Commentaries
PMC Weekly Market Review, May 23, 2014
It was another week in marketland characterized by churning but little else. Several major retailers including Target and Home Depot reported less than stellar earnings, as Walmart had earlier, and then proceeded to blame such weakness on the weather. We will see soon whether the weather was indeed the culprit, but such results only underscore that rather weak economic growth evidenced early in 2014.
Nonetheless, markets have held up, and aside from a brief spike in volatility late last week, trading has been decidedly range bound. The release of the Federal Reserve meeting minutes did not fundamentally alter the picture of gradual tapering of the Fed’s quantitative easing and bond buying program combined with highly accommodative interest rates. In fact, Reuters (among other new outlets) reported that in private (or not so private as the case may be) conversations, former Fed chair Ben Bernanke has been speculating that interest rates on the 10-year Treasury may not see 4% again in his lifetime.
Meanwhile, in Europe, European Central Bank head Mario Draghi has made it clear that the challenge of deflation in the Eurozone will necessitate the ECB to undertake its own stimulus program, which means that the world is not about to see much of a liquidity challenge even as the Fed becomes slightly less active.
One of the most consequential market developments has little directly to do with markets, namely the stunning and sweeping victory of India’s Narendra Modi and his BJP party on a platform of economic reform. Most assumptions of future global economic growth assume an India that has been sputtering, but if the new government with its powerful mandate succeeds in unlocking the immense potential of India, those economic assumptions will prove to have significantly underestimated the future. One never knows, of course, but it is certainly possible that India could have the same transformative – and unexpected – effect on the global system in the decade to come that China has had in the decade past. Something to ponder, and watch carefully, as the year progresses.
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.