Market Impact of a Trump Presidency

Donald Trump emerged as the winner last night of a hotly contested presidential campaign and will be inaugurated as the 45th president of the United States on Friday, January 20, 2017. The transition to a Republican presidency and Trump’s rejection of politics as usual, which drew so many voters, naturally lead to questions about his impact on the economy and markets. Today on our blog we provide a high level overview of our thoughts of the significance of a Trump presidency.

ECONOMY

Does Trump’s win change LPL’s view on the economy over the remainder of 2016 and into 2017?

The election results have not changed our long-term outlook for the U.S. economy. We will continue to monitor many important economic indicators, including the Five Forecasters, the Current Conditions Index, and the Recession Watch Dashboard, and will keep you updated in the event of any changes to our views.

Will the election results cause a recession?

Elections do not in and of themselves cause recessions. Policies can, however, and we need to wait to see which policies Trump moves forward with and the details of those policies.

Our Recession Watch Dashboard continues to point to an overall low risk of recession within the next year.

What impact might the election have on overseas economies and markets?

Trade has been a major theme in this election, yet a president’s ability to impact trade directly and immediately is somewhat limited. Trump has been outspoken in favor renegotiating NAFTA terms and has been opposed to the TransPacific Partnership (TPP), which has little chance of passing. The Trump victory raises some concern across foreign markets about U.S. trade.

FED

Will the election results impact Fed monetary policy later this year and in 2017?

We do not believe the election results have changed the Fed’s outlook. Furthermore, we believe the Fed is much less sensitive to financial markets than most people think. As it stands, we believe the Fed is on course to increase rates at its December meeting, with another 2-3 increases in 2017. It would take a major market disruption or a change in the economic fundamentals for the Fed to alter this course.

EQUITIES & FIXED INCOME

Will the election result cause a bear market in equities?

Just as an election does not cause a recession, it does not cause a bear (or bull) market. Government policies alone do not change the market’s long-term trend, although they are a factor.

Shorter term, elections are rarely a harbinger for a sell-off, and when they have been, the election has not been the primary cause. In election years since 1952, the S&P 500 has returned an average of 2.5% in November and December and has been higher 75% of the time. From Election Day until Inauguration Day, the S&P 500 has averaged a gain of 1.0% and has been higher 69% of the time. The median return jumps to 3.0% because of a nearly 20% drop in 2008 that skews the average return, but 2008 returns were fundamentally driven by the recession, not Obama’s election. The bottom line is some near-term volatility is likely, but a massive sell-off absent an economic recession has never happened in the period between the election and inauguration.

Are the near-term results impacted by the party of the President?

There doesn’t appear to be much of a difference in equity performance over the short term. Since the election in 1952, the final two months of the year have returned 2.6% when a Republican wins and 2.4% when a Democrat wins. Looking at the largest drops the final two months of an election year in 2000 (Republican victory) and 2008 (Democrat victory) stand out, as the S&P 500 dropped 7.6% and 6.8%, respectively. Both times the economy was either in a recession (2008) or about to fall into a recession (2000) – which greatly contributed to the equity weakness. With the end of the earnings recession, improving consumer confidence, and the best quarterly GDP print in two years – we presently have an improving economic backdrop, which should help contain any large downside moves in equities the rest of 2016.

Which sectors would likely benefit under Trump?

Biotech and Pharmaceuticals: Although Trump has stated his desire to repeal the ACA and has favored drug re-importation from other countries, controlling drug prices is unlikely to be as high of a priority for him as it would have been for Clinton. As a result, biotech and pharmaceutical companies may get a bump. We believe the market may have overreacted to perceived policy risk and we continue to favor the healthcare sector, which has historically performed well after elections.

Energy: Trump is likely to be positive for fossil fuels. He has promised less regulation on drilling, along with expansion of drilling areas. The segment of the industrials sector that services the energy sector may also benefit.

Financials: The Trump administration is likely to be easier on financial regulation than Clinton would have been. Trump has indicated he would like to roll back financial regulations, including the Dodd-Frank legislation enacted as a result of the financial crisis. Trump has also suggested bringing back Glass-Steagall, which would separate traditional banking from investment banking, a move we see as very unlikely.

How will the election impact the dollar and bonds?

Dollar: Trump’s policies are likely to be relatively negative for the U.S. dollar. His comments on renegotiating U.S. debt held by foreigners may limit the attractiveness of bonds to foreign investors.

Bonds: We saw an initial Treasury rally as stocks sold off overnight, but yields have since moved higher. We expect there may continue to be additional volatility as markets digest the news, but we broadly believe markets may be pricing in a rise in deficit spending, which is pushing yields higher; though continuation of low rates overseas is an offsetting factor, potentially keeping rates somewhat range bound over the near-term.

Will Trump’s policies lead to a debt downgrade?

Trump had mentioned last spring the possibility of renegotiating our debt and paying back less than the full amount if the economy were to falter. This idea, if implemented, would almost certainly lead to a debt downgrade. However, he backed away from this idea a few days after he floated it.

More realistically, Trump has signaled higher deficit spending. While deficit spending was a contributing factor to the U.S. debt downgrade by S&P in August of 2011, it wasn’t the only reason. The main driver of the downgrade was the debt ceiling crisis, as Republicans demanded a deficit reduction package before they were willing to join Democrats in raising the debt ceiling. Divided government and partisan politics led to months of debate and an eleventh hour deal that avoided a default. With Republicans keeping control of the Senate and the House, a fight over the debt ceiling fight that could threaten the U.S. credit rating is unlikely.

COMMODITIES

What is the election impact on gold?

Gold can thrive in chaotic environments and the uncertainty surrounding Trump’s policies could offer some support to the commodity.

What is election impact on oil?

When discussing oil, it is important to remember that oil stocks and crude oil can have very different performance, even though investors often expect similar returns.

