Brexit and trade talks provided lots of uncertainty this year. Last week saw progress on both fronts.
Expecting a Market Downturn? Make Sure You’re Following the “Noah Rule”
Predicting a major economic or financial event—whether that’s a recession, market downturn or even your own retirement—requires that you also take action. Otherwise your prediction was meaningless.
Time to Do the Hard Thing
Much of the reaction to last week’s Inflationary Angst letter boiled down to, “Get government out of the way and the free market will work.” Others said the opposite: Government must help people even more than it already does. I wish it were that easy. Neither of those options are what we need, and today I will explain why.
S&P 500 Snapshot: Another High
The index reached another new high today, closing at 3168.80. It is mostly unchanged from Thursday, up 0.73% from last Friday, and is up 26.41% YTD.
Underlying Inflation Gauge: November Update
The latest full set UIG for November is 2.35% while the prices-only measure is 2.10%. Current Headline CPI is now 2.05% and Core CPI is 2.32%.
UK Election: Will Tory Victory Bring Investors Back to UK Equities?
As widely expected, the Conservative Party emerged victorious in the UK general election. Our Colin Morton anticipates UK equity markets will welcome the outcome, but cautions that some uncertainties remain.
What Boris Johnson’s Election Victory Means for UK Assets
We expect to see flows back into UK equity and credit now that some of the Brexit uncertainty has been removed.
Federal Reserve Appears Confident in U.S. Economy's Soft Landing
In its December forecasts, the Federal Reserve estimates that the policy rate will hold steady through 2020. Will economic and trade developments change that view?
The Big Four Economic Indicators: November Real Retail Sales
Month-over-month nominal sales in November increased by 0.2% (0.19% to two decimal points). Real Retail Sales, calculated with the seasonally adjusted Consumer Price Index, decreased by 0.1% (0.07% to two decimal points).
ECRI Weekly Leading Index Update
This morning's release of the publicly available data from ECRI puts its Weekly Leading Index (WLI) at 145.9, down 1.9 from the previous week. Year-over-year the four-week moving average of the indicator is now at 1.23%, down from last week. The WLI Growth indicator is now at 2.23, also down from the previous week.
Household Incomes: The Value of Higher Education
What is the value of education for household income? The Census Bureau's annual survey data for 2018 published in September gives us some interesting insights into this question. The median income for all households with a householder age 25 and older was $64,761. The chart below shows the median annual household income for nine cohorts by educational attainment. We've rounded the data points to the nearest $100, e.g. $64.8K for all households age 25 and older.
Fed Holds Rates Steady, as Expected
The Federal Reserve left interest rates unchanged, as expected; while signaling rates would stay in their current range through next year.
The 2020 Economic Outlook
U.S. economic activity is expected to remain mixed in 2020, with moderate strength in consumer spending and general softness in business fixed investment and manufacturing.
The Northern Trust Economics team shares its outlook for U.S. economic growth, inflation, unemployment and interest rates.
Household Incomes: The Decline of the "Middle Class" 2018 Update
The median household is the statistical center of the Middle Class. In terms of income, this class has not gained much in recent decades. Let's take a closer look at a troubling aspect of the Census Bureau's latest annual household income data, issued in September. In this update, we'll focus on the growing gap between the median (middle) and mean (average) household incomes across the complete time frame of the Census Bureau's annual reporting, which began in 1967, to the release of the annual data for 2018.
Troubled Times Can Give Birth to Opportunity
Asia goes into the global deceleration with already-lean companies and a valuation advantage.
A review of last month’s market-moving events across countries and asset classes.
A Long-Term Look at Inflation
The Consumer Price Index for Urban Consumers (CPI-U) released yesterday morning puts the year-over-year inflation rate at 2.05%. It is below the 3.76% average since the end of the Second World War and above its 10-year moving average, now at 1.78%.
November Producer Price Index: Core Final Demand Unchanged MoM
Today's release of the November Producer Price Index (PPI) for Final Demand was unchanged month-over-month seasonally adjusted, down from 0.4% last month. It is at 1.1% year-over-year, unchanged from last month, on a non-seasonally adjusted basis. Core Final Demand (less food and energy) came in at -0.2% MoM, down from 0.3% the previous month and is up 1.3% YoY NSA. Investing.com MoM consensus forecasts were for 0.2% headline and 0.2% core.
