While failure is not a desired outcome, it is an unavoidable reality in investing. Assessing the likelihood that a portfolio strategy may falter can be a daunting but vital task. This stress-testing practice helps investors prepare for potential market disruptions that could impact even the most well-thought-out investment plans. The encouraging aspect is that there are numerous methods available to estimate the risks. However, it is often advisable to begin with a straightforward framework before exploring more complex alternatives.
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● Federal Reserve’s US employment gauge worsens in February | MarketWatch
● US Consumer Spending Shows Slight Increase in February | Gallup
● Fed officials prepare for rate hikes leading up to FOMC meeting | Reuters
● Inflation warnings escalate as markets question commodity bottom | CNBC
● China’s Exports Plummet in February | RTT
● Japan’s Q4 GDP Slump Slightly Adjusted Up; Consumer Spending Remains Weak | MNI
Risk assets surged back to life last week, largely driven by a spike in equities across emerging markets, as indicated by a set of ETF proxies for the major asset classes. For the third consecutive week, a risk-on sentiment prevailed for the week ending March 4.
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● US Payrolls Rise Sharply in February; Wages Decline | Bloomberg
● US Trade Deficit Expands as Exports Fall to 5.5-Year Low | Reuters
● Q1 GDP Growth Estimate for the US Increases to +2.2% via GDPNow Model | Atlanta Fed
● Is Inflation Finally on the Rise in the US? | FT
● Monthly Overview of Spreads and Recession Watch, March 2016 | Econobrowser
● German Factory Orders Decline Less Than Anticipated in January | Reuters
● Japan’s Kuroda Indicates Easing Measures Are on Hold for Now | Reuters
● Concrete Economics: The Hamilton Approach to Economic Growth and Policy
By Stephen S. Cohen and J. Bradford DeLong
Summary via publisher (Harvard Business Review Press)
This insightful book emphasizes history over ideology in determining how economic growth occurs. “Concrete Economics” uniquely illustrates how government intervention has historically shaped the American economy since the foundational redesign by Alexander Hamilton. Authors Steve Cohen and Brad DeLong confront our collective forgetfulness regarding the essential contributions of government in fostering economic growth, highlighting its role in both establishing the framework for entrepreneurship and channeling the energy necessary for a thriving economy. This principle applies to today’s Silicon Valley as much as it did to New England manufacturing in the early 19th century.
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In February, American businesses added 230,000 jobs to their payrolls, marking a notable increase compared to the revised 182,000 addition in January (based on seasonally adjusted figures). The latest report from the Labor Department exceeded the consensus estimate, which anticipated a rise in the low 180,000s. Year-over-year growth in private-sector employment has tapered slightly, yet the annual growth rate of 2.18% remains a positive sign for labor market strength.
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The US stock market has faced considerable challenges since last summer, showing several troubling indicators that align with bear market predictions (refer to here and here). Nonetheless, the recent rally raises the question of whether the bull market has returned. While this may be plausible, current evidence does not decisively indicate that the bearish sentiment has ended. To explore this further, let’s examine some key statistics.
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● Initial jobless claims in the US see an uptick but still signal a strengthening labor market | NY Times
● Challenger, Gray: Job Cuts in the US Decrease by 18% in February Compared to January | CNBC
● The US ISM Non-Manufacturing Index Dips Slightly in February | Reuters
● PMI: The US Services Index Falls Below Neutral Level in February | Markit
● Broad Slowdown Observed in Global Economic Growth during February | Markit
● Consumer Confidence in the US Declines to the Lowest Point of the Year | Bloomberg
For the upcoming Labor Department report, US private nonfarm payrolls in February are anticipated to increase by 182,000 (seasonally adjusted), according to The Capital Spectator’s average forecast drawn from various econometric models. This estimate indicates a modest recovery following January’s lackluster growth.
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The expected risk premium for the Global Market Index (GMI) remained stable at a relatively low level in February. The GMI, an unmanaged and market-value weighted combination of the major asset classes, is projected to provide an annualized return of 2.9% above the “risk-free” rate over the long term. This updated estimate, based on data from the previous month, aligns with last month’s forecast available here.
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