Commentaries
PMC Market Commentary: September 26, 2014
With no evident catalyst, this past week proved to be a quite messy one for equities. Though the week ended calmly, there was heavy selling for much of the week, though not selling characterized by anything resembling panic or intense volatility.
As usual, there were various theories and explanations, ranging from rumors of harsh Russia reprisals against western sanctions to further anticipation of interest rate rises in the U.S. to questions about China’s growth trajectory and the Beijing government response. The week was also capped by the surprise announcement that one of the most influential bond managers in the world – Bill Gross of PIMCO – had decided to leave his longtime firm. While not a market-moving event in itself, it certainly caught the attention of the investing community.
Earlier in the year, there was frequent chatter that equities were going up too much too quickly. Now, however, with nearly three-quarters of the year passed, we are facing a very decent but hardly excessive year of returns in the high-single digits. Of course, markets might well stage a strong fourth quarter rally. If anything, the fact that indices have barely budged in the past months makes such a rally more credible, not less. Much will depend on fourth quarter earnings and general sentiment.
Similarly, the early year chatter about the coming volatility in bonds has not come to pass. Yields on the U.S. 10-year have been trading in a very narrow band between 2.50% and 3.00% for much of the year. Traders can certainly make money on the basis point moves, but yields remain low and not especially volatile.
There have been several periods of equity surges and sell-off. The first week of August was notably negative, followed by weeks of gains. Much of September was quite strong, followed by this week of sell-offs. It is hard to discern an evident pattern here. Overall, the earnings, revenue and economic picture domestically continue to improve, while the global picture is somewhat more ambiguous.
In short, the trend of gradually rising stocks and static interest rates with a slight bias to the upside remains in place. We all know that multiple factors could alter that trend, but it will take more than a discombobulating week.
The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this weekly review is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. Past performance is not indicative of future results.
Information obtained from third party sources are believed to be reliable but not guaranteed. Envestnet|PMC™ makes no representation regarding the accuracy or completeness of information provided herein. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.
Investments in smaller companies carry greater risk than is customarily associated with larger companies for various reasons such as volatility of earnings and prospects, higher failure rates, and limited markets, product lines or financial resources. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. Income (bond) securities are subject to interest rate risk, which is the risk that debt securities in a portfolio will decline in value because of increases in market interest rates. Exchange Traded Funds (ETFs) are subject to risks similar to those of stocks, such as market risk. Investing in ETFs may bear indirect fees and expenses charged by ETFs in addition to its direct fees and expenses, as well as indirectly bearing the principal risks of those ETFs. ETFs may trade at a discount to their net asset value and are subject to the market fluctuations of their underlying investments. Investing in commodities can be volatile and can suffer from periods of prolonged decline in value and may not be suitable for all investors. Index Performance is presented for illustrative purposes only and does not represent the performance of any specific investment product or portfolio. An investment cannot be made directly into an index.
Alternative Investments may have complex terms and features that are not easily understood and are not suitable for all investors. You should conduct your own due diligence to ensure you understand the features of the product before investing. Alternative investment strategies may employ a variety of hedging techniques and non-traditional instruments such as inverse and leveraged products. Certain hedging techniques include matched combinations that neutralize or offset individual risks such as merger arbitrage, long/short equity, convertible bond arbitrage and fixed-income arbitrage. Leveraged products are those that employ financial derivatives and debt to try to achieve a multiple (for example two or three times) of the return or inverse return of a stated index or benchmark over the course of a single day. Inverse products utilize short selling, derivatives trading, and other leveraged investment techniques, such as futures trading to achieve their objectives, mainly to track the inverse of their benchmarks. As with all investments, there is no assurance that any investment strategies will achieve their objectives or protect against losses.
Neither Envestnet, Envestnet|PMC™ nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor.
© 2014 Envestnet. All rights reserved.