In light of the latest weekly update on unemployment claims, the Federal Reserve’s statement from yesterday—that “economic activity has been expanding at a solid pace”—takes on added significance. Notably, new applications for unemployment benefits experienced a significant decline, dropping by 43,000 last week to a seasonally adjusted total of 265,000, marking the lowest level seen in nearly 15 years. Although the reduced business activity due to the Martin Luther King holiday may have influenced these figures, it remains challenging to interpret the current numbers in any light other than a positive sign for the economy.
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The Federal Reserve is maintaining its stance on initiating interest rate hikes later this year, as indicated in yesterday’s FOMC statement. However, the Treasury market presents a contrasting view. The benchmark 10-year yield fell to 1.73% yesterday, reaching its lowest point since last May. Interestingly, the 2-year yield—which is highly responsive to interest rate expectations—also decreased, dropping to 0.50% yesterday.
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● Fed optimistic about U.S. economy, noting strong job gains | Reuters
● German unemployment rate declines amid economic growth | Bloomberg
● Eurozone M3 growth accelerates; private sector loans decrease | RTT
● Japan’s retail sales rose for the sixth consecutive month, reaching the highest levels since March | MNI
● 401(k) balances increase, although they still trail market gains | MarketWatch
The landscape of small-cap investing is poised for a transformation, as a groundbreaking research paper reexamines and ultimately reinvigorates the rationale for holding these shares—particularly when assessing their quality, as opposed to simply classifying them as “junk.” Cliff Asness from AQR Capital Management and several co-authors have revisited the small-cap effect and found that a statistically significant small-cap premium persists over time, but only for firms that are not struggling financially. The title of the paper encapsulates the essence of their findings: “Size Matters, If You Control Your Junk.”
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The stock market experienced a downturn, resulting in a decline of 1.34%. MarketWatch.com referred to this as the “S&P 500 plunging from major resistance.” While this may sound alarming, it’s essential to contextualize yesterday’s fluctuations. Was the dip unexpected? Possibly, though the definition of “unexpected” can vary based on one’s perspective regarding market volatility. To clarify, a brief exploration of market statistics can provide insight.
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The website’s servers are currently experiencing issues, leading to the loss of today’s posts. I will repost shortly, though there may be some broken links. I apologize for the inconvenience…
Recent estimates for U.S. GDP growth in the fourth quarter of 2014 have been trending upward, but the current projections still indicate a significant slowdown compared to the robust growth in the third quarter. The economy is expected to grow by 3.6% in Q4 (real seasonally adjusted rate), as derived from The Capital Spectator’s updated median forecast that incorporates various econometric predictions. While this growth rate is commendable, it represents a noticeable decline from the previous 5.0% increase reported for Q3.
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● Concerns mount regarding a potential mid-year rate increase, although the Fed remains noncommittal | MarketWatch
● U.K. GDP growth slows in Q4 | RTT
● Syriza claims full repayment of Greece’s debt is ‘unrealistic’ | BBC
● Market reactions muted after S&P downgrades Russia to ‘junk’ status | Reuters
● China’s factory profit growth reaches a two-year low | Reuters
● Texas factory activity remains stagnated in January, according to the Dallas Fed’s survey | El Paso Times
Traders and investors often navigate through vastly different analytical frameworks and market viewpoints. However, they occasionally find intersecting pathways. David Varadi’s recent study on what he terms error-adjusted momentum (EAM) seeks to normalize returns by considering volatility. While his focus lies primarily on creating short-term trading signals, EAM also serves as a valuable risk assessment tool, providing valuable insights into the likelihood of significant market corrections. This information is pertinent not just for traders but also for long-term investors. Consequently, EAM could present useful data for managing asset allocations over medium- to long-term horizons, especially during rebalancing phases.
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● Greece opts for an anti-austerity party in a significant shift | NY Times
● Freddie Mac reports that U.S. 30-year mortgage rates hit a 20-month low | SelectedLoans
● NABE Survey indicates U.S. firms plan to increase wages | Reuters
● Ifo reports that German business sentiment in January exceeded expectations | RTT
● BOE’s Forbes suggests UK rates may rise sooner than anticipated | MNI
● Analyzing the factors behind the declining oil prices | Econobrowser
### Conclusion
Recent economic indicators and fiscal developments reveal a complex yet optimistic picture for the U.S. economy. While challenges remain, particularly in interest rate projections and market volatility, the overarching trend suggests growth and resilience. Keeping an eye on these trends will be crucial for investors and policymakers alike as they navigate the evolving landscape.
