The case for expecting a small-cap equity premium looks shaky. Can we rescue the strategy by focusing on small-cap value stocks? A cautious “yes” has merit, or so it appears after crunching the numbers on the relevant Russell indexes.
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● US Retail sales fall in March to end weak Q1 | MarketWatch
● US business inventories fall slightly in Mar, sales weaken further | Reuters
● Fed Beige Book: Strong Job Market Delivers Higher Wages | WSJ
● GDPNow growth forecast for Q1 ticks up to still-weak +0.3% | Atlanta Fed
● ‘GDPNow’ Got You Down? Meet the NY Fed’s New ‘Nowcast’ | Barron’s
● Just Released: Introducing the FRBNY Nowcast | NY Fed
● Eurozone March Inflation Revised Up To Zero | RTT

Consumer spending in the retail sector fell 0.3% in March, well below expectations for a modest increase, the US Census Bureau reports. The news is just one data point and so all the obvious caveats apply. Nonetheless, taking the numbers du jour at face value sends a dark message, in part because the reversal in sales last month took a substantial bite out of the year-over-year trend.
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Yesterday’s post focused on the discouraging record for value investing over the last decade, but history looks even worse for the so-called small-cap premium in the US stock market. Yes, there have been periods when small cap shines relative to large caps, but the strategy has been a loser as a buy-and-hold proposition since 1980, based on Russell indexes. Excluding the “junk” or focusing on the “value” opportunities in the small-cap realm offers possible solutions, but the original concept using the Russell benchmarks is battered and bruised.
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● Small-business sentiment falls to 2-year low in March | MarketWatch
● U.S. Import Prices Rose 0.2% in March Amid Signs of Inflation | WSJ
● Redbook: US same-store sales +1.1% in Apr but off 2.8% mtd | Econoday.com
● The IMF downgrades global growth again | The Economist
● China’s jump in exports soothes growth fears, boosts markets | Reuters
● Eurozone Industrial Output Falls In Feb After Strong Jan | RTT
● Rise of Institutional Investors Raises Questions of Collusion | NY Times

US retail sales are expected to rebound in tomorrow’s March report vs. the previous month, according to The Capital Spectator’s average point forecast for several econometric estimates. The average prediction points to a 0.3% increase vs. the the previous month’s spending total. A gain in consumption for March would mark the first monthly rise so far this year.
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The notion that value outperforms in the long run is a staple in the financial literature, and for an obvious reason: the historical record tells us so. But the last nine years tell a different story, based on the return spread for the Russell 1000 Value Index less the Russell 1000 Growth Index. As AJO Partners in Philadelphia advised in an investment note last week, the current run of growth’s outperformance in the US large-cap space is the longest period of superior results over value since the history of the Russell indexes, which dates to the 1970s.
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● US inflation survey slips in cautious sign for Fed | Reuters
● Obama, Fed’s Yellen discussed economic risks | Reuters
● Buckle up — Q1 earnings look to be awful | CBS MW
● Strong investment flows into emg mkts in early Apr | Reformed Broker
● Why no economic boost from lower oil prices? | Econobrowser
● All the Job Growth is in “Alternative” Jobs | Conversable Economist
● Hedge Funds Abandoning Dollar’s Biggest Bull Run in a Generation | Bloomberg

Commodities delivered a solid performance last week, posting the strongest gain among the major asset classes via a set of proxy ETFs. Firmer prices in raw materials are widely considered a plus for emerging market economies, but there was no sign of a positive connection last week in the associated equities, at least in US dollar terms. Indeed, last week’s big loser among the major asset classes: emerging market stocks.
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● GDPNow forecast for Q1 US growth is nearly flat at 0.1% | Atlanta Fed
● The Incredible Shrinking ‘GDPNow’ Forecast; Could it Be Right? | Barron’s
● US Wholesale Inventories Drop More Than Expected In Feb | RTT
● Dollar drops to fresh 17-month low against the yen | MarketWatch
● China’s producer price deflation eases, monetary support may slow | Reuters
● World Bank: China’s Growth to Ease to 6.7 % in 2016 | AP
● IMF supports negative rates at central banks around the world | IMF