One sector that we continue to see upside potential for is Information Technology.  After a dearth in capital spending over the last few years, many companies will once again need to shift funds to further developing their hardware infrastructure, including migrating to more ‘cloud-based services’.  This should benefit the major global players such as Google, Intel, Microsoft, Oracle, Apple, Qualcomm and Facebook.  One of the bigger tech stories last year was the ‘hacking’ of large consumer-oriented companies such as Walmart, Home Depot, Walgreens and, more recently, Sony Corporation.  If there’s one company that’s gotten a bit of good press from the Sony Corp. hacking scandal, it’s BlackBerry Ltd.  The beleaguered entertainment company dug up old BlackBerrys to use after Sony’s computers and landlines went down and company e-mail was unusable after a cyber-attack that began last month.  The emergence of the old devices as a haven for Sony executives has served as a free advertisement of sorts and bolstered BlackBerry Chief Executive Officer John Chen’s focus on security to win government and business customers.  The fact that Sony had to unearth devices long relegated to storage also highlighted that BlackBerry’s share of the global smartphone market has fallen to less than 1% as iPhones and Android devices have gained ground.

Employment releases are the most influential macro indicators for capital markets.  On that front, November’s headline employment was clearly much better than expected, and the constituents point to sustained good employment reports.  Payroll employment rose a better-than-expected 321,000 in November and the prior two months were revised up by a combined 44,000.  The unemployment rate is not yet low enough to start generating wage growth but it is getting close!  The chart below compares average hourly earnings (red line) to the unemployment rate in the U.S. (blue line).  It can be seen that each time in the past when unemployment fell down to these levels, wages have started to increase.  Growing wage pressure would be another reason why we might still see the U.S. Federal Reserve go ahead with raising interest rates in 2015, even if economic growth in most of the world remains weak.

Average Hourly Earnings and the U.S. Unemployment Rate

While we expect that U.S. growth will slow down this year due to weaker overseas growth, the fact that interest rates will also be rising will be a ‘double-edged sword’ for stock market investors.

All of the warning signs are all still out for 2015 as far as we can see.  Profit growth is slowing down, economic growth is weak in almost every region outside of the U.S. and financial contagion risks are becoming more pronounced as central banks continue to flood the world with liquidity.  The sharp fall in oil prices has to be a warning sign; how could a major commodity suffer such a severe fall if all is so well with global growth?  While there are many benefits to lower energy prices in the long term, investors should not ignore the more negative shorter-term implications of such a collapse for financial markets.

But if, as we believe, the global stock market rally is getting a little old in the tooth, someone forgot to tell investors.  Whether at the institutional or the ‘mom-and-pop’ level, investors are pouring more money than ever before into U.S.-based equity funds.  Both mutual and exchange-traded funds saw their biggest weekly inflows in history last week.  ETFs alone have witnessed their largest-ever three-month run, according to data analysis firm TrimTabs.  The trend is testament to a market that just never seems to run out of steam, no matter the economic trends, the prospect of a global slowdown or the simple fact that at some point, somewhere, the band will have to take a break, the music will have to stop and all those failed predictions of a correction will have to come true.

Even dipping into the antiquated platitudes of The Stock Trader’s Almanac are setting up some sobering scenarios; the failure of the market to rally into year end and the small net loss for the month of December bodes ill in that publication; should Santa Claus fail to deliver, that has often preceded a weak market or, as the almanac puts it, “If Santa Claus should fail to call, bears may come to Broad and Wall.”

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