John Rothe | Portfolio Manager, Quant, Tech Geek, And Sometime Superhero To My Kids http://www.johnrothe.com Tue, 19 Jan 2016 16:46:19 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.7 2016: Don’t Listen To Wall Street This Year http://www.johnrothe.com/2016-dont-listen-to-wall-street-this-year/ http://www.johnrothe.com/2016-dont-listen-to-wall-street-this-year/#comments Tue, 19 Jan 2016 16:33:52 +0000 http://www.johnrothe.com/?p=5663     Investors have been faced with extremely volatile markets this year. As a result, investors have been looking for guidance — from news outlets like CNBC, and Wall Street strategists. However, as 2008 has shown us, this may not be the best approach for investors to take…   The Problem With Wall Street’s Predictions Continue Reading

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Investors have been faced with extremely volatile markets this year. As a result, investors have been looking for guidance — from news outlets like CNBC, and Wall Street strategists.

However, as 2008 has shown us, this may not be the best approach for investors to take…

 

The Problem With Wall Street’s Predictions

wallst

For years, BusinessWeek magazine’s last issue of the year contained a feature in which leading Market forecasters gave their predictions for the coming year.

Here are their predictions for the S&P 500 for 2008, published on the very last day of 2007.  In other words, these predictions were for the year that began the very next day, so it’s not exactly a group of long-range predictions.

In spite of that – of these 13 well-known, high-profile and highly-paid forecasters – 11 predicted a positive 2008, and some even a great 2008!

One predicted a slightly-down 2008, and the most-negative prediction suggested just a modest decline, only 8%!

The average prediction was for almost a 10% gain. The actual result of the S&P 500 index was -38.5%, so to say they were a bit off-the-mark is an understatement!

Yet investors by the millions continue to hang on every word uttered by this elite group.

 

News Outlets

Predictions, Opinions, Outlooks and Forecasts are embedded in practically every segment that’s broadcast on the financial-news channels such as CNBC.

Guests on CNBC are knowledgeable, well-spoken, completely rational … and frequently wrong.

Here is a sampling of what was said in 2008, when investors needed good guidance the most:

tvheads

Even many CEOs – who should know more than anyone about the prospects for their own companies – were tragically wrong .

Supposedly-objective analysts like Larry Kudlow, in the upper right, and the Financial Times guy in the lower left, were terribly wrong.

The Wall Street Journal Study

Are the predictions of Market experts and forecasters usually right?  Or are we picking on them by displaying a handful of rare and unusual misfires?

Not according to a study reported on by the Wall Street Journal in October of 2010.

Professor Phillip Tetlock, of the University of Pennsylvania, studied 20 years of predictions from 284 experts in the fields of politics and finance (which, of course, includes the Stock Market), and carefully catalogued the outcomes of a staggering 82,361 predictions.

He concluded that experts are more often wrong than right, … and would have done better flipping a coin!


wsj

He further found that the more degrees experts have, the more likely their predictions are to be wrong – and even worse, to stay wrong – evidently because they think so much of their own opinions, that they refuse to change them, even in the face of facts to the contrary!

So, sadly, misfires in predicting – even from highly-paid experts – seem to be the rule, not the exception.

 

 

Featured image: Flickr/Anthony Wong

 

 

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Chart Of The Day: Oil http://www.johnrothe.com/chart-of-the-day-oil/ http://www.johnrothe.com/chart-of-the-day-oil/#comments Wed, 09 Dec 2015 14:19:27 +0000 http://www.johnrothe.com/?p=5659 With a crude oil now trading under $40 dollars a barrel, today's chart presents the current, long-term trend of West Texas Intermediate crude.

As today's chart illustrates, crude oil traded within the confines of a long-term upward sloping trend channel since the late 1990s. However, with the dramatic 59% plunge from mid-2014 to March 2015, crude oil broke below support ...

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With a crude oil now trading under $40 dollars a barrel, today’s chart presents the current, long-term trend of West Texas Intermediate crude.

