While U.S. President Barack Obama brought geopolitical risks
into the spotlight yesterday with his request to Congress for a
military commitment to the fight against ISIS, for investors
the U.S. consumer remains the big story for equity markets.
January retail sales numbers from the U.S. Census Bureau was
much weaker than forecast at an 0.8 percent contraction for the
month, as low gasoline costs keep down total spending in dollar
terms. Many market strategists had hoped for an increase in
core spending, as U.S. shoppers with more cash in their pockets
cheap gas go to market. Despite recent consumer sentiment
indicators improving markedly in recent months, spending
excluding automotive and gasoline rose by only 0.2 percent over
December. With many investors counting on activity at the cash
register to boost corporate profits despite stagnation abroad,
this data is a blow to equity market sentiment.
Bailout and cease-fire for
Ukraine. The International Monetary Fund unveiled
a $17.5 billion credit facility for Ukraine today, with
additional individual national pledges bringing the total to
$40 billion. This bailout for Kiev arrives the same day as the
announcement of proposed cease-fire terms with
Russia, brokered by Germany and France.
No solution for Greece yet. No
definitive agreement came out of the Eurogroup meeting in
Brussels of euro zone finance ministers on terms for
Greek debt restructuring, despite early reports that a
bridge loan was proposed. Without coming to terms with the
so-called troika, Athens will have insufficient cash to
continue some government services at month end. Separately,
Ministry of Economy and Finance data released today show the
headline unemployment rate in Greece holding steady at 28.5
percent in November.
Bank of England says rate hikes in the foreseeable
Bank of England governor Mark Carney warned that the
banks key rate may rise sooner than some economists have
forecast, despite the probability of negative inflation in the
coming months. According to the banks monthly inflation
report, lower fuel costs driven by the slump oil prices will
ultimately drive higher consumer consumption levels and prevent
Japan shows uptick in pace of industrial
activity. In a positive signal for
Abenomics, core machinery orders expanded by 8.3 percent
month-over-month in December, the largest percentage in six
months. Separately, corporate goods price index figures for
January came in softer than forecast, as low fuel input costs
weigh on inflation despite increased activity.
Quarterly earnings season continues. In
another busy day for corporate earnings announcements,
AllianceBernstein exceeded consensus analyst estimates by
$0.06 at $0.57 per share, as total assets under management rose
modestly for the fourth quarter of 2014.
American International Group will announce fourth-quarter
results today after equity markets close in New York.
Portfolio Perspective: Why Investors Can Bet on a
Robust Stock Market Rally in a Pre-Election Year
Jesse Frehling, Focused Wealth Management
With history as our guide this pre-election year, we can bet
on seeing a robust stock market rally in 2015. The rationale is
that the president does whatever necessary to pump up the
economy, thereby seducing voters to re-elect his party. In
pre-election years since 1945, the S&P 500 has gained an
average of 16.13 percent and has never ended with a loss,
according to research from Bespoke Investment Group. By
contrast, the S&P 500 returned an average of 6.33 percent
during the first-years of a presidential term, 5.32 percent in
the second years and 5.68 percent in the fourth years.
The stock market performs even better during years the
president is up for re-election, Bespoke found. The S&P
climbs an average of 11.06 percent in those years and has
rallied in nine out of ten incidences. In election years when
the president is not up for re-election, the S&P drops by
an average of 3.3 percent and only half the time ends the year
on a gain.
Marshall Nickles, professor of economics at the Graziadio
School of Business at Pepperdine University in Malibu,
California, published a study in 2004 that revealed a
mind-blowing difference in timing the stock market around
election years. If investors hypothetically put $1,000 in the
S&P 500 on October 1 of the second year of a presidential
term, sold on December 31 of the fourth year and did this 13
times between 1952 to 2000, the fund would be worth $72,701.
But if investors had put $1,000 in the S&P on January 1 of
the first year of a presidential term and sold September 30 of
the second year over the same period, they would have lost
money in six of the 13 instances. The $1,000 fund at opening
was worth $643.
Jesse Frehling is a political economic analyst at Focused Wealth
registered investment adviser in Highland, New