Dull earnings causing weakness in US mkt: Boston Pvt Wealth

A: Over the next few weeks it will. Earnings are the major drivers right now. You are seeing our markets still trading up close to its all time highs but certainly off those highs that we achieved earlier in the week. I think people are questioning some of the underlying portions of the overall equity market thinking that it is only a portion of the equity markets that have been driving the market higher.

With some of the earnings coming in below expectations, people take that as a cue to sell and that is why you are seeing the pressure today. You are seeing it definitely in shares of 3M, Comcast and Qualcomm.

Q: The bulls run that you were talking about while we had seen also the markets touch record highs it was on the back of technology stocks. However if you look at the slew of earnings that have been coming out it’s the technology stocks that have actually been disappointing the street. What is with that disconnect?

A: I think it is a reflection of high beta stocks that trade at relatively high multiples and people think that is this likely to continue when you are in an environment where interest rates are most likely going to be moving up. You have some uncertainties that are involving parts of Asia and you have uncertainties that are still surrounding parts of Europe and if the companies either report inline or don’t beat expectations by a wide enough margin people take that as a reason to move on and look for something else. I think it is probably the wrong theory and message to follow but this is what we have right now in the market.

Q: You got the lowest jobless claims coming in in 42 years, do you see that having an impact on Janet Yellen or when the Federal Reserve is going to increase interest rates is that also a trigger at the moment for Wall-Street or are you just looking at earnings?

A: I think it is to some degree. Keep in mind initial jobless claims do have volatility associated with them. It is a weekly number. The trend has been improving especially if you are one of the folks that are working here in United States. So, that is a good thing for the overall economy.

I think Janet Yellen will probably take that into consideration when she moves forward with the discussion on interest rates later this year. I think the market is probably looking at today's initial claims number thinking well there is a higher likelihood today that there is going to be a movement on rates in September but it is not a bad thing. I think higher rates are indicative of a improving economy and again I think the economy is moving forward at a moderate pace and it still warrants exposure to the equity market. I think what these sell-offs that we have had this year every time the market approaches these all time highs is the reason people think know is the time to take some money, wait for a pullback and buy the dip and that is the kind of mentality that we have. However if you are a long term investor and stay invested throughout the entire process I think you would still do better because you wouldn’t have those trading costs and you wouldn’t have to try to time the markets.

Q: If you are a long term investor and you were to look at other triggers as well what about China, what about Greece?

A: I think Greece is going to get settled for the near term. I don’t think it is a long term fix, I don’t think by any stretch of imagination that it is going to work out. In fact I think it is going to probably end up having to fault, most likely leave the Eurozone. It is just sort of kicking the can down the road, putting off the inevitable.

However I can understand why what's been done has been done. First of all it is a strategic area in the world and Obama doesn’t want Putin moving into that area. So, he has reached out to the Germans and he has reached out to the rest of the EU and said you have to offer them some type of olive branch as far as the financing is concerned. However there is no way that Greece can ever afford to pay back its part. Let us not fool ourselves, we have to talk honestly about that.

As far as China is concerned I think what they are trying to do is stabilise the country. I don’t believe they are in a dire state by any stretch of imagination. I think 6-7 percent GDP growth is sustainable. They are going through a little bit of a rough patch. The countries leaders are trying to manipulate the market. The most recent selling activity I think has been initiated by folks that have weak hands meaning they are not experienced with the overall market.

I think in time the markets over there will be able to stabilise and move forward. You just won't see the kind of growth that you saw recently at the beginning of this year but in the long run having a shakeout of the weak hands is a more solid and better thing for the overall market.

Q: While we are talking about China it is also being attributed as a big reason for the prices of commodities crashing, especially the metals. With the kind of dips that we are seeing there, why should someone actually now be taking positions in commodities and be taking positions in US equities? How would you react to that? A: If you were to speculate that commodities are going to rebound sharply in the next two to three years it is not a bad position to take. You just have to be mindful of higher interest rate environment, what that is going to do for commodity prices are higher and stronger dollar, what that is going to do commodity prices when the demand potential from places like China if they are slowing to six percent. We will have to try to assess how much demand is going to be there in China with regards to things like copper and other risk commodities. So, it is a good question and I don't think it is necessarily right for everybody but for the commodity speculator it was long term focus that is fine. Most commodity speculators are not focussed on the long term though.