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…
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.
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.
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….