The Capital Growth Channel

Dissolving Musical Chairs

Over the completion of the current market cycle, we estimate that roughly half of U.S. equity market capitalization - $17 trillion in paper wealth - will simply vanish. Nobody will “get” that wealth. It will simply disappear, like a game of musical chairs where players think they've won by finding chairs as the music stops, and suddenly feel them dissolving as if they had never existed in the first place. Moreover, even if U.S. real and nominal economic growth were to fully recover to their long-term historical norms, it would take 12-16 years of 6% nominal growth, with zero price appreciation in the interim, to bring reliable valuation measures back to their own historical norms.

What Does the Health Care Decision Mean for Stocks?

There is plenty of “upside risk.” Earnings growth is improving, even in the environment of modest growth. The recent market strength could go on for years without any policy changes. If some of the Trump agenda (probably with Democratic support) becomes law, it could mean a spike in both economic growth and profits. We already see improved business and consumer confidence.

Weekly Market Summary

US indices have fallen nearly every day since the FOMC raised the federal funds rate on March 15th. There are a number of reasons to expect equities to be at or near a point of reversal higher. A retest of the recent high is likely. That said, it's a good guess that the market's period of smooth, persistent strength over the past 4-5 months has come to an end. Higher volatility and more days with 1% losses (and 1% gains) lie ahead.

Bring On Brexit

The British government is set to invoke Article 50 of the Lisbon Treaty next week, formally signaling its intention to separate from the EU.

Strategist: Keep Calm, Tax Reform Is On Its Way

Regardless of its failure to be repealed, tax reform is on its way. Just today, Treasury Secretary Steven Mnuchin reassured Americans that we could still expect “comprehensive” tax reform by August. It’s also worth recalling that, even though he failed to reform health care during his eight years in office, President Bill Clinton still managed to tackle tax reform with the Omnibus Budget Reconciliation Act of 1993.

RecessionAlert Weekly Leading Index Update

RecessionAlert has launched an alternative to ECRI's Weekly Leading Index Growth indicator (WLIg). The Weekly Leading Economic Index (WLEI) uses fifty different time series from these categories: Corporate Bond Composite, Treasury Bond Composite, Stock Market Composite, Labor Market Composite, Credit Market Composite. The latest index reading came in at 29.5, down 2.9 from the previous week.

The Threat and Risk of Rising Interest Rates: Separating Fact from Fiction

The threat of rising interest rates is all the rage in financial circles today. However, the seminal question is: How real is the threat, and how much impact will rising rates have on stock prices and investor performance?

ECRI Weekly Leading Index: WLI Down from Last Week

Today's release of the publicly available data from ECRI puts its Weekly Leading Index (WLI) at 144.6, down 0.8 from the previous week. Year-over-year the four-week moving average of the indicator is now at 10.96%, down from 11.76% the previous week. The WLI Growth indicator is now at 9.0, also down from the previous week.

Why Things Aren’t What They Used to Be in Emerging Markets

The prospect of stabilizing commodity prices and improving corporate earnings has helped rebuild investor interest in emerging markets over the past year. But returning investors may find the constituents of today’s emerging markets are very different from those of the past.

The Cutting Edge: Not Just for Tech Companies Anymore

The new US administration’s immigration policy may have angered some technology-sector executives, but the Trump administration has signaled an intention to put technology at the heart of its economic roadmap.

Quest for the Holy Grail: The Fair Value of the Equity Market

Macroeconomic volatility is a useful tool for contrarian investors who are seeking fair value in an equity market characterized by continually rising valuations.

Charitable Tax Planning Opportunity: Donate Appreciated Stock to Charity

For advisors with philanthropically-minded clients, publicly traded appreciated stock can be among the most tax-advantaged items to donate to charity. Contributing such assets may enable the donor to enjoy a current year tax deduction and potentially eliminate capital gains tax liability on the sale of the asset, while allowing the charities they support to receive the most money possible.

Lithium Suppliers Can’t Keep Up with Skyrocketing Demand

Near the extinct volcano known as Monte Pissis, high in the Andes on the Chile-Argentina border, the air is thin and animal life scarce. It’s also a prime location for lithium, the silvery-white metal used in the production of lithium-ion batteries.

Fund Managers Become Bullish

A tailwind for the rally over the past year has been the bearish positioning of investors, with fund managers persistently shunning equities in exchange for holding cash. 

Treasury Snapshot: Yields Down Since Rate Hike

Let's take a closer look at recent activity in US Treasuries as the Fed's rate hike last week. The yield on the 10-year note ended the day at 2.40%, down 11 basis points from last week and the 30-year bond closed at 3.02%. The 2-10 yield spread is now at 1.13%.