February 24, 2017
Through the end of January, emerging market equities are up 25.4% on a trailing 12-month basis. This asset class has benefitted from several changes to the macro-economic environment: stronger commodity prices, more stable currencies, and a better growth outlook. In addition to these favorable changes, company fundamentals have also shown strong signs of improvement. This week’s chart displays earnings per share (EPS) of the MSCI Emerging Markets Index.
February 16, 2017
High yield bonds enjoyed significant tailwinds in 2016:
- During the year, the price of oil stabilized.
- U.S. shale oil exploration and production defaults and bankruptcies worked their way through the pipeline and most are now behind us.
- Trump’s win, with his promises of tax cuts and infrastructure spending, boosted investor confidence.
- OPEC’s production cut agreement further added to the risk-on sentiment.
February 10, 2017
As 2016 performance trickled in, the depth and prevalence of underperformance became very apparent. What made 2016 such a particularly difficult year for active management? Many have cited the tumultuous events throughout the year ranging from the market dip and subsequent recovery in the first quarter, to the Brexit, to the unexpected Trump victory. Rapidly reacting and adapting to these market changes - let alone capturing any alpha - was incredibly challenging.
February 3, 2017
This week’s chart shows asset flows between active and passively managed mutual funds and exchange traded funds (ETFs) in U.S. equities. Over the last eleven calendar years, active strategies experienced cumulative outflows totaling $864 billion, while passive strategies saw inflows of nearly $460 billion.
January 27, 2017
Recent events have strengthened the case for Emerging Markets Debt (EMD). Our chart of the week shows how yields for local and hard currency strategies are above their historical averages and are an attractive opportunity as we begin 2017.
January 20, 2017
As markets continue to reach new all time highs many investors are wondering how much more runway is left for the current 8-year bull market. While different valuation metrics will tell different stories, it can be helpful to look at what Warren Buffett has dubbed the single best measure of long term market valuations.
January 13, 2017
As the investment community continues to debate the role of hedge funds in the future, one thing is for certain, assets continue to flow into this much debated space.
January 6, 2017
January is a time to reflect on the past year and assess what went right and what went wrong, and asset allocation is no different in this regard. Elevated valuations at the start of 2016 did not hold back U.S. equities as they climbed to record highs; small caps were the outright winner with a 21% return. These smaller cap companies received a post-election boost as they were expected to be less affected by the strengthening dollar and potential trade policies enacted by Trump, since they do not typically conduct much international business. The knock-on benefits of a potential lower corporate tax rate also helped propel small-cap equities higher after the election.
December 19, 2016
This week’s chart of the week highlights the recent change in correlation between the stocks that comprise the S&P 500 as measured by the CBOE S&P 500 Implied Correlation Index. On November 18, 2016 correlation among stocks fell to a post-recessionary low of 26.5 compared to an average reading of 59.8.
December 9, 2016
While the above curves are simple in appearance, they can hold great predictive power for investors. Futures curves are just as they sound: future price speculation on a given day. The red line represents the futures pricing of WTI Crude Oil as of November 28th, just a few days before OPEC members decided to cut output in the hopes of combating oversupply and ultimately raising oil prices. Purchasing futures on oil for delivery in July of 2017 would give the futures owner the right to sell oil at a price of about $50/barrel. This investment strategy is often employed by speculators, hedge funds, and producers. Producers are able to hedge their exposure to oil and buy futures as a pseudo insurance policy as it locks in the price at which they can sell oil at some point in the future.
December 1, 2016
This week’s chart highlights recent changes in sector leadership across U.S. equities.
The first half of the year was marked by global growth concerns coupled with reduced expectations for further interest rate hikes in 2016. As this sentiment became priced into the market, a flight to perceived safety ensued which helped to fuel the strong performance of defensive sectors. Telecom, Utilities, Real Estate, and Consumer Staples were the main beneficiaries of this trend. Additionally, these sectors tend to offer attractive dividend yields. Strong interest from yield seeking investors, given the current low interest rate environment, helped propel performance and valuations to elevated levels within these sectors.
November 16, 2016
The election of Donald Trump last week caught the market by surprise and created a significant amount of volatility and dispersion across the U.S. equity market. One area of note was the huge outperformance of small caps (up 7.7% from November 8 - 11) vs. large caps (up 1.2% November 8 - 11). The Republicans made it a clean sweep Tuesday night, winning the White House and maintaining control of the House of Representatives and the Senate. While there is a lot of policy uncertainty as a result of this election, the market now believes there is a high likelihood of corporate tax reform being passed sometime in 2017. Donald Trump’s plan calls for a reduction of the corporate rate from the current level of 35% (one of the highest rates in the world) to just 15%. Paul Ryan previously put forward a plan for corporate tax reform that would lower the rate to 20%.
November 11, 2016
The chart of the week shows the performance of the Mexican Peso from November 8th through the 10th. The Peso served as a barometer of sorts throughout the U.S. Presidential campaign, as Donald Trump had pledged to renegotiate the North American Free Trade Agreement (NAFTA) and stop illegal immigration by building a wall along the U.S./Mexican border.
November 4, 2016
The S&P Dow Jones Indices and MSCI Inc. announced the creation of a new real estate sector, formerly included in the financial sector, within the GICS system which became effective August 31, 2016. The new real estate sector marks the 11th GICS sector and the first time a new sector has been added to the GICS classification since its inception in 1999. The creation of a separate real estate sector recognizes the growth in both size and complexity of the asset class. Real estate, which began as two sub-sectors, has grown over time to now contain a total of 13 sub-sectors.
October 27, 2016
After a tough 2015, emerging market (EM) equities have rebounded nicely, returning 16% through the first three quarters of the year. The asset class has benefitted from a change in the macro environment, including the stabilization and strength in commodities and currencies. Not surprisingly, GDP growth – particularly against developed countries – has started to accelerate and is expected to continue on its upward arc (shown by the blue line in the graph above).
October 21, 2016
This week’s chart of the week looks at the recent spike in the London Inter Bank Offered Rate (LIBOR), which is the rate at which banks charge one another for short term loans. As the chart illustrates, over the past year the 3-month LIBOR rate has increased from 0.32% to 0.88% (an increase of 0.56%), which is the highest rate for 3-month LIBOR since the spring of 2009. While other measures of short term interest rates - such as the Fed Funds Rate (increasing from 0.25% to 0.50%) and 3-month T-Bills (increasing from 0.01% to 0.33%) - have also risen over the past year, the magnitude of the LIBOR increase is significantly larger and warrants further examination.
October 13, 2016
Since markets hit their 2016 troughs back in February, they have continued to rally and hit new all time highs over the course of this year. With the upcoming election, talks and discussions surrounding a market bubble and looming recession, investors have begun to ask themselves if now is the right time to start lowering their equity market allocations to better position and protect themselves.
October 5, 2016
Our Chart of the Week examines the relative performance of Core and Intermediate Government/Credit fixed income strategies in rising and falling rate environments. The chart shows Core’s annual total return since the 1970s as represented in the blue using the Barclays U.S. Aggregate index. Annual total return of the Barclays Intermediate Government/Credit index is shown in orange. We also include inflation in green, using the CPI’s annual change, and the 10-year Treasury yield in gray. As one can see, Core beat Intermediate Government/Credit and inflation when rates dropped during the 30-year bull run for bonds from the 1980s to today. This is because Core features higher yields and longer duration, the latter of which boosts bond prices when rates drop. But Core lags Intermediate Government/Credit and inflation if rates rise significantly, as we experienced during the 1970s oil crisis. This was again because of Core’s longer duration. In other words, Core’s longer-dated bonds took much longer to be recycled out as rates rose and newer, higher-yielding bonds came to market; as a result, returns lagged.
September 29, 2016
While this year’s political election has featured much discussion about jobs going overseas, a larger impact on manufacturing employment has come from technology advances. Over the years, manufacturing companies have replaced jobs with computerized equipment to reduce production costs. However, the considerably more complex equipment demands workers with new skill sets to operate these machines. So while such technological advances helped the manufacturing industry reduce the number of required workers yet increase production, many factories are finding it difficult to find employees with the necessary skills to operate and maintain the advanced machinery. This week’s chart takes a look at the number of manufacturing jobs that are going unfilled even with improving employment rates and the steady addition of jobs.
September 22, 2016
This week’s chart shows the significant growth in direct lending over the last decade, as indicated by the number of funds and amount of capital raised.
Direct lending is defined as a loan made by a private entity to a small - medium size company which generally carries a floating interest rate. The loans have a 3 to 5 year term and are in most cases held to maturity. For some perspective, this space was largely dominated by commercial banks and proprietary trading desks at investment banks leading up to the global financial crisis of 2008 when private lenders had little market share. The landscape has changed since then as banks now face significant regulatory pressure as a result of the Basel III and Dodd-Frank bills, which call for higher risk-based capital charges for non-rated loans and an increase of 25% or more in Tier 1 capital ratios by 2018, making the practice of direct lending an increasingly inefficient use of bank balance sheet capital.
September 16, 2016
Earlier this month China and the United States jointly pledged to ratify the Paris climate change agreement, a monumental step for the world’s two largest polluting economies. Executing a dramatic reduction in greenhouse gas (GHG) emissions will require creative financing, and China is looking towards green bonds to support their commitment.
September 8, 2016
Over the past year, many bonds from energy and metal/minerals issuers which previously held investment grade ratings were reduced to junk bond status, commonly known as fallen angels. These include Freeport-McMoRan, the largest copper producer in the world and Chesapeake Energy, the second-largest gas producer in the U.S. This week’s chart examines this unprecedented phenomenon. Fallen angels now account for a mind-boggling 42% of the energy and metal/minerals constituents in the Credit Suisse High Yield Index. With this influx of fallen angels, energy and metal/minerals now make up about 21% of the high yield index, up from 15% in February.
September 2, 2016
Productivity is the change in output per hour worked and serves as a key indicator of real economic growth. Not surprisingly, it is one of the critical macroeconomic variables analyzed by the Fed when deciding whether or not to raise interest rates. Lower levels of productivity can result from economic policy and shocks, changing demographics, and slower gains from technological innovations.
August 25, 2016
As the Federal Reserve maintains interest rates at all time lows, corporate balance sheets continue to benefit from this accommodative environment, as the low rate environment combined with a bull market has allowed corporations to add leverage to their balance sheets at an alarming rate. With borrowing costs so low, corporations have used this debt to finance stock buybacks, dividend growth, and M&A deals.
