Economic and Market Perspective
A commentary on national and global economic trends written by our chief investment strategist, James Paulsen, Ph.D.
June 19, 2014 | Initial Unemployment Claims Take on a New Interpretation!?! For economists and investment managers there probably isn’t a more chronically important weekly report than the Thursday morning release of weekly initial unemployment insurance claims. Outside of the mark to market pricing data provided daily by the financial markets, the information content embodied in the weekly claims numbers provides an unrivaled regular assessment of economic health. Few other economic statistics are as timely or as closely associated with stock and bond performance than is movements in weekly unemployment claims. Indeed, it is not surprising that since early-2013, long-term bond yields have bottomed and the stock market has persistently risen coincident with weekly unemployment claims steadily declining from near 400K to about 300K.
June 13, 2014 | Is Capital Spending Finally Awakening? U.S. corporations have been criticized throughout this recovery for not spending their considerable cash hoards. As shown in Chart 1, after an initial recovery bounce from the 2008 recession, in the last three years, capital spending has been no better than sluggish overall nominal GDP growth.
May 19, 2014 | A Technician’s Tsunami Meets Main Street’s Momentum!Several financial market technicals have broken down in recent weeks amplifying investor anxieties. Although not a technician, I too am unnerved by the number of recent “breaks” in various financial markets. Are they a signal the stock market overall is about to suffer a correction or perhaps something worse? Will the growing “technical tsunami” eventually overwhelm this bull market? Or, is the other big elephant in the financial arena—ongoing and improving Main Street Economic Momentum—enough to quiet the recent technical market storm?
April 29, 2014 | Are Bonds Cruising for a Bruising?While bond yields seem mostly benign so far this year, investors should not be overly complacent about the potential for yields to rise significantly yet in 2014. Several forces are aligning which are darkening the environment surrounding the fixed income market. Indeed, we highlight 10 reasons why the 10-year Treasury yield may still near 4% this year suggesting recent bond market action may simply represent the calm before the storm. Are bonds cruising for another bruising in 2014?
April 10, 2014 | A Supplemental Valuation Metric for GrowthOne of the most popular valuation techniques used to assess growth stocks is the PEG ratio—a stock’s price-earnings (PE) multiple divided by its estimated long-term sustainable growth rate (LTG). Growth managers often muse over how cheaply they can buy growth (that is, what is the value of growth?). For example, “the stock sells at twice its growth rate” implies the PE is valued at double the company’s LTG.
April 2, 2014 | History Doesn’t Repeat … But Does it Rhyme???A somewhat interesting anniversary passed on March 31, 2014 with little fanfare. It is an anniversary which is intriguing rather than necessarily important but nonetheless noteworthy. As the enclosed chart illustrates, the contemporary bull market has been following the 1982 bull market fairly closely. As recently as last year-end, both bulls were up about 175% from their respective bear market lows! The important anniversary passed just a couple days ago was the 1274th trading day of both bull markets—the day on August 25, 1987 when the 1982 bull market reached a notable peak. On that day, the S&P 500 Index peaked for the year at 336.77. Moreover, we are now just 37 trading days from another important anniversary in financial history—October 19, 1987 when the S&P 500 Index suffered its biggest single day collapse ever!
