized the bribe, which was reportedly 5 million reais (~$1.5 million). Separately, JBS executives also recorded PSDB party president, former presidential candidate and senator Aécio Neves demanding 2 million reais in bribes to pay his legal bills. The police tagged the money, following it from JBS’s facilities in São Paulo to Neves’s representatives.

At this point, the Supreme Court removed Neves from office and could eventually issue an arrest warrant (although they denied one request to do so Thursday). Several Congress members, including some from Temer’s support base, asked for the president’s resignation. Opposition representatives also filed an impeachment request in the House on charges of obstruction of justice. Temer, for his part, denied the contents of the news reports. Although it is possible Temer refutes the charges, his presidency is seriously threatened if tapes surface. With that, there are two scenarios: 1) Temer resigns; or 2) he continues to deny wrongdoing while the legislature brings impeachment proceedings.

Commentary

Fisher Investments Editorial Staff
Across the Atlantic

Your Last Investing Lesson From France’s Election

By, 05/17/2017
Ratings614.303279

On May 7, French voters went to the polls and turned away an allegedly existential threat to global markets in anti-euro candidate Marine Le Pen, electing independent centrist Emmanuel Macron instead. With catastrophe supposedly averted, French stocks … fell? Why the lackluster response? The answer: Markets didn’t wait for French polls to close before pricing in the likely outcome, bypassing investors awaiting the certainty of a final result. Let this be a lesson: Waiting for full clarity is costly.

In the run-up to the French vote’s first round, markets were skittish. Among 11 initial candidates, 4 had a shot at advancing to round two: Marine Le Pen, Jean-Luc Mélenchon, François Fillon and Emmanuel Macron. The latter two were relatively centrist and pro-euro, but the far-right Le Pen and far-left Mélenchon had no love for Brussels. Polls showed Fillon and Macron trouncing Le Pen—the polling leader—in a hypothetical round two, but folks worried they wouldn’t have the chance when Mélenchon made a late polling surge. Even though he trailed Fillon and Macron, investors remembered polls being wrong before Brexit, the US election and Britain’s 2015 election, and they feared an all anti-euro Le Pen vs. Mélenchon runoff.

But on April 23, as polls predicted, the race narrowed to Le Pen versus Macron, the former Economy Minister who started his own political party, En Marche. Given Macron’s 20 percentage point advantage—well beyond most margins for error—the runoff outcome was never in much doubt. French markets surged, correctly anticipating Macron’s victory—and by the time the results were tallied, they had moved on, actually dropping in the days following the second vote. It was a classic “buy the rumor, sell the news” scenario.

Commentary

John Hulcher
Corporate Earnings, MarketMinder Minute

Market Insights: Earnings Growth

By, 05/17/2017
Ratings563.919643

In this Market Insights video, Group Vice President of Global Portfolio Evaluation John Hulcher discusses earnings growth and what it means for stocks moving forward. Oil prices depressed headline earnings starting in mid-2015, causing a so-called earnings recession. However, Energy’s drag has become a tailwind and analysts forecast earnings accelerating throughout 2017.

Research Analysis

Fisher Investments Editorial Staff
Into Perspective

Market Insights Podcast: Market Update - May 2017

By, 05/15/2017
Ratings573.938596

In this podcast, we talk to US Private Client Services Vice President Erik Renaud about some recent client questions on the market and our current outlook. Topics include all-time market highs, Trump Administration tax and trade policy, European elections and bear market causes. We also discuss some of the economic fundamentals supporting Fisher Investments’ bullish outlook.

Commentary

Fisher Investments Editorial Staff
Emerging Markets, Politics

A Korean Soap Opera Comes to an End

By, 05/15/2017
Ratings114.090909

Move aside, France—you aren’t the only country with a new president! Last Tuesday, South Korean voters chose Moon Jae-in of the center-left Democratic Party (Minjoo Party) to replace the recently ousted Park Geun-hye. As observers speculate on the implications, from domestic issues like chaebol reform to renewing relations with its neighbors to the north, the immediate impact for markets is falling uncertainty. This is the latest example in a fully global trend.

Moon’s win caps a turbulent stretch in Korean politics. A shocking[i] influence peddling scandal involving one of Park’s personal associates and a Rasputin-like figure led to the now-former president’s impeachment last December—which Korea’s Constitutional Court upheld in March. Three candidates emerged to replace Park: Moon, software entrepreneur Ahn Cheol-soo of the centrist People’s Party and Hong Jun-pyo of Park’s conservative Liberty Korea Party. However, ideology wasn’t the dominant issue this election. Rather, many pundits saw this race as an indictment of the status quo, exemplified by Park and the corrupt political culture she represented. Polls had Moon as the favorite since early April, so his winning with 41% of the vote wasn’t shocking. Hong did surprise though, finishing second at 24%, while Ahn—who enjoyed some brief bursts of popularity—fell to third at 21%. With Moon now in power and promising big changes, what can investors expect?

