Pete Michel
Into Perspective

About That High Yield Selloff

By, 11/17/2017
Ratings614.065574

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

Is it over for high-yield bonds? Is their selloff the canary in the coalmine for stocks? These questions preoccupied investors as high-yield bonds fell in recent days, reminding some of early 2016’s weakness. However, like that selloff, this one is mostly concentrated in one sector. Moreover, the move in high-yield spreads is in line with other small moves we’ve seen in the recent past, and the high-yield market appears to be functioning fine despite liquidity concerns. And as always, bond and stock markets are similarly liquid and price in widely known information simultaneously. One can’t be a canary in the coalmine for the other. Markets are too efficient.

While January 2016’s high-yield selloff was centered in the Energy sector, this one is largely concentrated in Telecom, which accounts for about 10% of the high-yield market by par value. While triggers are always difficult (and usually impossible) to pinpoint, this one began as the T-Mobile and Sprint merger fell apart. Both companies are big junk bond issuers with sizable maturities coming due in the next few years. Weak Q3 earnings from other Telecom firms also contributed to the weakness. The Senate’s proposal to delay the corporate tax cut until 2019 may also have contributed, as well as a general realization by investors a tax bill won’t be as easy to pass as some presumed—potentially impacting future debt issuance. All those factors plus more likely contribute to a sudden slight souring of sentiment, hitting high yields.

Christo Barker

Meanwhile, Outside Catalonia

By, 10/30/2017
Ratings643.960938


With so much media coverage last week over Catalonia and the well telegraphed non-event that was the ECB meeting, some other noteworthy political developments in the eurozone seemingly fell on deaf ears. France passed sizeable tax cuts and Italy passed long-rumored electoral reforms. While neither fundamentally changes our bright outlook for eurozone stocks, they represent more falling uncertainty and—especially in France—show how sentiment in the eurozone is still playing catch-up.

 

France

Christo Barker
Into Perspective

Making Sense of Catalonia

By, 10/13/2017
Ratings524.355769

On October 1, following a widely watched political spat, voters in Spain’s Catalan region went to the polls in an independence referendum and elected to leave Spain—despite Spain’s government and constitutional court declaring the vote illegal and Spanish police attempting to deter it. The vote ratcheted up investors’ uncertainty, and Spanish markets fell in the ensuing days as headlines called it Spain’s biggest constitutional crisis ever (Exhibit 1). Some even claim it threatens the eurozone. We think these accounts are vastly overblown. A small region of a country seeking secession is far different than an entire country seeking secession from the eurozone. Regional disagreements like this occur frequently across Europe—Spain has a rich history of them. Continued volatility in local markets wouldn’t surprise, but eurozone stocks have barely budged—and global stocks are even less likely to see much impact. 

Exhibit 1: Spanish vs. EMU Market Performance

Fisher Investments Editorial Staff
US Economy

Market Insights Podcast: Natural Disasters And Market Impact – October 2017

By, 10/10/2017

In this podcast, Communications Group Vice President Naj Srinivas speaks with Capital Markets Team Leader Brad Pyles about the economic effects of hurricanes, earthquakes and other natural disasters.

Time stamps:

Charles Dornbush and Timothy Schluter
Monetary Policy

The Curious Case of Japan’s Stealth QE Taper

By, 09/20/2017
Ratings134.730769

In the last year, the BoJ has been most notable for its quiet. Publicly, the bank hasn’t shifted policy at all from its large-scale asset purchases. No surprise expansions or new assets targeted. No forceful forward guidance. No new letters. Nevertheless the BoJ’s asset purchases slowed noticeably over the past 12 months—a “stealth taper,” if you will. Meanwhile, loan growth ticked higher, just as it did in America and Britain when the Fed and BoE tapered quantitative easing (QE). Whether intentionally or unintentionally, it seems to us the BoJ may have stumbled onto more sensible monetary policy.

The BoJ and Governor Haruhiko Kuroda have arguably been the leading proponents of long-term asset purchases—quantitative easing. They added a second “Q” (quantitative and qualitative easing) back in 2013, aimed at rapidly building up the monetary base with an aim to reach a 2% annual inflation growth rate. They also cut short-term interest rates into negative territory in 2016, in another misguided attempt to stoke inflation. At its peak, the BoJ bought ¥80 trillion in Japanese government bonds (JGBs), ¥6 trillion in ETFs and ¥90 billion in REITs, annually. These efforts have largely fallen short of their goal.

In September 2016, the BoJ changed course yet again and added three more letters to its monetary alphabet soup: YCC, or yield-curve control. The BoJ expressly targeted a 10-year JGB yield of 0%—at the time, up from -0.1%. This was intended to ease the pain on bank profitability brought by negative rates and the flat yield curve BoJ asset purchases wrought. Accomplishing this allowed JGB purchases to fluctuate. Over the past 12 months ending in August 2017, the BoJ purchased just ¥65 trillion in JGBs—a marked slowdown from the past couple years. For comparison’s sake, over the same timeframe ending in August 2016, the BoJ bought ¥81 trillion in JGBs.

Christo Barker
Into Perspective, Debt

Is China Experiencing the World's Biggest Credit Bubble?

