Factor-Based Investing

Lawmakers in Washington struck a compromise on a major fiscal stimulus package to help combat the effects of the COVID-19 pandemic. The bill, already passed by the Senate and awaiting House vote, packs in a lot, with upward of $2 trillion slated to provide important support for the economy.

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.

Policy makers in the U.S. generally have more work to do to limit the damage of the coronavirus crisis than their counterparts in Europe. Here’s why.

Sierra Mutual Funds Chief Investment Officer Terri Spath's latest market commentary discusses when might be a good time to buy, and the importance of using a time-tested process, like the one used at Sierra and Ocean Park.

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.

As expected, the initial jobless claims report—the one that shows how many people have been laid off and are newly applying for unemployment assistance—was a shocker this morning. Three million people lost their jobs and applied for unemployment last week. This is by far the highest number ever, with the previous record at just under 700,000 in 1982.

The accompanying chart is a way to visualize real GDP change since 2007. It uses a stacked column chart to segment the four major components of GDP with a dashed line overlay to show the sum of the four, which is real GDP itself. Here is the latest overview from the Bureau of Labor Statistics.

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.

When markets get as volatile as they’ve been lately, it’s extremely difficult for investors to avoid our innate “fight or flight” response. In our states of heightened emotion (fear) our logical minds try to tell us that we are witnessing an incredible buying opportunity for long-term oriented investors.

The “ONE Thing” you need to do TODAY, right now, is “accept” where you are. What you had, what was lost, and the mistakes you made, CAN NOT be corrected. They are in the past. However, by hanging on to those “emotions,” we lock ourselves out of the ability to take actions that will begin the corrective process.

While it is, of course, a cliché to say that markets are driven by fear and greed, like many clichés this one contains a strong element of truth. The bad news for us humans is that within our brains, emotion appears to have primacy over cognitive function. While this may well have kept us alive and allowed our species to thrive, this uncomplicated hierarchy doesn’t necessarily work in our favour when it comes to thinking about financial markets.

In the midst of a historic crisis, it’s hard to see through the fog. But investors who ask the right questions now will be able to identify companies that can make it through.

With the coronavirus creating havoc across the globe, researchers are rushing to find better treatment options and a cure. Our Head of Equities, Stephen Dover, and Portfolio Manager Evan McCulloch outline a few of the efforts the medical and scientific communities are taking to combat the virus.

Liquidity could remain challenged, but valuations may be attractive for long-term investors.

Among other things, this commentary explores historical market sell-offs and how our emotional anchor points can influence our perception of those sell-offs.

For years, the economics profession has suffered from a stubborn reluctance to adopt a more multidisciplinary approach. But now that the COVID-19 pandemic is transforming economic life the world over, the profession has no choice but to leave its comfort zone.

This morning's seasonally adjusted 3.28 million new claims, up 3M from the previous week's revised figure, was worse than the Investing.com forecast of 1.65M.

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 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).

Financial markets, and the world, are in unprecedented times. Tony DeSpirito offers some perspective along with ideas for preparing for the eventual return to “normal".

The stock market today is trading at valuation levels last seen in 2008, before an unprecedented wealth creation bull market swept away the fear of the Great Recession. Then as now, it’s always about the expectations built into market prices.

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

During these turbulent times, how does one track and value the performance of an exchange-traded fund? David Mann, Head of Capital Markets, Global Exchange-Traded Funds, opines on ways to “keep score.”

A global recession is likely through the first half of the year, with a rebound possible during the second half of 2020, provided the virus threat subsides.

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.

The government-mandated shutdown of business, and the massive drop in economic activity it is causing, may actually do more harm to the United States than the coronavirus itself. Early estimates suggest the U.S. economy will contract at a staggering 20% annualized rate in the second quarter, and the number may move even higher.

Oil’s back below $30 and suddenly it feels like 2016 all over again. Only it’s not. Saudi Arabia’s 2015-2016 production boom was a war on US shale. This time, Saudi Arabia is waging a war for market share against Russia and the US. It’s a war with no winners, least of all US fracking.

More than 350,000 fitness instructors and trainers in the US have turned to streaming to keep their businesses afloat. Here are nine of the best online workouts.

I know this isolation is necessary, but the fabric of our firm is coming apart at the seams. Is it possible to collaborate effectively when everyone is remote?

Get off to a fast start by sidestepping these top five work-at-home mistakes.

Intellectually, I’m confident the virus will be contained, the economic stimulus (when it’s passed) will reinvigorate the economy and this crisis will pass. The market will eventually recover. Emotionally, I’m terrified.

Putting income into a college savings account is a no-brainer. Like anything, the execution requires planning and financial expertise.

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...

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.

With the COVID-19 pandemic still spiraling out of control, the best economic outcome that anyone can hope for is a recession deeper than that following the 2008 financial crisis. But given the flailing policy response so far, the chances of a far worse outcome are increasing by the day.

Future market performance depends on a question that bullish commentators seem to be glossing over.

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 Fed’s aggressive support may help keep markets functioning, hasten recovery and avoid longer-term damage.

Postcard from Vietnam: On a research trip to Vietnam before the coronavirus crisis, our analysts discovered what it takes for manufacturers to outsource successfully.

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.

