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U.S. Data Release- NFIB Small Business Optimism Index

by Sergio Mariaca on Jan 12, 2016 12:45:43 PM |Share:

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Data Release: Small business optimism gains some ground in December

  • The NFIB’s small business optimism index rose 0.4 points to 95.2 in December – recovering some of the ground lost in the prior month. Despite this, the index remained more than 5 points below the year-ago level.
  • Looking beneath the headline print, the details of the report were mixed. Six of the ten subcomponents rose on the month, three declined and one remained unchanged.
  • Expectations about an improvement in the economy and higher real sales typically move in the same direction, but they diverged markedly in December, with the former shedding 7 points and the latter gaining 9 points on the month.
  • Labor market indicators were broadly encouraging with plans to increase hiring gaining 3 points and the share of firms with 'positions not able to fill' up 1 point – both remain near post-crisis highs. Moreover, the net share of firms planning to raise worker compensation remained unchanged for the second consecutive month at 20% – the highest level since 2006.

Key Implications

  • Today's data release provides a complete picture for 2015, with average small business confidence up half a point from the prior year. Small business confidence should continue to improve over the next year as businesses see the benefit of lower energy costs and an improving domestic economy.
  • Most encouragingly, labor market subcomponents are chiming the same tune as the payrolls reports. Small businesses are not only looking to increase employment, but also worker compensation. This sends a reassuring signal to the Fed in support of the gradual tightening cycle with the next hike expected to come as early as March.

 

 

DISCLAIMER

This report is provided by TD Economics.  It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes.  The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.  The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs.  The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete.  This report contains economic analysis and views, including about future economic and financial markets performance.  These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties.  The actual outcome may be materially different.  The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.

2011 Review: Economy & Markets 1/11/2012

by Sergio Mariaca on Jan 11, 2012 12:29:00 PM |Share:

Economic recap economy us economy investment management wealth management

The past year reminded investors that they should hope for the best, prepare for the worst, and be thankful when reality does not match their fears. Investors entered 2011 with hopes that the world economy would continue recovering from a long and painful deleveraging process. Equity markets had posted two straight years of positive performance, central banks remained committed to pro-growth monetary policy, and major developed nations were focused on reducing debt.

By mid-year, however, optimism faded as troubling events around the world dominated headlines. The devastating earthquake and tsunami in Japan, political unrest in the Middle East, rising oil prices, a US credit downgrade, the threat of another global recession, and an escalating debt crisis in Europe weighed heavily on markets. As stock market volatility returned to global financial crisis levels, investors faced a major test to their discipline and staying power.

Although US stocks experienced some of the highest volatility in years, the broad US market delivered flat performance in 2011. Developed markets logged negative returns, and emerging markets had mixed performance, with most countries also underperforming the US. The bright spots were in the fixed income arena, where a flight to quality triggered by the euro debt crisis and US credit downgrade boosted returns on US government securities, inflation-protected securities, and municipal bonds.

describe the image

The above headliner graph features some of the year’s most highly publicized events in the context of the Russell 3000 Index, a broad indicator of US stock market performance. These events are not offered as an explanation of market performance, but as an illustration that a volatile news environment can challenge even the most disciplined long-term investors.

The World Stock Market Performance chart below offers a snapshot of global stock market performance, as measured by the MSCI All Country World Index. Actual headlines from publications around the world are featured. Again, these headlines are just a sample of events during the year.

 describe the image

Throughout the year, investors could find a host of reasons to avoid stocks and wait for more positive news before returning to the market. As these select headlines suggest, determining the right time to invest is a difficult task since the market anticipates news and quickly factors in new information.

The Year in Review

In 2011, global diversification proved as important as ever. Although diversification may not have prevented losses, investors with broadly diversified portfolios were better equipped to endure the uncertainty. Major themes during the year included:

European Debt Problems

The sovereign debt crisis intensified as European authorities struggled to avert a Greek debt default and alleviate fiscal pressures in Italy and France. But these restructuring attempts fell short of market expectations, which spooked investors and raised concerns of additional sovereign debt downgrades and a possible breakup of the Eurozone. The crisis also hurt European banks holding large positions in sovereign debt. To avoid losses, leading institutions reduced lending and dumped assets, which depressed asset values. Higher borrowing costs in the most indebted countries, combined with reduced government spending and revenues, raised more concerns that the Eurozone was entering a recession in late 2011.

