Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.
Each time the calendar turns, it is traditional for market economists to release detailed macro forecasts for the year ahead. Target macro forecasts (insert rolling eyes emoticon here) on levels for the S&P500 and the U.S. 10-Year Treasury yield to us seem flagrantly presumptive given economic and market dislocations do not cram themselves neatly into any calendar year. As such, we deem macro forecasts to be a customary distraction at this time of year and folly unworthy of our participation.
In searching for clues on what the future might hold, we have always appreciated the clarity of the phrase "control the controllables.” Focus on the tangible and what you can impact; focus on the things within our control that help shape future returns, with preparation being the chief element of our forecast.
Diversifying investment risk and willingly making changes when economic and/or market conditions indicate the need for such changes are "controllables." When valuations are cheap, holding more concentrated risk positions in a diversified portfolio is a worthwhile endeavor. As a cycle lengthens and valuations extend, decreasing that concentrated risk is important. In the current environment, pulling in risk across portfolios is the sensible thing to do. Should a market dislocation or shift in the macro landscape occur, our preparation will lead us to dial risk and concentration up or down in our investment strategies.
As we look ahead, while the worst-case trade war outcome seems to have been avoided and focused monetary policy seems to have helped stabilize global growth prospects, we see few compelling pockets of “cheap things” to buy currently. Over the year, we will look for signs of crowded trades, inflation pressures, and changes in monetary policy and/or consumer spending to identify significant changes in market behavior.
Data deck for January 4–January 10:
|
Date |
Event |
Period |
|
4-Jan |
FOMC Minutes |
Dec. |
|
5-Jan |
Fed Speakers (Kaplan) |
Jan |
|
5-Jan |
Fed Speakers (Williams) |
|
|
6-Jan |
Markit services PMI |
Dec. |
|
7-Jan |
Trade deficit |
Nov. |
|
7-Jan |
ISM nonmanufacturing index |
Dec. |
|
7-Jan |
Factory orders |
Nov. |
|
8-Jan |
ADP employment |
Dec. |
|
8-Jan |
Consumer credit |
Nov. |
|
9-Jan |
Weekly jobless claims |
4-Jan |
|
9-Jan |
Fed Speakers (Clarida, Evans, Bullard) |
|
|
10-Jan |
Nonfarm payrolls |
Dec. |
|
10-Jan |
Unemployment rate |
Dec. |
|
10-Jan |
Average hourly earnings |
Dec. |
|
10-Jan |
Wholesale inventories |
Nov. |