As today’s chart illustrates, crude oil traded within the confines of a long-term upward sloping trend channel since the late 1990s. However, with the dramatic 59% plunge from mid-2014 to March 2015, crude oil broke below support (green line) of its 17-year long-term trend channel.

That decline was followed by a relatively short rally that brought oil back up to what was once long-term support.

Today, largely as a result of economic reports that indicate that the Chinese economy continues to slow and the fact that the US has become the defacto swing producer, crude oil is once again pulling away from resistance (red line) of its two-year downtrend channel and has just made new post-financial crisis lows.

Via: Chart of the Day

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WEEKLY ECONOMIC UPDATE – December 7, 2015 http://www.johnrothe.com/weekly-economic-update-december-7-2015/ http://www.johnrothe.com/weekly-economic-update-december-7-2015/#comments Mon, 07 Dec 2015 16:21:27 +0000 http://www.johnrothe.com/?p=5654 JOBS REPORT GIVES THE FED A GREEN LIGHT The economy created 211,000 jobs in November – a healthy hiring total that could prompt the Federal Reserve to tighten for the first time since 2006. Job growth has averaged 218,000 over the past three months (the Labor Department just revised October and November job gains upward Continue Reading

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JOBS REPORT GIVES THE FED A GREEN LIGHT

The economy created 211,000 jobs in November – a healthy hiring total that could prompt the Federal Reserve to tighten for the first time since 2006. Job growth has averaged 218,000 over the past three months (the Labor Department just revised October and November job gains upward by a total of 35,000 hires). Unemployment remained at 5.0% in November while underemployment (the U-6 rate) ticked up to 9.9%. Yearly wage growth was at 2.3%. Economists polled by Briefing.com expected 196,000 November payroll additions.1,2

 

SERVICE SECTOR GROWS, FACTORY SECTOR SHRINKS

According to the Institute for Supply Management, U.S. manufacturing contracted last month. The ISM factory PMI came in at a troubling 48.6, down from 50.1 in October (anything over 50 denotes growth). The Institute’s service sector PMI declined 3.2 points in November, but its 55.9 mark indicated solid expansion.2

 

PENDING HOME SALES INDEX IMPROVES

Housing contract activity increased 0.2% in October, representing a turnaround for the pending home sales index maintained by the National Association of Realtors. The index had retreated 2.3% in September.2

 

OIL SETTLES AT $39.97

Light sweet crude closed below the $40 level Friday, losing 2.7% for the day. Gold, on the other hand, gained $22.90 on the COMEX Friday to close at $1,084.10.3

 

A FRIDAY RALLY LEADS TO A WINNING WEEK

Two things turned a down week into a slightly positive one on Wall Street: the latest jobs report and European Central Bank president Mario Draghi’s comment that the ECB’s stimulus effort had “no particular limit.” The Dow rallied 369.96 Friday. Across five trading days, the Nasdaq gained 0.29%, the Dow 0.28% and the S&P 500 0.08%. The Friday settlements: Nasdaq, 5,142.27; Dow, 17,847.63; S&P, 2,091.69.3

 

THIS WEEK: Diamond Foods and H&R Block present earnings Monday. Tuesday offers earnings news from AutoZone, Casey’s General Stores, Dave & Buster’s, Krispy Kreme, Smith & Wesson and Toll Brothers. Wednesday brings earnings from Costco, Lululemon Athletica, Men’s Wearhouse and Pep Boys. In addition to a new initial jobless claims report, Thursday will also see earnings announcements from Adobe and Restoration Hardware. The November PPI, November retail sales numbers and the initial December University of Michigan consumer sentiment index will all be released on Friday.

