The very big picture:

In the “decades” timeframe, the question of whether we are in a continuing Secular Bear Market that began in 2000 or in a new Secular Bull Market has been the subject of hot debate among economists and market watchers since 2013, when the Dow and S&P 500 exceeded their 2000 and 2007 highs. The Bear proponents point out that the long-term PE ratio (called “CAPE”, for Cyclically-Adjusted Price to Earnings ratio), which has done a historically great job of marking tops and bottoms of Secular Bulls and Secular Bears, did not get down to the single-digit range that has marked the end of Bear Markets for a hundred years, but the Bull proponents say that significantly higher new highs are de-facto evidence of a Secular Bull, regardless of the CAPE. Further confusing the question, the CAPE now has risen to levels that have marked the end of Bull Markets except for times of full-blown market manias. See Fig. 1 for the 100-year view of Secular Bulls and Bears.

Even if we are in a new Secular Bull Market, market history says future returns are likely to be modest at best. The CAPE is at 29.29, up from the prior week’s 28.86, and now exceeds the level reached at the pre-crash high in October, 2007. Since 1881, the average annual return for all ten year periods that began with a CAPE around this level have been just 3%/yr (see Fig. 2).

This further means that above-average returns will be much more likely to come from the active management of portfolios than from passive buy-and-hold. Although a mania could come along and cause the CAPE to shoot upward from current levels (such as happened in the late 1920’s and the late 1990’s), in the absence of such a mania, buy-and-hold investors will likely have a long wait until the arrival of returns more typical of a rip-snorting Secular Bull Market.

In the big picture:

The “big picture” is the months-to-years timeframe – the timeframe in which Cyclical Bulls and Bears operate. The U.S. Bull-Bear Indicator (see Fig. 3) is in Cyclical Bull territory at 65.67, up from the prior week’s 64.25.

In the intermediate and Shorter-term picture:

The Shorter-term (weeks to months) Indicator (see Fig. 4) turned negative on March 24th. The indicator ended the week at 28, up smartly from the prior week’s 24. Separately, the Intermediate-term Quarterly Trend Indicator – based on domestic and international stock trend status at the start of each quarter – was positive entering April, indicating positive prospects for equities in the second quarter of 2017.

Timeframe summary:

In the Secular (years to decades) timeframe (Figs. 1 & 2), whether we are in a new Secular Bull or still in the Secular Bear, the long-term valuation of the market is simply too high to sustain rip-roaring multi-year returns. The Bull-Bear Indicator (months to years) is positive (Fig. 3), indicating a potential uptrend in the longer timeframe. In the intermediate timeframe, the Quarterly Trend Indicator (months to quarters) is positive for Q1, and the shorter (weeks to months) timeframe (Fig. 4) is negative. Therefore, with two of three indicators positive, the U.S. equity markets are rated as Neutral.

In the markets:

U.S. Markets: A sharp rally early in the week brought both the Nasdaq Composite and small-cap Russell 2000 indexes to record highs, with the Nasdaq breaking through the 6,000 threshold for the first time. It’s been more than 17 years since the index first crossed the 5,000 level. For the week, the Dow Jones Industrial Average rose 392 points to close at 20,940, a gain of 1.9%. The tech-heavy Nasdaq Composite added 137 points to end the week at 6,047, a 2.3% rise. Large caps and small caps bested mid caps with the large cap S&P 500 and Russell 2000 indexes each rising 1.5%, while the mid cap S&P 400 index rose 0.9%. For the month of April, the Dow Jones Industrial Average gained 1.3% and the Nasdaq Composite rose 2.3%. Other major U.S. market indices saw gains as well, with the Russell 2000 adding 1%, while the S&P 500 gained 0.9% and the S&P 400 rose 0.8%.

International Markets: Canada’s TSX retreated -0.2% while across the Atlantic the United Kingdom’s FTSE gained 1.3%. On Europe’s mainland, France’s CAC 40 surged 4.1%, along with Germany’s DAX and Italy’s Milan FTSE which added 3.2% and 4.4%, respectively. In Asia, China’s Shanghai Composite fell for a third straight week, down -0.6%. Japan’s Nikkei rallied 3.1%, while Hong Kong’s Hang Seng index gained 2.4%. As grouped by Morgan Stanley Capital Indexes, developed markets surged almost 3%, while emerging markets ended up 2%. For the month of April, Canada’s TSX managed a 0.2% gain, while the United Kingdom’s FTSE fell -1.6%. France’s CAC 40 added 2.8%, Germany’s DAX rose 1%, and Italy’s Milan FTSE gained 0.6%. In Asia, China’s Shanghai Composite gave up -2.1%, while Japan’s Nikkei gained 1.5%. Hong Kong’s Hang Seng rose 2.1%.

Commodities: Precious metals weakened after several weeks of gains. Gold retreated -1.6%, falling $20.80 to end the week at $1,268.30 an ounce. Silver had a second difficult week, falling -3.3%, or -$0.59, to close at $17.26 an ounce. Energy was also weaker for a second week, falling -0.58% to close at $49.33 a barrel for West Texas Intermediate crude oil. The industrial metal copper, used by some as a barometer of worldwide economic growth, gained 2.76% after three weeks of losses.

U.S. Economic News: The number of Americans who applied for initial unemployment benefits rose to a one-month high last week, though the increase appeared largely due to the state of New York. The Labor Department reported that initial claims for unemployment rose 14,000 to 257,000. Still, nationwide layoffs remain extremely low. Applications for unemployment benefits have numbered less than 300,000 for 112 straight weeks—the longest stretch since the early 1970’s. The less-volatile 4-week moving average of claims was little changed at 242,250. Since 2011, the economy has added more than 2 million jobs, pushing the unemployment rate down to a post-recession low of 4.5%.

Home prices rose at the fastest rate in almost three years as the red hot housing market showed no sign of slowing down. The S&P Case-Shiller 20-city home price index rose 5.9% in the three-month period ending in February compared to the same time last year. In addition, on an annual basis, home prices rose 5.7% over January’s annual increase. The 20-city index rose 0.4% on the month, or 0.7% when seasonally adjusted. A few months ago the national index regained its highs last seen during the housing bubble in 2007. That index is up 5.8% for the year, a 32-month high. The largest price increases continue to be in the Pacific Northwest. In Seattle, home prices are up 12.2% from this time last year, while in Portland home prices are up 9.7%. Dallas replaced Denver in the top three with an 8.8% increase.

Sales of newly-constructed homes soared to an eight-month high last month as the housing recovery continued to gain ground. The Commerce Department reported sales of new single-family homes last month were at a seasonally-adjusted annual rate of 621,000. That is 5.8% higher than February’s reading and a gain of 15.6% over the same time last year. March’s reading was the second-highest since early 2008 and handily beat the median economist forecast of 580,000. The median sales price for a new home was $315,000—an increase of 7.5% from February. At the current rate of sales, there is a 5.2 months’ supply of homes on the market.

A gauge of pending home sales slipped last month as tight inventory continued to price many buyers out of the market. The National Association of Realtors’ Pending Home Sales index fell -0.8% to 111.4, a decline -0.3% worse than economists’ expected. The index forecasts future actual sales by tracking real estate transactions in which a contract has been signed but not yet closed. Regionally, activity was mixed. In the Northeast, Midwest, and West contract signings were down -2.9%, -1.2%, and -2.9%, respectively. In the South, signings rose 1.2%. Compared to the same time last year, the indexes are higher in the Northeast and South, but lower in the West and Midwest. According to the NAR, properties are currently on the market for an average of only 34 days.

In the first quarter, the U.S. economy grew at its slowest pace in 3 years, according to the Commerce Department. Gross Domestic Product increased at a mere 0.7% annual pace in the first three months of the year, down from an annualized 2.1% and 3.5% in the two quarters of the last half of last year. Economists had been expecting a 0.9% growth rate. The weakness stemmed from the smallest increase in consumer spending since the end of 2009, largely due to fewer sales at car dealers. Spending rose just 0.3%–a sharp slowdown from last quarter’s 3.5% gain. Also contributing to the weak reading, the government reduced its spending while businesses scaled back production. However, many analysts believe the drop in spending is temporary. They cite statistics showing household finances are in their best shape in years amid the record stock market gains, strong labor market, and rising wages. Paul Ashworth of Capital Economics stated consumer spending “will rebound in the second quarter.”

Hiring on a national level retreated last month according to the Chicago Federal Reserve’s National Activity Index. The Chicago Fed’s index eased to 0.08 last month from 0.27 in February. The index’s three-month moving average, used by analysts to smooth out volatility, fell to 0.03 from 0.16. The index’s average reading remained positive for the fourth consecutive month. The index is a weighted composite of 85 separate economic indicators designed so that zero represents trend growth. Of the 85 indicators, 48 made a positive contribution while 37 were negative. In addition, over 50% of the indicators registered a net deterioration on the month. Analysts noted that the indexes employment-related indicators contributed just 0.02 to the index in March, falling 0.18 point from February.

Confidence among American consumers dipped slightly earlier this month, but Americans are still more optimistic than they were before the election. The Conference Board reported its Consumer Confidence Index fell 4.6 points from last month’s 16 year high to 120.3. Americans were slightly less optimistic about the current environment and their expectations for the next six months, according to the report. Still, confidence is sharply higher compared to the period leading up to the election last November. Michael Pierce, U.S. economist at Capital Economics said, “The details of the index are still consistent with a strong labor market and economy.”

New orders for goods expected to last at least 3 years, so-called durable goods, rose less than expected last month, but still managed its third consecutive gain. The Commerce Department reported overall durable goods orders rose 0.7% last month supported by new bookings for aircraft. In March, orders for commercial aircraft rose 0.7%, while orders of military planes surged 26%. Core capital-goods orders, which remove spending on big-ticket items like defense equipment and aircraft, rose 0.2% last month and are up 3% over the past year. Businesses have been slowly increasing spending since last fall, a positive sign for the economy.