Trump’s victory is likely a positive for oil stocks, especially in the short run. He has promised reduced regulations on oil and gas production, which would improve profitability of existing projects and may result in a very marginal increase in U.S. production. Note, this may be a negative for energy prices.

VOLATILITY

Will volatility increase due to the election outcome?

We expect that market volatility will likely increase. Equity markets have experienced abnormally low volatility recently, in part because of central bank intervention. As those interventions decrease, volatility should increase. However, we view that increase as a healthy aspect of equity markets. The degree to which the election results impact volatility will depend a great deal on which policies are actually enacted as a result of the changes in Washington.

 

 

 

 

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, geopolitical events, and regulatory developments. Because of its narrow focus, investing in a single sector, such as energy or manufacturing, will be subject to greater volatility than investing more broadly across many sectors and companies. The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. This research material has been prepared by LPL Financial LLC.

Cramer Remix: Is the Biotech Bear Market Over?

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Amid news of explosions in Belgium’s capital on Tuesday, stocks were justifiably down at the open, but then rallied for most of the afternoon and pulled back shortly before the close.

Jim Cramer explained the action on the market, stating “We call it the underlying bid. That is a term that means buyers are lurking underneath current prices and when those prices drop, people start buying.”

By the end of the day, the stocks affected were those directly related to travel and leisure as they will have the most have a loss of business. Cramer added that the rest of the market was able to mount a comeback because there has been an underlying bid since stocks bottomed in mid-February.

Beyond that, Cramer noted that another event occurred to suggest stocks are undervalued currently. Tremendously negative commentary emerged from both Transocean (RIG) and Schlumberger (SLB), with the companies stating that it could take years before things get better.

But these stocks barely budged; Cramer interpreted this as resilience.

The technology sector also displayed resilience; the group continued to climb though there hasn’t been any big news lately.

Even the health care bear market seemed to be coming to an end, or at least show promise. Pharmaceuticals were once even more loathed than the banks after political attention turned their attention to the issue of price gouging.

“I don’t want to pronounce the big bear market over in all of health care. However, it does seem to be the case that the pressure is off for now, with both big pharma and fast growing biotech stocks having reached levels where the sellers seem to have gone away,” Cramer said.

In the wake of Tuesday’s terrorist attacks in Brussels, Cramer did some serious thinking. He noticed a pattern that every time a terrible attack occurs, every stock in the travel and leisure space goes lower.

“That is just a fact, and an understandable one at that,” the “Mad Money” host said.

However, Cramer also noticed the pattern that eventually investors stop being scared, and the travel stocks rebound.

“On a day when this whole group went down, let me tell you why it could be smart to own an airline stock or a company like Priceline, but it could be foolish to bet on a cruise company like Carnival (CCL) or Royal Caribbean(RCL),” Cramer said.

The difference for Cramer was related to another story in the headlines recently — Zika virus. The stocks Cramer found were most immune to Zika were airlines and online travel agents, with Delta, United, American and Southwest (LUV) all trading at cheap levels.

Cramer also noted that Yum Brands, the parent of KFC, Taco Bell and Pizza had has roared 20 percent in the past six weeks.

He attributed the success to Yum reporting a strong quarter in February, and because Yum broke itself up in a move that Cramer thinks could unlock immense value.

“So if you have been sitting on the sidelines watching this stock rally, I’ve got news for you: it is not too late to buy Yum,” Cramer said.

Provided by CNBC

 

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Since the market bottomed in mid-February, commodities have dramatically rebounded from their lows. Cramer has watched as everything from copper, iron ore, aluminum to oil have worked their way higher.

While the rally took a break on Tuesday, commodities have been on the decline for years, leading Cramer to ask if this is a genuine rally or simply a long overdue, oversold bounce.

Cramer turned to the help of Carley Garner to look at the charts and assess what the future of the commodity complex could look like. Garner is a technician and commodities expert who is the co-founder of DeCarley Tradingand a colleague of Cramer’s at RealMoney.com.

Garner found that while it has been tough to be bullish on commodities in the past, the group could finally be showing promise. This is significant to Cramer, as the strength in commodities is a huge reason why the stock market has been able to roar higher since February.

Cramer was also saddened by the news of the passing of Andy Grove, one of the founders of Intel, who understood the business better than anyone he had ever met.

“Thank you, Andy Grove, for all you did to make it so everyone could afford computing. Thank you for all you did to create so much wealth for so many. Thank you for showing that raw intelligence, hard work and honesty can indeed pay off in this great country,” Cramer said.

In the Lightning Round, Cramer gave his take on a few caller-favorite stocks:

Michael Kors: “The accessory stocks are doing better, and I like Kors, but I think Coach is in better shape. I would pick up some Coach right here.”

Advanced Micro Devices: “The personal computer space is hurting. It’s even hurting for Intel, so that’s certainly bad news for AMD. I would not take advantage of this recent rally other than to sell the stock.”

Written by Abigail Stevenson of CNBC

(Source: CNBC)

Forget Your Password: Pay Bills with a ‘Selfie’

© Provided by CNBC
© Provided by CNBC

Are passwords about to become obsolete?

Emerging technologies in biometrics are helping financial institutions and merchants free consumers from entering cumbersome passwords and PINs — a big focus at the Money20/20 conference in Las Vegas.

Acuity Market Intelligence projects that the global market for biometrics will surge to more than $117 billion by 2020. It’s that kind of opportunity that’s got some of the biggest names in finance, telecoms and technology excited about fintech.

MasterCard (MA) showed off its Identity Check — aka “Selfie Pay” app — that lets users verify their identity with their bank by snapping a selfie, saying a phrase or using a fingerprint. The company piloted the software with Mountain View, California-based First Tech Credit Union and Dutch bank ABN Amro in August — and plans to license it to U.S. customers by mid-2016 and internationally by 2017.

“I personally hate passwords,” said Bob Reany, MasterCard’s senior vice president for identity solutions. “We’re making it better for consumers and safer at the same time. That’s really the big change.”