August 17, 2016
So far this year several macroeconomic issues have threatened to negatively impact financial markets. Yet U.S. equities have shrugged off all of these headlines and outperformed most peoples’ expectations. This week’s Chart of the Week takes a closer look at this strong return for the S&P 500 through July. Year-to-date, all of the positive performance has come from valuation appreciation. As a result, the trailing 12-month P/E ratio is now over 20, which is near its highest level over the last ten years. EPS, on the other hand, has actually fallen during the year, which is in stark contrast to the previous ten years when EPS growth was the main driver of price return. This phenomenon can be observed across the cap spectrum and in both value and growth indices.
August 12, 2016
This week’s Chart of the Week examines the pattern of monthly declines for the S&P 500 which are 5% or greater. Data going back to 1945 shows the months of August and September to have historically seen the greatest frequency of equity market declines of this magnitude. In fact, nearly one third of all monthly declines that are 5% or greater occurred during August and September. While historical occurrences such as this do not represent an absolute for equity markets, investors are entering a period that has historically produced below average returns.
August 4, 2016
One of the best performing and consistently stable asset classes over the past several years has been real estate. Based on the NCREIF-ODCE Index real estate has returned an annualized 12.7% over the last five years.
July 27, 2016
This week’s chart examines the change in yield for global sovereign debt. While we have been in a low interest rate environment since 2008, over the last three years, we have seen negative yielding bonds move from 0% of the developed bond universe to 38%. A staggering number indeed, this has been the by-product of anemic global growth and aggressive monetary policies in Europe and Japan.
July 22, 2016
While the Brexit won’t actually take place until at least sometime next year, many investors and economists are concerned about the ramifications this will have on the global economy. The Federal Reserve is no exception. Prior to the vote, the Fed warned about the effects the Brexit might have, and since then has indicated it would hold off raising interest rates due to these risks. M
July 15, 2016
Most investors likely understand what is known as “fundamental” investment analysis: analysts assess a company’s health based on revenue, earnings, cash flow, and other financial and economic indicators. An alternative method of identifying attractive investments is “quantitative” investment analysis, and this approach has soared in popularity over the past few decades. Quantitative analysis features complex mathematical models which incorporate statistical and economic variables including valuation ratios, risk measurements, and trading behaviors of a stock, though the possibilities for variables are nearly endless. The advent of social media has even made it possible to include behavioral variables that adjust for investor sentiment.
July 8, 2016
The United Kingdom’s (UK) vote to leave the European Union on June 23 was an unprecedented event that impacted markets across around the world. While this exit won’t actually take place for another two years, equities sold off in a knee-jerk fashion as investors feared the ramifications on the global economy. Due to the heavy exposure to Europe, non-U.S. developed markets suffered the most, losing nearly 10% before rebounding.
June 23, 2016
Today – Thursday, June 23rd – is the long awaited date of the “Brexit” vote in which the United Kingdom will choose to with draw from or remain in the European Union. In the weeks leading up to today’s referendum, many polls indicated a very slim margin between the “remain” and “leave” votes, thus creating another layer of uncertainty within the financial markets.
June 17, 2016
The biotech industry has taken a beating and dropped about 35% since its peak last summer as many investors have come to regard it as too speculative and risky. However, a contrarian view indicates that the Nasdaq Biotech Index is trading at a discount relative to its historical price-to-earnings and price-to-book ratios, and now may be an attractive buying opportunity.
June 9, 2016
The price of oil recently rose over $50 per barrel following a dip near $30 only a few months ago. Despite this price recovery, many high yield energy issuers are still finding it difficult to make their debt payments, and default activity surged in May.
June 3, 2016
Over the past 18 months oil has been a significant drag on global financial markets. While oil producing countries have obviously been hit the hardest, the rest of the world has also struggled. But recently there’s been a mild resurgence in oil, with the WTI index now near $50 per barrel.
May 25, 2016
While the Olympic Games certainly impact a host country’s balance sheet, what about their impact on the local stock market? What do local businesses have to gain from the massive influx of tourism spending and how can we expect this to impact Brazil for the coming games?
May 20, 2016
Core real estate investments have flourished since the financial crisis, with the NCREIF Property Index (“NPI”) returning 13.3% in 2015, its sixth consecutive yearly gain after the real estate recovery began in 2010. Not surprisingly, investors are now wondering if this run can continue, or if it is time to pull back on their allocations to real estate.
May 13, 2016
This week’s chart looks at polling information for the UK Referendum scheduled on June 23rd. On that day voters will decide whether or not to remain in the European Union.
May 5, 2016
This week’s Chart of the Week examines the ongoing shift from actively managed to passively managed U.S. equity allocations. While active investing has historically been the predominant form of portfolio management, investors are increasingly recognizing that passive strategies are an efficient manner of capturing market beta.
April 29, 2016
Given the current market environment right now, there are no real compelling “buy” opportunities, as measured by a variety of valuation metrics. On top of that, economic growth is slow, yields are low, and equity returns are weak. As such, one of the primary conversations we have with clients is around rebalancing, both at the broader asset class as well as between the underlying components of each asset class.
April 21, 2016
This week’s chart of the week looks at delinquent balances by loan type from 2003 through 2015. In general, total loan delinquencies – auto, mortgage, student and credit card – remain subdued compared to their levels between 2007 and 2012.
April 15, 2016
For this week’s chart of the week we take a look at the year to date return stream of emerging market equities, as measured by the MSCI Emerging Markets (“EM”) Index, which has been on a wild ride as oil prices fluctuated over the first three months of the year.
April 8, 2016
Technical analysis enables speculators to make future market predictions based solely upon a charted historical past; the actions of the market are studied as opposed to the underlying fundamentals of a company. Analysts have studied these sorts of charts for years and in the process discovered trends that are believed to support specific future behavior. One of these trends is explored in this week’s chart as it applies to the market’s preference of style: value vs. growth.
April 1, 2016
This week’s Chart of the Week examines the aftermath of three recent corporate scandals.
March 24, 2016
Activist hedge fund managers seek to outperform the equity markets over a market cycle by first purchasing a large amount of shares in publicly traded companies and then pushing these companies’ management teams to alter their approaches in an effort to unlock shareholder value. Some common practices include share buybacks, spinoffs, and strategic sales.
March 17, 2016
Following the recession, dividends and stock repurchases had a significant run, growing about 28% per year, reaching a new record of $241 billion in March 2014. While dividends continue to grow, buybacks have fallen in the last 18 months, leaving the combined total mostly flat. Not surprisingly, the market has also been relatively flat over the last year and a half.
March 9, 2016
Currencies are a popular topic in investment circles today, as their impact on total returns can be meaningful for investors. While many investment funds do not hedge currency exposure at the portfolio level due to the costs involved and the expectation of mean reversion over time, certain market participants are very active in the foreign exchange markets and seek to capitalize on price movements among currencies, which can be volatile in the short-term.
March 4, 2016
With U.S. equities posting their worst start to the year since 2009, opinions surrounding the path that equity markets will take during 2016 vary substantially. February saw a return to positive performance, yet equities remain in negative territory year-to-date.
February 24, 2016
During election seasons we are frequently asked about what will happen to the market if a particular candidate or party wins, or whether certain years of the presidential cycle are better for investors.
February 19, 2016
Given the recent drops in oil and U.S. equity prices, many have concluded that the significant decline in oil prices has driven down the stock market. Indeed, from the onset of oil's sharp dip, correlation between the two daily returns has greatly increased to about 45% on a 6-month rolling basis.
February 12, 2016
MLPs recorded their second worst year of performance in 2015 (-32.6%), reaching levels not seen since the financial crisis when the Alerian MLP Index fell 36.8% in 2008. Performance in 2015 can be attributed to the following factors...
February 4, 2016
The combination of rising high yield spreads and falling equity markets has led many investors to question if the U.S. is headed for a recession. This week’s chart examines the probability of a recession using the yield curve as a leading indicator of future economic activity.
January 29, 2016
Lost among all the chatter about China and its effects on oil prices, global economies, and capital markets is the evolution of its workforce, which can at least partially explain some of the “hard landing” scenarios discussed for the country. More specifically, the slowing growth in China’s working age population is not expected to reverse, and this trend could have a meaningful impact on future growth prospects, both domestically and abroad.
January 22, 2016
In 2015, the emerging market equity index declined 14.9%. While there are a variety of explanations for this, one can not underestimate the impact of a stronger dollar. In fact, currency losses were responsible for more than 60% of the decline for U.S.-based investors.
January 15, 2016
On January 8th, the U.S. Bureau of Labor Statistics released the unemployment rate for December 2015 and additionally on January 12th released the Job Opening and Labor Turnover (JOLT) report for November 2015. This week’s chart focuses on these two reports and the strength of the U.S. labor market as we enter 2016.
January 8, 2016
This week’s Chart of the Week shows what is commonly referred to as a “Periodic Table of Investment Returns”. It is a table showing historic calendar year returns for various asset classes ranked in order of performance from best to worst. One of the key takeaways from this table is that 2015 was a particularly challenging year for investment returns.
December 17, 2015
The recent sell-off in the U.S. High Yield market has caused concern among investors and many worry that the situation will worsen before improving; this is especially concerning because of its effects on portfolio values before calendar year-end. The Credit Suisse High Yield Index returned -1.08% on Friday December 11th and recorded another down day when the markets reopened on Monday with a return of -1.39%.
December 11, 2015
In testimony before the House Financial Services Committee on November 4, Federal Reserve Chairwoman Janet Yellen remarked that a rate hike was still a “live possibility” in December, should economic data remain supportive.
December 4, 2015
What has become known as the Great Recession officially came to an end in June 2009. Since then, GDP has expanded to new real highs, we are approaching full employment, and the U.S. dollar is the strongest it has been in the past decade. Though various issues remain within the economy, overall things seem to be going well.
November 20, 2015
This week’s Chart of the Week examines the relative performance of growth versus value. The above chart shows the price level of the Russell 3000 Growth index relative to the Russell 3000 Value index. Growth is outperforming value when the line is in an uptrend and value is outperforming growth when the line is trending downward.
November 13, 2015
This week’s Chart of the Week shows the divergence in Monetary Policy from the ECB, Bank of Japan and Federal Reserve. The Federal Reserve discontinued its quantitative easing (“QE”) strategy October 29th 2014; in contrast, after the end of 3Q14, the Bank of Japan and European Central Bank have increased asset holdings 30% and 26%, respectively.
November 5, 2015
Certain emerging markets countries have not been safe from being thrown out as “babies with the bathwater” during the past year’s global credit selloff trend.
October 30, 2015
Historically, the retail industry, a subset of the consumer discretionary sector, experiences an upswing during the winter months as holiday sales alone contribute 19% to yearly sales and Q4 earnings are generally released within the beginning of Q1. Highlighted in red is the November through February performance of the S&P Retail Select Industry Index; recession years aside, this upward trend usually holds.
