OCEAN CITY — After uncommonly smooth sailing last year, investors in U.S. stocks felt some ill winds in the first quarter. The harsh winter weather contributed to weak reports on the U.S. economy, while news from China and other Emerging Markets produced similar chilling effects. Another cross current earlier in the quarter arose from uncertainty over the change in leadership at the U.S. Federal Reserve (Fed).
For the first quarter, U.S. broad market fixed income outperformed domestic and global equities, and the biggest winners were commodities and gold.
With help from the bitterly cold weather in the U.S., commodities rose 7%. In an unexpected turn for most investors, gold finished up 6.5% for the quarter, after falling 28% in 2013. In our view, the outlook for gold remains challenged in 2014. Several drivers of gold prices, such as Fed easing and the interest rate outlook, are going through a transition this year. As such, we see fewer catalysts to drive prices higher. Our colleagues in Bank of America Merrill Lynch (BofAML) Global Commodities Research believe that gold will remain range bound for the duration of 2014.
politicians were less acrimonious and companies armed with cash and growth prospects were beginning to spend. After years in which growth was disappointing, analysts believed it could finally surprise to the upside.
Mother Nature had other plans. Severe weather across much of the country started to visibly suppress economic activity. Job growth slowed significantly in December and January. Manufacturing and housing activity also disappointed, leading economists to trim their expectations for the year. However, with the better weather there is reason to believe activity will bounce back. Recent reports show that consumers remain confident and job growth has improved.
We believe that U.S. economic growth will improve here and inflation will remain muted. A healthy and growing private sector is one reason for our conviction.
Our 2014 outlook continues to look for better economic growth in the U.S. and better growth and more liquidity for Europe and Japan. This supports our main 2014 themes — equities outperform bonds; higher interest rates in the U.S.; a stronger U.S. dollar; and higher volatility than in 2013.
(A Merrill Lynch Wealth Management Advisor who can be reached at 410-213-8520.)
OCEAN CITY — After the financial market fireworks of last year, first-quarter returns across many assets have been within a narrow range. Markets are generally flat to slightly higher, with stock returns muted despite recent data showing signs of improvement in the U.S. economy. Many measures of volatility and political uncertainty remain at low levels. We believe this restraint in … Continue reading
OCEAN CITY — One of our themes for 2014 is increasing business confidence built off a stronger global economy that results in companies reducing their cash piles. In the first few months of 2014, a surge in merger and acquisition (M&A) activity is one reflection of this trend. After a pick-up in 2010, M&A deal volumes have failed to accelerate … Continue reading
OCEAN CITY — Economic and policy developments in the world’s largest two economies have been center stage. In the U.S., it was hoped the recent meeting of the Federal Open Market Committee (FOMC) would provide clarity on the Fed’s policy views. Unfortunately, this was not the case. Further east, Chinese economic data for the first few months of 2014 has … Continue reading
OCEAN CITY — Since the start of 2013, our advice has been for clients to consider broadening their exposure to developed market equities beyond the U.S., with Japan being a favored region. Japanese equities have fallen approximately 5% year-to-date in U.S. dollar terms, among the worst performance within developed markets. Despite this poor start, we remain positive on the region. … Continue reading
OCEAN CITY — In our Jan. 17 Weekly Letter (Making Sense of the Employment Report) we focused on the December U.S. payroll data indicating a weaker pace of job creation than expected. Since then, additional economic indicators have heightened concerns about a slowdown. The January payroll report was disappointing as well. Measures for industrial production and manufacturing, retail sales and … Continue reading
OCEAN CITY — The actions of the Federal Reserve (Fed), a softer set of economic data from the U.S. and turmoil in the Emerging Markets have weighed on risk assets so far in 2014. What has gone slightly under the radar is the stronger start for fixed income. After declining 2% last year, bonds gained 1.5% in January, with high … Continue reading
OCEAN CITY — In our December Monthly Letter (Improving Growth, Low Inflation and Favorable Markets), we expected higher market volatility in 2014 driven by the reduction in monthly bond purchases by the Federal Reserve (Fed). What we had not expected was 38 days into the year, equity markets would have been hit by a range of Emerging Markets events, including … Continue reading
OCEAN CITY — Over the last two years, our advice has focused a great deal on the strength of equities and the “Great Rotation” out of bonds into stocks. In 2013, we saw this move start to play out in a big way. As stocks surged to new highs and bonds slumped to their worst performance since 1994, investors moved … Continue reading
OCEAN CITY — With interest rates at historic lows, resulting in lower income from bonds, achieving investment goals has brought about a shift in portfolios that has tilted them toward equities. This raises the importance of understanding the drivers of equity returns over the near term. Three components drive total returns of equities: dividends, earnings growth and valuation changes (for … Continue reading