International Economic News: The National Bank of Canada stated the Canadian economy is likely to see a “limited impact” as a result of the tariffs announced by the Trump administration on Canadian softwood lumber. National Bank Senior Economist Krishen Rangasamy said if Canadian lumber exports to the States were stopped completely, the net effect on Canada’s GDP would be half a percentage point. CIBC Capital Markets Chief Economist Avery Shenfeld echoed the National Bank’s views on the limited impact of the tariff. “It is likely that the reaction today is on fear that the lumber duties are the tip of the iceberg, showing that despite cozy talk between Trudeau and Trump, the U.S. is willing to flex its muscles to show a protectionist ‘win,’” he wrote.

Britain’s economy slowed considerably during the first quarter of the year as higher inflation bit into the wallets of consumers, official figures show. Economic growth slowed to 0.3% for the first quarter, missing estimates by 0.1% according to the Office for National Statistics. The economy has been surprisingly resilient given last summer’s vote to exit the European Union. Britain was the second strongest-growing nation in the Group of Seven the previous year, but now consumers are cutting back as prices rise due to a depreciating pound and higher energy costs. Britain’s previously struggling manufacturing sector was actually the best performing part of the economy in the first quarter.

In France, far-right Presidential candidate Marine Le Pen and centrist candidate Emmanuel Macron are set to face off in an election on May 7. Both candidates have very different views on how to manage the French economy, with far-reaching potential consequences. Macron, a former investment banker at Rothschild & Cie Banque, worked as the Minister of Economy, Industry and Digital Affairs under former French president Francois Hollande. Le Pen represents a radical departure from traditional French politics. She advocates for a strong French identity and economic nationalism that would mean new trade barriers and the country’s exit from the Eurozone. Le Pen has proposed dropping the euro and switching to a “nouveau franc” of lower value to make French exports more competitive. Macron has promised to cut corporate tax rates to 25% from 33%. Macron supports free trade and campaigned in favor of CETA, the EU’s new free trade agreement with Canada.

In Germany, economists from the Bundesbank in Frankfurt wrote that Germany’s aging population will undermine potential economic growth by the middle of next decade as more of the baby boomer generation heads for retirement. The German central bank reported that based on current trends, the number of people of working age in 2025 will be the same as in 2016, meaning that potential growth will fall to “significantly below 1%” from the near 1.25% seen from 2011 to 2016. Germany has become the continent’s economic powerhouse recently, recording 1.9% growth in 2016. “According to the forecasts, growth in the medium term will largely be supported by developments in productivity,” the experts add, with an increase in the next few years before a slowdown to levels last seen in the 2000s.

China’s economy got off to a strong start in the first quarter with a greater-than-expected GDP growth rate of 6.9% year over year. Nomura Securities described the first quarter data point as “resilient growth momentum” in a research note. Based on the data, the International Monetary Fund upgraded its forecast for China’s economic growth in 2017 to 6.6%, and 2018 to 6.2% – additions of 0.1% and 0.2%, respectively. Furthermore, the global growth rate forecast for 2017 was also raised by the IMF to 3.5%, a gain of 0.1%. Xu Hongcai, economist at the China Center for International Economic Exchanges said, “Given the stable growth, China can put greater emphasis on supply-side structural reform and prevention of financial risks.”

In Japan, the Bank of Japan (BOJ) raised several of its economic forecasts at a policy meeting this week, but kept its rate policy steady as was widely expected. The BOJ raised its real gross domestic product (GDP) growth forecast for 2017-18 fiscal year to 1.6%, an increase of 0.1% over January’s forecast. The Bank now sees the economy ‘expanding’ rather than just ‘recovering’. Marcel Thieliant, senior Japan economist at Capital Economics said in a note, “We believe that the bank remains too optimistic about inflation. The main reason is that wage growth remains tepid despite a tight labor market.” Thieliant said he expected monetary policy to remain unchanged for “the foreseeable future.” The BOJ had set its target yield for the benchmark 10-year Japanese government bond at around zero percent, and it has been willing to intervene to keep the benchmark yield in line with its target.

Finally: Sunday marked President Trump’s 100^th day in office. Markets are higher with many indexes hitting all-time highs, businesses seem happy to have a pro-business President, and everything is awesome–or is it? Real, so-called ‘hard’, economic data may be collapsing. The Atlanta Fed produces a “real-time” gauge of GDP called “GDPNow”, which is based on ‘hard data only’ (i.e., no projections or guesses about the future or measures of sentiment – known as ‘soft data’). As the weak first quarter GDP print showed, optimism and sentiment alone can’t lift the real economy. The following chart shows the current level of divergence between two economic indexes–the New York Fed’s GDP estimate, called the NOWCAST index (which includes loads of soft data), and the Atlanta Fed’s GDPNOW index (which contains none).

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Figs 1-5 source W E Sherman & Co, LLC)

The ranking relationship (shown in Fig. 5) between the defensive SHUT sectors (“S”=Staples [a.k.a. consumer non-cyclical], “H”=Healthcare, “U”=Utilities and “T”=Telecom) and the offensive DIME sectors (“D”=Discretionary [a.k.a. Consumer Cyclical], “I”=Industrial, “M”=Materials, “E”=Energy), is one way to gauge institutional investor sentiment in the market. The average ranking of Defensive SHUT sectors fell sharply to 15.25 from the prior week’s 8.00, while the average ranking of Offensive DIME sectors rose to 13 from the prior week’s 15.5. The Defensive SHUT sectors lost their lead over the Offensive DIME sectors. Note: these are “ranks”, not “scores”, so smaller numbers are higher ranks and larger numbers are lower ranks.

If you have any questions about the FBIAS™ Fact-Based Investment Allocation Strategy portfolios, feel free to give your Anthony Capital, LLC advisor a call at 303-734-7178 or by scheduling a private virtual meeting/conference call. We work with clients from all over the country and would be happy to help.

You can also open up an online account by clicking HERE at our preferred custodian, Folio Institutional, LLC.

Sincerely,

Dave Anthony, CFP®

The very big picture:

In the “decades” timeframe, the question of whether we are in a continuing Secular Bear Market that began in 2000 or in a new Secular Bull Market has been the subject of hot debate among economists and market watchers since 2013, when the Dow and S&P 500 exceeded their 2000 and 2007 highs. The Bear proponents point out that the long-term PE ratio (called “CAPE”, for Cyclically-Adjusted Price to Earnings ratio), which has done a historically great job of marking tops and bottoms of Secular Bulls and Secular Bears, did not get down to the single-digit range that has marked the end of Bear Markets for a hundred years, but the Bull proponents say that significantly higher new highs are de-facto evidence of a Secular Bull, regardless of the CAPE. Further confusing the question, the CAPE now has risen to levels that have marked the end of Bull Markets except for times of full-blown market manias. See Fig. 1 for the 100-year view of Secular Bulls and Bears.

Even if we are in a new Secular Bull Market, market history says future returns are likely to be modest at best. The CAPE is at 28.86, up from the prior week’s 28.60, and now exceeds the level reached at the pre-crash high in October, 2007. Since 1881, the average annual return for all ten year periods that began with a CAPE around this level have been just 3%/yr (see Fig. 2).

This further means that above-average returns will be much more likely to come from the active management of portfolios than from passive buy-and-hold. Although a mania could come along and cause the CAPE to shoot upward from current levels (such as happened in the late 1920’s and the late 1990’s), in the absence of such a mania, buy-and-hold investors will likely have a long wait until the arrival of returns more typical of a rip-snorting Secular Bull Market.

In the big picture:

The “big picture” is the months-to-years timeframe – the timeframe in which Cyclical Bulls and Bears operate. The U.S. Bull-Bear Indicator (see Fig. 3) is in Cyclical Bull territory at 64.25, not much changed from the prior week’s 64.39.

In the intermediate and Shorter-term picture:

The Shorter-term (weeks to months) Indicator (see Fig. 4) turned negative on March 24th. The indicator ended the week at 24, unchanged from the prior week’s 24. Separately, the Intermediate-term Quarterly Trend Indicator – based on domestic and international stock trend status at the start of each quarter – was positive entering April, indicating positive prospects for equities in the second quarter of 2017.

Timeframe summary:

In the Secular (years to decades) timeframe (Figs. 1 & 2), whether we are in a new Secular Bull or still in the Secular Bear, the long-term valuation of the market is simply too high to sustain rip-roaring multi-year returns. The Bull-Bear Indicator (months to years) is positive (Fig. 3), indicating a potential uptrend in the longer timeframe. In the intermediate timeframe, the Quarterly Trend Indicator (months to quarters) is positive for Q1, and the shorter (weeks to months) timeframe (Fig. 4) is negative. Therefore, with two of three indicators positive, the U.S. equity markets are rated as Neutral.

In the markets:

U.S. Markets: U.S. stocks ended higher following a week of choppy trading. The Nasdaq Composite outperformed the major indexes while disappointing earnings results from major Dow components weighed on the Dow. The Dow Jones Industrial Average recovered some of last week’s losses rising 94.5 points to close at 20,547, a gain of 0.5%. The tech-heavy Nasdaq Composite gained 105 points to close at 5,910, a gain of 1.8%. By market cap, small and mid-cap indexes recovered lost ground compared to large caps. The S&P 400 mid cap index gained 2.2% and the Russell 2000 small cap index added 2.6%, while the large cap S&P 500 index rose a much more modest 0.8%.

