Fisher Investments Editorial Staff
Media Hype/Myths, US Economy

A Day in the Life of a Bull Market

By, 03/23/2017
Ratings164.625

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.

Fisher Investments Editorial Staff
Trade, Reality Check

Checking In on Trump and Trade

By, 03/22/2017
Ratings164.6875


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.

Fisher Investments Editorial Staff
Interest Rates

An Interesting Forecast for Interest Rates

By, 03/17/2017
Ratings554.109091

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%.

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

Market Insights: All-Time Market Highs

By, 03/17/2017

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

Fisher Investments Editorial Staff
Market Cycles

No Easy Bull, Reprise

By, 03/16/2017
Ratings1144.188597


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]

Fisher Investments Editorial Staff
Politics

Seeing Through the Debt Ceiling

By, 03/16/2017
Ratings403.975

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.

Elisabeth Dellinger
Capitalism, Unconventional Wisdom

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

By, 03/13/2017
Ratings884.107955

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

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]

Elisabeth Dellinger
Media Hype/Myths, Into Perspective

How to Analyze Alternative Facts and Ferret Out Fake News

By, 03/10/2017
Ratings1384.358696

Fake news! By now you’ve likely heard it’s everywhere, the scourge of our times. Facebook, considered the main conduit, is on the warpath, working with outside fact-checkers to discover and label fakery. While the concept of fake news is relatively new to the mainstream, it has had a presence in the financial media for decades. It is the stuff of newsletters warning of the end of America, the great currency reset or hyping penny stocks, all urging you to buy gold/silver/life insurance/some proprietary product. But even within the respectable financial news universe, it is increasingly hard to separate fact from fiction. The more media outlets arise, the more they compete for eyeballs through sensationalism. As Robert J. Martorana put it a while back on the CFA Institute’s website, “investment blogs have embraced the golden rule of tabloid journalism: simplify, then exaggerate. Pseudo news and pseudo analysis clutters the web, making it harder to stay well informed.” As my colleague Michael Hanson wrote last week, “reading comprehension and testing narratives is a lost art, and it’s one that’s gaining primacy.” So, how do you do it?

The first step is understanding what the news media really is: entertainment, targeted to a specific audience. If you’ve ever flipped through cable news, you probably get this. When you find a channel whose editorial slant matches your own political views, it makes you happy—you’re their target audience. When it doesn’t match your political views and raises your ire, you aren’t their target. Someone else is. People often self-sort, picking the outlet aligned with their own views, and revel in the echo chamber. The editors tailor the message to keep viewers and attract more, with more sensationalism—entertain more people, get more ad revenue! It’s a for-profit business, after all.

Newspapers have a more venerable reputation, but they too are entertainment—just packaged differently. Some recent New York Times navel-gazing laid it bare. One year ago, the executive editor asked seven staffers “to conduct a review of the newsroom and determine a blueprint for its path forward.” Among the recommendations were “reducing duplicative layers of article editing, and having visual experts play ‘the primary role covering some stories’ – part of an urgent call for more visual journalism. The report also calls for a renewed focus on diversity within The Times as a way of ensuring that the paper’s journalists ‘reflect the audience we seek.’” Boldface mine, because that last bit is the kicker. They have a target demographic in mind and plan to tailor their approach to get it. The goal here is to attract, entertain and retain customers, not inform the populace in an objective manner.

Fisher Investments Editorial Staff
Politics, Across the Atlantic

Europe’s Falling Uncertainty: Dutch Edition

By, 03/09/2017
Ratings564.080357

In 2016 the big political fears centered on Britain and America, with investors concerned Brexit and the odd US presidential election would roil markets. We all know how that turned out—stocks went up—but that hasn’t stopped political fears from sprouting elsewhere. The focus now is Europe, and specifically the Netherlands, as Geert Wilders and his far-right, anti-euro Party for Freedom (PVV) are projected to do well in next week’s parliamentary election. Some fear the Dutch vote is a bellwether for Europe’s other upcoming elections and could give momentum to other anti-euro movements across the Continent (e.g., Marine Le Pen’s Front National in April’s French presidential contest). However, in our view, this overstates both Wilders’s prospects as well as the general potential for Europe’s populist movements. With many investors focused on potential negatives, uncertainty is presently high. But the results from the Netherlands should be a first step in falling uncertainty across Europe—an underappreciated bullish positive.  

Wilders has grabbed headlines both at home and abroad for promoting radical stances—mostly sociological in nature, related to his nationalist bent. On a more market-related front, Wilders has long supported abandoning the euro and EU, a major plank of his campaign platform. Though Wilders is the third-longest-sitting member of the Dutch Parliament, his outsider status stems from breaking away from the mainstream conservative People’s Party for Freedom and Democracy—known as the Liberals—to form his anti-establishment PVV. He wields total control of the PVV’s platform and decision-making, as he is technically his party’s only member. The rest of his parliamentary caucus is ideologically aligned but not card-carrying, hand-selected by Wilders. 

For most of this year, PVV sat atop the polls, fueling fears Wilders would win and threaten the euro. Though recent polls show PVV falling behind, the race looks tight: Depending on the poll, the Liberals are neck-and-neck with the PVV or just slightly ahead. However, even if the PVV wins a plurality, Wilders seems likely to struggle to form a government and would be in no position to implement radical change, like exiting the euro (i.e., Nexit). The Dutch Parliament awards seats proportionally to the party’s share of the vote, and currently, the PVV is projected to win about 25 of Parliament’s 150 seats. Even the most extreme estimates put them at only about 35 seats. The PVV would need 76 seats to form a government, so Wilders would need to work with other parties to form a governing coalition. But no other political party has expressed a willingness to join a PVV-led coalition. Thus, even if PVV “wins,” the most likely result is Wilders and his party acting as opposition to a coalition of centrist parties.  

Fisher Investments Editorial Staff
Commodities

Oil Well Supplied

By, 03/08/2017
Ratings964.364583


OPEC’s production cuts haven’t led to big output drops. (Photo by ahopueo/iStock.)

Last November, the media made much of the deal struck between the Organization of Petroleum Exporting Countries (OPEC) and several non-OPEC oil-exporting nations to cut production in 2017. After two years of huge output, the deal sought to ease the supply glut that crushed oil prices and Energy sector profits. Investors greeted the deal with optimism, presuming cuts would fuel further oil price gains—and bolster Energy firms’ profits. However, thus far, enforcement has been lax and compliance spotty, particularly among non-OPEC producers. Meanwhile, US crude oil exports have surged, inventories are at record levels and, after a brief dip, production is rising anew. Globally, oil remains well supplied, likely keeping prices low and limiting Energy sector relative performance.

After falling fast from June 2014 through February 2016, crude oil prices rallied from a low of $26 per barrel to $51 by June.[i] This rebound coincided with Energy sector outperformance, which got many thinking the bottom was in and Energy stocks would continue surging. However, gains since then haven’t impressed. Oil has mostly traded in a $50 to $55 per barrel range since December, and Energy stocks lagged bigtime. (Exhibit 1) Which isn’t surprising to us. Energy stocks are highly oil-price sensitive, so continued outperformance would probably need one of two scenarios: Either oil prices rise with staying power, perhaps driven by major production cuts, or sentiment toward oil firms falls a lot—overshooting the outlook for oil production. With OPEC and non-OPEC nations cheating on quotas and the US happy to take market share, production isn’t likely to fall. And it seems investors still haven’t soured enough on the industry, given high Energy sector valuations and frequent media chatter.

Fisher Investments Editorial Staff
Investor Sentiment

New Highs, Old Fears

By, 03/07/2017
Ratings1474.435374

Last Wednesday, the S&P 500 hit its 200th new high of this expansion—a nice, big round number! And, before you put your party hats away, this Thursday the global bull market turns eight. On March 9, 2009 the global financial crisis-driven bear market ended, and the march upward since is now the second-longest in history. The two (somewhat arbitrary) markers recall two longstanding false fears: That market records signal stocks are too high and aged bull markets must die soon. Neither is correct, and skeptical headlines today suggest there is more wall of worry for this bull market to climb.

Open a newspaper,[i] and you’ll see frequent coverage of new market highs alongside projections that they can’t last. If this sounds familiar, it’s because such stories have tracked markets’ rise for years, as folks repeatedly declare the latest record high is near a market peak.

Exhibit 1: 200 S&P 500 Record Highs

FactSet, S&P 500 Total Return, 3/9/2009 – 3/1/2017. Source, source, source, source, source, source.

Michael Hanson
Business in Review

Fake News: Yellow Ain't Mellow

By, 03/02/2017
Ratings3024.135762

Back in 2012, Ryan Holiday—an insider in today’s blog-driven media—wrote Trust Me, I’m Lying: Confessions of a Media Manipulator. It’s an uncanny guide to navigating and understanding today’s blustery news cycle. Polls taken just before last year’s US election showed media trust sits at historic lows; this book explains much of the why behind it.

