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Strategic Insights

Volume 4, Edition 44 | November 23 - 27, 2015

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Alan Leist III | Articles

Read Time: 4:30 min

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Stocks were flat on this holiday shortened week. In light volume, markets took a moment to digest recent gains, assess overseas events, gauge the kick-off to holiday shopping and set the stage for a busy year end push.

Economic Commentary

Contributed by Doug Walters

According to the National Retail Federation, 136 million people are expected to battle the crowds (and WiFi) this holiday weekend in search of the ultimate deal.

“The Retail Super Bowl” For many retailers, +20% of annual sales come from this weekend alone and, with some clever pricing schemes (be careful!), margins manage to stay high despite the so called “discounts”.

  • ’15 “Black Friday” sales should rise for 1st time in 3 yrs

The Internet (and Your Phone) Strike Back: The steady sales growth for the retail industry has come from online distribution channels.

  • In 2014, “Cyber Monday” online sales were $2.7B, more than 4X 2006’s level. The 2015 estimate? +$3B
  • Fun fact: 50% of buys in 2014 were made from work.

Gobble, Gobble: With improvements in the mobile retail experience, sales have started to shift to Thanksgiving Day. In 2015, sales surged +20% YoY to over ~$1.7B with (who else?) Star Wars leading the way.

What’s In It For Me? The NRF predicts that consumers will each spend $805 over the holidays, a record.

  • Gifts to family: $462 friends: $77 and co-workers: $25

Sources: (Adobe, WSJ,  CNBC, NRF)

 

Market Review

Contributed by Alan Leist, III

Stocks were flat on this holiday shortened week. In light volume, markets took a moment to digest recent gains, assess overseas events, gauge the kick-off to holiday shopping and set the stage for a busy year-end push.

Status Quo: The downing of a Russian jet highlighted the tenuous state of affairs in the Middle East. The incident weakens efforts for an anti-ISIS global coalition.

  • On one hand, as it relates to markets, the blasé attitude of investors and the relative strength of stocks signals an underlying bid to risk assets.
  • On the other hand, sadly, a sense of complacency has taken hold over what has become the geopolitical norm.
  • Investors must remain vigilant in the face of such serious risks. Diversification and rebalancing are vital.

Fine Day for a Par-AD-e! 50 million (!) people watched the 89th Annual Macy’s Thanksgiving Day Gala.

  • Is it any wonder that this perfect start to the holiday shopping season has been turned into a 3hr commercial? *Editor’s Note: The kids loved it anyway!
$50 Million
TV Audience for the 89th Annual Macy’s Thanksgiving Day Gala.

Looking Ahead to Next Week

Yuan-a Be Starting Something? Expect the International Monetary Fund to grant the Chinese currency a spot in the now legendary Special Drawing Rights basket.

  • Over the course of the past year, we have been asked numerous times if this move by the IMF would signal the end of the US dollar as the world’s reserve currency and, in effect, the beginning of a major bear market.
  • The short answer in the short-term is no. Simply, the move symbolically validates China’s ascension to a leader on the global economic stage.
  • Assuming China continues to grow and loosen capital controls, we could eventually see the yuan challenge the dollar. The move, while scary from a headline standpoint, could come with some advantages, however…plus, we are a long way off from that scenario.

Bark and Bite: Several speeches from Fed officials, including two from Fed Chair Yellen, will be backed up by Friday’s job report. Barring any major surprises, the week should set-up the markets for a December hike.

Indices & Price ReturnsWeekYear
S&P 5001.0%2.1%
S&P 400 (Mid Cap)-0.1%5.7%
Russell 2000 (Small Cap)0.3%5.0%
MSCI EAFE (Developed International)0.6%8.8%
MSCI Emerging Markets2.6%9.1%
S&P GSCI (Commodities)1.4%0.3%
Gold-0.6%2.0%
MSCI U.S. REIT Index-3.7%1.6%
Barclays Int Govt Credit-0.2%1.0%
Barclays US TIPS-0.5%1.7%

Investment Strategy Update

Strategic Asset Allocation

Clash of the Titans: December offers an interesting duel between the ECB and the Fed. The ECB landed the first hit as the prospect for more stimulus pushed global yields lower. However, the November jobs reports and Yellen’s congressional testimony could set the stage for an actual rate increase. For now the Fed controls the short end of the yield curve while the ECB holds sway over the longer end.

The Undercard: Small Cap’s have staged a decent rally of late, outpacing more meager gains from larger companies as the month closes.

Equity Edge: Stock allocations continue to increase although levels remains in our comfort zone.

STRATEGIC GROWTH

A Dollar Here, a Dollar There: Energy stocks ended a recent streak of last place finishes to pop to the top. Industrials and Financial stocks were the laggards. In other strategy news…

  • Dollar Tree, Inc. (DLTR) reported an earnings miss, but it was due to a unique issue and therefore forgiven by the market. The recent acquisition of Family Dollar moved store count from 5,841 to 14,038. The additional stores sell at a lower margin level with room for improvement.

STRATEGIC Equity income

Bucking the trend: A pending interest rate increase weighed down the Utility sector. Other yield sectors (i.e. REITS and Consumer Staples) bucked the trend. Speaking of a buck…

  • Deere (DE) reported an eye-catching beat. Weak crop reports and lower machinery spending were already built-in to the share price. While sales continue to decline, this was the 6th best year in the company’s existence.

 

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