MasterCard is aggressively investing in biometric technology solutions, recognizing an opportunity to offer more secure payment options to clients and addressing a clear consumer pain point. According to a MasterCard survey, 53 percent of shoppers forget passwords more than once a week, losing more than 10 minutes when they reset their accounts. The result? More than a third of people abandon an online or mobile purchase.

Reps from MasterCard on the show floor demonstrated a variety of new biomimetic technologies the company is testing along with partners. Particularly interesting is The Nymi Band. The Canadian start-up has developed a proprietary technology that leverages the wearer’s unique cardiac signature — otherwise known as your heart rate — as a biometric identifier.

“The next wave is going to be wearables,” said Reany. “That’s going from low friction to no friction. That’s really a sea change.”

“By working with partners like TD and MasterCard, we are effectively demonstrating that continuous authentication can be a more secure and convenient way to make retail payments,” said Karl Martin, Nymi’s founder and CTO, in a press release.

The big focus at Money20/20 is, of course, payments, but the opportunity extends far beyond. The Nymi wearable bands could in the near future be used to unlock homes, cars, even ATM machines. With the “Internet of Things” projected to connect 25 billion devices by 2015 and 50 billion by 2020, according to Cisco  (CSCO), this is a growing opportunity.

Another company getting a lot of buzz at the conference is start-up EyeVerify whose backers include Wells Fargo  (WFC), Sprint  (S) and Samsung  (593-KR). EyeVerify has developed cutting-edge technology that uses the camera on a smartphone to take a photo of the eye and create a totally unique secure “password” based on the blood vessels in the whites of the eye. Like a fingerprint, those patterns are unique to each and every person. It then uses the imaging and pattern matching of those vessels to authenticate a person’s identity.

“What’s unique is you can just use your phone. It’s just software and that makes it particularly attractive to banks,” said Chris Barnett, vice president of global sales and marketing at EyeVerify.

The company has signed deals to license its technology to Wells Fargo and RSA and its technology is already in use. EyeVerify’s big selling point is it’s high level of security. The company says independent surveys, including one by the University of Missouri and another by a Chinese mobile payments company, found its technology to be just as accurate as Apple’s  (AAPL) Touch ID fingerprint identity sensor embedded on all new iPhones, and Google (GOOGL)‘s new fingerprint accuracy requirements.

“The industry is booming and fintech is right in the heart of things,” said Peter O’Neill, president of findBiometrics, the industry’s leading online publication. O’Neill moderated a session here at Money20/20, which was the largest gathering to hear a biometric session outside of a pure biometric conference. “Last year there were 300 in the room, this year there were 600 — it was packed — that gives you an indication of what’s happening to our industry.” The catalysts, according to O’Neil are convenience, security and mobile.

Written by Harriet Taylor of CNBC

Dow Tries to Hold Gains; Nasdaq Falls 1% as Biotechs Plunge Over 6%

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© Provided by CNBC

U.S. stocks traded in a narrow range Tuesday, attempting to extend a sharp two-day rally, as investors awaited the official beginning of third-quarter earnings season.

The Nasdaq composite was the biggest decliner, falling over 1 percent in late-morning trading as the iShares Nasdaq Biotechnology ETF (IBB) fell more than 6 percent.

“We saw this dynamic yesterday,” said Art Hogan, chief market strategist at Wunderlich Securities. “If you look at the IBB, it hit support at $291 and saw resistance at $314.”

The Dow Jones industrial average attempted to hold slight gains after a mildly lower open, with UnitedHealth weighing the most on the index. DuPont rose more than 10 percent to contribute the most to to gains.

Materials and energy advanced more than 1 percent as the greatest advancers on the S&P 500, which briefly attempted slight gains.

After the close Monday, the chemical company’s chairman and Chief Executive Officer Ellen Kullman announced plans to retire October 16. Director Edward Breen will serve as interim chairman and CEO. DuPont also cut its outlook for the year and announced an acceleration of its plans to trim expenses.

“Obviously after two strong days of back-to-back gains a little profit taking is the order of the day,” said Peter Cardillo, chief market economist at Rockwell Global Capital. “Any further strengthening in oil could propel stocks higher.”

Crude oil gained over 3 percent to hold above $48 a barrel, while Brent topped $51 a barrel.

“It will be a combination of preparing for earnings and what we’ll see for the next few quarters,” said Peter Boockvar, chief market analyst at The Lindsey Group.

He doesn’t think the bottom has been put into the stock market yet. “Even with the rally of substance we’re still below the major moving averages. The global growth story is weaker,” Boockvar said.

The International Monetary Fund trimmed its global growth forecast for 2015 from 3.3 percent to 3.1 percent, citing weaker growth prospects for emerging economies.

The S&P, Nasdaq and Russell 2000 are trading below their 50-day moving averages. The Dow held above its 50-day moving average but has not closed above it since July 20.

The Dow transports closed above their 50-day moving average of 8.053.46 Monday for the first time since Sept. 17 but traded below that level Tuesday morning.

Before the opening bell, PepsiCo reporting earnings that beat on both the top and bottom line. The firm also raised its full-year growth target. Shares of Pepsi gained more than 1.5 percent in morning trade.

Yum Brands is scheduled to report after the close. The unofficial start to earnings season comes Thursday with Alcoa’s earnings after the bell. The bulk of third-quarter earnings reports come in the next few weeks.

Nick Raich, CEO of The Earnings Scout, said that of the 20 S&P 500 companies that have reported so far, 85 percent have beat on earnings and 60 percent have beat on revenue.

“It’s only 20 companies but it’s an encouraging start to earnings season,” he said. It’s “a lot of consumer companies. We have yet to see a financial company or an earnings company report. … Those are going to drag down the overall earnings.”

Financials will likely see some pressure from the low interest rate environment, Raich said, while energy companies continue to face headwinds from low oil prices.

On the data front, the August trade deficit came in at $48.3 billion, the widest in five months.

