Tomorrow’s release of the ADP Employment Report for January is anticipated to show an increase of 234,000 private nonfarm payrolls in the US, according to the median econometric forecast from The Capital Spectator. This number is slightly below the previously reported gain of 238,000 for December. Notably, The Capital Spectator’s January estimate is significantly higher than two consensus forecasts derived from surveys of economists.
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January proved challenging for numerous asset classes, particularly equities. Emerging markets faced the sharpest declines, with their stocks tumbling over 6% last month, as reflected by the MSCI Emerging Markets Index. This bearish trend contributed to a 1.9% drop in the Global Market Index (GMI), marking its first monthly loss since August. Nevertheless, GMI remains firmly in positive territory over the past year, having reported a total return of 9.1%, which is moderately above the anticipated long-term performance for this passive benchmark of principal asset classes.
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● Unbalanced: The Codependency of America and China
By Stephen Roach
Q&A with author via Yale University Press
Q: How has the U.S.-China unbalanced relationship created a distorted perception of prosperity?
A: Since the late 1990s, the strained U.S. economy increasingly relied on the wealth effects generated by surging asset markets—starting from equities, transitioning to residential properties, and then to accessible credit. The issue lies in the fact that each of these asset-dependent supports led to bubbles—bubbles that were sustained by Chinese investments in dollar-denominated assets. Collectively, Washington, Wall Street, and Main Street were misled into thinking that this asset-driven growth was a sustainable pathway to economic prosperity. When these bubbles inevitably burst, it became clear that this was a perilous illusion of wealth. Furthermore, as China’s export-led growth had relied on America’s asset and credit bubbles, it too experienced detrimental effects. The collapse of export demands from China during the depths of the financial crisis in late 2008 highlighted this reality painfully.
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While personal spending appears robust, the outlook for personal income is concerning, according to the December report from the US Bureau of Economic Analysis. In fact, the year-over-year growth rate for disposable personal income (DPI) turned negative last month for the first time in four years. Contrarily, personal consumption expenditures increased by 3.6% for the year leading to December, marking the most significant annual rise in 12 months. Some analysts suggest the weak income data could be attributed to temporary seasonal factors and the conclusion of jobless benefits for over a million unemployed individuals last month. Only time will reveal if the startling decline in income is just noise or indicative of deeper issues. Gaining clarity may take a few months.
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The US economic trend has shown signs of deceleration as we ended January, based on a market-driven assessment of macroeconomic conditions. The Macro-Markets Risk Index (MMRI) closed at 8.8% on Thursday, January 30. Although this level suggests that the risk of a business cycle downturn remains low, the recent decrease places the index near its lowest point in four months. However, it currently does not indicate significant peril for the economy. The MMRI seems to be stabilizing around the 8% mark, a figure that comfortably exceeds the 0% danger threshold. Should it dip below 0%, that would signal increased recession risk. Conversely, readings above 0% indicate that markets are predicting economic growth.
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The upcoming report on personal consumption spending for December is expected to reveal a 0.3% increase compared to the previous month, according to the median econometric forecast from The Capital Spectator. This estimate falls short of the previously reported 0.5% rise for November. Furthermore, The Capital Spectator’s December forecast is slightly higher than three consensus projections obtained from surveys of economists.
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Carl Richards critiques tactical asset allocation (TAA) in a recent New York Times column. The financial planner reiterates a common criticism of TAA, urging investors to “forget market timing, and stick to a balanced fund.” He posits that TAA is merely market timing disguised with fresh marketing language. The foundation of his critique hinges on the difficulty of consistently outperforming the market (or maintaining a passive asset allocation strategy) over time. While I concur, we must remain cautious of inflated expectations regarding our ability to outsmart the market. However, Richards neglects the crucial gray areas lying between extreme market timing and a semi buy-and-hold strategy that some may classify as market timing.
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Fed tapering will remain slow and steady: CNBC survey
CNBC | Jan 28
The Federal Reserve is expected to continue gradually tapering its economic stimulus, with a $10 billion reduction in monthly asset purchases during each of its policy meetings this year, including the two-day session starting Tuesday. This consensus forecast comes from 45 of the country’s top money managers, investment strategists, and professional economists who participated in this month’s CNBC Fed Survey. Notably, 87 percent of respondents predict the Fed will taper by an average of $9.87 billion at this month’s meeting, closely aligning with the anticipated $10 billion reduction from $85 billion to $75 billion per month, announced after December’s meeting.
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The recent news regarding Mohamed El-Erian’s departure from Pimco serves as a reminder that active money management carries inherent risks—risks that can be avoided with index funds. As The Telegraph noted earlier this month: “While it is unclear what prompted Mr. El-Erian’s abrupt exit, it is certain that the world’s largest bond fund has lost one of its most influential and capable investors.”
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The government is set to announce this Thursday (Jan. 30) that the US GDP grew by 3.1% during the fourth quarter of 2013 (seasonally adjusted annual rate). This projection is based on The Capital Spectator’s revised average econometric nowcast, slightly improving upon the earlier nowcast of 2.9%, which was published on January 3.
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### Introduction
In recent economic discussions, several key indicators have emerged that could impact the market outlook and investment strategies. From employment forecasts to concerns about consumer spending and global market performance, these insights provide a comprehensive view of current economic conditions.
### Conclusion
Amidst fluctuating asset classes and evolving economic forecasts, remaining informed about market trends and data is crucial for investors. Monitoring these indicators can provide valuable context for strategic decision-making in an ever-changing financial landscape.
