Health Care Holds The Lead As US ETF Sector Momentum Cools

The bullish glow for US stocks has faded lately, but one thing that hasn’t changed is the strong relative performance of the health care sector. This slice of the US market continues to maintain a sizable performance edge over the rest of the field, posting a nearly 22% total return for the trailing one-year (252 trading day) period. But in a sign of the times, even the Health Care Select Sector SPDR (XLV) is showing the strains of the latest risk-off trade for the market overall. Although XLV closed above its 200-day moving average yesterday (July 8), the fund slipped below its 50-day average.
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Managing Rate Hike Expectations Down… Again

The IMF this week recommended that the Federal Reserve delay its first hike in interest rates until we see “clear signs of wage and price inflation, and sufficiently strong economic growth.” It’s debatable if those conditions apply, although many analysts say nay at the moment. In any case, sober economic analysis may not matter as long as the Greek crisis stalks the macro landscape.
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Initial Guidance | 8 July 2015

● The end game for Greece ends on Sunday…
● And the Greek leader calls for a new deal with Europe…
● Meanwhile, US job openings tick up to a record high in May…
● As Gallup’s US economic confidence index sticks to a 7-month low…
● And the US trade gap in May widened as exports slow amid global headwinds…
● China’s stock market continues to slide…
● A rout that may have implications for economic reforms.

Risk Premia Forecasts | 7 July 2015

The expected risk premium for the Global Market Index (GMI) dipped in June, falling to its lowest level since January. GMI — an unmanaged, market-value weighted mix of the major asset classes — is projected to earn an annualized 3.6% over the “risk-free” rate in the long term. (For details on the equilibrium-based methodology that’s used to generate the forecasts each month, see the summary below). Today’s updated estimate, which is based on data through the close of last month, slipped 30 basis points from the previous projection.
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Initial Guidance | 7 July 2015

● ISM: US services sector posts slightly stronger growth in June…
● But PMI reports “slowest rise in service sector activity for five months”…
● The Fed’s Labor Market Conditions Index still points to weak expansion in June…
● As the Conference Board’s Employment Trends Index accelerated last month…
● Meanwhile, global growth slowed to a 5-month low via PMI data…
● And the debacle in Greece rolls on as the Eurozone awaits a new proposal from the government in Athens

Efficient Frontier Portfolios–Impractical But Still Useful

Building “optimal” portfolios—maximizing return and minimizing risk–is a foundational concept in quantitative finance. Unfortunately, it’s not terribly practical. The problem, as many researchers have demonstrated over the years, is the elusive aspect of developing reliable estimates of return and risk. Mere mortals are notoriously ill-suited for such things. But crunching the numbers and identifying theoretically optimal strategies is still useful as a benchmark for thinking about how to design and manage your real-world asset allocation and framing history in a productive way.
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Celebrating Independence (And A Long Weekend)

Happy 4th of July! In honor of Uncle Sam’s birthday, The Capital Spectator will refrain from discussions of finance, economics, and otherwise engaging in analytical acrobatics… until the long holiday weekend in the US comes to a close. The standard routine commences anew on Monday, July 6. To paraphrase (and slightly modify) an observation by Thomas Jefferson in a letter to James Madison a few centuries ago, a little rebellion relaxation now and then is a good thing.