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Global Earnings Update: The Tide Is Turning

Last week in a tribute to David Letterman’s last Late Show, we highlighted our top 10 keys for stocks.But there was one notable omission: earnings. With the  U.S. earnings season effectively over, we did not list earnings as a key driver (though we did note that earnings may get a lift from the potential U.S. economic snapback). But that does not mean that earnings aren’t important. Not only are earnings important for U.S. stocks, they are important for overseas markets as well. This week we evaluate earnings seasons in Europe and Japan, and compare results with those in the U.S., to help inform our global asset allocation decisions. (We plan to look at emerging markets earnings in a future publication.) We continue to focus our allocations within developed markets in the U.S., but have begun to warm up to developed foreign markets in recent months. We recapped the U.S. earnings season two weeks ago in our Weekly Market Commentary, “Earnings Recap: Good Enough?” (May 11,2015) and noted that results relative to expectations were good. Excluding the energy sector, S&P 500 earnings grew at a very respectable high-single-digit pace year over year. And despite the stiff headwinds (strong dollar, lower oil prices, West Coast port strikes, severe weather, etc.), guidance was good enough to limit earnings revisions for 2015 to just a marginal decline. We remain comfortable with our view that earnings in 2015 may be…

The Tide is Turning

Letterman Tribute: Top 10 Keys For Stocks

This week we pay tribute to David Letterman’s last Late Show on May 20, 2015, with our own top 10 list: the top 10 keys for stocks. Mr. Letterman has had quite a long and successful run as a late night TV host on two networks. Late Night with David Letterman debuted on NBC on February 1, 1982 (when the S&P 500 closed at a mere 117.78), followed by Late Show with David Letterman that debuted on August 30, 1993 (S&P 500 closed at 461.90). With earnings season largely behind us, here is our list of 10 keys for the stock market over the next several months.


April 2015 in Review

U.S. DATA IMPROVES IN APRIL, BUT NOT AS MUCH AS EXPECTED Economic Data April 2015’s economic data (which largely reflect economic activity in March 2015) showed that the economy has bounced back from some temporary factors that had been restraining growth, but not as much as expected and data generally continued to disappoint. Unlike the first quarter of 2014, when unusually harsh winter weather over much of the country accounted for almost the entire economic slowdown, in the first quarter of 2015 the economy was hit by several temporary factors, some of which have passed (unusually severe winter weather in parts of the country and a strike at major West Coast ports), but others whose influence may extend further into 2015 (a stronger U.S. dollar and capital spending reductions in the energy sector). The Citigroup Economic Surprise Index, an aggregate of economic data surprises relative to consensus economist expectations, remained well below zero as of the end of the month, indicating data have continued to surprise to the downside. (Net positive surprises results in a value above zero, net negative surprises below zero.) But the index has come off of its March lows, and several reports for March rebounded after declining in February, including retail sales, manufacturing production, housing starts, and durable goods orders. Despite disappointing data overall, The Conference Board’s Leading Economic Index (LEI) continued to climb year over year, which has historically indicated a well-below-average probability of a recession within the next year.

April 2015 in Review


How Active is Your Active Manager?

Active share — a new metric — can help assess the effectiveness of an active investment manager. The LPL Research team uses a variety of statistics and portfolio metrics to evaluate active investment managers, and active share is a more recent tool to help achieve that objective. The use of active share can help identify three things:

1.How much of an active investment manager’s performance is due to skill rather than luck or other extraneous factors 

2. The propensity of an active manager to outperform a benchmark over the long term

3. Whether the value added of investment management is worth the management fee charged

large cap value strategy is benchmarked to the domestic Russell 1000 Value Index. ACME’s investment team decides to invest 20% of the strategy’s portfolio in international ADRs (American depository receipts), which are not included in the Russell 1000 Value Index. This internationalexposure will increase the strategy’s active share, but it will also make the statistic less reliable in assessing manager skill versus a domestic benchmark….

How Active is your Active Manager?



Eight times per year, the outcome of the Federal Reserve’s (Fed) Federal Open Market Committee (FOMC) meeting becomes the focal point for marketparticipants. Four times each year, the Bureau of Economic Analysis’s (BEA) first estimate of gross domestic product (GDP) — the first look at the health of the economy in the prior quarter — dominates the headlines. Similarly, at the start of each month, the Report on Business from the Institute for Supply Management (ISM) and the monthly labor market report from the U.S. Department of Labor are the centerpieces of any trading week. This week (April 27 to May 1, 2015), three of these four events are on the docket, with only the employment report for April 2015 (due out Friday, May 8) missing. So, while this week’s economic events don’t quite measure up to the weeks in which all of the “big four” economic events take place, which last occurred in the last week of July 2014 (see our July 27, 2014, Weekly Economic Commentary, “Midsummer Madness,” for details), other events make  the coming week as busy as any “big four” week. This week, another 164 S&P 500 companies are scheduled to report their first quarter 2015 results. Also, key reports on the health of the U.S. economy in April 2015 are due out (vehicle sales, consumer sentiment, inflation expectations, the Dallas and Richmond Fed manufacturing indexes), which will help investors gauge whether the weakness in the economic data in Q1 2015 was temporary, as we expect, or the start of a new trend. Overseas, reports on Q1 2015 GDP in the U.K., Canada, Taiwan, and Spain will be released, and key central bank meetings are scheduled in Japan, Russia, Brazil, Sweden, and Mexico. Brazil may raise rates while the consensus expects both Sweden and Russia to cut rates….

A Weak Week?

