The only true wisdom is in knowing you know nothing.
Slow Economic Growth Matched by Slow Rise in Rates BLACK ROCK –
- A wealth of economic data continues to suggest that U.S. growth is improving, but that the economy has real issues.
- One beneficiary of the prevailing environment has been corporate earnings, which have helped keep stock prices rising.
- Investors should beware asset classes such as Treasuries, TIPS, gold and some segments of the stock market.
- A string of economic data was released last week and pointed to the same trend that has been in place for some time—the U.S. economic recovery is uneven, but it is underway. Investors took the economic data in stride, and stocks climbed modestly for the week, with the Dow Jones Industrial Average advancing 0.9% to 15,791 and the S&P 500 Index rising 0.5% to 1,770. The Nasdaq Composite was down fractionally to 3,919. In fixed income markets, Treasury yields rose as prices correspondingly fell (with the 10-year Treasury moving from 2.62% to 2.75%), largely due to growing speculation that the Federal Reserve would soon announce its long-awaited plans to begin tapering its asset-purchase program.
- We saw a trifecta of important economic reports last week, with third-quarter gross domestic product (GDP) figures, the Institute for Supply Management Survey and October’s jobs report all coming through. The common theme across all three was that the U.S. economy is improving, but remains troubled by the long-term structural problems of slow wage growth, weak consumption and a shrinking labor force.
- The headline numbers were impressive, with the economy unexpectedly accelerating to a 2.8% growth rate in the third quarter and with a higher-than-expected 204,000 new jobs created last month. A look behind the numbers, however, showed some troubling signs. Much of the acceleration in growth last quarter can be attributed to a temporary buildup in inventories. And both the GDP report and the jobs report painted a picture of an economy that is not creating jobs fast enough to put any real upward pressure on wages—a fact that is hurting consumer spending.
- While the dynamic of modest growth and stagnant wages is not benefitting many households, it is proving to be a boon for corporate earnings. We’re well into the third-quarter earnings season, and so far we’ve seen almost 75% of companies beat earnings estimates, while just over half have experienced better-than-forecasted sales. In other words, while only about half of the companies have been able to beat their top-line forecasts, many more have delivered impressive bottom-line results—thanks in large part to slow wage growth. This strong trend in corporate earnings has been a key factor in supporting this year’s rally in stocks. We believe this can continue into 2014, although higher rates suggest that any gains are likely to be accompanied by more volatility.
- Looking ahead, we would expect the current dynamics—slow but improving growth, muted spending, low inflation, and a slow grind higher in real interest rates—should persist at least into early 2014. We would be most cognizant of that last factor when thinking about portfolio construction. While we do not expect interest rates to rise quickly or dramatically, we do think they are headed higher, which would represent a significant obstacle for certain asset classes.
· Improving Economic Data Sends Stock Prices, Bond Yields Higher
· Significant Structural Problems Remain for the U.S.
· Corporate Profits Are Soaring—Good News for Stocks
· Beware Asset Classes Tied to Rising Real Rates
As such, we would suggest investors underweight those areas of the market that are most sensitive to increases in interest rates. U.S. Treasuries and TIPS would be at the top of that list, but stocks that serve as proxies for the bond market and gold also warrant some caution. For stocks, we’re thinking specifically of the consumer staples and utilities sectors. Both came under pressure on Friday when bonds sold off, a not-uncommon trend. As for gold, we believe the precious metal has a place in investors’ portfolios, but an environment of rising real rates tends to be a headwind for gold. Since late October, for example, real rates have climbed roughly 20 basis points, and at the same time, gold prices dropped approximately 4% to 5%.
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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 firstname.lastname@example.org 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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