October 23, 2015
This week’s Chart of the Week takes a look at the sell-off over the last month in risk credit as a direct result of global concern over China’s continued slowdown. Our chart shows the high yield bond spreads for each industry since the beginning of the year.
October 15, 2015
This week’s chart shows that current valuations across equity and fixed income markets are lower today compared to where they stood at the end of September last year. The big takeaway here is that equities broadly appear to still be cheaper than bonds.
October 8, 2015
The wait for the Federal Reserve to raise interest rates seems to be endless. Unemployment has fallen below the Fed’s desired level and inflation- when adjusted for the drop in oil prices - is just under target. At the beginning of this year, many predicted September would be the right time for it to finally happen.
October 1, 2015
As oil prices oscillate around $40, market participants continue to wonder how long these low prices will persist. The decline in oil prices, due in part to strong supply growth and lower-than-expected demand growth, has caused headaches for many in the energy industry.
September 24, 2015
This week’s chart examines Markit’s Purchase Manager Index (PMI) for the manufacturing and services sectors in China. PMI serves as an indicator of economic health. A reading above 50 represents expansion while a reading below 50 indicates contraction.
September 18, 2015
This week’s chart of the week looks at the recent drop in South Korean exports, which fell by 14.7% in the 12 months ending August 31. South Korean exports have historically been a reliable and early indicator of the state of global trade, so much so that they have earned the nickname, the “canary in the coal mine” of the global economy.
September 11, 2015
On Wednesday, September 9th Apple announced the details on its latest iteration of its flagship product – the iPhone. The iPhone 6S and 6SPlus will be the ninth major iPhone announcement since the iPhone 1 was first unveiled to the world on June 29th 2007 (excluding new storage space and color variations of the same model).
September 3, 2015
Historical analysis has shown that an inverted or flattening yield curve may be a warning sign of an upcoming recession. Since the 1950s, an inverted curve has preceded seven of the last eight recessions, with spreads near zero in 1960.
August 28, 2015
Between August 17th and 25th, the U.S. equity market – as represented by the S&P 500 Index – declined 11%. The pace and magnitude of the market drop came as a shock to many and left investors pondering how they should react to this swift downdraft. While some may be looking to underlying fundamentals or economic data for guidance, one could simply point to history as an indicator.
August 21, 2015
Under the Fed’s zero interest rate policy, high yield bonds have enjoyed a terrific run of performance. For the five year period ending June 30, 2014, the Barclays U.S. Corporate High Yield index produced an impressive annualized return of 14.0% per year. However, returns in this more speculative portion of the bond market have been disappointing since last summer, when the high yield spread over Treasuries reached a multi-decade low of 221 basis points.
August 13, 2015
This week’s chart shows broad asset class returns through July 31st of this year. Perhaps the most surprising performer has been international equity, which has outperformed even U.S. equities. Much of the outperformance is due to the strong U.S. dollar, which has increased international developed countries’ exports and the number of tourists.
August 5, 2015
Through the first seven months of 2015, growth stocks have far outpaced their value brethren in the U.S. equity market. While the theme has played out across all size sectors of the market, this trend has been most obvious for small-cap stocks.
July 31, 2015
For this week's chart of the week we take a look at quarterly M&A deals, measured by volume. Typically, summer is a quiet period for M&A activity; however, we have seen the volume of deals for the month of July already surpass $475 billion dollars which would put it on pace to surpass the previous quarter high that was last seen in 2007, just before the start of the great recession.
July 23, 2015
Over the last month, the Chinese equity market has been a cause of concern for investors and it is impossible to ignore its impact on recent market volatility.
July 17, 2015
There has been much talk about a potential “Grexit”, as some believe it is inevitable and may be the best solution in the long run. Nonetheless, Greece is receiving its third bailout in five years to prevent such a thing.
July 9, 2015
As the U.S. faces a potential interest rate hike this fall, it is worthwhile to review the impact of interest rates on the real estate sector. This week's chart looks at the historical performance of the NFI ODCE Index versus the 10-Year Treasury.
June 26, 2015
This week, we take a look at down market captures (DMC) relative to top, middle and bottom tier managers for U.S. large-cap equities. Down market captures illustrate how active managers perform during periods of negative benchmark performance. In this case, we are comparing the last 12 years of rolling 1-year down market captures for U.S. large-cap core managers who feature the S&P 500 index as their primary benchmark.
June 19, 2015
Over the past few years, investors have become concerned about higher equity valuations and the potential for another pullback or crash. The U.S. equity market is currently in its third longest bull market dating back to WWII, increasing worries that the run may be coming to an end soon.
June 12, 2015
Given the prolonged low rate environment in the aftermath of the credit crisis, investors have been on a continual search for yield. Historically, REITs and Master Limited Partnerships (“MLPs”) have been among the highest yielding asset classes, which led to strong performance in the years following the 2008 financial crisis.
June 4, 2015
Given the environment of record issuance and low yields, one is hard-pressed to find fixed income bargains. With the S&P 500 and P/E ratios at record peaks, bargains in equities are similarly few and far between. Energy distressed debt, however, is presenting extraordinary bargains.
May 29, 2015
The Maastricht Treaty mandates the European Central Bank (“ECB”) to target inflation. In contrast, the Federal Reserve targets maximum employment, appropriate inflation, and moderate long-term interest rates. When comparing unemployment rates between the world’s two largest currency blocks, the United States has seen a much stronger recovery with lower levels of dispersion between states.
May 21, 2015
Home ownership has historically been part of the American dream; however, recent data trends show that more consumers are postponing or bypassing this life event in favor of renting. The sting of the Great Recession still resides within consumers’ minds, many of whom are still struggling from a period in which millions of homes went into foreclosure and trillions of dollars of home equity was wiped out.
May 12, 2015
On Friday, April’s unemployment rate was announced at 5.4%, the lowest reading since May 2008 and significantly down from its peak reading of 10% in the aftermath of the Great Recession. Despite the low participation rate (62.8%), the dramatic improvement in the unemployment rate should be viewed as a positive development for the United States economy.
May 7, 2015
According to the National Center for Education Statistics, an estimated 1.8M students across the country will graduate this month with their undergraduate degrees. These graduates are entering an ever improving job market as shown by the latest unemployment figure of 5.5%, but they are also graduating with an increasing amount of debt as shown by this week's chart.
May 1, 2015
The core real estate market has enjoyed a solid run over the last five years. However, outsized returns do not last forever and for this reason investors are starting to question future return prospects for the asset class. There are several metrics to consider when answering such a question and this week’s Chart of the Week looks at one such metric: new supply.
April 23, 2015
Over the past few quarters there has been much discussion about how the recent plunge in oil prices would impact the U.S. economy. While there were expectations of both positive and negative effects associated with lower oil prices, the general consensus amongst economists was that this would have a net positive impact on the U.S. economy.
April 17, 2015
Over the past few years there has been much discussion on the low interest rate environment and what will happen once interest rates begin to rise. Though the Fed has delayed raising its overnight lending rate for far longer than many people initially expected, it seems likely that it will finally begin to raise rates later this year. Coupled with the fact that the 10 yr Treasury yield is once again below 2% and approaching its historical low, an increase in interest rates seems very likely.
April 9, 2015
A major concern for investors over the last year has been the impact of a stronger dollar on international equity returns. Generally speaking, a stronger dollar translates to lower returns for international equity investments, and in 2014 the currency effect on the EAFE index was -10.9%, a sizable reduction to returns for U.S.-based investors.
April 1, 2015
As U.S. equity indices again touched record highs during the first quarter, the appropriate valuation level for the market continues to be a popular topic in the financial press. Complicating the issue for investors is the tendency of the financial press to use different valuation methods interchangeably (trailing price to earnings, forward price to earnings, cyclically adjusted price to earnings, enterprise value to pre-tax income, etc.).
March 27, 2015
In January, the European Central Bank (ECB) officially announced its much talked about Quantitative Easing (QE) program, which will purchase a total of about €1.1 trillion (€60 billion per month) of bonds through September 2016. As was the reasoning behind QE here in the U.S., the hope in Europe is that QE will lower borrowing costs, which in turn will spur economic growth and inflation. When the rumor mill started buzzing in November about a possible QE program, forward looking investors began snapping up bonds, but what they didn’t count on was the large range of maturities the ECB would be purchasing.
March 19, 2015
In 2013, Brazil, India, Indonesia, South Africa, and Turkey were dubbed the “Fragile Five” due largely to high current account deficits and dependence on foreign capital flows. During the “Taper Tantrum”, these currencies were hardest hit recording double digit losses. This week’s chart provides an update on current account balances for each respective country.
March 12, 2015
The NASDAQ Composite recently reached 5,000 for this first time since the days of the “tech bubble” back in March 2000. Given that IPO activity has picked up substantially over the last few years, and Silicon Valley is booming again, investors have begun to wonder whether we are witnessing a “tech bubble 2.0”.
March 5, 2015
Between June 2014 and the end of January 2015, oil experienced a precipitous fall from $107 per barrel to $45 as reduced demand and excessive supply combined to drive its price significantly lower. During that time, the Credit Suisse High Yield benchmark experienced a -3% total return, as 15% of the index is comprised of energy issuers. In February, oil recovered to $52 and the high yield benchmark rebounded by 3%. Given the wide dispersion of projected oil prices, we attempt to gauge how fairly priced both oil and high yield energy bonds currently are, based on the Baker Hughes North America Rotary Rig Count.
February 25, 2015
As of January 2015, the headline unemployment rate (U-3) stood at 5.7%. Since hitting a recession high of 10% in October 2009, this headline rate has steadily fallen to pre-financial crisis levels. However, headline unemployment is but one of many measures used by the Bureau of Labor Statistics to gauge the health of the labor market since one single measure can’t possibly tell the whole story.
February 19, 2015
Liquid alternative assets, as defined by Morningstar, have continued to grow since 2009 and by the end of 2014, reached nearly $158 billion, up 11% from the previous year. The top 2014 fund flows within Morningstar’s liquid alternative category were concentrated across multi-alternatives (+$9.8B), long/short equity (+$6.5B), and managed futures strategies (+$2.3B).
February 13, 2015
Since the current bull market began in March 2009, the S&P 500 has posted an annualized return of 19.5%. During that time period, the trailing 12 month price to earnings ratio (P/E ratio) of the S&P 500 has increased from 14.2 to 18.1 (an increase of 27%). Over that same period, the trailing 12 month price to sales ratio (P/S ratio) has increased from 0.8 to 1.8 (an increase of 118%).
February 4, 2015
Since 2009, the S&P 500 has been on a historic run with six straight calendar years of positive performance, producing an annualized return of 17.2%. Meanwhile, the MSCI EAFE index has failed to keep pace during the same time period, thus leaving many investors to question their non-U.S. equity allocations.