The vast uncertainty surrounding the possible spread of COVID-19 and the duration of the near-economic standstill required to combat it make forecasting little different from guessing. Clearly, this is a “whatever-it-takes” moment for large-scale, outside-the-box fiscal and monetary policies.

Does market history offer any parallels to today’s novel coronavirus crisis?

We are given the rare opportunity to prioritize what is most important to us without guilt. The material world is on pause, at least for a few weeks.

The market’s response to the coronavirus had a stark effect on portfolio values. Less apparent, but more important, was how it reduced the probability that your financial plans will succeed in reaching your clients’ financial goals. Here’s an example of how devastating that may be and how you should communicate this to clients.

Given the magnitude, and multiple confirmations, of these signals, it is far too soon to assume the “bear market” is over. This is particularly the case, given the selloff is less than one-month old.

U.S. stocks fell again on Friday, ending another volatile week, as coronavirus fears outweighed central bank and government attempts to support the economy. The S&P 500 index fell 4.3% on Friday, and is now down 31.9% from its February peak.

Research Affiliates assesses the potential impact of COVID-19 on economies and investments, and what it means for the All Asset strategies.

Television remains one of the most influential distributors of information and ideas, yet the majority of Americans distrust the reports they get from TV. This distrust may stem from the fact that there is a lot of fear in the news today. How can advisors help clients make sense of the news and help them get back on rational footing?

The impact of the coronavirus on the US economy still isn’t fully known yet, as the situation continues to evolve. However, Franklin Equity Group’s Grant Bowers sees at least three reasons to be optimistic about the long-term recovery.

The economic and financial market carnage of the coronavirus continued in yet another unbearable week for investors. The S&P 500 suffered its worst daily decline since October 1987 on Monday, and has fallen ~30% from its February 19 high—the fastest decline and entrance into bear market territory in the history of the US equity market.

We have spent much of the last week talking about the efforts coming out of the U.S., as the Federal Reserve and government leaders are working hard to offset the real economic damage being inflicted by the crisis.

The municipal fixed income market, like most other asset classes, is experiencing unprecedented volatility. Large mutual fund outflows are adding to the volatility as investors seek to add to cash reserves by selling what may be deemed easiest to sell.

We entered into the current crisis with a whole financial system that had been incentivized by policymakers to take on excessive levels of debt and leverage. The turmoil we are seeing right now is the result of the unwinding of this leverage.

"The data through February were unlikely to have been affected much by the COVID-19 outbreak. Economic data for March will be incorporated in the next CFNAI released on April 20, 2020." The Chicago Fed National Activity Index (CFNAI) increased to 0.16 in February from –0.33 in January. Two of the four broad categories of indicators that make up the index increased from January, and three of the four categories made positive contributions to the index in February. The index’s three-month moving average, CFNAI-MA3, decreased to –0.21 in February from –0.11 in January

Here’s why the market crashes even without more bad news, like it did in October 1987 and from late 2007 through March 2009. But this time is different because there is a new set of actors on the stage, exacerbating the problem.

These extreme measures appear to be having great success, particularly in Asian countries. Whereas the number of cases continues to rise in Italy, Spain, Iran and elsewhere, the number has begun to stabilize, if not plateau, in Asian countries.

It’s stating the obvious to say that the stock markets have been in a freefall as a result of the coronavirus. However, I think it’s also important to point out that what we have recently experienced in the stock markets more resembles a flash crash than it does a correction.

The economic and financial market carnage of the coronavirus continued in yet another unbearable week for investors. The S&P 500 suffered its worst daily decline since October 1987 on Monday, and has fallen ~30% from its February 19 high—the fastest decline and entrance into bear market territory in the history of the US equity market.

Growing policy responses reflect greater estimates of the costs of COVID-19.

Markets often overshoot, and just because things are cheap doesn’t mean they can’t get cheaper.

After an initial cover-up and more than 3,000 deaths, China appears to have brought COVID-19 under control, just as the spread of the coronavirus is accelerating across the U.S. and Europe. With China's domestic-demand driven economy set to rebound and mainland investors avoiding the panic that has smacked western markets, its economy could put a floor under global growth and offer a safe haven to investors.

We expect to see a combination of anti-viral medications and vaccines develop over 6 to 12 months globally. We are seeing daily positive articles on the effectiveness of anti-virals from other countries. Vaccine development appears to be moving very quickly, and there is potential for a vaccine to get to people as soon as the end of 2020.

The latest full set UIG for February is 2.16% while the prices-only measure is 2.14%. Current Headline CPI is now 2.33% and Core CPI is 2.36%.

BlackRock’s CIO of Global Fixed Income and Head of the Global Allocation Team weighs in on recent Federal Reserve policy moves and what they might mean for markets.

GMO’s Ben Inker discusses the recent turmoil in financial markets and the firm’s perspective on valuations amid the sharp declines in many asset classes.

Are municipal bond issuers vulnerable to the COVID-19 pandemic? We assess key sectors, from states to hospitals to airports.

That was President Donald Trump on Monday, responding to a question on whether the U.S. economy could be sliding into a recession.

Thoughts on the “new normal” in ETF trading during these turbulent times from our Head of Capital Markets, Global Exchange-Traded Funds.

While it is certainly hoped by many that we are closer to the end of the liquidation cycle, than the beginning, the dollar funding crisis, a blowout in debt yields, and forced selling of assets, suggests there is likely more pain to come before we are done.