With media outlets churning out stories of stock market gloom, we take comfort in a healthy job environment.
Last week, the Bureau of Labor Statistics reported that an impressive 297K new jobs were created in the month of December, with the previous two months revised up sharply.
- Over the past 20 years, the U.S. has on average created only about 100K jobs a month, which underlines the strength of the current numbers.
- During this 20 year period, the S&P500 produced a respectable annualized total return of 7.9%.
No Crisis Mode
A look at recent history (see chart) shows that the Dotcom bust and Financial Crisis were both preceded by a fall in job creation below 100K.
- While this is a small data set, it does show that it would be unprecedented (in recent history anyway) for the stock market to enter a new “crisis” in the near future, with the job picture still so healthy.
Based on the current employment picture, we believe the likelihood of current equity market weakness escalating into crisis, is small in the near term.
Contributed by Doug Walters
Equities continued their slide this week, with commentators taking every opportunity along the way to call it the “worst start to the year ever”. While we would always prefer for stocks to go up, the current 10%+ correction is neither unusual nor concerning at the moment.
Not so unusual
This is the 5th time in 6 years stocks have fallen by over 10%. Yet in that stretch, the S&P 500 had an average annual total return of over 11%.
- While sometimes unnerving, these corrections often prove to be the launching pad for the next leg up. In our experience, disciplined rebalancing during these shocks is rewarded in the long-run.
Storytime with POTUS
The president delivered his final state of the union address, while GOP hopefuls battled it out on the debate stage one last time.
- The candidates would be the last to admit it, but the U.S. has been a relative bright spot on the world economic front. Low unemployment and reasonable growth should keep stock weakness in check.
|Indices & Price Returns||Week (%)||Year (%)|
|S&P 400 (Mid Cap)||-3||-9.2|
|Russell 2000 (Small Cap)||-3.7||-11.3|
|MSCI EAFE (Developed International)||-2.8||-8.8|
|MSCI Emerging Markets||-4.2||-10.7|
|S&P GSCI (Commodities)||-5.5||-10.4|
|MSCI U.S. REIT Index||-2.4||-5.2|
|Barclays Int Govt Credit||0.1||0.8|
|Barclays US TIPS||-0.1||0.5|
Looking Ahead to Next Week
Contributed by Aaron Evans
With January’s market pullback largely attributed to global economic concerns, next week’s release of China Q4 GDP data is sure to draw attention.
- Growth estimates are in the 6.5%-7% range, though some believe “actual” data is lower and additional stimulus will be needed to prevent a hard landing.
Hitting the Slopes
Global government and business leaders head to the alpine village of Davos, Switzerland next week for the annual World Economic Forum.
- The theme of this year’s meeting is “Mastering the Fourth Industrial Revolution”, which combines digital, physical and biological technologies to drive innovation.
Strategic holdings releasing earnings next week include General Electric, United Healthcare, Union Pacific, Verizon, Travelers and M&T Bank among others.
- These earnings calls provide a great checkpoint for our fundamental quality and value analysis of each of our securities, which is key during volatile market periods.
Investment Strategy Update
STRATEGIC Asset Allocation
Emerging Markets and Commodities joined an unfortunate group hitting fresh 5-yeal lows this week. Of the two, Emerging remains a more compelling opportunity, as we exited our Commodity position.
Domestic Perspective: While the U.S. market’s decline has been sudden and steep, our markets seem unlikely to join the above club.
China ≠ Lehman
The risks are many and serious with respect to China, but comparisons to the financial crisis seem off the mark. The indiscriminant selling that characterized that period is not yet present in this selloff.
Cash levels remain high as we remain vigilant for opportunities that selloffs usually offer.
When it rains…
Consumer Staples was a standout, but the sector still had a negative week. In other strategy news…
- IT consulting firm Cognizant Technology Solutions Co. (CTSH) reassured investors that floods in Chennai, India where the company has 11 operations centers would not impact earnings. The company’s business continuity plan mitigated any disruption in its business.
STRATEGIC Equity Income
Utilities finish the week as leaders and the Technology sector was a laggard. Speaking of technology…
- Intel Corp. (INTC) the microchip giant reported a consensus topping quarter, but guidance failed to impress. The concern stems from slower data center sales in China. On the positive side there is an expected product cycle refresh coming later this year for both the PC and data center clients.
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