Weekly Newsletter

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During the last two week major stock markets and crude oil reached new lows and recovered afterwards.

Earnings reporting season is painting a mixed picture. One-third of S&P 500 stocks have reported so far. Basic materials and energy stocks show dramatic sales and earning drops. However market expected even worse numbers which gives a positive surprise. Growth from healthcare, consumer services and telecom sector can offset most of the drops. Overall remains a sales decline of 1% and earnings decline of about 4%.

Main driver for markets remain the central banks. Last week the European Central Bank and Bank of Japan reaffirmed their efforts to provide markets with liquidity. The big question is U.S. Fed policy which entered the path of tightening last year. During recent weeks the probability for another U.S. Fed rate hike in March or June has dropped sharply. According to prices at U.S. Futures markets investors currently trade a probability of about 60% that Fed Fund rates remain unchanged by June 2016. This probability was below 25% at the beginning of the year! See also our chart of the day.

The key point is whether potential rate hikes will be cancelled or postponed. Currently U.S. Fed is cautious due to low global growth, financial risk from dropping commodity and energy prices. Also the strong US Dollar will depress consumer prices. Does all this matter? Yes, never fight the Fed!

Erwin Lasshofer and his INNOVATIS team expect the uncertainty of further rate hikes to persist by the end of the year. We do not see rates hikes in every quarter, but probably just one during this year. However the threat will keep weighing on markets and keep them volatile and sideways trending. We take this opportunity for creating attractive income driven products.