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2016 Economic Environment in Review
by John Canally of LPL Financial,
This week we take a look back at some of our hits and misses of 2016. We certainly had some of both in a year that had some unusual macroeconomic drivers, including the impact of low oil prices at the beginning of the year on several sectors of the economy...
See You in September?
by John Canally of LPL Financial,
As of Monday, August 1, 2016, the fed funds futures market is pricing in less than a 20% chance that the Federal Reserve (Fed) raises rates by 25 basis points at the conclusion of its next policy meeting on September 21, 2016. This assessment is the result of the Federal Open Market Committee (FOMC) statement released on July 27, 2016, which provided no hint of a hike as soon as September, and a weaker than expected report on gross domestic product (GDP) in the first half of 2016, released on Friday, July 29, 2016.
Follow the Leaders
by John Canally of LPL Financial,
The Conference Board Leading Economic Index (LEI), one of our Five Forecasters, provides a valuable monthly guidepost regarding where we are in the economic expansion. The latest reading on the LEI, based on June 2016 data, revealed that the index climbed just 0.7% since June 2015. The month-over-month change in the LEI has been negative half the time over the past year, while the year-over-year change has decelerated from a high of 6.7% in July 2014 to the 0.7% today.
Midyear Outlook 2016: Believing in the Potential of the U.S. Economy
by John Canally of LPL Financial,
For the first half of 2016, the U.S. economy—as measured by real gross domestic product (GDP)—is on track to grow at around 2.0%. Looking out into the second half of the year, aided by a dollar tailwind, stable oil prices, steady consumer spending, record high household net worth, and a slowing, but still solid labor market, the U.S. economy may grow between 2.0% and 2.5%. But even at just over 2%, actual GDP is growing faster than potential GDP (the maximum pace the economy can grow without causing inflation), taking up slack and slowly pushing up wages and inflation.
What's Ahead for the U.K. & Europe?
by John Canally of LPL Financial,
Following the United Kingdom’s (U.K.) decision to leave the European Union (EU) in a referendum held on June 23, 2016, there are still many questions regarding the future of the U.K.’s relationship with the EU and other impacts throughout Europe.
Brexit Breakdown
by John Canally of LPL Financial,
Financial markets reacted swiftly and sharply on Friday, June 24, 2016, to the unexpected decision by the United Kingdom (U.K.) to leave the European Union (EU) in a nationwide referendum held on June 23, 2016. Ahead of the vote, most financial market participants and political observers thought that the U.K. would vote to remain in the EU, and markets spent most of the day Friday adjusting to the reality that the U.K. will likely leave, sending equity prices lower, and bond and gold prices higher. The uncertainty in the markets, tightening financial conditions, and other potential impacts to the U.S. economy may influence the Federal Reserve’s (Fed) path of future rate hikes.
GDP Gap
by John Canally of LPL Financial,
How fast the economy is growing at any given point in time is important to know. Citizens, policymakers, investors, central banks, and, in election years, politicians, all want to know how we’re doing. These days, they want to know instantly. The problem is, getting a good read on how fast an economy is growing, in real time, is difficult at best. Trying to ascertain how the sectors of an economy (manufacturing, consumer, business spending, construction, etc.) are performing is even more difficult. Yet, despite all the issues, every day, week, month, or quarter, we obsess over the economic data and the pace and composition of growth in the U.S. (and global) economy.
Building Blocks
by John Canally of LPL Financial,
Job growth may be slowing, but when put in a broader context, it may also be at the height of its new potential. In last week’s Weekly Economic Commentary, “Yet Another Disconnect,” we wrote that according to several Federal Reserve (Fed) officials, monthly job gains as low as 125,000 per month in the U.S. would be enough to tighten the labor market, take up slack in the economy, and push up wages and ultimately inflation.
Consumer Check-In
by John Canally of LPL Financial,
The 75% run-up in oil prices from the multiyear lows hit in mid-February 2016 has raised concerns that the U.S consumer may run for the hills. However, a look at what consumers actually did over the past two years as oil prices fell more than 70% (from nearly $110 per barrel in mid-2014 to just above $25 in early 2016) can help us better understand what consumers may do now that energy prices could be on the way back up.
Following the Money in EM Currency Markets
by John Canally of LPL Financial,
Emerging markets (EM) tantalize investors with the prospects of higher returns; yet the key to these returns may be the value of the U.S. dollar. Currency movements impact all aspects of international investing, starting with the basic impact of adjusting gains for the change in currency value when determining total returns. However, changes in currency also impact areas like corporate earnings, the ability to repay debts, and the overall economic health of the country. These impacts are greater for EM investments, where currencies are more volatile and countries are more economically dependent on trade.
