David Fleer
Bristlecone Value Partners, LLC
12301 Wilshire Blvd., Suite 320
Los Angeles, CA 90025 USA
Work 1-877-806-4141

Risk-Off, Risk-On

April 26th, 2016

Following a steep correction over the first six weeks of 2016 (which saw the S&P 500 decline 12% from its recent peak, hitting a fresh 52-week low), equity markets rebounded in late February and March, with domestic market indexes finishing the quarter up nearly from where they had started.  The sell-off in January was precipitated by plunging oil prices (which hit a 13-year low of $26 per barrel in February), as well as recurring fears of a slowdown in China (and potential ripple effects for the global economy).

Recently, oil prices and interest rates have been the biggest drivers of market sentiment.  Oil declined nearly 18% in Q4 of 2015, and heading into January that slide showed no signs of abating, with some analysts predicting prices as low as $15 per barrel.  Sustained prices at that level threaten the viability of a number of U.S. shale oil producers, whose production costs generally range between $30 and $60 per barrel.  Therefore, investors feared not just a wave of bankruptcies and defaults from energy producers, but also the follow-on impact to creditors, banks, and industrial equipment manufacturers.

Meanwhile, against a backdrop of muted global growth and increasingly aggressive monetary stimulus in Europe and Japan, the U.S. Federal Reserve’s stated intent to further raise interest rates (following a 0.25% increase in December) seemed oddly out-of-step.  Considering the U.S. economy’s meager wage growth and below-target inflation (thanks in part to low energy prices), many were skeptical of the need to raise rates.        Read the rest of this entry »


2015 in Review: “Oil, Commodities & Currencies… Oh My!” The Sequel

January 30th, 2016

During the fourth quarter, global equity markets recovered from a sell-off in Q3, though the impact was modest (and from today’s vantage point, short-lived). The S&P 500 index rebounded 7% during Q4, yet barely eked out a positive return for the full year (+1.4% including dividends, the index’s worst performance since 2008). In fact, the only domestic equity category to generate meaningfully positive returns last year was Large Cap Growth, which was up in the mid-single digits. Moreover, leadership within that category was heavily concentrated in a handful of large technology companies known as the FANGs. Stripping out the performance contributions of Facebook (+36%), Amazon (+122%), Netflix (at +131% the top performing U.S. large company stock last year) and Google’s parent company, Alphabet (+49%) would have resulted in a negative return for the rest of the S&P 500. The FANGs’ average price-to-earnings ratio soared from 49 to 120 times, according to Bloomberg. Read the rest of this entry »


1st Quarter 2015 Review: Growth beats Value, International beats Domestic, and Small Cap beats Large Cap

April 17th, 2015

Despite some domestic economic headwinds, Euro-zone tension following January Greek elections, and expectations that the US Federal Reserve (the ‘Fed’) is ready to start raising short-term rates, the US stock market as measured by the S&P 500 managed to eke out a small 1% gain during this year’s first quarter.

In the US, economic headwinds included bad weather on the East Coast, a strong dollar, and a labor dispute in West Coast ports that interrupted exports. The unemployment picture continues to improve and wages appear to finally be picking up. Europe is still barely growing at all and China’s growth continues to moderate. These contrasts in economic fortunes, combined with the Fed’s more hawkish stance, appear to be the reasons behind the US dollar’s relative strength, a trend which is not helping US companies that sell their products or services overseas.

According to Morningstar, Large Capitalization (‘Cap’) Growth funds outpaced their value competitors (up 3.5% vs. 0.2%); Small Cap Growth funds advanced 5.8%, also beating their value peers (up 2.3%). Foreign markets were up 3.8% (MSCI Ex US index) despite the currency headwinds, with Japan one of the better performers. European markets were buoyed by the European Central Bank’s bond buying program. Again, foreign growth funds outpaced value. Read the rest of this entry »

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