Research Roundup

Level Check

Last week the University of Michigan reported that the Index of Consumer Sentiment reached 84.5, its highest reading since July of 2007, confirming other reports of multi-year highs in confidence. This improvement in attitudes reflects gains in both the real economy and financial markets.
-David Kelly, chief global strategist, J.P. Morgan Funds

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The Disappearing “Large” Effect & Emerging Market Performance

We think the disappearance of the “Large” effect in Emerging Markets has negatively affected the benchmark performance (the MSCI EM benchmark is a cap-weighted index).
-Jun Zhu, senior analyst, Leuthold Weeden

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The Most Important (and Widely Ignored) Economic Number

And of all the indicators I’ve tested, the CFNAI has the best track record of forecasting future GDP. Since 1980 the CFNAI has explained roughly 40% of the variation in the following quarter’s GDP, an extremely high proportion for a single indicator. -Russ Koesterich, chief investment strategist, BlackRock

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Taking Stock

We believe investors are anxious about an end to Fed assistance because they lack economic confidence. Since 2009, the Fed has been clear about open-ended policy, supported by the recent message from key FOMC leaders. There is no pressure on policy from the perspective of the Fed’s two mandates: 1) Inflation is below target and 2) unemployment is still too high to warrant taking economic risk. The Fed is unlikely to cause a U.S. inflation problem in the next two years, but the consequence of its policy has been inflationary around the world, primarily in the form of asset inflation. The Fed will only pass the baton to the private sector when it believes confidence has been restored, and growth is self-reinforcing to weather the market turbulence associated with moving from hyper-accommodative to accommodative policy. Earnings will then become more critical to drive equity prices. This transition to a neutral policy will be historically slow. Bottom line: we believe the Fed is not ready to scale back the degree of accommodation and will wait for more data to confirm a sustainable recovery.
-Robert C. Doll, chief equity strategist, senior portfolio manager, Nuveen Asset Management, LLC

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Rock, Paper, Scissors

Many observers believe that the major risk in the next employment report is that it will come in too strong, and lead the Fed to taper its program of QE more quickly. My impression is that a very weak report would be a greater risk for the markets, because it would properly bring the economic ineffectiveness of QE into stronger focus. In the absence of demonstrable benefits, the attempt to balance the benefits versus costs of QE may abruptly shift all remaining weight to the “cost” side.
-John P. Hussman, president, Hussman Investment Trust

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The Truth about April’s Budget Surplus

Washington finally had some good news to report, specifically on the budget deficit.
-Marie Schfield, chief economist, Columbia Management

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Investors Living in Emerging Markets are a Bullish Bunch!

According to the GISS, 58% of investors residing in developed markets believe their local stock market will be up this year, but investors in emerging markets were even more upbeat – 66% believed their local stock market would post a bullish performance in 2013.
-Mark Mobius, executive chairman, Templeton emerging markets group

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Everybody Wants Some: Central Banks and Bond Funds Step up Buying of Stocks

It's probably no surprise that a common question I hear these days is, "Has the stock market come too far too fast?" There are underlying questions as well, including "If it's not retail investors buying (they're not, at least not aggressively), who is doing the buying?"
-Lis Ann Sonders, chief investment strategist, Charles Schwab

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Economic Insights: Consumers: The Great Sobriety

In many respects, the de-leveraging that has been occurring in the household sector since 2008 stands as a truly remarkable economic event, especially given the American consumer's well-entrenched, spendthrift habits.
-Milton Ezrati, senior economist and market strategist, Lord Abbett

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How to Take Advantage of the Great (Sector) Rotation

One beneficiary of the 2013 US stock market rally: defensive sectors.
-Russ Koesterich, chief investment strategist, Blackrock

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JP Morgan Quarterly Market Guide

Strategists at J.P. Morgan Funds believe that the New Year will not be without its own set of challenges as the Federal Reserve continues to expand its balance sheet, the economy continues to feel the effects of fiscal restraint and geopolitical tensions continue to bubble.
-JP Morgan Funds

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Happy New Year?

Just about any way you cut it, 2012 was a great year for the stock market. The S&P 500 Index finished up more than 13%. Tack on a couple of percentage points for dividends, and total return last year for this broad measure of stock market performance was nearly 16%. A very impressive year indeed and in line with our expectations.
-Scott Wren, senior equity strategist, Wells Fargo

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18 Implications of the Last-Minute Agreement

The bottom line: The agreement mitigates the full impact of the scheduled tax hikes and spending cuts but is incomplete in many ways.
-Russ Koesterich, global chief investment strategist, BlackRock

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2013 Forecast: Good Economy, Challenged Markets

We enter 2013 bombarded by con? icting signals. While fundamentals have been mixed of late, longer-term themes — our “tectonic shifts” like the energy revolution — are gaining momentum and promising to make positive contributions sooner rather than later. And while salutary measures taken by policymakers have eased global risks and lessened fears of Armageddon, there is considerable work yet to be done.
-Doug Cote, chief market strategist, ING Investment Management

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Talking Point

“Technology has played such a role in leveling the playing field. The wirehouses don’t have key differentiators anymore because just about everything is available on each platform.”

Scott Smith, associate director at Cerulli »