Gauging Global Growth
by John Canally of LPL Financial,
As U.S. corporations begin to report their results for the recently completed first quarter of 2016, global growth will likely take center stage among investors. While comments from corporate managements on business conditions in Europe, Japan, China, and other emerging markets will be closely watched, those comments may be overshadowed. This week, the International Monetary Fund (IMF) will publish the spring edition of its World Economic Outlook publication.
The Fed's Spring Surprise
by John Canally of LPL Financial,
As 2016 began and 2015 ended, global financial markets faced plenty of uncertainty in the wake of the first rate hike by the Federal Reserve (Fed) in nearly nine years. Although the rate hike was well anticipated and priced in by many market participants, the Fed’s move forced markets to focus on imbalances in the global economy and financial markets that had been simmering for years. The fears about how (and when, if ever) those imbalances would be resolved led to an extreme bout of financial market volatility over the first few months of 2016.
FOMC FAQS: All About the Dots
by John Canally of LPL Financial,
The Fed holds its second of eight FOMC meetings of 2016 this Tuesday and Wednesday, March 15–16, 2016.
The FOMC’s “dot plots” are likely to be at the center of attention.
Fed Chair Yellen’s first post-FOMC meeting press conference of 2016 provides an opportunity for the Fed to add color to its view of the economy, inflation, and financial market volatility.
Beige Book: Window on Main Street
by John Canally of LPL Financial,
The latest Beige Book suggests that the U.S. economy is still growing near its long-term trend, but that the drag from a stronger dollar and weaker energy prices, along with the slowdown in emerging market (EM) economies—most notably China,?are still having a major impact on the manufacturing sector. In addition, our analysis of the Beige Book confirms that there has been some spillover of weakness from the energy and manufacturing sectors to other parts of the economy in recent months.
Too Soon for March Madness?
by John Canally of LPL Financial,
As we enter March, market participants are already looking ahead to the Federal Reserve’s (Fed) next Federal Open Market Committee (FOMC) meeting. While the meeting isn’t until March 15–16, 2016, markets are already trying to decipher how the widening disconnect between what the Fed plans to do with the fed funds rate and what the market thinks the Fed will do will be resolved.
From Headwind to Tailwind?
by John Canally of LPL Financial,
Since the middle of 2014—as markets prepared for the start of Federal Reserve (Fed) interest rate hikes and more easing from the European Central Bank (ECB) and the Bank of Japan (BOJ)—the U.S. dollar has been on a near historic run higher versus the currencies of major U.S. trading partners. I
Is the Year of the Monkey a Good Sign for Bulls?
by John Canally of LPL Financial,
Yesterday was the Chinese New Year, and with it comes the year of the Monkey. There are 12 animals in the Chinese zodiac, as it is based on a 12-year cycle. Take note that the Chinese New Year starts anywhere from mid-January to mid-February and is based on the lunar calendar.
Groundhog Day?
by John Canally of LPL Financial,
In recent weeks, there have been plenty of “groundhogs” in the financial markets and in the financial media. For some investors, the fear is that the market’s performance in January 2016 will be repeated over and over again, as in the classic 1993 film Groundhog Day starring Bill Murray and Andie MacDowell. Other investors fear that 1998 will play out all over again, triggered by central bankers’ policy mistakes, volatile currency markets, wave after wave of currency devaluations, and eventually a sovereign default.
FOMC FAQS: Making a Statement
by John Canally of LPL Financial,
The Fed holds its first FOMC meeting of 2016 this Tuesday and Wednesday, January 26–27, 2016. Without a press conference or a new set of economic and fed funds projections, the Fed must rely on its statement to communicate a complicated message to fragile markets.
Window on Main Street
by John Canally of LPL Financial,
During periods of economic volatility, investors sometimes abandon the tools for evaluating markets and the economy that had been serving them well before the volatility started. Good tools, however, should continue to provide insight, which is why we are turning, once again, to the latest Beige Book from the Federal Reserve (Fed) as we gauge the health of the broad U.S. economy as 2015 ended and 2016 began.
FOMC FAQS
by John Canally of LPL Financial,
The Fed holds its eighth and final FOMC meeting of 2015 this Tuesday and Wednesday, December 15–16, 2015.
As of Monday, December 14, 2015, the fed funds futures market has priced in about an 80% chance of a 25 basis point (0.25%) rate hike at this week’s meeting.
Our view remains that the timing of the first hike matters less than the pace of the hikes; the end point for the fed funds rate in this tightening cycle and the gap between the Fed’s own view of rates and the market’s view remain crucial.
