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Does Black Friday Still Matter?

The day after Thanksgiving, also known as Black Friday, seems to receive more media hype each year, as it is the unofficial kick off of the holiday season. Markets also pay attention, as Black Friday has historically been an early indicator of consumer demand during the important holiday shopping season. But Black Friday sales estimates have fallen for the past two years, leading to the question, is the weekend after Thanksgiving as impactful as it was in the past? And, should investors be worried?

The Black Friday weekend has been a draw for consumers since the 1950s, but media coverage has picked up steam in recent years, with people braving cold weather, long lines, and short tempers to find the best deals. Contrary to popular headlines discussing the frenzied madness, sales estimates for the Black Friday weekend have actually decreased over the past couple of years. Does this mean that Black Friday shopping is becoming less relevant for consumers?

One driver of lower Black Friday sales relative to history is the wider usage of internet retailers. Online sales have increased over the past decade, so much so that they earned their own discount day — Cyber Monday. This term was originally coined in 2005 when everyone returned to work the Monday after Thanksgiving. Corporate networks used to have much higher speeds than the typical home, and employees still in the Black Friday mindset would go into work and do their holiday shopping online. With broadband internet access widely available now, online sales are no longer dependent on Cyber Monday, though the propensity for online retailers to offer special deals on the day means it continues to be relevant.

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Despite lowered expectations, some high-profile “misses” have occurred on global gross domestic product (GDP) readings for Q3 2015, causing concern for some market participants. The United States (23% of global GDP), China (13%), the United Kingdom (4%), South Korea (2%), Indonesia (1%), and Singapore (less than 1%) have reported Q3 gross domestic product (GDP). Together, those countries account for nearly 45% of global GDP. Third quarter 2015 GDP in three of the six nations beat or matched consensus expectations (China, South Korea, and Singapore), and three of the six countries reported results that either were in-line with or accelerated versus the prior period (South Korea, Indonesia, and Singapore). As a reminder, two-thirds of Q2 GDP reports beat or met expectations, while a similar percentage accelerated from Q1 2015 results; thus, the Q3 GDP results to date are lagging, relative to even lowered expectations. Still, with 55% of global GDP yet to report Q3 2015 results, the reporting season still has not reached the halfway point.

This week (November 8 – 15, 2015), another six countries are scheduled to report Q3 GDP, including the Eurozone (24% of global GDP), Japan (6%), Russia (2%), Poland (1%), Thailand (less than 1%), and Malaysia (less than 1%). Together, these nations — a nice mix of both developed (Eurozone and Japan) and emerging markets (Russia, Thailand, Poland, and Malaysia) — account for 34% of global GDP. Therefore, by the end of the week, countries representing nearly 80% of global GDP will have reported Q3 data. Over the second half of November and the first half of December 2015, another 15 – 20% of global GDP will report on Q3, including (ranked in order of size of economy) Brazil, India, Canada, Australia, Mexico, and Turkey, along with Switzerland, Sweden, Argentina, Norway, South Africa, Denmark, and the Philippines, again providing further insight into both developed and emerging market economies in the third quarter.

Global GDP Tracker: Fall 2015 Edition


Profit margins may continue to defy the skeptics and remain elevated. The  primary drivers of robust corporate profit margins remain largely intact, including limited wage pressure, corporate efficiency, and low input costs, and support our view that earnings growth may be poised to accelerate through year-end and into 2016. Despite a lack of revenue growth, the operating margin for the S&P 500 remains near multi-decade highs; we expect corporate America to continue to defy the skeptics and potentially generate strong profit margins over the next several quarters and likely beyond.

The S&P 500’s operating margin remains near multi-decade highs despite several challenges. The business cycle is now more than six years old, a bit on the long side relative to history, which has led some to predict profit margin contraction. The economy has produced several years of steady job growth and the unemployment rate (5.1% in September 2015) is low, which would normally bring some upward pressure on wages and hurt margins. To an extent, margins are mean reverting, so they tend to head back to their long-term average after periods of strength such as we have experienced. Interest rates have bottomed, perhaps suggesting that borrowing costs may be poised to move higher. Yet, despite all of these reasonable arguments for margins to contract, the S&P 500’s operating margin remains near multi-decade highs. We see little reason to expect much, if any, margin contraction for at least the next several quarters. We expect strong profitability to support earnings growth acceleration in  late 2015 and early 2016 and provide a favorable backdrop for the stock market. The primary drivers of robust corporate profit margins remain largely intact, supporting our view that earnings growth may be poised to accelerate through year-end and into 2016.

