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13 posts tagged with "Roosevelt Investment Group"
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Although the domestic economy has returned to growth, Roosevelt believes the recovery is going through a fragile period. With uncertainty in the market they think companies with sustainable unit growth will be the ones who will see their share prices appreciate. Roosevelt continues to identify stocks that fit this description and continue to dedicate a portion of their portfolio for these names.
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Posted by John Gibbs on 6/10/10 7:05 am
Despite what was a very volatile month for equities and the worst May for the Dow in 70 years, our base case outlook for the US economy remains unchanged. While the May employment report (published by the Labor department in early June) was a disappointment, employment data still indicate an economy growing at roughly a 3% clip. Our view is that the economic recovery continues, supported by a wide variety of data which encompass housing, employment, auto sales, durable goods orders, healthy inventory levels, hotel occupancy rates, railcar loadings and construction activity. Given this unchanged positive outlook, why did the stock marker come under so much pressure in May? We will cover this question in detail over the remainder of this month's letter
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Posted by John Gibbs on 5/12/10 7:50 am
In their monthly commentary, Roosevelt sees a continued recovery which may grow strongly from this point if the positive economic numbers continue. Even with this good news in the US, they see the fiscal problems in the European Monetary Union as an emerging and potential threat. Roosevelt provides a great history and explanation of the current crisis and discusses the increase in hedges in their portfolio as a result. For a quick summary of the problems in the EU, this commentary is for you.
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The stock market has covered a lot of ground since that rough period one year ago, but it is still below the levels at which Lehman Brothers declared bankruptcy and sent the financial system into crisis mode. Central banks around the world took coordinated actions to intervene and provide liquidity directly to banks as well as capital markets. Corporate America responded in an unprecedented fashion, slashing jobs and other expenses and reducing capital spending to a much greater degree than expected. As a result, non-financial companies generally came through this recession in much better shape than expected.
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Given the current market, economic, and political environment, Roosevelt has recently added the defense sector into their portfolio to provide some risk management. Roosevelt believes that given the historically low beta, low price to earnings valuations, low correlation to the business cycle, and their price sensitivity compared to other equities surrounding geopolitical events, that defense stocks can act as an effective portfolio hedging tool.
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Roosevelt believes that the market may be reaching a temporary state of tiredness. The quarterly earnings that have come so far have been great, but equities have failed to react accordingly. This has sent Roosevelt a signal to be on guard and increase their risk management holdings in the event that the market begins to correct. That being said, Roosevelt believes there is plenty of evidence that the economic recovery continues. Consumer sentiment indicators continue to rise, consumer spending continues to rise, and the trend in employment data remains positive.
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The current economic environment is providing prime conditions for mergers and acquisitions, and Roosevelt believes the elements are in place for this to continue. Currently Fortune 1000 companies are sitting on about 1.8 trillion in cash, which is making these acquisitions easy to finance. As long as the yield curve does not steepen too drastically, and the economy does not suffer another leg down, this trend should continue.
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The majority of the companies in the S&P 500 have reported their third quarter earnings, and of these, more than 80% have surprised to the upside. Roosevelt believes this is a positive indicator, and that the economy is moving from a stabilization phase to a growth stage.
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What are the implications of a depreciating dollar and its impact on the domestic equity market? In the near to intermediate term Roosevelt believes an orderly depreciation of the dollar would be beneficial for the stock market. But if an accelerated decline were to happen, this would be detrimental to stock prices. Foreign demand for U.S. securities would fall as the returns would be negatively impacted due to the currency translation. This would be a serious blow to the domestic economy as this would result in falling bond prices and soaring interest rates.
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Roosevelt continues to maintain their positive outlook on the stock market. Investor sentiment and recent economic data continue to support this view. The continued narrowing of credit spreads and the pick-up in M&A activity are both bullish developments that could continue to provide fuel. Although the employment data that came out in early October was a disappointment, the continued weakness in the labor market could restrain the Fed from raising interest rates in the near term. Although there are currently no present signals that could change their positive view, there a few risks on the horizon that may be a cause for concern – the likelihood of increased taxes and exit strategies from the Fed and other central banks.
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