Back to a Routine: 2016 Economic Outlook
by John Canally of LPL Financial,
Our view is that the U.S. economy—as measured by real gross domestic product (GDP)—is likely to post growth of 2.5–3.0% in 2016. This rate is below its post-World War II average of 3.2%, but above the 2–2.5% average growth rate seen in the first six-and-a-half years of this expansion, based on the factors discussed below. Despite the length of the current expansion (already the fourth longest on record), it has not followed what would be considered a routine path.
Gauging Global Growth: An Update for 2015 & 2016
by John Canally of LPL Financial,
The market continues to expect that global gross domestic product (GDP) growth will accelerate in 2015 (3.0%), 2016 (3.4%), and 2017 (3.4%) from 2014’s 2.0% pace, aided by lower oil prices and stimulus from two of the three leading central banks in the world.
Yes, and No
by John Canally of LPL Financial,
The title of this commentary is our answer to the question: Does the Fed know something we don’t know? Many market participants and pundits were asking this question late last week after the Federal Reserve’s (Fed) policymaking arm, the Federal Open Market Committee (FOMC), decided not to raise interest rates at the conclusion of its two-day policy meeting on Thursday, September 17, 2015. Market participants were asking the question although they had priced in just a 30% chance of a rate hike prior to the meeting.
How Much, How Far, How Fast, Not When?
by John Canally of LPL Financial,
The policymaking arm of the Federal Reserve (Fed), the Federal Open Market Committee (FOMC), will hold its sixth of eight meetings of the year this week. On Thursday, September 17, 2015, at the conclusion of the two-day meeting, the FOMC will release a statement and a new economic and interest rate forecast. In addition, Fed Chair Janet Yellen will conduct her third post-FOMC meeting press conference of the year.
Beige Book: Windo on Main Street
by John Canally of LPL Financial,
The latest Beige Book suggests that the U.S. economy is still growing at or above its long-term trend, indicating that some of the “transitory factors” that held the U.S. economy back in the first quarter of 2015 have faded. Comments also indicate that concern over China’s impact on the U.S. economy has increased and that some upward pressure on wages is beginning to emerge.
Productivity Puzzle
by John Canally of LPL Financial,
All eyes are on jobs this week. The U.S. Department of Labor’s July Employment Situation report (due August 7, 2015) will likely show that the U.S. economy created 225,000 jobs in July 2015, close to the average job creation over the past 12 months (245,000) according to the consensus of economists polled by Bloomberg News.
The Fed After the "No"
by John Canally of LPL Financial,
The “no” vote in the Greek referendum on July 5, 2015, will potentially raise the level of economic and financial market volatility in the coming weeks as global investors assess the market and economic risks associated with an increasingly likely Greek exit (Grexit) from the Eurozone and from the Eurozone’s common currency, the euro.
Putting the Pieces Together: Midyear Economic Outlook
by John Canally Jr. of LPL Financial,
We continue to expect that the U.S. economy will expand at a rate of 3% or slightly higher over the remainder of 2015, once economic conditions recover from yet another harsh winter—and other transitory factors—that held back growth in the early part of 2015. This forecast matches the average growth rate over the past 50 years, and is based on contributions from consumer spending, business capital spending, and housing, which are poised to advance at historically average or better growth rates in 2015. Net exports and the government sector should trail be hind.
Beige Book: Window on Main Street
by John Canally of LPL Financial,
The latest Beige Book suggests that the U.S. economy is still growing at a pace that is at or above its long-term trend, indicating that some of the “transitory factors” that held the U.S. economy back in the first quarter of 2015 have faded and that some upward pressure on wages is beginning to emerge. Overall, the Beige Book described the economy as expanding at a “modest or moderate” pace in most districts. In general, optimism regarding the economic outlook far outweighed pessimism throughout the Beige Book, as it has for the past two years or so.
Gauging Global Growth: An Update For 2015 & 2016
by John Canally of LPL Financial,
Global growth is likely to be a recurring theme for investors this week. The health of the global economy and key regions (U.S., Eurozone, Japan, China, etc.) is likely to get plenty of attention from corporate managements as they discuss Q1 2015 results and provide guidance for the rest of the year. In addition, the International Monetary Fund (IMF) will release the spring 2015 edition of its widely read World Economic Outlook on Tuesday, April 14, 2015, and China will release its Q1 2015 gross domestic product (GDP) that same day.
Words with Friends
by John Canally of LPL Financial,
Words matter. As investors brace for the unofficial start of the S&P 500 earnings reporting season for first quarter 2015 (see this week’s Weekly Market Commentary, “Earnings Recession?” April 6, 2015, for details), the financial media is swirling with words and phrases like “rig count,” “strong dollar,” “port strike,” and even “bad weather.”
Results 1–50
of 61 found.