How long will profit margins continue to deft the skeptics?


Gauging Global Growth: An Update For 2015 & 2016

The market continues to expect that global gross domestic product (GDP) growth will accelerate in 2015 (3.0%), 2016 (3.4%), and 2017 (3.4%) from 2014’s 2.0% pace, aided by lower oil prices and stimulus from two of the three leading central banks in the world. The prospect for another year of decelerating growth in emerging markets remains a concern for some investors, who may stillbe waiting (in vain) for China to post 10 – 12% growth rates as it consistently did during the early to mid-2000s. The likelihood of rate hikes in the U.S. in late 2015 and the U.K. in early 2016 is also a potential growth headwind. Still, much stimulus remains in the system, and more is likely from the Bank of Japan (BOJ) and the European Central Bank (ECB), which may help bolster growth prospects in two key areas of the globe. Although China is unlikely to embark on quantitative easing (QE), Chinese authorities have recently enacted a series of targeted fiscal, monetary, and administrative actions aimed at stabilizing China’s economy in 2015 and beyond; more such actions may follow, but fears of a hard landing in China persist.

Gauging Global Growth

ISM Indicates Fairly Robust Economic Activity

The Institute for Supply Management (ISM) released its Non-Manufacturing Report on Business for September 2015 on Monday, October 5, 2015, as this Weekly Economic Commentary was prepared for publication. It showed that the service sector remains robust, with the non-manufacturing ISM hitting 56.9, which over time, is consistent with real gross domestic product (GDP) of 3.5%. However, the report, as usual, was largely ignored by market participants, even though non-manufacturing activity (mainly the service sector) represents 70% of the U.S. economy. Financial markets, however, correctly focus more closely on ISM’s Manufacturing Report on Business, as S&P earnings — which over time, drive stock prices — are much more closely correlated to the manufacturing portion of the economy than to the service side. But for those concerned about a U.S. recession, the recent data on both the non-manufacturing and manufacturing ISMs are comforting. As noted above, the non-manufacturing ISM readings of 56.7 in September and 57.3 so far in 2015 indicate fairly robust economic activity continues in 70% of the U.S. economy. The manufacturing ISM data, however, are more concerning. Released last week, the manufacturing ISM for September 2015 came in at 50.2, below the consensus of economists as polled by Bloomberg News (50.6) and the August 2015 readingof 51.1. In fact, the September 2015 reading on the ISM was the lowest since May 2013, and indicates that the manufacturing economy, which accounts for just 30% of the U.S. economy.

ISM Non-Manufacturing Report


Fed Implications

The Federal Reserve’s (Fed) decision not to raise interest rates at its September 17 policy meeting was undoubtedly the biggest event of last week. Although not a big surprise, besides Donald Trump (and perhaps China), the Fed is all that anyone is talking about these days. This week we share some of our perspective on what the Fed’s decision may mean for the stock market and offer some investment ideas.

All else equal, whether the Fed hikes rates now or three months from now should not matter too much for global financial markets. The move — when it comes — will likely be just 25 basis points (0.25%) based on recent communication from the Fed. In Fed Chair Yellen’s September 17, 2015, press conference, she indicated, “And once we begin to remove policy accommodation, we continue to expect that economic conditions will evolve in a manner that will warrant only gradual increases in the target federal funds rate.” Historically, gradual increases have been 25 basis points. We do not anticipate big moves in the interest rates that impact consumer and business borrowing costs, whether the Fed had hiked in September 2015 or waits until October 2015, December 2015, January 2016, or even March 2016. And while we acknowledge that Fed stimulus and low interest rates have played a role in fueling the now six-and-a-half-year-old bull market, we argue that earnings growth has been a far bigger factor…. To continue reading please click the link below.

