Approaching the Inflection Point

Posted in: Economics, General, Stock Market, Thought of the Week

This past week has brought us more economic data that further supports a stronger global economy. Specifically, we were pleased to hear: Stronger than anticipated manufacturing results in China and Germany, the index of U.S leading indicators rose in July by the most in three months, and U.S jobless claims dropped again to a 5 year low.

In other news, the minutes from the most recent Fed meeting were released this week and it appears likely that the Fed will begin tapering by the end of the year. This announcement caused bonds to continue sell off and equities actually moving higher. This came as no surprise to us as we feel that much of the bond market currently carries far too much risk for not enough reward. The outflows of bonds so far in August already amount to the third-highest monthly outflow since 1993, and have already doubled outflows of $14.8 billion in July.

Traders exited the market last week in anticipation of an announcement of tapering, and those who remain in the market are mostly investors who embrace the end of Quantitative Easing (QE) and see the potential for our economy and company earnings to drive equities higher. To sum it up, investors buy on positive economic news because this data tends to support our investment thesis. Although we are encouraged to see the equity market respond positively this week, it is still too early to tell if we have passed this critical inflection point for equities. Read this week’s Thought of the Week to learn more about the upcoming months for fixed income and equities.

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As an Investment Advisory Representative working in conjunction with Global Financial Private Capital (GFPC) we are provided weekly thoughts on what is happening in the economy and the market. Written by our investment committee at GFPC we find these thoughts to be informative and interesting.