Commentary

Christopher Wong
GDP

Chart of the Day: Which Indicator Is Actually at Now Now?

By, 03/27/2017
Ratings183.861111

It’s that time of year when hope springs eternal: Baseball beckons, warmer weather is close and Q1 GDP will soon arrive. Ok, one of those things is not like the others, but March’s impending conclusion means the end of 2017’s first quarter—starting the countdown to the BEA’s much-anticipated Q1 GDP release on April 28.[i] For those who can’t wait and need economic data NOW, you may be tempted to get your fix from two appropriately titled data trackers: the Atlanta Fed’s GDPNow and the New York Fed’s Nowcast. Recent headlines have focused on the divergence between the two: The NY Fed Nowcast shows Q1 GDP growing almost 3% annualized against the Atlanta Fed GDPNow’s 1.0%. So which outfit should investors pay attention to? In my view, it doesn’t really matter. While this is a fun argument for economic data nerds to track, it probably doesn’t mean much for your portfolio—forward-looking stocks have already mostly moved on, and GDP isn’t the stock market.

The logical question to ask is, which GDP tracker has a better record for accuracy? Said differently, which gauge is more accurately at now now? But both nowcasts are relatively new: GDPNow became public in April 2014, while the Nowcast debuted two years later. While both seem to track GDP, there are some slight nuances in how they do so. Without getting too technical,[ii] GDPNow aims to replicate the official GDP figure by tracking—and basing its forecast on—the same components as the BEA. In contrast, the New York Fed’s Nowcast uses a “Dynamic Factor Model” (DFM), which incorporates data not included in GDP, like sentiment surveys and employment indicators. Because the Nowcast uses different inputs to show how the broader economy is doing, official GDP isn’t necessarily its baseline. However, most folks compare any nowcast to the BEA’s GDP, so how do the GDPNow and Nowcast stack up?   

Well, here is a chart comparing these nowcasts[iii] with the BEA’s advance estimate of GDP.

Commentary

Fisher Investments Editorial Staff
Media Hype/Myths, US Economy

A Day in the Life of a Bull Market

By, 03/23/2017
Ratings1354.307407

Brace yourselves! The S&P 500 fell by more than 1% on Tuesday for the first time since October, sparking a spurt of analysis declaring volatility has returned, investors are “selling off” as they lose faith in the rally, and larger losses will soon follow. But rather than agonize over the decline’s causes or implications, investors are best served to remain cool-headed. Daily dips like Tuesday’s aren’t actionable or ominous.

A 1% swing in either direction isn’t huge by most standards. Most days, it wouldn’t warrant a second glance—volatility is common in bull markets, especially day-to-day. But Tuesday’s drop occurred after nearly half a year of calm, giving the media something new to write about, and perhaps magnifying the decline in investors’ minds.

In proper context, though, Tuesday doesn’t look so unnerving. The S&P 500 has fallen by at least one percent 232 times during this bull market, accounting for 11.5% of trading days.[i] Exhibit 1 is noisy, but focus on the orange line—everything below it reflects a -1% or worse single-day fall. It’s crowded down there! The lull since October doesn’t make the occurrence any more notable.

Commentary

Fisher Investments Editorial Staff
Across the Atlantic, Developed Markets, The Global View

Are Stocks Headed Into Foreign Territory?

By, 03/23/2017
Ratings654.161539

So something rare for 2017 happened Tuesday: Stocks fell kinda bigly.[i] Rather predictably, the media flipped from fretting the “Trump rally’s” sustainability to fretting its end—a common ritual since the election, perhaps exacerbated when daily returns were big. However, despite all the handwringing over the Trump rally, this reality may surprise investors: Markets outside America have led recently, which is hard to square with claims all the upside is tied to lofty expectations of US-specific political developments. Now, non-US stocks’ year-to-date outperformance shouldn’t be overstated, as investors haven’t “missed out” on any leadership rotation yet. But this could be a sign of things to come later, especially as uncertainty falls outside America.  

