More Volatility?

U.S. equity markets ended the week down and the S&P 500® Index returned -1.2%, marking the worst weekly loss since early February. The S&P 500 Volatility Index soared over 17% as equity prices dropped.  According to Bloomberg, after comments by Federal Reserve Chairwoman Janet Yellen that the pace of future interest rate hikes would be gradual, the probability of a hike in April fell to 0%.  In stock news, the combination of Pfizer and Allergan was officially terminated.  New rules were announced which make it harder for companies like Pfizer to be acquired by Allergan where the largest benefit to merging is the tax benefit offered in Ireland.  Pfizer CEO Ian Read defended the company’s planned merger in an op-ed piece which ended with him saying, “If the new rules can be changed arbitrarily an applied retroactively, how can any U.S. company engage in long-term investment planning necessary to compete?”  Good news came from oil this week as prices rebounded and ended the week up 7%.  Looking ahead, earnings season continues and investors will pay close attention to Corporate America.

The S&P 500® Index was down 1.2% for the week. The top-performing sectors in the S&P 500® Index included Energy (2.2%) and Health Care (0.9%), while bottom-performing sectors included Telecommunications (-2.3%) and Financials (-2.9%). In the fixed-income market, the 10-year Treasury yield was down during the week, ending at 1.7%.

We continue to seek those companies possessing identifiable catalysts, and focusing on those stocks with favorable odds.

Long-Term Growth Prospects

MasterCard, Inc. (MA), founded in 1966, operates with its subsidiaries to provide transaction processing and additional services for its credit, deposit, and ATM programs, which reach over 24,000 financial institutions worldwide. MA facilitates the authorization, clearing, and settlement of transactions, as well as markets and develops other payment-related services. MA’s brands include MasterCard, Maestro and Cirrus.

The payment transition from cash to checks to plastic is well underway in the U.S., but is in its infancy in areas abroad. We expect MA to be a prime beneficiary of this secular change, as the company enjoys high barriers to entry, basically dividing the market with Visa, Inc. (V). The positive competitive landscape will, in our belief, protect MA’s profits in the years to come, as the company increases its saturation in developing economies. Like many companies, MA has been impacted by the slowing economy; however, it has at its disposal cost cutting options to mitigate the cyclical pressures that may weigh on its earnings. Given the company’s bright long-term growth prospects and near-term ability to protect profits, we believe MA represents favorable odds for our clients.