Treasury yields spiked before holding lower, with the 10-year at 2.04 percent and the 2-year at 0.60 percent in late-morning trade.

The dollar held lower, with the euro at $1.12 and the yen at 120.18 yen against the greenback.

U.S. stocks closed more than 1.5 percent higher Monday, extending Friday’s surprise intraday reversal, as investors digested the implications of the jobs data on the timing of a rate hike and awaited quarterly earnings.

While some analysts said the gains were a technical bounce from correction levels, others said the weaker-than-expected jobs report led to expectations of lower rates for longer. After the monthly nonfarm payrolls report, Fed funds futures were pricing in expectations that the first rate hike will come no earlier than March 2016.

All three major averages closed Monday within 10 percent of their 52-week highs, or out of correction territory. The Russell 2000 remained in correction mode.

“There’s a good possibility as the first few earnings begin to creep in we could approach 2,000 (on the S&P 500) and cross above that,” Cardillo said.

In Europe, stocks traded slightly higher on Tuesday following Monday’s rebound, after poor industrial data out of Germany.

In Asia, the Nikkei closed 1 percent higher as investors digested news of agreement on the historic Trans-Pacific Partnership and awaited the outcome of the Bank of Japan’s policy meeting Wednesday. The Trans-Pacific Partnership trade deal among the United States, Japan and 10 other Pacific Rim countries still needs approval from the U.S. Congress.

In mid-morning trade, the Dow Jones Industrial Average fell 20 points, or 0.12 percent, at 16,756, with UnitedHealth leading deliners and DuPont leading advancers.

The S&P 500 traded down 11 points, or 0.6 percent, at 1,975, with health care leading seven sectors lower and energy leading advancers.

The Nasdaq traded down 59 points, or 1.24 percent, at 4,721.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 19.93.

Decliners and advancers were about even on the New York Stock Exchange, with an exchange volume of 373 million and a composite volume of 1.722 billion in early afternoon trade.

Crude oil futures for November delivery gained $1.91 to $48.16 a barrel on the New York Mercantile Exchange. Gold futures rose $12.70 to $1,150.30 an ounce as of 11:09 a.m.

Written by Evelyn Cheng of CNBC

(Source: CNBC)

Investment Directions: So What Should I Do With My Money?

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Provided by 401kcalculator

United States

We are underweight U.S. stocks. After its June policy meeting, the Fed signaled that it was getting close to raising short-term interest rates on improving economic conditions and promised to move gradually. Yet turmoil surrounding Greece and China has brought more uncertainty to the global economic outlook, which could give the Fed some pause. To begin with, there is reason to proceed with caution. The latest U.S. readings on jobs and the housing market point to an economic reacceleration in the second half, but soft spots remain. Measures such as retail sales and durable goods continue to show weakness. And, the Chicago Fed National Activity Index (CFNAI), a good leading indicator for the country’s overall economic health, has inched higher but is still running below trend (see the chart below).

Given that valuations of U.S. stocks are relatively pricey, we tend to search abroad for better value and opportunities. But we think U.S. stocks have further upside potential, keeping in mind that mergers and acquisitions just hit a new high in the second quarter. It is still early in the second-quarter earnings season, but with estimates having already been lowered, the U.S. economy recovering and the dollar having stabilized, companies should have an easier time beating estimates this time around.

Turning Insight Into Action

Many measures of U.S. economic activity have improved since the slowdown early in the year. While weakness lingers in some areas, the U.S. economy looks set to regain speed. Selectivity is important in the U.S. market, where value will vary by sector and individual company.

Consider blending opportunities for core market exposure with high- conviction active solutions that focus on finding value in the market.

CONSIDER

iShares Core S&P 500 ETF (IVV), iShares Core S&P Total U.S. Stock Market ETF (ITOT), Basic Value Fund (MABAX)

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International Developed Markets

We hold an overweight to eurozone equities. Uncertainty surrounding Greece and its membership in the euro area will keep risk premiums and volatility elevated; however, we think fallout from the Greek drama will remain contained and short- lived (see Hot Topic on page 7). In fact, with economic data coming roughly in line with forecasts and profit expectations firming, any further volatility in eurozone equities could present an opportunity. This is especially true since the European Central Bank (ECB) is expanding its balance sheet and is poised to provide further monetary accommodation if needed. Any continued euro weakness associated with these events will likely give an additional kick to earnings as profits are repatriated. That said, investors should consider hedging their currency exposure to eurozone equities to avoid returns being eroded by euro weakness.

We are overweight Japanese stocks. Somewhat sheltered from this year’s financial market roller coaster ride, Japanese equities have not only been an island of relative calm and tranquility (see the chart below) but also an area of strong outperformance. Japan’s economy, while certainly not a locomotive, has managed to pull out of a shallow and brief recession and is beginning to show signs of benefiting from a weaker yen. Moreover, Japanese companies have come a long way in improving profitability, and they are also lifting dividends and share buybacks to boost return on equity. Despite outpacing the rest of the developed world so far this year, Japan remains inexpensive based on price-to-book and forward price-to-earnings ratios.

We have a neutral view on developed Asia ex-Japan equities. A setback in Chinese stocks, slower commodities demand growth and negative earnings revisions have weighed on the region’s equity markets this year. However, after the summer selloffs, we think Asia ex-Japan equities warrant a closer look. Take Hong Kong, the Hang Seng Index has very recently regained some lost ground, but not before it fell to the cheapest levels versus the MSCI World Index since September 2003. Also of note are the above-average dividend yields, with Australia yielding north of 4.5%.

Turning Insight Into Action

Earnings growth and valuations of European and Japanese companies are more compelling than for U.S. companies. But renewed strength in the greenback could erode returns in international markets for U.S. dollar- based investors, boosting the allure of currency hedged exposure.

Consider using an active manager with strong stock selection expertise or be selective with index-based exposures.