First, we would be remiss if we didn’t (again) refute the continued assertions of a “Trump rally.” Since Election Day, the S&P 500 is up 10.4%[ii]—a nice run over the past four-plus months. Headlines frequently questioned this rally’s sustainability, arguing markets were rising on hopes of Trump pushing a Republican (read: business friendly) agenda, including deregulation and fiscal spending benefiting certain sectors. (This, of course, is an argument relying on markets’ selectively viewing only these ideas and overlooking protectionist talk and weird border taxes, but we digress.)

Yet in our view, the Trump rally is a myth. For one, presidential power over markets is vastly overrated. Bombastic rhetoric can add to day-to-day volatility, but presidents lack the power to bend the country to their whim.[iii] Second, if Trump truly were great for markets, US stocks should be near the top of the leaderboard after his election last November. Yet they aren’t. After building a small lead as of Monday’s market close, the US fell behind the MSCI ACWI[iv] after Tuesday’s pullback (in USD). Moreover, since the presidential election, the US lags 17 other countries in the MSCI ACWI. See Exhibit 1, which denominates returns in local currencies to eliminate currency conversion skew. (For the same table in USD, click here. The US does a little better here, but only slightly—and still trails 14 other countries).

Commentary

Fisher Investments Editorial Staff
Trade, Reality Check

Checking In on Trump and Trade

By, 03/22/2017


Less to fear upon closer inspection. (Photo by -Oxford-/iStock.)

The G-20 finance ministers’ meeting finally achieved its annual goal of hogging headlines Monday, when news broke that US Treasury Secretary Steve Mnuchin forced his colleagues to delete this sentence from the summit statement: “We resist all forms of protectionism.” It was a slow news day. Most observers concluded Mnuchin had fired the first shot in the Trump trade war, fulfilling investors’ widespread fear. But in our view, this is too hasty. For one, G-20 statements have always been unenforceable platitudes that don’t mean much once you diagram the sentences. Moreover, it’s an isolated incident. Other recent developments suggest the Trump administration is actually softening its stance on trade, lowering the risk of a big protectionist push and global backlash.

Actions speak louder than words, but a lack of action can also be telling—especially if it involves timestamped campaign pledges going unfulfilled. Consider, for instance, what has come of Trump’s trade-related day-one pledges: “I will announce my intention to renegotiate NAFTA or withdraw from the deal under Article 2205 [and] I will direct my Secretary of the Treasury to label China a currency manipulator [supposedly a prelude to tough trade sanctions].”[i] It’s now 62 days in, and the only movement on either of these fronts has been to walk them back.

Commentary

Fisher Investments Editorial Staff
Interest Rates

An Interesting Forecast for Interest Rates

By, 03/17/2017
Ratings1063.882076

With the Fed expected to hike rates several times this year and inflation picking up recently, most assume higher long-term interest rates are certain to come this year—bringing potential problems along with them. One prominent forecaster made waves recently for saying the 10-Year Treasury yield piercing 2.6% would be a bearish signal for bonds. Others say 3.0% is the magic mark. However, markets often do what the consensus can’t fathom, and we believe US 10-year yields will actually finish the year below where they started. 

It’s true rates have started the year higher. Since 2017 began, the 10-year Treasury yield is up 9 basis points (0.09 percentage point), from 2.45% to 2.54%.[i] Most observers think this is just the start of yields’ steady climb, which may not only break but stay above the 2.6% “ceiling” within the next month. This forecast relies on several rationales. One, many expect the Fed to hike its fed-funds target range several times this year, and they presume rising short-term rates beget rising long-term rates. Another factor: expectations for higher inflation. CPI has accelerated since last July and just hit 2.7% y/y in February—the fastest year-on-year rate since February 2012. Along with President Trump’s promises of a yuuuuge infrastructure stimulus plan, some worry this increased spending will translate into higher inflation later on.

