“We Can Never Know About The Days [FINANCIAL MARKETS] To Come”

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AS CARLY SIMON USED TO SING …

ArtBy Arthur Chalekian GEPC

[Financial Consultant]

However, that doesn’t stop anyone from making educated guesses about the future of companies, financial markets, and economies.

So, as we enter the second quarter, investment and business professionals have been offering their insights:

  • McKinsey & Company’s March Economic Conditions Snapshot indicated 80 percent of surveyed executives “… expect demand for their companies’ products and services will grow or stay the same in the coming months, and a majority believe (as they have in every survey since 2011) their companies’ profits will increase.” However, they are not as optimistic about the global economy as they were in December. About one-half of executives in developed and emerging markets said economic conditions globally are worse than they were six months ago
  • The Wall Street Journal’s April 2016 Economic Forecasting Survey, which queries 60 economists, reported three-of-four survey participants expect a Fed rate hike in June. Few expect a recession during the next 12 months, putting the odds at 19 percent. Almost one-half stated global risks were the greatest threat to the U.S. economy, followed by financial conditions, a slowdown in consumer spending, falling corporate profits, and U.S. politics.
  • PIMCO’s Cyclical Outlook predicts China’s gross domestic product (GDP) growth may be in the 5.5 to 6.5 percent range. The target is 6.5 percent. In addition, a gradual devaluation of the yuan is possible, although China’s currency policy often produces unexpected twists and turns.
  • BlackRock Investment Institute’s second quarter outlook centered on three themes. First, returns are likely to remain muted in the future. Second, monetary policies appear to be less divergent, which could be a positive for some markets. Third, volatility may persist as the Federal Reserve normalizes monetary policy. Diversity and careful asset selection are likely to be critical in this environment.

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Photo of hands of businesspeople during discussing

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Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

While it’s interesting to read experts’ predictions and expectations for coming months and years, it’s important to remember forecasts are not always accurate. An organization that tracked forecasting results through 2012 found forecasts were correct about 47 percent of the time.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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13 Responses

  1. Markets Update

    Some investors have been concerned about the long-term prospects for the economies of emerging markets, amid currency shifts and slower economic growth. While the high-growth “Goldilocks” era enjoyed by many emerging markets over the past 15 years is over, the experience will be different for each country in this group as the BRICS’ collective experience indicates.

    Now, while economic interdependence exists among these developing economies, no two emerging markets are the same. Even the largest emerging market countries haven’t had much in common. It is difficult to draw strong parallels between heterogeneous emerging market economies, emphasizing the nuance of identifying potentially attractive investment opportunities.

    Of course, while the headlines warn caution, analysts from firms like Vanguard and others see opportunities, particularly for emerging market debt, that exist well beyond the oft-cited BRICS nations. Some even believe the bonds of fiscally well-managed developing countries can offer relatively attractive yields.

    However, as with any investment, the risk-reward trade-offs should be carefully considered in the context of your long-term plan. Sovereign and corporate bonds in emerging markets present investment-grade¹ opportunities for active bond managers and investors, and are a way to invest in the economic and financial futures of these countries.

    Dr. David Marcinko MBA

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  2. Investors and analysts were trying to find the answer to a different riddle last week sales?

    Q: When are strong retail sales not strong retail
    A: When the retailers are department stores.

    Consumers spent more in April than they have in more than a year. Commerce Department data showed April’s retail sales improved by 1.3 percent month-to-month and 3.0 percent year-to-year. Yet, several large department stores reported poor first quarter earnings and weren’t optimistic about the future, according to Barron’s.

    The Wall Street Journal pointed out Internet and mobile app purchasing increased by 2.4 percent in April and was up 10.2 percent for the past 12 months, while purchases made in department stores fell by 1.7 percent for the last 12 months. The Journal said there is no easy explanation for lagging department store sales:

    “Executives at traditional large retailers struggled to explain the slump, which for some companies was their worst since the recession. Some pointed to a decrease in mall traffic, while others said shoppers were spending more on items their stores don’t sell such as entertainment, travel, and food.”

    The Journal also said strong consumer spending focused some economists’ attention on the Federal Reserve and the likelihood it will take actions intended to increase interest rates in mid-June. However, CNBC reported the probability of a rate increase in June remained low.