 

% CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG
DJIA +0.14 -0.29 +11.36 +6.47
NASDAQ +8.58 +7.82 +19.69 +12.78
S&P 500 +1.59 +0.95 +14.16 +6.57
REAL YIELD 12/4 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO

10 YR TIPS

0.68% 0.48% 0.86% 2.17%

 

Featured image: GotCredit
Sources: wsj.com, bigcharts.com, finance.yahoo.com, treasury.gov – 12/4/154,5,6,7,8

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

1 – forbes.com/sites/samanthasharf/2015/12/04/solid-jobs-report-211000-jobs-added-in-november-unemployment-rate-unchanged-at-5/ [12/4/15] 2 – briefing.com/investor/calendars/economic/2015/11/30-04 [12/4/15] 3 – cnbc.com/2015/12/04/us-markets.html [12/4/15] 4 – markets.wsj.com/us [12/4/15] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=12%2F4%2F14&x=0&y=0 [12/4/15] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=12%2F4%2F14&x=0&y=0 [12/4/15] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=12%2F4%2F14&x=0&y=0 [12/4/15] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=12%2F3%2F10&x=0&y=0 [12/4/15] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=12%2F3%2F10&x=0&y=0 [12/4/15] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=12%2F5%2F05&x=0&y=0 [12/4/15] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=12%2F5%2F05&x=0&y=0 [12/4/15] 5 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=12%2F5%2F05&x=0&y=0 [12/4/15] 6 – finance.yahoo.com/q/hp?s=^DJI&a=11&b=4&c=2010&d=11&e=10&f=2010&g=d [12/4/15] 7 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [12/4/15] 8 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [12/4/15]This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

 

 

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Yellen: Economic Outlook and Monetary Policy http://www.johnrothe.com/yellen-economic-outlook-and-monetary-policy/ http://www.johnrothe.com/yellen-economic-outlook-and-monetary-policy/#comments Wed, 02 Dec 2015 19:09:28 +0000 http://www.johnrothe.com/?p=5647 "Let me now turn to where I see the economy is likely headed over the next several years. To summarize, I anticipate continued economic growth at a moderate pace that will be sufficient to generate additional increases in employment, further reductions in the remaining margins of labor market slack, and a rise in inflation to our 2 percent objective. I expect that the fundamental factors supporting domestic spending that I have enumerated today will continue to do so, while the drag from some of the factors that have been weighing on economic growth should begin to lessen next year. Although the economic outlook, as always, is uncertain, I currently see the risks to the outlook for economic activity and the labor market as very close to balanced."

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Here is a link to today’s commentary from Fed Chair Janet Yellen-

yellen comments dec 2 2015

 

Probably the most important paragraph of her outlook:

“Let me now turn to where I see the economy is likely headed over the next several years. To summarize, I anticipate continued economic growth at a moderate pace that will be sufficient to generate additional increases in employment, further reductions in the remaining margins of labor market slack, and a rise in inflation to our 2 percent objective. I expect that the fundamental factors supporting domestic spending that I have enumerated today will continue to do so, while the drag from some of the factors that have been weighing on economic growth should begin to lessen next year. Although the economic outlook, as always, is uncertain, I currently see the risks to the outlook for economic activity and the labor market as very close to balanced.”

 

Here’s a link to the full PDF:  http://www.federalreserve.gov/newsevents/speech/yellen20151202a.pdf

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Chart Of The Day: Gold http://www.johnrothe.com/chart-of-the-day-gold/ http://www.johnrothe.com/chart-of-the-day-gold/#comments Wed, 02 Dec 2015 14:06:50 +0000 http://www.johnrothe.com/?p=5638 Timely chart on gold as investors will be keeping a close eye on today's lineup of Fed speakers. Over the past two years, gold has traded within the confines of a mildly sloped downward trend channel and is currently testing support...

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Timely chart on the trend in gold prices as investors will be keeping a close eye on today’s lineup of Fed speakers.

“Gold-bugs” love to watch gold prices as an indication of future inflation. (And will typically use gold as a hedge against inflation.)

Today’s Fed speakers:

8:10am: Lockhart

8:30am: Yellen

9:00am: Tarullo

12:25pm: Yellen

3:40pm: Williams

 

From Chart of the Day:

Today’s chart provides some long-term perspective on this millennium’s gold market.