Weekly Unemployment Claims: Up 49K from Last Week, Much Worse Than Forecast
This morning's seasonally adjusted 252K new claims, up 49K from the previous week's unrevised figure, was much worse than the Investing.com forecast of 213K.
Inflation: An X-Ray View of the Components
Here is a table showing the annualized change in Headline and Core CPI, not seasonally adjusted, for each of the past six months. Also included are the eight components of Headline CPI and a separate entry for Energy, which is a collection of sub-indexes in Housing and Transportation. We can make some inferences about how inflation is impacting our personal expenses depending on our relative exposure to the individual components.
Assessing Potential US Health Care Reforms Ahead of an Election Year
Health care reforms are always a popular topic of discussion ahead of a US presidential election campaign, where politicians talk about proposed changes that can be very different than the current system.
Median Household Income by State: 2018 Update
The median US income in 2018 was $63,179, up from $29,150 in 1984 — a 117% rise over the 34-year time frame. However, if we adjust for inflation chained in 2018 dollars, the 1984 median is $51,742, and the increase drops to 22.1%.
Teeter-Totter Stock Market
One way of thinking about the share price of a common stock is the price range as a teeter-totter. When the psychology of investors is very negative, enthusiasm for the company hits the ground. On the other end, when everyone is in love with a company’s shares, their end of the board can’t seem to get any higher. Where is the board end hitting the ground currently and who is stuck up in the air on a psychological high?
What Inflation Means to You: Inside the Consumer Price Index
Let's do some analysis of the Consumer Price Index, the best-known measure of inflation. The Bureau of Labor Statistics (BLS) divides all expenditures into eight categories and assigns a relative size to each. The pie chart illustrates the components of the Consumer Price Index for Urban Consumers, the CPI-U.
Why Should You Read Our 2020 Global Outlook?
Jean highlights some key takeaways that may help you with next year’s investment decisions.
All Asset All Access, December 2019
Research Affiliates discusses why they believe value investing is still alive and well and explains how changes to the display of expense ratios seek to enhance clarity for investors.
Is the Fed Gearing Up for a New Round of Quantitative Easing? Here Are the Possible Signs
“This is not QE. In no sense is this QE.” That was Jerome Powell in early October, answering a reporter’s question on whether the Federal Reserve’s intervention in the overnight U.S. repo market constituted another round of quantitative easing (QE).
Gundlach on the Biggest Risk Facing Bond Investors and the Likely Next President
Fear among bond investors is focused on rising rates, but Jeffrey Gundlach says you should worry about something more sinister. In his webcast yesterday, he also offered his updated 2020 presidential election prediction.
Consumer Price Index: November Headline at 2.05%
The Bureau of Labor Statistics released the November Consumer Price Index data this morning. The year-over-year non-seasonally adjusted Headline CPI came in at 2.05%, up from 1.76% the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 2.32%, up slightly from the previous month's 2.31% and above the Fed's 2% PCE target.
Median Household Incomes by Age Bracket: 1967-2018
We have updated our commentary on household income distribution to include the Census Bureau's release of the 2018 annual data. Our focus was on arithmetic mean (average) household incomes by quintile (and the top 5%) over the 50+ year history of this data series. The analysis offered some fascinating insights into U.S. household incomes. But the classification misses the implications of age for income. Households are by no means locked into the same quintile over time.
Baby Boomer Employment Across Time
The 20th century Baby Boom was one of the most powerful demographic events in the history of the United States. We've created a series of charts to show seven age cohorts of the employed population from 1948 to the present.
Weekly Investment Strategy
Read the latest Weekly Headings by CIO Larry Adam.
2020 Global Market Outlook: Cycle, Interrupted
Central bank easing and the cooling China-U.S. trade war have set the scene for a global economic rebound in 2020. Our forecast pushes the risk of recession into late 2021, giving equity markets modest upside potential for 2020.
U.S. Workforce Recovery
We've updated our monthly workforce analysis to include Friday's Employment Report for November. The unemployment rate fell to 3.5%, and the number of new nonfarm jobs (a relatively volatile number subject to extensive revisions) came in at 266K.
