The Economic Insights Channel

Quarterly Letter

Despite another interest rate hike in June by the Federal Reserve that raised the target federal funds range to 1.75-2.00%, along with plenty of increased tariff talk and (some) implementation by the Trump administration, the investment world was relatively calm in the second quarter of 2018.

Charts for the beach - 2018

Don’t leave home without your summer essentials: sunglasses, sunscreen, towel and RBA’s Charts for the beach.

June Jobs Report: 157K New Jobs, Unemployment Rate at 3.9%, Worse Than Forecast

This morning's employment report for July showed a 157K increase in total nonfarm payrolls, which was worse than forecasts. The unemployment rate decreased to 3.9%. The Investing.com consensus was for 193K new jobs and the unemployment rate to drop to 3.9%.

ISM Non-Manufacturing: Continued Growth in July, at Slower Rate

The Institute of Supply Management (ISM) has now released the July Non-Manufacturing Purchasing Managers' Index (PMI), also known as the ISM Services PMI. The headline Composite Index is at 55.7 percent, down 3.4 from 59.1 last month. Today's number came in below the Investing.com forecast of 58.6 percent.

Markit Services PMI: Business Activity Remains Strong, but Softens in July

The July US Services Purchasing Managers' Index conducted by Markit came in at 56.0 percent, down 0.5 from the final June estimate of 56.5. The Investing.com consensus was for 56.2 percent. Markit's Services PMI is a diffusion index: A reading above 50 indicates expansion in the sector; below 50 indicates contraction.

The Latest Look at the Total Return Roller Coaster

Here's an interesting set of charts that will especially resonate with those of us who follow economic and market cycles. Imagine that five years ago you invested $10,000 in the S&P 500. How much would it be worth today, with dividends reinvested but adjusted for inflation? The purchasing power of your investment has increased to $19,357 for an annualized real return of 13.28%.

The S&P 500, Dow and Nasdaq Since Their 2000 Highs

This update is in response to a standing request for real (inflation-adjusted) charts of the S&P 500, Dow 30, and Nasdaq Composite. Here are two overlays — one with the nominal price, excluding dividends, and the other with the price adjusted for inflation based on the Consumer Price Index for Urban Consumers (which is usually just referred to as the CPI).

Market Remains Overvalued

Here is a summary of the four market valuation indicators we update on a monthly basis.

  • The Crestmont Research P/E Ratio
  • The cyclical P/E ratio using the trailing 10-year earnings as the divisor
  • The Q Ratio, which is the total price of the market divided by its replacement cost
  • The relationship of the S&P Composite price to a regression trendline

Market Valuation, Inflation and Treasury Yields: Clues from the Past

Our monthly market valuation updates have long had the same conclusion: US stock indexes are significantly overvalued, which suggests cautious expectations on investment returns. In a "normal" market environment -- one with conventional business cycles, Federal Reserve policy, interest rates and inflation -- current valuation levels would be a serious concern.

But these are different times.

Is the Stock Market Cheap?

Here is the latest update of a popular market valuation method using the most recent Standard & Poor's "as reported" earnings and earnings estimates and the index monthly average of daily closes for the past month.

Value Still Waiting for a Catalyst

Value continues to look cheap, however predicting when it will begin to outperform is challenging. Russ suggests one potential catalyst: an unexpected acceleration in nominal economic growth.

A Look Back at the Markets in July and Ahead to August

As we begin August, let’s take a look back at the markets in July, plus what to expect in the month ahead.

Weekly Unemployment Claims: Up 1K from Last Week, Beats Forecast

This morning's seasonally adjusted 217K new claims, up 1K from the previous week's unrevised figure, was below the Investing.com forecast of 220K

Waiting for September

The Federal Reserve made no changes to monetary policy today and it barely changed the language of its statement. That makes sense to us because we haven't changed our outlook for monetary policy or the economy, either.

A Closer Look at Today's ADP Employment Report

In this morning's ADP employment report we got the July estimate of 219K new nonfarm private employment jobs from ADP, a decrease over June's 213K. The popular spin on this indicator is as a preview to the monthly jobs report from the Bureau of Labor Statistics. But the ADP report includes a wealth of information that's worth exploring in more detail.