As today’s chart illustrates, the pace of the bull market in gold that began back in 2001 increased over time.

In 2011, however, the parabolic trend in gold prices came to an end and a new downtrend began.

Over the past two years, gold has traded within the confines of a mildly sloped downward trend channel and is currently testing support.

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NAAIM Exposure Index http://www.johnrothe.com/naaim-exposure-index/ http://www.johnrothe.com/naaim-exposure-index/#comments Tue, 01 Dec 2015 16:12:54 +0000 http://www.johnrothe.com/?p=5634 The NAAIM Exposure Index represents the average exposure to US Equity markets reported by NAAIM (National Association Of Active Investment Managers) members.

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naaim2

The NAAIM Exposure Index represents the average exposure to US Equity markets reported by NAAIM (National Association Of Active Investment Managers) members.

The green line shows the close of the S&P 500 Total Return Index on the survey date. The blue line depicts a two-week moving average of the NAAIM managers’ responses.

It is important to recognize that the NAAIM Exposure Index is not predictive in nature and is of little value in attempting to determine what the stock market will do in the future. The primary goal of most active managers is to manage the risk/reward relationship of the stock market and to stay in tune with what the market is doing at any given time. As the name indicates, the NAAIM Exposure Index provides insight into the actual adjustments active risk managers have made to client accounts over the past two weeks.

NAAIM member firms who are active money managers are asked each week to provide a number which represents their overall equity exposure at the market close on a specific day of the week, currently Wednesdays. Responses can vary widely as indicated below. Responses are tallied and averaged to provide the average long (or short) position or all NAAIM managers, as a group.

Range of Responses:

200% Leveraged Short
100% Fully Short
0% (100% Cash or Hedged to Market Neutral)
100% Fully Invested
200% Leveraged Long

Data collection issues that may affect the statistical significance of this data include:

Use of a single, composite number for each adviser may not accurately represent the market view of a manager who has short term and long term strategies that are providing conflicting signals or a manager who uses both contra-trend and trend following strategies for different portfolios.

Investment Styles very widely among managers participating in this survey. They may include managers that trade very frequently and can switch long and short positions daily. Other managers stay fully invested at all times and only change allocations among market segments or sectors. Still others trade around core positions and only a portion of their portfolios change, but that portion could potentially go from long to short very quickly.

Sample size: Although the number of participating managers, known as NAAIM Trend Setters, is steadily growing the sample size is not large and therefore may be less reflective of actual market conditions.

 

Source: NAAIM

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Well, That’s Depressing… http://www.johnrothe.com/well-thats-depressing/ http://www.johnrothe.com/well-thats-depressing/#comments Tue, 24 Nov 2015 14:01:20 +0000 http://www.johnrothe.com/?p=5615 After adjusting for inflation, the median income of Americans peaked 15 years ago...

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After adjusting for inflation, the median income of Americans peaked 15 years ago.
The US economy has been primarily driven forward by the consumer. No wonder our economy is having a hard time getting steady traction.
Chart Courtesy of: Visual Capitalist

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Can Mortgage Rates Still Go Lower? http://www.johnrothe.com/can-mortgage-rates-still-go-lower/ http://www.johnrothe.com/can-mortgage-rates-still-go-lower/#comments Wed, 11 Nov 2015 13:59:51 +0000 http://www.johnrothe.com/?p=5611 For some perspective on all-important long-term interest rates, today's chart illustrates the 44-year trend of 30-year mortgage rates.

Ongoing concerns over a sluggish global economy in addition to a potential deflationary environment have encouraged investors...

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For some perspective on all-important long-term interest rates, today’s chart illustrates the 44-year trend of 30-year mortgage rates (thick blue line).

Ongoing concerns over a sluggish global economy in addition to a potential deflationary environment have encouraged investors, institutions and governments alike to move a portion of their investment dollars to the relative safety of US bonds.

This has resulted in a significant decline in the yield of long-term debt instruments. This decline has brought 30-year mortgage rates down to a level rarely seen over the past four decades.

