October 8, 2015

Since Janet Yellen’s last announcement, the markets have been responding mostly to US political rhetoric and other geopolitical issues. This past week we saw a surge in Oil Prices with a 5% leap on Tuesday alone. We believe that some volatility will remain in the US market as Earnings Season begins today, bringing opportunities in some industry specific areas that are now undervalued.

Oil

The recent surge in the price of Oil was triggered by multiple factors:

  • Data from the American Petroleum Institute showing a 1.2 Million barrel decrease in crude supply last week
  • Increasing demand according to Energy Information Administration
  • OPEC comments regarding cuts to oil production

However, oil remains below its long term average price per barrel and investment opportunities in some oil stocks still exist.

We may have seen oil stock prices bottom last quarter, since we had 1 full year of lower overall oil prices.

Healthcare / Biotechs

An interesting disparity has presented itself in this sector. Although Hillary Clinton’s bashing of the biotechs and their high drug prices has brought down the stock prices of many in the past couple of weeks, we have seen a recent rebound thanks to prescription providers like Express Scripts picking up multiple providers for these cutting edge drugs.

The sector’s adjustment downward has produced some opportunities in the Large Pharma arena. Some stocks are selling at about 15 times next year’s earnings, and attractive compared to historical valutations.

Longer Term US Stock Outlook

The recovering Euro versus the dollar should add some more pep to US corporate earnings in the next couple of quarters. After the recent market adjustment, stated dividends and current EPS projections could easily allow for high single digit to low double digit return for some companies over the next 12 months. Picking these stocks will remain a focus for us, as the broad markets may not fare as well.

Many long term charts still indicate that this retracement does not detract from a viable longer term secular U.S. bull market at this point.

Fed Outlook

After Fed chair Yellen’s non-move away from zero in September, the consensus for a fed rate move has been pushed out to 2016. Many would prefer she act more swiftly to allow for some dry powder, should the outlook deteriorate. This message from the Fed would indicate that the US economy is no longer in “crisis” mode, or in need of a 0% Fed Funds rate.

We saw some rate records set in the US Treasury markets last week. The 3 month T-Bill was issued with 0% interest rate for the first time ever.

15 year fixed Mortgage rates fell below 4% which caused mortgage issuance to surge.

Please feel free to contact any of us with your concerns or thoughts.……