January 29, 2015
The total amount of student loans outstanding has grown from approximately $500 billion in 2006 to $1.3 trillion at the end of 2014. Of the $1.3 trillion in student loans outstanding, approximately $1.1 trillion are either direct loans from the U.S. Department of Education or outstanding loans from the now terminated Federal Family Education Loans Program (FFEL). The remaining $190 billion can be attributed to private loans.
January 23, 2015
The European Central Bank (ECB) announced Thursday it will begin a quantitative easing (QE) program in which it will buy €60 billion worth of assets a month. The program, which will commence in March and continue through September 2016, will purchase both government and private sector bonds as well as other institutional debt securities. This move comes after the U.S. and U.K. have ended their own QE programs following declining unemployment and modest GDP growth.
January 16, 2015
The economic impact of falling oil prices has been a common discussion point for investors over the past few months. Who benefits? Who doesn't? In this week’s Chart of the Week, we look at what different oil prices mean to various parties.
January 8, 2015
The Nasdaq Biotech Index enjoyed another great run in 2014, returning 34% for the year and over 220% since 2011. By comparison, the Nasdaq Index has gained 13% and 75%, respectively, over the same time periods. Currently, the Nasdaq Biotech Index is nearly 60% above its long-term average price-to-book (“P/B”) ratio, and while there’s an argument that most U.S. equities are currently overvalued, the Nasdaq Index is only about 13% above its long-term average P/B ratio.
December 18, 2014
Our chart of the week examines how the fall in the price of oil – despite its recent impact on the overall stock market – has benefitted the airline industry and should continue to do so in the near future.
December 11, 2014
Many investors are concerned that the recent decline in oil prices will pose significant headwinds for investments in emerging markets debt and equity, since many emerging countries are known as significant exporters of oil. In the same vein, the economic slowdown in Europe and China may translate to reduced consumption of emerging countries’ commodity exports. Our Chart of the Week examines the impact of lower oil prices on the potential returns for emerging market investments, specifically debt and equity.
December 4, 2014
As investors turn the calendar to 2015, one of the big uncertainties for the coming year is Fed policy and its impact on interest rates. In October, the Fed formally wrapped up its quantitative easing program, which saw the size of the central bank’s balance sheet grow from a pre-crisis $800 billion to almost $4.5 trillion. Now, the Fed can once again focus on the more traditional policy tool of manipulating short-term interest rates.
November 20, 2014
One of the most significant challenges that international equity investors have faced this year is the impact of a stronger dollar. From many perspectives, a stronger dollar signals improved economic growth in the U.S. Unfortunately, a stronger dollar also acts as a headwind for U.S.-based investors purchasing international equities.
November 13, 2014
One of the most notable economic metrics that has not yet recovered from the recent recession is income and wage growth. This is not surprising: given the high level of unemployment, employers have been able to successfully hire without having to pay a material premium in wages. This trend has been supported by the level of wage growth, which has averaged close to 2%, significantly below its pre-recession average of 3.5%.
November 6, 2014
As they are driven more by supply and demand and less by macroeconomic factors, commodities have historically enjoyed low correlations to other asset classes in an investment portfolio, and are often utilized as a source of diversification. However, the correlations between commodities and other asset classes, such as equities, fixed income, and hedge funds tend to be fluid over time and can change significantly over a market cycle.
October 30, 2014
This week’s Chart of the Week looks at U.S. (measured by the S&P 500) and Developed International (measured by the MSCI EAFE) equity market valuations. Over the last five years U.S. equity markets have outperformed their developed market peers by almost 10% on an annualized basis (14% vs. 5.3%).
October 24, 2014
In this week’s Chart of the Week we look at the recent volatility of the U.S. equity market. Since the fourth quarter began, the S&P 500 index fell as much as 4%, but has recently rebounded, thus bringing its YTD gains to approximately 6%.
October 17, 2014
Over the past couple weeks financial markets have suffered steep declines, with the Dow Jones Industrial Average falling over 800 points, leaving investors to wonder if this is simply the pullback that we have been waiting for or if larger losses loom on the horizon.
October 9, 2014
On October 7th, the Bureau of Labor Statistics released the August Job Openings and Labor Turnover Survey (JOLTS), which showed that the number of job openings waiting to be filled in the United States rose to 4.84 million. The 4.84 million vacant jobs in August is the highest number of job openings in the U.S. since January 2001, and is the third highest number of job openings on record since the inception of the JOLTS survey in 2000.
October 2, 2014
This week’s chart examines the results from the first round of the European Central Bank’s (“ECB”) targeted long-term refinancing operation (“TLTRO”) which occurred on September 18th. The ECB announced this program in June 2014 with the goal of encouraging lending to small and mid-size companies in the region.
September 24, 2014
Recently, the California Public Employees’ Retirement System (CalPERS) announced its decision to completely shutter its hedge fund program. As a result of this news, investors have been asking whether hedge funds still deserve a spot in their portfolios.
September 19, 2014
This week’s Chart of the Week examines increases in dividends and stock buybacks for companies within the S&P 500 index during the prior six years. Following a recession low of $71.8 billion during the second quarter of 2009, combined dividend and buyback expenditures established a record high of $241.2 billion in the first quarter of 2014.
September 11, 2014
Due to stagnating growth and marginal inflation in the Euro area, Mario Draghi recently announced that the European Central Bank (“ECB”) would reduce the interest rate on main refinancing operations from 0.15% to 0.05%.
September 5, 2014
Income and appreciation are the two main components of returns to any investment, including real estate. Core real estate returns, as measured by the NCREIF Property Index (NPI), have been driven by the appreciation component over the past several years...
August 28, 2014
Emerging markets debt (“EMD”) represents an outstanding asset class for investors to diversify away from U.S.-centric core bonds, which includes U.S. Treasury, U.S. investment grade corporate and U.S. mortgage-backed bonds, as well as U.S.-centric bank loans and high yield bonds.
August 21, 2014
This week’s chart of the week takes a closer look at the CBOE volatility index (“VIX”) and the German implied volatility index (“VDAX”) in light of recent geopolitical events. Volatility indices are often describes as “fear indices” that tend to increase with market uncertainty.
August 14, 2014
This week’s Chart of the Week examines how total employment has changed by sector since the beginning of the recession. Recently, nonfarm employment recovered the total net jobs lost during the recession, but as the chart shows not all industries have fared equally during the recovery
August 8, 2014
This weeks’ Chart of the Week looks at the state of the service sector in the U.S., as measured by the Institute for Supply Management (ISM) Non-Manufacturing Index. On August 5th, the ISM released July data for the ISM Non-Manufacturing Index, which posted a reading of 58.7 (a reading greater than 50 indicates expansion in the service sector while a reading below 50 indicates contraction).
July 30, 2014
This week we examine the valuation of developed non-U.S. small-cap equity (MSCI EAFE small-cap) compared to U.S. small-caps (Russell 2000). The chart displays the relative price-to-earnings (P/E) and price-to-book (P/B) ratios for the two asset classes. A lower number indicates the U.S. is more expensive compared to non-U.S small-cap stocks.
July 23, 2014
This week’s Chart of the Week takes a look at Master Limited Partnerships (“MLPs”) and their current valuations based on their EBITDA Multiple (calculated by Enterprise Value divided by the 12-month EBITDA). Generally, a higher multiple implies a more expensive valuation. Relative to long-term averages and the S&P 500, MLPs appear expensive today. The elevated valuations, however, are pricing in higher expected rates of growth.
July 18, 2014
This week’s Chart of the Week examines the historical valuation premium of U.S. small-cap stocks (as represented by the Russell 2000 index) relative to U.S. large-cap stocks (based on the Russell 1000 index). A line above 1.0 indicates a higher relative valuation for the Russell 2000 compared to the Russell 1000. As of June 30th, 2014, the small-cap index carried an 18.7% premium relative to the large-cap index
July 11, 2014
On July 9, the Federal Reserve released the minutes from the June FOMC meeting which indicated that it is planning to continue the taper of its bond buying program at the current pace and expects to end the bond purchases entirely in October. With the Fed’s bond buying program (more formally known as quantitative easing) coming to an end, the next step for the Fed will likely be an increase in the fed funds rate.
June 26, 2014
A repurchase agreement (“repo”) is a transaction in which a dealer sells securities to an investor and agrees to repurchase the securities at a future date. Typically, the dealer sells the securities at a discount to the repurchase price. The repo market is relevant because it is a critical mechanism for the U.S. financial system to facilitate short-term lending between major financial institutions, money market vehicles, and the Federal Reserve.
June 20, 2014
So far, 2014 has seen a number of things fall: unemployment, interest rates, the pace of QE3, and correlations among U.S. equities. It is conventional wisdom that in times of crisis, correlations move to one and all equities fall in unison. Since 2008 when the correlations between sectors in the S&P 500 did indeed approach one, active equity managers have bemoaned the lack of dispersion that is commonly present in the U.S. equity market.
June 13, 2014
Recent events have raised investors’ concerns about how much runway we have left for a risk-on fixed income portfolio. This week’s chart explores high yield bond issuance ratings and use of proceeds as indicators of where we are in the credit cycle.
June 5, 2014
This week’s Chart of the Week examines how the commodities markets have fared since the start of
the year. After three years of negative returns driven by relative unattractiveness to equities and fixed
income, coupled with declining inflation, commodities began 2014 on a strong foot.
May 30, 2014
After a very disappointing year in 2013 emerging market equities got off to a rough start in 2014, underperforming U.S. stocks by 2.2% during the first quarter. However, emerging markets stocks have recently started to show signs of life, up over 5% since the end of March and outperforming U.S. markets. So why the outperformance?
May 22, 2014
This week’s Chart of the Week takes a closer look at the current employment situation compared to pre-recession numbers. Recently, the U.S. hit a new high water mark for the number of private sector employees, though the total amount of workers employed is still behind by approximately 900k jobs when compared to its previous high set in November 2007. Considering that over 8.5 million jobs were lost during the recession, with total employment falling at one point to about 138 million, the economy has come a long way.
May 16, 2014
This week's chart of the week examines the difference in private non-financial sector debt levels as a percentage of GDP for the United States and China. Private non-financial sector includes non-financial corporations (both private-owned and public owned), households and non-profit institutions serving households. Rising debt levels are a concern to any economy, as higher debt as a percentage of GDP is a potential drag on growth.
May 7, 2014
In this week’s chart we examine the improving housing market and its outlook in terms of pricing stability as it relates to the number of homes in shadow inventory. To be brief, shadow inventory (courtesy of CoreLogic) represents the number of properties that are seriously delinquent, in foreclosure, and/or held by mortgage servicers that are expected to come to market in the future.