While inflation expectations do influence long rates, as lenders demand a higher return to compensate for the loss of purchasing power, we don’t think the logic supporting the outlook for rising rates holds. From a high level, markets often go against the consensus and do what few anticipate. Since there are virtually universal expectations for long-term rates to rise this year, this argues for flat or falling rates—especially once you consider the logical errors at hand. For instance, a higher 10-year yield today doesn’t dictate a steady climb through 2017 since recent past movement says nothing about the future. At 2016’s start, the 10-year was at 2.27%. It fell to a low of 1.37% in July and climbed as high as 2.60% in December.[ii] After all those zigs and zags, Treasury yields rose only 18 basis points from year start to year end, finishing at 2.45%.

Commentary

Fisher Investments Editorial Staff
MarketMinder Minute, Investor Sentiment, Market Cycles

Market Insights: All-Time Market Highs

By, 03/17/2017
Ratings354.085714

This Market Insights video examines all-time market highs and what they mean (or don't) for the market moving forward.

Commentary

Fisher Investments Editorial Staff
Politics

Wednesday Wasn’t Wilders’ Day

By, 03/16/2017
Ratings444.022727


With the new Dutch Parliament now known, uncertainty is falling in Europe. Photo by Franky DeMeyer/iStock.

It’s fair to say Europe’s year of falling uncertainty took a step forward on Wednesday. Dutch voters went to the polls in a widely watched election we previewed here and here. For most of the year, polls showed anti-euro populist Geert Wilders and his Party for Freedom (PVV) leading, spurring fears his victory meant the Netherlands could leave the euro—a disastrous “Nexit.” But when the dust settled, Prime Minister Mark Rutte’s Party for Freedom and Democracy (VVD) took the plurality of the vote and 33 of Parliament’s 150 seats. This should quell Nexit fears, and is the first of several elections this year that should reduce uncertainty.

Wilders’ PVV did improve its position in Parliament—winning 20 seats, a five-seat increase over the last election. But this was far lower than the 30+ seats polls initially suggested, and is a distant second. Actually, PVV edged two other mainstream parties by only one seat.

Commentary

Fisher Investments Editorial Staff
Market Cycles

No Easy Bull, Reprise

By, 03/16/2017
Ratings1164.202586


It hasn’t been easy staying on. (Photo by BradWolfe/iStock.)

Days ago, this bull market turned eight. Now history’s second-longest—trailing only the 1990s bull market—many investors wonder just how long the party can last. It’s disappointing, but no one can pinpoint exactly when the bull market will end. However, in general, a peak doesn’t seem close. It isn’t scientific, but in Sir John Templeton’s succinct market cycle encapsulation—“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria”—we’re probably somewhere between “grow on skepticism” and “mature on optimism.” In our view, the process Templeton described is far from complete, suggesting spreading optimism—and fading fears—could boost stocks significantly before the bull peaks in euphoria.

While uncertainty has fallen over last year’s major fears, Brexit and the US presidential election, there is still some residual pessimism over policy implementation (or lack thereof). On the docket: Affordable Care Act (potential) repeal and replacement, tax reform, trade renegotiations, infrastructure spending, revising Dodd-Frank financial reform, debt ceiling debates and Fed appointments. Those lingering fears pale in comparison to last year, showing warming sentiment, but some uncertainty lingers—particularly across the pond. Fears remain over European elections, the potential for trade wars and general skittishness about President Trump’s unpredictability. The list goes on.[i]

Commentary

Fisher Investments Editorial Staff
Politics

Seeing Through the Debt Ceiling

By, 03/16/2017

In the pantheon of American political traditions, debt ceiling doom-mongering has a special place. The legislative limit on new debt issuance has historically inspired months of political grandstanding and dire default warnings (including from the media), followed by last-minute agreements raising or suspending the cap. A year or so later, policymakers reconvene and do it all over again. Sound like fun? Then get ready, because after lying dormant since October 2015, the debt ceiling returns today—and with it, the false choice of either raising it or defaulting on US debt. But while the debt ceiling’s return may rekindle some old worries, they’re as baseless as in previous years, and no threat to this bull market.

When the ceiling takes effect, it’ll cap US debt at present levels (about $20 trillion). If Congress doesn’t immediately lift or suspend it (unlikely), the Treasury will use “extraordinary measures”[i] to keep all checks flowing for a few months without increasing debt—most estimates say mid to late summer in this case. After that, the popular perception goes, all heck breaks loose. Folks fear the US government would renege on its sacred financial obligations and default; ratings agencies would downgrade America (again), sending foreign creditors fleeing, boosting interest rates on US debt and raising borrowing costs economy-wide.[ii] Hence, many fear markets would plummet, causing general chaos and perhaps another financial crisis.

But this apocalyptic scenario is wildly improbable. Congress has always lifted the limit in the past—all 110 times since 1917. And because of something called “prioritization,” even exhausting extraordinary measures wouldn’t bring default.

Research Analysis

Fisher Investments Editorial Staff
Into Perspective

Market Insights Podcast: 2017 Market Outlook

By, 03/13/2017
Ratings173.852941

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

Commentary

Fisher Investments Editorial Staff
MarketMinder Minute, Investor Sentiment, Market Cycles

Market Insights: All-Time Market Highs

By, 03/17/2017
Ratings354.085714

This Market Insights video examines all-time market highs and what they mean (or don't) for the market moving forward.

Commentary

Fisher Investments Editorial Staff
Politics

Wednesday Wasn’t Wilders’ Day

By, 03/16/2017
Ratings444.022727


With the new Dutch Parliament now known, uncertainty is falling in Europe. Photo by Franky DeMeyer/iStock.

It’s fair to say Europe’s year of falling uncertainty took a step forward on Wednesday. Dutch voters went to the polls in a widely watched election we previewed here and here. For most of the year, polls showed anti-euro populist Geert Wilders and his Party for Freedom (PVV) leading, spurring fears his victory meant the Netherlands could leave the euro—a disastrous “Nexit.” But when the dust settled, Prime Minister Mark Rutte’s Party for Freedom and Democracy (VVD) took the plurality of the vote and 33 of Parliament’s 150 seats. This should quell Nexit fears, and is the first of several elections this year that should reduce uncertainty.

Wilders’ PVV did improve its position in Parliament—winning 20 seats, a five-seat increase over the last election. But this was far lower than the 30+ seats polls initially suggested, and is a distant second. Actually, PVV edged two other mainstream parties by only one seat.

Commentary

Fisher Investments Editorial Staff
Market Cycles

No Easy Bull, Reprise

By, 03/16/2017
Ratings1164.202586


It hasn’t been easy staying on. (Photo by BradWolfe/iStock.)

Days ago, this bull market turned eight. Now history’s second-longest—trailing only the 1990s bull market—many investors wonder just how long the party can last. It’s disappointing, but no one can pinpoint exactly when the bull market will end. However, in general, a peak doesn’t seem close. It isn’t scientific, but in Sir John Templeton’s succinct market cycle encapsulation—“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria”—we’re probably somewhere between “grow on skepticism” and “mature on optimism.” In our view, the process Templeton described is far from complete, suggesting spreading optimism—and fading fears—could boost stocks significantly before the bull peaks in euphoria.

