Market and Economic Chartbook | February 1, 2024
- Stocks and bonds have both struggled recently due to rising inflation and interest rates.
- This breaks the historical pattern driven by falling bond yields which supported bond prices.
- Despite this challenging period, investors should continue to focus on diversification as interest rates stabilize.
- The economy slowed due to inflation and Fed tightening but the recession some anticipated has not materialized.
- Growth has been remarkably steady despite what many economists had feared.
- Unemployment is still near the lowest in over 50 years despite rising rates and broader economic challenges.
- Even the so-called under-employment rate has fallen to near-historic lows as jobs remain plentiful.
- The labor market remains strong despite higher rates, resulting in what many investors refer to as a so-called soft landing.
- CPI is a commonly cited measure of inflation. It uses a basket of goods and services to track price changes for consumers.
- In order to measure the underlying trend in inflation, rather than temporary shocks to food and energy economists often focus on core CPI.
- Price increases have been cooling but certain areas such as shelter remain high.
- The yield curve is still inverted due to the elevated level of Fed policy rates.
- The yield curve could begin to re-steepen as the Fed begins to cut rates in 2024.
- Long-term rates could also remain high or rise further if economic growth remains steady.
- Major central banks raised rates over the past two years to fight inflation, causing growth to slow.
- Balance sheets are also beginning to run down which could eventually push longer-term rates higher.
- Major stock market indices have taken very different trajectories over the past decade due to differences in growth.
- U.S. market valuations are elevated compared to other regions as it continues to outperform.
- International stocks, on the hand, are still cheaper in relative terms across both the developed and emerging world.
- Earnings growth and valuations are two important metrics when comparing regions and asset classes.
- The U.S. market is the most expensive due to its strong performance this year.
- Other international markets are still cheaper, especially emerging markets.
- Developed markets have trailed U.S. markets for over a decade despite improvements in some of their fundamentals.
- Over the past few years, these regions have struggled due to the pandemic, inflation, rising rates and geopolitical risks.
- The significant outperformance of U.S. stocks in prior years had led some investors to avoid other asset classes.
- There have been many historical periods when other asset classes outperformed. Diversification takes advantage of these trends.
- With cheaper valuations and global growth, it may be best to not overlook other regions.
Definitions and Methodology
The S&P 500 is a market capitalization-weighted index of large
cap U.S. stocks. U.S. mid cap and small cap are the S&P 400 and S&P 600, respectively. Value and growth are the corresponding Standard and Poor’s value and growth indices.
MSCI EM is and index of emerging market stocks. MSCI EAFE is an index of developed market stocks. MSCI ACWI is an index of global stocks.
The forward P/E is a ration of the current market price of an index divided by an estimate of earnings over the next twelve months. The Shiller P/E is based on Robert Shiller’s cyclically adjusted price-to-earnings ration.
The AAII Investor Sentiment index is based on a weekly survey conducted by AAII.
Unless stated otherwise, earnings and valuations data are from LSEG indices.
The LEI, or Leading Economic Index, is produced monthly by the Conference Board.
Consumer sentiment indices are based on surveys conducted by the University of Michigan Surveys of Consumers.
Asset Class Performance and Asset Classes Relative to U.S. Stocks charts: The EM, EAFE, Small Cap, Fixed Income and Commodities are these indices, respectively: MSCI EM, MSCI EAFE, Russell 2000, iShares Core U.S. Bond Aggregate, Bloomberg Commodity Index.
Fixed Income Performance: All sectors are represented by the Bloomberg Barclays bond indices except for EMD USD and Local which are JPMorgan EMBIG Diversified Index and JPMorgan GBI-EM Core Index, respectively.
The Balanced Portfolio is a hypothetical 60/40 portfolio consisting of 40% U.S. Large Cap, 5% Small Cap, 10% International Developed Equities, 5% Emerging Market Equities, 35% U.S. Bonds, and 5% Commodities.
The Bloomberg Commodity Index is a broadly diversified basket of physical commodities futures contracts.
The DXY is a U.S. dollar index based on a basket of currencies, including the Euro, Yen, Pound, Canadian Dollar, Swedish Krona and Swiss Franc.
Portfolio Risk/Reward and Portfolio Drift Since 2009 charts: stocks and bonds are the S&P 500 and iShares Core U.S. Bond Aggregate, respectively. Each portfolio represents a hypothetical stock/bond asset allocation.
The MSCI Factor indices are created and maintained by MSCI to capture factor returns. They cover various factors including Quality, Size, Momentum, Volatility, Value and Yield. The Multi-Factor index tracks the performance of Value, Momentum, Quality and Size.
The MSCI USA index tracks large and mid cap U.S. stocks.
Clearnomics Disclosures
Copyright (c) 2024 Clearnomics, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express of implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company’s stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security—including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.
