Jeff Voudrie’s Week-In-Review 9/9/2013

Hi,

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Trending Indicators

                US Stock Market              Confirmed Down Trend
                Canadian Stok Mkt            Confirmed Down Trend
                US Bond Market               Confirmed Down Trend

In the markets:

Markets rebounded last week from a recent spate of weekly losses.  Avoiding a fourth consecutive down week, the Dow Industrials rose +0.8%.  The other major US indices outperformed the Dow, led by the Nasdaq at +2.0%.  Canada’s S&P/TSX Composite Index rose +1.3%, closing at its highest level since March 2012.  International markets were strongly positive as well, with Emerging Markets averaging gains of +5.1% (although still down -8.7% for 2013); Developed Markets added a robust +3.3% as well.

The biggest data point of the week  in the US was the Non-Farm Payrolls number, released on Friday.  It was disappointing at 169,000 (consensus was for 190,000), and July’s number was revised down a whopping 58,000, to 104,000.  Nonetheless, the employment rate fell again, to 7.3%, the lowest since December, 2008.  The biggest contributor to the declining employment rate was the decrease in labor force participation, which is now at the lowest level since 1978.  The Fed’s “Beige Book” reported that the Fed sees “modest to moderate” growth in the US, a notch worse than their previous view.  The soft payrolls number has caused many observers to see diminished odds of the Fed tapering its QE program in September.

Canada also reported its payroll number this week, and it was a very strong +59,000, dropping the unemployment rate to 7.1%.  This was more than twice the consensus estimate, but few economists thought it to be a signal of a boom, as the Q2 GDP growth was recently reported as a modest +1.7%.

The recovery in the Eurozone manufacturing sector continued in August.  The Purchasing Managers Index (“PMI”) came in at 51.4, rising for the fourth successive month to reach its highest level since June 2011.  The UK manufacturing sector maintained its robust start to the third quarter of 2013, with its growth rate at the highest since 1994.  The UK economy as a whole is enjoying the strongest growth spurt in 15 years, according to markit.com researchers.  The Eurozone PMI Composite (manufacturing + services) Output Index signaled a second successive monthly expansion in business activity in August.

Emerging Markets, which have had a very rough go this year, may have put in a bottom this summer.   The HSBC Emerging Markets Index (EMI), a monthly indicator derived from Markit’s PMI surveys, recovered from July’s low in August but posted only a marginal rise in output across global emerging markets. The EMI rose from 49.5 to 50.7, the third-lowest figure in over four years.  And the BRI of the BRICs  (Brazil, Russia and India) all continue to struggle, with manufacturing shrinking and – in India’s case – a plunging currency.

(sources: Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com, stat.go.jp)

Looking Ahead

The Syrian situation continues to drag on with public support for military action steadily increasing. The market seems to be pricing in little to no action. It is possible that we will see the market resume its uptrend should there not be any action (because uncertainty is decreased) and vice versa.

Regarding the portfolios, I am making some tactical changes in the Growth Stock Portfolio strategy and the Income Fund Strategy. Smaller companies seem to be performing much better than large, well-established companies in this period because they can still grab market share. The changes in the Growth Stock Portfolio will reflect that. Also, interest rates continue to push higher which is negative for bond funds in general. I anticipate further diversifying the bond-oriented positions to include some short hedge positions on 7-10 and 20 yr + treasury bonds.

If you have any questions please let me know…

God Bless, have a wonderful week!