Last week saw stocks behave like a cow on Astroturf. Very confused. Large caps saw slight losses, while technology and small caps posted hefty gains. We write off the large cap losses to worries over exposure to slowing emerging market sales.
While many blame the Polar Vortex for everything from poor home sales to Sandra Bullock's inability to garner Oscar consideration, we can't deny that Q4 earnings won a gold medal.
Here's a contrarian indicator for you. According to Bloomberg, the number of Americans getting divorced rose for a third straight year. Sociology experts believe that this reflects an increasing economic confidence, postulating that as many as 150k divorces were postponed between 2009 and 2011.
The kicker?
These economists report that divorces, while emotionally traumatic, help the economy. More spending on homes, furnishings, appliances.
My wife? Seems to be satisfied for now. But, that could change as her economic sentiment improves.
So, every night upon returning home, she asks me about my day. I simply respond, "Honey, things are terrible out there."
Anxious spouse? Happy house.
The Good
Despite a sordid array of economic data, markets held up quite nicely. Most pundits continue to blame recent economic dreariness on the nation's recent bout of severe weather.
Weather? A convenient excuse. It's funny how economists and corporate chiefs never credit good weather when times are rosy.
Ignoring the weather, Q4 earnings will soon conclude. With 90% of the S&P 500 having reported, the blended growth rate currently sits at 8.5%. That's below the 9.6% expected at the start of the quarter, but above the 6% expected at the beginning of earnings season. In short? So far, so good. While the 10% of companies remaining could change our sentiment, we believe that Q4 earnings will largely be seen as a success. This could provide equities with the ammunition required to ascend new highs.
The Bad
January saw meaningful declines in bond issuance and trading. This has negatively impacted the banking sector, which had already been sluggish. With the S&P 500 down a half percent YTD, the SPDR S&P Bank ETF (KBE) trails by 3% (-3.49%). Weaker housing. The weather. Both have been headwinds. But, with nearly a third of investors currently overweight banks, their continuing poor performance will not help sentiment. And if investors begin to bail, the banking arena could fall markedly.
Good news for us. We are underweight U.S. banks. So, their contribution towards negative investor sentiment represents a contrarian positive.
The Ugly
Ukraine escalated quickly. Faster than analysts foresaw. The vioent approach taken by an unpopular, absentee president only served to embolden the resolve of Ukrainians seeking his ouster. More on this later...
The Bottom Line
We occasionally receive comments from readers suggesting that this newsletter is used to promote stocks, or other asset classes. Of course, this is false.
Fee-based advisors like ourselves profit only when clients do well. Unlike the "bond kings," or the proprietary sales forces at UBS, Morgan Stanley, Merrill and Wells Fargo, replete with their conflicts of interest, we have no agenda.
Clients have personal objectives. We utilize expertise, strategy and tactics to endeavor towards those objectives. Our interests are aligned with theirs. Clients have realized less risk while managing to garner excellent returns.
Those of you choosing to follow the themes of this newsletter receive free advice. Those who believe our methodology can add value become clients. Choice is yours.
Weekly Results
Major markets finished mixed last week. The DJIA fell 0.32%, the S&P 500 dropped 0.13%, and the Nasdaq advanced 0.46%. Small cap stocks jumped 1.34%. And the 10-year Treasury bond yield fell 1 basis point to 2.73%. Gold climbed $5.41 per ounce, or 0.41%.