International Markets: Canada’s TSX gained half a percent, retracing most of last week’s decline. Across the Atlantic, the United Kingdom’s FTSE 100 had its second week of losses, falling over -2.9%. On Europe’s mainland, major markets ended the week down with fractional losses. France’s CAC 40 was off -0.2%, while Germany’s DAX fell -0.5%, and Italy’s Milan FTSE declined -0.2%. In Asia, major markets were mixed. China’s Shanghai Stock Exchange fell -2.2%, while Japan’s Nikkei rose 1.6%. Hong Kong’s Hang Seng ended down -0.9%. As grouped by Morgan Stanley Capital Indexes, developed markets were up 0.6%, while emerging markets managed a 0.4% gain.

Commodities: Oil plunged over -6.6%, taking out most of the last few weeks’ gains. The price of West Texas Intermediate crude oil fell -$3.56 to close at $49.62 a barrel. In precious metals, Gold barely managed a gain this week, rising $0.60 to $1289.10 an ounce. Silver diverged, however, and plunged -3.5% to end the week at $17.86 an ounce. The industrial metal copper, seen by some analysts as an indicator of worldwide economic health, weakened for a third straight week, falling -1.3%.

U.S. Economic News: The number of Americans collecting unemployment checks fell to a 17 year low this month, further evidence of a healthy jobs market. Continuing jobless claims, which counts those people already receiving benefits, fell by 49,000 to 1.98 million. This is only the second time in eight years that the number of people on unemployment has registered less than 2 million. The number of people applying for first-time unemployment benefits rose by 10,000 to 244,000 in the second week of April. The number of new applicants for unemployment benefits has remained below the 300,000 threshold for 111 straight weeks–its longest streak since the early 1970’s. Stephen Stanley, chief economist at Amherst Pierpont Securities, noted there is a “steady downtrend in place in the pace of layoffs.”

Sales of existing homes hit a 10-year high last month as homes continued to sell at a brisk pace. Existing home sales ran at a seasonally-adjusted annual rate of 5.71 million, a 4.4% increase over February according to the National Association of Realtors (NAR). That was the strongest selling pace since early 2007, and an increase of 5.9% over the same time last year. However, the supply of homes continued to be a limiting factor—supply was 6.6% lower compared to a year ago. Over 1.8 million homes were on the market the last day of March representing only a 3.8 month supply. Properties were on the market for an average of only 34 days. The national median sales price is now $236,400, a 6.8% gain over March of last year. By region, sales jumped 10.1% in the Northeast and 9.2% in the Midwest. In the South, sales were up 3.4%, while in the West sales fell 1.6%. First-time home buyers accounted for 32% of the market.

Sentiment among home builders weakened in April, pulling back slightly from last month’s 11-year high. The National Association of Home Builders (NAHB) housing market index (H MI) fell 3 points to 68. Readings above 50 indicate growth. In the details of the report, the measure of current sales conditions retreated slightly to 74, but has been over 70 for five consecutive months. NAHB Chief Economist Robert Dietz wrote, “The fact that the HMI measure of current sales conditions has been over 70 for five consecutive months shows that there is continued demand for new construction.”

Manufacturing in the New York area slowed in April as the euphoria following the election of President Donald Trump appeared to wane. The Empire State Manufacturing survey fell 11.2 points to 5.2 this month according to the Federal Reserve Bank of New York. Expectations were for a reading near 16. While any reading above zero indicates growth, a number of key metrics in the survey declined. New orders and shipments both fell suggesting more moderate growth going forward. In addition, the prices-paid index gained, possibly signaling rising inflationary pressures in the economy. On the labor front, hiring remained robust with the number-of -employees component rising 3.6 points to 12.4. The Empire State index is the first in a series of monthly regional Federal Reserve manufacturing surveys.

In the city of brotherly love, the Philadelphia Fed’s manufacturing index retreated slightly suggesting growth in the factory sector is slowing following the postelection surge in the Mid-Atlantic region, too. The Philly Fed’s manufacturing index fell 10.8 points to 22 in April after hitting a 33-year high of 43.3 in February. Economists’ had been expecting a reading of 25.5. In the details of the report, new orders fell 11.2 points to 27.4 and shipments fell 9.5 to 23.4, while two employment gauges turned higher. The number-of-employees gauge added 2.4 points to 19.9 and the average workweek subindex rose to 18.9, up 0.4. All readings above zero indicate growth.

Manufacturing output on a national level slowed in March, dragged down by weakness in the U.S. auto sector according to the Federal Reserve. Factory output fell 0.4%, its first decline since last August, as a result of a steep 3% decline in auto and auto parts production. However the decline was not all autos as ex-motor vehicles overall output was still down 0.2%. For the first quarter, factory output is up an annualized 2.7%–an improvement over last quarter’s 1.7% rise, but still “disappointing” according to Jim O’Sullivan, chief economist at High Frequency Economics. Josh Shapiro, chief economist at MFR Inc, said he expects “the underlying trend in reported output to gradually accelerate in the months ahead” based on recent Institute for Supply Management (ISM) survey data. Overall industrial production was up 0.5% with the gain due to an 8.6% rise in utilities output as colder weather returned following an unseasonably warmer first two months of the year.

The Federal Reserve’s Beige Book, a summary and analysis of economic activity and conditions prepared with input from each of the regional Federal Reserve banks, showed that wages are climbing but haven’t begun to have an effect on inflation just yet. The report found “a larger number of firms mentioned high turnover rates and more difficulty retaining workers.” A handful of districts reported that worker shortages and increased labor costs were restraining growth in construction, manufacturing, and transportation. The 12 Federal Reserve districts were equally split describing growth as either “modest” or “moderate”. Several Fed districts reported that uncertainty over tax and spending policies weighed on economic activity. The Cleveland Fed reported that customers appeared to be waiting “for more definitive proposals on tax and regulatory reform” from the Trump White House before moving ahead with projects. The report was a bit stronger than economists’ had expected based on other recent data releases.

International Economic News: The fastest growing country among the G-7 group is none other than our neighbor to the north—Canada. The energy-rich nation, which has struggled with falling crude oil prices the past two years, grew at an almost 4% rate in the first quarter, according to the Bank of Canada’s latest estimate. For all of 2017, the Canadian central bank is projecting a 2.6% growth rate, which would put the nation at the top of the G-7 growth scale. Senior Deputy Governor Carolyn Wilkins stated the Bank of Canada “welcomes the recent strength in economic data and wants to see more of it in order to be more confident that growth is on a solid footing.”

The International Monetary Fund (IMF), which had previously predicted dire consequences from the Brexit vote in the UK, belatedly raised its UK economic growth forecast to 2%. The group did admit that the performance of the economy following last year’s Brexit vote had been “stronger than expected.” In its half-yearly World Economic Outlook, the IMF said it now expects the British economy to expand 2% this year making it the second fastest growing major economy after the United States. In its release, the IMF stated that growth had “remained solid in the United Kingdom, where spending proved resilient in the aftermath of the June 2016 referendum in favor of leaving the European Union.” The IMF is also more optimistic about the global economy as a whole, expecting worldwide economic growth to increase 3.5% this year, and 3.6% next year.

On Europe’s mainland, French voters head to the polls this weekend in the first of multiple elections to choose a new President. The French presidential election could be a turning point for the existence of the shared euro international currency. Currently, two of the top presidential contenders, Marine Le Pen and leftist candidate Jean-Luc Melenchon both question the basic foundations of the euro—the independence of the European Central Bank and limits on its’ member governments’ budget deficits. Most market watchers are anticipating pro-euro candidate and former economy minister Emmanuel Macron to win. However, if the winner Sunday turns out to be National Front Candidate Marine Le Pen or, even worse, Le Pen and Melenchon as the top two finishers—well, world markets may be in for quite a surprise. Frank Engels, managing director at Union Investment, says an anti-European outcome would be a “major shock to equity markets,” while Athanasios Vamvakidis, foreign exchange strategist at Bank of America Merrill Lynch Global Research states “Markets are still underpricing the risks.”

In Germany, finance minister Wolfgang Schaeuble took to the airwaves to fiercely and crudely denounce accusations that Germany is an economic rogue state undermining the stability of the European Union as “Bullshit”. The minister was asked on CNBC about stories in the British media accusing Germany of caring only about its own profit and of ignoring its neighbors. “There are some writers even in the UK which write bullshit, with all due respect,” responded Schaeuble (showing very little due respect!). Matthew Lynn of the Telegraph had described Germany as “the biggest threat to the stability of the global economy right now.” The journalist had called out Germany’s trade surplus hitting record highs, while “hollowing out the industry” of its neighbors.

Analysts at the Fitch credit ratings agency moved its credit rating for Italy one notch closer to “junk” territory, downgrading Italy’s rating to “BBB” from “BBB+”. Fitch cited “weak economic growth” and the country’s “persistent track record of fiscal slippage” as reasons for the downgrade. Italy’s credit rating is now just two notches above speculative-grade. Fitch added that Italy has missed “successive targets” for its debt-to-gross domestic product ratio, which rose by 0.5% to 132.6% last year. Italy’s economy grew by 0.9% last year with Fitch expecting this year’s growth to match that tepid level. For 2018, Fitch expects growth to rise to 1%, “which would leave real GDP still more than 5% below the 2007 level.”

China, the world’s second largest economy, grew at an annualized rate of 6.9% in the first quarter, officials there said. The pace was a very slight acceleration following five consecutive quarters of 6.7 to 6.8% readings. The increase was attributed to the construction industry’s heavy use of steel (which had been expected to slow) along with investment in electronics factories as demand from overseas strengthened. However, of concern, the state-controlled banking sector has issued a flood of new mortgages, while the number of housing starts has risen even faster year to date. This will add even more inventory to the number of unsold homes at a time when policy makers are already concerned whether the easy availability of mortgages feeding a bubble.

