Contributed by Alan Leist, III
Stocks stabilized after a mini-selloff and then rallied on the back of cautious Fed comments, relative calm in China’s markets and some upbeat earnings reports.
Like a Rock: Investors liked what they heard in the Fed statement released Wednesday as Chairwoman Yellen offered a little something for everyone.
- By signaling that the job market is “solid”, the Fed confirmed plans for a ‘15 rate hike, the consensus view.
- In support of the hope that the tightening cycle will be deliberate, inflation was noted as a lingering concern.
Winter Break: China capped off a wild month with the announcement that they will host the 2022 Olympics.
- Investors had less to cheer about after a 30% market decline, but with help from an always accommodative communist regime, prices stabilized (a little) this week.
- USA Today ran a front page feature on China’s market crash, a contrarian indicator if ever there was one.
- China’s respite allowed for a refocus on corporate earnings.
Contributed by Doug Walters
After the latest update to 2015 GDP growth data, we take a fresh look at the health of the US economic recovery.
Familiar Pattern: The latest GDP report released by the Commerce Department turned out to be a mixed bag.
- The revised Q1 GDP growth came in +0.6%, higher than the same period last year (-0.9%) and higher than the original estimates.
- However, the overall growth rate for 1st half of 2015 still points to a less robust spring turn around than anticipated.
Key Drivers: 1st half growth was weighed down by sluggish consumer spending, a strong dollar and weak business investment.
- The latest figures repeated a familiar pattern seen over the last few years: a strong sudden rise in growth that stalls out just as quickly.
Our Take: The recent GDP report, although lacking any blockbuster numbers, shows an economy that continues to grow at a modest but steady pace. *Businesses did scale back some of their spending, partly due to a fall in oil prices, but consumer and housing spending are beginning to pick up the slack.
- All in all, the data is just good enough to have the Fed talk tightening despite what continues to be a historically weak recovery from recession.
Investment Strategy Update
STRATEGIC Asset Allocation
Emerging Opportunity?: While China’s volatility continued at the start of the week before settling down, most U.S. based investors remain somewhat immune to the bigger declines. However, a stronger dollar continues to hit other emerging markets with Latin America hit particularly hard. The extent of the declines has prompted some rebalance discussions.
The Unknown Unknowns: Valuations are starting to look more attractive. However, China’s role as both an investment and a demand source remains complicated. The heavy hand of government intervention remains a source of uncertainty and necessitates a higher margin of safety.
What a Long, Strange Trip It’s Been: Online travel company Expedia (EXPE) sent investors over the moon with an estimate topping quarterly report.
- Strong international results drove the beat.
- Investors are still eyeing the planned acquisition of rival Orbitz as the Justice Department evaluates the deal.
STRATEGIC Equity Income
Diaper (not) Dandy: Despite a Strategic push to single-handedly boost sales of Pampers through a mini-baby boom at the firm, Proctor and Gamble disappointed investors yet again.
- Overall, sales dropped by 9% for the quarter as a strong dollar and anemic organic growth weighed on results.
- Some investors are calling for a break-up of the behemoth.
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