Source: Chart of the Day

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The Ferrari IPO Is Here – Plus 10 Facts About The Company You Didn’t Know http://www.johnrothe.com/ferrari-ipo-is-here-plus-10-facts-about-the-company-you-didnt-know/ http://www.johnrothe.com/ferrari-ipo-is-here-plus-10-facts-about-the-company-you-didnt-know/#comments Wed, 21 Oct 2015 14:34:58 +0000 http://www.johnrothe.com/?p=5594 Ferrari’s IPO debut has finally arrived. The intial offering price was at the top of the previously indicated range of $48 to $52 per share and gives Ferrari a whopping market capitalization of around $9.8 billion. Not too shabby for a car that helped Ferris Bueller have the best day ever.

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Ferrari’s IPO debut has finally arrived. The intial offering price was at the top of the previously indicated range of $48 to $52 per share and gives Ferrari a whopping market capitalization of around $9.8 billion.

Not too shabby for a car that helped Ferris Bueller have the best day ever.


ten-amazing-facts-about-ferrari_53d7fbf21fc54_w1500

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Monthly Economic Update http://www.johnrothe.com/monthly-economic-update/ http://www.johnrothe.com/monthly-economic-update/#comments Thu, 08 Oct 2015 15:53:21 +0000 http://www.johnrothe.com/?p=5580 The Federal Reserve left interest rates alone in September, but that did little to calm investors. Growth worries took the market south again – the S&P 500 lost 2.64% for the month as more disappointing economic news filtered out of China. Perceptions of reduced demand for crude oil and other raw materials led to monthly losses in the commodities sector. America’s economic indicators looked good by comparison, but encouraging consumer spending and consumer confidence numbers failed to distract Wall Street during a gloomy end of summer for equities...

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THE MONTH IN BRIEF


The Federal Reserve left interest rates alone in September, but that did little to calm investors. Growth worries took the market south again – the S&P 500 lost 2.64% for the month as more disappointing economic news filtered out of China. Perceptions of reduced demand for crude oil and other raw materials led to monthly losses in the commodities sector. America’s economic indicators looked good by comparison, but encouraging consumer spending and consumer confidence numbers failed to distract Wall Street during a gloomy end of summer for equities.1

 

DOMESTIC ECONOMIC HEALTH


As recently as August, most investors hoped the Fed would hold off raising interest rates in September. The central bank did just that, and yet the market received no lift from its decision. Citing recent “global economic and financial developments,” Fed officials voted 9-1 against an upward move – but the policy statement issued after the vote contained a projection of where the federal funds rate would likely be at the end of 2015. The Fed’s dot-plot forecast estimated the key interest rate at 0.40% by that time, implying rates would rise in either October or December.2

Weak inflation also factored into the central bank’s decision. The August Consumer Price Index retreated 0.1%, with the core CPI advancing only 0.1%. Through August, the headline CPI had risen only 0.2% in 12 months (and there had only been a 1.8% rise in core CPI in that time). Producer prices were flat in August and down 0.8% year-over-year. With energy prices so low, that could mean comparatively little inflation pressure lasting into 2016.3

fred 1

American consumers seemed yet to be affected by slowing overseas economies. Personal spending improved by 0.4% in August, with personal incomes rising 0.3%. August saw only a muted gain for retail sales, though: 0.2%, 0.1% with auto sales removed.4

The gain in the Conference Board’s September consumer confidence index was a nice surprise. The 103.0 reading was 1.5 points higher than the August mark. Nothing similar happened with the University of Michigan’s household sentiment survey: it fell from a 91.9 final August reading to an 87.2 final September reading (which was still up 2.6 points from a year earlier).4,5

The Labor Department’s latest jobs report showed employers adding 173,000 new workers in August. That fell far short of consensus forecasts from the Wall Street Journal (220,000) and MarketWatch (213,000). Still, the Labor Department did revise the hiring total for both June and July up to 245,000. The U-6 rate recording “total” unemployment fell to 10.3% (down 1.7% in the past 12 months and underneath its 20-year average of 10.7%) while the basic U-3 unemployment rate declined to 5.1%.4,6

