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Current Views

November 12, 2013: A Santa Claus Market?

Thoughts from our Domestic Equity Team

Following a more cautious stance this summer, we have had a bullish outlook on equities since mid-September. The underpinnings for this view include: (1) slow and steady U.S. economic growth; (2) accommodative central bank policies globally; and (3) promising developments in the major international economies, including Europe, Japan and China. Recent data and events have given us greater conviction in several aspects of this approach.

With respect to U.S. economic growth, the third quarter GDP report is generally viewed cautiously by economists, as its strong headline report of +2.8% growth comes with the caveat that much of this growth was increased inventories, with just +1.7% growth in final demand. However, we note that final demand was impacted by a slowdown in government activity, with private sector final demand growing at a healthy +2.7% clip. While growth remains slow and steady, we believe it is increasingly of a higher quality as it is led by the private sector. This dynamic is also evident in the employment data where the 204,000 jobs created in October came from the private sector, with government payrolls actually declining by 8,000.

Regarding monetary policy, the nomination of Janet Yellen to be the next Federal Reserve Chair and the substance of two Federal Reserve papers presented at a recent International Monetary Fund research conference both suggest that the Fed will retain its accommodative stance for some time to come. Abroad, European Central Bank President Mario Draghi reduced the key refinancing rate, and Bank of Japan Governor Haruhiko Kuroda promised to continue easing monetary policy through next year and to offer additional stimulus in response to emerging risks.

While these items appear to us to bode well for the equity markets, we are also monitoring several near-term risks, including the possibility of a slowdown in holiday shopping due to the upcoming season being shorter than normal, and the specter of another U.S. government shutdown in January. We currently think that consumers will meet expectations for holiday spending, helped by employment and income growth, lower gasoline prices and creative merchandising by retailers. On the fiscal front, the negative public perception of last month’s government shutdown and debt ceiling impasse may reduce the risk of another similar episode derailing growth in early 2014, although it is difficult to predict how the political negotiations will play out. Barring other unforeseen circumstances, we currently expect the equity markets to continue to advance in the coming months.

Submitted by: Jason Benowitz, CFA

This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.

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The Roosevelt Investment Group, Inc. is an independent investment management firm that is not affiliated with any parent organization. The Roosevelt Investment Group, Inc. manages domestic equity, international equity, domestic fixed income, global fixed income, and balanced assets for primarily U.S. clients. The Roosevelt Investment Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission and notice filed in all 50 states.

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