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The world economy continues to grow at half-speed as emerging economies downshift from a period of rapid and credit-fueled growth. At the same time, developed economies like the United States appear to be growing at a slow-but-steady pace. Before the last recession, emerging economies grew near 9% and developed economies grew near 3%. Today, those growth rates stand nearer to 4% and 1.8%, respectively. The world’s economies are collectively growing at a little more than half as fast as they were just a few years ago. Financial market conditions are tightening, however, and this introduces some downside risk. Financial market…
This week brings more information on the economy’s performance including Friday’s August employment report. The rise in volatility comes just weeks before the Federal Reserve (Fed) is expected to decide on the timing of the first rate increase in a decade. Consequently, the focus will be on how the recent spike in market volatility is sustained and to what extent it feeds back into the real economy. While last week’s tumult is probably too recent to register much of an impact on the employment report, each new piece of information from here will be evaluated from the perspective of how…
We see higher long-run returns from emerging markets after a five year period of sideways performance and as returns in recent years push the Morgan Stanley Capital International (MSCI) EM Index well below the long-run trend (chart below). We are currently expecting long-run EM equity returns to be about 1% higher than our current long-run domestic equity return, now that the emerging markets have suffered through five years of sideways market action and underperformance versus developed equity markets. The multi-year slog for emerging market investors means that major EM indices remain near the levels seen during the 2008-2009 recession, despite…
Greece’s troubles enter a new and uncharted phase this morning, as Greek negotiators abandoned talks this weekend with creditors and, instead, called for a July 5 referendum where the Greek people will vote on whether they agree with the latest proposal by creditors (which actually no longer exists). Greece’s creditors rejected Greece’s request for an extension of the current loan program, which means that the Greek government will not have access to a remaining 16 billion Euros of additional funding. Consequently, the Greek government will most likely miss a €1.5 billion Euro payment due to the International Monetary Fund (IMF)…
The May employment report was solid and brings the three-month average job growth number to 206,000. The unemployment rate of 5.5% is within a range that could be considered within earshot of “full employment.” Wages are picking up modestly, as hourly earnings continue to show signs of lift (now above 2% year over year). Hours worked remain relatively steady. Consequently, the “output gap” continues to narrow, and all signs are pointing to a rate increase by the Federal Reserve (Fed) later this year. This action is out of step with broader global indicators of growth, and this was highlighted by…
Year Six and Counting This Friday will bring another employment situation report, and expectations are for another addition of 248,000 jobs with the unemployment rate expected to hold steady near 5.5%. To put the progress in perspective, we thought we would use this week’s News You Can Use to lay on the table a simple overview of the economic progress made to date. We are now six years beyond the deepest recession since the Great Depression, and we are beyond the recovery phase and into the expansion phase. Although we’ve seen some slippage in the data of late, the broader…
The dollar halted its relentless rise of the past few months last week as the Federal Open Market Committee (FOMC) offered a set of macro forecasts that were much weaker than the markets expected. Forecasts were cut across the board for growth and inflation for both 2015 and 2016. The longer run expectation for inflation remained at 2%, while the longer run expectation for unemployment was reduced to 5-5.2%. At the same time, the FOMC (as expected) removed their “patient” language in describing their posture with regard to the timing of an initial rate increase. The combination of the lowered…
Published on Mar 16, 2015 Our Market Monitor has a list of stocks to buy that may provide some stability for your portfolio.
Thursday’s European Central Bank (ECB) announcement on monetary policy should attract considerable investor attention, given mounting deflation concern and faltering growth across much of Europe. Macro View The flow of data relating to economic and market fundamentals has become increasingly mixed as global inflation slips, demand from emerging markets weakens further, and investors express higher risk aversion. The widening of credit spreads, flattening of the yield curve, and an increase in volatility, as measured by the VIX, are all clear manifestations of heightened risk aversion. These impulses, coupled with continued signs of weakness in global growth, have led to declines…
As we head into the new year, we see the United States economy emerging as a bright spot on the global stage. For 2015, we expect to see above-trend growth, further improvement in private sector balance sheets, and generally improved confidence. The domestic economy should perform better than Europe, where structural reform is still needed, and better than many of the emerging markets, which continue to struggle. Chinese growth should continue to moderate, while Russia and other large net energy exporters will struggle given today’s lower oil price. A recent modest pickup in volatility, slippage in Treasury yields, and a…
Macro View As 2014 starts to wind down, we see oil prices headed south along with bond yields and equity prices closing near the highs for the year. This is a happy state of affairs for most, as 401(k) values are getting a boost while daily living expenses get a bit easier to carry. In contrast to the oil shocks that occurred in 1973-1974, 1979, 1980, 1990, and 2003-2004, today’s sharp drop in oil prices is conveying benefits to the average worker who has been struggling to see a real increase in wages. With the average price for a gallon…
Last week’s strong jobs report continues a trend of solid data that suggests the U.S. economy is closing out 2014 with good form. Macro View The U.S. economy continues to deliver relatively solid results. Just recently, we’ve seen impressive results on employment, purchasing managers indices, and vehicle sales. Notably, last month’s 321,000 jobs added were the most since January 2012. To put this in perspective, the total number of private sector jobs added in the past year is close to 2.66 million. This pace is better than our expectation for this year and is near the peak level of job…
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