Archive for the ‘Weekly Recap’ Category

Weekly Recap & Outlook – 03.07.14

Monday, March 10th, 2014

Tower Private Advisors

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  • Hodge podge 

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Weekly Recap & Outlook – 02.28.14

Friday, February 28th, 2014

Tower Private Advisors

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  • All-time highs for some indexes
  • Lousy starts for others
  • Elevated fear in Emering Markets, little in U.S. and Developed Europe
  • Mixed bag of economics

Capital Markets Recap

With today’s trading, the S&P 500 reached an all-time high, further pushing it into marginally positive territory for the year to date period, as can be seen in the table below. The rest of the year-to-date results are truly a mixed bag, with Australia down by (-)8.32% and Natural Gas up 12.4%.

wei

With few noteworthy stories this week–Ukraine and Crimea will get wrapped into the chart that follows–I decided to take a look at the so-called Fear Indexes for the U.S., Developed Europe, and Emerging Markets, given the unrest–around the globe, it seems. The chart below plots the next-30-days implied volatility–implied, so called, because it is implied from option pricing. When these go up, they suggest that market participants expect increased volatility; i.e. they’re fearful. From this, we can see that fear in emerging markets is up by about 37% from a year ago; it’s down by 8.50% in the U.S.; and fear in and about developed Europe is down by 20%. Notice how, for the most part, the indexes move in sync.

VIXES

On a longer term chart, only emerging markets seems at all elevated, and that’s probably to be expected what with the unrest in Ukraine, Thailand, etc. While our services suggest it’s too early to get excited about emerging markets, the time is getting closer for considering investments there.

vixeslt

Top Stories

None I could find that were worthy of your attention.

This Week

Here is a bit of a troubling developement–or it might not be. What you have here is a chart showing economists estimates for the U.S. economy relative to the actual releases. Technically, it’s called the Citigroup Economic Surprise Index. So, for example, economists produce estimates for Nonfarm Payrolls; the averaging of them is called the consensus estimate. Then, the actual Nonfarm Payrolls report is released and we find out how badly economists have missed the estimate. Very crudely speaking, if the line in the chart is rising, economists are being too pessimistic; if it’s falling, too optimistic. When the line is at the top/bottom, economists are missing by the widest margin. We’re now in a mode of economists being too optimistic, and depending on your view–of your portfolio–that can be good or bad. Heavy in bonds? Good news. Heavy in stocks? Depends on your view of the Federal Reserve. With disappointing economic data, the Fed is more likely to prolong its easy money policy. Companies, though, are obviously going to struggle in a weaker economy.

econsurp

We were treated to three regional Federal Reserve surveys (Richmond, Dallas, and Kansas City), Chicago Purchasing Managers index, and ISM Milwaukee. The Dallas and Richmond surveys showed sharp declines in economic activity; ISM Milwaukee a more modest decline, while the Kansas City Fed survey showed a better-than-expectations reading, but one which was lower than last month; the Chicago report, however, was better than expected (59.8 v. 56.4) and in line with last month’s reading.

Survey says…!

ff

Housing activity picked up a bit this week, however. The Case-Shiller Home Price Index showed an 11.30% year-over-year increase in home prices. There is quite a lag to the Case-Shiller indexes, with this release representing Q4 2013 data, which didn’t include the nasty weather that has been the whipping boy for every poor economic release. Arguably affected by weather, however, is housing activity, and New Home Sales enjoyed an unexpected increase of +9.6%, versus a forecasted decline of (-)3.4%. Pending Homes Sales, however, fell by (-)9.1%, again, astounding economists, who had looked for a (-)6.1% decline. The second coming of Q4 GDP was released this week, and it showed a decline from 3.2% at the end of January to 2.4%, the result of smaller personal consumption than originally figured. What goes on with GDP revisions is that some of the data for each quarter is initially estimated; each revision reflects the fact that more of the data is realizes as opposed to estimated; at the end of next month we’ll get one more revision on the Bloomberg terminal. After that, the data will continue to be revised and revised and revised.