While Moon made standard campaign pledges—e.g., creating new jobs—gridlock will make it difficult for him to make any big, sweeping changes. For one, Moon won the lowest share of the vote of any Korean president since 1987, indicating the election was more anti status-quo than pro-Moon—perhaps limiting his mandate and political capital. More importantly, the Democratic Party holds only 120 of 300 seats (40%) in the National Assembly. Even with total support from the People’s Party, a center-left coalition would only manage about 53%: short of the 60% super-majority required to pass any non-budget bills. The opposition could block legislation, promoting gridlock.

Commentary

Austin Fraser
Emerging Markets

Brazil’s Temer Gets Hosed in Car Wash

By, 05/19/2017
Ratings194.394737

In a re-run of events from last year, it seems a Brazilian president faces corruption charges that will likely put an end to their presidency. Indeed, a year after the Senate opened impeachment proceedings against former President Dilma Rousseff, it is now current President Michel Temer’s turn to go through the “Car Wash”—the name of Brazil’s huge corruption scandal that has ensnared many politicians and business executives. Brazilian markets plunged on the news as Temer’s chances of advancing necessary reform now look less likely. For investors, this is a keen reminder of how fleeting sentiment-driven rallies can be—particularly when other fundamental drivers are weak.      

On Wednesday, Brazilian newspaper O Globo broke news that Temer was secretly recorded endorsing a bribe. The story claims Joesley Batista, executive of the meatpacking[i] company JBS, reached a plea deal with Car Wash investigators two months ago, providing a list of the bribes paid to politicians over 10 years and agreeing to wear a wiretap to incriminate politicians. On March 7, he met with Temer and Batista admitted to paying a monthly “allowance” to former Lower House Speaker Eduardo Cunha in exchange for Cunha’s silence on other politicians potentially involved. Temer indicated he knew of the payments and essentially authorized the bribe, which was reportedly 5 million reais (~$1.5 million). Separately, JBS executives also recorded PSDB party president, former presidential candidate and senator Aécio Neves demanding 2 million reais in bribes to pay his legal bills. The police tagged the money, following it from JBS’s facilities in São Paulo to Neves’s representatives.

At this point, the Supreme Court removed Neves from office and could eventually issue an arrest warrant (although they denied one request to do so Thursday). Several Congress members, including some from Temer’s support base, asked for the president’s resignation. Opposition representatives also filed an impeachment request in the House on charges of obstruction of justice. Temer, for his part, denied the contents of the news reports. Although it is possible Temer refutes the charges, his presidency is seriously threatened if tapes surface. With that, there are two scenarios: 1) Temer resigns; or 2) he continues to deny wrongdoing while the legislature brings impeachment proceedings.

Commentary

Fisher Investments Editorial Staff
Across the Atlantic

Your Last Investing Lesson From France’s Election

By, 05/17/2017
Ratings614.303279

On May 7, French voters went to the polls and turned away an allegedly existential threat to global markets in anti-euro candidate Marine Le Pen, electing independent centrist Emmanuel Macron instead. With catastrophe supposedly averted, French stocks … fell? Why the lackluster response? The answer: Markets didn’t wait for French polls to close before pricing in the likely outcome, bypassing investors awaiting the certainty of a final result. Let this be a lesson: Waiting for full clarity is costly.

In the run-up to the French vote’s first round, markets were skittish. Among 11 initial candidates, 4 had a shot at advancing to round two: Marine Le Pen, Jean-Luc Mélenchon, François Fillon and Emmanuel Macron. The latter two were relatively centrist and pro-euro, but the far-right Le Pen and far-left Mélenchon had no love for Brussels. Polls showed Fillon and Macron trouncing Le Pen—the polling leader—in a hypothetical round two, but folks worried they wouldn’t have the chance when Mélenchon made a late polling surge. Even though he trailed Fillon and Macron, investors remembered polls being wrong before Brexit, the US election and Britain’s 2015 election, and they feared an all anti-euro Le Pen vs. Mélenchon runoff.

But on April 23, as polls predicted, the race narrowed to Le Pen versus Macron, the former Economy Minister who started his own political party, En Marche. Given Macron’s 20 percentage point advantage—well beyond most margins for error—the runoff outcome was never in much doubt. French markets surged, correctly anticipating Macron’s victory—and by the time the results were tallied, they had moved on, actually dropping in the days following the second vote. It was a classic “buy the rumor, sell the news” scenario.