Economic Uncertainty

Since the global financial crisis in 2008, central banks and governments have taken bold measures to fuel business activity and stabilize financial markets—and investors have eagerly awaited signs that economic recovery has taken hold. The economic signals continued to be mixed in 2011. Favorable US news included strong corporate profits and dividends, substantial levels of cash on corporate balance sheets, low interest rates and inflation, a booming domestic energy sector, continuing strength in auto sales, record-high share prices for some multinationals, and improved fourth-quarter numbers in manufacturing, exports, consumer confidence, and employment. Pessimists could point to the longstanding jobless trend, slumping home prices, tepid growth in retail sales, worrisome levels of government debt, and political gridlock at both the national and state levels.

Although emerging economies showed resilience, investors were concerned that another recession in Europe would impact its trading partners in emerging economies—and particularly in China, where high inflation and a manufacturing slowdown threatened to send its previously fast-growing economy into recession.

Rising Volatility

Investors in US equities had to endure a heavy dose of uncertainty for their moderate gains. The S&P 500 Index reflected this volatility by closing up or down over 2% on thirty-five days in 2011, compared to twenty-two days in 2010. By contrast, before the global financial crisis, the index did not have a single day with a 2% or more movement in 2005, and only two days in 2006.

Market observers also documented higher correlations among individual stocks and between asset classes. In 2011, there were sixty-nine days in which 90% of the S&P 500 stocks moved in the same direction, which is more than the combined total for 2008 and 2009. Higher correlations are common during periods of uncertainty, as macroeconomic forces overshadow the impact of a company’s business fundamentals on its stock price.

Falling Commodity Prices

In early 2011, commodities soared with expectations of improving economic growth around the world. Copper, cotton, and corn hit all-time highs in the first half of the year. Crude oil experienced double-digit returns in response to anticipated higher demand and threats of supply disruptions tied to political unrest in the Middle East. The Dow Jones-UBS Commodity Index peaked in April, then fell 20% as the global economic outlook faded. The index returned -13% for the year—its first negative return since 2008. The most notable exception was gold, which set more records in 2011 and peaked at $1,888.70 per ounce in August before declining in the fourth quarter to return about 10% for the year.

Investor Risk Aversion

The fragile world economy made markets particularly vulnerable to shifting investor sentiment. During the year, investors reacted to uncertainty by moving to asset classes they deemed more stable, including large cap stocks and government bonds. Despite the Standard & Poor’s downgrade of the US credit rating in early August, investors fled to US government securities as concerns mounted over the sovereign debt crisis in Europe and political stalemate over the US debt ceiling.

2011 Investment Overview

Most global equity investors experienced negative returns in 2011. After a strong first-quarter start, developed equity markets grew more volatile in response to discouraging news on the economy and sovereign debt crisis. Despite a brief rebound in July and during the fourth quarter, most equity markets logged negative performance for the year.

The US stock market was one of the few developed markets to experience positive returns. The S&P 500 logged a 2.11% gain (dividends reinvested), and the Russell 3000 returned 1.03% for the year. Despite strong returns in the fourth quarter, developed and emerging markets logged negative returns, with forty of the forty-five countries that MSCI tracks posting losses. The MSCI World ex USA Index returned ­12.2% and the MSCI Emerging Markets Index returned ­18.4% for the year. Ireland and New Zealand were the only developed markets besides the US to end the year in positive territory, and Greece was by far the worst performer. Indonesia and Malaysia were the only emerging markets that ended the year with positive returns, and Egypt was the worst performer.

The US dollar fluctuated but finished about 3% above where it started against most developed-market currencies. It sharply appreciated against the main emerging market currencies, especially against the Indian rupee and the Brazilian real. This relative strength negatively impacted dollar-denominated returns of emerging market equities. The euro remained stable during the year even as analysts began predicting the dissolution of the currency zone, and the Japanese yen and the Australian dollar both gained against the US dollar.

Along the size dimension, large caps outperformed small caps in the US, non-US developed, and emerging markets. Value stocks underperformed growth stocks in the US, but mostly outperformed growth among emerging markets and had mixed results in developed markets.

In the fixed income arena, US intermediate-term government securities and TIPS performed exceptionally well, returning over 9.4% and 14.5%, respectively. Real estate securities in the US had strong positive returns and excellent performance relative to other US asset classes; in other developed markets, REITs had sharply negative returns but still managed to have good performance relative to other asset classes.

