by Scott Smith, CIMA®
Thank you to those who attended our quarterly client roundtable last month recapping first quarter 2015 market trends. We appreciate the opportunity to engage and educate clients on topics important to them. For those who were unable to attend the client roundtable, a brief summary of our discussion is shown below.
• Monetary policy from the Federal Reserve has been a major driver of equity market returns in recent years and is the reason why equity markets have gained disproportionately to the overall economy and corporate earnings.
• Residual effects from strong equity market gains have been seen in record merger & acquisition activity (M&A), near record initial public offering (IPO) issuance, and strong stock buyback activity in 2014.
• These three areas of financial engineering (M&A, IPO’s, & stock buybacks) produce temporary tailwinds for equity markets and typically appear during the late stages of a bull market cycle.
• Currency movements negatively affected international equity returns in 2014. Unlike 2014, however, both international and emerging markets are outperforming the United States equity markets in 2015. Expansive monetary policy across the Eurozone is helping boost European equities in the same way it helped boost domestic equities here in the United States in years past. The peculiar prevalence of negative interest rates across many countries in Europe illustrate how unprecedented this environment has become.
• The Federal Reserve is expected to begin raising interest rates in the fall of 2015, but may delay until 2016 due to the recent strength in the U.S. dollar. Given the global impact that interest rates have on currency exchange, it is likely that interest rate adjustments will be slower than previous interest rate hike cycles, but will nonetheless sow the seeds for greater market volatility.
• Long-term components of equity returns: valuations, dividend yields, and earnings growth all suggest an environment of modest investment returns going forward.
We will send out reminders, but our next client roundtables are scheduled for Tuesday, July 14th & Friday, July 17th. If there are topics that you’d like us to cover, please feel free to e-mail me at firstname.lastname@example.org.