As investors in the New York metropolitan area dig out from the Blizzard of 2015, members of the Federal Open Market Committee begin their monthly two-day meeting 250 miles to the south in Washington D.C. On the minds of both groups will be the relative strength of the U.S. economy, whose health will be measured by a host of fresh indicators to be released today. December durable goods orders and Markit service industry purchasing manager index levels will shine the spotlight on activity levels, while Conference Board consumer confidence data will help investors anticipate the pace of spending at the cash register in the months ahead. Separately, final November Case-Shiller figures combined with monthly new home sales estimates from the Census Bureau will provide insight into the health of property markets. Today will also see a number of large-cap companies report earnings for the final quarter of last year, including Apple, AT&T and Pfizer. To date this earnings season has remained somewhat upbeat, with more than 70 percent of S&P 500 companies that have reported so far besting consensus earnings estimates, although some companies have raised concerns over future growth prospects. For investors the big question now appears to be whether the U.S. will be capable of fully avoiding the global economic malaise and, if so, how much help that could provide to the economies of other developed nations that are suffering from stagnation or deflation.
U.S. and India discuss China. As President Barack Obama continued his state visit with Indian Prime Minister Narendra Modi yesterday, the conversation turned to how to respond to China’s growing regional clout. The prime minister has called for increased security cooperation between India, the U.S. and other Pacific allies, and both Modi and Obama have agreed to jointly draft a statement criticizing Chinese territorial ambitions in the South China Sea.
Bets on a further drop in oil prices increase. U.S. Commodity Futures Trading Commission data released yesterday indicated that short positions in futures for West Texas Intermediate crude oil reached the highest level in over four years last week. While more traders wager that the price of oil will continue to decline in the near term, driven by historically high supply levels in North America and weaker global demand, pronounced contango in the futures market — meaning that investors are willing to pay much more for future delivery than current price — suggests that longer-term prospects for prices are less clear. In comments yesterday, OPEC secretary general Abdallah El-Badri predicted that the price of oil could rebound to over $200 per barrel if current market conditions dissuade producers from badly needed capital investments.
Strange bedfellows assume power in Greece. The victorious left wing Syriza party spared little time in securing a coalition, joining with the right-of-center Independent Greeks party in forming a government. Syriza head Alexis Tsipras was sworn into office as prime minister yesterday, arriving for the ceremony without a necktie. Although both parties share a common opposition to austerity measures, Syriza espouses socialist entitlement policies while Independent Greeks harbors a strong anti-immigrant bias. Polls conducted by Greek media outlets suggest that a large portion of the electorate cast their lot in with the euro skeptic parties in expectation that primary European Union states, including Germany, will ultimately allow a debt write-down for the nation, something that leaders in Berlin continue to deny.
Corporate earnings will be critical to U.S. equity market sentiment. In one of the busiest days of the earnings season, a series of major U.S. companies are releasing fourth quarter 2014 numbers today. Pharmaceuticals stalwarts Bristol-Myers Squibb and Pfizer each delivered results to investors this morning. Bristol-Myers reported revenue higher than forecast on a boost in cancer drug sales, while Pfizer also beat estimates only to guide expectations lower for 2015 as a strong dollar and generic drugs are set to dampen profits. Among the major companies scheduled to announce earnings after stock markets close today are Apple and AT&T. Expectations are riding exceedingly high for consumer technology bellwether Apple’s performance based in part on encouraging iPhone 6 sales.
Portfolio Perspective: Obama’s Visit to India Heralds New Economic Era — Peter Kohli, DMS Funds
President Barack Obama’s three-day visit to India heralds a new economic era for the world’s largest democracy. Obama declared the U.S. and India are true global partners full of “untapped potential” and that the U.S. is ready to help the South Asian country in building infrastructure. India has tremendous room for trade growth given that it accounts for merely 2 percent of U.S. imports and 1 percent of U.S. exports. India’s warm relations with the U.S. and its business-friendly reforms under Prime Minister Narendra Modi’s leadership, on top of ambitious development plans, will surely accelerate India’s prosperity. I have no doubt that India’s stock market will continue to outperform this year as it did last year.
Obama and Modi agreed to jointly tackle climate change and produce new defense technology. They overcame key disputes over a long-stalled civil-nuclear trade deal that hindered U.S. companies from investing in nuclear power plants in India for years. Obama announced on Monday $4 billion in U.S.-backed investments and loans to India for renewable energy, exports, and small- and medium-sized businesses in underserved areas. India’s recent reforms will continue to increase foreign direct investments in the insurance, defense, transportation and construction sectors. Already U.S. investment in India has jumped 50 percent since Modi took office.
Modi has an ambitious plan to increase India’s solar capacity fivefold to 100,000 megawatts by 2022 to reduce greenhouse emissions from the world’s third-largest polluter. Arunabha Ghosh, CEO of the Council on Energy, Environment and Water in New Delhi, told Bloomberg the plan would cost as much as $160 billion. India’s population is set to surpass China’s by 2028. India is poised to overtake China as the world’s fastest-growing major economy in the next two years. The World Bank projects it will grow by 7 percent in 2017, versus 6.9 percent for China.
Peter Kohli is CEO of Leesport, Pennsylvania–based DMS Funds, a mutual fund firm that specializes in emerging and frontier markets.
