U.S. Economic And Financial Markets Outlook: Restaurants See Great Month

In February, the Dow Jones Industrial Average gained 5.64%, the S&P 500 rose 5.49%, and the NASDAQ composite increased 7.08%. Much has been made of how the cratering of oil prices would be a net positive for the U.S. economy. After six months of digesting it's new found form of wealth, domestic consumers are beginning to loosen the purse strings a bit. One might not necessarily see this reality from four quarter 2014 GDP growth, which came in at 2.2%. In looking at the key components of the report, a 4.2% rise in consumer spending was offset by weakness across the energy complex. Core inflation, which eliminates food and energy costs, rose .2% in January.

Building on the thesis, the restaurant industry saw its best month in six years as the Nation's Restaurant News reported monthly same store sales increased 6.1% versus the figure in 2014. The jump was attributed to stronger consumer confidence and more favorable weather. Turning to the important area of housing, we got news that pending January home sales were the highest in 18 months, gaining 8.4% from last January.

Viewed through the prism of an entire economy, better consumer spending and a boost in housing will accelerate economic growth. With conditions and confidence stable, borrowing costs low and balance sheets flush, corporations have plenty of reason to find ways to grow, either organically or by transactions. Merger and acquisition activity remains very strong so you have to believe investment banks all over the world, and especially in the United States, are benefiting from the buoyant boom in corporate wheeling and dealing. Gold and commodity prices generally are soft and input costs remain contained. With all of these positive trends, what can upset the apple cart?

First, the impending rise in interest rates by the Fed will give market participants a new fact to ponder, being a change in the direction of monetary policy. Interest rates will rise, but if the Fed has its way, very, very slowly. The market may or may not cooperate with that premise. Next, the lingering issue of cybersecurity seems to be a constant problem in the business community. Obviously, the never ending euro zone issues don't inspire confidence from allocators of capital. Last, but not least, middle east instability and conflicts throughout that mess of a region have unforeseen consequences in any of many thousands of ways. In sum, the world is scary, but U.S. business strength impresses in its depth and breadth. Invest accordingly.

Investments: Global Economic & Financial Markets Outlook- Europe, Europe, Europe- Wait, Is That Right, Europe? Yes, Europe Crushes It! (All country index data provided by the market data section of the Wall St Journal, February 27, 2015.)

Over the last five years, it has been the rare occasion when markets in Europe have performed as well as other global equities, let alone best them. Well, so far in 2015, European indexes have seen strong returns in nearly every major country. Clearly, Mario Monti's version of quantitative easing has helped create the perception of more favorable invesment conditions across the 'old continent.' Countries which stand out include Italy (+16.6% year to date), Germany (+15.5%), France (+14.9%), and Portugal (+17.8%). All of these countries have rewarded investors with gains well ahead of the Global Dow Euro Index's print of 11.4%. In fact, without Europe, the other world stock indexes show gains ranging from 3.3%-4.8% for the first two months of the year.

Elsewhere around the globe, other noteworthy performances include Australia (+9.1%), the Philippines (+7.4%), and South Africa (+7.2%). Looking ahead, with China losing 2.4% (China Dow 88 Index), I think Asia, and principally China, remain regions of the world to keep your gaze on, especially being cognizant of the pollution which one might encounter when doing so.

Y H & C Investments Sector Analysis- Real Estate, Consumer Discretionary, Telecom, and Health Care Are Strong. Financials and Utilities Not So Much! (All country index data is provided by the market data section of the Wall St Journal, February 27, 2015. Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research possible investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)

Investors have reacted to the dramatic cut in energy prices by bidding up a few different industries, primarily those consumer related, along with real estate, and health care. A defensive industry which had a strong year in 2014 were utilities, but they have since suffered.

Peering into the unknown but contemplating what might be, an area which will surely draw interest is all sorts of financials, especially if the time horizon for a gradual increase in interest rates proves accurate. With rates actually beginning to rise, albeit from rock bottom levels, the slope of the yield curve should favor banks, but especially large, diversified money centers. Historically, markets have a bit of an adjustment period when interest rates 'lift off', but it subsequently digests the different borrowing rates in due course. No period is exactly like previous ones, but it is a good idea to know how history has treated the onset of the dreaded rising rates.

In the financial world, many people frequently use the term beta, (β), as a way of measuring risk. Bets is simply the volatility of the price of an asset. The simple thinking goes the higher the volatility, the greater the risk. As an investor in a financial asset, in most cases, one has to accept the reality that volatility is the normal state, not the abnormal one. By understanding price volatility is typical, you can then begin to potentially use it to your advantage when buying (and selling) financial assets.

Consistent with this idea then will also be the premise that the most important risk to consider is the permanent impairment, or even complete loss, of ones capital. Simply put, it is critical to forget about using beta as a measurement of risk and instead to focus on the financial and operating facts of the asset you are interested in. The more knowledge you have about the entities history, financial condition, management, industry, and operating performance, the greater possibility of understanding your chance of losing capital in the investment.

In this light, starting with the company's balance sheet is always recommended. The balance sheet is critical because by beginning your due diligence on this segment of the financial statements, in many cases you can eliminate financially troubled enterprises. In a great majority of situations, you can tell rather quickly if a company is financially strong and is worthy of more investigation. Risk is losing all money in an investment, and it is not pleasant. Certainly, not confusing fluctuations in the price of an asset versus losing all of your money is an important part of the investment process and a proper mindset in an accurate investment approach.

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Disclaimer: Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Written By: Yale Bock