The Factor-Based Investing Channel

The Message of the Bond Market

At the beginning of the year, most market strategists were in agreement that interest rates were going to rise in 2017. The reasons varied: some saw inflation climbing, pushing yields higher; others worried about bigger budget deficits; a few blamed the Federal Reserve, which was thought to be planning to raise short-term interest rates two or three times and shrink its balance sheet. Whatever the reason, interest rates were expected to head higher, so seeing the 10-year U.S. Treasury yield here at 2.3% is a surprise.

ECRI Weekly Leading Index: Lowest Since Early December

Today's release of the publicly available data from ECRI puts its Weekly Leading Index (WLI) at 143.2, down 1.0 from the previous week and the lowest since December 9th. Year-over-year the four-week moving average of the indicator is now at 7.19%, down from 7.93% the previous week. The WLI Growth indicator is now at 5.9, also down from the previous week.

Brighter Outlook for Commodities Suggests a Fresh Look at Investment Benefits and Risks

Though uncertainties remain, we have a broadly positive outlook for commodities in the next year.

Do Tax Cuts Make Businesses Better?

Proposed US tax cuts—if they happen—would be a nice boon for corporate bottom lines. But for most companies, the boost to underlying earnings power would likely be fleeting. To find tax-reform winners, look for the exceptions.

An Exciting Time for the Energy Sector

Oil is back in the news, with the price of benchmark West Texas Intermediate (WTI) crude roughly doubling from last year’s lows driven by steady demand and coordinated supply cuts by Organization of Petroleum Exporting Countries (OPEC) and non-OPEC producers.

Home Prices Rose 5.8% Year-over-Year in February, 32-Month High (NSA)

With today's release of the February S&P/Case-Shiller Home Price Index, we learned that seasonally adjusted home prices for the benchmark 20-city index were up 0.7% month over month. The seasonally adjusted year-over-year change has hovered between 4.2% and 5.8% for the last twenty-five months. Today's S&P/Case-Shiller National Home Price Index (Nominal) reached another new high. The Real S&P/C-S HPI is at its post-recession high.

“Soft” vs. “Hard” Data and 1Q17 GDP Growth

Consumer spending accounts for 69% of Gross Domestic Product. Last week, the data on the household sector were mixed. The Conference Board’s Consumer Confidence Index surged to a 16-year high.

On My Radar: Handle with Extreme Care

“As I was waiting to be introduced, I got the latest headline from the North Korean government saying ‘a super preemptive strike will reduce the United States to ashes.’ So we have that to look forward to.” Ian Bremmer said as he began his presentation yesterday afternoon at the iShares Multi-Asset Summit in New York City."

Fostering a Culture of Compliance

Successful advisory firms value their culture of compliance, and continue to build on the program they have in place. Here are a few best practices.

Weighing the Week Ahead: Time to Rebuild the Wall of Worry?

As some market worries have been put to rest, there is a growing appetite for new ones. Pundits who say that things look OK are not very exciting. Last week we saw a shift in attention. Despite healthy earnings and good economic data.

Valuation Breakevens

One way to use information on stock valuations and interest rates in a systematic way is to estimate the break-even level of valuation that would have to exist at given points in the future, in order for stocks to outperform or underperform bonds over various horizons. Investors presently face a dismal menu of expected returns regardless of their choice. Indeed, in order for expected S&P 500 total returns to outperform even the lowly return on Treasury bonds in the years ahead, investors now require market valuations to remain above historical norms for the next 22 years.The good news is that this menu is likely to improve substantially over the completion of the current market cycle. The problem is that current valuation extremes present a hostile combination of weak prospective return and steep risk.

Gasoline Volume Sales and our Changing Culture

The Department of Energy's Energy Information Administration (EIA) monthly data on volume sales is several weeks old when it released. The latest numbers, through mid-February, are now available. However, despite the lag, this report offers an interesting perspective on fascinating aspects of the US economy. Gasoline prices and increases in fuel efficiency are important factors, but there are also some significant demographic and cultural dynamics in this data series.

Global Economic Perspective: April

Franklin Templeton Fixed Income Group talks monetary policy, European politics in the April Global Economic Perspective.

Flawed Research on Factor Investing

The popularity of smart-beta products has raised concerns that certain factors have been “overgrazed” – that their expected return has been driven down due to popularity-driven demand. A new research paper purports to refute this concern. But its logic is flawed and practitioners should be highly skeptical of its conclusions.

Discount Update

Portfolio manager Ken Fincher of First Trust Advisors provides an update on closed-end fund discount trends in the first quarter of 2017.