Is the small cap rally back on track? Too soon to say, but the trend continues to look encouraging, at least relative to the downside bias in the month through mid-July.
The directional bias for US economic activity continues to skew slightly negative, based on CapitalSpectator.com’s Macro Trend Index (MTI). Although the economy is still expanding at a solid pace, MTI still indicates that a downside bias persists for the directional trend. The negative tilt, however, is fractional and so the overall signal remains in neutral terrain.
* Pandemic puts tens of millions around the world on the brink of famine
* Delta variant threatens the US labor market rebound
* Infrastructure bill estimated to add $256 billion to US deficit
* Biden wants half of US cars sold by 2030 to be electric or hybrid
* Bond rates are falling and yield curves are flattening around the world
* Will Fed plans for a digital currency eventually displace crypto?
* US trade deficit widened to a record in June
* US jobless claims fell last week, close to pandemic low:
In an upcoming issue, we’ll be adding a proxy for mean-reversion potential to the lineup of risk metrics. Here’s a preview.
The 10-year Treasury yield held steady at 1.19% yesterday (Aug. 4). The current rate marks the third time in recent history that the 10-year yield slipped to 1.19%, which reflects a six-month low.
The Capital Spectator estimates the “fair value” of the 10-year Treasury yield by using the average estimate from three models:
* GDP growth
* year-over-year Consumer Price Index (headline)
* Federal Reserve assets as % of GDP
* Fed funds target rate
* 1-year/3-year curve to estimate Fed bias
For additional analysis on fair-value estimates of the 10-year yield, see these CapitalSpectator.com articles:
“Estimating Fair Value For The 10-Year Treasury Yield”
“Estimating Fair Value For The 10-Year Treasury Yield, Part II”
“Estimating Fair Value For The 10-Year Treasury Yield, Part III”
* US Covid-19 cases rebound to six-month high
* Federal Reserve vice chair says rate hike likely in 2023
* Are US jobless claims stuck at a permanently higher plateau?
* Global growth slipped to 4-month low in July via PMI survey data
* Global value of negative-yielding bonds rises to six-month high ($16.5 trillion)
* German factory orders rebounded more than expected in June
* ISM Services Index rebounded in July, reaching record high (since 1997)
* US firms hired substantially fewer workers than expected in July, ADP reports:
An extraordinary run of low risk persists for the Global Market Index (GMI), an unmanaged, market-value-weighted portfolio that holds all the major asset classes (except cash). After the benchmark posted another monthly gain in July, risk-adjusted performance ticked higher once again.
* Biden administration issues new national eviction moratorium
* Delta variant poses biggest challenge for China since pandemic’s start
* Bond yields remain under pressure due to worries about Delta variant
* Businesses have record amounts of unused credit from US banks
* China economic growth accelerated in July via Composite Output Index
* Eurozone economy expanded in July at fastest rate since 2006
* UK inflationary pressures reach record high in July
* US factory orders rose more than expected in June:
Correction: Data table below is incorrectly labeled as June 2021; should be July 2021. Apologies
The projected risk premium for the Global Market (GMI) held steady in July at an annualized 6.0%, unchanged from the previous month. That’s a comparatively elevated level vs. estimates in recent history. The forecast reflects the long-run outlook for GMI’s return over the “risk-free” rate, which is proxied with the yield on a 3-month Treasury bill.