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Crystal Ball?

Since the dawn of financial markets, investors have been searching for signals of impending declines. Many economic indicators correlate highlywith the stock market, which means they are coincident and not leading,

and they tend to move at the same time as stocks. Some are lagging, meaning they move after stocks, which of course is not very predictive. An important goal for all investors is to find leading indicators in an attempt to

anticipate big down moves. One leading indicator that we have found with reliable predictive power is the Conference Board Index of Leading Economic Indicators (LEI). Itis always difficult to predict small stock market

pullbacks, such as the two 4 – 6% drops that the S&P 500 Index has experienced in 2014. Such pullbacks can be driven….

Crystal Ball?

Turning Down the Noise

Volume has picked up during the recent downturn. No, we are not talking about trading volumes; we are talking about the volume from your TVs with talking heads warning about an impending stock market downturn. If you turn off the TV and focus on what the market is telling you, rather than the talking heads, you can tune out the noise. The way we listen to the market in our investment process is through technical analysis, where we assess the behavior of the market and its underlying drivers. Analyzing market breadth has been an especially useful technical analysis tool for predicting recessions and bear markets. There are various ways to look at market breadth, and we will be looking at two critical areas in this week’s commentary. Market breadth can be tracked by looking at the number of stocks that…

Turning Down the Noise

Reconnected?

Recently, we wrote about the potential disconnect between the weak performance of the economy as measured by gross domestic product (GDP) in the first quarter of 2014 and the run of strong economic data

for April, May, and June 2014. On balance, the economic data release in recent weeks for July 2014 continued to meet or exceed analysts’ expectations, including data released last week (July 28 – August 1, 2014)

on second quarter GDP, July employment, and the July readings on the Institute for Supply Management’s (ISM) manufacturing survey and vehicle sales. In this week’s commentary, we’ll examine whether or not a reconnect

has occurred and also revisit Federal Reserve (Fed) Chair Yellen’s labor market dashboard in the wake of the release of the July 2014 Employment….

Reconnected?

 

Midsummer Madness

Eight times per year, the outcome of the Federal Reserve’s (Fed) Federal Open Market Committee (FOMC) meeting becomes the focal point for market participants. Four times each year, the Bureau of Economic Analysis’

(BEA) first estimate of gross domestic product (GDP), the first look at the health of the economy in the prior quarter, dominates the headlines. Similarly, at the start of each month, the Report on Business from the

Institute for Supply Management (ISM) and the monthly labor market report from the U.S. Department of Labor are the centerpieces of any trading week. This week (July 28 – August 1, 2014), all four of these key events are

on the docket. How rare is this? In the 760 weeks between…

Midsummer Madness

Gauging Global Growth in 2014 & 2015

The outlook for global growth is important to investors, since it defines the ultimate pace of activity that creates value for countries, companies, and consumers. This week, as investors begin to digest the S&P 500 earningsreports for the second quarter of 2014, we provide an update on how estimates for economic growth for 2014 and 2015 in the United States and across the globe have evolved over the past few years. Last week, Christine Lagarde, Managing Director of The International Monetary Fund (IMF), signaled that the IMF would cut its global growth forecasts for both 2014 and 2015, when it releases its mid-year forecast update later this month. Although the release garnered plenty of headlines in the media, the majority of financial market participants took little notice of the report. Why? Because consensus…

Gauging Global Growth in 2014 & 2015

 

Disconnect?

In the wake of the release of the monthly jobs report, many financial market participants are debating the seeming disconnect between the weak first quarter of economic growth and the recent run of strong data for April, May,and especially June 2014.  The rapid improvement in the labor market, and in other economic data reported over the past several months, is at odds with the 2.9% decline in gross domestic product (GDP) in the first quarter of 2014. Which is correct? We continue to expect that economic growth may rebound to a 3% pace for all of 2014.* In fact, the return to a more normal weather pattern nationwide has already led to a sharp snapback in economic activity.

Disconnect?

 

 

2014 Mid-Year Outlook

As we expected, markets in 2014 have been less influenced by politics and policymakers than in 2013 and more dependent upon growth. Growth is an essential characteristic of all living things, and in2014, growth is vital to our outlook for the economy and markets. Our notes from the field contain these key observations and reaffirm our forecasts: After an extreme winter weather-induced slowdown in the first quarter, the U.S. economy began to thaw with the warmer temperatures in the spring. We continue to believe U.S. economic growth is on track to accelerate by about 1%….

2014 Mid-Year Outlook

 

Behind the Curve?

The term “behind the curve” has been used to describe a Federal Reserve (Fed) that is perceived to be late in lowering or raising interest rates in response to changing market or economic conditions. The most common use of the phrase is to describe the Fed as behind the curve on inflation. The Fed showed little concern over inflation during last week’s Fed meeting, despite the monthly consumer price index (CPI) report showing a continued rise in price pressures for May 2014 with recent gains accelerating Fed Chair Janet Yellen downplayed the recent rise in inflation as likely “noise,”but the response still left investors questioning whether the Fed is behind the curve. Intermediate- to longer-term bond prices, which are most sensitive to inflation pressures, finished last week (June 16 – 20, 2014) slightly lower, and market expectations of future inflation, as measured by Treasury inflationprotectedsecurities (TIPS), moved higher. The implied breakeven inflation rate on 10-year TIPS rose to near a one-year high….

Behind the Curve?

 

Who Are the Buyers and Sellers?

We devote this commentary each week to assessing the many reasons markets may rise or fall. But at the heart of it, all markets come down to just one thing: buyers and sellers. Taking a look at who is buying andwho is selling can tell us something about the durability of the market’s performance and what may lie ahead. Currently, there are six notable trends in buying and selling in the stock market. U.S. stocks are being purchased by corporations and individuals; however, foreigners, hedge funds, institutions, and insiders are net sellers. Companies themselves have been the biggest buyers of stocks. After reducing purchases during the financial crisis in 2008 and 2009 as companies focused on hoarding their capital, corporations have returned to record levels of net share repurchases….

Who Are the Buyers and Sellers?

Better Gauges of Global Growth Ahead

A large number of key economic reports, central bank meetings, and geopolitical events this week (June 2 – 6) should allow market participants to better gauge global growth as we approach the halfway point of the year. The week includes seven major central bank meetings, with the June 5 European Central Bank (ECB) policy announcement getting most of the attention. The data due out earlier in the week on manufacturing, inflation, unemployment, and consumer spending in the Eurozone for April and May will help to inform the ECB’s decision. On the geopolitical front, Ukraine will be in focus when the North Atlantic Treaty Organization (NATO) meets on Tuesday, and the leaders of the G-7 (the G-8 minus Russia) convene on Wednesday. On Friday, June 6, world leaders will gather to mark the 70th anniversary of the D-Day landing in Normandy. Finally, there are municipal elections in South Korea, and Egypt will announce the results of the presidential election it held last week.

Better Gauges of Global Growth Ahead