Energy

Although stocks rebounded after a sharp drop in January, the market’s reaction to the coronavirus outbreak highlighted stock vulnerabilities.

Let's do some analysis of the Consumer Price Index, the best-known measure of inflation. The Bureau of Labor Statistics (BLS) divides all expenditures into eight categories and assigns a relative size to each. The pie chart illustrates the components of the Consumer Price Index for Urban Consumers, the CPI-U.

A review of last month’s market-moving events across countries and asset classes.

Late in 2019, Chile, Colombia and Peru saw an uptick in political turmoil that was unusual, given that they’re perceived as politically stable countries with “market-friendly” policies. With several key elections on tap in 2020, we’re watching closely for potential risk flare-ups.

The Bureau of Labor Statistics released the January Consumer Price Index data this morning. The year-over-year non-seasonally adjusted Headline CPI came in at 2.49%, up from 2.29% the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 2.26%, unchanged from the previous month and above the Fed's 2% PCE target.

A truly interesting contradiction is developing in stock markets around the world. A number of major corporate executives are calling for businesses to be judged by something other than the net present value of their future earnings or other conventional business/investment metrics.

In today’s society people are choosing to have fewer children, and delaying having children at all into later, less fertile years. These two factors have driven fertility rates below replacement level in most of the world, but a crucial third factor gets little attention and is having a profound impact on fertility: toxicity. The economic and social ramifications will be severe.

CLSA predicts that the price of gold will beat the S&P 500 in 2020. The Hong Kong investment firm has an impressive track record when it comes to making market predictions—last year it had a 70 percent hit rate—so it may be prudent to take this one seriously.

A deep dive into the factors that brought inflation down and are keeping it low.

The coronavirus outbreak that started in China has sent jitters across global financial markets amid fears of a hit to the global economy. We think it is too early to assess the eventual impact on the economy yet see potential downside risks posed by the outbreak – with its unknown magnitude and duration. This underpins our view that U.S. Treasuries provide a source of portfolio resilience.

This commentary has been updated to include this morning's release of Nonfarm Employment. January's 225K increase in total nonfarm payrolls had revisions that resulted in 7K more jobs than previously reported. Annual revisions and changes to household survey data were made. The Investing.com consensus was for 160K new jobs and the unemployment rate to remain at 3.5%.

Read Harold Evensky's latest newsletter.

It is probably hard to remember after a week or so of coronavirus fears, but during Q4 2019, “risk” assets once again outperformed “haven” assets. This was after two quarters of “haven” asset outperformance.

The last couple of years have been remarkable ones for yields. The 10-year note hit its historic closing low of 1.37% in July of 2016 and then rose 14 BPs to 1.51% as of the January 31 close.

ESG investors, take note: a controversial new bond format that links a company’s sustainability goals to its bottom line could be a game changer.

The past decade has been one for the record books. There has been unprecedented change in almost every aspect of life including technology, transportation, politics, etc.

In the annual letter to Berkshire Hathaway shareholders in early 2000, Warren Buffett attempted to remind everyone why value investing works, despite the financial euphoria all around him at that time. We will revisit this valuable lesson and draw implications for reviving enthusiasm for value investing at a point eerily similar to early 2000.

You can build the best portfolio for your clients, but if they don’t stay invested, their chances of reaching their goals will be diminished.

Two topics seemed to dominate at this year’s Inside ETFs conference: the rise of ESG investing, and the emergence of so-called “nontransparent” ETFs. Both promise some big changes to financial markets.

The year 2019 was the complete opposite of 2018 across investment markets. Across the board nearly every asset class around the world, from bonds to stocks to gold to real estate, was down in 2018. 2019, on the other hand, delivered above average gains across those same asset classes.

Personal Income (excluding Transfer Receipts) in November rose 0.63% and is up 4.3% year-over-year. However, when adjusted for inflation using the BEA's PCE Price Index, Real Personal Income (excluding Transfer Receipts) MoM was down fractionally at 0.01%. The real number is up 1.7% year-over-year.

The current drawdown has been by far the longest as well as the second largest since July 1963, eclipsed only by the tech bubble from 1997 to 2000. Arnott, Harvey, Kalesnik, and Linnainmaa examine the potential causes of value’s underperformance and provide estimates of value’s performance relative to growth’s performance under different revaluation scenarios over the next decade.

10-Year US Treasury yields are down about 30bps so far this year, continuing the trend of lower rates that began in the fall of 2018 and confounding investor expectations for rising rates which would validate a turn up in economic activity.

As much as we all crave it, asking for another year of continued economic growth and positive equity returns in 2020 may be too much.

Questions about environmental, social, and governance (ESG) issues are becoming central to commodity markets and capital allocation discussions.

