Nov 3, 2015 - Recent Market Commentary by James Investment Research

Stock Market Analysis

As our short term indicators had been suggesting some potential weakness, the Dow fell four out of five days last week. However, Wednesday’s advance was enough to allow the Dow to squeak out a 0.1% gain for the week. Smaller stocks weren’t so fortunate as the Russell 2000 small cap index fell 0.34%. In a sign of mixed markets, we only had a few more stocks declining in price than rising in price, but a few more setting new highs as opposed to new lows. Healthcare and cyclical stocks had the best week, while utilities fell the most.

All in all, October was a solid month for stocks. The Dow rebounded 8.59% while small cap stocks advanced 5.63%. Every sector of the stock market advanced, with double digit gains in Basic Material, Energy and Technology stocks. Not surprisingly, we saw strength in commodity prices, with Silver leading the way with a 7.23% gain. The dollar also continued its advance against the Euro and the Yen.

The strength of the recent rally can be seen through multiple lenses. First, the selloff had been dramatic and short selling had become very popular. If fact, short interest had reached the highest level in years. When stocks start a rebound, short sellers who want to preserve their gains will buy back the shares they had been short, adding to the upward movement in stocks.

Second, earnings season has been as expected. It hasn’t been strong, with the second quarter in a row of declining earnings growth, but overall, earnings as a percent of GDP remains high. According to Zacks, S&P 500 earnings are off 1% so far this period but much of the decline came from energy stocks. Removing them leads to a gain in earnings, with technology stocks leading the pace.

Economic reports were mixed with third quarter GDP being supported by household spending but hurt by an inventory drawdown. Companies realize the weakness internationally and don’t want to get caught with extreme inventory levels. The question will be whether they will revive production or keep it mothballed in the months ahead.

Our intermediate term indicators only point to modest risk and we believe the recent rally can continue for a time. However, there are longer term risks and we wouldn’t overcommit to stocks at this time. In spite of some short term volatility, we would maintain moderate equity levels.

Barry R. James, CFA, CIC

Bond Market Analysis

It wasn’t a pleasant week for bond holders as rates moved higher across the yield curve. We saw yields jump between 9 and 17 basis points, with shorter term rates rising the most. All domestic sectors of the bond market, except for Muni bonds, saw losses. This is a continuation of the see-saw move in rates this year.

While the Fed held short term rates unchanged after their October meeting, investors seemed to have the impression they signaled raising rates on a steady basis as they go forward. However, the FED actually said they kept rates unchanged because they are trying to achieve progress toward maximum employment and price stability. They said when they saw “realized and expected progress” in these areas they would raise rates. Right now, the futures market is only giving a 50% probability to a rate rise in December, not what one would call a sure thing. When they finally do raise rates it will help investors to take appropriate actions with their bond portfolios.

Lots of economic reports came out last week. The housing market seemed to take it on the chin in September. New and existing home sales were weak. New home sales were the lowest since last November but prices were higher. We have also seen an increase in supply which is causing inventories to creep higher as well. Mortgage rates have been low, so it appears we are beginning to oversaturate the market. This also became apparent with existing home sales, where we saw a drop in pending sales in September.

We will get a good read on jobs this coming week, but consumer confidence slipped because job prospects seemed to have dimmed. As I have been talking with business owners, they too are describing some problems. First, they say it is hard to find front line workers who are reliable and turn up regularly for work. In addition, they are having difficulty finding highly skilled workers. Wage growth has been sluggish up to this point, but if these conditions continue, we could see wage inflation start to set in.

Distress in the manufacturing area and in exports should give bonds some room to rebound. However, mixed signals on the economy leave bonds with no clear path. Our indicators are mainly neutral and confirm a neutral approach to bonds. We would be well diversified with high quality bonds of moderate duration.

Barry R. James, CFA, CIC

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
BankonBanking's picture
BankonBanking
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
Secyh62's picture
Secyh62
99.0
5
GameTheory's picture
GameTheory
98.9
6
dosk17's picture
dosk17
98.9
7
DrApeman's picture
DrApeman
98.9
8
CompBanker's picture
CompBanker
98.9
9
kanon's picture
kanon
98.9
10
numi's picture
numi
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...”