Next Week

It’s the first week of the new month, and that means payrolls are released on Friday. They’ll come from two sources, the Establishment Survey (of brick-and-mortar establishments) and the Household Survey, from which we get the Unemployment Rate. Economists estimate that the Nonfarm Payrolls report will show 150,000 jobs were added, while they expect the unemployment rate to stay unchanged at 6.6%. They’ll be wrong on all these fronts, but, still, they estimate stuff. On Wednesday, we’ll get what purports to be a sneak peak at Friday’s report in the form of the ADP Employment report. Interestingly, economists estimate that report will show 155,000 jobs were added. It’s really a pretty heavy week of data, but none of it will matter in light of Friday’s report.

Goodbye, February.

Graig P. Stettner, CFA, CMT
Chief Investment Officer
Tower Private Advisors

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Weekly Recap & Outlook – 02.07.14

Friday, February 7th, 2014

Tower Private Advisors

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  • Correction over?
  • Emerging markets concerns remain
  • Payrolls report what the market wanted? Seems like it

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Weekly Recap & Outlook – 01.31.14

Friday, January 31st, 2014

Tower Private Advisors

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  • January forecasting the year?
  • Getting carried away with emerging markets
  • Weather-related economist ineptitude

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Weekly Recap & Outlook – 01.17.14

Friday, January 17th, 2014

Tower Private Advisors 

Capital Markets Recap

 wro

Top Stories

 Just a handful…

  • Recent data show that hedge funds run by women outperform those run by men. Oh, whatever… [Joke]
  • 93% of financial advisers believe that rising rates will be one of the top five issues faced by clients in 2014. That leads me to believe that rising rates will not be an issue for investors in 2014. There’s just no way that 93% of financial advisers are that smart.
  • General Motors will pay its first quarterly dividend in almost six years.
  • Finally, we’re going to get the economy shifting into high gear. A White House official said that, “the President will use every tool he can to create new jobs and opportunities for the middle class.”
  • No doubt aware of the preceding bullet point, The Economist magazine says that 2014 could be the year when the U.S. busts a move higher.
  • In this week’s most shocking story, a couple of chaps on the U.S. House Financial Services Committee said that the SEC failed to consider the consequences of applying the Volcker Rule

This Week

Here’s a look at the U.S. economy vis-a-vis expectations from economists. The chart below is the Citigroup U.S. Economic Surprise index. It measures how economic data point releases are faring relative to the consensus of economists. If the line is about the dashed, zero line, it means that economic releases are better than expected; below, worse. Right now, it’s saying that economists are way to pessimistic. When the economists wise up, they’ll ratchet up their estimates more rapidly, and the line will head down.

econsurp1

Here is why this is important. In the stock market, it’s all about expectations. That’s why we see the the phenomenon of stocks falling when a company reports great, but not as good as was expected, and the stock falls–same thing here. When the economy surprises to the upside–i.e. does better than expected–it forces investors to recalibrate. The line above could continue to rise, but economists would eventually wise up, as it only appears that they don’t mind being wrong. When they do, they’ll begin to over-estimate the strength of the economy and the line will head south.

Here’s a long term look at the index. In the last 10 years the index hasn’t gotten much higher than it is now.

econsurp1 

The readings are beginning to get a little stretched. The current reading is in about the 95th percentile of readings. Pretty soon, it’s likely that the economic readings are going to start to disappoint the consensus. At that point, expect the discussions of the Fed being mis-guided in their decision to taper. It might also correspond to weakness in the stock markets. We shall see. One thing is clear, the economy has been stronger than almost all economists have expected.

There really wasn’t much of interest this week in individual economic reading releases…

  • Small Business Optimism remains subdued, well below pre-recession levels
  • Empire State Manufacturing index B L O W S away economists estimates (12.51 v. 0.98)
  • Producer Price Index rose 1.2% on a year-over-year basis
  • Consumer Price Index…1.5%
  • Initial Jobless Claims above recent lows
  • Housing Starts fall by 9.8%
  • Building Permits fall by 3.0%
  • University of Michigan Consumer Confidence falls slightly
  • Job openings from the JOLTS report continue to claw their way back to pre-recession levels…highest since early 2008

Next Week

 Almost no releases scheduled for next week. Initial Jobless Claims, Mortgage Applications, House Price Index, Existing Home Sales. That’s about it.

Graig P. Stettner, CFA, CMT
Chief Investment Officer
Tower Private Advisors

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