On the factory front, orders for durable goods fell 2.0% in August after a 1.9% rise in July; the federal government also measured an 0.4% dip in industrial production in August compared to July’s 0.9% gain. Early in September, the Institute for Supply Management presented some declining PMIs. In August, ISM’s manufacturing PMI came in at 51.1, down from 52.7 in July; its non-manufacturing PMI presented a much stronger 59.0 reading, though this was also underneath the July mark of 60.3. At the start of October, ISM’s September manufacturing PMI came in at a troubling 50.2, indicating minimal sector expansion.4

Lastly, the Bureau of Economic Analysis closed the book on second quarter GDP. Its final estimate of Q2 growth was an impressive 3.9%, up another 0.2% from the second estimate.4

 

GLOBAL ECONOMIC HEALTH

Further affirmation of China’s economic slowdown appeared; the argument for further easing from its central bank strengthened. September’s Caixin/Markit PMI reading (the factory PMI that looks mostly at small and mid-sized firms) declined 0.1 points to 47.2, while the nation’s official manufacturing PMI ticked up 0.1 points to 49.8. Both indices still signaled a manufacturing sector in contraction. More unsettling, however, was a report from Markit showing that Chinese companies reduced output in September at the quickest pace since early 2009; a major drop in exports meant China’s factories were producing less new products than at any time since 2012. The nation’s services industries still seemed to be expanding – China’s official service sector PMI read 53.4 for a second consecutive month, while the Markit/Caixin PMI fell to 50.5, a 14-month low. Interestingly, Markit said it will no longer release “flash” factory PMIs for the PRC starting in October; only “final” monthly readings will be published going forward.7

After a 6-month break, deflation returned to the euro area: consumer prices were down 0.1% year-over-year through September. (Core inflation, though, rose 0.9% in the same period.) The European Central Bank only projects consumer prices advancing 0.1% for 2015, but it also sees inflation of 1.5% next year on the way to a target of 2.0% by 2017. Eurozone unemployment held steady at 11.0% in August. Markit’s overall factory eurozone PMI dipped to 52.0 in September from a 52.3 August reading.8,9

 

WORLD MARKETS

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Gains were extremely rare last month. A close look reveals three significant benchmarks that advanced: Korea’s Kospi improved 1.10%, Malaysia’s Kuala Lumpur Composite 0.51%, and Taiwan’s TWSE 0.08%. Elsewhere, losses were prevalent. Other Asian bourses stumbled: the Nikkei 225 fell 7.95%, the Shanghai Composite 4.78%, the Asia Dow 5.02% and the Hang Seng 3.80%. The Sensex lost but 0.49%.1

The scorecard around the rest of the world delivered a similar message. Close to home, the TSX Composite retreated 3.98% in September; the Bovespa lost 3.36%, the IPC All-Share 2.49%. The Dow Jones Americas declined 3.21%. Germany’s DAX fell 5.84%, France’s CAC 40 4.25%, Great Britain’s FTSE 100 2.98%, Spain’s IBEX 35 6.81%, the Europe Dow 6.32%, Italy’s FTSE MIB 2.95%, Russia’s RTS 5.26% and the pan-Europe STOXX 600 4.14%. The ninth month of the year also saw the Global Dow fall 4.63%, the MSCI World index 3.86% and the MSCI Emerging Markets index 3.26%.1,10

 

COMMODITIES MARKETS

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Crude oil staged no September rebound. At the close on September 30, its NYMEX price was $45.26 a barrel. For the month, oil futures sank 6.00%. Natural gas retreated 5.84% last month while unleaded gasoline futures slipped 16.90% and heating oil stumbled 11.18%.11,12

Sugar was September’s best-performing major commodity, rising 10.01%. Other crop futures were mixed, with corn gaining 6.87%, wheat 4.07% and cocoa 2.18% and coffee losing 0.25%, soybeans 1.37% and cotton 5.79%.11

