COVID-19 headlines dominated equity market action last week, with the S&P 500 suffering a near-3% decline; although all is not grim. The number of virus cases has been spiking in states that opened earliest—including my new home state of Florida, which went from a mid-60s average age for confirmed cases to the current mid-30s average age.
Why did stocks rise over the past month despite grim economic news? The Federal Reserve’s massive liquidity injection is one reason.
As expected, the Federal Reserve kept rates unchanged at 0-0.25% and said it will keep them near zero through at least 2022, in a unanimous vote.
The dominant question we’ve been getting from investors is about the perceived disconnect between what’s happening on Main Street and what’s happening on Wall Street.
On a day that started with good news on an experimental COVID-19 vaccine, with the stock market showing strong early gains, today’s report is more visual and less wordy than normal. Since I know not every reader of these publications follows me on Twitter—where I’m constantly posting charts, tables and data that I find compelling...
Both the bear market and subsequent rally have occurred at warp speed; yet the economic recovery may be disappointing to what the market’s now “priced in.”
The FOMC restated its commitment to use its full range of tools to support the virus-crippled economy and keep markets functioning smoothly.
Stocks and earnings don’t always move in tandem; with stocks typically leading earnings … but is the market’s rally too much, too soon?
The COVID-19 pandemic has severely affected the U.S. economy, with containment efforts leading to widespread business closings and surging unemployment—and stock market volatility. The key questions now are when can the economy reopen, and what happens when it does?
Labor market data has never looked as ugly, with more hits to come; but many are looking ahead at what an eventual recovery will look like.
We know a lot more about COVID-19 than we did a few weeks ago; but there remain questions that are unanswerable at this stage. We don’t know how much worse this gets before it starts to get better...
Stocks have plummeted this month as investors struggled to assess what impact the COVID-19 coronavirus may have on the economy.
In the easiest of times (are they ever, really?) it’s futile to make predictions about the market with any semblance of accuracy. Clearly, these are not the easiest of times; so the futility is magnified. Even with non-stop coverage of COVID-19; with every question answered, there’s another question to ask.
The impact of the coronavirus is spreading; both geographically and economically. Central banks will likely step in; but supply shocks are difficult to combat.
Although stocks rebounded after a sharp drop in January, the market’s reaction to the coronavirus outbreak highlighted stock vulnerabilities.
Friday’s jobs report, as well as other recent labor market data, has an “on the one hand; on the other hand” flavor to it.
As expected, a long and strong move up in stocks attracts more and more believers and adherents, which can stretch sentiment to extremes, like now.
The U.S. economy split sharply in 2019—manufacturing activity lagged services, corporate profits lagged stock performance—while investor sentiment surged. How long will these divergences continue in 2020?
For nearly three years we’ve been tactically recommending overweighting large caps (S&P 500) and underweighting small caps (Russell 2000)—time for an update.
Next year is set to start on a high note, with consumers and the Fed keeping the economy and market afloat; but risks remain elevated, including trade and elections.
The Federal Reserve left interest rates unchanged, as expected; while signaling rates would stay in their current range through next year.
The U.S. economy likely will remain split in early 2020.
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.
Market valuation is always a factor; but often misunderstood is the vastness of the spectrum of metrics, and the sentiment nature of valuation.
While volatility has remained subdued and U.S. stocks are at all-time highs, a near-term concern is that investor sentiment may be getting a bit too frothy. The potential signing of a “phase one” U.S.-China trade deal and rollback of some tariffs has contributed substantially to the rally; yet the proposals made have yet to be corroborated by anything in writing.
Last week’s key releases of job growth and ISM manufacturing data highlight the ongoing bifurcation in the economy; with the consumer bucking manufacturing’s malaise.
As expected, the FOMC lowered the fed funds rate (and the IOER) by 25 basis points; with a slightly more hawkish tone in the accompanying statement.
While volatility has receded lately and geopolitical tensions haven’t heated up, little-to-no progress has been made on a comprehensive U.S.-China trade agreement; while the timetables for Brexit continue to shift. Although U.S. stocks are trading near their all-time highs, investor hesitation has persisted due to mixed economic data, the questionable effects of monetary policy and trade uncertainty. We continue to recommend that investors use volatility to rebalance and stay near their strategic asset allocations; maintaining our neutral stance on U.S. equities (with a bias toward large caps at the expense of small caps), and our neutral stance on both developed international and emerging market equities.
