Global CIO Commentary by Scott Minerd
Last week’s first-quarter U.S. GDP data reflected weakness associated with the winter soft patch, however, with the effects of terrible weather now firmly in the rearview mirror we should enjoy a rebound in economic activity in the second quarter. Unlike in recent years, I expect the U.S. economy will strengthen as we move toward summer.
2014 could be the exception to the “sell in May” strategy for US equities.
The great conundrum of course is U.S. interest rates. With the American economy adding jobs, consumer spending accelerating, and economic data generally looking strong, interest rates should be rising rather than falling. Nevertheless, capital flows from overseas are playing a crucial role in keeping interest rates low. Firstly, we have the “Putin Put” -- as tensions escalate in Ukraine there is a flight to safety putting downward pressure on U.S. Treasury yields. Secondly, Japan’s first sales tax increase since 1997 will likely cause a slowdown in consumer spending, which could very well lead to an acceleration of monetary stimulus there. Such a move would likely prompt China to further devalue its renminbi currency, which would likely drive increased Chinese demand for U.S. Treasuries.
So in the face of strong U.S. economic fundamentals, which should be pushing interest rates higher, technical factors at home and abroad have driven interest rates in the opposite direction. This only adds to already improving U.S. economic prospects. Low interest rates and increasing employment will have a positive impact on housing and on consumer confidence and spending. We will also likely see a pick-up in mergers and acquisitions activity, and U.S. first-quarter corporate earnings have beaten estimates -- factors which should help push equity prices even higher. In fact, 2014 may be a year where it is wise to ignore the old adage to sell in May and go away.
Increasing U.S. Capex Should Boost Growth
Despite weak first-quarter U.S. GDP, which will likely be revised lower after Tuesday’s trade figures, the American economy is on sound footing and looks set to accelerate over the rest of the year. Consumer demand was strong in the first quarter, and the economy is due for a surge in business investment. Rising business confidence, increased capacity utilization, and business surveys all point to increasing capex in the coming quarters. The most recent Senior Loan Officer Survey showed that bank lending standards continue to loosen, which should lead to a near-term jump in capex.
U.S. COMMERCIAL AND INDUSTRIAL LOAN LENDING STANDARDS AND CAPITAL EXPENDITURES
Source: Haver, Guggenheim Investments. Data as of 5/5/2014.
Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"). Guggenheim Funds Distributors, LLC is an affiliate of Guggenheim.
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.
Investing involves risk, including the possible loss of principal.
*Assets under management is as of 12.31.2018 and includes leverage of $12.4bn. Guggenheim Investments represents the investment management businesses of Guggenheim Partners, LLC ("Guggenheim"), which includes Security Investors, LLC ("SI"), Guggenheim Funds Investment Advisors, LLC, ("GFIA") and Guggenheim Partners Investment Management ("GPIM") the investment advisers to the referenced funds. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.
Guggenheim Investments. All rights reserved.
Research our firm with FINRA Broker Check.
• Not FDIC Insured • No Bank Guarantee • May Lose Value
This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.