CONSIDER

Global Long/Short Equity Fund (BDMIX), Global Dividend Fund (BIBDX), Global Allocation Fund (MALOX), iShares MSCI Japan ETF (EWJ), iShares Currency Hedged MSCI Japan ETF (HEWJ), iShares MSCI Eurozone ETF (EZU), iShares Currency Hedged MSCI Eurozone ETF (HEZU), iShares International Select Dividend ETF (IDV)

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Emerging Markets

We hold a benchmark weight to emerging markets. Since topping out at the end of April, emerging markets have entered another correction phase, and the selloff has been quite indiscriminate. While markets have stabilized somewhat very recently, emerging Asia has clearly dominated price action since the end of June. In addition to China’s equity market woes, Latin America has underperformed again so far this year and Eastern Europe sharply declined since mid-May. However, we still prefer emerging Asia. Countries in emerging Asia have greater scope for monetary accommodation and market reforms, will likely experience better growth (though not great), should benefit most from lower oil prices and have increasingly competitive currencies.

We have a neutral weight in China with a preference for H-shares. Chinese stocks tumbled the most in nearly six years in early July after a series of measures (and some quick backtracking) paradoxically aimed at stabilizing financial market conditions backfired. While the slide has paused for now, we expect more volatility, particularly in the onshore exchanges. After downgrading China to neutral in June, we will hold off from chasing newly attractive valuations until the situation stabilizes. That said, it may be possible to find bargains in the Hong Kong-listed H-shares market, which is both cheaper and less volatile than the A-shares market. Select banks, property developers and new energy companies could present value.

It is worth noting, however, this stock turmoil has not affected the Chinese economy. The PBOC has plenty of spare power to support economic growth and financial markets, unlike some developed market central banks, and will likely continue to implement countermeasures. And when it comes down to it, we have not seen a material impact from the equity selloff on the global economy and markets to date.

We elect to downgrade Poland from an overweight to neutral. Poland’s economy is in relatively good shape and profitability is quite strong among Polish companies. However, the financials sector, which represents more than 40% of Poland’s market capitalization, faces the risk of a banking tax and other regulation if a more populist party (the Law and Justice party) comes to power this autumn, as is currently projected. Moreover, Poland no longer stands out as particularly cheap relative to other Eastern European countries, such as Turkey and Russia.

Turning Insight Into Action

It may be time to consider getting back to a benchmark exposure in emerging markets, but investors should remain selective.

Consider accessing specific countries or regions, or use an active manager with expertise to identify potential opportunities.

CONSIDER

iShares MSCI Emerging Markets Asia ETF (EEMA), iShares MSCI Emerging Markets Minimum Volatility ETF (EEMV), Emerging Market Allocation Fund (BEEIX)

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Global Sectors

We are overweight information technology and financials. As the economy firms, loan demand should rise, which could support financials stocks. Mergers and acquisitions as well as securities underwriting business will likely remain solid, which can also prove helpful. And, technology stocks should benefit from more and more companies deciding to replace antiquated technology infrastructure.

We hold a neutral weight to the health care sector. While health care has outperformed by a wide margin this year and is a consensus overweight among money managers, valuations appear reasonable against solid earnings growth and profitability, even for biotechnology stocks. In an environment of decent economic growth, favorable credit conditions and continued good earnings growth, we would anticipate biotech especially, but also life sciences, to outperform. Meanwhile, there are good reasons to consider pharmaceuticals stocks, which tend to have very high dividend payout ratios. This could prove particularly advantageous in a risk-off scenario (defined by a renewed drop in bond yields).

We are underweight U.S. utilities and consumer staples. These sectors outperformed during the past month as heightened global risk aversion prompted a decline in interest rates and a preference for defensive sectors. But while defensives may be somewhat less expensive after this year’s repricing, any stabilization from here could entail further downside.

We have a neutral exposure to the energy sector as oil prices have declined anew in recent weeks. We prefer integrated oil and gas companies given their more muted sensitivity to oil prices in the past. What is more, their refinery businesses benefit from lower oil prices.

We are neutral in industrials. The correction in transportation stocks has investors worried that the decline may be a harbinger of bad news for the broader market. We think the decline in transports has more to do with the subsector’s overvaluation after two years of strong outperformance. Plus, declining global trade volumes, weaker-than-forecast economic activity and reduced demand for coal shipments all play a role in the subsector’s recent outsized move lower.

Turning Insight Into Action

Consider cyclical sectors over defensive and dividend-oriented sectors. Consumer staples and U.S. utilities look particularly unattractive and are vulnerable to rising rates.

Look into possible opportunities in the technology and financials sectors and consider a long/short approach to potentially benefit from any continued market volatility.

CONSIDER

iShares Global Financials ETF (IXG), iShares Global Tech ETF (IXN), iShares U.S. Technology ETF (IYW), Global Long/Short Equity Fund (BDMIX)

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Fixed Income

We are underweight Treasuries. Yields of long-term debt in the United States, Germany, United Kingdom and Japan hit their highest levels this year in June, but the upward movement was interrupted, at least temporarily, by jitters about Greece and China near month-end. Rate volatility is likely to remain elevated as markets wrestle with the timing of the Fed’s liftoff. We believe yields could climb higher over the course of the year, although much of the adjustment may have already taken place.

We hold a neutral position in Treasury Inflation-Protected Securities (TIPS). The backup in yields has returned some value to the asset class. We don’t think inflation will accelerate meaningfully anytime soon, but headline inflation and expectations have inched higher while the risk of disinflation has decreased.

We are overweight high yield. Outflows from the asset class continue and spreads are under pressure. Although volatility could persist, yields are attractive in both absolute and relative terms, and fundamentals remain encouraging.

We have an overweight in municipals. The municipal market had another negative month in June, though it performed better than the more volatile Treasuries. Puerto Rico’s debt woes grabbed headlines but had little price impact thus far on the overall muni market (see the chart below). Fundamentals of the majority of the muni market remain intact, as we anticipate minimal contagion risk. That said, if restructuring negotiations between the commonwealth and its bondholders turn contentious and drag on, this could stoke volatility for the broader market.

