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THE WEEK AHEAD We look at credit, debt, and leverage given new data from the Federal Reserve (Fed). We conclude that private sector debt and leverage remain important contributors to both risk and growth. Elevated levels of private sector debt and leverage increase potential risks that should be addressed in portfolios as the cycle ages. MACRO VIEW Recent data from the Federal Reserve shows private sector debt remains elevated despite some household deleveraging. We continue to believe a relationship exists between private sector debt, the economic cycle, and equity market volatility, and that relationship is stronger today than years ago….
THE WEEK AHEAD Federal Open Market Committee (FOMC) rate decision, projections, and press conference Wednesday afternoon should garner significant attention and will Likely sets the stage for a December tightening. MACRO VIEW This week’s FOMC meeting should set the stage for a December hike. There is little in recent statements that lead us to believe a September tightening is in the cards. Data since July was generally positive, opening the door for a more balanced statement. Brexit failed to produce a worse case dislocation, and leading indicators appear resilient. The WCA Fundamental Conditions Index rose through the summer months, and…
Global growth is picking up. At Jackson Hole, Janet Yellen said the case for a rate increase is stronger, given the recent pickup in data. It appears that earlier concerns that Brexit would hurt near-term growth were misplaced. Weak productivity growth, a clouded earnings picture, and lackluster investment remain long-term concerns. This week’s data will provide further insight into employment and manufacturing trends. The Federal Reserve of Atlanta’s “GDP Now” estimate of Q3 GDP is 3.6%. Private forecasters seem to be raising their growth forecast toward 3%. This is a big improvement from last winter’s 1% growth environment. Steady consumer demand, coupled with…
The Federal Reserve (Fed) releases the minutes from July Federal Open Market Committee (FOMC) meeting on Wednesday. MACRO VIEW Credit spreads are tighter. Commodity prices are firmer. More stocks are participating to the upside. Financial conditions within the banking system are improving. These are some of the “high frequency” items that are on the mend this year. As this happens, equity markets are performing better. Our own WCA Fundamental Conditions Barometer (below) is telling a similar story. Around the time markets began to price in a less-hawkish Fed earlier in the year, conditions began to firm. Commodities ended their freefall. …
The data supports an economy gathering momentum into the third quarter. This week brings some additional data on retail sales and consumer sentiment. MACRO VIEW The July employment report was strong. Jobs rose 255,000 in the month, adding to the 292,000 increase in June. These increases contrast sharply with the 84,000 average job gain in April and May. The strength in jobs suggests income and spending are also picking up. The Federal Reserve of Atlanta now estimates the economy will grow 3.8% in the third quarter. Growth averaged just 1% in the fourth quarter of 2015 and first quarter 2016….
Friday’s July employment report is the big number this week. This indicator is a focal point for the Federal Reserve (Fed) and has been very erratic of late. The 6,000 job loss in May was shockingly poor, but it was followed by a better-than-expected 265,000 job gain in June. Will the real labor market please stand up? A Bloomberg survey reveals a street expectation of 171,000 jobs and a 4.8% inflation rate. MACRO VIEW Last week’s Gross Domestic Product (GDP) report showed an economy growing at just 1.2%. This headline figure will be revised further, but taken at face value,…
Britain’s decision to leave the European Union (EU) reflects widespread dissatisfaction with EU governance. The rejection of EU governance highlights the inherently unstable nature of the organization. If individual members experienced long-run benefits, defections would not occur. Instead, the people of Europe would press for a formal merger. If individual members become dissatisfied, these countries are likely to break away. Why would a dissatisfied and democratic country like the United Kingdom look to remain? Most, including us, believed the vote would lean toward maintaining the status-quo. This exit vote marks the first tangible step backward from the decades old vision…
The Doha oil talks concluded with a resounding thud over the weekend, as media sources reported an abrupt end to talks aimed at curtailing oil supply. Iran’s absence at the meeting was cited as a primary catalyst for the end of talks. We expect oil to trade lower, as markets unwind some of oil’s recent run-up that occurred in anticipation of more positive news. Brent crude closed Friday 14% above its 100-day moving average and more than 50% above the January lows near $26. Given the elevated correlation between credit spreads and oil prices, we would not be surprised to…
Light economic data from the United States expected this week, and the European Central Bank (ECB) is expected to deliver additional monetary stimulus. China releases February’s Merchandise Trade Balance, Consumer Price Index, and Producer Price Index while Japan and the EU both release their latest GDP prints. MACRO VIEW We are looking for signs of an upturn in the data when we update our WCA Fundamental Conditions barometer and forecasts next week. For now, we view the recent stabilization in commodities and better tone in the stock market as providing some reason for optimism, but we need further evidence that…
A short trading week sees December 2015 Consumer Price Index released on Wednesday, January’s Philadelphia Federal Reserve (Fed) Business Outlook Survey on Thursday, and December 2015 Existing Home Sales on Friday. Consumer prices have been showing more life than other inflation readings. According to Econoday, the consensus for December is for a fourth straight 0.2% gain for the core (ex-food and ex-energy) reading. Total prices are expected to come in unchanged reflecting another expected decline for energy. The Federal Reserve Bank of Atlanta recently lowered its Fourth Quarter of 2015 growth forecast from 0.8% to 0.6% (see below). This would…
A Christmas-shortened week sees the final release of third quarter Gross Domestic Product (GDP) on Tuesday and Core Capital Goods Orders on Wednesday. Markets close early on Thursday for Christmas Eve and are closed on Friday for Christmas Day. Core Capital Goods Orders could be the best leading indicator of all on business investment spending. Orders tend to decline six to twelve months before an economic downturn and typically rebound anywhere from three to eighteen months after the bottom of the recession (See chart below). The steady climb in capital goods orders that followed the last recession has slowed somewhat…
Full Report WHAT ’S DRIVING GROWTH? Asset Allocation Update Fourth Quarter, 2015 From 1980 to 2007, the economy grew near a robust 3-3.5% trend growth rate throughout the 27-year period. The period began with the Dow at 840 and ended 2007 with the Dow over 13,000. Recessions were of the normal variety, with business slumps followed by robust recoveries and expansions. Technology, an expanding workforce, a pervasive spirit of entrepreneurial risk-taking, freer trade, lesser regulation, and reduced tax burdens all fostered growth. This 27-Year Period Saw: 1. GDP grow to $15 trillion from $6.5 trillion, 2. Household net worth grow to $67 trillion from $10…
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