Since the wind-down of the Great Recession in early 2009, the latest economic expansion has certainly delivered the goods and rewarded investors’ mailboxes with six consecutive calendar years of positive gains for stocks. “Neither snownor rain nor heat nor gloom of night” has kept a lid on the continuation of one of history’s greatest bull market advances for stocks, and LPL Financial Research believes this trend of rising equity prices may continue in 2015.But unlike the last two years, when the global economy produced improved growth on the back of a stabilizing economic backdrop, 2015 will be a year marked by transitions. Likely changes in monetary policy around the world, the return of volatility, and the recent shift in the political balance of Congress could mean 2015 is a year that will have the global economy, markets, and central banks all on the move. To help prepare for rerouting to this more volatilroad ahead, our Outlook 2015: In Transit expedites the delivery of the investment insights needed to navigate an economic backdrop shifting to the latter stages of the business cycle…..
Japan reported a 1.6% annualized decline in real gross domestic product (GDP) in the third quarter of 2014 over the weekend of November 14 – 16,2014. Policymakers in Japanese Prime Minister Shinzo Abe’s government
and at the Bank of Japan (BOJ), as well as most market participants, expected a solid gain in GDP in Q3, not a decline. The consensus of economists polled by Bloomberg News was looking for a 2.2% gain in GDP
in Q3, after the Japanese economy contracted more than 7% in Q2 2014 in response to a big value-added tax (VAT) increase imposed in April 2014. (We’ll discuss the VAT in more detail below.) As a result of the unexpected
decline in GDP in Q3, Japan’s economy has met the unofficial definition of recession (i.e., two consecutive quarters of negative GDP) and has entered its fourth recession since 2007. How long Japan’s economy remains in recession — and more
importantly, the policy response to the latest recession — may help to determine the trajectory of global growth in 2015 and beyond….
The market’s focus was clearly on the midterm elections last week (November 3 – 7) with the Republicans taking control of the Senate — as expected — and adding to their majority in the House. While the certainty
provided by an election outcome has been positive for the stock market over time (as we wrote in our September 2, 2014, Weekly Market Commentary: “Midterms May Mean More Gains for Stocks”), our still positive stock
market outlook is based much more on fundamentals. It does not get more fundamental than earnings, so this week we provide a wrap-up of third quarter earnings season….
U.S. economic growth has been subpar — right around 2% — during much of the ongoing economic expansion. Yet, the S&P 500 has returned nearly 230% cumulatively since the bear market low on March 9, 2009. How didthat happen and is it justified? Before trying to answer to those questions, it is worth pointing out that this situation is not all that unusual. In fact, since 1950, the S&P 500 median return is 13% (average is 12%) when real gross domestic product (GDP) grows less than 3%, with the S&P generating a positive return 68% of the time. However, a good portion of those returns come during recessions — historically, the best time to buy stocks is at recession troughs. But even if we take those periods in and around recessions out of the equation and look at annual returns when GDP growth is between 1–3%, the median (and average) S&P 500 return is a respectable 7–8%. Stocks tend to like average (or slightly below average) growth, which is not strong enough to generate worrisome inflation. Now back to the question of what has driven this stock market to far outperform economic growth….