CAMS Weekly View – Week Ending 3/10/17
March 13, 2017
This past Friday the Employment Report for the month of February was released by the Bureau of Labor Statistics (BLS) which reflected total non-farm payrolls increased by 235,000. This offers additional evidence that the employment market is healthy. This also adds another piece to the economic backdrop that suggests a Federal Reserve interest rate hike will be coming this week.
In recent Weekly Views we have offered the observation of how the stock market in particular has reflected some caution. This past week we have continued to see caution displayed. This is most evident when viewing the market broadly via sectors and sub-industries as well as in individual stocks that have been notable leaders in the market uptrend.
In addition, small size company under-performance relative to large company indices such as the S&P 500 is getting more concerning. In the post-election liftoff small size companies were true standouts as their out-sized performance gave added credence to the broad strength of the rally that ensued. In the previous couple of months they have traded sideways with their recent attempt to break higher actually failing, and now worse, seemingly attempting to move lower.
This divergence between large index performance relative to small company performance while we simultaneously see certain previously leading sectors and sub-industry’s under-performing does offer caution. Caution does not mean imminent problems but the continued general deterioration certainly warrants increased attention.
Click for larger view: https://fred.stlouisfed.org/graph/?g=cYSZ
As offered above the employment results for February continue to point to a healthy employment backdrop. Inside the Bureau of Labor Statistics (BLS) monthly report is a trove of data points offering various measures of which to help gauge the structural health of the U.S. employment landscape.
The above chart depicts the Labor Force Participation Rate and dates back to 1970 for a broad perspective. The Participation Rate informs us of what percentage of the population is considered to be in the Labor Force. To be in the Labor Force you have to be currently holding a job or actively searching for a job as defined by the BLS.
As the chart depicts we can see from a structural health perspective, relative to its history, that our employment landscape has been quite challenged as we have essentially been trending down since 2000. More recently, we see the downtrend has stalled with an attempt at moving higher.
As headline employment numbers get the most attention we thought it relevant to share one of the many detailed measures offered within the monthly BLS report. Via this measure damage has been incurred since 2000. The focus now is to see if this attempt at trending upward actually becomes a notable trend which leads to a significant structural improvement in our economic landscape. We will continue to share this and other type of economic building blocks as we move forward.
I wish you well…
Sincerely,
Ken Reinhart
Director, Market Research & Portfolio Analysis
Portfolio Manager, CAMS Spectrum Portfolio
Footnote:
H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP). This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”. A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.
This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.
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