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Despite its flaws--which prompted enough miniature selloffs to keep investors on their toes--the global economy has continued to make progress, even in politically troubled areas like Europe, where austerity is being reconsidered. In May's Market Roundup, our capital market strategists John Manley, Dr. Brian Jacobsen, and James Kochan provide their insights into what's been driving the markets and how it may impact your portfolio based on economic and market events.

How can equities be hitting new highs when there are so many problems out there?" is probably the most common question we are asked. We think the answer is pretty simple: It doesn't take perfection to move the markets, only progress. And though it's slow, we do have progress in the global economy. Italy was able to cobble together a coalition government, the U.S. was able to post a 2.5% first-quarter gross domestic product (GDP) growth rate, corporate earnings were able to continue growing, and even the labor market continued to add jobs instead of subtract them. This is all progress. No, it's not perfect, but you can't expect perfection.

The stock market reached record highs in March, and as Chief Equity Strategist John Manley so aptly put it, the market looked like "the Energizer Bunny: It just couldn't (or wouldn't) be stopped." In April's Market Roundup, John and our other capital markets strategists, Dr. Brian Jacobsen and James Kochan, provide their insights into what's been driving the markets and how you may want to adjust your portfolio based on economic and market events.

Consensus in the market going into March seemed to be that a stock market pullback was inevitable. But even a botched and confusing bailout of Cypriot banks by the eurozone leaders couldn't trigger the inevitable. The market just took it in stride and kept going higher. We'd urge caution, though. Just because the market didn't react negatively doesn't mean the coast is clear. The Cyprus bailout will likely have a long tail, meaning that its full effects may be felt over time, as public support of more bailouts and more austerity in Europe dwindles. With U.S. central bank support, bond investors could see yields stay low, while U.S. equity markets could stay supported.

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The Dow certainly roared into March like a lion, reaching a record high just five days into the month. But can the markets maintain their momentum? Chief Portfolio Strategist Dr. Brian Jacobsen, CFA, CFP^®; Chief Equity Strategist John Manley, CFA; and Chief Fixed-Income Strategist James Kochan are here to provide their outlook for the month ahead. From March’s Roundup:

With the Italian election and the run-up to the sequester in the U.S., February was a politically noisy month. Ben Bernanke, chairman of the Federal Reserve (Fed), gave reassuring words to the markets during his testimony before Congress. Despite all that excitement, March could be an even more interesting month. People say that when it comes to the weather, March goes in like a lion and out like a lamb—a saying that could also apply to the markets. Depending on how events unfold, it could be more of a lion throughout the month, especially as U.S. politicians are likely to play chicken with the federal budget.

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Stocks pushed higher in January, fixed income struggled, and the global macroeconomic and political picture remained murky. Our Capital Markets Strategists team of Dr. Brian Jacobsen, CFA, CFP^®; John Manley, CFA; and James Kochan examine these developments and more in their latest Market Roundup. From the team:

Despite being the shortest month of the year, February is chock-full of holidays, including Groundhog Day, Mardi Gras, Ash Wednesday, Valentine's Day, Presidents Day, and perhaps others. This year, February could also be full of milestones. Major market indexes entered the month running up to highs not seen since October 2007, leading many commentators to question whether these levels can be sustained. To put this into perspective, corporate earnings have surpassed their 2007 highs, and the Federal Reserve's (Fed's) balance sheet is larger than it's ever been. It's also important to note that, adjusting for inflation, the S&P 500 Index would have to be above 1,700 to surpass its October 2007 high. While we think the levels are justified, that doesn't mean the markets will remain at or above them. Rather, it simply means we think there is long-term value in equities even at these elevated levels. However, feeling excitement or contentment with fixed income at this point seems harder to justify.

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2012 was a year full of politics and uncertainty, and it appears that 2013 may follow a similar pattern. Because of this, our capital markets strategists stress in their 2013 outlook that risk management should be front and center for investors in the coming year. Here’s an executive summary of their outlook—the full report is available on our website.

The economy:

• After giving vague guidance about when it might reverse course, the Federal Open Market Committee (FOMC) provided calendar-date projections as to when policy might change, and finally, in a form of radical transparency, it has provided specific unemployment and inflation triggers for policy changes. Although the Fed cannot take all the credit, its bond-buying program has aided the housing market by keeping mortgage rates low. Housing could provide a significant boost to growth in 2013.
• Another area that we believe could provide a lift is in the area of investment spending by businesses. Even if there is only a slightly positive growth rate to the economy, that could be enough for some to start thinking about growing their businesses.
• During the course of 2013, the dollar is likely to strengthen relative to the yen and euro but depreciate relative to some emerging markets currencies, like the Mexican peso.
• There are two big wild cards in 2013 for the eurozone: the February elections in Italy and the September/October elections in Germany.
• In emerging markets, there are country-specific factors that could favor areas like China, emerging Asia, and Central to South America in the coming year.