Gold lost 1.65% for September to a month-end COMEX close of $1,114.60 while silver retreated 0.62% to $14.48. Platinum futures declined 10.06% during September, but copper rose 0.21%. The U.S. Dollar Index moved 0.36% north last month, ending September at 96.28.11,13

 

REAL ESTATE


Respective August reports from the National Association of Realtors and Census Bureau showed a late-summer reduction in resales but also a gain in new home sales. New home purchases were up 5.7% while existing home sales were down 4.8%, ending a 3-month streak of advances.14

Freddie Mac’s Primary Mortgage Market Survey showed very little movement for home loan interest rates during September. The 1-year ARM showed a marked decrease, with average rates moving from 2.62% in the August 27 to 2.53 as of September 24. Otherwise, the numbers were nearly the same: average interest rates for the 30-year FRM and 15-year FRM crept up 0.02% in that interval to 3.86% and 3.08% while average rates on the 5/1-year ARM ticked up only 0.01% to 2.91%.15

homes

Other important real estate indicators arriving in September were decidedly mixed. The S&P/Case- Shiller home price index showed a 5.0% overall year-over-year gain in its July edition. NAR’s pending home sales gauge slipped 1.4% for August after rising 0.5% for July. While building permits jumped 3.5% in August, housing starts declined 3.0%; in annualized terms, permits were up 12.5% and starts 16.6%.4,16

 

LOOKING BACK…LOOKING FORWARD

Even the CBOE VIX retreated in September. It lost 3.93%, ending the ninth month of 2015 at 24.50. Of the major stock indices, the Dow held up best, even with heavy international exposure weighing on its 30 components. The blue chips lost 1.47% last month while the S&P 500 fell 2.64%, the Nasdaq Composite 3.27% and the Russell 2000 5.07%. The month’s best performer was the Nasdaq Insurance index, which rose 2.90%. September 30 saw the following closes: DJIA, 16,284.70; NASDAQ, 4,620.16; S&P, 1,920.03; RUT, 1,100.69.1

 

% CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG
DJIA -8.63 -4.45 +10.19 +5.41
NASDAQ -2.45 +2.82 +19.01 +11.47
S&P 500 -6.74 -2.65 +13.65 +5.63
REAL YIELD 9/30 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.65% 0.55% 0.75% 1.78%
Sources: wsj.com, bigcharts.com, treasury.gov – 9/30/151,17,18,19
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

Many analysts are now viewing 2015 as a year in the loss column for the S&P 500. Suspicions of a slowdown in China have been repeatedly affirmed; some investors now think the Federal Reserve too timid. As Wall Street wonders if the Fed will maintain its dovish stance this month, it is also bracing for further market drops. To what degree will domestic economic indicators be affected this fall by the malaise in emerging markets? Will the bulls regain confidence, or will waning fundamentals lead to selloffs and merely hope that 2016 is better? If the Fed does raise rates later this month, will that encourage or discourage investors here and abroad? There are so many questions as we enter the tenth month of the year, and that means the market will contend with some troubling uncertainties. Perhaps – perhaps – they constitute only a short-term test on the way to a healthier stock market in 2016.

 

UPCOMING ECONOMIC RELEASES:

For the rest of October, the news-making schedule of releases and reports will appear as follows:

ISM’s service sector PMI (10/5),

the September FOMC minutes (10/8),

August wholesale inventories (10/9),

the September PPI, September retail sales, August business inventories and a new Federal Reserve Beige Book (10/14),

the September CPI (10/15),

September industrial production and the preliminary October University of Michigan consumer sentiment index (10/16),

September housing starts and building permits (10/20),

September existing home sales and the Conference Board’s September index of leading indicators (10/22),

September new home sales (10/26),

the Conference Board’s October consumer confidence index, September capital goods orders and the August S&P/Case-Shiller home price index (10/27),

the Federal Reserve’s October interest rate decision (10/28),

the first federal government estimate of Q3 GDP and NAR’s September pending home sales index (10/29),

August consumer spending numbers plus the final October consumer sentiment index from the University of Michigan (10/30).

