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Cars, drugs and risk

Sometimes the inverse is true: troubles come in single spies, not battalions. This week two company stories showed that markets are not always about GDP, growth, inflation and macro economic indicators people (including us) like to talk about. First, Volkswagen (mission statement “…to offer… safe and environmentally sound vehicles”) admitted that well, yes, it had duped emission testers with some clever software. VW employs half a million people and accounts for 4% of the German stock market. The stock fell 30%. Second, a no-name pharma company announced a price hike for a critical drug, was hammered in the press and took the pharmaceutical and biotech sector down 10%.

Two other things caught our eye this week.

1. Opacity on rates: Yellen said the Fed had the confidence to raise rates this year but they would just need more signs. Signs? Well, this slide from her presentation has inflation at 2%, 1.7% and zero. The market took it that they would raise rates. We don't buy it. Not next month anyway.

US Inflation since the 1960s

2. Growth: Q2 growth came in at 3.9% revised up from 2.3%. For the last four years, the third quarter has always been the strongest of the year only to dip back in Q4. Overall growth remains in the 2% range. Company profits rebounded but are still way below last year levels.

What's the lesson?

1. Market Predictions: It is nigh impossible to know from where the next surprise will come. But it will come and it can be something quite trivial.

2. Corrections: the S&P 500 is up 5% from its August lows. The market is skittish and will remain so.

3. Risk Appetite: is down. When this happens, markets converge.

Bottom Line: Nothing wrong with waiting. As they said in wartime England, “Keep calm and carry on”.

--Brouwer & Janachowski, LLC

Please note that the discussion of the investments and investment strategy of Brouwer & Janachowski, LLC (“Advisor”) (including Advisor’s research and investment process) represent the investments and investment strategy of Advisor at the date of this commentary, and are subject to change without notice. Advisor cannot assure that the type of investments mentioned in this commentary will outperform any other investment strategy in the future, nor can it guarantee that such investments will present the best or an attractive risk-adjusted investment in the future.

Advisor cannot guarantee the accuracy or completeness of any statements or numerical data in this commentary. Past performance is no indication of future results.