May 1, 2014
This week’s chart examines the improving financial conditions in the Eurozone’s peripheral countries. Italy, Spain, and Portugal have recently seen their borrowing costs reach significant lows as investors’ confidence strengthens.
April 24, 2014
This week’s chart looks at the recent fund flows and the trailing twelve month (“TTM”) percentage growth rate of liquid alternatives as of March 31, 2014. Over the past decade, private investment managers, traditionally associated with less liquid investments such as hedge funds, private equity, and real estate, have expanded their investment focus towards the creation of liquid alternative products that comply with the 1940 Investment Company Act in order to meet the demands of the rapidly growing defined contribution market.
April 17, 2014
This week’s chart illustrates the year over year real average hourly earnings for all
employees-inflation and seasonally adjusted. Most important in the graph is the recent
trend since mid-2012: hourly earnings have been increasing at a rate greater than
inflation. The primary reasons contributing to this are an improving labor force and
April 9, 2014
The popularity of passive or indexed investment strategies is as high as ever due to low costs, strong recent performance, and compelling research by the likes of Eugene Fama indicating active management is a losing endeavor in aggregate. Nevertheless, as more assets move to passive strategies from active, skillful active management becomes more attractive assuming market pricing is not perfectly efficient
April 3, 2014
With record net inflows, compressed spreads, rising levels of corporate debt and a dramatic increase in covenant-light loans, bank loan investors have become concerned about their investments. While there are many ways to assess future prospects for the asset class, one key indicator to examine is the amount of 2nd lien bank loans compared to the total bank loan market.
March 27, 2014
Developed by Stanford economist John Taylor in 1992, the Taylor Rule is a mathematical model designed to estimate the level of short-term interest rates consistent with the Federal Reserve’s mandate to promote price stability and full employment. In making its prediction, the model measures current inflation and unemployment data against a set of ideal targets.
March 21, 2014
In an attempt to revive the long struggling Japanese economy, Prime Minister Shinzo Abe implemented his “Abenomics” strategy which included an unprecedented open-ended asset purchase program. The monetary easing policy was implemented with the goal of spurring domestic spending and increasing exports via a devalued currency.
March 7, 2014
In this week’s chart we take a look at the CITI Economic Surprise Index. As a matter of background, the CITI Economic Surprise Index is a composition of various economic indicators that are released; anything above 0 indicates that economic reports are beating expectations and anything below 0 is underperforming estimates.
February 26, 2014
With the unemployment rate (6.6%) approaching the Fed’s forward guidance target of 6.5%, this week’s chart examines two additional labor market indicators: the number of people working part time for economic reasons and the number of individuals who have been unemployed for longer than six months.
February 20, 2014
This week’s chart looks at median secondary market pricing for private equity fund interests. Because private equity is an illiquid asset class, investors that have private equity portfolios and need immediate liquidity must sell their interests in existing private equity funds to other investors.
February 13, 2014
This week we take a look at the unemployment rates among young people and the rising levels of student debt. Following the crash in 2008 the aggregate student debt has more than doubled, rising from $500 billion to over $1 trillion. This is the result of not only traditional students struggling to afford tuition, but also due to many people returning to school in the hopes of improving their skill sets in a tough job market.
February 7, 2014
Given the continued poor performance of emerging market (“EM”) investments, this week’s chart examines the structural issues challenging a number of EM countries, namely the “fragile five” (Brazil, India, South Africa, Turkey, and Indonesia). The chart illustrates how countries with high inflation and large current account deficits have seen their currencies decrease dramatically against the U.S. dollar.
January 30, 2014
This week’s chart of the week compares business spending (represented by non-defense capital goods orders) to employment (represented by total nonfarm employees) in the United States. As the chart illustrates, both employment and business spending have been steadily rising since the economic recovery began back in 2009.
January 24, 2014
Given the monumental run of the equity markets in 2013, we have frequently been asked if the stock market (as measured by the S&P 500 index) is overvalued heading into 2014. The answer unfortunately is not a simple yes or no, because it depends on the valuation method and measurement period.
January 16, 2014
This week’s chart depicts the challenging environment core fixed income investors faced in 2013. The ten-year Treasury rate jumped causing significant price depreciation while the coupons failed to cover the losses.
January 9, 2014
This week’s Chart of the Week examines the estimated net mutual fund flows that occurred within fixed income from January 2013 through November 2013. Notable fund flow trends during this time included investors diversifying away from more traditional bond categories such as intermediate-term, municipal, government, inflation-protected bonds, and money markets.
December 17, 2013
In this week’s Chart of the Week, we track the real median household income in the United States over the last twenty-five years. The movement in this economic variable illustrates how the purchasing power of the typical American household has changed over time. This is an important statistic because it underpins the American ideal that every generation will do better than the previous.
December 12, 2013
This week’s chart of the week compares the total household mortgage liability (i.e. outstanding mortgage balances) to the total owners’ equity in household real estate (i.e. home equity) for all households in the United States. As the chart indicates, in 3Q 2013 the total owners’ equity in household real estate exceeded the total household mortgage liability for the first time since the 2007/2008 financial crisis.
December 5, 2013
This week’s chart illustrates the distribution of returns for the S&P 500 in the year following a return greater than 25%. Since 1926, the S&P 500 has produced a calendar year total return greater than 25% on 23 separate occasions.
November 21, 2013
This week's Chart of the Week examines GDP growth and valuation levels in the eurozone. The chart above depicts eurozone quarterly GDP growth compared to both the prior quarter and year. As the chart shows, eurozone GDP growth is at very low or even negative levels.
November 15, 2013
The Conference Board Leading Economic Index (LEI), which consists of 10 economic variables, increased 0.7 percent from the previous month to 97.1 in September. The LEI attempts to predict future changes in the overall economy. Prior to the September release, economists estimated a median 0.6 percent increase according to a Bloomberg survey. The reported 97.1 September number represents the highest point since April 2008 (97.2).
November 6, 2013
This week we examine when the unemployment rate may hit the Fed’s 6.5% target, courtesy of the Federal Reserve Bank of Atlanta’s Jobs Calculator TM. The chart above shows the average monthly change in payroll employment needed for the unemployment rate to hit 6.5% at the listed months.
November 1, 2013
As shown in the graph above, 2013 has been a tremendous year for both investment grade and below-investment grade companies to issue debt. Given the near record low levels of both interest rates and credit spreads, the amount of issuance has not been surprising.
October 23, 2013
Our Chart of the Week looks at the S&P Case-Schiller 10-City Composite Index which is one of the best broad measures of housing prices in the U.S. This is a “drawdown” chart that looks at prices as a percentage of their prior peaks. When the lines on the chart are at 100%, prices are at a new all-time high.
October 17, 2013
This week’s Chart of the Week examines queue levels of core real estate managers. Real estate’s recent performance along with its yield premium has led to increased investor interest, and consequently the formation of contribution queues. Contribution queues are the value of the cumulative dry-powder to put to work, i.e. what could potentially get called by managers in a quarter.
October 10, 2013
As the government shutdown enters its second week and a resolution to the upcoming breach of the debt ceiling on October 17 appears nowhere in sight, signs of concern are beginning to surface in the U.S. Treasury Bill market. As the chart shows, yields on T-Bills maturing between October 17 and November 14 have spiked significantly over the past week.
October 2, 2013
This week’s chart shows the since inception growth of a dollar in core bonds, represented by the BarCap Agg index from January 1976 through August 2013. The total return components, price return and income return, are broken out separately to highlight just how significant the coupon payment is for the performance of this index over time.
September 26, 2013
This week’s COW looks at the year-to-date returns of the major international markets (Europe, Japan, and Emerging Markets) through September 25, 2013. This chart disaggregates the returns that U.S. investors have realized so far this year between the currency return and the local stock market performance
September 20, 2013
Since 2008, the Federal Reserve has embarked upon an unprecedented effort to stabilize and support the national economy in the aftermath of the 2008 financial crisis. At first, the effort was more of an emergency response, aimed at stemming the worst economic calamity since the Great Depression. However, as the threat of a systematic meltdown subsided, the Fed’s focus shifted to ongoing support aimed at restoring economic health
September 12, 2013
This week’s chart shows the growth of Treasuries in the BarCap Agg index. As of June 30, 2013, U.S. Treasuries made up 37% of the Agg’s holdings, which is higher than it has been in previous years. In 2007, the Agg’s Treasury position was roughly 22% and in 2010, it moved up to 33%.
September 5, 2013
The S&P 500 returned -3.1% excluding dividends for the month of August. As the bull market seems to be losing steam, institutional investors will likely see lower returns from equity markets. Further compounding future portfolio returns is that bond prices are likely to be hampered by the threat of rising interest rates.
August 29, 2013
This week’s Chart of the Week examines the differences in average wages in the United States and China. As China has experienced substantial economic growth, it has also seen its average yearly wage for employed people in urban units rise from ¥9,333 in 2000 to ¥41,799 in 2011.
August 23, 2013
This week’s Chart of the Week examines the importance of personal consumer expenditures (PCE) on the U.S. economy. From 1970 to 1st quarter 2013, PCE has grown from 60% to 69% of GDP as the health of the economy has become more dependent on consumers.
August 16, 2013
Given that consumption constitutes roughly 67% of U.S. GDP, it is not surprising that the trends of retail sales are closely watched to reveal emerging growth or contraction in the economy. In an effort to uncover evidence of economic expansion in the U.S., our chart of the week examines the monthly change of retail sales over the last six years, with a focus on the last few months of 2013.
August 7, 2013
Recently we have witnessed the much publicized rise in long term interest rates. Meanwhile, short term rates have remained near record lows as evidenced by 3 month Treasury bill yields near zero. The above chart compares the spread between the yield on 10 year Treasury bonds and 3 month Treasury bills with real GDP growth.
August 1, 2013
This week’s Chart of the Week compares consumer confidence (based on the University of Michigan Index of Consumer Sentiment) to the performance of the S&P 500 over the past five years. As the chart illustrates, there has been a very strong correlation between consumer confidence and the performance of the S&P 500 over the past five years, as evidenced by a correlation coefficient of 0.72 over that time period.
July 25, 2013
The chart above illustrates the year to date outperformance of small-cap stocks (Russell 2000) versus large-cap stocks (Russell 1000). Year to date, small-cap and large-cap stocks have returned 24.8% and 20.3%, respectively.
July 19, 2013
Following his election in December 2012, Japanese Prime Minister Shinzo Abe introduced a suite of measures designed to revive the long struggling Japanese economy. Dubbed “Abenomics”, these revamped economic policies sought to revive the economy using three primary “arrows”: monetary easing, fiscal stimulus, and structural reform. As part of this strategy, the Bank of Japan has embarked on an unprecedented open-ended asset purchasing program that will nearly double the country’s monetary base in two years.