Japanese construction companies are scrambling to hire workers for the surge in building projects ahead of the 2020 Tokyo Olympics. Unfortunately, the nation is already struggling with a declining workforce and the availability of labor is extremely tight. According to the website C4, a specialized job placement service for construction managers, there are over 2,000 employment offers for from major construction companies already. An executive of a mid-level construction company remarked, “We are finding it difficult to take orders for building condominiums other than those in central Tokyo within the Yamanote Line”, referring to a prized building area within the rapid-transit loop train line in the center of the capital. With both labor and materials costs rising, construction companies are becoming much more picky focusing on only highly profitable ventures.

Finally: Everyone has heard the term “Put your money where your mouth is”, often times in bar room banter when coaxing someone to back up their statements or opinions by putting some cash on the line. Schwab Chief Investment Strategist Liz Ann Sonders released a note this week with research showing that consumers are “saying” they have confidence in the economy going forward, but data such as retail sales figures aren’t matching that level of confidence – in other words, they aren’t “putting their money where their mouths are”. Wall Street analysts and economists collect various measures of data and most can be broken down into either of two groups—“hard” and “soft” data. Hard data are actual figures, retail sales, number of vehicles sold, etc. Soft data tends to be consumers or business managers opinions of the economy—e.g. consumer confidence data and purchasing manager surveys. Ms. Sonders notes that, for example, the Conference Board’s “soft” consumer confidence data hit its highest level in 17 years last month, but on the other hand “hard” data like retail sales fell for a second straight month in March.

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Figs 1-5 source W E Sherman & Co, LLC)

The ranking relationship (shown in Fig. 5) between the defensive SHUT sectors (“S”=Staples [a.k.a. consumer non-cyclical], “H”=Healthcare, “U”=Utilities and “T”=Telecom) and the offensive DIME sectors (“D”=Discretionary [a.k.a. Consumer Cyclical], “I”=Industrial, “M”=Materials, “E”=Energy), is one way to gauge institutional investor sentiment in the market. The average ranking of Defensive SHUT sectors rose to 8.00 from the prior week’s 9.75, while the average ranking of Offensive DIME sectors fell to 15.5 from the prior week’s 13.5. The Defensive SHUT sectors again expanded their lead over the Offensive DIME sectors. Note: these are “ranks”, not “scores”, so smaller numbers are higher ranks and larger numbers are lower ranks.

If you have any questions about the FBIAS™ Fact-Based Investment Allocation Strategy portfolios, feel free to give your Anthony Capital, LLC advisor a call at 303-734-7178 or by scheduling a private virtual meeting/conference call. We work with clients from all over the country and would be happy to help.

You can also open up an online account by clicking HERE at our preferred custodian, Folio Institutional, LLC.

Sincerely,

Dave Anthony, CFP®

The very big picture:

In the “decades” timeframe, the question of whether we are in a continuing Secular Bear Market that began in 2000 or in a new Secular Bull Market has been the subject of hot debate among economists and market watchers since 2013, when the Dow and S&P 500 exceeded their 2000 and 2007 highs. The Bear proponents point out that the long-term PE ratio (called “CAPE”, for Cyclically-Adjusted Price to Earnings ratio), which has done a historically great job of marking tops and bottoms of Secular Bulls and Secular Bears, did not get down to the single-digit range that has marked the end of Bear Markets for a hundred years, but the Bull proponents say that significantly higher new highs are de-facto evidence of a Secular Bull, regardless of the CAPE. Further confusing the question, the CAPE now has risen to levels that have marked the end of Bull Markets except for times of full-blown market manias. See Fig. 1 for the 100-year view of Secular Bulls and Bears.

Even if we are in a new Secular Bull Market, market history says future returns are likely to be modest at best. The CAPE is at 28.60, down from the prior week’s 28.93, and now exceeds the level reached at the pre-crash high in October, 2007. Since 1881, the average annual return for all ten year periods that began with a CAPE around this level have been just 3%/yr (see Fig. 2).

This further means that above-average returns will be much more likely to come from the active management of portfolios than from passive buy-and-hold. Although a mania could come along and cause the CAPE to shoot upward from current levels (such as happened in the late 1920’s and the late 1990’s), in the absence of such a mania, buy-and-hold investors will likely have a long wait until the arrival of returns more typical of a rip-snorting Secular Bull Market.

In the big picture:

The “big picture” is the months-to-years timeframe – the timeframe in which Cyclical Bulls and Bears operate. The U.S. Bull-Bear Indicator (see Fig. 3) is in Cyclical Bull territory at 64.39, down from the prior week’s 67.57.

In the intermediate and Shorter-term picture:

The Shorter-term (weeks to months) Indicator (see Fig. 4) turned negative on March 24th. The indicator ended the week at 24, unchanged from the prior week’s 24. Separately, the Intermediate-term Quarterly Trend Indicator – based on domestic and international stock trend status at the start of each quarter – was positive entering April, indicating positive prospects for equities in the second quarter of 2017.

Timeframe summary:

In the Secular (years to decades) timeframe (Figs. 1 & 2), whether we are in a new Secular Bull or still in the Secular Bear, the long-term valuation of the market is simply too high to sustain rip-roaring multi-year returns. The Bull-Bear Indicator (months to years) is positive (Fig. 3), indicating a potential uptrend in the longer timeframe. In the intermediate timeframe, the Quarterly Trend Indicator (months to quarters) is positive for Q1, and the shorter (weeks to months) timeframe (Fig. 4) is negative. Therefore, with two of three indicators positive, the U.S. equity markets are rated as Neutral.

In the markets:

U.S. Markets: Stocks turned lower for the holiday-shortened week on exceptionally low trading volume. Monday saw the fewest shares trading hands so far this year. Smaller cap indexes lagged large caps as rising tensions around the globe led investors out of more volatile assets. For the week, the Dow Jones Industrial Average fell ‑1%, or 202 points, to close at 20,453. The tech-heavy Nasdaq Composite, fell a slightly steeper -1.2% to end at 5,805. By market cap, the large cap S&P 500 index fell -1.1%, while the mid cap S&P 400 retreated -1.5% and the small cap Russell 2000 ended down -1.4%.

International Markets: Canada’s TSX retreated from last week’s gain, falling -0.84%. The United Kingdom’s FTSE fell -0.3%, while on Europe’s mainland major markets were also red across the board. France’s CAC 40 fell -1.25%, Germany’s DAX had its second week of losses, falling -0.95%, and Italy’s Milan FTSE dropped the most, over -2.5%. In Asia, China’s Shanghai Stock Exchange retreated -0.3% along with Japan’s Nikkei which fell for the fifth week in a row, down -1.27%. As grouped by Morgan Stanley Capital International, emerging markets fell ‑0.58%, while developed markets declined -0.37%.

Commodities: Gold powered higher for a fifth straight week by rising $31.20 to $1,288.50 an ounce, up 2.48%. Silver rode gold’s coattails for a 1.98% gain, to $18.51 an ounce. Oil had its third week of gains. West Texas Intermediate crude oil rose 1.8%, or $0.94, to close at $53.18 a barrel. The industrial metal copper, viewed by some analysts as an indicator of global economic health, went the other way by falling -2.89%.

U.S. Economic News: The number of Americans filing for new unemployment benefits fell 1,000 to a seasonally adjusted 234,000 last week according to the Labor Department. It was the third weekly decline in claims, remaining near the 44-year low set in February. Claims have now been below 300,000, the threshold seen as a healthy labor market, for 110 straight weeks—the longest stretch since 1970. Analysts contend that the labor market is near full employment, with the unemployment rate close to a 10-year low of 4.5%. The four-week moving average of claims, used to iron out the week-to-week volatility, fell 3,000 to 247,250. Continuing claims, the number of people already receiving benefits, dropped 7,000 to 2.03 million.

Job openings hit a seven-month high in February, indicating an even further tightening of labor market conditions, according to the latest Job Openings and Labor Turnover survey (JOLTS) survey. Job openings, a measure of labor demand, increased 118,000 positions to a seasonally-adjusted 5.7 million according to the Labor Department. That was the highest level since last summer and lifted the job openings rate to 3.8%. The U.S. labor market is now viewed as being near or at full employment, with the unemployment rate sitting at a 10-year low of 4.5%. Also in the report, the number of people leaving jobs voluntarily retreated 3.2% to 3.08 million. The decline in voluntary “quits” is viewed as a sign of less confidence in the labor market among workers.

Sentiment among small-business owners fell last month as sales expectations and earnings slumped following the post-election surge. The National Federation of Independent Business (NFIB) said its monthly sentiment gauge fell 0.6 point to 104.7, slightly worse than the 0.5 point drop expected. Some warning signs appeared in March’s survey. The uncertainty index rose to 93, its second-highest reading on record. Bill Dunkelberg, the groups’ chief economist said “More small business owners are having a difficult time anticipating the factors that affect their businesses, especially government policy.” Business owners are still struggling to find qualified labor: a shocking 85% report few or no qualified applicants for open positions. Not surprisingly, then, survey respondents continued to report that finding qualified workers was their single biggest business problem. The March survey was conducted prior to Congress’ inability to repeal and replace the Affordable Care Act, which had weighed on small-business owners since it was implemented. “Congress’s failure to keep its promises could dampen optimism, and that would ripple through the economy,” the NFIB stated in its release.

Among consumers, sentiment improved in April as most Americans were upbeat about current conditions according to the University of Michigan’s Index of Consumer Sentiment. Consumer sentiment rose to 98 in April, a gain of two points from March. Ian Shepherdson, chief economist at Pantheon Macroeconomics stated, the index “is very strong but no significant further gains are likely.” The report showed an improvement in current conditions to 115.2—its highest level since 2000. However, there was a sharp contrast in respondents’ expectations for the future. Overall, the gauge of consumers’ expectations rose only 0.4 point to 86.9, however there was a huge 50.5 point gap between Republican and Democrat respondents. The researchers said, “Much more progress on shrinking the partisan gap is needed to bring economic expectations in line with reality.”

