Economics

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Comerica Economic Weekly 01122018

January 12, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic data released this week for yearend 2017 showed ongoing economic momentum in Q4 in a benign inflation environment.

Retail sales for December were a little softer than expected, gaining 0.4 percent for the month. For the fourth quarter as whole, nominal retail sales were up by 2.7 percent quarter-over-quarter, showing a good holiday shopping season consistent with a solid GDP print for the fourth quarter.

The Consumer Price Index for December came in weaker than expected, gaining 0.1 percent for the month as the energy price sub-index dipped by 1.2 percent. Food prices were up by 0.2 percent for the month. Excluding food and energy, the core CPI was up by 0.3 percent, showing a whiff of inflation despite the soft headline number. Over the previous 12 months, headline CPI gained 2.1 percent, while core CPI gained 1.8 percent.

The December Producer Price Index for final demand eased by 0.1 percent, below expectations. In the December PPI report we see the impact of stabilizing energy prices after earlier gains. Over the 12 months ending in December, the PPI for final demand was up by 2.6 percent. The PPI for core final demand (less food, energy and trade), was up by 2.3 percent over the year.

Initial claims for unemployment insurance increased by 11,000 for the week ending January 6, to hit 261,000. This level is still within the very low range seen through all of 2017. The recent increase in initial claims, from mid -December through early January, can be discounted due to the vagaries of the seasonal adjustment process through the holidays. Continuing claims for the week ending December 30 fell by 35,000, to hit a very low 1,867,000.

The Job Opening and Labor Turnover Survey (JOLTS) for November showed a small tick down for both the job openings rate, to 3.8 percent, and the hiring rate, to 3.7 percent. Both series are still near recent highs, so this does not look like a meaningful move.

The National Federation of Independent Business's Small Business Optimism Survey for December showed a 2.6 point drop in its Business Optimism Index. This came after a sizeable gain in November. The index remains elevated in a very positive range.

Mortgage applications jumped by 8.3 percent for the week ending January 8, with a 5.0 percent increase in the purchase index and an 11.4 percent gain in refis.

The Senate Banking Committee will hold a second vote on Jay Powell’s nomination for Chairman of the FOMC on January 17 because the full Senate failed to approve him before the end of 2017.

For a PDF version of this report click here: Comerica_Economic_Weekly_01122018.

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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December Retail Sales, Consumer Prices

January 12, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Q4 Retail Sales Strong, Supportive of Q4 GDP

  • Retail Sales increased by 0.4 percent in December, capping a strong quarter.
  • The Consumer Price Index increased by 0.1 percent in December as energy prices eased.

 

Retail sales for December were just a little softer than expected, gaining 0.4 percent for the month. For the fourth quarter as a whole, nominal retail sales were up by 2.7 percent quarter-over-quarter, or up at an 11.3 percent annualized growth rate after seasonal adjustment. If we subtract a 3.7 percent annualized growth rate for headline CPI, to get an estimate of real (inflation adjusted) retail sales, we see a strong 7.6 percent growth rate estimate for real retail sales, in the fourth quarter. This is in line with our expectation of a good holiday shopping season for the end of 2017. While much of overall consumer spending does not fall under the category of retail sales, this back-of-the-envelope calculation supports our estimate of strong real consumer spending for the fourth quarter, which is a major contributor to GDP growth. Retail sales of autos increased by 0.2 percent in December, consistent with the uptick in unit auto sales to a 17.8 million unit annual rate. Building materials was the strongest individual category of retail sales for December, up by 1.2 percent. Sporting goods sales were soft, declining by 1.6 percent.

After yesterday's tepid PPI report for December, it is no surprise to see the headline Consumer Price Index for December come in a little weaker than expected. The CPI gained just 0.1 percent for the month as the energy price sub-index dipped by 1.2 percent. Food prices were up by 0.2 percent for the month. Excluding food and energy, the core CPI was up by 0.3 percent, showing a whiff of inflation despite the soft headline number. Both new and used vehicle prices had largish gains for the month. Over the previous 12 months, headline CPI was up by 2.1 percent, while core CPI gained 1.8 percent.

