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Perspectives

Market Week: June 7, 2017

by Fortem Financial June 7, 2017

Nominal measures are the (global) story today

Here’s an update on three of today’s consensus views that we continue to disagree with:

1) “U.S. soft economic data is not matching the hard data.”

  • Missing the point: U.S. real growth is stable, nominal turned up, helping earnings.
  • Nominal also matters for confidence (e.g. Biz Roundtable) & the level is still high.
  • Soft & hard economic data still closer in Europe, increasing the odds of a U.S. economic reconnect.
  • Inventory rebuilding should help 2Q bounce back in the U.S.

2) “The U.S. fiscal stimulus won’t make it in time to help 2017.”

  • We don’t particularly care about 2017, as the confidence boost gives us time.
  • Despite D.C. chaos, non-legislative items are still proceeding. We also really should see tax reform vs. tax cuts (fiscal stimulus) with the U.S. at full employment.

3) “Stagflation is becoming more likely/the Fed could be behind the curve

  • Stagflation in the 1970’s saw the misery index (inflation + unemployment) around 20. We’re not close and do not believe we will not see anything like that in this cycle. At this point, inflation expectations are turning lower than they have been the last several years.
  • De-anchoring inflation expectations on the upside would take a long time to develop.
  • Put simply: the 1970s were an odd monetary period, and may have influenced our thinking too much.
  • “Goldilocks” (not too hot or cold) nominal is a better description than stagflation today.

Source: Strategas

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

 

 

Last Week's Headlines

  1. The employment sector has been volatile the past few months. While March's hirings were weak, April proved positive for job gains. However, employment in May has slowed again. There were 138,000 new jobs added for the month, compared to 174,000 new hires in April, which was revised down from 211,000. The unemployment rate dropped 0.1 percentage point to 4.3% — a 16-year low. The number of unemployed persons decreased from 7.1 million in April to 6.9 million in May. Since January, the unemployment rate has declined by 0.5 percentage point and the number of unemployed has decreased by 774,000. The labor force participation rate declined by 0.2 percentage point to 62.7% in May but has shown no clear trend over the past 12 months. In May, average hourly earnings for all employees on private nonfarm payrolls rose by $0.04 to $26.22. Over the year, average hourly earnings have risen by $0.63, or 2.5%. The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in May.
  2. Personal income and consumer spending increased in April, according to the latest report from the Bureau of Economic Analysis. Personal income increased $58.4 billion, or 0.4%, for the month while disposable personal (after-tax) income increased $56.5 billion, or 0.4%. Personal consumption expenditures also climbed 0.4% to $53.2 billion in April following a 0.3% gain in March, revised. Core PCE (excluding food and energy) rose 0.2% after falling 0.1% in March. For the 12 months ended in April, the PCE price index is up 1.7%.
  3. The final report on the goods and services trade deficit for April was released last week by the Census Bureau. The deficit increased by $2.3 billion from $45.3 billion in March to $47.6 billion in April. April exports were $191.0 billion, $0.5 billion less than March exports. April imports were $238.6 billion, $1.9 billion more than March imports. Year-to-date, the goods and services deficit increased $22.1 billion, or 13.4%, from the same period in 2016. Overall, this information highlights the increased U.S. demand for foreign goods and services, while the foreign demand for U.S. products has declined.
  4. According to the IHS Markit U.S. Manufacturing PMI™ for May, manufacturing continues to lose momentum since the beginning of the year. The purchasing managers' index dropped to 52.7 in May, down from April's 52.8. While the decrease is marginal, it is a clear indication that purchasing managers are seeing weaker business growth and job creation. While readings over 50 indicate growth, the last couple of months have signaled the weakest improvement in business conditions since last September.
  5. The May 2017 Manufacturing ISM® Report On Business® also produces a purchasing managers' index. The PMI® for May was 54.9%, 0.1 percentage point higher than April's reading. According to the report, the New Orders Index registered 59.5%, an increase of 2.0 percentage points over April, but the Production Index fell 1.5 percentage points to 57.1% compared to April's 58.6%. Responding managers felt employment and inventories were better in May, while prices were off by 8.0 percentage points.
  6. Consumer confidence, which fell in April, declined further in May, according to The Conference Board Consumer Confidence Index®. The index came in at 117.9, down from 119.4 in April. The Present Situation Index increased slightly to 140.7 in May from 140.3 in April. The Expectations Index declined from 105.4 in April to 102.6 in May.
  7. In the week ended May 27, the advance figure for seasonally adjusted initial claims for unemployment was 248,000, an increase of 13,000 from the previous week's revised level. The advance seasonally adjusted insured unemployment rate remained at 1.4% for the seventh consecutive week. For the week ended May 20, there were 1,915,000 receiving unemployment benefits, a decrease of 9,000 from the previous week's revised level. The largest increases in initial claims for the week ended May 20 were in Michigan (+1,634), Missouri (+874), Texas (+652), Vermont (+475), and Mississippi (+459), while the largest decreases were in New York (-1,033), Connecticut (-779), Oregon (-496), Georgia (-440), and New Jersey (-400).

 

 

Eye on the Week Ahead

While this week is very light for economic news at home, the focus of attention will be on Great Britain's national election at the end of the week. A win for the country's Conservative Party would seem to cement the UK's exit from the European Union.

 

 

Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

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The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
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