We are underweight in non-U.S. developed markets and neutral in emerging- market debt. Increased volatility in interest rates and risk assets, as well as the possibility of the dollar resuming its climb, could prove difficult for hard currency- denominated emerging-market debt.

We hold a benchmark weight in mortgage-backed securities (MBS). While MBS held up relatively well in the interest rate backup, mortgage spreads relative to Treasuries remain low and valuations do not suggest an attractive entry level yet.

Turning Insight Into Action

With interest rates likely to rise in the United States in 2015, fixed income investors will likely face challenges yet again this year.

Manage Interest Rate Duration

Consider a flexible strategy with the ability to actively manage duration.

CONSIDER

Strategic Income Opportunities Fund (BSIIX), Strategic Municipal Opportunities Fund (MAMTX), Global Long/Short Credit Fund (BGCIX)

Manage Interest Rate Risk

Seek to reduce interest rate risk through time by using a diversified bond ladder and matching term maturity to specific investing needs.

CONSIDER

iBonds® ETFs

Seek Income

Cast a wider net for income while carefully balancing the trade-offs between yield and risk.

CONSIDER

Multi-Asset Income Fund (BIICX), High Yield Bond Fund (BHYIX), iShares iBoxx $ High Yield Corporate Bond ETF (HYG), iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)

Build a Diversified Core

Consider using core bonds for potential diversification benefits and protection from unforeseen shocks to equity markets.

CONSIDER

Total Return Fund (MAHQX), iShares Core U.S. Aggregate Bond ETF (AGG), iShares Core Total USD Bond Market ETF (IUSB)

Screen Shot 2015-08-12 at 10.41.26 AM

For the full report, please click on the source link below.

Written by Russ Koesterich of BlackRock

(Source: BlackRock)

What Does the Future Hold?

Provided by felixioncool/Pixabay
Provided by felixioncool/Pixabay

It’s not stuff most of us think about every day, but we may soon be a lot more familiar with terms like brain organoids, megascale desalination, Internet balloons, liquid biopsies, and more. At least, that’s what the MIT Technology Review reported in Breakthrough Technologies 2015:

“Not all breakthroughs are created equal. Some arrive more or less as usable things; others mainly set the stage for innovations that emerge later, and we have to estimate when that will be. But we’d bet that every one of the milestones on this list will be worth following in the coming years.”

Here are a few of the items included on the list:

  • Brain organoids: In greatly oversimplified terms, these are miniature brains that can be grown from an adult’s cells. They may help researchers better understand brain disorders and develop effective treatments.
  • Megascale desalinization: The world does not have enough fresh water. One solution is seawater desalination. Thanks to engineering improvements, reverse-osmosis desalination has become cost-effective.
  • Internet balloons: Imagine 15-meter helium balloons with solar-powered electronics hovering 20 kilometers in the air (far above commercial airline flights) and making the Internet available to people who currently have no access.
  • Liquid biopsies: Someday soon, annual blood tests may help diagnose cancer early. Gene sequencing machines decode millions of fragments of DNA in the bloodstream, looking for specific DNA patterns that indicate cancer. Knowing the DNA mutation behind a cancer may also help physicians choose the most effective treatments.

It’s important to keep track of developing technologies because they have the potential to disrupt industries and change the way business is done.

Dow Closes Down More Than 200 Points on Surprise Yuan Devaluation

Provided by CNBC
Provided by CNBC

Stocks closed lower by about 1 percent on Tuesday after an unexpected move overnight by the People’s Bank of China to depreciate the yuan by nearly 2 percent.

“The major concern is, the prospect of a China hard landing is more ominous as far as its impact on global growth,” said Eric Wiegand, senior portfolio manager at U.S. Bank’s Private Client Reserve.

The Dow Jones industrial average ended 212 points lower, wiping out most of Monday’s gains. Apple briefly plunged more than 5 percent and Caterpillar fell more than 2.5 percent to lead declines. The index’s 50-day moving average fell below its 200-day moving average, a bearish condition many analysts term a “death cross.”

On Monday, the blue-chip index snapped its first seven-day losing streak in four years with a 241-point rise.

Biotech stocks and Apple outweighed Google’s 4 percent jump to pressure the Nasdaq Composite off 1.2 percent.

Sharp declines in oil pressured the energy sector to give back much of Monday’s gains, dropping nearly 2 percent as one of the greatest decliners in the S&P 500.

Renewed concerns about a deeper slowdown in the world’s second-largest economy increased negative sentiment.

It’s the “interpretation that the U.S. dollar is going to further strengthen against the Chinese yuan and be a further headwind against U.S. multinationals,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

“I’m a little surprised (China) did this because they had plenty of room to cut interest rates,” Luschini said.

The drop in the daily peg to 6.2298 renminbi against the U.S. dollar, down from 6.1162 on Monday, was the largest one-day move in more than two decades and took the currency back to levels from three years ago. The central bank described the decision as a “one-off depreciation.”

“I think the market’s perception is if China is doing that they’re really worried about their economy,” said Jason Leinwand, managing director at Riverside Risk Advisors. “Any currencies that have direct ties with China will be weakened.”

The U.S. dollar index traded mildly higher, while the euro held above $1.10 on a bailout deal between Greece and its creditors. The yen was weaker against the dollar, near 125 yen.

European stocks closed sharply lower, with the German DAX off more than 2.5 percent, on the yuan move. Asian stocks ended mostly lower, with the Shanghai Composite flat.

“This news is negative for exporters (such as automakers) and luxury goods makers as well as other companies that derive foreign exchange revenue from China and other parts of Asia,” said Ilya Feygin, senior strategist at WallachBeth Capital.

He noted that the currency instability benefits Treasurys and gold.

