Displaying items by tag: US
Sell the US-China Deal
(New York)
When and if the US-China trade deal finally happens, make sure to sell. At least that is what Bloomberg is arguing. In a classic case of buy the rumor, sell the news, Bloomberg thinks the completion of a deal should be a sell trigger. The trade situation itself is shaping up as a lose-lose for investors. Either it will be a symbolic-only deal that is short on details and does little to actually resolve tension, or Trump may walk away from the table with no deal (like with North Korea). In either situation, it is hard to see the market celebrating.
FINSUM: We tend to agree with this view. The way this is shaping up, it does not seem like there is going to be some grandiose trade accord that solves everyone’s issues.
Where Active Management is Best
(New York)
The move towards passive management has been worthy of the term “flood”, with investors pouring funds into ETFs and out of mutual funds. Fees have been a major part of that shift, but performance has been too, as active management performance has been broadly weak over the last decade. However, there are some areas where mutual funds have significantly outperformed passives—international funds. Especially in emerging markets (e.g. India and Mexico), but also in developed ones like the UK and Italy, 10-year track records show significant outperformance for active managers. The opposite is true in US funds.
FINSUM: Sifting through market opportunities gets harder and harder (and finding alpha alongside it) as you move into less liquid markets. Accordingly, we think there is a lot of benefit to using actively managed funds for international stocks.
The Economy is Weakening Under Our Feet
(New York)
New payroll data has just been released and it is not saying anything positive about the underlying economy. According to ADP payroll figures, the US economy created 183,000 jobs in February, under estimates of 190,000 and well below the total of 300,000 in January. According to Moody’s analytics, “The economy has throttled back and so too has job growth”. The slowdown is most acute in the retail and travel industries and at smaller companies.
FINSUM: This is a pretty sharp pullback from January. The total number is still positive, but it will be interesting to see if this becomes a trend.
The US Economy is Getting Softer and Softer
(New York)
New economic data was released on the US economy and fourth quarter growth was a mixed bag. The economy expanded at 2.6% annualized in the fourth quarter, a decent number that exceeded estimates, but did nothing to change the overall downward direction of the economy. Consumer spending slowed in the quarter. The economy expanded at 4.2% in Q2 2018, 3.4% in Q3 2018, and 2.6% in Q4 2018.
FINSUM: The trend downward is clear on many levels. That said, this should have been expected as the benefits from the tax cuts continue to fade. We think the economy is in the late stages of its expansion, but so long as the Fed stays quiet, we could drift on solidly for a while.
The Big Recession is Coming
(New York)
Investors seem to have stopped worrying about it, but a recession is still in the cards. Ever since the Fed backed off, the market seems to have forgotten that we are likely at the very end of an economic cycle. However, most economists are differing from investors, as the majority are still calling for a recession by 2021. That is the view of over 75% of US business economists, with most still saying the Fed will continue hiking this year. 52% of those surveyed said a recession would start this year or next.
FINSUM: It is interesting to see how out-of-touch economists and investors are. A recession by 2021 sounds very reasonable to us, but the Fed continuing to hike this year does not.