While the federal funds futures market is pricing in some chance (about 24%) of a rate cut this week, the Federal Open Market Committee is widely expected to leave rates steady.
The sharp increase in geopolitical risk, potential action by OPEC to boost crude oil prices (through further supply cuts), and our view that concerns surrounding global growth are overdone support our year-end WTI forecast of $70/bbl.
The May job market report disappointed, but it was hardly a disaster. Nonfarm payrolls were reported to have risen by 75,000 in the initial estimate, following a 224,000 gain in April.
The “inconvenient truth” of equity market pullbacks is that investors tend to want them in order to invest at more favorable prices, but when they actually occur, investors get nervous, question their conviction and postpone their purchases.
After my father, a Pearl Harbor survivor, died in 2011, we found a shoebox. It contained items that belonged to my Uncle Bill (my mother’s brother), who had also served in WWII. There was Bill’s birth certificate and baptism record, an address book, and some pages that looked like they were torn out of a diary.
The partial government shutdown, poor weather, and the late Easter appeared to dampen the underlying pace of growth in the first quarter. However, April data on retail sales, industrial production, and durable goods orders suggest the softness will be longer lasting.
Memorial Day is also the “unofficial” start to summer as the temperature heats up, school ends, and vacation season begins. With more people on vacation there is a tendency for investors to lose focus on the financial markets. However, this particular summer presents numerous events, deadlines, and potential headlines that we believe investors cannot ignore as they could lead to increased volatility, both to the upside and downside.
Tariffs have had a negative impact on the U.S. economy, but a relatively limited one to date. Pain is obviously felt more in some areas than others, but the cumulative impact is growing and a continued escalation in trade tensions would further dampen growth.
As the Friday early morning deadline (12:01 AM EST) expired, tariffs on an additional $200 billion of Chinese imports have technically gone into effect. However, as we go to press, negotiations are ongoing with the hope that a compromise can be brokered.
Equities remain near all-time highs, as the S&P 500 closed at a record high two times this week and is now up 17.1% year-to-date, the best start to a year on a price return basis since 1987.
The April Employment Report was not as strong as it seems, but still consistent with moderate growth in the overall economy, tighter job market conditions, and moderate wage growth. Wage growth is likely being offset by faster productivity growth (although results will vary by firm and industry), restraining inflation pressures from the labor market.
On the back of 1Q19 solid earnings results and healthy economic data releases, the S&P 500 continued its remarkable move higher this week and closed at a record high (2,933) for the first time since September 2018.
The advance GDP report was a mixed bag. The headline figure was stronger than expected, but boosted by faster inventory growth and a narrower trade deficit, both of which are likely to reverse in the second quarter. Consumer spending and business fixed investment slowed, while residential fixed investment fell for the fifth consecutive quarter.
The advance estimate of 1Q19 GDP growth will arrive on Friday (April 26). There’s always a lot of uncertainty in the advance figure (we’re missing a number of components) and that is especially so this time.
Emerging markets, particularly in Asia, remain one of our favored regions for several reasons including...
Tax receipts were up 0.7% in the first six months of FY19. Individual tax receipts were down 1.7%. Corporate tax revenues fell 13.5%. Payrolls taxes rose 4.7%.
Clearly I have been “sitting here in limbo” for the last few weeks relaxing in Key West, which is a profoundly different planet. I love it! We stayed at Casa Marina, a resort I would highly recommend to anyone. So while I was limbo, it would seem as though the stock market was in limbo, as well.
Nonfarm payrolls rose a bit more than expected in the initial estimate for March. While the monthly data are subject to statistical noise and seasonal adjustment difficulties, the underlying trend in job growth is likely moderating. That shouldn’t be a surprise.
As anticipated, the estimate of fourth quarter GDP growth was revised lower (to 2.2%, vs. +2.6% in the “initial” estimate). All major components grew a bit less than in the previous estimate. Recent figures have generally been consistent with a lackluster pace of growth in 1Q19.
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Last Friday I spoke to a number of money managers. One of the attendees was Linda Bradford Raschke, a professional trader, who used to trade on the Pacific and Philadelphia Stock Exchanges, founded a number of hedge funds, well you get the idea.
As expected, the Federal Open Market Committee left short-term interest rates unchanged and provided some details on the unwinding of the balance sheet. The revised dot plot showed that a majority of senior Fed officials expect no change in rates in 2019 (but a majority also anticipate one or more hikes in 2020).
A long time ago in a galaxy far far away I began working on Wall Street. The year was 1971 and I had joined a small firm making markets in over-the-counter stocks and options. My salary was $100 a week and it was Camelot.
Nonfarm payrolls rose by a disappointing 20,000 in the initial estimate for February, following a strong 311,000 gain in January. However, it appears that mild weather helped to boost the January figure and depressed the February data.
As I wrote on Friday, the weak economic outlook from the ECB, continuing reduced earnings estimates, worries about the Mueller Report, renewed Chinese trade war tensions, and the underperformance of the cyclical sectors bringing on cries of recession all proved too much for stocks...
Economic data releases that were delayed due to the partial government shutdown, including fourth quarter Gross Domestic Product, have been rolling in.
