Thank God It’s Friday!

After a 7% slide to start the year, the S&P Index is back to the breakeven point from its 2013 all-time high close.  What’s very interesting and telling is the fact that the 10-Year Treasury yield is much lower than where it stood on the 1st of January even though stocks have rallied back to their historic peak prices.  Money has flowed back to Treasuries and Dollars.  Bonds have enjoyed 2014.  It has been very choppy action thus far in the New Year.  The underlying breadth of the stock market is not quite as strong as the surface suggests.  We’re studying it very closely while plotting next moves.

Mergers and Acquisitions – a/k/a M&A – continue to be a major theme driving stocks higher.  FACEBOOK’s M&A action is catching headlines. It is acquiring young start-up WhatsApp for a whopping $19 Billion. Strategically, WhatsApp has twice the number of users that Twitter has, and most of them are overseas.  But Facebook is paying a huge price.  The purchase price immediately makes WhatsApp worth more than nearly half of the 500 companies in the S&P.   It’s astounding considering WhatsApp has been in business less than 5 years!  Deals are happening; Particularly in Tech where innovation reigns.  But price matters.  Some are comparing the deal to Time Warner’s merger with AOL.  That’s a stretch.  But you get the point.  In the year 2000, the AOL-Time Warner merger unofficially marked the top of the bubble.  The deal didn’t go well.  I remember vividly.  I used to work for Time Warner.

The Olympic Games aren’t the only events that are being watched and graded.  It’s still Earnings season on Wall Street.  Thus far, Corporate Earnings have been solid, but not spectacular.  360 of S&P 500 companies have reported earnings.  Thus far 67% have beaten estimates; 10% have met expectations; 23% have missed.   Revenue and management guidance have not been as strong as results.   Even though earnings are expected to grow approximately 6% in 2014 from 2013, Q4 is actually tracking below Q3, showing an actual decline.  The Market doesn’t seem to care too much as the Federal Reserve is still keeping interest rates low and inflation in check.  Investors today trump corporate earnings with cheap money. The US currently leads the medal count and is tied for 2nd for number of Gold’s. If we were to issue a medal for Corporate Earnings, we’d give it a Bronze.

Tensions remain high overseas.  A truce has been made in the Ukraine, putting a temporary end to the violence this week, but few believe it lasts.  This is on top of the turmoil in Syria and Thailand, and the credit issues in Argentina, among other regional issues.  We continue to be reminded that the world is far from stable, and the US remains the most attractive place for investment.  Many people want what we have, and are willing to make great sacrifice in pursuit.  We continue to feel good about the prospects for investors in 2014.  It’s never easy, but it sure can be rewarding.  Hard work and perseverance do pay off.  We’re all over it and working hard on your behalf.

Enjoy the weekend.  Enjoy the competition of the Olympic Games.  Go USA! We’ll be back dark and early Monday.

By: Mike Frazier

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