    Arthur Chalekian GEPC

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  3. On China

    Over the past eight years, China’s real economic growth has been halved, from 14% in 2007 to 6.9% in 2015. As the world’s second-largest economy transitions from being manufacturing-based to one that is consumer- and services-oriented, China’s policy makers will have the delicate task of engineering a soft landing while rebalancing the economy’s growth drivers.

    Despite recent signs of stabilization, China’s long-term economic transition will likely be bumpy, with periodic growth scares that could trigger market volatility. Normal swings in market-driven investment and capital flows could provoke a sharper economic slowdown. However, economists from Vanguard do not expect this scenario given the large amount of tools China can implement.

    While many do not anticipate a Chinese recession, some believe China’s slowdown represents a downside risk to the global economy. As emerging markets adjust to China’s economic transition, others anticipate fragility in global trade and manufacturing.

    Finally, economic policies may hold the key to China’s successful transition. China needs to ensure that investment spending flows toward the most efficient uses of capital, avoiding misallocation and overinvestment in sectors such as housing and manufacturing.

    Dr. David Marcinko MBA

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  4. Market week

    Forget just how disappointing jobs data was last week. Not only is that a lagging indicator of the economy, but even when payrolls were stronger, stocks remained range-bound. Let’s do a quick cheat sheet on things that actually do matter for market movement in the near-term.

    1. Small-caps have been strengthening, suggesting risk appetite is growing (bullish but only for small-caps, not necessarily for mega-caps).

    2. High beta cyclical stocks have bounced relative to defensive sectors, but prior bursts of strength have been short-lived (neutral)

    3. Utilities relative to the S&P 500 remain range-bound, unable to provide a convincing signal on the direction of volatility (neutral)

    4. Lumber relative to Gold remains in an uptrend (though choppy) – important as shown in our award winning papers (bullish, particularly for small-caps)

    5. Like Utilities, Long Duration Treasuries relative to Intermediate haven’t really broken to new highs even in the face of disappointing economic data (neutral)

    6. Dollar direction seems more likely to be lower (neutral for overall stocks but likely bearish for bonds)

    7. Emerging Market relative momentum may be about to turn positive (bullish for EM, neutral for US stocks)

    8. Bullish sentiment is extremely low given just how close the S&P 500 is to new highs (from a contrarian standpoint, bullish)

    Conclusion?

    Sorry folks, but as much as I’d love to definitively pound the table on why headline averages will go up or down, we are in an unconvinced market for large-caps. Small-cap stocks and emerging markets appear to be on the verge of taking the leadership reigns however. That means for most investors, traders, and asset allocators who have chased large-cap outperformance, it may look like things aren’t moving very much when opportunities are increasing in other areas of the marketplace.

    This is a holding pattern for everything that has worked in the past, making it feel like an impossible time to invest. Impossible is temporary however, and does bring potential for those who are willing to accept that future winners can be the losers of the past. That means a stealth bull market beneath the market’s surface may be underway, precisely in those stocks deemed impossible to invest in.

    And, only those who reposition aggressively now may actually see the benefits of that.

    Michael A. Gayed CFA
    [Portfolio Manager]
    http://www.pensionpartners.com

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  5. Summer 2016

    It seems that summer has finally arrived, bringing with it the trees and flowers in full bloom. Kids are out of school, and life is good all around.

    Unfortunately, things are developing in the other direction for the U.S. economy right now. May’s payroll number saw the U.S. non-farm sector add just 38,000 jobs for the month. This is the lowest addition since 2010 and is yet another data point we can add to a list of weak data for 2016. We have been highlighting for some time the overall economic weakness with the caveat that we continue to see solid growth in U.S. employment numbers.

    Now, this may have changed. While we understand that this is just one month’s number, we believe the economy can be best described as concerning.

    Dan Timotic CFA

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  6. Last Week’s Headlines

    • The third estimate of the first quarter 2016 gross domestic product–the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes–increased at an annual rate of 1.1%. The second estimate for the first quarter GDP showed an increase of only 0.8%. The third estimate is based on more complete data. The primary difference between the second and third estimates for the first quarter GDP is that exports increased more than previously estimated. In the fourth quarter of 2015, the GDP increased 1.4%. Compared to the fourth quarter, total business investment declined as did consumer spending in the first quarter 2016. The economy traditionally starts off slower during the first three months of the year, often picking up speed over the spring and summer months, leading to guarded optimism for the second quarter GDP.