While uncertainty has fallen over last year’s major fears, Brexit and the US presidential election, there is still some residual pessimism over policy implementation (or lack thereof). On the docket: Affordable Care Act (potential) repeal and replacement, tax reform, trade renegotiations, infrastructure spending, revising Dodd-Frank financial reform, debt ceiling debates and Fed appointments. Those lingering fears pale in comparison to last year, showing warming sentiment, but some uncertainty lingers—particularly across the pond. Fears remain over European elections, the potential for trade wars and general skittishness about President Trump’s unpredictability. The list goes on.[i]

Commentary

Fisher Investments Editorial Staff
Politics

Seeing Through the Debt Ceiling

By, 03/16/2017

In the pantheon of American political traditions, debt ceiling doom-mongering has a special place. The legislative limit on new debt issuance has historically inspired months of political grandstanding and dire default warnings (including from the media), followed by last-minute agreements raising or suspending the cap. A year or so later, policymakers reconvene and do it all over again. Sound like fun? Then get ready, because after lying dormant since October 2015, the debt ceiling returns today—and with it, the false choice of either raising it or defaulting on US debt. But while the debt ceiling’s return may rekindle some old worries, they’re as baseless as in previous years, and no threat to this bull market.

When the ceiling takes effect, it’ll cap US debt at present levels (about $20 trillion). If Congress doesn’t immediately lift or suspend it (unlikely), the Treasury will use “extraordinary measures”[i] to keep all checks flowing for a few months without increasing debt—most estimates say mid to late summer in this case. After that, the popular perception goes, all heck breaks loose. Folks fear the US government would renege on its sacred financial obligations and default; ratings agencies would downgrade America (again), sending foreign creditors fleeing, boosting interest rates on US debt and raising borrowing costs economy-wide.[ii] Hence, many fear markets would plummet, causing general chaos and perhaps another financial crisis.

But this apocalyptic scenario is wildly improbable. Congress has always lifted the limit in the past—all 110 times since 1917. And because of something called “prioritization,” even exhausting extraordinary measures wouldn’t bring default.

Commentary

Elisabeth Dellinger
Capitalism, Unconventional Wisdom

Everything I Need to Know About Investing I Learned From Buffy the Vampire Slayer

By, 03/13/2017
Ratings914.137362

20 years ago Friday, Buffy the Vampire Slayer debuted on television, and the Internets are justifiably full of anniversary tributes to this most excellent show. So what better time than for me to admit this simple, perhaps silly truth: (Almost) everything I need to know about investing, I learned from Buffy—timeless wisdom about how and why stocks grow and thrive over time, creating wealth for all of you dear readers.

Don’t worry, you needn’t watch all 145 episodes to soak up this knowledge. It all comes from three snappy quotes, which I’ll share with you here.

That’s the reason I love this country. You make a good product, and people will come to you. Season 3, Episode 6

Commentary

Todd Bliman
Into Perspective

What Investing Wisely Is—and Isn’t

By, 03/10/2017
Ratings974.216495

If there is one theme dominating financial media this week, it’s this: With stocks near record highs, above-average valuations and the bull turning eight, the bull market may be on borrowed time. One article in The Wall Street Journal cites above-average valuations and argues this market is only for speculators—not investors.[i] A CBS News Moneywatch piece counsels you to repeatedly sell slices of your equity holdings (never mind the trading costs and taxes) and boost cash, trembling before record highs. A blog post in The Wall Street Journal quotes one analyst as claiming the bull market is currently a whopping 127 years old—“long in the tooth!”—because one bull market year translates into 15.875 human years, we guess.[ii] We could go on, but suffice it to say many pundits argue owning stocks now is unwise. Here is an alternate theory: That is entirely backwards.

A basic, yet often overlooked, maxim: If you need growth to reach your financial goals, whatever percentage you allocate to stocks is your default. Not cash. What does that mean? It means you don’t need to find one, five or 10 solid “reasons to be bullish”[iii] to own stocks. (Though those may be nice.) What you need is the reverse: a sound, bearish reason not to own stocks. That is, a probable, negative factor carrying trillions of dollars’ worth of economic impact that you see and most don’t. They don’t come often. Sometimes the general public is euphoric and just misses an elephant hiding in plain sight. Other times, it’s out of the blue. The keys are the size and that it is probable, not possible.[iv] That the market is near a record high doesn’t register. Valuations are close to the first thing you learn in security analysis and, as such, they feature nearly daily in most financial publications. Widely known. Moreover, high valuations often get higher; cheap stocks and markets frequently get cheaper. Valuations aren’t predictive. Finally, however you calculate its age, this bull market has been feared “long in the tooth” for years. It’s time to accept the fact bull markets don’t die of old age.