The price of U.S. imports recorded their biggest drop in seven months last month. The decrease was primarily due to a decline in the price of oil. In contrast, prices for many other goods continued to rise. Overall, the import price index fell 0.2% last month according to the Bureau of Labor Statistics. The cost of oil fell 3.6% in March–its biggest drop in more than a year. Yet ex-energy imports, prices climbed 0.2% last month continuing an upward trend that began last year. Over the past year, import prices have risen by 4.2%. The Federal Reserve looks at overall inflation, as well as import prices to determine interest rate policy and direction.

Producer prices fell for the first time in seven months in March as the cost of services and energy products retreated. The Labor Department reported its Producer Price Index for final demand fell 0.1% last month, its first decline since August. Economists had not expected any change in the PPI. Seasonally-adjusted, wholesale prices are up 2.28% from the same time last year. Prices have risen largely because of the rebound in the price of oil, although analysts point out that the cost of many other goods and services continue to inch higher. Stripping out the volatile fuel, food, and retail trade margins categories, the so-called core producer prices rose 0.1% in March—their tenth consecutive gain. The core rate is up 1.7% over the past 12 months, almost double compared to a year earlier.

For consumers, the cost of goods and services fell for the first time in more than a year last month. The Consumer Price Index, also known as the “cost of living”, fell a seasonally adjusted 0.3% according to the Bureau of Labor Statistics. Economists had forecast a 0.1% decline. The rate of inflation over the last 12 months fell to 2.4% in March after hitting a five-year high of 2.7% in February. Still, analysts expect that March’s retreat was just temporary and that overall inflation is expected to continue. Ian Shepherdson, chief economist at Pantheon Macroeconomics said, “One very soft month does not make a new trend, so we will be looking for a clear rebound in April.” Core inflation, which strips out the volatile food and energy categories, suggests prices are relatively stable. That number fell just 0.1% in March. Core CPI has risen 2% over the past 12 months.

Sales at the nation’s retailers fell in March for the second month in a row, marking their worst two-month stretch in more than 2 years. Sales declined 0.2% last month, predominantly due to cheaper gas and incentives by car dealers to support sales according to the Commerce Department. Of concern in the report, February’s 0.1% increase was revised downward to a 0.3% fall. Analysts now expect that first quarter growth will fall short of the 2% previously forecast. Some economists expect retail sales to rebound soon in light of the high consumer confidence, strong labor market, and the arrival of 2016’s tax refunds. David Berson, chief economist at Nationwide stated, “We look for consumer spending to rebound in April and the following months.”

International Economic News: The Bank of Canada left its benchmark rate unchanged at 0.5% saying it is too early to conclude that the economy is on a “sustainable growth path” despite the recent strength that led it to boost its outlook for 2017. The bank said, “During the rest of this year and into 2018 and 2019, growth in Canada is expected to moderate but remain above potential.” The lack of movement was widely expected. Over the course of its current forecast, the bank expects the economy to continue to grow, but at a more moderate pace. The bank now expects real gross domestic product to expand by 2.6% in 2017. Bank of Canada governors warned a senate committee that changes to U.S. trade policy are currently the greatest risk to Canada’s economic outlook.

U.K. manufacturers reported their strongest export growth since late 2014 and the services sector also racked up strong sales growth, a business survey showed. The British Chamber of Commerce, which runs Britain’s largest quarterly private-sector survey, said firms reported a robust short-run outlook. But there was much uncertainty regarding the medium-term along with fears of rising costs. Britain’s economy has defied the doom and gloom forecasted by most economists immediately after it voted to leave the European Union. Exporters have been helped by a global economy that continues to recover and a fall in the value of the sterling.

In France, this coming week is the last before the first round of France’s presidential election and it has been a heck of a ride. Thus far we’ve had an incumbent not running, the far right candidate is in ascendance, an independent is seen as a very strong contender, a scandal tarnished an early favorite, and most recently far-left and one-time communist candidate Jean-Luc Melenchon has been gathering momentum in recent polls. In fact, it is now conceivable that a far-left candidate will square off against a far-right candidate where both are against the euro and the European Union. The word “Frexit” is now making the rounds. In the latest twist, Melenchon has performed strongly in televised debates with his trademark quick wit and eloquent anti-capitalist discourses.

German economic institutes have revised their joint growth outlook for the country, raising their previous forecasts for the next two years. The institutes’ spring outlook expects Germany’s gross domestic product to rise by 1.5% in 2017, up 0.3% from their previous estimate, while in 2018 they expect the economy to expand by 1.8%. The report explicitly mentions the potential effects of U.S. President Donald Trump’s protectionist agenda, but does point out that the administration’s planned investment and employment program may also boost the German economy. The economic think tank said economic growth was first and foremost a result of healthy domestic consumption rather than strong investment activity or exports.

China’s outlook for exports this year brightened considerably as trade growth surged 16.4% year-over-year in March. The increase was the largest jump in two years and the latest sign of improving global demand. Furthermore, concerns of a potential trade war eased as U.S. President Donald Trump softened his stance towards the world’s second largest economy. Trump reversed course from his earlier campaign promises to label Beijing a currency manipulator and slap punitive tariffs on Chinese imports. In an interview published Wednesday in the Wall Street Journal, Trump stated the Chinese weren’t currency manipulators (or at least he wouldn’t label them as such while the US needs China to help handling North Korea). March’s improvement marked a dramatic turnaround from February’s 1.3% year-over-year drop.

In Japan, new demographic research says the working-age population is facing a steep decline, threatening the future vitality of the country. The National Institute of Population and Social Security Research published new statistics on Japan’s population projecting levels for each of the 50 years from 2015 to 2065. In the report, the working-age population, defined as ages 15 to 64, plunges an astonishing 40% from 2015 levels by year 2065. By 2040, the working-age population will be down more than 20%. In occupations such as construction, nursing care, and transportation, there are three vacancies available for every applicant. According to the Cabinet Office, if Japan’s population continues to decline at its current pace and productivity does not improve, the country could fall into negative economic growth in the 2040’s. To boost the birth rate, the government is researching ideas such as free childcare and early-childhood education along with creating an environment where women can more easily work and raise children.

Finally: By now, anyone remotely connected to the news or social media has almost assuredly seen the forcible removal of a doctor from a United Airlines flight. Despite seeming cold-blooded and horribly tone-deaf (“we had to re-accommodate the passenger”), United is not nearly the worst airline when it comes to such “re-accommodation”! According to the Bureau of Transportation Statistics, (which just so happens to track such things) United is, in fact, second-best among the major air carriers when it comes to bumping passengers off flights. Among these “majors”, JetBlue was the worst offender for last year, followed by Southwest, American, and then United. Delta had the lowest rate of passenger bumping. Since 2008, U.S. airlines have paid a combined $218 million in compensation for passengers “involuntarily denied flight”. Of that, JetBlue has, on average, paid the most to customers for their inconvenience—over $840, while United has paid the least, just $528. The statistics don’t say which of the other carriers treat “involuntarily denied passengers” to broken noses, lost teeth, concussions, and reconstructive surgery.

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Figs 1-5 source W E Sherman & Co, LLC)

The ranking relationship (shown in Fig. 5) between the defensive SHUT sectors (“S”=Staples [a.k.a. consumer non-cyclical], “H”=Healthcare, “U”=Utilities and “T”=Telecom) and the offensive DIME sectors (“D”=Discretionary [a.k.a. Consumer Cyclical], “I”=Industrial, “M”=Materials, “E”=Energy), is one way to gauge institutional investor sentiment in the market. The average ranking of Defensive SHUT sectors rose sharply to 9.75 from the prior week’s 12.75, while the average ranking of Offensive DIME sectors was unchanged at 13.5 from the prior week. The Defensive SHUT sectors expanded their lead over the Offensive DIME sectors. Note: these are “ranks”, not “scores”, so smaller numbers are higher ranks and larger numbers are lower ranks.

If you have any questions about the FBIAS™ Fact-Based Investment Allocation Strategy portfolios, feel free to give your Anthony Capital, LLC advisor a call at 303-734-7178 or by scheduling a private virtual meeting/conference call. We work with clients from all over the country and would be happy to help.

You can also open up an online account by clicking HERE at our preferred custodian, Folio Institutional, LLC.

Sincerely,

Dave Anthony, CFP®

The very big picture:

In the “decades” timeframe, the question of whether we are in a continuing Secular Bear Market that began in 2000 or in a new Secular Bull Market has been the subject of hot debate among economists and market watchers since 2013, when the Dow and S&P 500 exceeded their 2000 and 2007 highs. The Bear proponents point out that the long-term PE ratio (called “CAPE”, for Cyclically-Adjusted Price to Earnings ratio), which has done a historically great job of marking tops and bottoms of Secular Bulls and Secular Bears, did not get down to the single-digit range that has marked the end of Bear Markets for a hundred years, but the Bull proponents say that significantly higher new highs are de-facto evidence of a Secular Bull, regardless of the CAPE. Further confusing the question, the CAPE now has risen to levels that have marked the end of Bull Markets except for times of full-blown market manias. See Fig. 1 for the 100-year view of Secular Bulls and Bears.

Even if we are in a new Secular Bull Market, market history says future returns are likely to be modest at best. The CAPE is at 28.93, down slightly from the prior week’s 29.02, and now exceeds the level reached at the pre-crash high in October, 2007. Since 1881, the average annual return for all ten year periods that began with a CAPE around this level have been just 3%/yr (see Fig. 2).

