Market Insights: Recent Economic Trends
In March, existing home sales experienced a slight drop, as highlighted in the latest update from the National Association of Realtors (NAR). This shift has led some analysts to speculate whether the housing market is losing momentum. However, the reason behind the decline indicates that the market is navigating through adjustments rather than entering a downturn.
An analysis of the current U.S. economic landscape indicates that the risk of a business cycle shift remains relatively low. The Macro-Markets Risk Index (MMRI) stood at 13.7% as of April 22, well above the critical threshold of 0%. This percentage falls within the historically stable range of 10%-15% observed thus far in 2013. A reading below 0% would signal an elevated risk of recession, while values above 0% correlate with economic growth.
Fooled by Data-Mining: The Real-Life Performance of Market Timing with Moving Averages
Valeriy Zakamulin (University of Agder) | April 2013
This paper critiques the effectiveness of the simple moving average market timing strategy introduced by M. Faber in “A Quantitative Approach to Tactical Asset Allocation” (2007, Journal of Wealth Management), suggesting that its reported outcomes may be influenced by data-mining biases. To mitigate these biases, the study conducts an out-of-sample simulation from 1930 to 2012, evaluating the actual performance of the market timing strategy, reexamining prevalent myths about its effectiveness, and offering an objective forecast of its future results.
Recent data shows that U.S. economic growth decelerated in March, with expansion rates falling slightly below historical averages, as presented in the March report of the Chicago Fed National Activity Index. This index is a composite of 85 indicators. However, the three-month moving average (CFNAI-MA3) revealed a more optimistic figure of -0.01, which aligns with predictions and indicates continued economic expansion consistent with historical trends. Nonetheless, this represents a decrease from the adjusted February figure of +0.12, indicating a slowdown in economic momentum.
The average econometric nowcast from The Capital Spectator predicts a 3.2% increase in U.S. GDP, unchanged from the previous forecast shared on April 8. (GDP changes are presented as real seasonally adjusted annual rates.)
● Down the Up Escalator: How the 99 Percent Live in the Great Recession
By Barbara Garson
Interview with author via The Leonard Lopate Show (WNYC)
In “Down the Up Escalator: How the 99 Percent Live in the Great Recession,” Garson explores the human impacts of economic recession and subsequent slow recovery by interviewing a diverse group of Americans. The book highlights how stagnating wages and increasing reliance on credit are profoundly affecting their lives.
The three-month average of the Chicago Fed National Activity Index (CFNAI) is projected to experience a slight decline, settling at +0.03 in the upcoming March report based on The Capital Spectator’s average econometric forecast. This follows a +0.09 average in February. According to guidelines from the Chicago Fed, a value below -0.70 suggests an “increasing likelihood” of a recession. Current estimates indicate that the CFNAI’s three-month average will remain at levels typically associated with growth, with the report set to be released on April 22.
“It’s not the healthiest recovery,” remarked the International Monetary Fund’s managing director, adding, “but we believe that we have avoided the worst, and the economic landscape no longer appears as perilous as it once did.” This sentiment is consistent with the latest findings from The Capital Spectator’s Economic Trend Index (ETI) and Economic Momentum Index (EMI), both of which suggest economic growth based on a broad array of indicators. Moreover, projections for the near future appear promising based on econometric estimates spanning the next few months.
Currently, the status of weekly jobless claims indicates stability. Today’s report reveals a slight uptick in new unemployment benefit filings, which, given recent trends, can be interpreted as a positive sign. Although there were concerning spikes in March, which raised alarms about job market solidity, the recent data suggests that claims have stabilized, remaining at manageable levels.
Momentum is a well-established and enduring concept in financial literature, suggesting that the persistence of positive or negative returns serves as a surprisingly effective predictor. Despite ongoing debates regarding its underlying mechanisms, the substantial evidence from multiple studies affirm its effectiveness. Unlike most traditional sources of alpha, which often succumb to arbitrage, momentum strategies maintain their appeal. As investments dedicated to capturing this risk factor continue to grow, momentum’s consistent performance remains impressive—a notable achievement amid myriad failed strategies.
In summary, while recent economic indicators present challenges, they also signal a foundation for cautious optimism. Monitoring developments in the housing market, job claims, and broader economic metrics will be essential as we move forward, embracing both the opportunities and challenges ahead.