Sacagawea lived from May 1788 to December 1812. She was a Lemhi Shoshone woman who is best known for her help guiding the Lewis and Clark Expedition in achieving their mission objectives by exploring thousands of miles from North Dakota to the Pacific Ocean.
I was traveling last week seeing portfolio managers and doing gigs for our financial advisors and their clients. I have been doing such events for much of the past six months. The recurring question from clients is, “What about the national debt?”
Fed Chairman Jerome “Jay” Powell will deliver his semiannual monetary policy testimony to Congress on Tuesday and Wednesday. In past decades, this testimony was a huge deal for the financial markets. These days, not so much. The Fed is a lot more forthcoming.
Despite Friday’s Fling, there was a very negative NYSE breadth divergence which appeared during the final two hours of trading. It feels like a blow off trading top to me.
Data delayed due to the government shutdown have begun to arrive, filling in the picture for 4Q18, and we’re also getting fresher data on the economy in early 2019. The figures have been mixed, and often surprising, which allows one to make about any kind of argument one wants.
We revisit this “Who do you trust” meme this morning because of what I have been saying the past few weeks. After identifying the selling climax low of December 24, when 48.5% of stocks made new lows, I recorded two 90% upside days (90% of volume and upticks came on the upside).
In the next few weeks, economic reports that were delayed due to the partial government shutdown will continue to trickle in, helping to piece together the fourth quarter picture. That’s fine but investors are more interested in the future.
In his post-FOMC press conference on December 19, Fed Chairman Powell said that low inflation would allow the Fed to be more patient in adjusting rates. The stock market fell. He said essential the same thing in his January 30 press conference.
So, I need to apologize to everyone for not being able to do a verbal recorded call last week, or write a missive the last three sessions of the week. The problem was that while in NYC my media events began around 6:00 a.m., followed by more media events, then it was portfolio manager meetings.
"Time is Archimedes’ Lever in Investing - Archimedes is often quoted as saying, 'Give me a lever long enough and I can move the earth.' In investing, that lever is time. The length of time investments will be held, the period of time over which investment results will be measured and judged, is the single most powerful factor in any investment program.
During an economic slowdown, the government often employs fiscal stimulus to “prime the pump.” In such cases a burst in aggregate demand boosts income, which adds to consumer spending, which adds to income, and so on. This process can work in reverse.
For investors, the year began in fear. The global economic slowdown, the yield curve, Fed policy, trade policy, and the partial government shutdown generated risk. Last week, the news was mixed. There is no sign that the budget stalemate in Washington will end soon. There were renewed reports that President Trump is considering imposing tariffs on all imported motor vehicles.
Ned Davis wrote the book “Being Right or Making Money” in 1991. As most of you know, Ned is one of the best on Wall Street. The book resides on my desk, because I often refer to it.
In the last couple of years, Nobel Laureate Robert Shiller has championed the idea of economic narratives. Economic data describe “the fundamentals,” but stories are often the key drivers of activity. Investors are currently faced with two competing narratives.
Recently, much has been written, and said, about a retest. The reference is about the major indices pulling back to their recent December closing lows, creating a double-bottom in the charts.
Everyone knows how to win. Few know how to lose. Yet the secret to making money in the various markets is knowing how to lose. How to control your losses.
Financial market volatility remained elevated in the first few days of 2019, but it’s much more palatable when it is to the upside. Market participants remained concerned about a number of issues (global growth, trade policy, dysfunction in Washington), and fear remains a key factor in the outlook. Whether that fear abates or intensifies will tell the tale.
The Federal Open Market Committee raise short-term interest rates for the fourth time in 2018 and signaled more to come in 2019, albeit most likely at a slower pace. Market participants overly focus on what the Fed will do instead of why the Fed will do what it does.
Watch out indeed, for 2017’s December low was violated in February 2018 and the rest, as they say, is history. Accordingly, it will be interesting to see what the December Low Indicator says in 2019.
Recently, our email box has been filled up with questions like this one from one particularly bright Raymond James financial advisor, namely, Michael McCormick of the venerable Chicago-based money management firm of McCormick Retirement Group, who wrote, and we responded...
Looking around, we don’t see many people who used to be in this business. Maybe they just couldn’t take being wrong. Or, maybe their clients couldn’t take their claiming they were always right. Or, maybe they got tired of issuing lots of predictions while, at the same time, watching the stock market going nowhere this year.
Nonfarm payrolls rose less than expected in November. The three-month average remained relatively strong, although below the pace of the first half of the year. That's not surprising. As the job market tightens, the number of available workers decreases.
The key phrase in Fed Chairman Powell’s speech to the Economic Club of New York was widely misinterpreted by thefinancial press and, in turn, the markets. That’s not unusual. The markets don’t do nuance. Stock market participants were likelylooking for an excuse to rally.
For years we have quoted Benjamin Graham’s book The Intelligent Investor, which Warren Buffet has said is the best book ever written on investing. The operative quote from said book is “The essence of portfolio management is the management of risks, not the management of returns.” He closes that thought by saying, “All good portfolio management begins, and ends, with this premise.”
