This week we offer several charts concerning inflation, interest rates, U.S. economic recoveries, equity market performance and equity mutual fund flows.
This chart plots U.S. economic recoveries. Note the blue line. Debt’s a major drag:
Source: Crestmont Research
Keep an eye on inflation (rising):
Year-over-year change in CPI – look at the January numbers in the far right of the chart. The most recent BLS – Bureau of Labor Statistics Annualized Inflation Rate year-over-year equals 2.5%. The Fed’s target has been reached:
Source: Advisor Perspectives
And if you were wondering what inflation looks like by category:
Source: dshort.com
Source: dshort.com
Here is the current probability of a Fed March interest rate hike:
Switching to equities, Ned Davis Research has something they call “Top Watch Indicators”… meaning indicators that help them spot a probable market top.
Here’s how you view the next chart:
- When the green bars in the lower section rise above the horizontal dotted line (50), a market top is indicated.
- The vertical dotted lines and shaded area indicates the times that more than 50% of their top watch indicators signaled a market top.
- Percentage declines are indicated.
- Green bar on the far right shows where we are as of 2-14-17.
Source: Ned Davis Research
Chalk one little dot up for the active fund managers. All the money has been flowing into passive index funds and ETFs:
And all that money that chased into “high dividend papers?” In a few short months, they’ve given up six years of excess returns. I continue to be cautious on high dividend stocks due to over popularity, low interest rates and the risk of rising rates.
Diversification has been under pressure the last few years. The average university endowment lost 1.90% in 2016. However, it is best viewed over the long term and designed to achieve a certain return relative to an acceptable amount of risk. 100% allocation to stocks is for a different investor risk profile. Not wise to compare one asset class to a diversified investment plan. With that said, in case you were wondering… this is how the 10 richest universities invested their money in 2016:
