Cleary Gull

In presentations to fellow professionals, we often make self-deprecating comments similar to this – “And then later we’ll tell you exactly when the Fed will raise interest rates. We’ll just grab our crystal ball and take a look.” That simple joke, variations of which are repeated over and over among financial professionals, draws on fairly deep-seated anxiety about the predictability of financial markets.

Last Thursday, General Electric announced that they were selling a $26 billion real estate portfolio and substantially reducing the size of their financing arm, GE Capital. This announcement has a number of broader implications beyond GE’s own company and stock price. It may be an indication of what large multi-national companies must do at this point in the market cycle to show earnings growth.

As the temperature rises above 50 for the first time in several months, I am reminded of this Newtonian law that a body at rest will stay at rest unless an outside force acts on it. Perhaps the warm-up in weather is the “outside force” we all need to get moving again. I believe that the current market environment is similar to my body coming out of winter.

Geo-political concerns in the Middle East and Ukraine don’t seem to be able to keep the market down, nor do the tepid economic growth numbers coming from Europe and China. Finally, corporate earnings expectations have been moderated significantly for 2015 and that doesn’t seem to matter to stock prices either. Perhaps the explanation is in the sentiment.

While some may wish for a Democratically controlled Congress because we have a Democrat in the White House, the reality is that some dysfunction between Congress and the Administration is welcome by markets. Near-term, many believe that the regulatory environment created by a Democratic Senate and Administration creates uncertainty and restricts corporate growth. While that may be true, it is hard to argue with the stock market returns over the last several years. The reality is that markets appreciate some dysfunction in Washington.

Recent market volatility has investors trying to sort through the little things to determine what is most important to the future of asset prices. Securities markets move up and down on a daily basis based on many different factors, some more relevant than others. The markets during October have proven that little things can lead to greater volatility as investors attempt to sort out the most relevant facts from those with less meaning. Our objective, and that of our investment managers, is to sift through these details to discern what has relevance and what is noise during the trading day.

The current environment for stock investors can be trying. Global cross currents regarding economic growth, employment, government policy, and corporate earnings have created the first test of investors mettle in almost two years. We have an opportunity to use current market events to review our investment plan and check our emotional temperature.

Last Fridays jobs report was significant in that for the first time since July of 2008 the unemployment rate dipped below 6%. The September report indicated that the unemployment rate fell from 6.1% to 5.9%. While we have seen improvement in labor markets for some time now, the Fed still seems to want to take their time reducing stimulative policy.

Often times, investors are interested in pursuing investments in the hottest asset class. The hype surrounding the Alibaba IPO is an example of how a sector gets a boost from a hot new stock. The fact that the stock traded up almost 40% in the first day of trading is an indication that the sector is hot. It is difficult not to want to add more capital to that portion of your portfolio that is performing best while ignoring the portion that isnt performing as well. Of course that is exactly what you are supposed to do and what rebalancing is all about.

Central bankers seem to be the focus once again. If the global economy were strong enough to stand on its own, we wouldnt spend every waking moment worrying about what Fed Reserve Chair Janet Yellen and her European Central Bank counterpart Mario Draghi are going to do next. The fact that these bankers are front and center again in investors minds, is a function of both how sluggish the global economy is and how persistent the hangover from the mid-2000s real estate party continues to be.

Over the weekend I had the opportunity to take in baseball tryouts. I know you are thinking it is August so what tryouts would be taking place in the middle of the season? These tryouts were for U-8 boys. For the uninitiated, this is when boys aged 7 and younger try out for next seasons teams. My son spent two days at a baseball camp and then finished yesterday with team tryouts. During tryouts there were six stations covering the fundamentals of the game.

The FIFA World Cup (for soccer aka football) is in full swing. There are 32 teams from around the world treating a world-wide audience of nearly 2 billion to a great show of sport. The teams are competing for $576 million in prize money. And while the U.S. will not likely make it to the final match, the tournament does offer some insight into diverse economies around the globe and why we should consider international investments as a pillar in any portfolio.