Commentary

John Hulcher
Corporate Earnings, MarketMinder Minute

Market Insights: Earnings Growth

By, 05/17/2017
Ratings563.919643

In this Market Insights video, Group Vice President of Global Portfolio Evaluation John Hulcher discusses earnings growth and what it means for stocks moving forward. Oil prices depressed headline earnings starting in mid-2015, causing a so-called earnings recession. However, Energy’s drag has become a tailwind and analysts forecast earnings accelerating throughout 2017.

Commentary

Fisher Investments Editorial Staff
Emerging Markets, Politics

A Korean Soap Opera Comes to an End

By, 05/15/2017
Ratings114.090909

Move aside, France—you aren’t the only country with a new president! Last Tuesday, South Korean voters chose Moon Jae-in of the center-left Democratic Party (Minjoo Party) to replace the recently ousted Park Geun-hye. As observers speculate on the implications, from domestic issues like chaebol reform to renewing relations with its neighbors to the north, the immediate impact for markets is falling uncertainty. This is the latest example in a fully global trend.

Moon’s win caps a turbulent stretch in Korean politics. A shocking[i] influence peddling scandal involving one of Park’s personal associates and a Rasputin-like figure led to the now-former president’s impeachment last December—which Korea’s Constitutional Court upheld in March. Three candidates emerged to replace Park: Moon, software entrepreneur Ahn Cheol-soo of the centrist People’s Party and Hong Jun-pyo of Park’s conservative Liberty Korea Party. However, ideology wasn’t the dominant issue this election. Rather, many pundits saw this race as an indictment of the status quo, exemplified by Park and the corrupt political culture she represented. Polls had Moon as the favorite since early April, so his winning with 41% of the vote wasn’t shocking. Hong did surprise though, finishing second at 24%, while Ahn—who enjoyed some brief bursts of popularity—fell to third at 21%. With Moon now in power and promising big changes, what can investors expect?

While Moon made standard campaign pledges—e.g., creating new jobs—gridlock will make it difficult for him to make any big, sweeping changes. For one, Moon won the lowest share of the vote of any Korean president since 1987, indicating the election was more anti status-quo than pro-Moon—perhaps limiting his mandate and political capital. More importantly, the Democratic Party holds only 120 of 300 seats (40%) in the National Assembly. Even with total support from the People’s Party, a center-left coalition would only manage about 53%: short of the 60% super-majority required to pass any non-budget bills. The opposition could block legislation, promoting gridlock.

Commentary

Elisabeth Dellinger
Reality Check

The Indexing Fad

By, 05/15/2017
Ratings614.02459

Last Friday, Bloomberg published a rather astounding development: There are now more “market indexes” in existence than there are US stocks.

Now, their data are proprietary and not described in detail, so it isn’t totally clear what they’re counting as indexes here. For instance, there are oodles of sector indexes that are subsets of broader indexes like the S&P 500—are they included? Also, it isn’t clear whether we’re talking US-only or global, stock-only or bonds/REITs/other securities, or other finer details. But, considering over half of these indexes were born since 2012—and all those sector-level indexes are more mature than that—it seems fair to say a good chunk of these indexes are what the industry calls “smart beta.” Bloomberg suggests as much:

What drove the jump?

Commentary

Fisher Investments Editorial Staff
Corporate Earnings

Earnings Demise Greatly Exaggerated

By, 05/15/2017
Ratings234.23913

Reports of earnings’ downturn in 2015 – 2016 were an exaggeration, as Mark Twain might say. Now, with S&P 500 profits rebounding sharply, pundits seem to celebrate this as though it’s a rebirth. But earnings’ underlying trend overall rose at a fine clip pretty much the whole time. Investors’ sunnier reaction to recent data says a lot more about sentiment than Corporate America’s health.

After posting declines through 2015 and 2016’s first half, S&P 500 earnings flipped positive and eked out an annual 0.7% gain last year.[i] During this period of weak profit growth pundits dubbed an “earnings recession,” many investors wondered: Why be bullish? After all, for stocks, fundamentals are an important input into market direction, and you can’t get much more fundamental than profits! Now, mere months later, profits are jumping and folks are relieved. Yet the reality is the recent rise isn’t a renaissance. It’s all about math and one sector—Energy’s profit-growth math.