By, 09/05/2017
Ratings794.126582

China credit bubble concerns are one of the oldest, most recycled false fears of today’s bull market. Bubble-warning headlines from seven years ago could run today with minimal changes. However, despite numerous examples of Chinese credit not being properly allocated—a side effect of the government’s centralized control—no bubble has burst yet. Unless a massive negative surprise creates a wallop or euphoria creeps back into markets, the likelihood a Chinese credit bubble pops and roils the economy—with ill effects spreading globally—in the immediate future is low, in my view.

To understand why Chinese credit bubble fears are overwrought, investors must first understand some critical differences between how credit works in China’s centralized, government-steered economy and a typical free market economy (like the US). China’s Communist Party exhibits heavy control over economic areas like capital flows, currency strength, interest rates and money supply. This desire for control—particularly over money supply—means China relies on banks to provide the majority of credit access (67% compared to 17% in the US[i]). In comparison, entities in the US have more options thanks to America’s deep, robust capital markets (e.g., bond, asset-backed security, short-term commercial paper and repo markets).

While bank-driven credit gives the government more control over money supply, Chinese banks must make loans that capital markets would typically underwrite in the US. For example, Chinese banks make lots of loans to the government, but in the US, the federal government can issue Treasurys while states and cities float muni bonds. Also in the US, mortgage and asset-backed securities comprise a nearly $11 trillion market—in China, this secondary market doesn’t exist. China’s bank dependency inflates the size of those institutions’ balance sheets, making them look scary and bubblicious. However, aggregating the total outstanding credit—the sum of all debt from capital markets and loans—for China and the US gives a better apples-to-apples comparison. When scaled to GDP, China’s total outstanding credit is actually lower than the US’s. (Exhibit 1)

Fisher Investments Editorial Staff

Market Insights Podcast: North Korea Update – August 2017

By, 08/30/2017
Ratings263.769231

In this podcast, Communications Group Manager Naj Srinivas speaks with Content Analyst and MarketMinder Editor Elisabeth Dellinger about recent tensions between the US and North Korea and our current outlook.

Time stamps:

Fisher Investments Editorial Staff
Into Perspective

Market Insights Podcast Emerging Markets Update-June 2017

By, 06/23/2017
Ratings273.925926

In this podcast, Communications Group Manager Naj Srinivas speaks with Research Analyst Scott Botterman about recent developments within Emerging Markets and our current outlook.

0:50 – MSCI announces Chinese A shares to be included in Emerging Markets index

Christo Barker
Into Perspective

Victory to En Marche!

By, 06/19/2017
Ratings104.15

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.  

Fisher Investments Editorial Staff
Into Perspective

Market Insights Podcast: Energy Sector - June 2017

By, 06/13/2017
Ratings323.5625

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

Fisher Investments Editorial Staff
Into Perspective

Market Insights Podcast: Market Update - May 2017

By, 05/15/2017
Ratings623.830645

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.

Fisher Investments Editorial Staff
Into Perspective

Market Insights Podcast: A Re-Introduction to The Ten Roads to Riches

By, 05/11/2017
Ratings754.06

In this podcast, we talk to Content Analyst Elisabeth Dellinger about the recently released second edition of The Ten Roads to Riches.

Fisher Investments Editorial Staff
Into Perspective

Market Insights Podcast: Adviser’s Corner - April 2017

By, 04/28/2017
Ratings393.871795

In this podcast, Fisher Investments' US Private Client Services Vice President K.C. Ellis discusses our clients’ common questions from around the country, including retirement planning, homegrown dividends and dollar cost averaging.

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.

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Recent Research

Pete Michel
Into Perspective

About That High Yield Selloff

By, 11/17/2017
Ratings614.065574

Recent volatility appears to be a short-term selloff, not the start of something worse.

read more
Christo Barker

Meanwhile, Outside Catalonia

By, 10/30/2017
Ratings643.960938

While headlines obsessed over Catalonia last week, some political developments in France and Italy flew under the radar.

read more
Christo Barker
Into Perspective

Making Sense of Catalonia

By, 10/13/2017
Ratings524.355769

As tensions settle in Catalonia, investors’ uncertainty should fade.

read more
Fisher Investments Editorial Staff
US Economy

Market Insights Podcast: Natural Disasters And Market Impact – October 2017

By, 10/10/2017

In this podcast, Communications Group Vice President Naj Srinivas speaks with Capital Markets Team Leader Brad Pyles about the economic effects of hurricanes, earthquakes and other natural disasters.

read more
Charles Dornbush and Timothy Schluter
Monetary Policy

The Curious Case of Japan’s Stealth QE Taper

By, 09/20/2017
Ratings134.730769

The BoJ’s latest policy shift is so surprising they may not even realize they are doing it.

read more

Global Market Update

Market Wrap-Up, Wednesday, December 13, 2017

Below is a market summary as of market close on Wednesday, December 13, 2017:

  • Global Equities: MSCI World (0.0%)
  • US Equities: S&P 500 (0.%)
  • UK Equities: MSCI UK (+0.2%)
  • Best Country: Finland (+1.0%)
  • Worst Country: Italy (-1.2%)
  • Best Sector: Materials (+0.4%)
  • Worst Sector: Financials (-0.4%)

Bond Yields: 10-year US Treasury yields fell 0.05 ppt to 2.35%.

 

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.