3 Stories in the global economy that should not go un-noticed
Early last week, the FTSE All-World equity index rose to a near six-year high, indicative of the global risk appetite for stocks. But by Wednesday afternoon stocks were modestly weaker after the policy statement from the Federal Reserve was interpreted as less dovish than some had predicted. The Fed did, however, maintain its current pace of highly accommodative bond-buying at this week's meeting, as had been widely expected.
For the week, the S&P 500 gained 0.11%, the Dow gained 0.29%, and the MSCI EAFE index (developed international) lost 1.47%.
Here are the 3 stories this week that rose above the noise:
The Disinflation Phenomenon
A recent post from The Economist Buttonwood blog details the continued disinflationary pressures that are evident in many developed countries, most notably in Europe. With measures of inflation in Europe falling to four-year lows, there is growing speculation that the European Central Bank will take further aggressive steps to ease monetary policy.
As the author explains, global disinflationary pressures are likely at least partially the result of continued contraction in bank credit. Continued low inflationary pressures suggest central banks are likely to maintain very accommodative monetary policy in the coming months.
Americans’ Debt Hangover Seen Ending in Boost to Growth
American consumers have been reducing household debt over the last five years and now appear well positioned to increase borrowing and spending. The percentage of household income that is allocated to paying debt dropped to a record low last year.
The rapid increase in federal deficit spending following the 2008-2009 financial crisis helped offset some of the negative impact on the U.S. economy from consumer deleveraging, but now the federal government is beginning to implement fiscal austerity to shrink the deficit. According to Moody’s Economist Ben Garber, “Consumers taking on more debt at a time when the deficit is shrinking would be a strong positive for the economy. This will help offset some of the fiscal austerity that we’re experiencing.”
Stocks Soar Eerily High: Where does S&P go from here?
A blog post from The Wall Street Journal provides some interesting notes on the current market rally. On the positive side, when the S&P has performed strongly from January through October, the index has historically averaged an additional 5.7 percent gain during the final two months of the year.
One area of concern however is the fact that the market has not seen a 10 percent correction since October 2011 (25 months ago). According to S&P Capital IQ, “since 1946, the S&P 500 has gone 18 months, on average, between 10 percent drops.”
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