First, Holiday addresses history: Fake news isn’t new. It was around over 100 years ago. Back then, they called it “Yellow Journalism.” The term describes the sensational and hyper-competitive atmosphere prevailing in the media; specifically, wars between Joseph Pulitzer at the New York World and William Randolph Hearst’s New York Journal. Actually, the origin of term illustrates the competitiveness: “Yellow” refers to a character in cartoonist RF Outcault’s work originally published in the World. Hearst hired him away from Pulitzer and mimicked the paper’s style overall. As Holiday puts it:

In the days of the yellow press the front pages went head to head every day, driving each other to greater and greater extremes. As a publisher, William Randolph Hearst obsessed over his headlines, tweaking their wording…riding his editors until they were perfect. Each one, he thought, could steal another one hundred readers away from another paper.

Fisher Investments Editorial Staff
Across the Atlantic, Investor Sentiment

British Consumers Carry On

By, 03/01/2017
Ratings293.896552

Here is a handy way to determine whether stocks have topped the wall of worry: When good economic news hits, do pundits find clouds in the silver lining? If so, it’s a sign of lingering skepticism, suggesting room for warming sentiment remains. Case in point: The UK’s updated Q4 GDP estimate showed faster growth than first thought, with net trade contributing bigtime—good news, particularly for those fretting the UK’s allegedly unbalanced economy. But instead of cheer, headlines dwelled on supposed signs of faltering consumer spending, fearing the country’s primary growth driver is sputtering. We see evidence aplenty to refute this, and ample reason the UK economy (and stocks) should keep chugging along.  

GDP revisions usually aren’t a huge deal for markets. Stocks are forward-looking and probably don’t care today that UK GDP grew 0.7% q/q (2.9% annualized) in Q4 instead of the previously estimated 0.6%. Nor is it hugely meaningful that manufacturing drove the upward revision, growing 1.2% q/q rather than 0.7%. But the UK’s second GDP report provides the first look at useful expenditure-level data—consumer spending, business investment, trade and the like.[i] This one had plenty of interesting nuggets—some more positive than others: Trade contributed 1.3 percentage points to growth, as exports rose 4.1% q/q and imports fell -0.4%. Consumer spending grew 0.7% q/q, its eighth straight rise. But business investment fell -1.0% q/q, extending fears that Brexit uncertainty is discouraging expansion.

Consumer worries, however, took center stage, with most commentary fearing the heady days of Brits’ shopping till they drop are over. While spending rose in Q4, retail sales are down three straight months, most recently falling -0.3% m/m in January. Many suspect Brits pulled big-ticket purchases forward from Q1 into Q4, fearing the weak pound would elevate prices if they waited.

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Recent Commentary

Fisher Investments Editorial Staff
Media Hype/Myths

A Day in the Life of a Bull Market

By, 03/23/2017
Ratings164.625

A brief dip ended a lengthy quiet stretch for US stocks, but it doesn’t foretell turbulence ahead.

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Fisher Investments Editorial Staff
Trade

Checking In on Trump and Trade

By, 03/22/2017
Ratings164.6875

The Trump administration has seemingly softened its anti-trade stance.

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Fisher Investments Editorial Staff
Interest Rates

An Interesting Forecast for Interest Rates

By, 03/17/2017
Ratings554.109091

Contrary to the crowd, we believe interest rates will end the year lower.

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Fisher Investments Editorial Staff
MarketMinder Minute

Market Insights: All-Time Market Highs

By, 03/17/2017

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

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Fisher Investments Editorial Staff
Market Cycles

No Easy Bull, Reprise

By, 03/16/2017
Ratings1144.188597

There are a lot more toeholds up the Wall of Worry.

read more

Global Market Update

Market Wrap-Up, Wednesday, March 22, 2017

Below is a market summary as of market close Wednesday, March 22, 2017:

  • Global Equities: MSCI World (-0.2%)
  • US Equities: S&P 500 (+0.2%)
  • UK Equities: MSCI UK (-0.7%)
  • Best Country: Israel (+0.3%)
  • Worst Country: Australia (-2.2%)
  • Best Sector: Information Technology (+0.6%)
  • Worst Sector: Financials (-0.8%)

Bond Yields: 10-year US Treasury yields fell -0.01 percentage point to 2.41%.

 

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.