Five months into 2015 and we still don’t have a whole lot to show for it in terms of positive market movement, but although things have been pretty lackluster year to date it looks as if the stage may be set for moderate growth over the second half of the year. There have been many factors this year that have kept us range bound. Global market turmoil and stimulus, a relentless rising dollar, and a stall in first quarter earnings caused enough of a headwind to keep the markets stuck in the low single digits.
The global markets are showing signs of life on the back of stimulus packages issued by central banks, and the idea of global deflation is losing momentum as we begin to see an increase in price levels globally. We expect to see this trend continue through the summer and into fall as the global recovery continues to develop and strengthen.
The U.S. dollar may have peaked back in April, and if so, this is positive news for the U.S. economy. So far this year, companies have struggled internationally due to the major reduction in the relative competitiveness of their products due to the rising dollar. If we should see a falling dollar going forward, this will translate directly into increased earnings for those companies as the losses on currency translation reverse themselves.
This is only one of the many reasons economists are blaming for the stall in earnings growth in the first quarter of this year. We have also experienced refinery strikes, port strikes up and down the west coast and unusually bad winter weather. We should be able to expect a better earnings going forward if the dollar softens and the effects of these strikes and weather patterns dissipate.
A better environment means stronger earnings, and stronger earnings is what is necessary to keep us moving forward and the market moving higher. Although we have enjoyed a fair weather environment for some time now, most indicators point towards a continuation of this trend and we believe that given the state of interest rates and fixed income instruments, overweighting equities continues to be the strongest alternative.
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