July 11, 2013
After 7 months of consecutive gains, the S&P 500 Index (“SPX”) dropped by 1.3% in June. While a down month in the market was inevitable, one of the primary worries for investors as we enter the second half of the year is how the stock market will react to June’s losses. In an effort to answer this question, this week’s chart examines market reactions after previous “winning streaks" were broken.
July 2, 2013
This week’s chart compares non-profit health care organizations’ (“HCOs”) cost of debt versus their size. The table illustrates the financial characteristics of 630 HCOs divided into quartiles based on borrowing costs measured by option-adjusted spread (“OAS”). The HCOs examined show a wide dispersion of borrowing costs.
June 27, 2013
Since the end of 2008, the Federal Reserve has held the Federal Funds Rate at approximately 0% in an attempt to stimulate bank lending and revive the collapsing U.S. housing market. The aggressively accommodative monetary policy has caused borrowing rates on traditional 30-year mortgages to steadily decrease from 5.94% in September of 2008 to 3.40% at the beginning of 2013.
June 20, 2013
This week’s Chart of the Week illustrates the significant increase in yields on the 10 Year Treasury Inflation Protected Security (TIPS) over the past several weeks. From May 1, 2013 to June 19, 2013, the yield on 10 Year TIPS increased from -0.67% to +0.26% (an increase of 0.93%).
June 14, 2013
This week’s chart looks at the CBO’s updated fiscal projections for the U.S. federal government published on May 14th (the red line on this chart is the updated deficit/GDP estimate). These projections are an update from the last set of projections made in February (gray line) and include the full effect of the tax increases implemented on January 1, 2013 and the budget cuts mandated by sequestration, which began on March 1st.
June 5, 2013
This week’s chart of the week examines the cash holdings of companies in the S&P 500 following the recession. Since 2007, the cash per share for the S&P 500 index has risen to $329.01 for a compounded annual growth rate of 11.5%.
May 31, 2013
This week’s Chart of the Week focuses on debt levels of the U.S. consumer and federal government. The Federal debt has increased significantly since the 3rd quarter of 2008 (onset of the Global Financial Crisis), and appears to be maintaining this trajectory. On the other hand, while consumers’ household debt has increased in absolute terms, there have not been dramatic spikes in the debt level.
May 22, 2013
This week’s Chart of the Week examines historical and projected contributions to total world Gross Domestic Product (GDP) based on Purchasing Power Parity (PPP) at exchange rates prevalent in the United States.
May 16, 2013
This week’s chart looks at current U.S. Syndicated Loan Underwriting Volume in comparison with the new business environment created by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Dodd Frank was enacted by President Obama in 2009 – 2010 with stated objectives of increasing financial accountability and transparency, ending “too big to fail” institutions requiring corporate bailouts, and protecting consumers.
May 9, 2013
This week’s chart illustrates recent shifts in the personal savings rate and household net worth. As seen in the graph, household wealth is approaching its pre-recession level as the recovery in the stock and housing markets has helped repair household finances.
May 2, 2013
On April 30, 2013 the S&P 500 Index closed at a level of 1597.57, which is the all time record high for the index. The new record high in the S&P 500, coupled with the fact that the index is up more than 105% during the four year rally since the March 9, 2009 low, has caused many market observers to speculate that the market is due for a significant correction.
April 25, 2013
This week’s Chart of the Week examines the relative performance of equity markets from a global perspective. Since January 1, 2013, U.S. large-cap stocks have returned a cumulative 10.03%, international large-cap stocks have returned a cumulative 4.38% and emerging market stocks have returned a disappointing -1.92% through March 31, 2013.
April 16, 2013
This week’s chart takes a look at the S&P 500 index in direct correlation to corporate profit earnings. Thriving on corporate profits, the S&P 500 index closed at 1593.37 this past Thursday, its highest level in history. Profits by corporations, in addition to a recovering housing market have helped expand the economy for 14 consecutive quarters.
April 10, 2013
In this week’s chart we look at the historical gap between the earnings yield of the S&P 500 and the ten year Treasury yield. The larger the gap is between the earnings yield and 10 year Treasury rate, the more attractive equities appear relative to bonds.
March 20, 2013
This week we look at the historic net asset flows for bank loans courtesy of Morningstar’s Asset Flows report. February 2013 saw the largest ever monthly net asset inflow for bank loan mutual funds and ETFs.
March 14, 2013
Viewed by many on Wall Street as the “smart money,” the bond market often serves as a leading indicator for the stock market in search of future direction. In 2007, it was the bond market that was first to flash warning signs of a looming crisis as stocks continued their steady upward march.
March 7, 2013
With the Dow Jones Industrial Average setting a new nominal high this week and the CBOE Volatility Index below 14, the financial news media has been beset with headlines about the recent rally in the U.S. equity markets. Analysts’ views on the sustainability of the rally are mixed, but it is not uncommon to hear market experts warn of a pullback to interrupt the recent rally.
March 1, 2013
In spite of the most recent bad macroeconomic news coming out of Europe and Italy (to say nothing of the sequester here in the U.S.), we continue to see reasons for optimism in the U.S. economy. This week’s chart of the week unveils the latest home prices and consumer confidence increases reported earlier this week.
February 21, 2013
This week’s Chart of the Week compares gold prices to the MSCI ACWI Select Gold Miners Index. Typically, most investors would expect gold mining company returns to closely track those of gold prices.
February 14, 2013
This week’s chart of the week looks at the growth in mid-west farmland prices. Our chart shows the increase in farmland prices in Illinois, Indiana, Iowa and the Federal Reserve 7th District, which includes all three of these states.
February 8, 2013
This week’s chart is relatively straightforward but reflects some potentially powerful messages for institutional investors. As plainly seen from the chart, 2013 to date has seen a continued run-up in the equity markets (red line): as of February 7, the S&P 500 has returned 5.8% for the year.
January 30, 2013
Apple (AAPL) shares dropped 12% last week after a disappointing earnings report and are down 37% from their September 2012 peak.
January 23, 2013
This week we look at the historic three year discount margin for bank loans. Bank loans provide a source of financing for public and private corporations as well as private equity firms. They are a floating rate debt obligation generally linked to LIBOR and typically callable with few or no penalties.
January 16, 2013
Today's Chart of the Week looks at the historic level of the S&P 500 Index relative to the forward estimated price-to-earnings ("P/E") ratio of the S&P 500 from January 1, 2006 to January 15, 2013. The purpose of this chart is to see whether or not the forward looking P/E ratio can predict performance of the index.
January 10, 2013
This week’s Chart of the Week shows projected trends for non-agriculture employment in the U.S. by major industry sectors over the 2010-2020 timeframe. Every two years, the Bureau of Labor Statistics (BLS) estimates labor force trends over a 10-year period.
December 20, 2012
Last week, The Federal Reserve agreed to continue purchasing mortgage backed securities, expanding its holdings of Treasury securities and keeping short-term interest rates near zero until the unemployment rate is below 6.5% and inflation remains under 2.5%.
December 12, 2012
Our Chart of the Week looks at analyst expectations for 2013 S&P 500 operating earnings. This is a “bottoms-up” estimate which means it is based on earnings expectations for each of the 500 underlying companies in the S&P 500 index.
December 6, 2012
Among the many factors the Congressional Budget Office (“CBO”) must estimate in budget projections provided to Congress, GDP is often the most important, as it provides a foundation for most other forecasts. While near term GDP growth can often be estimated with some accuracy based on current trends, longer term forecasts rely upon potential GDP.
November 29, 2012
The challenges facing the money market industry continue to mount, with investors and asset managers growing more frustrated with recent trends. As the chart shows, while the decline has stabilized, the downward trend has yet to reverse itself.
November 20, 2012
Business investment spending (formally known as non-residential private fixed investment) measures spending by private businesses and nonprofit institutions on fixed assets in the U.S. economy. Business investment spending serves as an indicator of the willingness of private businesses and nonprofit institutions to expand their production capacity, and thus, movements in business investment spending serve as a barometer of confidence in, and support for, future economic growth.
November 14, 2012
This week’s Chart of the Week highlights the relative underperformance of emerging market stocks compared to other “risky” asset classes. Since January 1, 2010, U.S. small-cap stocks1 have returned a cumulative 35.8% and international small-cap stocks2 have returned a cumulative 18% through October 2012. However, quite surprisingly, emerging market stocks3 are only up 8.9% over the same time-period.
November 8, 2012
Recently, the decline in the U.S. housing market has shown some evidence of bottoming. The national average home price has crept up off of lows according to the Case-Shiller Home Price Index, and inventories of existing homes on the markets have shrank significantly since the outset of the credit crunch.
November 1, 2012
In the last week, U.S. crude oil prices hit a three month low dropping below $88 a barrel, attributable to economic slowdowns in China, Europe, and the U.S. Further downward pressure on oil prices has been caused by reduced earnings forecasts by U.S. corporations, unmet expected profits, and the growing worries for lower growth across the global economy.
October 26, 2012
Our Chart of the Week examines the migration of dollars from active to passive U.S. equity mutual funds over the last five years. During this time period, approximately $144 billion of investor money has flowed into passive funds (blue line) on a net basis, thus reflecting a growing frustration with the performance (and perhaps as importantly, fee level) of actively managed funds.
October 17, 2012
In this week’s Chart of the Week we take a look at the velocity of the Money Zero Maturity (“MZM”) money supply over the last ten years. Velocity of money can be defined as the rate of turnover in the money supply; in other words, the number of times one dollar is used to purchase final goods and services included in GDP.
October 10, 2012
Since March 2009, the S&P 500 has returned 130% through September. Unemployment rates in the United States have improved as well, though more sluggishly. With the unemployment rate in the headlines, it may be insightful to look under the hood and see how the numbers have changed on a more detailed level.
October 4, 2012
Since reaching 10% in October 2009, unemployment has been on a slow downward trajectory and fluctuated throughout 2012 within the range of 8.1% to 8.3%. At first glance, any reduction in this headline number appears to be good news.
September 26, 2012
On September 25, the Bureau of Labor Statistics released its final report on 2011 consumer expenditures. Although the information appears somewhat dated as we are practically entering the fourth quarter of 2012, the trends discovered in the analysis should have a material impact on GDP in the coming years, especially considering the importance of consumption to total GDP growth.
September 19, 2012
This Chart of the Week examines home builders’ expectations of the newly built single family home market measured by the NAHB/Wells Fargo Housing Market Index. The HMI is based on a monthly survey conducted by the National Association of Home Builders.
September 13, 2012
This week’s Chart of the Week shows the impact of government transfer payments (Social Security, Medicare/Medicaid, unemployment insurance, veterans benefits, food stamps, training & education programs, etc.) on disposable income (defined as personal income minus personal income taxes) in the U.S. over the past several years.
