“Sarcasm helps keep you from telling people what you really think of them. “
The U.S. still appears to be growing at a sluggish rate of around 2%, with little evidence that we’ll be seeing a pickup any time soon. For stocks to continue to make gains, we likely need to see a continuation of the not-too-hot, not-too-cold “Goldilocks” economy that provides for modest growth, high profit margins, and an accommodative Fed.
Markets Breathe a Sigh of Relief
With the government shutdown ended and the threat of debt default avoided (for
now, at least), markets were able to digest corporate earnings releases and some
delayed economic reports. While the tone of the data was less than upbeat, investors
have been adopting a relatively optimistic stance and appear to be focusing on the
likelihood that slow economic growth will mean the Federal Reserve will keep
monetary policy accommodative for longer than previously expected.
This backdrop helped stocks rise for yet another week. For the week, the Dow Jones
Industrial Average advanced 1.1% to 15,570, the S&P 500 Index rose 0.9% to 1,759
and the Nasdaq Composite climbed 0.7% to 3,943. In fixed income markets, Treasury
yields continued to fall (as prices correspondingly rose), with the yield on the
10-year Treasury declining from 2.59% to 2.51%.
U.S. Economy Remains Stuck in Second Gear
With government agencies back to work, a bottleneck of economic data was released,
providing investors with some important clues as to how the U.S. economy will fare
as we head into the final months of 2013. The summary conclusion that can be
drawn from the data is that the U.S. still appears to be growing at a sluggish rate of
around 2%, with little evidence that we’ll be seeing a pickup any time soon.
The most important data set that was released was the delayed and long-awaited
September jobs report. The headline numbers were a bit disappointing, as the U.S.
created only 148,000 net new jobs, well below expectations and below the average
of around 180,000 from the first nine months of the year. The other data included
in the report also failed to show much in the way of improvement. Hourly earnings
are still growing at around 2%, well below the long-term average, while labor force
participation remains at 63.2%, a multi-decade low. The lone bright spot was the
unemployment rate, which fell to 7.2%, its lowest level since late 2008.
Other measures of economic activity painted a similar picture of anemic growth.
While durable goods orders for September saw a dramatic increase of nearly 4%, it
was skewed by a sharp rise in aircraft orders. In many sectors, capital goods
orders have been quite weak—a trend confirmed by last week’s announcement by
Caterpillar, the largest manufacturer of construction and mining equipment, that it
was cutting its 2013 sales forecasts.
While the U.S. economy is not currently in danger of slipping back into recession,
neither is it accelerating. The government shutdown and budget battles certainly
did not help matters. The drama undermined business confidence, which in turn
dampens hiring, and we also saw consumer confidence drop to a nine-month low.
Fed Accommodation Likely to Persist
Interestingly, the trend of weak economic data does not appear to be bothering
investors, who are continuing to bid stock prices higher. Flows into stock funds
jumped last week, with significant inflows moving into U.S. funds.
As we alluded to earlier, much of this optimism can be attributed to the fact that
investors are expecting the Federal Reserve to hold off on tightening monetary
policy. Specifically, investors and economists are pushing back expectations for
when the Fed will begin to taper (i.e., when the central bank will begin to reduce
its asset purchases), as well as the likely date when the Fed will begin to increase
short-term rates. This has also had the effect of reducing longer-term expectations
for interest rates. As recently as a few months ago, many were expecting rates to
rise dramatically late this year and early next year, but those expectations have
since been softened.
Stocks Can See Further Gains in a Slow Growth/Low Rates World
For investors, there are a couple of takeaways from all of this. The first is that
interest rates are likely to remain range-bound for the coming months (or at least
until economic data surprises to the upside). The second is that while a more
benign rates environment should be good news for stocks, equity markets will
have to manage a delicate balancing act. If the economy stalls further, corporate
earnings estimates will likely be reduced, which would hurt stocks. In contrast,
however, an acceleration in economic growth would reignite concerns over the
potential for interest rate increases.
Put another way, for stocks to continue to make gains, we likely need to see a
continuation of the not-too-hot, not-too-cold “Goldilocks” economy that provides
for modest growth, high profit margins, and an accommodative Fed.
This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of October 28, 2013, and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. International investing involves
additional risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.
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Walter Unger CCIM, CCSS, CCLS
I am a successful Commercial Investment Real Estate Broker in Arizona now for 15 years and I worked with banks and their commercial REO properties for 3 years. I am also a commercial landspecialist in Phoenix and a Landspecialist in Arizona.
WHETHER YOU LEASE OR OWN
NOW IS THE TIME FOR YOU TO EXPAND, UPGRADE OR INVEST.
we are at on the a rise of the cycle in Commercial Real Estate. so there is only one way and it’s called we are going up and now is the time for you to expand, upgrade or invest in Commercial Properties in Phoenix. The prices on deals I may get you will not be around forever.
WAITING TO SELL YOUR LAND ? TIMES CHANGE / IT’S TIME
We barely could give land away the last few years, but times are changing. Even in those meager years, I sold more land across the state than most other brokers. Before the real estate crash I was a land specialist in Arizona with millions of dollars of transactions, but then I had to change and also sell other commercial investment properties, which was fun, but I am a Commercial Landspecialist in Arizonal, a Commercial Land Specialist in Phoenix and love to sell land, one acre to thousands of acres.
If you have any questions about Commercial Investment Properties in Phoenix or Commercial Investment Properties in Arizona, I will gladly sit down with you and share my expertise and my professional opinion in Commercial Properties in Phoenix or Commercial Properties in Arizona with you.Obviously I am also in this to make money, but it could be a win-win situation for all of us.
Please reply by e-mail email@example.com or call me 520-975-5207 (cell) 602-778-5110 (office direct).
Walter Unger CCIM
Kasten Long Commercial
2821 E. Camelback Road, Suite 600
Phoenix, AZ 85016
Office : 602-445-4141
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