NEAM Insights

Objects in mirror are closer than they appear. In the second quarter, the S&P 500 returned approximately 3% as stocks were buoyed by respectable corporate earnings and continued hopes of reflationary growth resulting from fiscal policy and tax and regulatory reform. This optimism, reflected by U.S. equity markets trading close to all-time highs, diverged from the messaging by the bond market where falling yields signaled a more tempered view of economic growth. Notably, inflation expectations continued to disappoint resulting in further flattening of the yield curve in the quarter, driving the spread between the 2-year and 10-year Treasury yield near cycle lows by mid-June. Yields rose notably, however, in the final week of the quarter on the newly perceived hawkish stance introduced by several global central banks. Likewise, currency markets discounted a slowdown in stimulus and the ensuing rate differential, and the U.S. dollar weakened over 4.5% experiencing its worst quarterly decline since the third quarter of 2010. Volatility ensued as investors questioned whether the peak in liquidity is now behind us, and coordinated global interest rate normalization is potentially set to unfold. As such, equity gains for the quarter were more front end loaded as the index exhibited a more narrow trading range in June. On a year-to-date basis, the market posted its best first half performance since 2013 delivering over a 9% total return. Read More

In the first quarter, optimism, premised on the ability of Trump’s proposed policies to stimulate reflation, defined the market tone, and continued to buoy equities. The reflation beneficiaries, best evidenced by the pro-cyclical sectors including financials and industrials, enjoyed early relative outperformance versus other sectors of the market. Challenges emerged, however, with the unsuccessful attempt to pass the American Health Care Act, the new administration’s replacement for Obamacare. The narrative for the market soured modestly as investors judged this failure as a weak litmus test for Trump’s ability to enact comprehensive tax reform and regulatory relief. While the market remained close to record highs, doubts crept into the investor psyche, as money flows began to be channeled toward more traditionally defensive sectors. Outside of the political realm, the performance of the equity market was underpinned by improving economic data suggestive of a cyclical recovery and higher corporate earnings. Overall, the S&P 500 returned approximately 6% in the first quarter of 2017, posting its best start to the year in four years, and contributed handsomely to the double digit return achieved since Trump’s election. Read More

The S&P 500 returned just shy of 12% for 2016, a feat hardly conceivable in early February after the market had fallen over 11% on global growth and deflationary undertones. From this low point, the market staged a remarkable comeback in the face of several notable surprises, specifically Brexit and the election of Donald Trump as the 45th President of the United States. By their very nature, surprises defy consensus views which, in these cases, dismissed any substantial probability of these scenarios occurring. However, rising populism, essentially the mobilization of an alienated element of the population, characterized these election outcomes. Read More

Throughout the majority of 3Q 2016, the U.S. equity markets were characterized by a surreal calmness as they generally traded within a very narrow price and volatility band, akin to a placid lake as the summer sun rises over the horizon. Summertime is characteristically quieter in the financial markets, but this level of tranquility was notable. Read More

Earnings for U.S. corporations have been sluggish for the past six quarters. This has been largely influenced by the collapse in crude oil prices and the strong U.S. dollar which has negatively impacted foreign exchange translation for companies generating business overseas. Additionally, earnings reflect the low nominal growth backdrop and the aging business and credit cycle. Read More

The S&P 500 was pacing for a relatively uneventful second quarter until the final weeks of Q2 when history was made. Unexpectedly, the people of the United Kingdom voted to leave the European Union and uncertainty rippled through the market. Initially, the British pound collapsed and European equities dropped sharply, led by Italy and Spain. Read More

During the 1Q of 2016, the bull market celebrated its seventh birthday. This milestone was not met with the usual revelry, but rather pronounced volatility as the S&P 500 posted its worst start to the year in recorded history before staging a remarkable comeback. More specifically, the market tallied slightly over a 1% return for the quarter, rallying back from the over 11% deficit reached in early February. Notably, this is the first time the market has fallen by more than 10% within a quarter while finishing positively since 1933, according to data compiled by LPL Financial. Suffice it to say, history was made within this proverbial roller coaster quarter as investors fluctuated between extremes. Read More

The Legacy of Financial Engineering The S&P 500 finished the year trading at virtually the same level where it began. This might lead one to conclude that 2015 was an uneventful year. It was just the contrary as volatility inducing events abounded. The market had to contend with Greece nearly exiting the euro, China accomplishing a shock devaluation of its currency, U.S. corporate earnings contracting, severe compression in the price of oil and other parts of the commodity complex, and the Federal Reserve raising interest rates for the first time in nearly a decade. Read More

The Millennials Demographics have long shaped the consumption curve in the economy, which in turn impacts the capital markets. Today, the most relevant demographic trend in the United States is the millennial cohort, a large and influential group who stand to reshape the consumer economy. They are a unique generation of digital natives who have embraced technology in almost every aspect of life which has pricing, branding and market share implications for consumer companies. As Millennials increasingly exert their influence, it is imperative for companies to develop successful strategies as traditional competitive advantages will be challenged. Likewise, by understanding the Millennial mindset, investors can better understand both the risks and opportunities for consumer based business models, the durability of cash flows and the resulting asset valuation. Read More