This further means that above-average returns will be much more likely to come from the active management of portfolios than from passive buy-and-hold. Although a mania could come along and cause the CAPE to shoot upward from current levels (such as happened in the late 1920’s and the late 1990’s), in the absence of such a mania, buy-and-hold investors will likely have a long wait until the arrival of returns more typical of a rip-snorting Secular Bull Market.

In the big picture:

The “big picture” is the months-to-years timeframe – the timeframe in which Cyclical Bulls and Bears operate. The U.S. Bull-Bear Indicator (see Fig. 3) is in Cyclical Bull territory at 67.57, down from the prior week’s 69.22.

In the intermediate and Shorter-term picture:

The Shorter-term (weeks to months) Indicator (see Fig. 4) turned negative on March 24th. The indicator ended the week at 25, up from the prior week’s 24. Separately, the Intermediate-term Quarterly Trend Indicator – based on domestic and international stock trend status at the start of each quarter – was positive entering April, indicating positive prospects for equities in the second quarter of 2017.

Timeframe summary:

In the Secular (years to decades) timeframe (Figs. 1 & 2), whether we are in a new Secular Bull or still in the Secular Bear, the long-term valuation of the market is simply too high to sustain rip-roaring multi-year returns. The Bull-Bear Indicator (months to years) is positive (Fig. 3), indicating a potential uptrend in the longer timeframe. In the intermediate timeframe, the Quarterly Trend Indicator (months to quarters) is positive for Q1, and the shorter (weeks to months) timeframe (Fig. 4) is negative. Therefore, with two of three indicators positive, the U.S. equity markets are rated as Neutral.

In the markets:

U.S. Markets: U.S. Stocks closed flat to modestly lower for the week as smaller-cap indexes once again trailed large caps. The U.S. launch of missile attacks against Syria Thursday evening boosted oil prices and pushed investments into defensive sectors as well as “safe-havens” like gold. The Dow Jones Industrial Average was essentially flat, falling just 7 points to close the week at 20,656. The tech-heavy Nasdaq Composite retreated slightly from last week’s surge, declining -0.57% to 5,877. By market cap, the large cap S&P 500 was off -0.3%, while the mid cap S&P 400 gave up -0.77%, and the small cap Russell 2000 fell over -1.5%. Rounding out the Dow Indexes, the Dow Jones Utility index rose 0.28%, while the Transports ended down slightly, -0.13%.

International Markets: Canada’s TSX had its second week of gains, rising 0.77%. The United Kingdom’s FTSE retraced last week’s decline by gaining 0.36%. On Europe’s mainland, the two largest economies were mixed. France’s CAC 40 added to last week’s gain by rising a quarter of a percent, while Germany’s DAX retreated -0.7%. Italy’s Milan FTSE fell -0.94%. In Asia, China’s Shanghai Composite added 1.99%. Japan’s Nikkei suffered its fourth week of losses falling -1.29%. Hong Kong’s Hang Seng added 0.65%.

Commodities: Precious metals were mixed. Gold added half a percent this week, rising $6.10 to $1257.30 an ounce, while Silver retreated -0.58% to close at $18.15 an ounce. Oil had its second week of solid gains, rising 3.2% to $52.24 a barrel for West Texas Intermediate crude oil. The industrial metal copper, viewed by some analysts as an indicator of global economic health, retreated -0.2%.

U.S. Economic News: The Labor Department reported the number of Americans who applied for new unemployment benefits fell by 25,000 last week to 234,000 marking the second-lowest level of the current economic expansion. New claims have been under the 300,000 threshold that analysts use to gauge a “healthy” labor market for 109 straight weeks. The smoothed four-week moving average of claims, used by analysts for a more stable look at the data, dropped by 4,500 to 250,000. Continuing claims, the number of people already receiving benefits, fell by 24,000 to 2.03 million.

Private-sector hiring continued at a blistering pace last month according to payroll processer ADP. ADP reported the private sector added 263,000 jobs last month, its second-strongest reading in more than two years. The increase blew away expectations of a 170,000 job gain. Mark Zandi, chief economist at Moody’s Analytics said, “The gains are broad based but most notable in the goods producing side of the economy including construction, manufacturing and mining.” Professional and business sectors led the way with 57,000 jobs added, leisure and hospitality added 55,000, and the construction industry had a strong month where 49,000 jobs were added. ADP calculates the data by using its own payrolls information, as well as unspecified other factors.

However, the monthly Non-Farm Payrolls (NFP) report from the Labor Department threw cold water on the giddiness from the ADP report. According to the NFP, the U.S. created just 98,000 new jobs last month, its smallest increase in almost a year. The U.S. had added over 200,000 jobs in both January and February, although many analysts contended that rate was unsustainable. Steven Blitz, chief U.S. economist at TS Lombard said, “The 200,000-plus numbers reported for job gains in January and February always seemed a bit outlandish.” Inside the report, traditional retailers cut over 30,000 jobs for the second straight month as the carnage in that sector accelerates. Most of the hiring reported in the NFP was concentrated in white-collar professional jobs, health care, and oil production.

Economic activity in the non-manufacturing sector that employs the majority of Americans showed steady growth last month according to the Institute for Supply Management (ISM). The ISM’s non-manufacturing index fell 2.4 points to 55.2 last month, down 2.4 points from February but still represented growth (albeit at a lower rate). Fifteen out of the eighteen non-manufacturing industries tracked reported growth, including utilities, wholesale trade, mining and real estate. The three industries in contraction were information, educational services, and professional, scientific, and technical services. The majority of the ISM survey’s respondent comments indicated a positive outlook on business conditions and the overall economy, but there were also negative comments about uncertainty over health care expenses, trade, and immigration.

Economic activity in the manufacturing sector continued to expand last month, according to the ISM’s manufacturing index. The index’s reading of 57.2 was a slight slowdown from February’s pace, but signaled continued expansion. Out of the 18 manufacturing industries included in the survey, 17 reported growth. Gus Faucher, deputy chief economist at PNC Financial Services stated, “After contracting in late 2015 and early 2016, U.S. manufacturing is now expanding. Industry is benefitting from continued consumer demand, a turnaround in energy production, and a seeming end to the strengthening of the U.S. dollar.” The new orders index, used by analysts to gauge future growth, retreated slightly as well down 0.6 point to 64.5. All readings above 50 indicate continued expansion.

The Purchasing Manager’s Index (PMI) – a similar manufacturing survey from research firm IHS Markit – was slightly less positive. The manufacturing PMI remained in expansion but slowed 0.9 points to a six-month low of 53.3 last month. Markit’s index also showed weakness in new orders, to their slowest pace since October of last year. Chris Williamson, chief business economist at IHS Markit said, “The post-election resurgence of the manufacturing sector seen late last year is showing signs of losing steam. The survey data have acted as a reliable advance guide to official data in the past, and in March the data indicate a slowing of output growth to an annualized rate of around 2%.”

The Commerce Department reported that construction spending picked up in February, rising a seasonally adjusted 0.8%. Though February was slightly below expectations, January’s 1% decline was revised upward to just a 0.4% decrease. Compared to the same time last year, construction spending rose 3%. Economists attributed the positive reading to the unusually warm weather the country enjoyed in February—its second-warmest in 123 years. Residential spending was up 1.8%, while non-residential spending remained flat. Multifamily unit spending—apartments, condominiums, etc—grew 2%, while single family home construction rose 1.2%.

Car sales have taken a sharp dive. According to research firm Autodata, vehicle sales fell to their lowest level in more than two years last month. Sales were at a seasonally-adjusted annual rate of 16.62 million last month, a sharp decline from the 18.54 million units annual rate in December. The figures showed declines across the board: cars and light trucks, foreign and domestic. The National Automobile Dealers Association attributed the decline to the fall in used-car prices as a glut of previously leased vehicles came on the market. Auto makers have resorted to aggressive discounts. The average new-car sales incentive was over $3,750 in March, according to research firm J.D. Power.

U.S. consumers increased credit-card debt to the tune of $1 trillion last month as revolving credit increased at an annual rate of 3.5%, according to the Federal Reserve. The increase completely reversed the 3.2% drop in January, which had been the first monthly decline in credit-card debt since November 2013. Total consumer credit rose $15.2 billion to a seasonally adjusted $3.79 trillion—an annual growth rate of 4.8%. Dallas Fed President Rob Kaplan said consumers are in better shape “than any time since the 2008 financial crisis.” Consumer spending makes up about 70% of Gross Domestic Product.

International Economic News: In Canada, Kevin O’Leary (a.k.a. “Mr. Wonderful”, as he is known on the TV show “Shark Tank”), gave a speech to Canadian business leaders, job creators, and innovators at the Empire Club of Canada. O’Leary is a leadership candidate for the Conservative party. Speaking at the event, O’Leary promised to “wipe away” Prime Minister Justin Trudeau’s “mismanagement” within the first 100 days in office if he is elected the next Prime Minister. Mr. O’Leary outlined a plan he says will grow the economy at 3% and create jobs. To do so, he plans to significantly cut taxes, attract and retain top talent, invest in productive infrastructure, reduce regulatory drag, and remove the restraints on Canada’s national resource sectors.

Across the Atlantic, in the United Kingdom, Scotland’s economy slowed sharply last year, trailing the rest of the United Kingdom by the biggest margin in six years. Economic growth in Scotland fell to a paltry 0.4% last year from 2.1% in 2015. That was the sharpest slowdown since 2009 and stands in stark contrast to the rest of the United Kingdom as a whole which grew 1.8%. The gap between growth in the UK and Scotland is now the widest since 2010. Most Scots opposed leaving the EU in the Brexit vote, and Scotland’s government blamed the negative sentiment after the referendum and a slowdown in the global oil industry for the recent economic underperformance. Derek Mackay, Scottish government finance secretary said, “We have already seen significantly lower consumer confidence in Scotland since the vote last summer. Now we see that feeding through into our growth figures.”