September 6, 2012
Our first Chart of the Week for 2012 covered the ISM Manufacturing Index, with December’s value of 53.9 indicating signs of economic expansion (above 50) and a positive outlook heading into 2012. We revisit the ISM index this week to gauge the current health of the manufacturing sector.
August 30, 2012
This week’s Chart of the Week shows CAPEs for market stock indices of 47 countries including the United States. The U.S. comes in at the middle of the pack, with a CAPE of 19.6.
August 22, 2012
There are a variety of methods to measure market valuation but one of the simplest is to compare market capitalization to GDP. Investors can think of this as a price-to-sales multiple for the macro economy.
August 16, 2012
This week's chart depicts the amount of Italian government bonds held by Italian banks. As seen in the chart, this amount hovered between $200 and $250 billion until December of 2011, which is when the first round of the Long-Term Refinancing Operation (LTRO) began.
August 8, 2012
This week's Chart of the Week shows that through the first quarter of 2012, euro area governments’ debt-to-GDP ratio stood at 88.2%, up from 87.3% at the end of the fourth quarter of 2011. This was the eighth debt-to-GDP increase in the last nine quarters.
August 1, 2012
The growth and development of Olympic champions is due to a myriad of factors, many of which are impossible to account for by data analysis. However, are there any parallels between countries’ economic growth and Olympic success?
July 26, 2012
This week’s Chart of the Week shows the contribution to GDP growth in the United States from spending at the state and local government level since 1990. As the chart shows, state and local government spending, which has contributed an average of 0.23% to GDP growth annually over the past 30 years, has declined to a level well below its 30 year average.
July 20, 2012
On Monday, the IMF lowered its 2012 forecast for global growth to 3.5% down from an estimate of 3.6% made earlier this year. The growth forecast for 2013 was also lowered to 3.9% from 4.1% as growth around the world continues to stagnate.
July 11, 2012
This summer’s unusually hot weather combined with little rain is shaping up to have a profound impact on corn yields for 2012. At the close of trading on Monday, corn futures settled at $7.75, up 40% since June 1, and 12% since July 1.
July 5, 2012
Despite the crisis in Europe, global stock markets have generally been buoyed by strong earnings growth from the globe’s two largest economies, the US and China. However, evidence of a slowdown in China has fueled debate over whether the US will be able to continue growing in the face of European and Chinese weakness.
June 28, 2012
Given the volatility of the global markets in recent years, foreign currencies have become a substantial factor to consider when investing in non-U.S. securities. The BRICs (Brazil, Russia, India, and China), generally known as the most influential emerging markets, are experiencing various situations that have had a negative effect on their respective currencies.
June 21, 2012
This week’s chart shows the components and level of U.S. household debt from March 1999 through March 2012. Categories of U.S. household debt include Mortgage, Home Equity Revolving, Auto Loan, Credit Card, Student Loan (which the Fed began tracking as an independent category in the first quarter of 2003), and Other which includes consumer finance and retail loans.
June 13, 2012
Most investors understand that over the long-term, the investment grade credit sector tends to outperform the U.S. government sector due to its risk. Many may be surprised however, at the size of the outperformance.
June 7, 2012
Over the last few weeks, renewed concerns over the European debt crisis coupled with the release of negative economic data in the U.S. has led to a significant sell-off in global equity markets. As a result, U.S. Treasuries - which still serve as a favorite safe-haven despite last summer’s downgrade - have set record low yields across the curve.
June 1, 2012
With election campaigning in full swing, we have received a number of questions from our clients regarding what will happen to the market if a particular candidate or party wins, or whether certain years of the presidential cycle are better for investors. This week’s chart of the week examines past studies on election years and market returns, as well as other market patterns.
May 23, 2012
This chart shows the current yield curve (red line) and the expected return an investor can expect to achieve owning government bonds at each maturity along the curve, assuming they maintain a constant duration. As the chart shows, investors in 10-year bonds will earn almost double the 1.7% return indicated by the yield curve if rates remain unchanged.
May 17, 2012
Since the 2008 recession began, the Federal Reserve has seemingly used all available tools to stimulate the economy. In particular, the Fed has relied heavily on controlling the Federal Funds Rate, which is the rate that the Fed charges banks for overnight loans.
May 9, 2012
On Friday, the U.S. Department of Labor announced that 115,000 jobs were created in April and the national unemployment rate fell from 8.2% to 8.1%. Though these data points showed improvement, their release prompted an immediate equity market selloff.
May 2, 2012
This week’s chart chronicles the trends of home ownership and prices since the turn of the century. The financial crisis of 2008 coupled with a surge of foreclosures and high unemployment rates have contributed to a decade low home ownership rate of 66 percent.
April 26, 2012
Income inequality in the United States has emerged as a popular topic in the media as well as the upcoming presidential election. The upcoming presidential debates are certain to feature a fair amount of political rhetoric in an attempt to address the issue of income inequality.
April 19, 2012
This week’s chart shows the personal savings rate from January 1959 to February 2012. The average for that time period is represented, along with averages over the last 30, 20, and 10 years.
April 11, 2012
This week’s chart shows trends in tax revenues, indexed to 2007, for a group of ten selected countries (based on rolling twelve month averages for each). Taxes are the main source of government revenues and a crucial factor for the fiscal stability and economic growth of countries.
April 4, 2012
This past Friday, March 30th, the United States Department of Agriculture (USDA) released the 2012 Prospective Plantings report, which included various estimates. According to the report, “Soybean growers intend to plant an estimated 73.9 million acres in 2012, down 1 percent from last year and down 5 percent from 2010.
March 29, 2012
Driven by the stock market’s upward trajectory during the past six months, the yields of various asset classes illustrate a return to riskier asset classes and a change in the landscape for income-driven investors. Our Chart of the Week shows the disparity between this week’s yields and those of roughly six months ago, when we last examined this topic.
March 21, 2012
On March 19th, Apple made news once again by declaring the payout of a dividend for the first time since December 1995 and buy-back program of company stock. Apple announced a $2.65 per share dividend that will begin in July 2012. This represents a 0.45% quarterly yield and a 1.81% annual yield (dividend / share price).
March 15, 2012
This week’s chart shows the month over month change in construction jobs and the month over month change in annualized housing starts in the U.S. (based on rolling six month averages for each). As the chart illustrates, the steep drop off in housing starts that began in late 2006 resulted in significant job losses in the construction sector starting in mid-2007. However, over the past several months, a positive trend has started to emerge in new housing starts.
March 9, 2012
This week’s chart shows the dynamic nature of correlations between asset classes by comparing correlations amongst traditional asset classes over 20-year and 5-year historical periods. The chart above shows how much these correlations have all increased when comparing the 5-year figures to the longer dated 20-year period.
March 2, 2012
This week’s chart shows the change in the velocity of the money from 1959 through 2011 along with the growth in the monetary base. Velocity measures the frequency with which a unit of money changes hands in an economy over a given period of time. This figure can be viewed as a general gauge of activity taking place within an economy.
February 22, 2012
Another round of bailouts, totaling €130 billion, was approved for Greece on Tuesday. As with other Greek bailouts, the receipt of the money was contingent on further budget cuts and austerity. Going forward, Greece faces two main concerns, one short-term, and one long-term.
February 17, 2012
This week’s chart shows the historical unemployment rates for various education levels and their respective averages over the time period of 1992 - present. Despite the well publicized recent drop in the overall unemployment rate, the current unemployment rates for each education level still remain near their 20 year highs and around twice their 2007 pre-recession levels. Also, since the recession began, the unemployment rate for those with only a high school degree has been higher than the unemployment rate for the general population for the first time.
February 8, 2012
Domestic energy production has experienced a renaissance over the last few years, mainly driven by natural gas production. While oil prices hovered around $100/barrel for most of 2011 natural gas prices hit lows not seen since the 1990’s.
February 2, 2012
This week’s Chart of the Week chronicles Japan’s trade deficit over the last five years. In the graph, the red line represents Japan’s month-end trade balance, while the charcoal line is the 100-day moving average of the trade balance.
January 26, 2012
While traditional “active” consumer spending undoubtedly makes up a large percentage of G.D.P., increased spending on health care (through Medicare and Medicaid) over time has likely overstated this popular statistic.
January 19, 2012
This week’s Chart of the Week examines four types of loans and their delinquency rates over the past twenty years. A loan is considered to be delinquent if it is past due by thirty or more days. The delinquency rate is the percentage of loans that are considered to be delinquent.
January 13, 2012
Over the past five years, as globalization has become more pronounced and economies more intertwined, correlations have certainly increased to all time high levels. But since correlation does not capture magnitude of returns, investors should continue to utilize an asset allocation model that takes potential risk and return into account.
January 6, 2012
On Tuesday, the ISM factory index for December was released, with last month’s level reaching 53.9, the highest since April. Perhaps more importantly, this was above expectations of 53.5, thus providing an unexpected surprise to the upside to kick off 2012.
December 15, 2011
In the most recent November employment survey, the unemployment rate fell significantly further than expected, to 8.6%. This seeming improvement, however, masks continued weakness in economic growth. Calls for a U.S. recession now seem premature, but, so too do calls for a return to robust growth.
December 8, 2011
This week’s chart depicts the intraday percentage change of the S&P 500 index over the trailing ten years. Several outlying events have been highlighted, however, we will focus on 2011.
December 2, 2011
This week’s Chart of the Week deals with the sovereign debt crisis in Europe. It is an update of a Chart of the Week from January, 2011 when yields on Portuguese bonds were trending towards 7% and there was much speculation in the market that Portugal was in need of a bailout package from the EU. Since then, Portugal received a bailout package from the EU and IMF and the fiscal situation in Italy has become the focus of attention in the markets.
November 22, 2011
This week’s chart analyzes job growth after the last four recessions by examining employment levels 60 months after the start of each recession. The data focuses on private employment, not government employment. Ellipses on the chart represent the end point of each recession, whereas squares represent the beginning of job growth.
November 18, 2011
This chart looks at the drop and recovery in real personal income during recessions over the last 50 years (personal income is shown as a percentage of the previous peak to look at prior recessions on an apples-to-apples basis).
November 9, 2011
SIFIs are financial institutions deemed large and complex enough that their failure would cause ripple effects throughout the financial system. This week’s chart shows CDS spreads on SIFIs of select countries. For countries with multiple banks on the list, the average CDS spread of available data is taken.
November 2, 2011
The Purchasing Managers Index (“PMI”) attempts to gauge the health of the manufacturing sector in a given economy. As securities markets around the globe fluctuate wildly trying to predict the future path of global economies, this general economic indicator is flashing warning signs.
