The late Madame Marie of Asbury Park would have tried to convince you that tarot cards and tea leaves provided a degree of insight into the future of all things, including the stock market. Personally, for the stock market I would suggest you use data related to the health of the economy instead.
While not perfectly correlated, the economy and the financial markets are intertwined, meaning the economy’s cyclic behavior will play a key role in determining a successful investment strategy.
Data regarding the economy’s health is not hard to obtain. We are continually bombarded with a prodigious stream of economic news, reports and statistics. The problem is to distill out the information that is salient to making profitable investment decisions.
Investors often utilize so-called “expert opinion” to capsulize economic information. However, it should come as no surprise that many experts could have a self-serving motive. While their credentials are often impeccable at first blush, they also understand where their employers’ profits are coming from.
Government economists are in a similar position. They are charged with advising an administration on economic matters. Should they then be faulted for defending the administration’s resulting economic programs and policies?
After all, it wasn’t too long ago that the consensus seemed to be that the current rally was headed for a bad end, sending markets back to lower numbers due to the coronavirus coming out of China.
Yet, the S&P 500 has done well up until recently. And you would think that to a great degree the voices of doom would have gone mute. To the contrary: Calls have continued as they sought refuge in the debacle brought about in part by groups such as r/wallstreetbets, also known as WSB.
Speculators, as opposed to investors, saw an opportunity to make themselves rich quickly for the market to claim new highs. There can only be one ending, despite some rooting for those that are causing consternation to major short sellers.
From an investment perspective, you are probably best advised to view most prognostications with a degree of skepticism, as you balance them against your personal judgment as to what the future portends. Always keep in mind the four key attributes of any financial or economic indicator: relevancy, timeliness, availability and stability.
For example, the most widely watched indicator for measuring inflation is the Consumer Price Index (CPI). Every month the Labor Department samples the prices of items that make up a representative basket of goods. A change in the prices of these goods will move the index up or down.
The consumer-price index rose 0.4% in December compared with November. From all of 2020, the index rose 1.4 percent. This is supporting evidence that the Fed will likely continue to hold to its stated position of keeping interest rates unchanged for the remainder of this year and possibly into 2022, as they have stated on at least two recent occasions.
Little discussed is that by maintaining public confidence that inflation will remain under control is a critical aspect to keeping prices contained.
So, what about the current unemployment level? Is there an effect? A paper by the San Francisco Federal Reserve concluded that the rate of unemployment is all but irrelevant to the trajectory of inflation.
That research could be important to the Fed’s thinking on interest rates. The paper’s researchers tested what would happen to inflation if the level of sustainable unemployment were 2 percentage points higher than currently thought, or if there were a lot less slack in the labor market than currently estimated.
The result was very little inflationary change. However, when the researchers modeled what would happen if inflation expectations were to rise, they found so too would actual inflation.
“Inflation dynamics today are primarily explained, not by economic slack, but by the public’s expectations that monetary policy will keep inflation close to the Federal Reserve’s target,” the researchers wrote. “Giving people a reason to doubt the central bank’s commitment to maintaining inflation near target is clearly costly.”
You can write to Lauren Rudd at Lauren.Rudd@RuddInternational.com or call him at 941-706-3449. For back columns go to RuddInternational.com.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