Our Capital Market Strategists are back with the December edition of their Market Roundup. The U.S. markets have gone from worrying about last month’s election to worrying about the fiscal cliff. But that’s just one piece of a much larger picture.

From this month’s Roundup:

Despite the negative moves in the stock market after the presidential election, stocks at the end of November were actually up—but barely. Although it may be tempting to ascribe a lot of the market moves to the ongoing debate about the fiscal cliff, that would be ignoring many other factors driving the markets, for example: developments in Europe, China’s manufacturing beginning to accelerate, the impending elections in Japan, and the ongoing problems in the Middle East. By comparison, the fiscal cliff is more of a divot than a major driver.

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The outcomes of the election are expected to have a profound impact on tax policy, the federal budget, and how rules get interpreted and enforced. How these issues play out will, in turn, influence interest rates and market valuations. This month's Market Roundup provides our capital market strategists' initial analysis of yesterday's election results. After spending a day watching the markets and meeting with investors, they'll return tomorrow to provide market and investor reaction in a video commentary. Join us again on Friday when Dr. Brian Jacobsen will sit down with portfolio managers Lyle Fitterer and Tom Ognar for a broader market outlook.

From this month's Market Roundup:

The American writer and philosopher Elbert Hubbard once said, “History is just one [darn] thing after another.” (What we have put in brackets was less family-friendly than the word, “darn.”) This has been repeated a few times by such prominent people as Mark Twain and Winston Churchill. If you’ve been paying attention to the economic data and the markets over the past few years, that’s certainly what things feel like: One darn thing after another.

There is an interplay between perception and reality behind Hubbard’s quote and what we’ve seen over the past few years. When people are optimistic, that tends to breed good outcomes. When people collectively get a case of the doldrums, things turn negative pretty quickly. The markets seem to exacerbate this interplay. During the 2007–2009 period, we saw this at work: As things turned down, that triggered people to hunker down, leading to even more negative outcomes. With the November elections in the U.S.; the elections in Catalonia, Spain; and the transition of leadership in China commencing, November could be one of those domino months, when what happens then triggers a cascade of sentiment and outcomes. In such an environment, where the results are outside an investor’s control, we think it’s best to anticipate and adjust: Anticipate the outcomes but adjust to whatever happens. We’re anticipating positive changes.

Read the full report.

Market performance in October has gotten a bad reputation over the years. (And understandably so—five of the 10 worst trading days have occurred during the month.) But historically, the markets have been relatively tame. This year, however, there are plenty of notable events that could cause volatility.

September was a busy month for central bankers. The Federal Open Market Committee (FOMC) and the European Central Bank (ECB) both pledged to provide additional liquidity to the markets, which partially—if not wholly—explains why the S&P 500 Index reached a 52-week high of 1,474.51 and registered its third straight quarter of gains. When the economic data gave mixed messages, markets retreated from their highs. With the ECB and the Bank of Japan meeting during the first week of October, global production numbers being reported, the FOMC meeting toward the end of the month, and the U.S. presidential candidates debating throughout the month, October could deliver either a trick or a treat for investors.

Read the full report.

Our Capital Markets Strategists are out with their latest Market Roundup. Dr. Brian Jacobsen, John Manley, and James Kochan review August's developments in economic policy and the markets, but they're looking forward to a busy month. From the September edition of the Market Roundup:

Whoever said "Talk is cheap" never listened to central bankers. Whether they were comments from European Central Bank (ECB) President Mario Draghi or Federal Reserve (Fed) Chairman Ben Bernanke, they moved markets during the past month. September will likely see more words moving markets. Not only was there the ECB policy meeting on September 6, but there is also the Federal Open Market Committee (FOMC) meeting on September 12 and 13.

However, September isn't all about the bankers. There is an important election in Holland on September 12, the German Constitutional Court is expected to rule on the constitutionality of the eurozone's permanent bailout facility (the European Stability Mechanism), and we could receive a status update on the Greek austerity program at some point during the month. If you take all of these events and mix in the U.S. Employment Situation Report on September 7 (which could sway the FOMC one way or the other on more stimulus) and the continued drip of data on the slowdown in China, September really could be a month to remember.

Read the full report.