October 26, 2011
Given the fourth quarter U.S. stock market performance to date, we have been asked if certain quarters have historically offered more positive performance. Based on S&P 500 data from 1926 through 3Q2011, the answer seems to be yes, as there does appear to be some persistency across the four quarters.
October 20, 2011
Generally speaking, the new orders component serves as an indicator of future demand, while the inventories component serves as an indicator of current supply. Comparing new orders to inventories helps to illustrate the supply/demand dynamic within the manufacturing sector, which in turn can help provide insight into future economic activity. When demand (i.e. new orders) is greater than supply (i.e. inventories), it’s a sign of future economic growth. When demand is less than supply, it’s a sign of future economic weakness.
October 13, 2011
Developed Europe has some tough economic challenges ahead. Italy and Spain just had their credit ratings downgraded putting further pressure on banks holding sovereign debt from the PIIGS nations. While Greece may not be saved from default, European leaders have indicated their commitment to not let its major institutions fail without a fight.
October 5, 2011
With the global equity markets moving every day on the latest news of the European debt crisis - specifically the Euro-zone's handling of the Greek crisis - it is important to understand banks’ actual exposure levels (direct and indirect) to Greek debt. Direct exposure entails the outright holding of Greek promissory notes, while indirect exposure comprises derivative contracts, extended guarantees, and credit commitments.
September 28, 2011
Wild uncertainty in the equity markets coupled with European debt concerns have driven U.S. Treasury yields to all-time lows, and left income-driven investors searching for alternative sources of yield. While bonds will always serve as major component of an income-driven portfolio, the overarching low yield environment has led investors to look beyond the traditional sources of return.
September 22, 2011
Corporate profits as a percentage of employee compensation reflect the after tax profits of companies compared to the total compensation provided to American workers. As this percentage increases, corporate profits are increasing relative to employee compensation.
September 15, 2011
Since 1980 the three most volatile cyclical components of GDP have been “change in private inventories”, “fixed investment in non residential structures”, and “fixed investment in residential structures”. While these three categories make up only 8% of GDP, they have historically accounted for almost 60% of any negative change in GDP during a recession.
September 8, 2011
Since the 1980’s until the most recent recession, the U.S. maintained relatively stable GDP growth. However, this growth was not evenly apportioned. During this time, income inequality increased, and labor’s share of output declined.
August 31, 2011
This week’s COW takes a look at the Volatility Index (“VIX”), defined by the CBOE as the measure of short-term stock market volatility conveyed by S&P 500 option prices. It is also known as the “markets fear index”, as VIX tends to rise when markets are falling. Although the VIX has been extremely volatile since the Financial Crisis of 2008, we chronicle the events of the last two months in an effort to further illustrate the dramatic equity market movements of summer 2011.
August 24, 2011
This week’s chart looks at the amount of excess reserves banks are holding at the Federal Reserve (orange line) along with the corresponding changes to the Federal Reserve’s balance sheet (black line). As of the end of July 2011, banks are holding over $1.6 trillion in excess reserves, which is notably higher than what historical averages would suggest. This has led some market commentators to worry about inflation escalating as banks begin to lend out those assets (note that overall loans and leases issued by commercial banks, as represented by the red line, have fallen since the Financial Crisis of 2008 – 2009).
August 17, 2011
With the dramatic movements in the stock market over the last few weeks, we feel it is important to look at the underlying sectors of the market to see how they are performing relative to one another and the market as a whole. This week’s chart examines the S&P 500 Index’s implied correlation as well as correlations among the various S&P 500 sectors.
August 10, 2011
This week’s chart examines the frequency and magnitude of market corrections in the U.S. equity market, as measured by the S&P 500 Index. A market correction is defined as a decrease of 10% or more within one calendar year.
August 3, 2011
This week’s Chart of the Week compares growth in nonfarm payrolls to real GDP growth. The year over year change in nonfarm payrolls (i.e. jobs created or lost) is plotted on the left axis, and year over year real GDP growth is plotted on the right axis. As the chart shows, job growth is highly correlated to GDP growth.
July 28, 2011
The Bureau of Labor Statistics (BLS) release of the U.S. unemployment rate each month generates a significant amount of attention; however, this headline number provides only a static view on the health of the labor market. Since reaching a high of 10.1% in October 2009, the unemployment rate is currently 9.2% through June 2011 and remains at elevated levels following the “Great Recession” of 2007-2009.
July 20, 2011
For all the press coverage of rising gold and oil prices, commodity prices during the first half of 2011 showed a tremendous degree of dispersion across different sectors. Silver saw the greatest increase in value as it rose by more than 12%, but wheat fell by more than 26%, thus creating a spread between best and worst of almost 40%.
July 14, 2011
With the August 2nd deadline fast approaching investors are increasingly wondering whether the U.S. might actually default on its debt obligations. In an effort to gain some insight into what the market is expecting, this chart looks at the pricing of Credit Default Swaps (CDS) on U.S. Government debt over the last year.
July 6, 2011
This chart depicts the ratio of U.S. exports of goods and services over U.S. imports of goods and services going back to 1960. This measure only looks at goods and services and does not factor in income receipts & payments with other nations.
June 29, 2011
There has been much discussion over the past several months regarding increasing the debt limit. Currently, the Treasury Department projects that the U.S. will exhaust its borrowing authority under the current debt ceiling on August 2, 2011. If politicians cannot come to an agreement in the coming weeks, the government could default on its legal obligations.
June 23, 2011
As many commentators have pointed out, over the past two years the BarCap Aggregate has seen a large increase in its benchmark allocation to treasuries. Since December 2008, treasuries as a percentage of the Agg have grown from 21% to 33%. This highlights a drawback of any bond benchmark based on issuance.
June 15, 2011
In an attempt to stimulate economic growth, the Federal Reserve (the “Fed”) has used multiple monetary policy tools in the past few years: reducing short-term interest rates to virtually zero, introducing numerous facilities to stabilize specific areas of the market, and implementing quantitative easing (“QE”) programs.
June 8, 2011
Last week’s chart addressed the increase in IPOs during 2011. In addition to the number of companies coming to market, the returns of these companies post-offering can also serve as an important metric.
June 2, 2011
As LinkedIn’s highly successful IPO commanded lofty valuations and headlines across the financial press, commentators began drawing parallels to the hot IPO market that preceded the tech collapse at the end of the last decade. Although it has likely been ten years since a new company listing has generated so much buzz, the state of the equity IPO market in the U.S. has a long way to go before reaching the levels seen in the late 1990’s.
May 25, 2011
There has been much discussion in the media about the improving conditions of the U.S. housing market. As the graph through April 30, 2011 indicates, the rate of new foreclosures is decreasing, the rise in number of significantly delinquent loans has tapered off, and residential construction spending appears to have bottomed out.
May 16, 2011
The Taylor rule, proposed by John Taylor, is a formula for determining the target Fed Funds rate. In the Taylor Rule, the Fed Funds rate baseline is set to the target nominal rate (target real rate plus target inflation), and then adjusted based on economic conditions. The rule states that the Fed Funds rate should be raised when inflation is higher than target inflation (“Inflation Gap”), and lowered when economic output is lower than potential output (“Output Gap”).
May 6, 2011
This chart illustrates the top ten holdings for the three indices that give investors broad exposure to the U.S. (S&P 500), Non-U.S. Developed Markets (MSCI EAFE) and Emerging Markets (MSCI Emerging Markets). The chart shows the market caps of each of the ten largest companies in the index and are listed from the largest weights (at the bottom) to the smallest weights (at the top).
April 28, 2011
The U.S. economy has strengthened substantially over the past several quarters, and at some point the Fed will have to begin removing excess liquidity and end the special programs it created to support the economy during the crisis. With the Federal Reserve’s second round of quantitative easing (QE2) set to expire in June, there has been much speculation about what will happen once QE2 comes to an end, and when the Fed will begin tightening monetary policy.
April 20, 2011
In aggregate, public pensions are approximately 75% funded (down from a high of 103% in 2000), but there is a great degree of dispersion of funding ratios on a state by state basis.
April 14, 2011
While the U.S stock market enjoyed an upward trajectory over the past 18 months, the U.S. housing market continues to experience its ups and downs. Enacted in the beginning of 2009, the American Recovery and Reinvestment Act provided a tax credit to home buyers. At the time, U.S home sales were in a freefall, but this credit helped reignite the market.
April 6, 2011
Although the broad economy has grown steadily since the beginning of 2009, the construction sector remains mired in a state of recession. Construction employment peaked at the end of 2006 as the housing bubble began its collapse. Currently, the unemployment rate of the construction sector stands at 21.8%.
March 30, 2011
As investors raise questions surrounding the prospects of both stocks and bonds as we head into the Summer, a useful exercise can be looking at the historical valuation of the two asset classes in relation to one another. A variation of Dr. Ed Yardeni’s Fed’s Stock Valuation Model can be used as a simplistic gauge of the relative valuation between the two asset classes.
March 23, 2011
The Fed recently completed its latest stress tests on banks. Based on the results, many banks were given the green light to increase dividend payouts as well as announce share buybacks. With this in mind, our chart of the week looks at the charge off rates and delinquency rates of loans at all commercial banks.
March 16, 2011
Over Monday and Tuesday of this week the Nikkei 225 (major Japanese stock market index) fell 16.1% – dropping from 10,254.43 on March 13th to close at 8,605.15 on Tuesday.
March 9, 2011
This week’s Chart of the Week shows the percentage changes in the Consumer Price Index and Unit Labor Costs (the average cost of labor per unit of output) since 1950.
March 2, 2011
This week's chart examines the peak employment level (total number of people working in the U.S. labor force), along with the time taken to return to that peak level after a recession.
February 23, 2011
As commodity prices around the globe continue their steady march upward, convention would suggest that inflation in the U.S. isn’t far behind. However, as many developing nations have already felt the sting of rising costs, inflation in the U.S. remains largely absent.
February 17, 2011
This week’s chart shows the relative economic size (measured as a percentage of U.S. GDP) of the top nine countries during each time period compared to the U.S. economy.
February 9, 2011
This week’s charts show the cumulative outperformance of the two Fama-French Factors, SMB and HML.
February 2, 2011
On Tuesday, February 1, the Dow Jones Industrial Average (“Dow”) closed above 12,000 for the first time in two and a half years; the index was last above 12,000 on June 19, 2008.
January 26, 2011
This week’s Chart of the Week compares inflation expectations (measured by the breakeven rate) with oil prices, to see if there really is a strong correlation between the two values.
January 19, 2011
"Jobs" and "unemployment" have garnered a lot of attention during this economic recovery, mostly because the headline numbers have been disappointing.
January 12, 2011
This week’s Chart of the Week deals with the sovereign debt crisis in Europe.