Treasury yields fell as traders piled into dollar-denominated assets, with the 10-year yield briefly hitting its lowest level since June 1 before trading near 2.14 percent and the 2-year yield at 0.67 percent.

The Treasury Department auctioned $24 billion of 3-year notes at a high yield of 1.013 percent at 1:00 p.m. ET.

Gold rallied on Monday to its highest level since the end of June. Gold futures traded near $1,110 an ounce in afternoon trade.

Investors also watched Google, which unexpectedly announced after the close Monday that it will become part of a new publicly traded entity called Alphabet. Shares will still trade under the tickers GOOGL and GOOG. Class A shares jumped more than 3.5 percent in the afternoon.

Oil extended a recent decline. Brent crude was down more than 2.5 percent to below $49 a barrel, while U.S. crude briefly fell below $43 a barrel for the first time since March.

On Monday, dollar weakness and a refinery outage helped crude rally nearly 2.5 percent from a near five-month low earlier in the session

Crude oil futures hit a five-month intraday low of $42.69 and settled down $1.88, or 4.18 percent, at $43.08 a barrel, a six-year low. Gold futures ended up $3.60 at $1,107.70 an ounce.

On the data front, preliminary second quarter productivity was up at an annual rate of 1.3 percent, while unit labor costs were up 0.5 percent.

Wholesale sales rose 0.1 percent in June, the weakest since March of this year, while inventories topped expectations with a gain of 0.9 percent. May’s figure was revised lower to 0.6 percent from 0.8 percent.

“I think once investors get past the yuan devaluation we can focus on the (U.S.) economic picture, which remains good,” Luschini said.

Most analysts expect the Federal Reserve will find enough support from economic data to raise rates as early as September.

“The overnight devaluation of the Chinese yuan will likely be seen by Fed officials as a minor headwind to growth, but is not significant enough to change our base view of September liftoff,” J.P. Morgan said in a note. “The yuan has a 21.3 percent weight in the Fed’s broad dollar index, and so simply taking the 0.4 percent dollar change implied by the PBoC action at face value would imply perhaps a few hundredths off growth over the next one to two years (using a rough rule of thumb that 10% in the broad dollar subtracts about 1% off the level of GDP over time).”

Before the opening bell, Towers Watson posted quarterly results that beat expectations on both the top and bottom line.

In other earnings news, Shake Shack posted results after the close Monday that beat on both the top and bottom line. The restaurant chain also raised its full-year guidance.

Kraft Heinz reported a decline in sales at both its Kraft and Heinz divisions. Combined results for the recently merged firm were not reported.

Computer Sciences, Symantec, Cree and Cyber Ark Software will report after the bell.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded above 14.

About seven stocks declined for every three advancers on the New York Stock Exchange, with an exchange volume of 505 million and a composite volume of nearly 2.5 billion in afternoon trade.

Written by Evelyn Cheng of CNBC

(Source: CNBC)

Stocks Close Up More than 1% Amid Greece Relief

© Katrina Tuliao, Flickr, Creative Commons
© Katrina Tuliao, Flickr, Creative Commons

U.S. stocks closed more than 1 percent higher in light volume trade Monday, following gains overseas on news of a bailout agreement between Greece and its creditors.

“I think it’s just a sigh of relief that it’s over, but let’s face it, they just kicked the can,” said Maris Ogg, president of Tower Bridge Advisors. “It seems like we kicked the can on a number of fronts. Earnings probably will be front and center int he next couple of weeks.”

About 11 stocks advanced for every 4 decliners on the New York Stock Exchange, with an exchange volume of 571 million and a composite volume of 2.8 billion as of 3:59 p.m. Average volume for the entire day is 3.4 billion.

“You’ve got a relief going on, short covering going on,” said Quincy Krosby, market strategist at Prudential Financial. “What you want for confidence buying is to see a market close with buying orders on the close.”

The Dow Jones industrial average traded about 220 points higher, with Microsoft and DuPont leading most blue chips higher. The index recovered recent losses to trade about 0.80 percent higher for the year.

The Nasdaq Composite jumped 1.5 percent as Apple and the iShares Nasdaq Biotechnology ETF (IBB) rose more than 1.5 percent.

The S&P 500 held near 2,100, led by a rise in information technology stocks and consumer discretionary’s 1.3 percent gain to an all-time high.

The Dow transports also briefly advanced more than 1 percent, with airlines leading gains.

“I think the market’s technically very oversold,” said Bruce Bittles, chief investment strategist at RW Baird. “The market’s poised to go up but to break this trading range (we’ve been in) since January you need to see volume pick up… number of stocks hitting 52-week highs expand.”

He said the S&P 500 breaking past 2,100 would be an encouraging sign.

European Council President Donald Tusk said early on Monday that euro zone leaders reached an unanimous agreement with Greece after all-night talks in Brussels to move forward with a bailout loan for the cash-strapped nation, provided Athens implement tough reforms.

“The jury’s still out on whether or not this is going to be accomplished,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

To receive this third bailout, Greece’s parliament must pass the new rules in areas such as privatization, labor laws and pension reforms by Wednesday. The 86 billion euro ($95.2 billion) in funds would come over three years.

In the meantime, euro zone finance ministers were expected to discuss Monday how to keep Greece financed before the bailout deal is reached. Athens faces a 7 billion euro repayment deadline on July 20 to the European Central Bank.

The ECB announced it maintains the emergency assistance cap for Greek banks, which will remain closed for at least two more days.

The Dow Jones industrial average futures were about 140 points higher before the open.

European stocks jumped on news of the conditional Greece deal, with the German DAX up about 1.5 percent and the STOXX Europe 600 up nearly 2 percent

In Asia, stocks surged with the Nikkei up 1.57 percent and the Shanghai Composite leaping 2.4 percent as it extended a recovery from a recent plunge.

Art Hogan, chief market strategist at Wunderlich Securities, said the domestic response will likely be less exuberant since the major averages ended last week little changed. Only the Dow eked out a gain, of a mere 0.17 percent.

