Weak Import Data Something to Watch – this late in the cycle, the U.S. economy is a patchwork of strengths and weaknesses but also set for growth on balance. A piece of data released this week raised an eyebrow though – for the first time in a decade, imports fell in both September and October at the three busiest seaports (Los Angeles, Long Beach, and New York) in the U.S. Overall, imports fell around 10% between August and October. This is typically peak shipping season as companies re-establish inventories for the holidays which is slightly concerning.
It’s true that there was an inventory build-up earlier in the year that might account for a lower demand for imported goods, but we’re going to keep our eye on import data from here in case it’s the start of a downtrend.
Markets Bounce Back after Coordinated Terrorist Attacks – markets demonstrated resilience in the wake of last week’s terror attacks in Beirut and Paris. U.S. markets posted their strongest session in three weeks, with all 10 major S&P 500 sectors trading higher. The Energy sector stood out in particular, rising +3.25% alongside an uptick in crude oil prices. Global stocks took the U.S.’s lead (as has been the case throughout much of this bull market) and posted modest gains on the week as well. Our fundamental outlook for the global and U.S. economy have not changed based on the events, nor has our overall forecast for equities to move modestly higher this year and next. One minor setback could be the French economy, though. France has the largest number of tourists in the world, and the sector accounts for almost 7.5% of the country’s GDP. It could feel some pressure in the coming quarters.
Tech IPOs: A Mixed Response – the payment processing company Square (SQ) and online dating conglomerate Match Group (MTCH) had mixed results when they IPO’d this week. Both opened trading below the targeted price range of the offering, with cautiously optimistic reception from the institutional world. When shares started trading with the public, however, prices saw a nice pop. Square opened trading at $9 a share, well below the targeted offering of $11 – $13. But the next day the public appetite proved much fiercer, and investors bid up the price 45%. Match also priced at the low end of their targeted range ($12), but saw shares jump 23% the following day. I wouldn’t read too much into these results, but it is a bit interesting that the institutional world acted with considerably more caution than retail investors.
The Rising Sun that Keeps Setting – Japan’s economy slipped into a recession in the third quarter, with GDP falling -0.8%. Weak consumer spending and soft trade data hurt in particular. Exports fell 2.1% last month and imports took an even bigger hit, falling 13.4%. I have not been optimistic about the Japanese economy in the medium term and still have major reservations. Japan has a growing demographic problem with a severely aging population, and a debt to GDP ratio that keeps growing uncontrollably. Yet, Prime Minister Shinzo Abe and his “Abenomics” policies continue with extraordinary monetary policy measures that, to this point, have still failed to stoke growth and acceptable levels of inflation. To me, it feels like Japan is stuck in a zero interest rate wormhole, and will be in big trouble during the next crisis with no additional tools at their disposal to fight it.
Disappointing Results from Hedge Industry Continue – maybe hedge funds aren’t all they’re cracked up to be. According to fund data provider Preqin, 2015 is looking to be the worst year of returns across the hedge fund industry since 2011, as perhaps the market’s sideways action has failed to lead to many bets materializing. Bill Ackman’s Pershing Square Holdings strategy has lost -24.5% year to date, and BlackRock (BLK) has become the latest asset manager to close a hedge fund – its $1B Global Ascent Fund tanked.