Cory's Insights – Fri 18 Aug, 2017

The Charts That Tell the Story of 2017 (So Far)

This is a great breakdown of what is actually happening in the US economy so far this year. There are a number of worrisome signs in the charts below but a couple positives that are contributing to the slow growth economy that the US, and world, is stuck in.

… Click here to visit the FactSet website for the original posting…

Over the first half of 2017, Insight examined many of the trends dominating the financial industry and making headlines. However, while headlines tell part of the story, nothing quite captures the movements of the market like data. Here, our panel of FactSet experts have selected the graphs and charts most evocative of the trends driving 2017 so far. Read on for an unadulterated look at the data behind the biggest stories of the year.

U.S. Economy

Sara B. Potter, CFA, CBE, VP, Market Analysis

Consumer Spending is Not Keeping Up with Sentiment

Consumer Spending is Not Keeping Up with Sentiment
FactSet clients: launch this chart

According to The Conference Board, consumer confidence reached a 16-year high in March 2017. The increase over the last several months appears to be driven largely by strong performance in the stock market and post-election enthusiasm. However, rising sentiment in the first half of the year was not matched by faster consumer spending growth, with retail sales growth underperforming in Q1 and Q2. We did see retail sales jump up in July, in sync with a jump in confidence, but we will have to wait to see whether this pattern holds for the remainder of the year.

Consumer Price Inflation Slows Even as Fed Rate Tightening Continues

Consumer Price Inflation Slows Even as Fed Rate Tightening Continues
FactSet clients: launch this chart

Following the largely commodity fueled jump in prices in January, both monthly CPI and PCE price indices have remained essentially flat in recent months. On a year-over-year basis, we are seeing steady declines in the growth rates for both measures, including their core counterparts. Given tightening labor markets, the Fed is keeping an eye on this data as part of their dual mandate to foster economic conditions that achieve both stable prices and maximum sustainable employment. Analysts surveyed by FactSet are predicting one more rate hike this year in Q4, in line with what is being predicted by futures prices.

Brick and Mortar Retail Stores Hurting while Internet Retail Surges

Brick and Mortar Retail Stores Hurting while Internet Retail Surges

FactSet clients: launch this chart

The continuing trend away from traditional retail establishments and toward online shopping is having a significant impact on retail company performance. According to FactSet Market Indices, the total return for U.S. food retail companies is down 15.2% YTD and apparel/footwear retailers are down 12.7%. On the other hand, the FactSet index for internet retail companies is up 30.4% YTD.

Earnings

John Butters, VP, Senior Earnings Analyst

S&P 500 Companies with International Exposures Expect Higher Growth

S&P 500 Companies with International Exposures Expect Higher Growth

Companies in the S&P 500 with more global revenue exposure are projected to report higher earnings and revenue growth in 2017 relative to companies in the index with less global revenue exposure. At the sector level, the Information Technology and Energy sectors are expected to be the largest contributors to earnings and revenue growth in 2017 for companies with higher global revenue exposure.  Thus, the market will likely continue to watch for any significant changes in oil prices, foreign exchange rates, and global GDP growth in the second half of 2017 that could alter these expected earnings and revenue growth rates for the full year.

Fixed Income

Patrick Reilly, CFA Vice President, Fixed Income Analytics, EMEA

Yield Curve Spreads

Yield Curve Spreads

FactSet clients: launch this chart

The spread between the two year and 10 year points on the yield curve is an indicator for the overall health of the economy. A larger spread indicates a steeper curve and can be interpreted to mean that markets reflect term structure appropriately. A narrow (or negative spread) indicates that investors are demanding more yield to lend for shorter horizons, which can be interpreted to mean that risks are seen in the economy over the short to intermediate term. A negative spread, also known as an inverted yield curve, front runs a recession.

The 10-Year Treasury as a BellwetherThe 10-Year Treasury as a Bellwether

FactSet clients: launch this chart

The 10-year Treasury is typically viewed as a bellwether globally. Looking back at the past two years, the US 10 year appears to be range bound; some of this is supply/demand, some of it is chase for yield, and some of it is uncertainty across the US economy given an uncertain fiscal policy outlook. The UK has recovered somewhat after a strong leg down, and Brexit uncertainties abound against an inflationary outlook. The German curve appears to be on an upward trend, which fits with a continued strong macroeconomic outlook in the eurozone.

Mergers and Acquisitions

Bryan Adams, CFA, Director, Transactions

Protectionism Meets the M&A MarketProtectionism Meets the M&A Market

The dominant narrative through most of 2017 so far has been about protectionism: countries clamping down on outsiders buying up their companies. We have seen this in all major regions with large deals cancelled due to government pressures, and given the political climate over the last year, this does not come as a surprise.

For M&A, without specifically researching and classifying every deal, we can still infer a protectionist trend by looking at cross-border cancellations and calculating the net percent of international buyers that have their deals cancelled relative to international sellers. In other words, if a country has a higher rate of cancelled deals for international buyers then there is an argument to that it prefers domestic buyers (i.e., a more protectionist stance).

Active and Passive Investing

Elisabeth Kashner, CFA, Director, ETF Research, ETF Analytics

Active Investing Slows Down in 2017   Active Investing Slows Down in 2017

Active management, as represented by mutual fund assets, is barely growing, while passively managed ETFs are growing at a 21.4% annualized rate. Mutual fund asset levels are eight times higher than ETF assets, but ETFs took in more than three times the net inflows in the first half of 2017.

Active management may actually be continuing to shrink even though mutual fund assets grew a tiny bit between January and June, because of the growth of index mutual funds. According to the Investment Company Institute 2017 Fact Book, 19.3 percent of overall mutual fund market share in 2016 was in index funds. More starkly, according to the ICI, actively managed mutual funds lost assets to outflows in 2014, 2015, and 2016, while index mutual funds took in new investment.

