Investment News from Sumner Wealth Management

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Market Economic Update


January 2015


Dear Visitor,

Disappointing growth across much of the world weighed on asset markets in Q3. Outside the U.S., falling commodity prices, weaker inflation, and promises of further monetary easing characterized the landscape. The U.S. remains in the mid-cycle, with a favorable outlook for stocks despite the potential for increased volatility. Most categories had solid positive year-to-date returns, however, many assets faltered in Q3. Riskier assets had bigger declines, with weak global growth and a rising U.S. dollar negatively affecting non-U.S. markets. Large caps and investment-grade bonds posted modest gains with minimal volatility. In 2014, "anticipatory regret" (the fear of investing before another market peak) may be restraining investor bullishness for U.S. equities.


Equity Markets Volatile      

In the first few days of 2015, equity markets have picked up where they left off in the last few days of 2014. That is, equity market volatility has remained relatively high, with the S&P 500 experiencing an intraday move of at least one percent every day so far in 2015! Investors appear to be grappling with uncertainty regarding the decline in the price of oil and how that will affect the U.S. economy. Furthermore, renewed political instability in Greece has investors recalling the troubled European markets of early 2012. In addition, investors are keenly anticipating the outcomes of both the European Central Bank's (ECB) and Federal Reserve's ("the Fed") next policy meeting, due January 22 and January 27-28 respectively.


Index Returns (%) 

Source:  Bloomberg



1 Year

Dow Jones 30



S&P 500



Russell 2000






S&P GS Commodities



U.S. Trade-Weighted $




Index Levels

Source:  Bloomberg


Year End

Year Ago


Dow Jones 30



S&P 500



Russell 2000






S&P GS Commodities



U.S. Trade-Weighted $



U.S. 10Yr Treasury Yield(%)




Oil & The Economy      

Oil continued to be under pressure this week, with the price of a barrel of crude remaining below $50. High yield spreads have widened, reflecting concern that weakness in foreign economies that are highly levered to energy prices (e.g. Russia) and a slowdown in the U.S. energy renaissance could drag the entire economy into recession. However, offsetting these concerns is the positive "consumer tax cut" effect of lower energy prices. While it is probably still too early to definitively declare a winner in this debate, for now there appears little evidence of a broader recession looming in the U.S. in the next few months. For example, despite disappointing wage gains (actually down 0.2% m/m and only up 1.7% y/y), the Non-Farm Payroll report for December portrayed a job market that was growing. Not only did the U.S. economy add 252,000 jobs in December (above consensus estimates of 230,000), but October/November numbers were revised higher by 50,000. The unemployment rate fell 0.1% to 5.6%. While the Fed will probably not raise the Federal Funds rate at the end of the month, December's strong job gains reinforced the notion that the Fed will certainly start to raise rates at some point in 2015.


Greece Back into the Headlines  

After a two year "hiatus," Greece has crept back into the financial headlines. Elections are to be held on January 25, and it is possible that the anti-austerity Syriza party may win. Syriza would look for much of the debt extended to it by the Troika (IMF, ECB and EC) in 2010 and 2012 to be written off and the remainder renegotiated. Initially, Germany's position was "new elections change nothing in the accords struck with the Greek government." However, after markets experienced a bit of a freefall early in the week, European markets subsequently jumped after Germany clarified its position to be willing to discuss "possible easing of repayment terms." It is likely that markets may continue to be volatile into and around the Greek election later this month.


What Will the ECB Do? 

All the while Greece is retaking the headlines, investors are also eagerly looking forward to the ECB's possible announcement of a launch of some form of quantitative easing at its January 22 meeting. Expectations are high, as ECB President Draghi has been discussing this for many months. However, details surrounding the program remain unclear. Therefore, investors can probably expect markets to be on edge a bit as details of the program might make their way into the press beforehand. All this said, while the divergent paths that the ECB and Federal Reserve were on in 2014 will most likely continue in 2015, it is always worth remembering that markets rarely move in a straight line. The U.S. dollar has rallied substantially against the euro over the last year reflecting these divergent paths, and, should the ECB meet or even surpass expectations, it may be that non-dollar denominated assets, such as relatively cheap foreign equities, receive a relative boost from the ECB embarking on a bond buying program similar to the one that spurred U.S. equities in 2010 and 2012. 


Earnings Season Begins 

Finally, earnings season starts next week with Alcoa reporting on Tuesday, followed by some banks later in the week. Expectations have been beaten down, in part due to oil's precipitous decline. As always, markets will be paying particular attention to top-line revenue guidance for insight as to how the stronger domestic growth outlook may be impacted by the more subdued growth outlook overseas.


Sumner Wealth Management

To my clients, friends, and colleagues, thank you for your continued support. I would like to hear your thoughts and feel free to forward this on to other individuals who could benefit from this information.


Mark Sumner

Financial Advisor




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