Economic Insights

Major adjustments in capital markets around the globe have changed our long-term expected return forecasts for the 100+ assets we model. Before the corona crash we forecast long-term real returns for US equities to be only 1% a year. Now new, lower valuations suggest higher returns.

The phrase “a picture paints a thousand words” seems truer than ever as images of lockdowns flood our newsfeeds. From the eerie emptiness of Time Square to closed retailers, there is concrete evidence that all are doing their part to combat the outbreak.

There’s always a story behind the economic data. The Employment Report understated the labor market deterioration in March, while seasonal adjustment amplified the level of job losses in the first half of the month. More importantly, claims for unemployment benefits doubled from the astronomical level of a week earlier.

The Fed has moved aggressively to stabilize core assets, including mortgages. Yet several market indicators are still concerning.

Many consumers entered the crisis with no cushion.

While the US economy continues to suffer the wrath of the coronavirus, a recovery will eventually come. Franklin Equity Group's Grant Bowers provides his latest update on the US equity market, and what he and his team have an eye on with a long-term investment view.

A head-spinning 6.6 million Americans filed new claims for unemployment benefits this week bringing the two-week total to 10 million. That’s more than the combined populations of Los Angeles and Chicago.

The S&P 500 was down 1.51% today after a mixed week. The index rose on Monday, began to drop on Tuesday and Wednesday, and flip-flopped on Thursday. It is down 2.08% since last Friday and is down 22.97% YTD.

As a result of the COVID-19 pandemic, we are now in a bear market and the longest bull market in history is over. Here's a roundup of some informative charts, including the S&P 500, changes in the Dow, NASDAQ, and S&P since 2000, and a few more that are relevant.

What does the ratio of unemployment claims tell us about where we are in the business cycle and our current recession risk?

Today’s release of employment data confirmed what we were all expecting – a precipitous collapse in the number of Americans who are gainfully employed.

This morning's employment report for March showed a 701K decrease in total nonfarm payrolls, which was well below the Investing.com forecast of -100K.

This morning's release of the publicly available data from ECRI puts its Weekly Leading Index (WLI) at 106.0, down 7.0 from the previous week. The WLI Growth indicator is now at -26.9, down 11.4 from last week and its lowest since the last recession.

The Institute of Supply Management (ISM) has now released the March Non-Manufacturing Purchasing Managers' Index (PMI), also known as the ISM Services PMI. The headline Composite Index is at percent 52.5, down 4.8 from 57.3 last month. Today's number came in above the Investing.com forecast of 44.0 percent. 

The March US Services Purchasing Managers' Index conducted by Markit came in at 39.8 percent, down 9.6 from the final February estimate of 49.4. The Investing.com consensus was for 49.4 percent.

How should investors think about the economy and asset values when faced with unprecedented uncertainty surrounding the effects of the coronavirus and a complete absence of guidance from analogies to the past? Read Howard Marks’s latest memo, in which he lays out the views of both the optimist and the worrier.

Was the March 2009 low the end of a secular bear market and the beginning of a secular bull? Are we in the beginning stages of another secular bear?

Our baseline economic forecast is a U-shaped global recovery, but substantial unknowns remain.

Decisive measures taken today should help to keep the crisis from causing prolonged damage.

Matt provides a framework that he and his team use to make sense of the headlines and the price bids flashing on their monitors. His realistic, yet hopeful outlook provides a roadmap for successfully navigating this universal crisis together.

This morning's seasonally adjusted 6.65M new claims, up 3.3M from the previous week's revised figure, was worse than the Investing.com forecast of 3.5M.

In this morning's ADP employment report we got the March estimate of 27K nonfarm private employment jobs lost from ADP, a decrease over February's revised 183K. The popular spin on this indicator is as a preview to the monthly jobs report from the Bureau of Labor Statistics.

Quick take: At the end of March the inflation-adjusted S&P 500 index price was 86% above its long-term trend, down from 130% 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.

We at Research Affiliates recently conducted our first virtual All Hands meeting after finding ourselves working from home in the wake of the COVID-19 crisis. As CIO, I responded to questions about our investment strategy. Katy Sherrerd, CEO, and Jeff Wilson, Head of Distribution, asked me to elaborate more broadly on my response to one of the questions submitted by email the day prior.

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.

Quick take: Based on the March S&P 500 average of daily closes, the Crestmont P/E is 97% above its arithmetic mean and at the 96th percentile of this fourteen-plus-decade monthly metric.

As risk assets tumbled in late February and March, it intensified the focus on risk management: How can multi-asset strategies defend against turbulence while positioning for an eventual rebound? The answer: Be ready to adapt—and to do it quickly.