    • Personal income increased $37.1 billion, or 0.2%, and disposable personal income (net after taxes) increased $33.9 billion, or 0.2% in May, according to the Bureau of Economic Analysis. Personal consumption expenditures, the Federal Reserve’s preferred inflation measure, increased $53.5 billion, or 0.4%. Compared to April, both income and spending (PCE) slowed in May. In April, personal income increased $75.4 billion, or 0.5%, DPI increased $68.6 billion, or 0.5%, and PCE increased $141.2 billion, or 1.1%, based on revised estimates.

    • The trade gap between imports and exports grew in May, according to the latest report from the Census Bureau. Exports for May were at $119.0 billion, while imports came in at $179.6 billion, resulting in a trade deficit of roughly $60.6 billion. Exports fell 0.2% from April, and imports increased a sharp 1.6%. The trade gap in April was $57.5 billion.

    • Home prices continue to rise according to the latest report from the S&P/Case-Shiller Home Price Index, which reported a 5.0% annual gain in April, down from 5.1% the previous month. Before seasonal adjustment, the National Index posted a month-over-month gain of 1.0% in April.

    • Following three straight months of gains, pending home sales took a step back in May, according to the National Association of Realtors®. The Pending Home Sales Index dropped 3.7% to 110.8 in May from a downwardly revised 115.0 in April. Low mortgage rates and scant inventory are pushing home prices higher, affecting the number of home sales.

    • US manufacturers expressed guarded optimism in May and June as manufacturing expanded. The Institute for Supply Management® (ISM®) Purchasing Managers’ Index® registered 51.3 for May, an increase of 0.5 percentage point from April’s reading of 50.8. According to the report, new orders and production were seen as growing, while employment and inventories were contracting. The seasonally adjusted final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 51.3 in June, up from 50.7 in May, and the highest reading for three months. Higher levels of production, new orders, and employment all helped to boost the index.

    • The Conference Board Consumer Confidence Index® increased to 98.0 in June, up from 92.4 in May. The Present Situation Index increased from 113.2 to 118.3, while the Expectations Index rose from 78.5 to 84.5 in June. According to the Conference Board’s Lynn Franco, “Consumers were less negative about current business and labor market conditions, but only moderately more positive, suggesting no deterioration in economic conditions, but no strengthening either.”

    • In the week ended June 25, the advance figure for seasonally adjusted initial unemployment insurance claims was 268,000, an increase of 10,000 from the previous week’s unrevised level. The advance seasonally adjusted insured unemployment rate dropped to 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended June 18 was 2,120,000, a decrease of 20,000 from the previous week’s revised level.

    Eye on the Week Ahead

    Equities markets, at least domestically, seem to have halted the downfall from the UK’s referendum vote to withdraw from the European Union. How this major world event affects other economic indicators remains to be seen.

    Michael Green
    [Principal – Registered Investment Advisory]

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  7. Stocks Still Surging

    Stocks continued to surge for the third week in a row as each of the indexes listed here posted significant gains by last week’s end. The Dow gained almost 370 points and over 2.0%, and is substantially ahead of its 2015 closing value. The S&P 500 also pushed nearly 6.0% ahead of last year’s closing value. And the Nasdaq, which had yet to reach its year-end value, finally passed that mark after gaining almost 1.5%.

    Clearly moving past Brexit panic, the Global Dow gained over 3.0% on the week and is 2.5% past its 2015 closing value. As prices dropped, the 10-year Treasury yield rose nearly 20 basis points on the week.

    Crude oil (WTI) closed at $46.28 a barrel last week, up from $45.21 per barrel the previous week. The price of gold (COMEX) fell to $1,337.70 by late Friday afternoon, down from the prior week’s price of $1,367.40. The national average retail regular gasoline price decreased for the fourth consecutive week to $2.253 per gallon on July 11, $0.038 under the prior week’s price and $0.581 below a year ago.

    Michael Green RIA

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  8. Last Week’s Headlines

    • June was a good month for new home construction as the number of building permits, housing starts, and new home completions each eclipsed their respective May totals. Building permits for housing units and single family homes were up 1.5% and 1.0%, respectively. Housing starts, marked by the beginning of construction, increased by 4.8% for all housing units and 4.4% for single family housing. Housing completions were 12.3% ahead of May (single-family completions gained only 3.7%). Increasing demand and low inventory have promoted home building, which may be a sign of economic growth.