In a recent piece, Bloomberg journalist Keith Naughton laid out a wonderful counter-argument to the consensus of opinions for what the future looks like. His piece, “Millennials Could End Up Being a Boon to the U.S. Auto Market,” talks about the good news of the auto businesses future via Benchmark analyst Mike Ward’s research.

Trade policy uncertainty, slower global growth, a decrease in energy exploration, and problems at Boeing had a negative impact on business fixed investment in 2019. So what’s different in 2020?

As expected, a long and strong move up in stocks attracts more and more believers and adherents, which can stretch sentiment to extremes, like now.

As we have written several times over the last 10 years, inflation has been kept down by the twin forces of globalization and technology (particularly digital technology). These forces are not going away, and in fact, digital technology is becoming increasingly pervasive throughout the economy, dramatically increasing efficiency and lowering costs in industry after industry. We do not see this trend abating.

Phase One: A limited deal is better than none.
Inequality: We can’t manage what we can’t measure.
Canada: Taking the lead with fiscal policy.

Because it’s the first of the 12 zodiacs, the Year of the Rat is seen as a time of beginnings and renewals. That brings us hope, especially paired with the recent positive development in the U.S.-China trade war.

Chief Economist Scott Brown discusses the latest market data.

The last decade produced great performance across most asset classes. But in the 2020s, we expect investment market returns will be lower and risk harder to manage. Looking forward, a disciplined multi-asset approach will be especially valuable to identify opportunities and help mitigate setbacks.

Emerging markets are expected to grow more and grow faster than developed markets in 2020, and fundamentals appear attractive for both equities and debt. Trade tensions and global growth prospects are, as ever, the issues to watch in the new year.

Our definition of value is to buy meritorious companies at a significant discount to intrinsic value with a high margin of safety. Since doing this is more art than science, the margin of safety is important.

In this piece, let’s do what Batista should have done – spend a few minutes focusing on the “stay rich” part of the equation. If you’re an investor who has already amassed great wealth and “won the game” what’s the right market approach that will help you keep (and potentially even grow) your wealth?

Chief Economist Scott Brown discusses current economic conditions.

It has been a great year for equity investors. The S&P 500 index posted a 31% annual return, the Dow 25%, and the NASDAQ a spectacular 39%. More than $6T of equity paper wealth was created for domestic investors this year alone.

Although easing US-China trade tensions have renewed investor optimism about global economic growth, Franklin Templeton Multi-Asset Solutions’ Ed Perks and Gene Podkaminer still see some potential geopolitical headwinds on the horizon.

Advisor Perspectives has announced its Venerated Voices™ awards for commentaries published in 2019.

Good things are happening, too, and will keep happening as we move through the 2020s. Occasionally I like to note them, and that’s what we will do today.

Among the biggest contributors to the bitcoin rally is the hope that 2020 could finally see institutional investors move into the digital field en masse, prompted by growing client demand and more attractive ways to get exposure.

Let's take a closer look at recent activity in US Treasuries. The yield on the 10-year note ended January 17, 2020, at 1.84% the 2-year note ended at 1.28% and the 30-year at 2.29%.

We analyze the historical reactions of various assets to past U.S. military actions in the Middle East to provide insight into what the current U.S.-Iran tensions may mean for markets in 2020. We examine the S&P 500, crude oil, gold, U.S. dollar, and U.S. 10-year Treasuries.

Now is the season for forecasting as one decade turns into the next. Pundits and market prognosticators too often treat nowcasts as true market forecasts, which can be very dangerous for investors’ financial health. Our forecasts for the decade ahead rely on empirically driven quantitative models.

Tensions in the Middle East and North Africa have once again brought geopolitical risks to the forefront of oil markets.

Emerging markets ended 2019 on a high note, but can the momentum continue? Our emerging markets equity team weighs in, highlighting the market news and events it has an eye on.

Franklin Equity Group’s Fred Fromm gives his take on global oil markets amid elevated tensions between the United States and Iran.

One of our favorite financial writers is Bloomberg’s John Authers. He recently wrote a tongue-in-cheek article about an investment company by the name of Hindsight Capital. In hindsight, or in the company’s case, Hindsight Capital, he talked about what the firm did and what you should have done over the last ten years to produce outstanding returns.

A new decade, seismic shifts and the importance of diversification.

Read the latest Weekly Headings by CIO Larry Adam.

A restrained reprisal by Iran following the assassination of its top military commander has led markets to conclude that the latest threat to the global economy has been removed. But just because Iran and the United States have so far avoided a full-scale war does not mean that markets are out of the woods.

The substantial economic calendar features inflation reports and housing, but also includes Michigan sentiment, the Fed’s Beige Book, and NFIB sentiment survey. We will also get the first earnings reports for the Q4 season.