Demographic Trends for the 50-and-Older Work Force
Note: This commentary has been updated with the latest numbers from Friday's Employment Report. Consider: Today nearly one in three of the 65-69 cohort and one in five of the 70-74 cohort are in the labor force.
College Planning: Is the ROI in the College or the Major?
Over the course of 20+ years, families have been bamboozled into spending trillions on top-end colleges, while overlooking the fact that it's actually the academic major that is far more important.
NFIB Small Business Survey: "Small Business Optimism Sees Major Spike in November"
The headline number for November came in at 104.7, up 2.3 from the previous month. The index is at the 93rd percentile in this series.
Weekly Gasoline Price Update: WTIC Up 5.5% From Last Week
The price of Regular and Premium are down one and two cents each, respectively, from last week. According to GasBuddy.com, California has the highest average price for Regular at $3.68 and Oklahoma has the cheapest at $2.18. The WTIC end of day spot price closed at 59.02, up 5.5% from last week and a 22% increase since the beginning of the year.
Long-Term Trends in Employment by Age Group
The Labor Force Participation Rate (LFPR) is a simple computation: You take the Civilian Labor Force (people age 16 and over employed or seeking employment) and divide it by the Civilian Noninstitutional Population (those 16 and over not in the military and or committed to an institution).
The Need for a Circulating Medium
Article I, section 8 of the Constitution states that Congress “shall have the power…to coin money, regulate the value thereof, and of foreign coin.” Let’s look at the historical origin of this clause.
Multiple Jobholders: Over Two Decades of Trends as of November
At present, multiple jobholders account for just 5.2 percent of civilian employment. The survey captures data for four subcategories of the multi-job workforce, the current relative sizes of which we've illustrated in a pie chart.
2020 Market Outlook: U.S. Stocks and Economy
The U.S. economy likely will remain split in early 2020.
The November Employment Report
Nonfarm payrolls rose more than expected in the initial estimate for November (+266,000), with upward revisions to the gains for September and October (a net 41,000 higher). In contrast, the ADP estimate of private-sector payrolls rose more modestly (+67,000). What to believe?
The Phantom Metric: What Really Drives US Equity Valuations?
Investors continue to question whether US equity valuations are too high, particularly for growth companies and versus other global markets. But standard valuation metrics don’t tell the whole story. Understanding the cost of capital can provide essential insight on valuing stocks.
Treading Carefully: Risk and Opportunity in CLOs and Bank Loans
While many risk assets have rallied in 2019, the lower-rated tranches of collateralized loan obligations (CLOs) have weakened. Is this a sign that the credit cycle is turning?
The Ratio of Part-Time Employed: November 2019
Let's take a closer look at Friday's employment report numbers on Full and Part-Time Employment.
Ending a Busy Year for the Federal Reserve
Rate cuts and overnight operations were important developments this year. Where will the Fed go from here?
Secular Trends in Employment: Goods Producing Versus Services Providing
The latest monthly employment report showed a gain of 266K nonfarm payrolls, which consists of a gain of 218K service-providing jobs and a gain of 48K goods-producing jobs.
The Myth Of The “Great Cash Hoard” Of 2019
While the bulls are certainly hoping the “cash hoard” will flow into U.S. equities, the reality may be quite different.
Are We There Yet?
U.S. stocks continue to trade near their all-time highs but recent hiccups in trade talks have re-emphasized that a deal remains elusive, decisively unpredictable, and incomplete. Key components of the first phase have yet to be put in writing and major structural issues—such as intellectual property theft and forced technology transfers—will remain unaddressed for the foreseeable future, confirming that little-to-no material progress has been made.
Supercharge Your Gold Position With Precious Metal Royalty Companies
One of the best ways to “supercharge” your gold position is with precious metal royalty and streaming companies. Think Franco-Nevada, Wheaton Precious Metals, Royal Gold and others.
We don’t have much time to get our house in order, either in the US or globally. Everything I’ve said today applies, to various degrees, throughout the developed world. Thinking that 2% inflation or zero interest rates coupled with massive deficits will somehow help is beyond wishful thinking.