In France, all eleven candidates for the French presidency fought for the spotlight in a marathon debate setting out their visions for a stagnant economy and redefining France’s place in Europe. Centrist Emmanuel Macron, the current frontrunner, stated, “I want to recover the optimism of the French.” Speaking of entrepreneurs and business leaders as job creators he stated, “We must invest to get the machine going again.” Far-right leader Marine Le Pen said her answer to French revival is “economic patriotism”, vowing to fight “out-of-control globalization” with an anti-EU agenda. Former prime minister Francois Fillon, under pressure after being charged with misuse of public funds, said France’s 10% unemployment and massive debt could create an “explosive situation”. He further asserted that Europe was “veering off course” and it was up to France to get it back on track.

German factory orders rebounded from their steepest decline in eight years in a sign that the German economy remains strong. Adjusted for seasonal swings and inflation, orders rose 3.4% after plunging 6.8% in January, according to the Economy Ministry in Berlin. Germany’s economy expanded at the fastest pace in five years last year. Recent data show that the trend is set to continue with private-sector output accelerating, unemployment falling to record lows, and business confidence at its highest since 2011. Nonetheless, the uncertainty of September’s federal elections, Brexit, and uncertainty over U.S. trade policies continue to hang over the outlook for spending and investment.

In Asia, Chinese President Xi Jinping met with U.S. President Donald Trump as the two leaders got to know each other and set up future meetings. Trump and Jinping announced no trade or investment deals, no agreements on North Korea, and no plans for a reduction of tensions in the South China Sea, but the two did establish a new “cabinet-level framework” for future talks. Treasury Secretary Steven Mnuchin stated, ““We have very similar economic interests and there are areas where they clearly want to work with us. The objective is for us to increase our exports to them.” Commerce Secretary Wilbur Ross stated the two countries agreed to a “100-day plan” to discuss trade, there were no further details.

Japan’s composite index of coincident economic indicators rose for the first time in three months in February. The increase suggests that the economy has extended its current recovery phase to 51 months–its third-longest expansion in the postwar period. The economic expansion started in December 2012, when Prime Minister Shinzo Abe first came to power. Despite the long recovery, personal consumption has remained stagnant as many Japanese people have yet to feel any benefit from the recovery. The coincident CI, which reflects current economic conditions, rose 0.4 point to 115.5.

Finally: Although an old market adage advises investors to “Sell in May and Go Away”, it turns out that – in contrast – April (the month before we’re supposed to go away) is historically quite a good month. As shown in the chart below, data from LPL Research and FactSet shows that the month of April is the single best month to be invested in the market over the last 20 years, and the second best over the past 10 years. Of course, previous market history is no guarantee of future results!

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Figs 1-5 source W E Sherman & Co, LLC)

The ranking relationship (shown in Fig. 5) between the defensive SHUT sectors (“S”=Staples [a.k.a. consumer non-cyclical], “H”=Healthcare, “U”=Utilities and “T”=Telecom) and the offensive DIME sectors (“D”=Discretionary [a.k.a. Consumer Cyclical], “I”=Industrial, “M”=Materials, “E”=Energy), is one way to gauge institutional investor sentiment in the market. The average ranking of Defensive SHUT sectors fell to 12.75 from the prior week’s 12.25, while the average ranking of Offensive DIME sectors rose to 13.5 from the prior week’s 15.50. The Defensive SHUT sectors still lead the Offensive DIME sectors, but by a very small margin. Note: these are “ranks”, not “scores”, so smaller numbers are higher ranks and larger numbers are lower ranks

If you have any questions about the FBIAS™ Fact-Based Investment Allocation Strategy portfolios, feel free to give your Anthony Capital, LLC advisor a call at 303-734-7178 or by scheduling a private virtual meeting/conference call. We work with clients from all over the country and would be happy to help.

You can also open up an online account by clicking HERE at our preferred custodian, Folio Institutional, LLC.

Sincerely,

Dave Anthony, CFP®

The very big picture:

In the “decades” timeframe, the question of whether we are in a continuing Secular Bear Market that began in 2000 or in a new Secular Bull Market has been the subject of hot debate among economists and market watchers since 2013, when the Dow and S&P 500 exceeded their 2000 and 2007 highs. The Bear proponents point out that the long-term PE ratio (called “CAPE”, for Cyclically-Adjusted Price to Earnings ratio), which has done a historically great job of marking tops and bottoms of Secular Bulls and Secular Bears, did not get down to the single-digit range that has marked the end of Bear Markets for a hundred years, but the Bull proponents say that significantly higher new highs are de-facto evidence of a Secular Bull, regardless of the CAPE. Further confusing the question, the CAPE now has risen to levels that have marked the end of Bull Markets except for times of full-blown market manias. See Fig. 1 for the 100-year view of Secular Bulls and Bears.

Even if we are in a new Secular Bull Market, market history says future returns are likely to be modest at best. The CAPE is at 29.02, up from the prior week’s 28.88, and now exceeds the level reached at the pre-crash high in October, 2007. Since 1881, the average annual return for all ten year periods that began with a CAPE around this level have been just 3%/yr (see Fig. 2).

This further means that above-average returns will be much more likely to come from the active management of portfolios than from passive buy-and-hold. Although a mania could come along and cause the CAPE to shoot upward from current levels (such as happened in the late 1920’s and the late 1990’s), in the absence of such a mania, buy-and-hold investors will likely have a long wait until the arrival of returns more typical of a rip-snorting Secular Bull Market.

In the big picture:

The “big picture” is the months-to-years timeframe – the timeframe in which Cyclical Bulls and Bears operate. The U.S. Bull-Bear Indicator (see Fig. 3) is in Cyclical Bull territory at 69.22 down from the prior week’s 69.81.

In the intermediate and Shorter-term picture:

The Shorter-term (weeks to months) Indicator (see Fig. 4) turned negative on March 24th. The indicator ended the week at 24, down from the prior week’s 25. Separately, the Intermediate-term Quarterly Trend Indicator – based on domestic and international stock trend status at the start of each quarter – was positive entering April, indicating positive prospects for equities in the second quarter of 2017.

Timeframe summary:

In the Secular (years to decades) timeframe (Figs. 1 & 2), whether we are in a new Secular Bull or still in the Secular Bear, the long-term valuation of the market is simply too high to sustain rip-roaring multi-year returns. The Bull-Bear Indicator (months to years) is positive (Fig. 3), indicating a potential uptrend in the longer timeframe. In the intermediate timeframe, the Quarterly Trend Indicator (months to quarters) is positive for Q1, and the shorter (weeks to months) timeframe (Fig. 4) is negative. Therefore, with two of three indicators positive, the U.S. equity markets are rated as Neutral.

In the markets:

U.S. markets: Stocks rose for the week, closing out the first quarter of 2017 with solid gains. The major indexes all rebounded from the previous week’s declines, but the tech-heavy Nasdaq Composite index was the only one to recoup its entire decline. The Dow Jones Industrial Average rose 66 points to 20,663. The Nasdaq Composite rose 1.4% to 5,911. Smaller stocks showed relative strength over large caps. The S&P 500 large cap index gained 0.8%, while the small cap Russell 2000 and S&P 400 mid cap indexes rose 2.3% and 1.5%, respectively.

International markets: Canada’s TSX rose 0.68%, while the United Kingdom’s FTSE fell slightly, down -0.19%. On the mainland, France’s CAC 40 and Germany’s DAX both added 2%, while Italy’s Milan FTSE rose 1.5%. Major Asian markets finished down. China’s Shanghai Composite fell -1.4%, while Japan’s Nikkei declined -1.8%. Hong Kong’ Hang Seng finished down -1%. As defined by Morgan Stanley Capital International, emerging markets as a group fell ‑1.1%, while developed markets as a group added 0.24%.

Commodities: Gold rose $2.70 ending the week at $1,251.20 an ounce. Silver rose as well, adding 2.86% to close at $18.26 an ounce. Oil broke above $50 per barrel, rising 5.5% to close at $50.60. Overall, the Commodities Research Bureau (CRB) index rose 1.3% for the week.

March summary: U.S. Markets were mixed for the month of March. The Dow Jones Industrial Average fell 149 points, losing -0.7%, while the Nasdaq Composite gained 1.5%. By market cap, both the large cap S&P 500 and small cap Russell 2000 were essentially flat, down -0.04% and -0.05%, while the S&P 400 mid cap index lost half a percent. In contrast to lackluster U.S. results, international markets showed good strength in March. Both the MSCI Emerging Markets Index and MSCI Developed Markets index did very well, rising 3.7% and 3.2%, respectively.

First Quarter summary: Most of the major U.S. indexes showed solid gains for the first quarter. The Nasdaq Composite led the way by rising 9.8%. By market cap, stocks with large capitalizations performed the best. The large cap S&P 500 and Dow Jones Industrial Average added 5.5% and 4.6%, respectively. Smaller-cap indices were also positive, but less so than their large cap brethren: the mid cap S&P 400 rose 3.6%, and the small cap Russell 2000 tacked on 2.1%. International indexes rebounded with a vengeance following a weak fourth quarter of 2016, and handily beat the U.S. benchmarks. The MSCI Emerging Markets index surged 12.5%, while the MSCI Developed Markets index soared 7.9%. Among sectors, Energy was the worst for the quarter, slipping -6.64%, while Technology was the best, roaring ahead by 10.66%.

