Last month saw an unexpected resurgence in industrial production. The Fed’s industrial production index recorded a remarkable 1.1% increase, marking the largest monthly rise in nearly two years. This boost caught many analysts off guard, including myself. Nevertheless, it is evident that the dismal drop in October—now further adjusted downward in today’s update—was merely a brief setback rather than a signal of an ongoing downtrend. In fact, the manufacturing sector, which is typically sensitive to economic cycles, also reported a solid 1.1% gain in November.
The November update on industrial production is set to release today at 9:15 am Eastern. Many analysts are anticipating a recovery from the 0.4% drop experienced in October. However, the econometric forecasts from The Capital Spectator present a mixed bag, with the average prediction suggesting a modest 0.1% rise. This indicates a potential increase in industrial production, although it may fall short of the broader consensus expectations.
Jobless claims fell significantly last week, nearing the lowest levels seen in almost five years. Meanwhile, retail sales showed an uptick in November. In summary, we have two additional economic indicators that bolster the expectation of moderate economic growth in the near term.
Fed Chairman Ben Bernanke reiterated his stance: interest rates will remain low, even amid signs of improvement in the labor market. He stated that if inflation does not exceed a 2.5% annual rate and unemployment remains above 6.5%, the Fed will continue to keep its target rate near zero. While introducing “thresholds” is a new approach, the underlying message remains unchanged: low rates are here to stay, without plans to alter the current course anytime soon.
What will tomorrow’s retail sales update for November reveal about the precarious balance of the business cycle? The report for October raised some concerns due to a 0.3% decrease in consumption—the first decline since June. This decline was partially attributed to Hurricane Sandy. Will November’s figures reflect a recovery following a month of favorable conditions? According to consensus forecasts, a significant increase of 0.4% is anticipated, as reported by Briefing.com. While promising, this projection seems somewhat ambitious compared to the two econometric models I often use for contextual insight when evaluating the data’s trajectory.
Dividend Yields, Dividend Growth, and Return Predictability in the Cross-Section of Stocks
Paulo Maio and Pedro Santa-Clara | Nov 2012
A prevalent belief holds that variations in dividend yields are solely linked to expected returns, rather than anticipated dividend growth, as articulated in Cochrane’s presidential address (2011). We demonstrate that while this is true for the overall stock market, it does not hold for portfolios composed of small and value stocks, where dividend yields predominantly correlate with future dividend changes. Consequently, the variance decomposition associated with aggregate dividend yields reveals significant heterogeneity across different equity categories. Our findings remain consistent across various forecasting horizons, econometric methods (including direct long-horizon regressions and first-order VAR), and are further validated through Monte Carlo simulations.
Staying optimistic about the economy has becoming increasingly challenging. With concerns surrounding fiscal uncertainties in Washington and worries about America’s long-term growth potential, the narrative of pessimism is gaining traction as the year draws to a close. However, looking back at recent economic data, as highlighted in today’s update of The Capital Spectator Economic Trend Index (CS-ETI), suggests that the situation is still in play.
● Do You Need a Financial Adviser?
By Mark Nind
Summary via publisher, Memoir Publishing
While many financial advisers provide valuable services to their clients, there are numerous accounts of clients encountering those who fail to fully grasp their needs or possess crucial knowledge about pertinent products or legislation. Conversely, venturing forth without the right guidance can lead to significant financial consequences. With extensive experience in financial services, Mark Nind understands both the pitfalls and challenges of investment planning from the perspectives of banks, independent advisors, and clients. In this book, he elucidates the role of financial advisers in a clear and unbiased manner, offering critical insights on when to seek advice, where to find it, and how to effectively manage your finances.
Recent reports indicate that private payrolls increased by 147,000 last month on a seasonally adjusted basis, as reported by the Labor Department here. Although this represents a notable slowdown from October’s revised increase of 189,000, it still surpassed expectations significantly. The consensus estimate by Briefing.com, for example, projected a modest gain of 120,000. In addition, the unemployment rate reported a decline to 7.7%. While I usually focus less on this figure—focusing instead on payroll data for business cycle analysis—it is difficult to overlook that unemployment has dropped to its lowest level in nearly four years. Although the relevance of these unemployment figures is debated, they do indicate a downward trend that is currently favorable.
In recent times, more financial advisors are employing technical analysis in their investment strategies, including asset allocation. In the latest issue of Financial Advisor, I delve into this trend and inquire with wealth managers about their motivations and methodologies: (Re)Discovering Technical Analysis.