The U.S. economic trend remained positive, settling at an average pace for the year to date through July 8, according to markets-based benchmark. The Macro-Markets Risk Index (MMRI) closed at +10.7% yesterday, or just slightly above the average of daily readings so far in 2014. The consistently positive numbers suggest that business cycle risk remains low. A decline below 0% in MMRI would indicate that recession risk is elevated. By comparison, readings above 0% imply that the economy will expand in the near-term future.
MMRI represents a subset of the Economic Trend & Momentum indices (ETI and EMI), a pair of benchmarks that track the economy's broad trend for signs of major turning points in the business cycle via a diversified set of indicators. Analyzing the market-price components separately offers a real-time approximation of macro conditions, according to the "wisdom of the crowd." Why look at market data for
U.S. economic growth for this year's second quarter is widely expected to rebound sharply after a 1.0% decline in Q1. The upbeat estimates for this quarter include the Capital Spectator's median econometric nowcast, which anticipates that GDP will increase 3.3% during the April-through-June period (real seasonally adjusted annual rate). That's up from 2.8% in the previous Q2 nowcast. The Capital Spectator's final estimate for this quarter will be published shortly ahead of the government's initial Q2 GDP report, which will be published on July 30 by the U.S. Bureau of Economic Analysis (BEA).
The expected rebound for Q2 is on track to look even more impressive, based on the lesser estimate that's predicted for this week's revised Q1 data that's scheduled for release on Wednesday, June 25. The consensus forecast via Briefing.com sees Q1 GDP falling at a faster rate in BEA's third revision: a 1.8% slide
By James T. Tierney, Jr.
Falling yields on Treasuries are often seen as a signal of a weakening economy that could undermine stocks. We think there are other explanations that don't threaten the outlook for equities.
Treasury prices were widely expected to fall in 2014 for a second straight year. Instead, bond prices rose this year and the 10-year Treasury now yields around 2.6%, down from approximately 3% at the end of 2013. For equity investors, the flight to safety in government bonds is usually seen as a bad omen.
Yet through May, US equity and fixed-income returns have been remarkably similar-both have gained around 4%. This is peculiar because their performances are often viewed as opposite reads on the economy: when bonds do well and yields fall, investors are generally more cautious and skeptical about economic growth. Rising stocks typically point to an expanding economy and robust earnings. So