For much of the last ten years, the U.S. economic expansion has been notable for its lack of sizzle. Even the stock market, which has done well, has been unremarkable relative to other expansions. That is about to change. We have shed the “two steps forward, one step back” readings of economic data.
What’s changed? The continued development of our job market. May’s unemployment reading reached a new low for this cycle at 3.8%. As depicted in th... Continue reading
Contradictory forces seem to be at play in the domestic markets. On the one hand bonds rallied during the quarter with the ten-year yield falling to 2.15%, down from 2.40% in late March. The fall in yields would seem to indicate concerns for our economic vitality. On the other hand, stock returns indicate a more robust view of the future with the S&P 500 continuing to climb, up about 3% for the quarter. Movements in both markets merit comment.
In part, the bond rally likely reflects the sub... Continue reading
For almost six months investors, not to mention the general public and politicians, have been trying to discern what President Trump’s election means for the markets and both US domestic and foreign policies. Rarely have we seen such an ambitious agenda without a clear path forward. The transition to the new administration has not been smooth. Transitions though are temporary and as the days pass, investors and others will adjust.
While our economy is driven by a co... Continue reading
The stock market proved resilient, and in some cases exuberant,
during the third quarter. The tumult resulting from the “Brexit”
vote in late June gave way to a placid market with broad
expectations of an extended period of ultra-low interest rates.
During the quarter we experienced a remarkable stretch of 45
consecutive days where the stock market moved less than 1%, a
first since the 1960’s. The S&P 500 returned a respectable 3%,
but the more aggressive NASDAQ returned nearly 9%.
The June 23, 2016 decision by the UK to leave the European Union sent shivers down the market and turned what was a lackluster quarter into an unusual summer trading extravaganza. The immediate effect of the vote was the selloff of risky assets, from stocks to oil. Bonds rallied carrying US Treasury yields below 1.6%. US stock market indices closed down about 3.5%. Ironically the primary UK index, the FTSE 100, was down less, about 3%. For the US, the short term repercussions of the Brexit vote will likely be a stronger dollar and related cu... Continue reading
Contrary to recent polls, UK citizens have elected to leave the European Union. The process itself will take at least two years but the result has surprised investors worldwide. We expect US stocks to react negatively as “Brexit” was not priced in. There may be a flight to quality with US bonds rallying.
From an economic standpoint, this is likely to lower UK economic growth and create a headwind for global growth. We do not believe it will cause a US recession.
The Bank of England h... Continue reading
Typically the market begins to discount the two candidates and their policies in the months leading to the general election. Candidates are perceived to have their agendas and investors weigh in on how t... Continue reading
On the first Friday of each month, the Department of Labor releases two employment reports that highlight the health of the US job market. These reports have the power to influence the financial markets as well as alter perceptions of economic growth. The Payroll Survey report for May was very disappointing and may have presented a shot across the economic bow.
Steady job growth and a declining unemployment rate have been two consistently positive economic indicators of this expansion. Employment weakness wa... Continue reading
Economic growth in the current environment is hard to come by, as evidenced by US GDP growth of only +0.5% in the first quarter. This slow growth can also be seen in foreign economies, notably Europe and Japan. As the share of the global economic pie is not growing at an acceptable rate for them, these countries are seeking new ways to grab a bigger piece of the pie. This has evolved into an international battle for growth with battle lines drawn by national governments and their central banks. The fight is contested... Continue reading
The outlook for stocks is more nuanced than recent years. The tide is no longer rising. The sluggish economy and monetary policy changes, however incremental, will force more selectivity. Index returns will not be as uniform has they have been in the last half decade. Economic hurdles are likely to constrain earnings growth but US corporations are resilient and adaptable. Domestic consumer spending, an improving global picture and technological advancements that improve efficiency should alleviate material profitabili... Continue reading
We are generally constructive on US equities in a slow growth environment characterized by 2-3% GDP growth with little inflation. We note some caution on earnings growth rates for 2016 with the challenges of revenue growth and slow global growth. US stocks are more attuned with domestic economic issues rather than issues affecting other economies. Still, the strong dollar presents a challenge for more robust domestic growth. This is especially true for domestic companies whose revenues are driven heavily by international sales.Continue reading
Economic reports in late February reinforced the capricious pattern of a modestly expanding domestic economy. Importantly, consumer related metrics showed continued improvement. Miles driven increased 4.2% in December consistent with the strong employment gains and low unemployment rates witnessed over the last year. Strong employment is also a factor in nominal wages and salaries increasing 4.5% over January 2015. It is likely a factor as well in the existing home sales rising 11% since last year. Manufacturing and industrial data are yet t... Continue reading
In Daniel Kahneman’s book Thinking, Fast and Slow, he uses the capture of Saddam Hussein to demonstrate how people seek explanations for events. The day of Hussein’s capture the bond market initially rallied. Bloomberg News indicated that investors did not see the capture as helping to curb terrorism, hence a flight to safety. Within a half hour, bond prices reversed the flight to safety and traded down. Bloomberg News explained the bond price reversal as resulting from Hussein’s capture. In two brie... Continue reading
A strong close for the stock market to end January could not rescue what turned out to be the worst January performance since 2009. As might be expected in such times, large cap stocks outperformed their smaller brethren and dividend payers generally outperformed non payers. Bonds rallied with the US Treasury ten year bond yielding less than 2% to end the month. Maintaining investment discipline in volatile times is paramount to successfully attain one’s investment goals.
In an effort to induce inflatio... Continue reading
In its statement released after its meeting Wednesday the Federal Reserve noted that the rate of growth “slowed late last year”. Reading between the lines, the Fed is admitting that it may not raise interest rates four times in 2016 as was implied as recently as December. With these remarks the Fed is acknowledging that concerns about domestic manufacturing activity and Chinese growth have some merit. We welcome the Fed’s comments and remain constructive on US growth. Employment has been in a solid uptrend for two years now and is unli... Continue reading