Last month, I explored random rebalancing strategies centered around specific dates and discovered that identifying the ideal moments to adjust asset allocation may not be particularly fruitful. Continuing this line of inquiry, let’s examine the implications of randomly modifying asset weights to evaluate various rebalancing strategies.
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● The US ISM Services Index growth rate softened in September | MarketWatch
● The US Labor Market Conditions Index dropped to zero in September | St Louis Fed
● Global economic growth fell to a nine-month low in September | Markit
● The World Bank has revised down its growth forecast for East Asia | Reuters
● Former Fed Chair Bernanke criticizes Congress for the sluggish recovery | NY Times
● PMI: Eurozone retail sales growth increased slightly in September | Markit
● German factory orders decreased in August | Bloomberg
● Australia’s central bank has retained the record-low interest rate | RTT
● PMI: India’s growth rate has declined further in September | Markit
Today’s updates on sentiment within the US services sector, along with the Federal Reserve’s Labor Market Conditions Index (LMCI), further support the argument that economic growth is slowing in the third quarter. While there remains a solid output pace in the services sector, the LMCI indicates a noticeable weakening trend, which aligns with the disappointing September payroll report released last Friday.
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The anticipated risk premium for the Global Market Index (GMI) has experienced another decline in September. GMI, which is an unmanaged, market-value weighted mix of key asset classes, is projected to yield an annualized return of 3.2% above the “risk-free” rate in the long term. Today’s revised estimate, derived from last month’s data, has decreased by 20 basis points compared to last month.
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Jeffrey Gundlach from DoubleLine Capital advises against purchasing junk bonds at this stage. Despite the decline of below-investment-grade fixed-income securities over the past year, he believes the negative momentum may persist. “I’ll consider buying when it ceases to decline every single day,” he remarked in an interview with Reuters.
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● US employment growth sharply decreased in September | Reuters
● US factory orders fell by 1.7% in August, marking the most significant decline in eight months | USN&WR
● The rise of the US dollar is impacting the economic landscape negatively | NY Times
● Increasing credit spreads are casting shadows over the broader macroeconomic outlook | Economist
● Eurozone Composite PMI indicates a slowdown in growth in September | Markit
● Retail sales in the Eurozone remained unchanged in August | RTT
● Investor confidence in the Eurozone has hit an eight-month low in October | RTT
Interested in The US Business Cycle Risk Report? Today is your lucky day. Here’s a free sample just released. For additional information, check our Premium Research section.
Lukas Daalder from Robeco has expressed concerns regarding rolling-performance graphics. He criticized a recent chart depicting 1-year price returns on this platform, which showcased ETF proxies for the major asset classes. He argues that “this information is useless to anyone with any sense.” This essentially raises questions about the value of such graphics. “If the creators of the graph were aiming to highlight a specific issue, they have fallen short,” Daalder contends. However, he acknowledges that despite this perceived failure, the data can still have its utility.
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● Superforecasting: The Art and Science of Prediction
By Philip E. Tetlock and Dan Gardner
Review via Inverse
Phil Tetlock asserts that everyone can predict the future — yes, anyone. In his new book, *Superforecasting: The Art and Science of Prediction*, the Wharton management professor and psychologist argues that futurists are skilled rather than extraordinary. Ordinary individuals can make remarkably accurate predictions if they grasp the right methods and practices.
Tetlock underpins his perspective with robust data: He has spent a significant portion of the last decade evaluating the forecasting abilities of 20,000 everyday Americans in The Good Judgment Project, covering topics from melting glaciers to the stability of the Eurozone. The findings reveal that these amateur predictions often surpass those made by pundits and so-called forecasting ‘experts’ typically favored by the media.
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The latest payrolls report from Washington paints a grim picture. Expectations were set for the Labor Department’s report to show that US companies added 200,000 positions in September. Instead, the data revealed a modest increase of only 118,000 private payrolls. On a brighter note, the year-over-year trend remains positive at a healthy 2.2% as of last month. However, the annual growth rate continues to cool. Does this signal a recession for the US? Not at this stage, but the latest data certainly doesn’t boost confidence that we can avoid a downturn. As I’ve noted over the past month, macroeconomic risks in the US have been on the rise, even though there isn’t a definitive sign indicating that the business cycle has turned negative (see here and here for detailed discussions). Today’s employment figures slightly shift the outlook toward a more pessimistic economic forecast.
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