From its all-time high on February 19, the S&P 500 hit a bottom of 2,237 on March 23. But it will go lower this year, according to Jeffrey Gundlach, and only then will he buy stocks.

This morning the Institute for Supply Management published its monthly Manufacturing Report for March. The latest headline Purchasing Managers Index (PMI) was 49.1, a decrease of 1.0 percent from 50.1 the previous month. Today's headline number was above the Investing.com forecast of 45.0 percent.

The March US Manufacturing Purchasing Managers' Index conducted by Markit came in at 48.5, down 2.2 from the 50.7 final February figure. Markit's Manufacturing PMI is a diffusion index: A reading above 50 indicates expansion in the sector; below 50 indicates contraction.

Today we have the ADP March estimate of 27K nonfarm private employment jobs lost, a decrease over the ADP revised February figure of 179K.

Valid until the market close on April 30, 2020.

The S&P 500 closed March with a monthly loss of 12.51% after a loss of 8.41% in February. All three S&P 500 MAs are signaling "cash" and four of five Ivy Portfolio ETFs — Vanguard Total Stock Market ETF (VTI), Vanguard REIT Index ETF (VNQ), Vanguard FTSE All-World ETF (VEU), and PowerShares DB Commodity Index (DBC) — are signaling "cash".

"Travel on all roads and streets changed by +2.1% (+5.3 billion vehicle miles) for January 2020 as compared with January 2019. Travel for the month is estimated to be 253.7 billion vehicle miles." The 12-month moving average was up 0.16% month-over-month and up 0.9% year-over-year. If we factor in population growth, the 12-month MA of the civilian population-adjusted data (age 16-and-over) was up 0.42% month-over-month and up 0.5% year-over-year.

With today's release of the January S&P/Case-Shiller Home Price Index, we learned that seasonally adjusted home prices for the benchmark 20-city index were up 0.31% month over month which is cut to -0.04% with inflation adjustment.

The headline number of 120.0 was a decrease from the final reading of 132.6 for February. Today's number was above the Investing.com consensus of 110.0.

In order to be better prepared in the future, we need a vibrant private sector, not a permanent expansion in government.

The latest Chicago Purchasing Manager's Index, or the Chicago Business Barometer, fell to 47.8 in March from 49.0 in February, which is in contraction territory. Values above 50.0 indicate expanding manufacturing activity.

The consequences of policymakers returning to the same tools employed in the financial crisis.

Uncertainty continues to dominate global securities markets and heightened volatility is the result. Feifei Li, partner and head of equities, asks Rob Arnott, the founder and chairman of Research Affiliates, about the implications of increased volatility on investment strategies and where investors can find the best opportunities.

Five out of the twelve Federal Reserve Regional Districts currently publish monthly data on regional manufacturing: Dallas, Kansas City, New York, Richmond, and Philadelphia. The latest average of the five for March is -1.7, down from the previous month's 5.8. It is well below its all-time high of 25.1, set in May 2004.

The economic impact of COVID-19 has been shockingly large and swift, but most of the information has been anecdotal. Economic data reports are by their nature backward-looking. However, the latest unemployment claim figure and the University of Michigan’s Consumer Sentiment Index point to a sharp contraction in economic activity.

This morning the Dallas Fed released its Texas Manufacturing Outlook Survey (TMOS) for March. The latest general business activity index came in at -70.0, down 71.2 from 1.2 in February. All figures are seasonally adjusted.

Not everyone sees the bottom as necessarily reached.

Today the National Association of Realtors released the February data for their Pending Home Sales Index. According to the National Association of Realtors®, "Pending home sales rose in February, climbing for the second consecutive month."

Quarterly commentary giving an overview of the markets and the importance of having and implementing a strategy when investing in the markets.

Michael Grant is preparing for rebound in equities and has positioned the long/short portfolio accordingly. To use a Wayne Gretzky analogy, he is skating to where the puck will be, not where it is.

Relief efforts measured in trillions of dollars are bound to have some positive effect.

On Friday, Congress approved and President Trump signed into law a $2.2 trillion emergency stimulus package, the largest in U.S. history. Most American adults will be receiving a one-time payment of $1,200 in cash.

The BEA's Core Personal Consumption Expenditures Chain-type Price Index for February, released this morning, shows that core inflation is below the Federal Reserve's 2% long-term target at 1.82%. The FebruaryCore Consumer Price Index release is higher at 2.36%. The Fed is on record as using Core PCE data as its primary inflation gauge.

This week, residents of San Antonio, Texas, home to U.S. Global Investors, were ordered to work from home, with some exceptions. Like countless people in other parts of the country and world, our team has had to quickly and nimbly adapt to a new normal, and to be innovative in the face of new challenges.

