Little is expected from the current earnings season. At best, corporate profits may eke out a small gain compared to last year’s second quarter. Moreover, with Trump’s trade war still threatening to worsen, the yield curve still inverted, and because the U.S. economy is now in the longest expansion in its history, many are understandably worried that earnings growth may remain challenging.Read more
As shown in Chart 1, since 2015, the trade-weighted U.S. Dollar index has generally ranged between 90 and 100. Its recent stability, at a level much higher than it was during the first half of this economic recovery, has played an important role in shaping the economic and financial-market landscape.Read more
Factors provide investors with the ability to shift their portfolio’s characteristics to fit a particular economic and market outlook. Value might look appealing under one set of conditions while Quality might be more desirable in another. We developed a research platform that analyzes various drivers of factor returns, summarized in Exhibit 1.Read more
The Momentum category continues to grind higher, but this push has predictably stirred up investor enthusiasm (as measured this week by an identical decline in our Attitudinal composite). At the same time, longer-term measures like CEO Confidence, Small Business Optimism, and Consumer Confidence have all weakened in the latest reports, suggesting a rollover in animal spirits could be underway.Read more
There is still plenty to worry about. The never-ending trade war enters yet another round of negotiations, geopolitical risks simmer, many economic reports (both in the U.S. and around the globe) remain weak, the size of negative-yield debt is becoming nearly as large as U.S. GDP, the U.S. stock market continues to exhibit a worrisome “triple-top” pattern, small cap stocks continue to trail, the yield curve is still inverted and, because of a “strong” jobs report on Friday, there is now doubt about whether the Fed will cut interest rates later this month.Read more
The bounce in the Economic category interrupted its last few months’ steady grind lower; the increase was led mostly by an upgrade to the NOPE Index (ISM New Orders Minus Price Index), which moved from high neutral to moderately bullish. The action of individual components is hardly reassuring, however.Read more
Like today, the Federal Reserve usually sucks all the oxygen out of the national economic-policy conversation. And, why not? It is comprised of a small elite group who hold conferences in exotic locations (Jackson Hole), have regular strategy meetings culminating in ‘must-see’ press conferences, make dot-plots sound interesting, and, between meetings, members regularly spout-off contradictory opinions.
The Economic work continues to erode, and it would now be deeply negative if not for the conventional scoring of our leading inflation measures, in which disinflation is viewed as a good thing. But if our suspicions that this economic cycle will end in a deflationary bust are correct, the conventional interpretation will be wrong.Read more
This week the Federal Reserve delivered the requisite preamble signaling an inevitable cut in the Fed funds rate. Following that, the 10-year Treasury yield declined below 2%, financial markets now point to a 100% probability of a rate reduction, and the old adage ‘Don’t Fight the Fed’ has been ringing in investors’ ears.Read more
A less-publicized, but still worrisome “inversion” occurring beyond the Treasury market is that of Consumer Confidence, in which the Conference Board’s Present Situation Index has soared almost 70 points above the Expectations Index. This gap always becomes extreme in the late stages of an economic expansion, and today’s reading surpasses those recorded at all business cycle peaks other than February 2001.Read more
Surveys are conducted frequently on Wall Street as investors are always assessing whether there are too many bulls or too many bears. The problem with surveys is people do not always do what they say (perhaps as we found out leading up to the last presidential election).Read more
A survey asking equity investors whether the stock market does best with a strong or weak U.S. dollar would likely yield a variety of contradicting opinions—and they would all be correct! Like many couples, the stock/dollar relationship is complicated. Sometimes they get along blissfully, other times they separate because they find they rarely agree and, often, they simply seem indifferent to each other. They are an odd couple!
U.S. economic growth has recently slowed and most attribute the weakening to trade wars now being fought on several fronts (China, Mexico, Europe?). Bond vigilantes have become so concerned about the potential for negative economic fallout that they have inverted the yield curve.Read more
It’s hard to grow profits when an economy’s resources are already fully employed, a fact we highlighted when the U.S. Output Gap turned positive several quarters ago. Therefore, the first quarter drop in NIPA corporate profits, reported yesterday, shouldn’t have come as a surprise.
The bond market is now the primary fear for stock investors. Bond yields just keep declining, the yield curve has again inverted, and many wonder ‘why is the bond market so spooked?’ Could it be signaling a recession and therefore a bear market?Read more
What a difference a year makes! In early 2018 we were celebrating 20% earnings growth, driven by a strong economy and the massive corporate tax cut. Sales were rising at a double-digit rate and the tax burden was shrinking dramatically, setting up one of the best earnings years in history.Read more