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Coming out of the financial crisis in 2008–2009, corporations took aggressive steps to shore up their balance sheets and rein in expenses, and today they are running very lean, profitable organizations, with the added benefit of having record levels of cash on hand. It has been a very attractive combination for investors, especially given the
Sometimes an industry evolves beyond the research model that covers it. Consider the case of financial exchanges. Sell-side equity research in this area is divided regionally between Asia, Europe, and the United States, with little or no overlap. These regional boundaries, while they make sense for research specialization in other sectors, tend to ignore the
Financials and consumer discretionary stocks performed well in the risk-on environment of the third quarter. Also among cyclical stocks, we saw basic materials advance in the quarter. I believe this is due in large part to economic stimulus from the Federal Reserve, which announced a third round of quantitative easing that was well received by
Improving fundamental conditions in the high-yield bond sector may make the ability to research sectors and individual issues more important in a risk-on/risk-off environment.
In emerging markets, the growing strength of the domestic consumer is a powerful long-term investment theme that may benefit a variety of global companies. But while the emerging-market consumer is generally healthy, there is regional and country differentiation that is worth noting. In Brazil, the average income is above $10,000 per year, whereas in China
We are getting more signs that there may be earnings disappointments on the horizon, but I believe investors are prepared for this. In fact, expectations were low coming into the third quarter, but I believe the market acknowledged that even if earnings were weak, valuations still weren’t stretched. Also worth noting is the fact that
This fall, the Federal Reserve announced its widely anticipated third round of quantitative easing, commonly referred to as “QE3.” The aim of this latest initiative is to keep interest rates low in order to encourage investor risk taking and investment in the economy. Like the two rounds of easing that preceded QE3, the Fed will
Since the 2008 market dislocation, fixed-income investors have been prone to anticipate another major macroeconomic crisis, but there are signs developing that macro risks may be easing and more normal market conditions are taking root.
Successfully predicting big earnings surprises — and avoiding the largest negative-surprise stocks — can carry big potential rewards. Two researchers at PanAgora Asset Management demonstrate how. Breaking down the broad stock market (as measured by the Russell 3000 Index) into quintiles of earnings surprise between 1991 and 2008 shows that stocks with the largest positive