While May may signal potential downturns in the business cycle, today’s payroll report from the Labor Department does not reflect significant alarm. Despite recent discussions regarding weak performance in various economic sectors, job creation appears to be steady. In essence, slow growth remains the prevailing theme.
Jobless claims decreased for the week ending June 1, falling by 11,000 to a seasonally adjusted 346,000. This figure aligns with the average level observed over recent months. Even though new filings have remained relatively stable, it is reassuring that this series isn’t increasing, especially in light of fluctuating economic data.
In the previous installment of Asset Allocation & Rebalancing Review, I observed that the significant variation in returns for 2013 continues. However, recently, those fluctuations have started to diminish. Although there is still a notable range of year-to-date returns across major asset classes, the gap has recently narrowed.
The upcoming May update from the Labor Department is projected to show an increase of 155,000 in private nonfarm payrolls, according to The Capital Spectator’s econometric forecast average. This anticipated gain is slightly lower than the increase reported for April and falls below two consensus estimates for May derived from economists’ surveys.
The growth rate in private-sector payrolls saw a modest uptick last month, as indicated by today’s ADP Employment Report. This slight improvement suggests that the overall economic outlook for May, once all the data is available, will continue to reveal a slow yet positive expansion. However, anticipating stronger performance demands a level of confidence that the current figures do not support.
How likely is it to make the correct investment decisions? More challenging than it may appear. This may be why many people assume that asset allocation requires minimal examination or adjustment. Some take this notion to an extreme, concluding that asset allocation is of little importance, despite abundant research suggesting otherwise. What you choose to hold in your portfolio, its timing, and allocation significantly impact performance, as my current overview of major asset classes illustrates. However, navigating the complexities of researching, constructing, and maintaining a diversified portfolio makes achieving optimal outcomes quite difficult.
In last week’s analysis, I reviewed the allocations across global equity markets as of May 31. Today, I will focus on fixed income. However, a standard disclaimer is necessary: categorizing the components of the global bond market is complicated. In contrast, equities are relatively straightforward. For clarity, I will simplify the fixed-income analysis, though it’s important to recognize that the numbers presented below are not the definitive assessment of the global bond market composition, as I’m excluding US munis and collateralized debt.
May proved to be quite challenging for capital markets worldwide, an occurrence not seen for some time. The last time a single month impacted various asset classes as severely was September 2011. Last month mirrored that scenario, with prices declining sharply across the board in many cases. The exception was US stocks, which saw the Russell 3000 deliver a robust 2.4% total return, marking US equities up by an impressive 15.6% year-to-date in 2013. Unfortunately, this remains the extent of the positive developments.
● Time No Longer: Americans After the American Century
By Patrick Smith
Summary via publisher, Yale University Press
Patrick Smith remarks that Americans hold onto national myths that often precede the nation’s founding. However, the time for illusions and nostalgia has passed. In this insightful book, he posits that Americans must choose between a romanticized self-image and an understanding of their place grounded in historical awareness. Clinging to old myths may lead to further decline, Smith argues, as he demonstrates the need for a new perspective to navigate the challenges of the twenty-first century.
The ISM Manufacturing Index is expected to dip slightly to 50.1 (just above the neutral 50.0 threshold) in the upcoming Monday update for May, according to The Capital Spectator’s average econometric forecast. This estimate indicates a slight decline from the previously reported 50.7 for April. Moreover, this projection is moderately lower than the consensus forecast derived from a survey of economists.
Overall, the current economic data reflects a consistent yet modest momentum in job creation, announcing a phase of slow growth which, while less than ideal, remains stable amidst varying concerns within specific sectors. As we look ahead, awareness and careful consideration are essential for navigating the uncertainties of the markets effectively.