CAMS Weekly View from the Corner – Week ending 12/1/2017
December 4, 2017
The St. Louis Federal Reserve Bank is the 8th District Bank of the 12 District Bank Federal Reserve System. The St. Louis branch publishes a Financial Stress Index that gives us a sense of how much stress is registering in our economic system through various market measures.
This Index is comprised of eighteen different market based measures in order to get a sense of how collective market participants are interpreting our current economic landscape via various market based relationships.
Interestingly, with the historic Monetary Policy actions the Federal Reserve had taken dating back to the Great Recession of 2008/09 said relationships became a bit “manufactured” if you will.
The Fed itself was a massive buyer/participant in markets with their purchases of various investment instruments via their tremendous money printing policies which played a notable role in creating various relationships which pointed to lower financial stress.
Importantly though, as of September 20th of this year, the Fed informed us said policies had been concluded via an “un-printing” process if you will whereby they are allowing their massive balance sheet to reduce in size. With this, in time it will be interesting to see what this Stress Index will register as it is more freely reflecting the collective message of only “for profit” market participants.
Click For Larger View: https://fred.stlouisfed.org/graph/?g=gafx
The above chart depicts the Stress Index dating back to the Great Recession. This Index is constructed in that the zero level reflects normal conditions with a value less than zero being below normal stress conditions or higher than if above the zero line. As offered, the historic Fed actions have played a role in the chart’s lengthy run of sub zero postings.
Click For Larger View: https://fred.stlouisfed.org/graph/?g=gac6
The above chart depicts the same Stress Index (blue line) with the S&P 500 (red line) laid over it. In a general sense as the Stress Index has moved lower the S&P has moved higher, particularly in 2017.
With the Fed having walked away from their Great Recession printing policies it will be important to see stress levels remaining low which will inherently be reflecting solid economic growth – a necessity often shared in these Weekly Views to support elevated market valuations.
On this note the most recent Stress Index reading posted on Thursday reflected the lowest level we have seen since its inception in 1993. Lower lows are not a requirement but on-going subdued stress levels will offer a landscape of supportive economic strength.
I wish you well…
If you missed our last webinar, you’ll find the presentation materials below as well as a link to the full presentation replay.
Webinar Materials Why Market Research Matters – Executive Summary Why Market Research Matters – Presentation Slides
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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