March madness had some real bracket busting outcomes including a Putin showdown where the opposition never turned up and therefore forfeited the game.
The Fed continues to reduce buying of Treasury and Mortgage backed bonds by $10 Billion per month yet yields on 10 year treasuries dropped to 2.73 % from 3.00 % at year end. This was perhaps the biggest financial surprise as Barclay's Aggregate bond index rose by 1.8 % in the quarter. In 2013 bonds posted their biggest drop since 1994.
Soft economic news from China and the lowest inflation numbers in Europe since 2009 have not derailed US or European stock markets. China's Big Caps declined 6.7 %, Japan -6.7 % and bad boy Russia -16.9 %.
According to Fact Set, the S&P 500 is trading at 15.2 times the next 12 months expected earnings, This compares with 13.2 times over the past 5 years and 13.8 for the past decade. Without extraordinarily low interest rates some might conclude the market is overvalued. However, as rates are expected to remain low and profits are still growing we see no major market decline as long as a recession is not on the horizon.
At current P/E levels profit growth is the key to higher stock prices. S&P 500 earnings grew 10.6% in the fourth quarter and markets are still digesting last year’s 30% gain. The US economy continues to be stuck in a +2-3% GDP range, accompanied by very low inflation.
With elections coming in November it seems increasingly likely the GOP may control both branches of Congress in 2015 as President Obama's reset of the economy and foreign policy has provided little by way of new net jobs or wage gains for the middle class. A stalemate in D.C. means fewer negative surprises emanating from our leaders.
In sum, not much has changed since year end. Spring will hopefully bring warmer weather and less international tension.
Douglas Coppola
John Coppola
John Coppola
April 1, 2014
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Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.
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