It’s natural to be worried about where stocks will head. This is perhaps especially true if you sat out of stocks for long stretches in this bull market. It’s hard to give up on a thesis that another downdraft will give you a better entry point, or thereabouts. Heck, maybe this is wrong, but perhaps it isn’t just the direction that worries folks per se. Perhaps the embarrassment of suffering a market decline freezes folks—they don’t want to feel like a “sucker” who bought in last.[v]

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)

Research Analysis

Fisher Investments Editorial Staff
Into Perspective

MarketMinder Podcast: November 2016 – Energy Update

By, 12/12/2016
Ratings113.545455

MarketMinder’s editorial staff sits down with Fisher Investments Capital Markets Analyst Brad Rotolo. (Recorded 11/3/2016)

Research Analysis

Austin Fraser
Into Perspective

A Political Update From Korea

By, 12/08/2016
Ratings404.0875

From Brexit and Trump to Italy, Brazil and the Philippines, 2016 has been a year of political upheaval and theatrics. And it isn’t over yet. South Korean President Park Geun-hye is embroiled in an influence peddling scandal that has outraged the country and likely numbered her days in office. She has offered to step down from office in April 2017—10 months before her term is slated to end—but lawmakers in the National Assembly instead introduced an impeachment bill, which gets a vote Friday December 9. While Park’s political fall looks inevitable, Korea’s political issues needn’t derail its other positive drivers. For global investors, whether or not you own any Emerging Markets stocks, this is another lesson in the importance of thinking long-term and not getting hung up on short-term events.

The movement against Park appears more about her actions (which you can read all about here), not a broader distaste with the government or the state of society. After decades of chaebol (Korea’s huge, family-run mega conglomerates/corporate fiefdoms) dominating political decisions and the economy, corruption has emerged as the societal cause du jour (see this summer’s draconian corruption bill), and Park appears a victim of the times. The scandal also coincides with some economic softness, as a slowdown in global trade hit export-oriented businesses hard. In response, the country’s largest sectors—which account for a fifth of GDP and employ nearly 15% of the workforce—have undergone significant corporate restructuring. More recently, scandals at several chaebol only further weighed on sentiment.

South Korea has also faced some geopolitical uncertainty in recent months. Besides long-running issues with North Korea, which has made progress in its nuclear program, new tensions with China have arisen as South Korea recently deployed an advanced US missile system. In addition, Donald Trump’s victory made many call into question the future of Asia’s trade relationship with the US given his campaign rhetoric and dismissal of the Trans-Pacific Partnership. There is also a potential domestic political headwind, as the legislature’s opposition party favors tax hikes, with eight different proposals put in the supplementary budget bills. With one of the world’s stronger fiscal positions (40% debt to GDP), such a move makes little economic sense, but the negative fallout is likely short term. 

Research Analysis

Brad Rotolo
Reality Check

What Does OPEC’s Production Cut Mean for Oil?

By, 12/01/2016
Ratings694.086957


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.

