Daily Agenda: EU Employment Edges Up but Risks Remain

Modest signs of jobs recovery juggle with more trouble in Greece; Alaska Air to acquire Virgin American; Iranian oil output rises; Bats to go public.


European equities rose in trading on Monday morning with the benchmark Stoxx Europe 600 rising by more than one percent during the first hours of the session. The marginal rebound arrives as Eurostat unemployment data for February indicated that joblessness was at the lowest level in almost five years, with the headline rate for the combined currency region registering at 10.3 percent. Investors, juggling data on industrial activity and modest signs of recovery in employment, offset by weak inflation, the looming possibility of an exit from the European Union by the U.K. and the sudden reemergence of a Greek crisis, appear to have adopted a glass-half-full stance for now. Signals of modest improvement with significant remaining hurdles may indicate that the European Central Bank will have little incentive to downscale massive easing operations any time soon.

IMF deal for Greece remains elusive. In comments on Monday International Monetary Fund Managing Director Christine Lagarde said that negotiations with Greece remain ongoing, a revelation that sparked selling in that nation’s sovereign-debt markets. Lagarde’s statement came in the form of a response to a letter sent earlier by Greek Prime Minister Alexis Tsipras, in which he accused leadership of the IMF of negotiating in bad faith. An apparent leak of internal IMF correspondence suggests that an agreement among Greece’s primary creditors was not yet close to being reached.

Oil output rises sharply in Iranian fields. Iranian oil production picks up. In a release via an official state media outlet, Iranian oil minister Bijan Zanganeh today stated that Iran’s aggregate oil-and-gas exports have already climbed to the equivalent of more than 2 million barrels per day. The increase represents an equivalent of 250,000 more barrels than production levels reported in February, as Iran operates without foreign sanctions after years of exclusion.

Alaska Air wins bid for Virgin America. On Monday, officials for Virgin America and Alaska Air Group announced an agreement for the two airlines to merge in a deal with a total value of more than $2.5 billion. Both JetBlue Airways Corp. and Alaska Air had reportedly expressed interest in acquiring Virgin, which has significant hub operations in California.

Panama comes under microscope. Over the weekend a series of reports published by the International Consortium of Investigative Journalists revealed a cache of internal documents from a Panamanian law firm which, if accurate, may indicate that hundreds or thousands of foreign nationals have used shell companies based in the Central American nation to avoid taxes at home. Reaction to the report has been mixed, with the Kremlin dismissing claims of President Vladimir Putin’s alleged connection to an entity in Panama potentially worth billions of dollars.

Bats to go public. On Monday, exchange operator Bats Global Markets revealed that it will float shares publicly in the coming months in an initial public offering providing liquidity to outside shareholders only. The Lenexa, Kansas-based electronic exchange suffered a humiliating technology failure in 2012, which scuttled its first attempt to go public and was followed by a change in company management.


Barclays Libor traders trial kicks off. Five former traders for London-based Barclays pleaded not guilty to charges of Libor manipulation in London today, as the latest high-profile trial against U.K. bankers for collusion gets underway. Jury selection has begun and the trial is expected to be complete before summer.

Portfolio Perspective: Environment for Equities Remains Positive

A number of technical and structural factors point to higher prices. We think that the big picture has been lost in most of the narrative. Media outlets, research providers (generally) and commentators have an incentive to focus on perceived inflections and to discuss things that could affect prices in the future. While this is logical from a business standpoint, it overlooks a key point: We are in a bull market in stocks, and the right thing to do in a bull market is, usually, to hold long positions and to do nothing.

For a good example of the dangers of unnecessary commentary, think back to just a few weeks ago when every news outlook was issuing headlines such as “XYZ slips into bear market territory. Will this bear have teeth?” Most of these headlines came from an arbitrary definition of a bear market (20 percent decline from highs), and did not give a single second’s thought to what, historically, has happened when markets have declined. (Answer: stocks go up, strongly, on average following such declines.) Rather than focus on the investible insight, it made sense, from a business and advertising perspective, to smear fear-mongering headlines everywhere, knowing that most readers would blissfully forget once markets staged a recovery. We do not forget, and encourage our clients, to become the kinds of readers who also do not forget.

Structurally, stocks are in a bull market that extend back to 2008 (or 2009). The 2014-to-the-present period has been a long consolidation in the bull market, but it is a consolidation that is absolutely proportional to the length and magnitude of that bull market. There is every reason to expect this bull market to continue. At the outside, there could well be three-to five years of additional upside, with increases in some major indexes exceeding 100 percent. Yes, these are extraordinary numbers, but this extraordinary potential should be the focus of our investment thesis at this time.

Adam Grimes is chief investment officer for Waverly Advisors in Pittsford, New York.