Cruising Speed
Michael Leist
This week in Strategic Insights: In a fascinating week, stocks continued to edge higher as disappointing economic data and the recent rise in bond yields did little to dent continued investor confidence.
Economic Commentary
Contributed by Alan Leist, III
The unexpected fall in the U.S. industrial production for April caught investors by surprise. What does the declining production say about GDP growth for 2015?
Falling Production: The U.S. industrial production growth rate for April came in at -0.3% vs. ests of 0.0%).
- The fifth consecutive monthly fall in industrial production raised concerns among investors about the health of the manufacturing sector.
Dashed Hopes of a Rebound? In the face of declining industrial production and disappointing consumer sentiment, economists surveyed by WSJ continued to remain optimistic. The consensus estimates expect GDP growth of 2.8% for Q2 and robust growth for rest of the year, implying a rebound similar to 2014.
- Manufacturing was a strong pillar of GDP growth in 2014. However, it has lagged behind so far this year due to weak global demand, a strong dollar and low oil prices. Does the five month decline in industrial production mean that this year will be different?
Key Takeaway: Although global demand continues to remain weak, recent GDP numbers from Europe should be a welcome sign. In addition, most of the impact of low oil prices may already have been felt. Energy companies were quick to cut their payrolls and slash capital spending bills. Calls for a strong rebound may be too optimistic. However, there is little to suggest that growth will continue to lag for rest of 2015.
Market Review
Contributed by David Lemire
In a fascinating week, stocks continued to edge higher as disappointing economic data and the recent rise in bond yields did little to dent continued investor confidence.
Avon Calling
In a bizarre scenario, an apparently fake buyout firm planted an outrageous offer for the beset beauty products icon in an SEC filing (of all places).
- In a sign of the times, Avon shares maintained some of the share price surge even after the hoax was revealed.
- Speculative excess can sometimes signal market tops.
Pièce de Résistance
In another sign of the times (see above), auction houses moved over $2B(!) in art in May.
- With records being set, the gulf between main street spending and the luxury market is growing. Healthy? No
Contributed by Michael Leist
What Comes Around…
Once upon a time, AOL made an epic acquisition of Time Warner ($160B) that failed.
- In 2015, with an eye on the future (mobile video), Verizon gobbled up AOL for the measly sum of $4b.
- Wall Street has been on a levered acquisition spree due to abnormally low interest rates, but this deal is for all cash and appears reasonable…at least on a relative basis.
Looking Ahead to Next Week
Contributed by Aaron Evans
Inflate-gate
The DOL will release the latest round of monthly U.S. consumer pricing data, along with more familiar core-CPI which excludes food & fuel.
- Unlike the New England Patriots’ footballs, inflation likely increased as prices of goods moved slightly higher (0.1% est.) in April despite lower energy input costs.
…he just ran so fast. It was like poetry in motion
Trainer Bob Baffert on his 2015 Preakness Winner, American Pharoah
On An Island
Japan has a big week with both Q1 GDP growth data and the latest Bank of Japan monetary policy statement slated for next week.
- Following a 2014 in which the economy contracted, 1% growth is estimated for Japan in 2015. On the monetary policy side, aggressive easing is still in play.
Price Point
Strategic holdings from across the retail spectrum report earnings next week including Dollar Tree, Walmart and Williams Sonoma amongst others.
U-TI-CA
The Comets return home for two chances to advance to the Calder Cup semifinals. Go Comets!
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Cruising Altitude
Stocks and bond yields have moved higher this year and may be settling into a more comfortable range.
Keep your seat belts fastened
While economic data continues to push out the time frame for possible Fed action, the eventual first increase could bring turbulence back into markets.
View from the cockpit
Recent stock market moves have allowed us to trim some holdings as we aim to keep the fixed and growth “wings” of our portfolios well balanced. With stock markets near all-time highs and bond yield still low, we are content to let some cash accumulate.
STRATEGIC Growth
Trian to change
A solid week from the health care sector was just enough to overcome a tough week from energy and materials. One materials co. in particular was in the news…
- Trian Fund lost its battle to place its slate of candidates on the board of DuPont (DD). Trian was pushing to break up DD to unlock shareholder value. The company survived this battle, but they will have to show some progress soon.
STRATEGIC Equity Income
Farewell Old Pal
The march higher for interest rates came to a halt this week. The higher dividend paying stocks responded with a bounce. In other strategy news…
- Strategic parted ways with a long term holding in the materials sector. It became evident that valuations in the space were extended and growth prospects too optimistic. We took the opportunity to move to the sidelines for now.
| Indices & Price Returns | Week | Year |
|---|---|---|
| S&P 500 | 0.3% | 3.1% |
| S&P 400 (Mid Cap) | 0.8% | 5.4% |
| Russell 2000 (Small Cap) | 0.7% | 3.3% |
| MSCI EAFE (Developed International) | 0.9% | 9.4% |
| MSCI Emerging Markets | 0.1% | 8.3% |
| S&P GSCI (Commodities) | 1.7% | 8.1% |
| Gold | 3.1% | 3.5% |
| MSCI U.S. REIT Index | 0.6% | -0.5% |
| Barclays Int Govt Credit | 0.0% | 0.7% |
| Barclays US TIPS | -0.1% | 1.0% |
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