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What We're Reading

By , Financial Times, 03/29/2017

MarketMinder's View: UK Prime Minister May finally fired the starting gun today. While it’s not quite Chariots of Fire, Brexit is a two-year marathon—perhaps longer—to splitting from the EU. Why so long? Consider what’s next: Negotiating citizens’ rights; transferring EU laws and regulations to the UK, including trading and transport of nuclear materials and aviation access; and figuring out how border control with Ireland will work, etc., etc. It’s a lot. Procedurally, the UK now prepares for the Queen’s Speech in May where the Great Repeal to incorporate thousands of EU statutes onto UK books will be outlined, while the EU draws up guidelines and negotiating directives to achieve a mandate on how the talks will proceed. If all goes to plan, transition measures should be agreed by March 2018 with a target deadline for October to allow time for Brexit ratification by March 2019. Parallel to all this will be negotiations for a replacement trade deal, which requires ratification by the UK, a “super qualified majority” of the remaining EU (72% of members and 65% of population) as well as approval from the European Parliament. Whew. All that speaks to the fact an extension to the legislated two-year timeline may come to pass. The counterpoint: Talks start from a position of low barriers to trade and deep cooperation rather than breaking down vested interests to get there, and both sides are incented to cooperate. However, through it all to whenever it’s finally finished, keep in mind as European Council President Donald Tusk has that: “As for now, nothing has changed. EU law will continue to apply to and within the UK.”

By , Bloomberg, 03/29/2017

MarketMinder's View: So now that Washington has moved on from health care—well, at least for now—it’s on to tax reform (and, perhaps, federal infrastructure spending). Many wonder whether it will meet the same fate as Trumpcare; it very well could. A corporate tax overhaul looks just as daunting and has been described as a nightmare, difficult and not easy. This article argues that tax reform—which can throw up many ideological roadblocks (and scramble winners and losers)—looks untenable, but a simple corporate tax cut could be feasible, maybe a personal income tax cut, too. To us, this too seems like a perilous road, given Republican’s intraparty divisions over deficits and debt. There is lots of speculation that this is a big deal for stocks. But in reality, this is mostly rigmarole. Whether Congress enacts tax reform, cuts or nothing, taxes are a negligible market driver.

By , Bloomberg, 03/29/2017

MarketMinder's View: This shows a measure from the Conference Board (whose Leading Economic Index we like to follow) that surveys respondents on whether or not they think stocks will be higher a year from now. Currently 47.4% say yes, which is the highest it’s been since January 2000, and *gasp* back then a bear market followed, right? But making such an inference—from one data point—is a stretch too far. This gauge was also above 45% on multiple occasions from 1996 – 1999 and 2003 – 2004. 1991, the dawn of the longest, biggest bull market on record, was similar. What’s interesting, though, is that stocks rise in over 70% of rolling 12-month periods. Yet at no point in this survey’s history do more than 50% of respondents believe stocks’ annual rate will be positive, and yet that’s what stocks have done for most of the last two decades. This speaks more to folks’ engrained fear of loss in markets than anything, to us.

By , The Wall Street Journal, 03/29/2017

MarketMinder's View: Sure, margin debt is making new highs, but so is the market and market capitalization. As a percentage of market capitalization, margin debt is elevated but it’s not especially high and around where it’s been the last four years. But is this chicken or egg? After all, stocks are margin collateral, meaning a higher market facilitates higher borrowing. Additionally, margin is used when a bearish investor shorts, so it’s not a pure gauge. That isn’t to dismiss this outright: Margin levels are one sentiment gauge we keep track of, but it’s the rate of change that matters most, and only then when taken in concert with valuations, fund flows and the like. More importantly, fundamentals like the economy and earnings remain sound and underappreciated, suggesting more bull market ahead.

Global Market Update

Market Wrap-Up, Tuesday, March 28, 2017

Below is a market summary as of market close Tuesday, March 28, 2017:

  • Global Equities: MSCI World (+0.7%)
  • US Equities: S&P 500 (+0.7%)
  • UK Equities: MSCI UK (+0.4%)
  • Best Country: Portugal (+2.6%)
  • Worst Country: Israel (-0.2%)
  • Best Sector: Financials (+1.3%)
  • Worst Sector: Utilities (+0.1%)

Bond Yields: 10-year US Treasury yields rose 0.04 percentage point to 2.42%.

 

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.