Jan 28, 2014 - Recent Market Commentary by James Investment Research

Stock Market Analysis

Conclusions: Last week stocks lost more than two percent, while the Dow fell back 3.5% for one of the worst performing indices. Year to date, it is off 4.2% which happens to be about the same [but positive return] earned by investors in long term treasury bonds. Advances outnumbered declines during the first two trading days (MLK Day on Monday found most exchanges closed.) but volume picked up Thursday and again Friday, two days of heavy declines. Friday was noteworthy, with only 350 advances and more than 1,000 declining issues. As the Wall Street Journal put it: “Wary Investors Flee Emerging Currencies.” The article explained increasing government spending in Argentina could not be sustained except by the highest inflation in the world which could not be tamed by even more government actions such as price and currency controls.

For some weeks, we have commented to our associates about recent proclivities of investors to take money out of domestic equities and put into developing and emerging markets. The theory was, with growth in the U.S. and developed markets so low; knowledgeable investors would look abroad, to China and lesser economies, for higher GDP growth and therefore higher returns. Meanwhile sales to consumers here in the United States lagged and goods piled up in stockpiles at a 0.4% rate in November.

Do we have enough optimism to make a top? Moody’s global survey says: “Business confidence is ending the year at a new record high. Sentiment is as strong as it has been since the survey began eleven years ago. Expectations about conditions for the first half of next year are especially optimistic. Sales and pricing are sturdy, and credit for businesses is amply available. Hiring is also much improved, with a very strong nearly half of respondents now hiring. Contrary to the data on business investment, which has been weak, survey respondents say they are investing strongly in equipment and software. There are no discernible blemishes in the survey results. The economy appears to be kicking into a higher gear.”

Domestic firms and business writers are also full of optimism, deeming December retail sales of 0.3% increase to be “strong.” They put a bullish twist and interpretation on most figures. The problem they faced: After such strength in equities in 2013, where to invest in 2014? Ignoring risks, the developing markets seemed logical.

Our Risk Exposure Ratio is 59, not exceptionally high, and our stock leading indicators are improving, we doubt the advent of a major bear market right now. Of course, a lesser correction could occur at any time. Look for a good buying opportunity after a setback ahead. In view of the extended nature of prices we would maintain a conservative bias while trimming portfolios which hold excessive equities. We recommend a continued conservative allocation to bargain equities. Undervalued equities decline but they tend to hold up better than glamour stocks in market downturns.

F James, Ph.D.

Bond Market Analysis

Conclusions: As is often the case, there is nothing like international uncertainty to get investors to rush to the inviting arms of US Treasuries. After ending 2013 with a yield of over 3%, the 10 Year Treasury now has a yield of 2.75%. Longer maturity bonds have seen even larger drops in yield.

Where are the international problems? Unfortunately, they may be too numerous to mention. In Thailand an anti-government leader has been killed. In Argentina they are dealing with a full-fledged currency crises. Perhaps most disquietingly, China is dealing with credit issues. Zero Hedge reports that customers for some of the largest banks for farmers are unable to “withdraw hundreds of millions in deposits in the last few weeks.”

Bonds may also benefit from the total disregard by Wall Street. In surveying over 60 economists, Bloomberg News finds these “experts” expect higher yields for each of the next seven quarters. Even Bloomberg’s latest survey for this quarter found only 2 of 67 economists suggesting yields could be as low as they are today. When no one believes there is a good thing, there is often an opportunity.

Further, our own economy is far from being the powerhouse it should be. We are a consumer based nation and today consumers continue to suffer. Real median household income has fallen over the last few years. Additionally, the true employment situation is poor. In the last five years our country’s adult population has grown by 11.7 million. Our job growth? Less than 2.5 million.

Today our intermediate term indicators remain favorable for bonds. Although interest rates may rise over the next five years or so, no financial market tends to go straight up or straight down. On a tactical basis, bonds are in a position to offer value. Where appropriate we would continue to extend durations.

David W. James, CFA

 

Ipsum impedit amet magni. Consectetur laudantium eum eum reiciendis et eum quod. Alias consectetur dolorem explicabo rem optio molestiae. In temporibus totam vel consequatur. Dolor voluptatum velit eos nihil quo nesciunt ab. Voluptatem consequuntur rerum rerum officia assumenda eum. Aliquam dolorum quo temporibus quis nobis.

Dolor laborum repellendus qui sint assumenda alias. Dignissimos et corporis voluptatibus labore similique consequatur ea. Mollitia eum minus nesciunt error.

In enim maxime illum sit. Modi alias molestias corporis voluptatibus quibusdam id impedit nulla. Cumque explicabo quae molestiae. Labore sequi voluptates molestias labore. Eaque qui molestiae similique veritatis voluptatibus aspernatur.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Betsy Massar's picture
Betsy Massar
99.0
5
CompBanker's picture
CompBanker
98.9
6
dosk17's picture
dosk17
98.9
7
GameTheory's picture
GameTheory
98.9
8
DrApeman's picture
DrApeman
98.9
9
kanon's picture
kanon
98.9
10
bolo up's picture
bolo up
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”