Taking Stock of Our 2019 Views
We identified the protectionist push as a key market driver this year but we did not foresee the massive move down in global yields. Scott talks through our 2019 calls.
The Civilian Labor Force, Unemployment Claims and the Business Cycle
What does the ratio of unemployment claims tell us about where we are in the business cycle and our current recession risk? At present, the ratio for Continued Claims has been trending down.
The Big Four Economic Indicators: November Nonfarm Employment
This commentary has been updated to include Friday morning's release of Nonfarm Employment. November's 266K increase in total nonfarm payrolls had revisions that resulted in 41K more jobs than previously reported. The Investing.com consensus was for 186K new jobs and the unemployment rate to remain at 3.6%.
A Perspective on Secular Bull and Bear Markets
Was the March 2009 low the end of a secular bear market and the beginning of a secular bull? At this point, over ten years later, the S&P 500 has set a series of inflation-adjusted record highs based on monthly averages of daily closes.
Michigan Consumer Sentiment: December Preliminary Rose in December
TThe December Preliminary came in at 99.2, up 2.4 from the November Final reading. Investing.com had forecast 97.0.
November Jobs Report: 266K New Jobs, Better Than Forecast
This morning's employment report for November showed a 266K increase in total nonfarm payrolls, which was above the Investing.com forecast of 186K.
The Meaning of Valuation
The recent half-cycle has been admittedly difficult. My bearish response to historically-reliable “overvalued, overbought, overbullish” syndromes proved detrimental in the face of zero-interest rate policies that amplified speculation, and we’ve adapted our discipline to give priority to our measures of market internals – which we use to gauge that speculation.
Earning Season’s Good, Bad & Ugly
With the third quarter of 2019 reporting season mostly behind us, we can take a look at what happened with earnings to see what’s real, what’s not, and what it will mean for the markets going forward.
Will the Real Manufacturing PMI Please Stand Up?
It’s the top of a new month, meaning we get to see the latest manufacturing purchasing manager’s index (PMI) readings. And if you follow both the Institute for Supply Management (ISM) and IHS Markit’s reports on U.S. factory activity, you may be getting some mixed signals.
How Financial Planning Can Become a True Profession
There are many prerequisites to becoming a true profession. Have we satisfied those requirements? And if so – do we desire to take the next step – seeking true status as a profession through legislation?
A Closer Look at Today's ADP Employment Report
In this morning's ADP employment report we got the November estimate of 67K new nonfarm private employment jobs from ADP, a decrease over October's revised 121K. The popular spin on this indicator is as a preview to the monthly jobs report from the Bureau of Labor Statistics.
Four Reasons Investors Shouldn’t Shy Away from Illiquid Alternatives
Many investors are somewhat skittish about illiquid alternatives because they’re worried about tying up their money for a long time in an investment that they can’t trade or exchange easily. However, illiquidity may actually work to investors’ advantage.
Global Investment Forum Summary Report 2019
From September 10-12, a select group of our investment managers, economists and strategists congregated in London for our annual Global Investment Forum (GIF). The GIF is designed to tune out the day-to-day market noise and focus on key market drivers over the medium term.
ISM Non-Manufacturing: Slower Growth in November
The Institute of Supply Management (ISM) has now released the November Non-Manufacturing Purchasing Managers' Index (PMI), also known as the ISM Services PMI. The headline Composite Index is at 53.9 percent, down 0.8 from 54.7 last month. Today's number came in below the Investing.com forecast of 54.5 percent.
Markit Services PMI: "Business activity growth strengthens in November"
The November US Services Purchasing Managers' Index conducted by Markit came in at 51.3 percent, up 1.0 from the final October estimate of 50.3. The Investing.com consensus was for 51.6 percent.
Principles of Valuation Part 2: Price Is What You Pay, Value Is What You Get
The venerable investor Warren Buffett has a real knack of putting complex concepts and ideas into simple and easily understood terms. In my opinion, his quote, “Price is what you pay. Value is what you get” is one of the more profound and important statements he has ever uttered.
What’s Ahead for the MENA Region?