U.S. Economic news: The Labor Department reported the number of Americans who applied for new unemployment benefits last week fell by 3,000 to 258,000—a 17-year low. New jobless claims have remained under the 300,000 level for 108 straight weeks, the second longest streak since the early 1970’s. Economists had expected initial jobless claims to total 247,000. The smoothed four-week average of initial claims rose 7,750 to 245,250. Although still low, that is its highest reading for 2017. Continuing claims, the number of people already receiving benefits, rose 65,000 to 2.1 million.

Home prices surged to their highest level in nearly three years as demand remains hot, particularly in the West. The S&P/Case-Shiller 20-city home price index rose 5.7% in the three-month period ending in January compared to the same time a year earlier. The index was a gain of 0.2% from its 5.5% annual increase in December. On a monthly scale, the 20-city index added 0.2% for the month or 0.9% when seasonally-adjusted. The national index, which includes all housing markets, rose 5.9% for the year, a 31-month high. Western metro areas, in particular Seattle, Portland, Denver, and San Francisco, continued to see the largest price increases.

Pending home sales, the number of homes that are under contract but haven’t yet closed, surged last month to its second-highest level in more than a decade. Pending home sales rose 5.5% in February according to the National Association of Realtors (NAR). The NAR attributed the reading to the rising stock market and steady jobs market, as well as warm weather and fears from home buyers of rising interest rates. The NAR forecasts a 2.3% rise in existing-home sales and a 4% rise in median home prices for this year.

Confidence among American consumers soared to its highest level in over 16 years, according to the Conference Board. The board reported its consumer confidence index jumped a huge 9.5 points to 125.6 in March, blowing past expectations of 114.1. Consumer confidence has continued to improve since the election of President Trump on expectations of lower taxes and more infrastructure spending. The only fly in the ointment is that confidence has not yet been impacted by the inability (so far) of congressional Republicans to enact any of the President’s ambitions – the cutoff for responses to the survey was March 16, just before Republicans were forced to abandon their efforts to replace Obamacare. In the report, both the present situation and the expectations indexes improved in March. Even better, the gains were widespread among almost all regional and income groups. Only those with household incomes below $15,000 were less confident now than they were before the election.

In the Windy City, a reading of economic activity inched higher this month to end the strongest quarter in more than 2 years. The Chicago Purchasing Managers’ Index (PMI) rose 0.3 point to a very solid 57.7 on a scale where any reading above 50 indicates improvement. Out of the five components measured, four showed improvement with only employment falling into contraction.

The Commerce Department reported that the U.S. economy’s Gross Domestic Product (GDP) grew at a 2.1% pace in the final quarter of last year, further evidence that the economy entered 2017 on a stronger footing than the previous year. GDP, the official tally for the overall economy, was revised up 0.2% from its 1.9% annual rate according to the Commerce Department. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised up 0.5% to 3.5% while most other figures were little changed. Economists had expected 2.0% growth in the fourth quarter. In addition to the upward revision, the report revealed a key measure of profits at U.S. companies increased for the third time in four quarters. Adjusted pretax corporate profits rose at a 0.5% annual rate in the final quarter of last year, after an almost 6% gain in the third. Profit figures are adjusted for depreciation and the value of inventories. Profits improved drastically starting in the second half of last year and have climbed over 9.3% over the past year.

While Fed officials might be happy, most consumers won’t be: the rate of inflation in consumer goods and services surpassed 2% in February for the first time in almost 5 years. The rate of inflation, as measured by the government’s Personal Consumption Expenditure (PCE) index, is now above the Federal Reserve’s long-term target of 2%. The increase opens the door for further rate hikes by the central bank. Some of the increase in inflation has been driven by a rebound in oil prices, but the cost of other staples such as housing, medical care, and financial services has been increasing even more rapidly. Stripping out the volatile food and energy components, the so-called core rate of inflation rose 0.2% last month, and is up 1.8% over the past year.

International economic news: To the north, the Canadian economy grew at an annualized 2.3% rate in January, according to Statistics Canada. For the month, Canadian GDP grew by 0.6%, double the expectations of 0.3%. Manufacturing had the strongest performance, expanding by 1.9%, but there was widespread growth across both goods and services production. Wholesale trade, the retail sector, construction, mining, and oil and gas were all on the upswing. Excluding October, Canadian GDP has risen every month since June 2016. BMO economist Doug Porter said he was revising his estimates for Canadian GDP growth in the first quarter to a 3.5% annualized rate, up from 2.7%, and predicted annual growth in 2017 could come in at 2.5%. “Given the rip-roaring start to the quarter and the nice hand-off from late last year, even tiny gains in the next two months will yield quarterly growth of well over three per cent,” he wrote in a note to clients.

Across the Atlantic, the EU is using the future of Gibraltar as a bargaining chip for the upcoming Brexit negotiations. The EU is backing Spain in its centuries-old dispute with the UK over the future of the British overseas territory. After lobbying from Spain, the EU’s opening negotiating position for Brexit talks presents the British government with the choice of reaching agreement with the Spaniards about Gibraltar’s future or risk pushing “the rock” outside any EU-UK trade deal. “The union will stick up for its members and that means Spain over the UK now,” a senior EU official said. Residents of Gibraltar, which Spain has sought to reclaim almost since it was ceded to Britain in 1713, voted 96% to remain in the EU. Spain is arguing that any agreement would require its blessing, because unlike Northern Ireland that is part of the UK, Gibraltar is a colony with a “disputed status”.

In France, far-right National Front presidential front candidate Marine Le Pen took the podium in Lille, France and proclaimed, “The European Union will die!” eliciting a round of raucous applause. “The time has come to defeat the globalists.” In late April and early May, voters in France will decide the future path of the country that has struggled with high unemployment, a huge influx of migrants, and frequent terrorist attacks. Their vote will also, in large part, determine the immediate future of the EU, a troubled institution that might be saved or destroyed by the same nation that spearheaded its creation. Of the five candidates for French presidency, two advocate abandoning the EU, two are harshly critical, and one argues for the EU.

German unemployment fell to a record low as Germany, Europe’s largest economy, continued to power ahead. The number of unemployed workers fell 30,000 to 2.6 million in March as the unemployment rate dropped 0.1% to 5.8% according to the Federal Labor Agency. Andreas Rees, economist at UniCredit Bank AG in Frankfurt stated, “It’s not only the jobless number but also the growth in the number of workers employed that has been strengthening over the last few months.” The number of employed people in Germany strengthened in February and was about 600,000 higher than a year ago.

In Asia, China’s factory activity ticked up again last month to its highest level in five years according to the latest official survey. The Chinese Federation of Logistics and Purchasing’s PMI climbed for a second month to 51.8, its strongest level since April 2012. Production and new orders were key drivers of the latest growth. High-tech manufacturing saw rapid growth, while conditions in traditional industrial production also improved. Chinese manufacturing and trade with the U.S. will be on the agenda when U.S. President Donald Trump meets with Chinese counterpart Xi Jinping on April 6-7 in Florida. Trump, who accused China of unfair trade practices during his campaign, tweeted Thursday that the meeting would be “very difficult.”

In Japan, the unemployment rate hit a 22-year low of 2.8% last month, offering a positive sign for the country’s economy. The country’s job availability, the ratio of job offers to job seekers, remained unchanged at 1.43—the best level since July 1991 according to Labor Ministry data. It means that 143 positions were available for every 100 applicants. The job market remains tight with labor shortages prevalent in nonmanufacturing sectors such as medical and nursing care. Of concern, however, consumers remained reluctant to spend more as household spending fell 3.8% from a year earlier. Consumers cut spending on food items, clothes, transportation and communications, and entertainment.

Finally: While the U.S. Civil War officially ended in 1865, a trio of researchers from the Washington D.C.-based think tank Center for Economic and Policy Research (CEPR) released a paper asserting that the United States still remains a nation of two countries. The authors wrote, “For the 117 million U.S. adults in the bottom half of the income distribution, growth has been nonexistent for a generation, while at the top of the ladder it has been extraordinarily strong.” The researchers discovered that for the working class, income has actually dropped. In fact, none of the growth from 1980 to 2014 went to the bottom 50%, the study pointed out. Only 32% went to the middle class, while the top 10% reaped 68% of the growth. A full 36% went to the 1% alone. The authors concluded “An economy that fails to deliver growth for half of its people for an entire generation is bound to generate discontent with the status quo and a rejection of establishment politics.” Sounds like exactly the kind of discontent and rejection we’ve seen! Here’s the rather dramatic chart from the CEPR.

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Figs 1-5 source W E Sherman & Co, LLC)

The ranking relationship (shown in Fig. 5) between the defensive SHUT sectors (“S”=Staples [a.k.a. consumer non-cyclical], “H”=Healthcare, “U”=Utilities and “T”=Telecom) and the offensive DIME sectors (“D”=Discretionary [a.k.a. Consumer Cyclical], “I”=Industrial, “M”=Materials, “E”=Energy), is one way to gauge institutional investor sentiment in the market. The average ranking of Defensive SHUT sectors fell to 12.56 from the prior week’s 10.25, while the average ranking of Offensive DIME sectors rose to 15.5 from the prior week’s 16.25. The Defensive SHUT sectors still lead the Offensive DIME sectors, but by a smaller margin than last week. Note: these are “ranks”, not “scores”, so smaller numbers are higher ranks and larger numbers are lower ranks

If you have any questions about the FBIAS™ Fact-Based Investment Allocation Strategy portfolios, feel free to give your Anthony Capital, LLC advisor a call at 303-734-7178 or by scheduling a private virtual meeting/conference call. We work with clients from all over the country and would be happy to help.

You can also open up an online account by clicking HERE at our preferred custodian, Folio Institutional, LLC.

Sincerely,

Dave Anthony, CFP®