News for the Week of Week April 18 – April 22, 2016
by David Abuaf, CFA
Investment Manager, RJFS
Government / Political / Economic
1. Brazil’s lower house of Congress voted to impeach Rousseff
2. News emerging from a WSJ/NBC News poll says that both parties’ presidential front-runners are growing increasingly unpopular. I ask, were either ever popular?
3. GOP voters reject the idea of convention delegates choosing a nominee who hasn’t run in primaries
4. The RNC rejected a proposal to make it harder for GOP elders to anoint a “white knight” candidate at the July convention
5. A judge stopped the CFPB (Consumer Financial Protection Bureau) from pursuing a probe of an organization that accredits for-profit colleges
· Talk about judges with bad judgement!
General Markets / Economic
1. A meeting of oil producers in Doha failed to agree on a production freeze after Saudi Arabia demanded that Iran cap its output
2. China’s moves to stabilize its economy have temporarily eased global fears, world financial leaders said
3. The US Treasury plans to put abolitionist Harriet Tubman on the $20 bill
4. Initial jobless claims in the US fell to the lowest level since 1973
1. Verizon’s pursuit of Yahoo got a boost as Time, Google, and other suitors opted not to made a bid
2. Google is facing European Union charges that it abused the dominant market position of its Android OS
3. VW agreed to offer US vehicle owners a blend of buybacks, repairs and compensation in a bid to resolve its emissions scandal
Commentary for Week of April 18 – April 22, 2016, by David Abuaf
Chart below from Wall Street Journal
US stock market finished higher last week, coming within a whisker of all-time highs but failing to push through. We are now in earnings season so trading was active; US economic data was mixed.
According to Voya Global Management, first quarter corporate-earnings “weren’t as bad as anticipated but certainly nothing to write home about.” This is actually good. Remember, in the stock market explicit data is irrelevant (akin to GDP), but rather the emphasis is on whether the news was a surprise or not and in which direction!
Worse than expected earnings from Microsoft and Alphabet pushed down the tech sector, which fell 2% on Friday alone.
Last week’s news, while good that the market is near an historical high, did bring pause to fundamental investors (of whom I am counted in that) who do look at technical charts as well. It should be noted that neither I personally nor many other fundamental investors actually believes technical analysis, but there are players in the market who believe in it, so it is our job to have to follow it to understand how the market as a whole might react to news. Nevertheless, the internal debate on the Street now is whether the market is overvalued or fairly valued as it was unable to punch through the old high.
It’s worth noting that the market Price to Earnings ratio is currently 17 times. Typically, in a regular market we would expect a multiple between 14 and 16, a bear market between 11 and 13 and a bull market between 18 and 20. As such, “you can make the case that if profit margins hold up, profits grow, and rates don’t go up, the market is adequately valued,” according to Malcolm Polley of Stewart Capital Advisors.
All that said, market breadth (stocks advancing versus declining) and other underlying factors are as bullish today as they’ve been since a year ago. Other bullish signs we’re signing include the trend of small caps, cyclicals, and multinationals beating, respectively, large cap, defensive, and domestic stocks
All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services
This information is not a complete description of the securities, markets, or developments discussed and has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not