Stocks rose slightly past their opening levels, while bond yields held steady. The U.S. 10-year note yield was 2.44percent and the 2-year held near 0.67 percent. The German 10-year bund yield fell to 0.85 percent.

The U.S. dollar extended gains with the euro dipping below $1.10.

Also in focus is the Iranian nuclear deal, which would allow more oil exports. Talks on a deal were extended past a June 30 deadline and are expected to reach a conclusion Monday.

Crude oil futures settled down 54 cents, or 1.02 percent, at $52.20 a barrel on the New York Mercantile Exchange. Gold futures fell $1.70 to $1,156.20 an ounce in afternoon trade.

No economic data or earnings of note were expected Monday.

Second-quarter earnings season gets underway with a slew of major reports on Tuesday that include JPMorgan Chase and Wells Fargo. On the economic front, retail sales are due Tuesday morning.

“Each data point in and of itself may not be important, but collectively they’re important, especially since there’s a premium on the data,” Krosby said.

Federal Reserve Chair Janet Yellen delivers her semi-annual testimony on the economy to Congress on Wednesday and Thursday.

“If she focuses on (international news and the dollar) that will give the market a huge boost because she’s more concerned about it than she suggested in her speech Friday,” Krosby said.

In other news, the United States posted a budget surplus of $51.8 billion in June, down 27 percent from the same period last year, the U.S. Treasury Department said on Monday.

The Dow Jones Industrial Average traded up 211, or 1.19 percent, at 17,972, with Microsoft and Caterpillar leading gains and Merck and UnitedHealth the only decliners.

The S&P 500 traded up 21 points, or 1.05 percent, at 2,098, with information technology leading nine sectors higher and utilities the only decliner.

The Nasdaq traded up 72 points, or 1.45 percent, at 5,070.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 14.

Written by Evelyn Cheng of CNBC

(Source: MSN)

NYSE Trading Halted; Stocks Down 1% as China, Greece Weigh

© Provided by CNBC
© Provided by CNBC

Trading on the New York Stock Exchange in late-morning trade on Wednesday with U.S. stocks extending their losses as continued concerns about Greece and the extended selloff in the Chinese market pressured investor sentiment.

“We’ve had some technical malfunctions. Some may be related to connectivity with other exchanges. I believe we’re going to have a temporary pause certainly in a variety of stocks perhaps floor wide,” Art Cashin, director of floor operations at the NYSE, told CNBC, adding that the halt will not cause a move in a particular direction.

Other exchanges, however, continued trading normally. The NYSE later said that all open orders amid the halt will be cancelled.

“What happens with these situations is often you get a sort of residual result. You’re all clear or you get caught up to date and there’s a little bit of a backlog that pops up somewhere, and it tends to jam things up. So I don’t think any of us has quite enough information yet,” Cashin added.

The Dow Jones industrial average traded about 175 points lower when trading was halted as the major averages declined, with the Nasdaq Composite briefly off more than 1 percent as biotechs and Apple (AAPL) plunged more than 1 percent. The iPhone maker was also the worst performing stock in the Dow.

The S&P 500 struggled to hold gains for the year. The index dipped into negative territory Tuesday but recovered in afternoon trade to hold slightly higher for 2015.

“I think we’re just realigning the U.S. market with the declines elsewhere,” said Peter Boockvar, chief market analyst at The Lindsey Group.

In China, the Shanghai Composite closed nearly 6 percent lower despite supportive government measures. The index has fallen more than 30 percent from its mid-June peak amid frequent bouts of extreme volatility. Analysts say the turbulence is starting to unnerve regional investors.

“There was no real trigger until Chinese stocks became too pricey,” said Nick Raich, CEO of The Earnings Scout. “The trigger that sent this all off has been the Greece debt crisis.”

European stocks traded higher on Thursday amid hopes of a Greece deal. However, the indices are more than 2 percent lower for the week so far.

The Greek government has until Friday morning to present detailed reform proposals to allow a bailout deal by a Sunday summit.

Greek Prime Minister Alexis Tsipras addressed the European Parliament on Wednesday, lambasting Europe’s advocacy of austerity and the efficacy of Greece’s bailout programs since 2010, but promised a detailed, “concrete” deal would be presented in the next two to three days.

“Unfortunately the U.S. will remain headline-driven until earnings season which (starts) with Alcoa tonight,” Boockvar said. “Today will clearly be bullied around by headlines out of Greece.”

The Federal Open Market Committee (FOMC) minutes at 2 p.m. ET will also be in focus, with traders scanning the Federal Reserve’s June meeting report for hints on interest rate rise timing.

“I think the Fed minutes are something to watch closely,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab. But “usually the market doesn’t do much around the minutes until they’re released.”

The Dow Jones Industrial Average (.DJI) traded down 194 points, or 0.99 percent, at 17,583, with Intel leading decliners and Microsoft (MSFT) the only advancer.

The S&P 500 (.SPX) traded down 23 points, or 1.14 percent, at 2,057, with telecommunications leading all 10 sectors lower.

The Nasdaq (.IXIC) traded down 64 points, or 1.31 percent, at 4,931.

The CBOE Volatility Index (VIX) (.VIX), widely considered the best gauge of fear in the market, traded near 18.

About five stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 194 million and a composite volume of 1.22 billion as of 11:30 a.m.

Crude oil futures for August delivery lost 81 cents to $51.52 a barrel on the New York Mercantile Exchange. Gold futures rose $7.50 to $1,160.20 an ounce in morning trade.

Bond yields held lower, with the 10-year yield at 2.23 percent and the 2-year at 0.57 percent. The Treasury auctions $21 billion in 10-year notes this afternoon.

The U.S. dollar fell about half a percent against major world currencies as the euro gained to above $1.10.

Earnings season unofficially begins with aluminium producer Alcoa (AA) reporting after the market close.

Written by Evelyn Cheng of CNBC

(Source: MSN)