The Independent Market Observer

Federal Reserve Chair Jerome Powell: A New Sheriff in Town?

February 28, 2018

Yesterday was the first time that the new chairman of the Federal Reserve, Jerome Powell, testified before Congress. There has been quite a bit of coverage regarding what he said both in his initial statement and in response to questions. Here, I want to focus on just one sentence. After noting that “the FOMC [Federal Open Market Committee] routinely consults monetary policy rules,” he concluded with what I think was the most important sentence of the day: “Personally, I find these rule prescriptions helpful.” He then referenced a section in the Fed’s monetary policy report that goes through some of the more common rules and how the Fed applies them.

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Consumer Confidence Hits New Highs—Hooray?

February 27, 2018

Normally, I don’t weigh in on individual economic stats. But when the consumer confidence number came out this morning, my jaw actually dropped and I muttered “wow” under my breath. (That doesn’t happen often either!) This is, in fact, such an unusual occurrence that I think we need to consider exactly what it means—which is probably not as good as it looks at first glance.

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Monday Update: March Rate Hike Seems Likely

February 26, 2018

Last week was a slow one for economic data. But this week, we’ll have five major economic reports that will give us a detailed look at both consumers and manufacturing. Let’s take a closer look at the numbers.

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The Role VIX ETPs Played in Recent Market Volatility

February 23, 2018

Today's post is from Brian McCormick, manager of Commonwealth's Investment Management and Research team.

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Will You Lose Money in Bonds?

February 22, 2018

Today's post is from Peter Essele, manager of Commonwealth's Investment Management and Research team.

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Emerging Markets: The Long-Term View

February 21, 2018

Today’s post comes from Anu Gaggar of Commonwealth’s Investment Research team. Take it away, Anu! —Brad

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Monday Update (on Tuesday): Inflation Rising, Data Weak

February 20, 2018

Last week’s data covered wide slices of the economy and was generally weak, while the week ahead will be a slow one. Let’s take a closer look at the numbers.

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The Deficit, the Debt, and Interest Rates

February 16, 2018

The political reaction to the tax reform bill that was recently passed has grown more favorable over time. Initially, people appeared skeptical. But now that lower withholding rates are actually showing up in paychecks, the sentiment is turning more positive. Economically, we are seeing the same thing. Consumer confidence is rising again, due at least in part to larger paychecks. That should also translate, over time, to faster growth as both people and businesses are increasingly willing and able to spend. The recent debt ceiling deal should also help economic growth, with hundreds of billions of dollars in additional spending. This kind of fiscal stimulus will certainly help growth accelerate this year.

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Inflation, Interest Rates, and the Stock Market

February 15, 2018

The big economic news this week—now that the stock market has calmed down—is the apparent rise of inflation. In fact, inflation does appear to be on the rise, with both the Consumer Price Index (CPI) and the Producer Price Index (PPI) showing faster growth in the past 18 months, as you can see in the chart below. We will be using the CPI for the rest of the discussion, given the relatively short span of the PPI data, but note that the two series have been saying the same thing.

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Lessons from the Market Pullback

February 14, 2018

Now that the markets have seemingly calmed down a bit—although there is certainly no guarantee that will remain the case—it is a good time to look at the past couple of weeks and see what lessons can be drawn. Prior to that point, we had not had a significant pullback in two years. Let’s face it, we are out of practice at watching the markets drop. So, what do we know now that we didn’t know two weeks ago?

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Monthly Market Risk Update: February 2018

February 13, 2018

This is a “special edition” of the market risk update. With the recent 10-percent pullback in U.S. markets—something we have not seen in years—the idea of market risk is a concern for many. When we do this analysis, we have to be aware of this but also keep in mind that, over time, longer-term models are better predictors than short-term results (however worrying). As such, we will look at each of our indicators and try to determine how they relate to recent experience. These special sections will be in italics.

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Monday Update: Service Sector Strong, Trade Data Weak

February 12, 2018

We had only two major economic news releases last week, but the week ahead will be a busy one.

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The Stock Market Stands Corrected: Time to Worry?

February 9, 2018

With the declines yesterday, U.S. markets are now in an official correction. Just to get the terminology straight, a “correction” means a 10-percent decline, while a "bear market" indicates a 20-percent decline. As of the close yesterday, the Dow was down 10.3 percent, and the S&P 500 was down 10.1 percent. The decline really accelerated at the end of the day—bringing the indices into official correction territory.

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Economic Risk Factor Update: February 2018

February 8, 2018

January’s data was quite good, and improvements in many areas suggest ongoing growth into 2018. Job growth picked back up, and both consumer and business confidence pushed higher. Fed policy remains stimulative, and recent increases in long-term rates steepened the yield curve—often a positive sign. Overall, this month’s data indicates that some of the weakness of the past couple of months may be passing and that the end of the cycle may not be as close as that data had suggested. Some trends do continue to be somewhat worrisome, however, so we’ll be keeping an eye on the economic risks.

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Consumer Spending Headed for a Slowdown?

February 7, 2018

Brad here. One of the major concerns about the economy over the next year or so is whether consumers will keep spending. As confident as they are, it seems they will certainly want to—but it is far less clear whether they will actually be able to. Andrew Kitchings of Commonwealth’s Asset Management group has put together a good analysis of something we need to pay attention to. Over to you, Andrew.

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Monday Update (on Tuesday): Strong Data and Upside Surprises

February 6, 2018

Last week was a big one for economic data, with four major reports. Despite the weaker tone of the data in recent weeks, the latest news was quite positive. All indicators either met or beat expectations—sometimes by a lot.

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A Scary Week in the Stock Market—But Also Pretty Normal

February 5, 2018

Wow, that was a bad week. After pushing to new high after new high, the market suddenly rolled over. We saw multi-hundred-point declines on several days, culminating in a 666-point drop in the Dow on Friday. This is reportedly the sixth-largest decline ever.

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Jobs Report: Good, But Not Perfect

February 2, 2018

Today’s big news is the jobs report. It is the single most informative and important economic report there is. As such, it always gets a great deal of attention. In general, the news this month is quite good—but not perfect.

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Market Thoughts for February 2018 [Video]

February 2, 2018

January was another great month for the markets. All three U.S. indices were up by at least 5 percent, as were international markets. There was a bit of a pullback at the end of the month, as interest rates moved up to levels we haven’t seen in years. Indeed, fixed income took a bit of a hit on these higher rates.

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A Look Back at the Markets and Economy in January

February 1, 2018

There is a market adage that states, “as goes January, so goes the year.” We certainly should hope this is the case for 2018, as January was another month of great stock market returns. The U.S. indices were up by 5 percent or more, while international markets—both developed and emerging—did the same. The news was not all good, of course, as markets pulled back at month's end. Given the strong gains up to that point, however, it looks likely to be just profit taking, rather than a harbinger of something worse.

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