Market Commentary: The S&P 500 finally recovered its bear market losses and closed at a new high today. Merger mania and private equity are still driving this market higher, and now China wants to get in on the action with a $3 billion private equity placement with Blackstone. Meanwhile, the 10-year Treasury yield hit 4.9% last Thursday, capping off a quick two-week run from 4.6%. We are likely to get some consolidation in the near term as the 4.9% level provided the upper boundary in January. Economic reports have been generally stronger than expected, so a bond market rally doesn’t seem too likely at this venture. The High-Yield segment is still the area to overweight in bond portfolios.
Sectors: The Utilities sector fell hard this week. Normally, Utilities is one of the best performing sectors during a market pullback, but that was clearly not the case this past week. Is something different this time? Given that much of the recent market weakness has been attributed to interest rates rising at a dramatic pace, and that Utilities are indeed an “interest sensitive” sector, then perhaps there really isn’t anything different. Higher bond yields are starting to allow bonds to be competitive with stocks, but with bond yields not likely to fall anytime soon, there does not appear to be any capital appreciation associated with a bond purchase. With a strong recovery taking place the past two and half days, the Utilities setback is looking like it is of a temporary nature. With yields in excess of 3%, which is twice the S&P average, investors can get their income and an opportunity for capital appreciation.
Styles: The upward march of US equity markets continues with Mid Cap and Large Cap stocks being favored over Small Caps. The Value versus Growth question does not have a clear answer as Value appears to be preferred in the Large Cap space while Growth is the current winner in the Mid Cap space. We would like to emphasize that these Value versus Growth differences are rather insignificant at the present time, and therefore do not warrant any portfolio action.
International: A touch of global cooling this week reduced the momentum for most of our global equity components. Latin America and Canada remain at the top and have separated themselves from the pack somewhat. Concern about the impending “bubble” caused China to retreat slightly this past week, which in turn reduced its standing in our momentum rankings.
Sectors: The Utilities sector fell hard this week. Normally, Utilities is one of the best performing sectors during a market pullback, but that was clearly not the case this past week. Is something different this time? Given that much of the recent market weakness has been attributed to interest rates rising at a dramatic pace, and that Utilities are indeed an “interest sensitive” sector, then perhaps there really isn’t anything different. Higher bond yields are starting to allow bonds to be competitive with stocks, but with bond yields not likely to fall anytime soon, there does not appear to be any capital appreciation associated with a bond purchase. With a strong recovery taking place the past two and half days, the Utilities setback is looking like it is of a temporary nature. With yields in excess of 3%, which is twice the S&P average, investors can get their income and an opportunity for capital appreciation.
Styles: The upward march of US equity markets continues with Mid Cap and Large Cap stocks being favored over Small Caps. The Value versus Growth question does not have a clear answer as Value appears to be preferred in the Large Cap space while Growth is the current winner in the Mid Cap space. We would like to emphasize that these Value versus Growth differences are rather insignificant at the present time, and therefore do not warrant any portfolio action.
International: A touch of global cooling this week reduced the momentum for most of our global equity components. Latin America and Canada remain at the top and have separated themselves from the pack somewhat. Concern about the impending “bubble” caused China to retreat slightly this past week, which in turn reduced its standing in our momentum rankings.
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