What really is a bet? How does one make decisions under uncertainty and with imperfect information? In his latest memo, Howard Marks weaves his own life story to discuss the process of thinking in bets, parses the world of gambling, and draws parallels between investing and games of chance.

This is the year-end letter I sent to our clients. Feel free to adapt it for your own use.

On Tuesday of this week, the U.S. dollar experienced a “death cross,” a bearish signal that takes places when an asset’s 50-day moving average crosses below its 200-day moving average. We haven’t seen this from the greenback since May 2017.

The best environment would be moderate U.S. growth, a sideways U.S. market and a weaker U.S. dollar.

Tensions between Iran and the United States brings a stressful start to 2020.

A year ago, the baseline scenario for the economy was moderate growth, but with an elevated level on uncertainty, with risks skewed to the downside. Trade policy uncertainty and slower global growth were dampening factors, but Fed policy was supportive. Investors were willing to look beyond the uncertainty.

Global stock markets rallied in 2019, defying political and macroeconomic uncertainty. Will investors be as fortunate in 2020? Since many risks remain, maintaining style diversity and finding investing themes that are detached from volatility drivers will be important ingredients for equity allocations.

Trump's decision to take out the Islamic Republic's most celebrated military leader, Qassem Soleimani, was a timely reminder that we face many problems. An armed conflict between the US and Iran is clearly one of them but far from the only one. Here is a list of the ones we worry mostly about, going into 2020.

To be honest it shouldn’t matter where you stand on the climate change debate, the way I see it these are words that we should all take seriously, if for no other reason just in case. It is a call to action that we ignore at our own peril and that of untold future generations to come.

One of the exciting buzz words among advisors and institutional investors is ESG, which stands for Environmental, Social and Corporate Governance. This subject is almost always granted a wonderful panel reception at any conference our firm attends as it is the topic du jour.

Expect a steeper yield curve, according to Jeffrey Gundlach. Investors should be “defensive” with respect to long-term bonds. Gold will go up, inflation will be subdued, there is a 30% to 35% chance of recession and – his “highest conviction” idea – the dollar will weaken. His most surprising prediction was who will be the Democratic nominee.

The Ten Surprises of 2019 worked out plenty well. While we don't go through this process with the objective of getting a high score, knowing that you have been able to anticipate some of the generally unexpected events that are going to influence the financial markets during the coming year is gratifying.

It has been a great year for equity investors. The S&P 500 index posted a 31% annual return, the Dow 25%, and the NASDAQ a spectacular 39%. More than $6T of equity paper wealth was created for domestic investors this year alone.

The outlook for the global economy has improved over the past three months, but there may be less capacity to combat a recession when it comes. We discuss seven key macroeconomic themes we expect in 2020 and implications for investors.

The longest economic recovery on record continues, with January being the 128th consecutive month of growth. The first seven years, from mid-2009 through 2016 saw average real GDP growth of 2.2%. Since the start of 2017, US real GDP growth accelerated, to an average annual growth rate of 2.6%, while the unemployment rate now stands at the lowest level in 50 years (and is likely headed lower).

Following another year of strong returns, Emerging Markets (EM) fixed income has outperformed developed bond markets by a significant margin over the past four years. The outperformance is likely to continue in 2020, because EM fixed income remains attractively priced both in absolute terms and relative to bonds in developed markets as well as under-owned and well-supported by an improving fundamental backdrop.

The scientific evidence increasingly indicates that the world may soon reach a point of no return regarding climate change. So, rather than worrying almost exclusively about economic and political inequality, rich-country citizens need to start thinking about how to deal with global energy inequality before it’s too late.

Brace yourselves. In an unexpected move on January 3, the United States carried out a drone strike that killed a key military figure in Iran, General Qassem Soleimani. Soleimani was the head of the Iranian Revolutionary Guard Corps' Quds Force, the architect of Iranian military influence across the Middle East and the second most powerful figure in Iran after the Grand Ayatollah Khamenei.

I’m optimistic that the U.S. will stand as a beacon of freedom and opportunity in the 2020s and beyond, but with more and more younger Americans supporting socialism over capitalism, I believe it prudent to proceed with caution. That means making sure you’re holding some gold in your portfolio.

Investor optimism remained strong in the first day of trading 2020, but news that the US. Military had assassinated an Iranian general sent share prices lower. The price of oil rose and bond yields fell in response to heightened uncertainty.

What can investors expect this year? Continued economic expansion, unaltered interest rates and new equity highs, says CIO Larry Adam.

In response to a standing request, here is an updated comparison of four major secular bear markets. The numbers are through the Tuesday, December 31.