No one can reliably predict the start date of the next recession, but the last half century suggests that the stock market will suffer when the economy contracts.
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In February I considered if bubble risk for US stocks was elevated. My conclusion: Yes, it appeared that the market was unusually frothy, based on an econometric technique that takes a stab at quantifying the ebb and flow of irrational exuberance. As a sell signal, however, the analysis has been dead wrong this year. The S&P 500 is up more than 6% since that post appeared six months ago.
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Stocks in off-shore markets were the top performers among the major asset classes last week, based on a set of exchange-traded products. Equities in developed countries posted the strongest weekly advance, fractionally ahead of stocks in emerging markets.
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● The Best Investment Writing: Selected Writing From Leading investors and Authors
Edited by Meb Faber
Summary via publisher (Harriman House)
Are you looking for some ideas to help you improve your portfolio? Let the brightest, most insightful minds in investing help. The Best Investment Writing contains 32 hand-selected articles. These are the best pieces from some of the most respected money managers and investment researchers in the world. The Best Investment Writing reads like a masters course in investing.
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Some of the strongest track records in money management are closely bound up with trend-based strategies. Yet by the standards of most investment anomalies, trend following’s results should have faded into mediocrity years ago. Why has it beaten the odds? Several experts in the niche offer their thoughts in the newly published fifth edition of Michael Covel’s Trend Following.
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US companies added workers at a faster rate in July, expanding payrolls by 205,000, up from an upwardly revised 194,000 in the previous month. That’s a healthy improvement, although the noisy monthly changes hide the fact that the year-over-year trend for payrolls continues to decelerate.
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The stock market is close to a record high, supported by the outlook for moderate US economic growth. Yet the bond market once again seems to be pricing in the prospects for a weaker economy.
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Drawdowns for the majority of the major asset classes remain under 7%, based on a set of representative exchange-traded products through yesterday’s close (Aug. 2). Four of the 14 asset classes are currently posting zero drawdowns and another three are below 3%, based on historical data for the past five years. Only two of the 14 major asset classes have drawdowns that exceed 10% declines. The generally serene risk profile offers another perspective on a simple fact: bull markets are widespread for most of the global markets.
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The projected risk premium for the Global Market Index (GMI) edged higher again in July. GMI, an unmanaged, market-value weighted portfolio of the major asset classes, is expected to earn an annualized 5.8% (over the “risk-free” rate) in the long run. The estimate is 20 basis points above last month’s forecast.
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A bullish tailwind lifted all the major asset classes in July, delivering across-the-board monthly gains (except for a fractional loss in cash) for the first time since January. Stocks in emerging markets (MSCI EM) led field higher, rising 6.0% last month – the strongest monthly total return for the index in more than a year.
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