We’re halfway through 2012 and our capital markets strategists are here to share their thoughts on what we may expect over the next six months:

If you watched the news during the first half of the year, it didn't take long for the topic to turn to Europe. We wonder if news reporters ever felt like they were stuck in a rut—no matter what they wanted to write about or report on, the topic always circled back to Europe. The economy and markets also seemed to be stuck in a rut. Investors' bleak expectations and their intolerance of any action or inaction that would encourage deflationary conditions were obvious in the equity markets' performance in the first half of 2012. Stocks gave us quite a ride: strong and persistent gains in the first quarter, stalling momentum and rotation in April, sharp declines in May, and improbable rebounds in June. Turmoil in Europe, slow U.S. growth, and a cautious Federal Reserve (Fed) all suggest that interest rates and bond yields will not be increasing significantly during the next 12 months.

The full outlook is available on our website now, but come back every Friday for the next three weeks to watch excerpts from our 2012 mid-year outlook video. And if you have any questions for the strategists, please leave them in the comments section below.

After a decent start to the year, everything seemed to turn south in May.  The Dow and S&P 500 were each down 6%, and the Nasdaq was down 7%—and that’s better than most overseas markets.  The yield on the 10-year Treasury fell to historic lows (good news for homeowners), and oil prices were down below $90 a barrel (good news for drivers, too).  But the good news isn’t even really that good.  So, our capital market strategists think that we might be looking at a repeat of 2010, which would mean an uncertain, volatile summer.

In this month’s Market Roundup, our strategists review three events that they think may move the markets in June:  A health care reform ruling from the Supreme Court, the Greek elections, and the Federal Open Market Committee meeting. And remember what they said last month about volatility bringing opportunity? They’re back with some areas where they’re seeing some potential.  Read this month’s Roundup and let us know in the comments below if you think June will take the markets in a different direction.

When I opened my Twitter feed on Tuesday morning, there was a lot of chatter about the old saying “Sell in May and go away”. Even Jeremy mentioned it in his Daily Advantage post.

This month’s Market Roundup takes a deeper look at that philosophy and the data behind it. Taking a summer off sounds great, but it may not be the wisest strategy.

What our strategists are finding is that another old saying might be even more appropriate for the next few months: “Volatility brings opportunity.” Read the full Roundup to see what opportunities they’re uncovering.

This month, our capital market strategists take on the roles of weathermen and forecast some more rain on the economy—but do they see any silver lining in those clouds? Read their full report to learn more and leave your questions for them below.

Many people probably remember the proverb "April showers bring May flowers." I recall a version that turned it into a joke: If April showers bring May flowers, what do May flowers bring? Pilgrims! Joking aside, April may be a rainy time for the markets. Although oil prices began to retreat toward the end of March, high prices could pressure corporate profits. Unseasonably warm weather provided some support to the labor market and the construction industry, but with real income growth negative and consumer sentiment sending mixed messages, the market may have run too far and too fast. Regardless of our forecast for rain, we think now is a good opportunity to continue an overweight to equities, albeit with an eye toward longer-term gains in underappreciated consumer staples, health care, and information technology stocks.

Our Capital Markets Strategists just released their Market Roundup for March. From this month's Roundup:

For a while, we’ve been trying to determine whether 2012 will be more like 2011 or 2010. Perhaps this year will be completely different from previous ones, but we think the problems that were exposed in the financial crisis (too much debt, a great deal of political volatility, etc.) have yet to be resolved. In 2010, the major volatility began in May with the Greek debt crisis. In 2011, there was initial volatility after the Japanese tsunami in March, but the markets became particularly choppy at the end of July with the restatement of U.S. growth numbers, the debt-limit debacle in the U.S., and further troubles related to the Greek debt crisis. Looking ahead, we could have a mash-up of 2010 and 2011, with many problems coming to the fore in March, such as the Greek debt payment, which is due on March 20, and further issues related to Syria and Iran. In the summer months, the focus could shift to the U.S. fiscal situation as we approach the November presidential election. The quiescence we’ve had year to date has been pleasant, but perhaps temporary. We believe these issues call for patience on the part of investors, as equities still look inexpensive for the long run. It may be prudent to continue to trim your gains and reinvest in stocks that temporarily go on sale with price declines.

Continue reading the full report (pdf).

Our Capital Markets Strategists are out with February’s Market Roundup. Despite a solid first month, they think we’re still in for a bumpy year.

What started as a January that resembled the equity markets of 1987 ended looking more like 1997. Whew! (Remember October 19, 1987? That was a miserable day in the markets.)

We think some of these historical parallels have to be taken with a (large) grain of salt. The same applies to the old adage, “As goes January, so goes the year.” The saying comes from mining the data and observing that the S&P 500 Index has had a positive annual return almost 73% of the time dating back to 1950. However, when the market was up in January, that percentage increased to 89%. Further, the market’s average annual return going back to 1950 was 8.6%, but when January was positive, the market returned an average of 14% for the remaining 11 months of the year.

