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News for the Week of January 16 – January 19, 2018
by David Abuaf, CFA
Investment Manager, RJFS
General Markets / Economic
1. The Fed’s supervision chief called for looser capital and liquidity rules for banks
2. China’s economic growth accelerated in 2017, but there are signs momentum is fading
1. Archer-Daniels-Midland Company (ADM) made a takeover approach to crop trader Bunge, setting up a possible bidding war with Glencore
2. Celgene is in talks to buy Juno, days after unveiling another deal to bolster its portfolio of blood cancer drugs
1. Luxembourg is offering citizenship to Britons to allow them to live and work in the EU after the UK departs the bloc. However, in order to pass the citizenship, these Britons need to become fluent and be able to pronounce such words as: schnuddelhong, gromperekichelcher, and foussgänger
2. Good news if you like spicy food. “The Fiery Death with Hate Sausage” is a pizza loaded with a mix of peppers including Bhut Jolokias, Trinidad Moruga Scorpions and Carolina Reapers. However, you need to sign a waiver acknowledging you are an “idiot” for trying the pizza and will absolve the restaurant of any responsibility. Dear clients, I want to hear your stores. The place is in Columbus, Ohio at Mikey’s Late Night Slice. As your mother, I cannot force you to do anything, but as an older brother…hint… hint….
3. New dads are becoming stupider. They are seen in places like Charleston, South Carolina wearing SWAT vest “carriers” to avert diaper bag emasculation (because people won’t judge you for having a newborn but they will question your manhood for carrying a bag for a baby?) and not just buying blankets for baby Beatrix, but they have to be camo blankets, because we all know little Cameron is an Army Ranger in training. (Thank you, WSJ, for this story).
Commentary for the Week of January 8 – January 12, 2018
by David Abuaf, CFA
Investment Manager, RJFS
Let’s talk about bonds. The 10-year Treasury yield closed at 2.639% last week, its highest since July 2014. There are many people who believe that yields can just keep heading higher without dinging equities, as long as increases are driven by growth and inflation. Others contend that it’s the speed of the move that will determine whether stocks rise or fall. Quincy Krosby at Prudential says, “the market doesn’t like quick moves, that often gives it the jitters!”
Not everyone is so sure. Jim Paulsen of Leuthold Group notes that bond yields have been trending lower for the past 38 years and have remained within one standard deviation for 72% of teat time. This is important because the 10 year is now above the current one standard deviation mark of around 2.44%. Paulsen notes that when it does deviate, equity returns were markedly lower than when yields were in the range. The S&P 500 has advanced an average of 2.7% during the 12 months following such an instance, versus an average of more than 10% when yields remain contained within the bands.
David Ader of Informa Financial takes it a step further. He wonders if you can be bearish on Treasuries (bond prices fall as yields rise) and still be bullish on stocks. He notes that the dividend yield of the S&P 500 has widened to about 0.6 of a percentage point in favor of Treasuries. The wider that gap grows, the more enticing bonds will become to investors who still need yield, “My target is 2.85% to 3%, if we reach that, the equity market will go the other way.”
All opinions presented are those of David Abuaf, and not of Raymond James or Forman Investment Services. All opinions are as of this date and are subject to change without notice.
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 constitute a recommendation. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein.
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