Weekly Market Commentary
October 1, 2018
The Markets
It wasn’t headline news…
But, if newsprint was still popular, last week’s key economic news would have appeared below the fold.
Weekly Market Commentary
September 24, 2018
The Markets
Did you hear the news?
Summary and Conclusion:
Asset prices rose in August driven by strong earnings that reflected continued solid economic growth and the corporate tax cut. Central Bank actions that resulted in a decline in the quantity of dollars, net, on the Central Banks’ balance sheets moderated the rise in asset prices. Following a bullish assessment of the economy by Chairman Powell at Jackson Hole, the 10 year Treasury bond yield climbed back to nearly the 3 percent level from the 2.8 to 2.9 levels that prevailed during the past few months. The S&P500 index of U.S. equity market prices rose 1.8 percent during July ending the month roughly 6.8 percent above the level of yearend 2017. The equity market in August maintained the trend of steady growth in asset prices at relatively low volume and volatility that has characterized equity markets over the past several years, save the February – April period when assets were repricing to reflect the changes to relative after-tax earnings due to U.S. Federal tax legislation. The VIX rose back to its level of May-June 2018 in August but is still nearly 50 percent above the levels of autumn 2017 and roughly sixty percent of the levels prevailing from February-April 2018. The yield on 10 year U.S. government bonds rose back to near the 3.0 percent rate by the end of August after spending the last several months in the 2.8 to 2.9 percent range.. The higher level of the 10 year rate, relative to that of autumn 2017, is consistent with a pickup in productivity growth based on stronger investment spending last year, as well as expectations of continued strong investment due to the incentives for investment spending in the recently passed tax bill. The 2018Q2 GDP release as well as the Chairman Powell’s Jackson Hole Speech removed traders concerns regarding business investment and inflation. Net sales of Treasury and Mortgage backed Securities by the Federal Reserve and some other Central Banks is also contributing to the rise in the yield on 10 year bonds. The Federal Reserve decided to leave the target range of the Federal Funds rate unchanged at a target range of 1.75 to 2.00 percent at its August 1 meeting. (The latest release on core and headline inflation based on the PCE price index registered 2.3% (headline) in July relative to July of 2017 and 2.0% on core (excluding food and energy). The Fed’s target is 2.0 percent inflation on the headline PCE price deflator. (The Fed in its May Press Release emphasized that the 2 percent objective is a symmetric one allowing for some overshoot as well as undershoot of inflation.) The dollar remained relatively unchanged against the major currencies -- a level 3.8 percent stronger than its January 2018 reading, but 5.5 percent weaker than in January 2017. I attribute the stronger dollar since January 2018 to a combination of the Federal Reserve’s normalization of its balance sheet (- $260 billion) that has offset the increases in international reserves of foreign central banks as well as the continuation of strong U.S. growth and the risk of weaker than expected growth abroad.
Weekly Market Commentary
September 17, 2018
The Markets
All investors are consumers, but not all consumers are investors.
Weekly Market Commentary
September 10, 2018
The Markets
Remember: Volatility is normal.
Major U.S. stock market indices climbed into record territory during August. They gave back some gains last week. Peter Wells of Financial Times explained:
“Speculation about a fresh round of tariffs on Chinese imports from the Trump administration weighed on U.S. stocks, handing the S&P 500 its first four-day losing streak in a month. A strong jobs report only hardened expectations that the Federal Reserve views the U.S. economy as healthy enough to withstand a probable interest rate rise later this month.”
Weekly Market Commentary
September 4, 2018
The Markets
Where is our country’s biggest export market?
Markets were fired up last week after the United States and Mexico agreed on new trade rules. The Standard & Poor’s 500 (S&P 500) Index reached an all-time high and finished the month of August up about 3 percent, reported Michael Sheetz, Thomas Franck, and Alexandra Gibbs of CNBC.
Weekly Market Commentary
August 27, 2018
The Markets
Tick, Tock.
Not everybody loves meetings and even fewer enjoy reading the minutes, but investors make an exception with the Federal Reserve. This week the Fed published the minutes from its August 1 meeting. While no changes were made to interest rates, the minutes did provide insight to how the Fed sees the U.S. economy.
Key Insights:
While the Fed remains concerned about the risks of inflation, it also is concerned about slowness in the housing market. Home building has declined due to a labor shortage and to higher cost in materials from tariffs, according to The New York Times.
Weekly Market Commentary
August 20, 2018
The Markets
As Maxwell Smart used to say…
Summary and Conclusion:
Asset prices rose in July driven by strong earnings that reflected continued solid economic growth and the corporate tax cut. Central Bank actions that resulted in a decline in the quantity of dollars, net, on the Central Banks’ balance sheets moderated the rise in asset prices. Following a bullish FOMC assessment of the economy, the 10 year Treasury bond yield climbed back to the 3 percent level from the 2.8 levels that prevailed during the past few months. The S&P500 index of U.S. equity market prices rose 4.3 percent during July ending the month roughly 4.7 percent above the level of yearend 2017. The equity market in July maintained the trend of steady growth in asset prices at relatively low volume and volatility that has characterized equity markets over the past several years, save the February – April period when assets were repricing to reflect the changes to relative after-tax earnings due to U.S. Federal tax legislation. The VIX dropped back to its low level of July 2017 in July but is still nearly 25 percent above the levels of autumn 2017 and roughly fifty percent of the levels prevailing from February-April 2018. The yield on 10 year U.S. government bonds breached the 3.0 percent rate during the end of July after spending the last several months in the 2.8 to 2.9 percent range. The higher level of the 10 year rate, relative to that of autumn 2017, is consistent with a pickup in productivity growth based on stronger investment spending last year, as well as expectations of continued strong investment due to the incentives for investment spending in the recently passed tax bull. The recent decline reflects concerns that a change in trade policies might offset the effects of deregulation and tax policies that have spurred investment and spending growth. The 2018Q2 GDP release as well as the FOMC’s Press Release removed traders concerns regarding business investment and inflation. Net sales of Treasury and Mortgage backed Securities by the Federal Reserve and some other Central Banks is also contributing to the rise in the yield on 10 year bonds. The Federal Reserve decided to leave the target range of the Federal Funds rate unchanged at a target range of 1.75 to 2.00 percent at its August 1 meeting. (The latest release on core and headline inflation based on the PCE price index registered 2.2% (headline) in June relative to June of 2017 and 1.9% on core (excluding food and energy). The Fed’s target is 2.0 percent inflation on the headline PCE price deflator. (The Fed in its May Press Release emphasized that the 2 percent objective is a symmetric one allowing for some overshoot as well as undershoot of inflation.) The dollar remained relatively unchanged against the major currencies -- a level 3.0 percent stronger than its January 2018 reading, but 6.1 percent weaker than in January 2017. I attribute the stronger dollar since January 2018 to a combination of the Federal Reserve’s normalization of its balance sheet (- $220 billion) that has offset the increases in international reserves of foreign central banks as well as the continuation of strong U.S. growth and the risk of weaker than expected growth abroad.
Weekly Market Commentary
August 13, 2018
The Markets
Let’s talk Turkey!
So, how did a country that represents just about 1.4 percent of the world’s economy spark a global selloff?
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