    • Sales of existing homes also improved in June, according to the National Association of Realtors®. Closings for existing homes (including single family homes, townhomes, condominiums, and co-ops) climbed 1.1% to an annual rate of 5.57 million from a downwardly revised 5.51 million in May. Over the last 12 months, existing home sales are up 3.0%–the highest level since 2007. According to the NAR, sustained job growth and lower mortgage rates are factors driving home sales. The median existing home price for all housing types in June was $247,700–up 4.8% from last June and 3.7% ahead of May’s median price. Available inventory remains an issue for homebuyers as it dipped 0.9% to 2.12 million, which is 5.8% lower than a year ago.

    • Builders remained cautiously optimistic about the newly built, single-family home market in July, according to the latest survey from the National Association of Home Builders. The Housing Market Index, based on respondents’ feedback, fell 1 point to 59 from June’s index of 60. An index reading above 50 indicates generally favorable expectations. According to the Markit Flash U.S. Manufacturing PMI™, the Purchasing Managers’ Index™ was 52.9 in July, up from 51.3 in June. This reading signals solid improvement in overall business conditions, with the latest reading the strongest since October 2015. Manufacturing output, new orders, and employment continue to rise.

    • In the week ended July 16, the advance figure for seasonally adjusted initial unemployment insurance claims was 253,000, a decrease of 1,000 from the prior week’s level. The advance seasonally adjusted insured unemployment rate dropped to 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended July 9 was 2,128,000, a decrease of 25,000 from the previous week’s revised level.

    Michael Green RIA

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  9. This was perhaps one of the most exciting periods in recent history for the stock market

    Since the Federal Reserve embarked on Quantitative Easing 3, we have been living in an anomaly. The stock market made remarkable gains, led by all the wrong stuff. Because of central bank suppression of interest rates, those parts of the marketplace which tended to be most defensive (Utilities, Staples, Healthcare, and Treasuries) ended up being the best way to play offense. There is a direct link between yielding investments, volatility, and animal spirits. Quite simply, if you’re excited for the stock market, you historically wouldn’t play that by being in the most boring parts of the marketplace. Instead, you would favor cyclical sectors, and emerging markets. This whole concept got flipped on its head in the last market cycle.

    For anyone that has relied on historical relationships, this has been frustrating and wildly underappreciated by both the media and the average investor. In each of our award winning papers, we show that historically, those defense plays (notably Utilities and Treasuries) have tended to be leading indicators of volatility (click here to download the papers). Those defense plays ended up not being leading indicators of volatility, but leaders in no volatility world. That low volatility environment was very favorable for beta and specifically mega-caps.

    It is clear now that things are changing and maybe, just maybe, we are on the verge of true normalization in market behavior where up capture is driven by cyclicals and emerging markets. It is ironic that many of the best performers in an election year actually end up being outside of our walls (cough cough). Financials are starting to lead, as Utilities begin to break down. All it took was one of the most historic 6 week drops in the VIX ever to finally create a flip in market leadership.

    Visibly, anyone paying attention to market behavior sees this. Whereas emerging markets, when they opened the morning session weak would continue to be weak in the past, now buyers are stepping in causing many broad based overseas ETFs to outperform by end of day. On strong dollar days driven by improving economic data and expectations of Fed hikes, cyclicals power through. Risk-on is looking more and more risk-on. Risk-off then becomes exceedingly risky for asset allocators who have tilted their portfolios towards yield. Bonds and dividend plays from a buy and hold perspective may be in a world of hurt if this trend continues.

    Finally, historical relationships are making a comeback. And for anyone relying on them, that means the future path of their strategies looks ever more exciting.

    Michael A. Gayed CFA
    [Portfolio Manager]
    http://www.pensionpartners.com

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  10. FOMC … I don’t give a damn what anyone says …

    The Fed is out of control and everything we believe is good and well in the economy will, at some point, end very badly

    On Thursday, Fed Chair Yellen alluded to the idea that the central bank should buy stocks and other long-term assets to mitigate a downturn in the economy. Taking a page out of the Bank of Japan and Bank of Israel, the Fed now appears to believe that it is a good thing to directly intervene in equities. Yes folks – apparently central bank insanity knows no bounds. In one of the most free markets and capitalist systems in the world, we may be facing a future when a government “independent” entity takes over the free market.

    Bullish? Irrelevant. The more an entity distorts market pricing, the less relevant that signaling information is on the efficient allocation of capital. Unequivocally this is long-term damaging. Why no one seems to be outraged is beyond my comprehension. But make no mistake about it – a future which is centrally controlled by the central bank is a future which will be full of tremendous disappointment for wealth creation, and economic progress.

