Last week’s report on personal income and expenditure surprised some analysts, revealing a 0.1% decline in consumption for April compared to the previous month. This drop has raised concerns that the economy might be stalling. However, it’s premature to arrive at such conclusions. Despite rigorous analysis of monthly data, the inherent volatility often precludes drawing definitive insights about long-term trends—a warning that certainly applies to the latest spending figures.
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A positive trend persisted across most asset classes in May, with notable exceptions in the commodities sector and specific areas of the foreign-bond market, particularly high-yield and corporate bonds. Nevertheless, most major asset classes saw an overall increase last month, highlighted by a remarkable 3.9% rise in foreign REITs and real estate, as measured by the S&P Global ex-US REIT Index.
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The ISM Manufacturing Index is anticipated to rise to 55.0 in tomorrow’s update for May, indicating a slight increase compared to the previous month, according to the median forecast from The Capital Spectator.
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● Rational Expectations: Asset Allocation for Investing Adults
By William J. Bernstein
Summary via the author’s website, EfficientFrontier.com
It’s been nearly twenty years since the digital edition of The Intelligent Asset Allocator was first made available. This new full-length finance book is focused on quantitatively based asset allocation for smaller investors. It builds on the theme of the Investing for Adults series, not targeting beginners, but rather those with a good grasp of quantitative analysis and finance basics. If you believe you can accurately time the market or select winning stocks and mutual funds—or if you’re confident in your ability to create an optimal mean-variance asset allocation with a complex system—then you might want to explore the reading list first and return in a few years.
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I will be traveling and finalizing the arrangements for my mother in the coming days, resulting in fewer blog updates. I plan to resume regular posts on Monday, June 2.
Today’s revised GDP report for the first quarter of this year reveals disappointing growth. Economic activity contracted by 1.0% on a seasonally adjusted annualized basis, which is significantly lower than the previous estimate of a 0.1% gain. However, while the GDP report is often viewed as an unreliable indicator for real-time business cycle analysis, it can be misleading if considered in isolation. Recent updates, including today’s news on jobless claims, which have fallen to their lowest level since August 2007, present a more optimistic outlook.
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The upcoming update on US personal consumption expenditure for April is projected to show an increase of 0.3% compared to the previous month, according to the median econometric forecast from The Capital Spectator. This figure is notably below the 0.9% rise observed in March.
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Conversations about bubbles have gained momentum recently, driven by impressive trailing returns. However, as I’ve previously pointed out (see here, for instance), I prefer to frame market price fluctuations as reflections of changing expected returns. This distinction may seem superficial, but effective portfolio risk management necessitates viewing markets as providing a constantly evolving array of risk premiums. Although bubble discussions can be thrilling, they often distract from our primary objective of achieving satisfactory returns over multiple years. Decisions are usually made in shades of gray rather than stark contrasts, and our investment strategies should account for this reality.
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As we unofficially kick off summer, optimism spreads among the major asset classes. A noteworthy aspect of this current rally is that the range of returns is less extreme than in recent history, contrasting with the previous update in April. Additionally, there is a reduction in losses among standard ETF proxies over 250-trading-day windows (approximately equivalent to one-year returns). It is also important to note that among the declines that do remain, the losses have been relatively modest.
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I want to express my heartfelt gratitude to everyone who extended their condolences and support through emails, flowers, cards, and kind thoughts during this challenging time after the loss of my mother. While this experience has been painful, the kindness shown has made the burden a little lighter. Thank you all for reaching out.
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