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3rd Quarter Market Update

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  • 3rd Quarter Market Update

    I write a weekly email and usually focus on topics where I try and break down boring financial topics and educate in a more interesting manner.  On a regular basis I just share the facts of the market.  I was writing my email for next week and thought I would share some interesting data based on 3rd quarter end.

     

    • All equity asset classes are positive for the year, except for Commodities, which is down 2.9% for the year.  The leading equity asset class is Emerging Markets at 28.1%.  Next in line at 20.5% is Developed Markets.

    • Large Cap Growth has led the way in US asset classes with a YTD return of 20.7%. Small Cap Value has been the laggard with “only” growth of 5.7%, but most of this came in the 3rd quarter.

    • Mid Cap Value has been the leader since the market low in March 2009 with growth of 428%.

    • Some of the drivers of GDP growth are lagging. They include working age population and immigration trends as well as the growth of real output per worker.

    • The probability of someone aged 65 making it to age 80 is 63% for men and 73% for women. Reaching age 90 is 22% for men and 34% for women.  Now, if they are a couple at age 65, the probability one of them makes it to age 80 is 90% and age 90 is 49%.

    • Here’s what happened to a 60% stock and 40% bond portfolio over the last 20 years. Just buying and holding, without rebalancing, grew an average of 6.6% annually.  By rebalancing annually the rebalanced portfolio saw annual growth of 7%.  The rebalanced portfolio also saw lower volatility and a higher risk-adjusted return.

    • The Treasury Spread recession indicator is at 10.3%. This looks forward 12 months.


  • #2
    Those life expectancy numbers are eye opening. How much of the general population actually has enough saved to live that long?

    Comment


    • #3
      Love the second to last bullet point to rebalance annually to improved risk adjusted returns over long term.  Do you happen to have any longer terms stats for that same equity/bond split over a period longer than 20 years, such as 40 or 50.  A 40 to 50 year timeframe would be more representative of a 'working career'?

      Comment


      • #4
        What do you make of the treasury spread (yield curve) as a recession indicator? Out of the many potential leading indicators that seems like an interesting one to be watching most closely? And what are you looking at in terms of look forward to months? Most of the research I am aware of is 10 year treasuries vs 2 years treasuries https://fred.stlouisfed.org/series/T10Y2Y

        Thoughts on this compared to unemployment rate, retail sales?

         

        Comment


        • #5




          What do you make of the treasury spread (yield curve) as a recession indicator? Out of the many potential leading indicators that seems like an interesting one to be watching most closely? And what are you looking at in terms of look forward to months? Most of the research I am aware of is 10 year treasuries vs 2 years treasuries https://fred.stlouisfed.org/series/T10Y2Y

          Thoughts on this compared to unemployment rate, retail sales?

           
          Click to expand...


          I think unemployment and retail sales are the best indicators when a moving average is applied, at least in the past and it makes a lot of fundamental sense as well.

          Comment


          • #6







            What do you make of the treasury spread (yield curve) as a recession indicator? Out of the many potential leading indicators that seems like an interesting one to be watching most closely? And what are you looking at in terms of look forward to months? Most of the research I am aware of is 10 year treasuries vs 2 years treasuries https://fred.stlouisfed.org/series/T10Y2Y

            Thoughts on this compared to unemployment rate, retail sales?

             
            Click to expand…


            I think unemployment and retail sales are the best indicators when a moving average is applied, at least in the past and it makes a lot of fundamental sense as well.
            Click to expand...


            That was my thought as well but I generally track all 3. I personally like 12 mo moving average unemployment rate > retail sales compared to 1 year ago > Yield Curve 10 year treasury - 2 year treasury going negative.

            Now how to use these is another discussion as it quickly leads one into market timing...

            Comment


            • #7
              My comments on some of the questions raised:

              • I would say a small percentage of people have enough saved to live that long but maybe that is why so many people are retiring to countries like Ecuador.  I came across a tool that projects how long you will live.  It is developed by an MD, so can you trust him 

              • I've never seen a rebalancing number that looks at 50 years.  Let me dig around some.

              • Here's the link I review monthly when it comes to the Yield Curve.  https://www.newyorkfed.org/research/capital_markets/ycfaq.html

              • Wages are running below the 50-year average. Light vehicle sales have dropped. New home starts are below average. Manufacturing inventory numbers seem to have flattened after rising. Real capital goods orders are increasing although they are still below the 20-year average.

              • The projected lower working population numbers concern me over the long-term.  More people = higher GDP.  Of course, unless the machines all take over and then only John Connor can save us.

              Comment


              • #8










                What do you make of the treasury spread (yield curve) as a recession indicator? Out of the many potential leading indicators that seems like an interesting one to be watching most closely? And what are you looking at in terms of look forward to months? Most of the research I am aware of is 10 year treasuries vs 2 years treasuries https://fred.stlouisfed.org/series/T10Y2Y

                Thoughts on this compared to unemployment rate, retail sales?

                 
                Click to expand…


                I think unemployment and retail sales are the best indicators when a moving average is applied, at least in the past and it makes a lot of fundamental sense as well.
                Click to expand…


                That was my thought as well but I generally track all 3. I personally like 12 mo moving average unemployment rate > retail sales compared to 1 year ago > Yield Curve 10 year treasury – 2 year treasury going negative.

                Now how to use these is another discussion as it quickly leads one into market timing…
                Click to expand...


                Yield curve is inconsistent and no longer just indicative of US economy as its a target yield for the ROW as well. Idk, but some say it might not invert because of the levels and those other reasons.

                Well, if your metrics come to showing that there may be a near term slowing that would imply something should be done. Some would say cash, bonds and others might even say a tactical momentum portfolio would be preferred. Thats at least what the post that discussed retail sales and unemployment suggested.

                Comment

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