It's true that equities fall before the start of most recessions. So why bother following the economy; why not just follow the price of equities? "Market corrections" occur every 20 months, but less than a third of these actually becomes a bear market. Recessions almost always lead to bear markets, and bear markets outside of recessions are uncommon. For that reason, discerning whether a recession is imminent can help determine when an innocuous correction is probably the start of a sinister bear market.
The S&P 500 fluctuated around a smaller interval to start the week and dropped midweek. The index saw a gain of 0.31% from last Friday and 0.24% loss from yesterday. The index is up 0.95% YTD and is 5.27% below its record close.
We believe the news is evidence of a broader shift toward simpler corporate structures in the midstream energy sector – a trend that supports our investment approach and our constructive view of the sector.
The conventional wisdom is that "healthy breadth" is necessarily bullish. This sounds intuitively correct: a broader foundation - where more stocks are ticking higher - should equal a more solid market, but it is empirically false.
It may be time for U.S. investors to challenge their home-country equity biases.
John Williams, one of the newest members of the Federal Open Market Committee, wrote an article titled “The Future Fortunes of R-star: Are They Really Rising?” where he summarized his views on real neutral interest rates.
Asking if the Federal Reserve will lift the federal funds rate on June 13 is like asking if Las Vegas Golden Knights goalie Marc-Andre Fleury, who has stopped 94.7% of the shots against him in the 2018 Stanley Cup playoffs, will stop the next one. It's a virtual lock.
Equities are 2-5% higher so far in May, trying to add to their small gains from April and put behind a rough winter. This week, small caps closed at a new all-time high (ATH) and NDX broke to a 7 week high near its March ATH.
Six of eight indexes on our world watch list have posted gains through Monday, May 21, 2018. The top performer this year is France's CAC 40 with a gain of 6.12%. In second is Hong Kong's Hang Seng with a gain of 4.40%. In third is India's BSE SENSEX with a gain of 2.38%. Coming in last is Shanghai's SSE with a loss of 2.82%.
Carl Kaufman is the co-president, co-chief executive officer and managing director, fixed income at Osterweis Capital Management. He is the lead portfolio manager for the Strategic Income Fund. That fund has had an annualized return of 6.18% since its inception on 8/30/02. Its performance exceeded the AGG by 278 basis points. I interviewed Carl last week.