    Okay – enough about that. Last week, an aggressive turnaround began in the markets which seems to have faded the odds of a near-term correction in stocks, and perhaps increased the probability of a correction in bonds. Utilities got crushed on a relative basis to the broader stock market, and small-caps once again took the leadership helm. It seems conceivable that a risk breakout happens in the weeks ahead given a significant V formation in the relative strength of high beta names to low volatility stocks. Animal spirits are picking up again, and that could result in a surprise push higher. Key to this will be on-going momentum in both energy stocks (which now have the tailwind of OPEC cuts) and strength in European Financials (primarily Deutsche Bank). These two sectors in the near-term likely have a big role in determining market sentiment.

    Going to be an interesting October.

    Michael A. Gayed CFA
    http://www.pensionpartners.com

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  11. The Markets (as of market close September 30, 2016)

    Last week equities started off well enough, still feeding off the Fed’s decision to leave interest rates alone for the time being. But fear of financial instability for one of the world’s largest banks may have prompted many investors to sell, causing the market to tumble by mid-week. However, news that the bank in question was near a deal to settle some of its financial issues quelled some investors’ fears, lifting the market back to where it left off the prior week.

    Both the Dow and S&P 500 posted slight gains, as did the Nasdaq. The Russell 2000 and Global Dow rebounded by last week’s end, but not enough to avoid posting a slight loss for the week.

    The price of crude oil (WTI) closed at $48.05 per barrel last week, up from $44.59 per barrel the previous week. The price of gold (COMEX) fell, closing at $1,318.80 by late Friday afternoon, down from the prior week’s price of $1,341.10. The national average retail regular gasoline price decreased to $2.224 per gallon on September 26, $0.001 lower than the prior week’s price and $0.098 below a year ago.

    Michael Green

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  12. The Markets (as of market close November 4, 2016)

    Even a good jobs report wasn’t enough to steady investors last week, as each of the indexes listed here lost value from the prior week. Oil prices fell sharply midweek following a report that crude oil inventories are much larger than expected. While OPEC leaders agreed to reduce production following a September meeting, several countries sought and received exemptions from the cut, prompting crude oil production to increase. Crude oil prices continued to drop, closing the week 10.0% below the previous week’s closing price. With oil prices falling, energy shares tumbled, leading to drop-offs in the large-cap indexes such as the S&P 500. The Nasdaq, Russell 2000, and Global Dow each lost over 2.0% on the week, while the Dow fell 1.50%. The Nasdaq, which had been up over 6.0% year-to-date in early October, is close to its 2015 year-end value. Prices increased on 10-year Treasuries as yields dropped. Gold had a good week, climbing 2.2%. It appears the tight U.S. presidential election is prompting investors to exercise caution for now.

    The price of crude oil (WTI) fell by last week’s end, closing at $44.13 per barrel, down from the prior week’s price of $48.64 per barrel. The price of gold (COMEX) increased, closing at $1,305.60 by late Friday afternoon, up from the prior week’s price of $1,277.00. The national average retail regular gasoline price decreased to $2.230 per gallon on October 31, 2016, $0.013 less than last week’s price but $0.006 more than a year ago.

    Michael Green

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  13. The Markets (as of market close December 9, 2016)

    Following a week of tepid movement in the major stock market indexes, equities picked up the pace last week, reaching new record highs. Growth in financial company and bank stocks led the way as both the large-cap Dow and S&P 500 rose over 3.0%. Some analysts suggest that financial stocks could climb further next week if the Fed raises interest rates as anticipated.

    The small-cap Russell 2000 surged once again last week, jumping almost 6.0% over its prior week’s value. As money pours into equities, long-term bond prices continue to fall. The yield on 10-year Treasuries climbed 8.0 basis points, marking the third consecutive week of rising yields.

    The price of crude oil (WTI) maintained its value, closing last week at $51.48 per barrel, down just $0.48 from the prior week’s closing price of $51.96 per barrel.

    Gold (COMEX) remained volatile as its price fell again last week, closing at $1,161.40 by late Friday afternoon, down from the prior week’s price of $1,179.20.

    The national average retail regular gasoline price increased to $2.208 per gallon on December 5, 2016, $0.054 more than the prior week’s price and $0.155 higher than a year ago.

    Michael Green

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