April Letter to Investors

April 21, 2015

Dear Valued Investor,

The beginning of April has kicked off the 2015 baseball season, as well as the release of economic data for first quarter 2015. So far this season, games have shown a nearly record low number of runs. While the start of the season may have disappointed fans of the long ball, we have to keep in mind that the season is very young. What happens in April isn’t always an indication of how the season will go. Similarly, it may be tempting to look at individual pieces of economic data—many of them affected by weather, the West Coast port strike, and the stronger U.S. dollar—and have concerns about the state of the economy.

We prefer to look at the bigger picture and take a longer-term view. Many of us were discouraged by the March jobs report. However, when we consider other indicators, we are encouraged by the overall health of the economy. For example, initial filings for jobless claims remain near the lows of the ongoing economic expansion. In addition, in the 12 months prior to the weather-impacted March report (ending in February 2015), the U.S. economy had created an average of nearly 275,000 jobs per month, exceeding 200,000 in each of those months—the longest streak in 20 years.

It is also encouraging that the Beige Book, the Federal Reserve’s qualitative assessment of economic, business, and banking conditions on Main Street, continues to indicate solid, mid-cycle economic growth. The recent report indicates that the weak economic data in the past few months likely overstated the weakness in the U.S. economy at the start of 2015. That weakness is likely to get plenty of attention in late April, when the initial estimate of first quarter 2015 gross domestic product (GDP) is likely to confirm tepid growth during the quarter.

Looking ahead, it’s important to note that some of the factors that depressed economic activity in the first quarter have already reversed. The weather has improved, the port strike has been settled, and the oil and gas industry has made significant progress adjusting to the new lower oil price environment. As a result, like last year’s second quarter, which sprang back sharply from a weather-driven decline in first quarter GDP, we may see growth rebound in the current quarter. We are already seeing some encouraging signs; for example, housing starts bounced back in March after a sharp weather-driven decline in February.

Just like even the best hitters have an off night, or even an off week, there will always be some economic reports that are less encouraging than others. In today’s 24-hour media world, we have constant access to economic data. It’s important not to get distracted by any individual report that might seem discouraging. Instead, we are keeping our eyes on the bigger picture and larger trends.

As always, if you have questions, I encourage you to contact me.


Michael W. Boone, CFP®, CFA

Wealth Advisor


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly.

Economic forecasts set forth may not develop as predicted.

This research material has been prepared by LPL Financial.

Securities offered through LPL Financial. Member FINRA/SIPC.

Tracking #1-374703 (Exp. 04/16)



Global growth is likely to be a recurring theme for investors this week. The health of the global economy and key regions (U.S., Eurozone, Japan, China, etc.) is likely to get plenty of attention from corporate managements as they discuss Q1 2015 results and provide guidance for the rest of the year. In addition, the International Monetary Fund (IMF) will release the spring 2015 edition of its widely read World Economic Outlook on Tuesday, April 14, 2015, and China will release its Q1 2015 gross domestic product (GDP) that same day. The outlook for global growth is important to investors, as it defines the ultimate pace of activity that creates value for countries, companies, and consumers. As investors begin to digest the S&P 500 earnings reports for the first quarter of 2015 (32 S&P 500 companies will report Q1 2015 results this week, with another 312 set to report in the final two weeks of April 2015), we provide an update on how consensus estimates for economic growth for 2015 and 2016 — in the United States and worldwide — have evolved over the past few years, and in particular, since oil prices peaked in mid-2014.We’ll also take the first look at how global growth is shaping up for 2017….

Gauging Global Growth


Words With Friends

Words matter. As investors brace for the unofficial start of the S&P 500 earnings reporting season for first quarter 2015. (see this week’s Weekly Market Commentary, “Earning Recesion?” April 6,2015, for detail), the financial media is swirling with words and phrases like “rig count,” “strong dollar,” “port strike,” and even “bad weather.” These earnings season buzzwords come and go, and although these words change with the seasons (remember “deleveraging,” “debt ceiling,” “Europe,” “warm weather,” “drought,” “Super Storm Sandy,” “Obamacare,” etc.), it is earnings — and earnings guidance — that ultimately drive equity prices.

Words With Friends



The Final Four of the 2015 NCAA College Basketball Tournament is set with Kentucky, Wisconsin, Duke, and Michigan State headed to Indianapolis to determine this year’s college hoops champion. In that spirit, we share our own Final Four for  stock market investing: the economy, earnings, valuations, and technicals. Based on our assessment of these four factors, we expect stock market investors may be “cutting down the nets” due to potential high-single-digit stock market gains in 2015…

Market’s March Madness


The Dollar’s Ripple Effect

In technical analysis, “intermarket analysis” looks at the way in which various markets interact. Intermarket analysis primarily looks at four maret sectors: currencies, commodities, bonds, and stocks. From a technical analyst’s perspective, focusing our attention on only one market without considering what’s happening in the others leaves us in danger of missing vital directional clues and potential profits. The dollar, which has appreciated 24.4% since June 30, 2014 (as of March 19, 2015), has had an unusually strong intermarket effect of late. Today, we look at the dollar’s recent impact on other major markets and what it means for investors froma technical perspective. Since June 2014, a strong U.S. dollar has created a tailwind for European equities, while creating headwinds for the euro and commodities, especially crude oil, as well as equity markets for commodity-exporting emerging market countries such as Brazil. (To read about the dollar’s impact on domestic equity markets, see the March 16, 2015, Weekly Market Commentary, “Dollar Strength Is a Symptom Not a Cause.”)