OCTOBER – CRED declined to 47.5, its lowest reading since September 2016. Valuation, global and employment metrics dragged the index down from the prior month’s 65.0.
Business indicators remained strong overall, bolstered by a strong labor market and rising compensation costs. “Hard business data (New Orders, Industrial Production) remained consistent with prior month readings. Consumer confidence increased in October and remains at levels last seen since September 2000. Retail sales were flat month-over-month while housing permits ticked up, reversing a downward trend from the last few months. Risks to housing include rising property prices and higher mortgage rates. Despite the noticeable CRED decline, indicators point to the current business cycle continuing into 2019. Inflation remained flat despite an expected Fed rate hike in December. While valuations are still elevated, the S+P’s Forward P/E ratio dropped to the lowest level since February 2016 and the high yield spread widened 50 basis points after narrowing in September. Globally, Eurozone economic data remained flat and China PMI dipped again staying below 51, as export sales fell for the seventh straight month and workforce numbers dropped.
About The ClearRock Economic Dashboard™ (“CRED”) – CRED is a proprietary financial tool we have built and refined over the past 10 years. CRED is a monthly barometer designed to measure the strength of the global economy. It synthesizes twenty financial data points to produce a monthly diffusion index of economic health. We represent the index using a “speedometer” with a scale of 0 to 100. A reading of 50 is neutral, which indicates that the economy is growing at its long-term historical average. A reading below 50, signals that the economy is slowing, which may lead to a contractionary phase in the economic cycle. Conversely, when CRED gives us a reading above 50, the economy is growing faster than its historical trend rate, and is likely expanding.
We use this tool to answer a simple question: where are we within the current business cycle? Answering this question is a core part of our investment management process and is an important factor in driving our asset allocation decisions. We believe that getting the big picture right is key for achieving long-term portfolio growth and, most important, helping our clients reach their financial goals.
It is important to note however, that CRED is only one of the many resources that helps our Investment Committee make more thoughtful decisions. Our deep industry and investment experience, coupled with our network of external independent research sources, we believe has allowed us to build a sound, disciplined, and repeatable investment process.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from ClearRock Capital, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.