Fed Implications

How Much, How Far, How Fast, Not When

The policymaking arm of the Federal Reserve (Fed), the Federal Open Market Committee (FOMC), will hold its sixth of eight meetings of the year this week. On Thursday, September 17, 2015, at the conclusion of the two-day meeting, the FOMC will release a statement and a new economic and interest rate forecast. In addition, Fed Chair Janet Yellen will conduct her third post-FOMC meeting press conference of the year. The FOMC will also provide markets with a new set of targets at this meeting, as it does four times a year. The FOMC will release its new forecast for gross domestic product (GDP), the unemployment rate, inflation, the appropriate timing of the first rate hike, and the so-called “dot plot,” where each member identifies the appropriate level for the fed funds rate at year-end in 2015, 2016, 2017, and in the “longer run.” These data points will be scoured by market participants looking for clues regarding how the FOMC’s internal economic forecast has evolved since the last release in June 2015, for clues to future policy, regardless of any decision made this week. The dot plot, in particular the level of the fed funds rate the FOMC sees in the “longer run,” may play an important role in this week’s meeting if the committee does not raise rates.

How Much, How Far, How Fast, Not When


Guaranteed Education Tuition (GET) Update September 2, 2015

The GET Committee met for the third time since the Legislature enacted the College Affordability Act, which lowers the cost of tuition at Washington’s public colleges and universities. These new tuition provisions affect some of the assumptions that the GET pricing and payout models have historically been based upon. The GET Committee continued reviewing the legislation and developing a plan for responding to all of the components of the Act. At the meeting, Committee members heard from the State Actuary, received reports from staff and comments from customers, and considered options for the GET Program moving forward.
The GET Committee is confident the program will continue to be a great college savings resource for years to come, they understand that some customers may wish to seek other options. Accordingly, after a period of discussion, yesterday the GET Committee voted on three policy changes they believe will protect GET customers and provide them with increased account flexibility The motions, which passed unanimously, are:
1.) Based on the recent passage of the College Affordability Act, effective September 2, 2015 the payout value for the GET program will remain $117.82 per unit until the time when one-year of resident undergraduate tuition and state mandated fees at Washington State’s highest priced public university surpasses $11,782.
2.) Based on the recent passage of the College Affordability Act, effective September 2, 2015 and through December 15, 2016, the GET program will waive all state program refund fees and the two-year hold requirement for all account owners.
3.) Based on the recent passage of the College Affordability Act, effective September 2, 2015 and through December 15, 2016, the GET program permit account owners to receive a refund of their contributions or the payout value, whichever is greater.

To read the full letter please follow the link below:

GET Program Update Letter

*GUARANTEED EDUCATION TUITION is not registered broker/dealers and are not affiliated with LPL Financial.

Technical Playbook

When markets are tough, emotions can take over. The natural emotional response to sharp stock market declines is to sell. In periods like these, especially when the media sensationalize every gloomy angle as they tend to do, an objective look at the data can be reassuring and help us make better investment decisions. Like analyzing statistics to assess the outcome of a football game (this week does mark the beginning of the NFL season), the stock market gives us a lot of data over many decades to help us make good investment decisions when our initial emotional reaction might be to call a time-out and sell stocks. History gives us our playbook — so no matter what the environment (or who the opponent), we should have a good idea of how to respond and what play to call. We won’t always be right, but we can seek to stack the odds in our favor and increase our chances of gaining yards while limiting fumbles. This week we take a technical, data-driven approach to assess the likelihood that the current market decline (now about 10% from the May 21, 2015, S&P 500 peak) becomes something worse.

Consulting our Technical Playbook

China Challenge

Markets remain concerned that any damage done by the almost 40% drop in the Chinese equity markets since midyear will spill over into the Chinese economy, which, in turn, could slow global economic growth. During earnings season for the second quarter of 2015 , several large U.S. multinational companies sounded cautious on China’s economy in the near term, most notably firms selling into China’s real estate and construction businesses. On balance, while generally acknowledging that overall economic growth in China may have hit a speed bump
in the second quarter, many of these same firms continue to be upbeat on China in the medium and long term and continue to cite the rise of the Chinese middle class as a key driver of their sales in China in the coming years. The latest data suggest that S&P 500 companies derive less than 5% of sales directly from China….

China Challenge