2015 and 2016’s earnings decline was almost entirely due to Energy’s sagging profits. After a roughly 20-month oil price plunge from $110 per barrel in June 2014 to $26 in January 2016, Energy sector profits imploded.[ii] Oil prices’ -77% drop had a sufficiently powerful influence on Energy firms’ profits—which are very oil-price sensitive—to flip headline profits negative. (Exhibit 1) Investors who correctly saw this was a single-sector phenomenon and rejected the “earnings recession” narrative were rewarded by stocks, which rose 14.7% while Energy skewed profits downward.[iii] (18.1% excluding Energy.[iv])

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.

Research Analysis

Fisher Investments Editorial Staff
Into Perspective

Market Insights Podcast: How to Read the Modern Financial News

By, 01/19/2017
Ratings363.458333

In this podcast, we talk to Content Group Manager Todd Bliman on how investors can navigate the modern financial news media.

Research Analysis

Fisher Investments Editorial Staff
Into Perspective

MarketMinder Podcast: November 2016 – Assessing Global Macro Drivers

By, 12/12/2016
Ratings74.357143

MarketMinder’s editorial staff sits down with Fisher Investments Capital Markets Analyst Brad Pyles. (Recorded 11/17/2016)

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What We're Reading

By , Reuters, 05/26/2017

MarketMinder's View: While Q1 growth was revised up, the downward revision to businesses’ equipment investment—combined with the so-so growth rate in general—caused some rather ho-hum reactions to the news. This piece tries to argue the soft patch is continuing in Q2, pointing to April’s drop in total durable goods orders and tiny rise in core capital goods orders. Thing is, core orders were fairly weak throughout Q1, yet total business investment still grew 11.4% annualized. Investment in equipment, though revised down, was still up 7.2% annualized from Q4’s figure. People regularly overestimate the link between the durable goods report and total investment. As for Q1 growth, the primary detractor was inventory drawdowns, which are open to interpretation. Given manufacturers in Taiwan reported component shortages earlier this week, it wouldn’t surprise us at all if business here simply weren’t able to restock because producers worldwide faced difficulty keeping up with demand. Give it time. And always keep in mind that stocks typically lead overall economic activity. A GDP report covering January, February and March is old news to stocks as May closes.

By , The Wall Street Journal, 05/26/2017

MarketMinder's View: We guess this sort of captures some of the factors that have aided stocks this year, like falling political uncertainty in Europe and the Trump administration’s moderating on several campaign pledges, but we have several issues with the discussion of bond markets. For one, long rates falling while the Fed hikes short rates does not mean financial conditions are “easing.” It means the yield curve is flattening, which makes banks a tad less eager to lend. That’s tightening, not easing. Second, it seems to presume bonds are overvalued, ignoring the supply and demand drivers at work in bond markets globally. Supply is tight, thanks to lower issuance in much of the developed world and the trillions worth of debt locked up on central bank balance sheets. Demand is sky-high, thanks to banks’ regulatory requirements, institutional investors’ mandates and retail investors’ goals and needs. Demand is really high for US Treasurys, since they are higher-yielding than most European debt. All of that points to high and perhaps rising bond prices, which means low and perhaps falling yields since bond prices and yields move in opposite directions.

By , Bloomberg, 05/26/2017

MarketMinder's View: While China’s hitting CTRL+Z on mid-2015 currency reforms that gave the market more influence over the yuan is a bit of a setback, it is also a sign of officials’ commitment to maintaining economic and social stability—especially in advance of the Communist Party leadership shift scheduled for November. Markets have long known Chinese financial reforms happen in fits and starts, so this probably isn’t a huge deal for sentiment toward policies. Rather, it’s just one more indication leadership is continuing to do what’s needed (or at least what they think is needed) to keep that long-feared hard landing at bay.

By , Bloomberg, 05/26/2017

MarketMinder's View: Few market takeaways here beyond the standard “don’t presume OPEC’s machinations mean oil prices will soar and drive Energy stocks to outperform,” but it is a quite interesting look at the struggles OPEC members face and why they’re largely feckless at influencing oil prices globally.

Global Market Update

Market Wrap-Up, Thursday, May 25, 2017

Below is a market summary as of market close Thursday, May 25, 2017:

  • Global Equities: MSCI World (+0.4%)
  • US Equities: S&P 500 (+0.5%)
  • UK Equities: MSCI UK (-0.0%)
  • Best Country: Spain (+0.6%)
  • Worst Country: Ireland (-0.5%)
  • Best Sector: France (+0.7%)
  • Worst Sector: Energy (-1.4%)

Bond Yields: 10-year US Treasury yields fell 0.01 percentage point to 2.25%.

 

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.