We have observed significant variability around this apparent habit of the market. In fact, more than 48% of the time, when January was up, the return for the rest of the year was negative. So, it’s not a foolproof or probably even an advisable way to make an investment decision. We think the fundamental reasons for investing in particular securities, rather than a quirk in the calendar, should be the overwhelming factors in making an investment decision. Based on the fundamentals, we still think we could be in for a choppy ride in 2012, due mainly to political risks.

Continue reading the full report (pdf).

A new year brings a new outlook from our team of capital markets strategists: Brian Jacobsen, John Manley, and James Kochan. As usual, they’re providing their thoughts what 2012 may bring for the economy and the equity and fixed income markets.  In addition, Dr. Jacobsen provides his recommendations on how you may want to tweak your asset allocation in the coming year.  Here’s an executive summary—the full report is available below. 

Overview: The year 2011 saw an abundance of changes, but more changes are likely coming. In light of a sustained low, but volatile, growth environment, we are advocating the use of three broad themes for 2012: macroeconomic and political risks are the new fundamentals; within the broad asset classes, investors should seek managers that are nimble, that cast a wide net, and that employ both a superior buy and sell discipline; and investors shouldn’t just consider principal preservation sacrosanct—they should weigh the opportunity cost of protecting their principal.

Our Capital Markets Strategists are out with their latest Market Roundup. Dr. Brian Jacobsen, John Manley, and James Kochan take us through what's been a wild month in the markets, both politically and economically. From the December edition of the Market Roundup:

November was a month of major political changes. On November 1, Mario Draghi took over the helm of the European Central Bank (ECB) after Jean-Claude Trichet completed his term as ECB president. On November 11, Lucas Papademos was named the prime minister of Greece following the resignation of George Papandreou. On November 16, Mario Monti was named the prime minister of Italy after Silvio Berlusconi resigned. The Spanish election on November 20 ushered in a new center-right government. On November 23, the Joint Select Committee on Deficit Reduction (the "Super Committee") in the U.S. failed to reach an agreement to tame the growth of U.S. budget deficits. With all these changes and events, it's not surprising that the markets had major swings. More changes are likely to come, which could bring continued volatility in the markets.

View the full report (pdf), and feel free to comment below.

Welcome to the latest and newly revamped edition of the Market Roundup. Joining Dr. Brian Jacobsen and Jim Kochan this month is our new chief equity strategist, John Manley, CFA, who gave us his analysis yesterday of the extended period of volatility in the equity market. This month, our strategists look at how gross domestic product numbers show that we’ve officially avoided a double-dip recession, examine the effects of the European situation, assess the banner month of October for equities, and compare how fixed income did against such a booming equity backdrop.

Also this month, we have a new section on asset allocation. Our strategists give their recommendations on the various dimensions of asset allocation decisions (equities vs. fixed income, large caps vs. small, domestic equities vs. international, growth vs. value, etc.), and beyond simple recommendations, they lay out their rationales. They also break down the recommended allocations relative to an investors’ time horizon, so please check out the new feature and let us know what you think in the comments section.

View the full report (pdf)

Despite the din from the doom-and-gloom crew, the economic news over the past few weeks has been generally positive. Retail sales for September increased 1.1%, nonfarm payrolls increased in September, and the Slovakian parliament approved the modification of the European Financial Stability Facility, a big step toward resolving the debt debacle in Europe. While we are not ready to ring the "all clear" bell, we do believe this is an appropriate time to selectively put risk on the table instead of taking it all off the table.

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The latest Market Roundup from our Capital Market Strategists Dr. Brian Jacobsen and Jim Kochan is now available.

September was a relatively calm month when compared with August. Of course, considering August brought us the U.S. debt-ceiling debate, the U.S. debt credit rating downgrade, the announcement that the Federal Open Market Committee (FOMC) would keep rates low until the middle of 2013, and some intense meetings between European leaders over debt problems in Europe, we were hoping for a little reprieve in September. Instead, September was more like a "difference of degree" rather than a "difference of kind." October and November will likely prove to be pivotal months in the developments in Europe and the U.S. In Europe, the International Monetary Fund, the European Central Bank (ECB), and the European Union are expected to propose how they will keep their heavily indebted members afloat. In the U.S., the Joint Select Committee on Deficit Reduction will be haggling and harrumphing up to its Thanksgiving deadline on how to deliver $1.5 trillion in deficit reduction over the next 10 years. These factors will likely conspire to keep market volatility high.

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