 

Thanks for reading,

john_rotheJohn Rothe

CEO & Chief Investment Officer

Riverbend Investment Management

 

 

Citations.
1 – wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [9/30/15]
2 – marketwatch.com/story/federal-reserve-keeps-interest-rates-unchanged-but-forecasts-hike-this-year-2015-09-17 [9/17/15]
3 – nasdaq.com/article/us-consumer-prices-edge-lower-in-august-amid-steep-drop-in-energy-prices-20150916-00589 [9/16/15]
4 – marketwatch.com/economy-politics/calendars/economic [10/1/15]
5 – 247wallst.com/economy/2015/09/25/is-consumer-sentiment-moving-beyond-china-and-the-stock-market-woes/ [9/25/15]
6 – blogs.wsj.com/briefly/2015/09/04/august-jobs-report-the-numbers-2/ [9/4/15]
7 – cnbc.com/2015/09/30/chinas-official-september-factory-pmi-at-498-above-estimates-and-augusts-497-reading.html [9/30/15]
8 – bbc.com/news/business-34401035 [9/30/15]
9 – tinyurl.com/pc5zpwk [10/1/15]
10 – msci.com/end-of-day-data-search [9/30/15]
11 – money.cnn.com/data/commodities/ [9/30/15]
12 – marketwatch.com/investing/future/hov5/historical [9/30/15]
13 – marketwatch.com/investing/index/dxy/historical [9/30/15]
14 – housingwire.com/articles/35142-new-home-sales-climb-57-in-august [9/24/15]
15 – freddiemac.com/pmms/archive.html [9/30/15]
16 – 247wallst.com/housing/2015/09/17/housing-starts-slow-in-august-after-july-estimates-revised-down/ [9/17/15]
17 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=9%2F30%2F14&x=0&y=0 [9/30/15]
17 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=9%2F30%2F14&x=0&y=0 [9/30/15]
17 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=9%2F30%2F14&x=0&y=0 [9/30/15]
17 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=9%2F30%2F10&x=0&y=0 [9/30/15]
17 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=9%2F30%2F10&x=0&y=0 [9/30/15]
17 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=9%2F30%2F10&x=0&y=0 [9/30/15]
17 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=9%2F30%2F05&x=0&y=0 [9/30/15]
17 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=9%2F30%2F05&x=0&y=0 [9/30/15]
17 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=9%2F30%2F05&x=0&y=0 [9/30/15]
18 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [9/30/15]
19 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [9/30/15]
Feature image: Flickr/www.vpsi.org This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. MarketingPro, Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The Korea Composite Stock Price Index or KOSPI is the major stock market index of South Korea, representing all common stocks traded on the Korea Exchange. The FTSE Bursa Malaysia KLCI Index – Kuala Lumpur Composite Index (FBMKLCI) is a capitalization-weighted stock market index, composed of the 30 largest companies on the Bursa Malaysia by market capitalization that meet eligibility requirements of the FTSE Bursa Malaysia Index Ground Rules. The TWSE, or TAIEX, Index is capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The Asia Dow measures the Asia equity markets by tracking 30 leading blue-chip companies in the region. The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE). The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The Mexican IPC index (Indice de Precios y Cotizaciones) is a major stock market index which tracks the performance of leading companies listed on the Mexican Stock Exchange. The Dow Jones Americas Index measures the Latin American equity markets by tracking 30 leading blue-chip companies in the region. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, Spain’s principal stock exchange. The Europe Dow measures the European equity markets by tracking 30 leading blue-chip companies in the region. The FTSE MIB (Milano Italia Borsa) is the benchmark stock market index for the Borsa Italiana, the Italian national stock exchange. The RTS Index (abbreviated: RTSI, Russian: Индекс РТС) is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange. The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. The Global Dow is a 150-stock index of corporations from around the world created by Dow Jones & Company. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

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