The SCM Market Strategist Journal blog is a compilation of economic data, analysis used to form Simpson Capital ‘s opinion of the current investment environment for clients and the general public. It consists of market strategy commentary, US economic forecast surveys, industrial sector analysis, quarterly newsletters, special reports and major market indices tables. It is updated weekly so bookmark this spot and return regularly for the latest market information.
Its early but UK vote to leave the European Union was unexpected and investors sent global markets into a tailspin.
In my thirty years of investment experience I put this event in the class of the Soviet Union breakup, 9-11, Iraqi war and Greek disturbance. Each event created golden buying opportunities.
Not confident this one follows suit. Stay tuned right here for my interpretation of developments. What a time to launch a new blog.
The Federal Open Market Committee (FOMC) of the Federal Reserve met today and held its target federal feds rate unchanged after their initial hike in December. Fed Chairman Janet Yellen’s press conference after the meeting can be be summed in one word: Uncertainty. I feel she is a very articulate individual but the gist of what she said was unhelpful to market participants.
From her answers to reporter’s questions, it was clear the FOMC has no plan going forward to rev things up, sounding more like a subjective process reacting to immediate events such as Brexit, Orlando and weak jobs. FOMC’s critics, including myself, feel the time has passed to raise rates while the listless economy and overvalued stock market is dangerously drifting toward the rocks with no means to steer it away.
The Fed should have raised rates a year ago even if symbolic when the economy could have handled it and given them a cushion to make adjustments to set-backs. Now the stock market has been distorted, commodity-based emerging markets wallowing and developed trade partners weakened.
Yellen couldn’t explain why the Fed’s forecasts and expected policies have constantly changed over the last three years and what their plan was to fix the lack luster GDP growth after nine years of recovery. Mostly likely the economy has lost confidence in the Fed after their policies or lack of have caused lending to shut down, business not wanting to invest. job seekers not motivated and leaving fixed income retirees in the lurch.
While Yellen said otherwise, I’m afraid the presidential elections are going to come into play and will blunt any further credibility the Fed may have left.
| S&P Wgt% | Name | Tilt | Comment |
|---|---|---|---|
| 6.60 | Energy | Market | Declining U.S. oil production over the next several quarters will help reduce global oversupply, but wont fix the imbalance before 2017. Reduced investment translates to output declines and helps markets rebalance. Energy sector valuations are high. |
| 2.80 | Materials | Market | Optimism continues to reign in Materials year to date, but investors are overestimating the sustainability of recent commodity price rallies, leaving the sector severely overvalued. The reasons for rallies differ, but won't stick. |
| 10.10 | Industrials | Market | Industrials outperformed the broader market since early February but remains undervalued. U.S. manufacturing data has turned slightly positive in recent months, while manufacturing across the rest of the world has been challenged. |
| 12.90 | Consumer Discretionary | Market | The market seems to be underestimating longer-term revenue growth and margin expansion opportunities in this volatile group as measured by relative PEs, especially with its healthy high-end consumer sentiment. |
| 10.70 | Consumer Staples | Market | Consumer Staples valuations have continued to trend higher over the past several months, leaving the sector slightly overvalued. In light of slowing growth prospects around the world, sluggish revenue growth are expected. |
| 14.70 | Health Care | Market | Market valuations in healthcare have improved over the last quarter. Strong drug launches and excellent rapidly progressing clinical data in specialty-care areas are supporting increased productivity at drug and biotech companies. |
| 15.60 | Financials | Over | Brexit effects on interest rates, currency exchange rates, asset price levels, and capital market volatility will likely be more material to earnings than problems caused by relocating operations out of the UK to EU countries. |
| 20.40 | Information Technology | Over | Overall, we view the tech sector as fairly valued though we continue to see opportunities in smartphone related vendors. Microsofts evolution will yield long-term success. When the chips are down, bet on capital equipment firms. |
| 2.80 | Telecom Services | Under | Brexit fears have pushed down most European Telecom stocks which is an overreaction. Telecom is somewhat immune to geopolitical changes and Brexit will have little effect on cross-border transfers of voice or data. |
| 3.40 | Utilities | Under | Utilities have kept its foot on the gas during the second quarter. The spread between U.S. utilities 3.6% average dividend yield and 1.6% 10-year U.S. Treasuries suggests utilities have a long way to run. |
Simpson Capital Management, Inc
FOR IMMEDIATE RELEASE
Contact:
David Simpson, CFA
Simpson Capital Management, Inc
31 Flamingo Court
Laguna Niguel, 92677
(949) 495-7922; [email protected]
Analyst Says Latest FASB Decision’s Effects ‘will be Minimal’
Laguna Niguel, CA, Friday, December 8, 2000– Chartered financial analyst David Simpson, president and chief investment officer of Simpson Capital Management Inc., expressed optimism for investors through his remarks quoted in a CBS MarketWatch story yesterday. The online article discussed the implications of the Financial Accounting Standards Board’s (FASB) recent decision in the reporting of goodwill from acquisitions on financial statements.
As part of a multiyear project, FASB is phasing out the ‘pooling of interests’ method of acquisition accounting while proposing a major modification to the remaining ‘purchase’ method. “The Board is suggesting a new approach, the impairment approach,” Simpson said in the article. “This approach does away with the long-term schedules after an initial charge-off on the purchase date.”
The heightened uncertainty surrounding the decision has made investors wary of short-term market reaction after analysts registered unfavorable reaction to earlier rejected Board proposals. “In the long run, material effects will be minimal,” reassures Simpson. He believes the standards will be applied evenly and analyst comparisons will be adjusted accordingly.
Simpson Capital Management, based in Laguna Niguel, California, provides investment management services for individualized portfolios of personal and corporate clients. It is a registered investment adviser with the state of California. Mr. Simpson is also an investment instructor in UCLA Extension’s Personal Financial Planning program. He holds a CFA designation, a bachelor’s degree in Economics from Bethany College in West Virginia, and an MBA from Arizona State University.
For complete text of the CBS MarketWatch article and background interview or more information on Simpson Capital Management, please contact David Simpson at (949) 495-7922 or email [email protected]; or visit the website at www.simpsoncapital.com.
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