 

Russell data copyright © Russell Investment Group 1995-2012, all rights reserved. Dow Jones data provided by Dow Jones Indexes. MSCI data copyright MSCI 2012, all rights reserved. S&P data provided by Standard & Poor’s Index Services Group. The Merrill Lynch Indices are used with permission; copyright 2012 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. Citigroup bond indices copyright 2012 by Citigroup. Barclays Capital data provided by Barclays Bank PLC. Indices are not available for direct investment; their performance does not reflect the expenses associated with the management of an actual portfolio. 
Past performance is no guarantee of future results. This information is provided for educational purposes only and should not be considered investment advice or a solicitation to buy or sell securities.
 

 

 

 

 

Third Quarter - Economic Update 11/30/2011

by Sergio Mariaca on Oct 1, 2011 1:00:00 PM |Share:

Economic recap economy us economy

 

Stock markets had a turbulent quarter amid investors’ growing despair about political efforts to deal with the monumental challenges facing the world economy. The Dow Jones Industrial Average ended the quarter down 12%, its worst percentage decline since the first quarter of 2009. The Standard and Poor’s 500 Index suffered an even bigger 14% decline. The damage was much worse in Europe, where the French and German stock indexes both lost more than 25% of their value. Asian stocks also took a pounding, suffering losses into the double digits as well. Hong Kong’s index, for example, lost about 21%. (Source: WSJ, October 3, 2011 – Spooked Investors)

This was caused primarily by investor anxiety—Europe is in a debt crisis, the U.S. is flirting with a double-dip recession, and fast-growing economies around the world, such as China, are slowing down. Many investments, from U.S. stocks to crude oil to even some emerging market currencies, had the worst quarter since the collapse of Lehman Brothers in 2008. Like 2008, many investors are worried about the health of banks (this time primarily in Europe) and have lost confidence in the system. Financial stocks were among the hardest hit during the quarter, with many banks falling 25% or more. Many Wall Street strategists have reduced their forecast for growth and company earnings for the rest of the year. (Source: WSJ, October 1, 2011 – Stocks Log Worst Quarter)

The difficulties lasted throughout the quarter—when the market might have wanted to go higher, something always seemed to come along and knock it down. This onslaught of bad news, along with occasional flashes of optimism, led to one of the most volatile periods ever for stocks. The Dow moved by more than 200 points 18 times during the quarter. In August, it swung more than 400 points in 4 consecutive days! Many markets were tossed up and down on a daily—even hourly—basis by the latest news from Washington or the European capitals. In August and September, the Dow rose or fell by more than 1% on 29 days and there were 15 days with final moves of more than 2%. (Source: WSJ, October 1, 2011 – Stocks Log Worst Quarter)

Unfortunately, there are many signs globally that do not appear very favorable. Leading indicators for the world economy—such as China’s stock market, copper prices and crude oil—have tumbled. Here at home, economic data in July showed the U.S. recovery was slowing considerably, and policymakers in Washington took the country to the brink of default in early August due to the debt ceiling problem. Standard and Poor’s downgraded the U.S. credit rating, sparking a rush out of U.S. stocks, while Europe’s debt troubles deepened. Many investors felt that the fate of the markets was in the hands of the politicians, which made risk management very difficult.

Although there wasn’t anything that specifically stated the U.S. economy was going into a recession, there weren’t any clear signs that the economy was returning to robust growth either. Many economists believe that we remain stuck in neutral. Job growth is anemic, at best, the housing market remains stuck, and the stock market still needs to recover. On
the other hand, consumer spending continued to remain at the same pace, and corporations continued their record profits.

There are many indicators that are causing many investors to be nervous:

  • Uncertainty about the economy’s slow spending.
  • Corporations have the cash, but are afraid to spend it.
  • Regulation is stifling the economy.
  • Europe is responsible for 27% of our exports. (Source: BTN, October 3, 2011)
  • Europe’s problems could cause significant negative consequences to the U.S.

For years, many investors have been trained that they need to invest in equities for growth. However, the magnitude of the market swings over the last 3 years is likely to have a lasting impact on investor psychology, especially those who may have sold out at the wrong time and missed some or all of the rebound. A recent post-recession survey found that protecting assets is now 5 times more important to Americans aged 55 and older than achieving higher returns. These investors realize that their portfolios may miss sizable growth opportunities from big market gains because they are not invested, but feel that they cannot afford to lose any more of their retirement savings.

Unfortunately, many people only had one thing in mind—safety! Many investors sold and raced for the exits and it is still unknown whether or not this was the wisest thing to do.

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