The recent price changes in the municipal bond market have potentially created an intriguing opportunity for investors; with municipal bonds selling at relatively enticing yields, even without considering the tax benefits. However, this market is likely to be short lived as investor behavior is stabilizing.

The March final came in at 89.1. Investing.com had forecast 90.0.

The BEA's Personal Income and Outlays report for February was published this morning by the Bureau of Economic Analysis. The latest Headline PCE price index was up 0.09% month-over-month (MoM) and is up 1.79% year-over-year (YoY). Core PCE is below the Fed's 2% target rate.

We've updated our periodic look at the Philly Fed ADS Index today's release which includes initial jobless claims through March 21, the Q4 GDP Third Estimate, Real Manufacturing and Trade Sales for December 2019, Real Personal Income Less Transfer Payments for February 2020, and Real Manufacturing and Trade Sales for January 2020.

With the release of this morning's report on February Personal Incomes and Outlays, we can now take a closer look at "Real" Disposable Personal Income Per Capita. At two decimal places, the nominal 0.50% month-over-month change in disposable income was reduced to 0.41% when we adjust for inflation. This is a change from last month's 0.56% nominal and 0.42% real increase last month. The year-over-year metrics are 3.50% nominal and 1.68% real.

Personal Income (excluding Transfer Receipts) in February rose 0.61% and is up 3.7% year-over-year. However, when adjusted for inflation using the BEA's PCE Price Index, Real Personal Income (excluding Transfer Receipts) MoM was up 0.52%. The real number is up 1.9% year-over-year.

Global markets have not yet reached a bottom, but Nick Niziolek believes the global economy and markets could be in recovery mode by the second half of the year, with China and other overseas markets making strong contributions.

Japanese growth stocks, along with global equities, experienced considerable volatility in the first quarter. Uncertainty around the coronavirus, slowdowns in global manufacturing activity and worries about dampened consumer activity related to Japan's consumption tax each impacted Japan's markets.

As both traditional and alternative asset markets descend into turmoil this month, it’s important to remember the inherent strengths of a diversified portfolio. A market rout always causes correlation to go to 1 across virtually all assets as investors flee to the perceived safety of cash.

There are three key areas where the allocation requirements of passive fixed-income vehicles have an impact on the market.

I expect that the most valuable aspect of our investment discipline over the completion of this cycle will be our ability and willingness to flexibly respond to changes in observable market conditions as they emerge.

While the country and the stock markets reel from the impact of the Coronavirus, many economists and politicians are calling for the government to fight the pandemic as if we had to fight the Second World War all over again.

With government spending helping to steer countries through the pandemic, it may not be easy to turn off the taps afterward.

The Third Estimate for Q4 GDP, to one decimal, came in at 2.1% (2.13% to two decimal places), mostly unchanged from 2.1% (2.12% to two decimal places) for the Q3 Third Estimate. Investing.com had a consensus of 2.1%.

The latest index came in at -17, down 22 from last month's 5, which indicates contraction in March. The future outlook decreased from 16 last month to -19 this month. Here is a snapshot of the complete Kansas City Fed Manufacturing Survey.

The Census Bureau has posted the Advance Report on Durable Goods New Orders. This series dates from 1992 and is not adjusted for either population growth or inflation. Let's now review Durable Goods data with two adjustments.

The Federal Housing Finance Agency (FHFA) has released its U.S. House Price Index (HPI) for January. U.S. house prices were up 0.3 percent on a seasonally adjusted nominal basis from the previous month. Year-over-year the index is up 5.2% (nonseasonally adjusted). After adjusting for inflation and seasonality, the index is up 0.29% in January and up 3.07% year-over-year (seasonally adjusted).

Policymakers cannot avert a big near-term economic hit. But they can build the foundations for recovery—if they take the right steps now.

The conditions for a relatively quick and robust rebound rest on the success in containing the virus within a reasonable horizon, and a well-calibrated economic policy response.

Due to fears about the Coronavirus – more specifically, the forceful government measures designed to halt its spread, the US is on the front edge of the sharpest decline in economic activity since the Great Depression.

Mike explains why it may be prudent re-balancing your portfolio – outside the usual calendar – after the recent market turbulence.

Once again, no one cares about the economic calendar. There have been big changes with more to come. While many claim to know what those changes will be, I see only speculation.

The US Federal Reserve continues to use whatever tools it can to help combat economic fallout from the coronavirus. Sonal Desai, Chief Investment Officer, Franklin Templeton Fixed Income, calls its latest response “a whole new level” of stimulus.

Fifth District manufacturing activity changed little in March, according to the most recent survey from the Federal Reserve Bank of Richmond. The composite index rose to 2 in March from -2 in February.

This morning's release of the February New Home Sales from the Census Bureau came in at 765K, down 4.4% month-over-month from a revised 800K in January.