Third quarter earnings season is underway, so it’s time to look under the hood.
A wide gap between S&P 500 profits and the broader NIPA measure from the BEA supports a late-cycle view.
The late-cycle view is also supported by weakening leading indicators.
Volatility has resurfaced due to a revival in trade tensions, heated political fighting in Washington, and confusion over whether the Fed will continue to ease or hold off on rate cuts later this month. Stocks have dropped back into a tight range and have still yet to breach their all-time highs. With the market still highly reactionary to major headlines and struggling to find its footing, we continue to recommend that investors stay near their long-term asset allocation. We also continue to recommend using volatility as a means of rebalancing; and maintaining a bias toward large-cap stocks at the expense of small caps. So long as myriad uncertainties continue to mount, we believe stocks will remain under some pressure and headway will be limited.
Employment reports are increasingly in focus due to weak survey data and a risk that manufacturing’s weakness spills over to services/consumer segments.
While U.S. stocks emerged out of their tight range a couple weeks ago, they have yet to surpass their July highs—as trade uncertainties remain, economic data continues to be mixed, and cloudy monetary policy and political outlooks persist.
It continues to be a difficult environment in which to trade around short-term news, even if short-term news is having an outsized impact on market behavior.
The Conference Board’s Leading Economic Index was flat last month; and although at a cycle high, it remains in a flattish trend over the past year.
In line with expectations, the FOMC cut rates by 25 basis points; also lowering the IOER by 30 basis points to address liquidity problems in the repo market.
Stocks have climbed higher but we don’t recommend attempting to trade around short-term moves; rather, investors should remain disciplined and diversified, and use any volatility to rebalance as needed. The consumer continues to drive the economy, while weakness is mostly still concentrated in manufacturing. Yet, the potential for volatility remains, as a comprehensive trade deal is not in sight, tariffs on consumer goods are still set to kick in on December 15, and monetary policy’s ability to spur growth and inflation may be waning. We continue to favor large caps over small caps and are neutral to U.S. and global equities.
Stocks recently broke out of their short-term range on “good” trade news; but trying to trade around trade-related news has been a treacherous exercise.
Risks to the market are growing but the American consumer continues to look strong. Some preparation for a potential storm are prudent, but no drastic actions are suggested.
Economic uncertainty has spiked given the escalating U.S.-China trade war; with increasing risk it weakens the dividing line between the manufacturing and consumer sectors.
Stock markets have become more volatile as trade tensions have worsened and weakness in the manufacturing side of the economy has caused increasing concern. Swift resolutions to these issues seem unlikely and a dovish Fed may not be the elixir to what ails the economy. With the likelihood of persistent volatility in the coming months, we recommend investors stay broadly diversified and focused on the long term. From a tactical perspective, we remain neutral to U.S. and global equities; with a bias within the U.S. market toward large cap stocks relative to small caps. Investors should not attempt to trade around short-term moves in the equity markets; but instead remain disciplined, diversified, and use rebalancing as necessary.
Current economic conditions do not look recessionary, but risks are rising and if we’re heading into one, it’s possible it already started.
The manufacturing side of the economy is showing increasing signs of weakness, but the consumer still looks healthy—which side wins and what should investors do?
The national debt and deficits remain at worrisome levels, spawning questions of how economic growth will be affected and whether we will hit another wall.
Stocks have been buoyed by rate cut expectations, but are investors putting too much stock in monetary policy and setting themselves up for potential disappointments?
Round number crosses for each of the three major U.S. equity averages over the past month helped elevate investor sentiment, but is it now stretched?
If you just woke from an 18-month slumber and looked at the market you might be fooled into thinking it’s gone nowhere; but what a ride it’s been.
The last 18 months have been anything but boring, but if you had ignored the market over that time and only recently started paying attention, you may think that little has happened. The running in place analogy is probably better replaced by hiking a mountain.
Myriad economic, market and policy battles are raging today; providing some color, but lots of gray area as we look ahead to the second half of the year.
We won’t speculate about the final outcome of ongoing trade tensions, but we are growing more concerned that the hit to business confidence will increasingly filter through to consumer confidence and hard economic data. A more positive outcome could elongate the runway between now and the next recession. In the meantime, we continue to recommend that investors maintain a relatively neutral stance consistent with long-term asset allocations, using inevitable gyrations to rebalance as needed.