As investors ponder the prospects for the Middle East and North Africa (MENA) region, Franklin Templeton Emerging Markets Equity’s Bassel Khatoun and Salah Shamma take stock of the investment landscape. They highlight some of the market developments in Saudi Arabia, Kuwait, Egypt and the United Arab Emirates (UAE) that have caught their attention.
First Look at November: ADP Says 67K New Nonfarm Private Jobs
Today we have the ADP November estimate of 67K new nonfarm private employment jobs, an increase over the ADP revised October figure of 121K.
The Latest Look at the Total Return Roller Coaster
Here's an interesting set of charts that will especially resonate with those of us who follow economic and market cycles. Imagine that five years ago you invested $10,000 in the S&P 500. How much would it be worth today, with dividends reinvested but adjusted for inflation? The purchasing power of your investment has increased to $15,604 for an annualized real return of 8.93%.
The S&P 500, Dow and Nasdaq Since Their 2000 Highs
This update is in response to a standing request for real (inflation-adjusted) charts of the S&P 500, Dow 30, and Nasdaq Composite.
Market Remains Overvalued
Here is a summary of the four market valuation indicators we update on a monthly basis.
- The Crestmont Research P/E Ratio
- The cyclical P/E ratio using the trailing 10-year earnings as the divisor
- The Q Ratio, which is the total price of the market divided by its replacement cost
- The relationship of the S&P Composite price to a regression trendline
What to Watch in 2020
What will investors be talking about in 2020? We explain how six key issues could shape the global economy and financial markets next year.
Market Valuation, Inflation and Treasury Yields: Clues from the Past
Our monthly market valuation updates have long had the same conclusion: US stock indexes are significantly overvalued, which suggests cautious expectations on investment returns. In a "normal" market environment -- one with conventional business cycles, Federal Reserve policy, interest rates and inflation -- current valuation levels would be a serious concern.
But these are different times.
Plausible Performance: Have Smart Beta Return Claims Jumped the Shark?
To get the attention of smart beta investors in a crowded marketplace, some smart beta providers are laying claim to performance that appears implausible. So what is plausible? We look at historical live performance to answer this important question.
Any Weather: Valuations Say Stocks are Cheap and Expensive
Market valuation is always a factor; but often misunderstood is the vastness of the spectrum of metrics, and the sentiment nature of valuation.
Equities Gained Ground Globally in November
The S&P 500 is up more than 25% year to date and has notched 26 record highs since January.
A Future Embedded in the Present
We have reached a stage in the cycle where you need to think out of the box in order to deliver respectable returns. Investing like most of us have done in the great bull market will not deliver returns anywhere near the levels we have enjoyed over the past 35-40 years. This month’s Absolute Return Letter offers a solution.
Is the Stock Market Cheap?
Here is the latest update of a popular market valuation method using the most recent Standard & Poor's "as reported" earnings and earnings estimates and the index monthly average of daily closes for the past month.
Regression to Trend: Another Look at Long-Term Market Performance
Quick take: At the end of November the inflation-adjusted S&P 500 index price was 125% above its long-term trend, up from 116% the previous month.
About the only certainty in the stock market is that, over the long haul, over performance turns into underperformance and vice versa. Is there a pattern to this movement? Let's apply some simple regression analysis to the question.
The Mystery Behind the Trade War
The recent revival of import tariffs by the U.S. has created a puzzle. Why, in the midst of this “trade war,” has China not used the weakness in its exchange rate to offset the effects of President Trump’s tariffs?
ISM Manufacturing Index: Down 0.2 in November
Today the Institute for Supply Management published its monthly Manufacturing Report for November. The latest headline Purchasing Managers Index (PMI) was 48.1, a decrease of 0.2 percent from 48.3 the previous month. Today's headline number was below the Investing.com forecast of 49.2 percent.
GDP: Arithmetic and Forecasting
There are two broad approaches to forecasting current quarter GDP. Some economists will estimate a number and stick with it. Most will adjust their forecasts as new data arrive. This may seem fickle to the casual observer. Estimates will change week to week and even day to day...
Crestmont Market Valuation Update: November 2019
Quick take: Based on the November S&P 500 average of daily closes, the Crestmont P/E is 135% above its arithmetic mean and at the 100th percentile of this fourteen-plus-decade monthly metric.