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Comments:
  1. On August 18, 2017 at 11:05 am,
    CFS says:
  2. On August 18, 2017 at 11:56 am,
    CFS says:

    Trump has to watch his back, since it appears Pence has decided to pull a RINO-led impeachment coup. You know Democrats will vote for it.
    (That’s what I’m hearing from Indiana Republicans)

    • On August 18, 2017 at 12:01 pm,
      OOTB Jerry says:

      That would not be good for PENCE……

      • On August 18, 2017 at 12:03 pm,
        OOTB Jerry says:

        Christian vote will go out the window on this one…..

        • On August 18, 2017 at 12:07 pm,
          OOTB Jerry says:

          A little Judas ……..Judas Pence…..

  3. On August 18, 2017 at 12:05 pm,
    CFS says:

    I guess it is lust for power.

    The publicized debate over Afghanistan this weekend at Camp David is cover for Trump’s decision to increase troops there. (Which I think is a mistake. )

  4. On August 18, 2017 at 12:07 pm,
    CFS says:

    I sometimes don’t understand the logic of politicians.

    • On August 18, 2017 at 12:09 pm,
      OOTB Jerry says:

      No logic……just greed

  5. On August 18, 2017 at 12:17 pm,
    CFS says:

    Fri Aug 18, 7:12AM CDT
    BEIJING (AP) — China’s government is moving to curb domestic companies’ investments abroad in property, sports, entertainment and other fields, following a series of high-profile, multibillion-dollar acquisitions by Chinese firms.

    A document released Friday by the State Council, China’s Cabinet, was the latest move by regulators to tap the brakes on a string of foreign acquisitions, citing concerns that the companies involved may be taking on too much debt.

    One of those conglomerates, Wanda Group, became the world’s biggest cinema operator with its purchase of a majority stake in U.S. chain AMC in 2012 for $2.6 billion. It added rival Carmike Cinemas Inc. last year in a $1.2 billion deal and also bought film production house Legendary Entertainment for $3.5 billion.

    The Cabinet document limits overseas investments in areas such as hotels, cinemas, the entertainment industry, real estate and sports clubs. It also bans outright investments in enterprises related to gambling and the sex industry.

    At the same time, it encourages companies to plow money into projects related to the “Belt and Road” project, President Xi Jinping’s signature foreign policy initiative that seeks to link China with other parts of Asia and eastern Europe through multibillion dollar investments in ports, highways, railways, power plants and other infrastructure.

  6. On August 18, 2017 at 12:21 pm,
    CFS says:

    The China attempt to restrict foreign purchases may affect cryptos, but it is hard to predict whether there will be an increase to BTC to circumvent China’s law or a decrease because people will obey the law.

  7. On August 18, 2017 at 1:02 pm,
    CFS says:
  8. On August 18, 2017 at 1:24 pm,
    CFS says:

    https://www.youtube.com/watch?v=7UeiKCtQLf0

    Past, present and future of the Fed.

  9. On August 18, 2017 at 3:32 pm,
    CFS says:

    poverty and inequality in america…..noam chomski

    https://www.youtube.com/watch?v=ntVQtr0h3J8

    • On August 18, 2017 at 4:19 pm,
      OOTB Jerry says:

      Bannon future is going to be WONDERful……Deep state is going to go crazy……

  10. On August 18, 2017 at 3:45 pm,
    CFS says:
  11. On August 18, 2017 at 4:26 pm,
    OOTB Jerry says:

    SILVER STINKS>>>>>>>>$16.94

    • On August 18, 2017 at 4:27 pm,
      OOTB Jerry says:

      worse than last week….

  12. On August 18, 2017 at 4:30 pm,
    OOTB Jerry says:

    BOSTON is going to have it’s hands full tomorrow………

  13. On August 18, 2017 at 4:37 pm,
    Ozibatla says:

    Well, after todays action, it is clear the cap of overhead resistance remains tightly fastened on the PMs with gold failing again at the 1300 mark. Good call Rambus.

  14. On August 18, 2017 at 6:51 pm,
    GH says:

    Jeff Nielsen’s take on 2017:

    http://www.bullionbullscanada.com/index.php/commentary/us-commentary/26718-2017-the-year-of-crisis

    Some great quotes from Charles Lindbergh.

    “All things demonstrate what happens when we accept the kept press falsehoods for truth, believe in the adroit schemes of the wealthy and listen with open mouths to the speeches of Congressmen whose statesmanship consists of sacrificing their constituents in return for kept press support and good committee appointments, and having the privilege of naming their political chums to fat office – these in turn for telling us whom and what to vote for.

    We see the national catastrophe when we measure the work of these Congressmen – some of them called “Grand Old Men.” They have served grandly and long the demands of the profiteers [the bankers]. The misfortunes of the people and the peril of the nation are too solemn for jest; but in spite of catastrophe the pretended wise and good Congressmen, their pompous parade for our votes and our blind following, make us look like jokes when we analyze their acts and measure them by our votes.”

    The swamp is nothing new. As he tells it, its dominance in the US dates back to the Civil War.

    • On August 18, 2017 at 6:53 pm,
      GH says:

      The Economic Pinch, by C. A. Lindbergh

      https://ia801904.us.archive.org/29/items/nkooan_yahoo_Lind/Lind.pdf

      His story of the Federal Reserve is of interest given that he was a principal congressional opponent of the Fed.

    • On August 18, 2017 at 6:55 pm,
      GH says:

      Lindbergh’s ‘kept press’ = ‘Fake News’ … in 1923

  15. On August 19, 2017 at 1:50 am,
    CFS says:
  16. On August 19, 2017 at 1:55 am,
    CFS says: