William Bernstein penned an intriguing e-book a few years ago that considered the possibility that correlations are destined to rise among asset classes due to indexing’s growing popularity. “The average investor can build and manage multi-asset class portfolios to a degree that was once the exclusive province of institutions,” the financial planner wrote in Skating Where the Puck Was: The Correlation Game in a Flat World . “As a result, the low-hanging fruit of low correlations has probably been picked.” If he’s right, designing and managing asset allocation strategies faces new challenges in the years ahead. For some insight on how Bernstein’s 2012 observation looks at the midway point in 2016, let’s crunch the numbers for a preliminary evaluation via a broad set of ETFs and mutual funds.
Continue reading →

● US durable-goods orders jump in Apr due to planes | MarketWatch
● Orders for US Capital Goods Unexpectedly Fall for 3rd Month | Bloomberg
● Pending home sales +5.1% in April, reach highest level in a decade | CNBC
● US jobless claims fall more than expected last week | Reuters
● US Consumer Comfort Index Drops on Weaker Views of Personal Finances | BBG
● Regional mfg activity down in May, according to Kansas City Fed | Wichita Eagle
● How Would a Donald Trump Presidency Affect Your 401(k)? | NY Times
● North Korea Linked to Digital Attacks on Global Banks | NY Times

US economic growth in the second quarter is widely expected to rebound after Q1’s stall-speed rise of just 0.5% (seasonally adjusted annual rate). The question is how much a rebound will we see when the Bureau of Economic Analysis (BEA) publishes this year’s “advance” Q2 GDP report on July 29?
Continue reading →

● Markit: US Service Sector Weakened in May; Outlier or Warning? | Barron’s
● US house prices +1.9% in Q1–19th straight quarterly rise | Builder
● US mortgage applications post another tepid gain last week | HW
● Why the global trade slowdown may matter | VoxEU
● Millennials Are Starting to Spend More | Gallup
● Foxconn replaces 60,000 humans with robots in China | MarketWatch
● Oil Tops $50: first time in 6 Months as US supply drops | Bloomberg

Survey data published by Markit Economics this week anticipates a weak US economic profile for May. Today’s flash estimate of the Services PMI for this month dipped modestly to 51.2, or just slightly above the neutral 50 mark that separates growth from contraction. The news follows Monday’s preliminary May numbers for the US Manufacturing PMI in May, which is close to a stagnant reading of 50.5. Taken together, the two updates suggest that economic activity decelerated in May.
Continue reading →

The US stock market rebounded sharply yesterday, dispensing the biggest daily gain in two months. But the latest surge doesn’t change much for the trailing 10-year return, which remains well below its median for the rolling decade-long changes posted over the last 50 years. That may or may not be relevant for developing intuition about future performance, but it’s a reminder that the recovery in the US stock market in recent years still pales relative to previous boom in the 1980s and 1990s.
Continue reading →

● US New-Home Sales Jump to Highest Level in Over 8 Years | NY Times
● Richmond Fed: Manufacturing activity slowed in May | Richmond Fed
● Americans’ confidence in the US economy remains steady in mid-May | Gallup
● ECB’s Villeroy: Brexit Risks High for UK and Eurozone | MNI
● China’s currency fixing weakens against US$ to 5yr low | Bloomberg
● The Longer the Correction, the Longer the Bounce Back | WSJ
● German consumer morale inches higher heading into June | Reuters

The Federal Reserve continued to press ahead yesterday with its public relations effort of talking up the possibility of a rate hike, perhaps as early as next month. The latest addition to the hawkish-chattering club is the Philly Fed’s Pat Harker, who advised on Monday that “I can easily see the possibility of two or three rate hikes over the remainder of the year.” The comment follows similar remarks from central bankers in recent days, including the New York Fed’s Bill Dudley, who said that “if I’m convinced that my own forecast is on track, then I think a tightening in the summer, the June-July time frame, is a reasonable expectation.”
Continue reading →

● Markit PMI shows US manufacturing stagnant in May | MarketWatch
● Philly Fed’s Harker: June Hike Appropriate With Stronger Economy | MNI
● Progress toward full employment has stalled | FedWatch
● When Elections Aren’t About the Economy | NY Times
● Billions in US taxes may go unreported, study finds | WaPo

Stock markets in the developed world outside the US led the major asset classes higher last week, based on a set of proxy ETFs. Vanguard FTSE Developed Markets (VEA) posted an 0.8% total return for the five trading days through May 20, delivering a slightly stronger performance vs. the rest of the field.
Continue reading →