The story so far this year has been one of volatility. The market remains uncertain about the direction of the price of energy and the cloudy future of the global economy at large. Domestic economic data and earnings although choppy, have generally been positive and overall conditions continue to remain favorable here at home.
Last quarter we discussed oil, and the stimulative effect of a prolonged reduction in energy costs. Last year’s dramatic price drop is still continuing to work its way into the world’s economies and although the price of oil has rallied a bit in the last few weeks, global supplies are up and there is no clear path to an increase in demand, at least not yet. Over the next couple of months we expect that energy costs will remain tempered and continue to provide assistance to the slow-moving global economic recovery.
Corporate earnings are in for the fourth quarter of 2014, and overall the results were decent, with the majority of companies meeting or exceeding analysts’ expectations. Jobs numbers continue to make steady progress, wages are on the rise, and consumer sentiment hit its highest level in more than a decade. Conditions are improving domestically, but the world is still lagging behind.
Although things seem fairly calm at the moment, as always there are risks. For now the most obvious threats to growth come from abroad. There is the less-than-rosy economic outlook in Europe and specifically Greece, escalating political tension with Russia, the rapid deceleration of growth and worsening real estate market in China, and last but not least the always unpredictable situation in the Middle East.
Risks to the market exist and although the specific issues of today may be different, this is the world in which we live, and have lived for some time now. We believe strongly that our best approach is to keep a close eye on the fundamental indicators of a healthy economy and participate prudently.
Later this year the Fed will most likely begin raising rates, and a careful observer will most likely notice that the bond markets will lead and the fed will follow. As long as the Fed doesn’t move too quickly, or cause a surprise stampede, we believe the conditions will continue to support appreciation in equities.
The markets will be volatile as we continue to find our way forward through the rest of 2015 that is a given, but our economy continues to make steady progress. Uncovering opportunities in US equities is our primary focus as we expect equities to climb and bonds to fall during the coming months. We are excited and are actively seeking new ideas to enhance returns and take advantage of value-based opportunities for growth.
Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations. Past performance does not guarantee future results.
Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.