• Ten Year Treasuries touched 5% on October 19th, up 1.43% since Jan 1. • Two-year rates exceed ten-year rates in July of 2022 (yield curve inversion). • In the past, yield curve inversion has always signaled recessions. • The recessions typically have occurred 18-24 months after inversion. Over the course of the past months, […] Read the full article…
Economic charts may be as boring as they come… but not this one. Below we have a chart of US Real Disposable Income. Pandemic aid and enhanced unemployment payouts took what was a steady 2.6% growth over the last 10 years and generated a big shock up in income. Here we see massive pandemic aid […] Read the full article…
In a speech this morning, Jerome Powell, head of the Federal Reserve, said that the economy had met the test for ‘substantial further progress’. He went on to say that the Federal Reserve could begin tapering asset purchases this year, but that the Federal Reserve will be patient when it comes to raising interest rates. […] Read the full article…
Inflation is a highly persistent topic for the media and for some clients as well. Today, let me summarize my outlook and portfolio strategy. • We have short-term inflation; Long-term inflation is the open question • Much of the inflation we do have is due to supply-demand shocks • Consensus opinion of macro economists & […] Read the full article…
On Monday, Vanguard’s Investment Strategy Group released their monthly economic and market update. • Vanguard expects 7% GDP growth for the full year 2021 • Inflation is expected to peak this year and decline in 2022 • Interest rates for the 10Y are expected to rise late 2022 reaching 3% in 2024/5 Vanguard’s team noted […] Read the full article…
Yesterday we got the news that a bipartisan group of ten senators have reached a tentative deal on infrastructure spending. My first reaction is very positive. Could the two sides actually come together and agree on infrastructure? It’s still early in the process, but let’s see if they can get it done. We don’t have […] Read the full article…
• The Case-Shiller National Home Price index hit a record high adjusted for inflation at the end of March • At the same time, new home starts fell 13 percent month over month in April • Builders are facing issues with increased raw materials costs, labor shortages and affordability issues Over the long run, home […] Read the full article…
Mid- to late March of last year the Covid 19 shutdown of the economy was well underway. The government response was every bit as unprecedented as the shut-down. Today, I’d like to take a big picture view of what happened, where we are and what happens next. Let’s dive in. What happened? Decisions made by […] Read the full article…
• In a CNBC interview yesterday, Janet Yellen said, ‘I think the price of doing too little is much higher than the price of doing something big.’ • She argued that unemployment would be 10% if we measured it correctly. • She said inflation is not a big concern because the Federal Reserve ‘has tools’ […] Read the full article…
Yesterday, President-elect Biden’s “rescue plan” for additional stimulus was released. The plan includes $2,000 in direct payments to individuals, aid for small businesses, $350 Billion in state and local aid and tax breaks and credits for low- and middle- income families. As I review forecasts for future returns, many questions come up about whether stimulus […] Read the full article…
• US stock market returns for 2020 by sector have ranged from -38% (energy) to +18% (tech). • Sector returns are correlated with estimated earnings growth for 2020 • Current forecasts for earnings are highly uncertain given pandemic and lack of company guidance • For these reasons, we are keenly focused on earnings reports that […] Read the full article…
Stock market uncertainty is as high as I can ever recall. The pandemic, economic shut-down and civil unrest have all hit at the same time. Still, the US stock market is within 5% of it’s all-time high from February. How can this be possible? Puzzling. Let’s break it down. Below I outline the top 3 […] Read the full article…
• The Fed cut rates for the third time since July on Wednesday • The target lending rate is now 1.5% – 1.75% • In the last four times the Fed cut rates, when they stopped at three cuts the economy avoided recession As expected by the market, the Fed cut rates again today. Jerome […] Read the full article…
• Manufacturing signals remain weak • Jobs and consumer confidence remain positive • Phase 1 China trade deal gave market a boost • Overall, GDP growth has slowed but remains persistently positive for now We started October with a flurry of economic reports. The reports have been mixed and the result has been a choppy […] Read the full article…
The financial press and markets don’t like the inverted yield curve By itself, the inverted yield curve is a weak predictor for near term recession Credit markets, employment, and production factors should be considered The yield curve model is predicting 20% chance of recession while the more complete model is projecting recession risk in the […] Read the full article…
• The Federal Reserve is expected to cut rates .25% on Wednesday • The US economy showed better than expected growth in Q2 at 2.1% • Still, the Federal Reserve is concerned about slow global growth and trade tensions and will likely make a preemptive cut to keep the economy on track. The Federal Reserve […] Read the full article…
• Initial jobless claims for the week ending April 6 fell to 196,000 • Unemployment claims are a leading indicator for the economy • March non-farm payroll was solid with 196,000 new jobs created Some economists had feared that weak jobs data in February may have been signaling a weaker economy. However, job creation in […] Read the full article…
Yesterday, the Federal Reserve held the Fed funds rate at their current level, between 2.25 and 2.5%. This after hiking rates 4 times last year. The Federal Open Market Committee (FOMC) minutes state, “In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future […] Read the full article…
• Bear market is defined as a drop of more then 20%. • Since 1945, recessions have followed 8 of the 13 times the market went into a bear market. • In the five cases where the market dropped 19%, a recession followed one time. As of today, the S&P 500 is trading at about […] Read the full article…
I thought it would be fun to provide an update on the US economy in graphical form. These charts were generated using the Federal Reserve Bank of St. Louis website known as ‘FRED’. Grey bars in the slides denote prior recessions. The Philadelphia Fed Leading Index is a composite derived from multiple variables. Note that […] Read the full article…