Market Reaction: Equity markets opened with gains. The 10-year Treasury yield is up to 2.55 percent. NYMEX crude oil is down to $63.58/barrel. Natural gas futures are down to $2.91/mmbtu.

For a PDF version of this report click here: Retail_Sales_01122018.

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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December PPI, January UI Claims

January 11, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Weak PPI in December Keeps Inflation Debate Going

  • The Producer Price Index for Final Demand decreased by 0.1 percent in December.
  • Initial Claims for Unemployment Insurance increased by 11,000 for the week ending January 6.

 

Inflation numbers are central to current conditions analysis for the U.S. economy in 2018 as the Federal Reserve charts its course for monetary policy. So, weak inflation numbers, like we see today in the December PPI report, generates speculation in the financial press. However, we believe that the Fed will see transitory factors in the December PPI report that will not move them away from an expected March 21 fed funds rate hike. We typically see some give back after strong price reports. In November, the Producer Price Index for final demand was up by 0.4 percent, capping four consecutive months of noticeable gains. Today, in the December PPI report we see the give back. The Producer Price Index for final demand eased by 0.1 percent, well below expectations. This does not mean that inflation was suddenly hot and now suddenly not. Rather, in the December producer price report we see the impact of stabilizing energy prices after earlier gains. Looking at final demand goods, the energy price sub-index was unchanged for the month after gaining 4.6 percent in November. Also, food prices eased with lower beef prices. The core index for final demand goods (less food and energy) gained a steady 0.2 percent in December. In final demand services we also see some drag from stable energy prices showing up in auto- and trucking-related areas. Over the 12 months ending in December, the PPI for final demand was up by 2.6 percent. The PPI for core final demand (less food, energy and trade) was up by 2.3 percent over the year. Tomorrow we will see the Consumer Price Index and retail sales for December.

Initial claims for unemployment insurance increased by 11,000 for the week ending January 6, to hit 261,000. This level is still within the very low range seen through all of 2017. The recent increase in initial claims, from mid-December through early January, can be discounted due to the vagaries of the seasonal adjustment process through the holidays. Continuing claims for the week ending December 30 fell by 35,000, to hit a very low 1,867,000.

Also noteworthy in the wage-inflation-interest rate discussion, today Wal-Mart announced that it is raising its starting wage to $11 an hour and will be giving one-time bonuses of up to $1,000 for low-wage workers. Wal-Mart employs 1.5 million people in the U.S.

Market Reaction: U.S. equity markets opened with gains. The yield on 10-Year Treasury bonds increased to 2.56 percent. NYMEX crude oil is up to $64.37/barrel. Natural gas futures are up to $2.88/mmbtu.

For a PDF version of this report click here: PPI_01112018.

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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2018: Out from the Shadow of the Great Recession

January 8, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

With the end of 2017 came a noteworthy anniversary. December 2017 marked ten years since the onset of the Great Recession. One generalized conclusion from Reinhart and Rogoff's masterpiece, This Time is Different: Eight Centuries of Financial Folly, is that it can take about 10 years for an economy to recover from a severe financial crisis. While there is no calendar to check off milestones of crisis and response, that ten-year time span feels about right. So we can think about the U.S. economy in 2018 less in terms of recovery from crisis, and more in terms of what can foster positive momentum, what is sustainable and what is not.

As we look ahead to 2018 and beyond, we see that the U.S. economy is generating more consistent momentum.We still have a good shot at three consecutive quarters of 3 percent or more real GDP growth beginning in 2017Q2. It would be the first such winning streak in this expansion. We will get the first estimate of 2017Q4 real GDP growth on January 26. In addition to more consistent U.S. momentum, global economic demand is improving. Europe and Japan are both gaining momentum after years of underperformance. With the recent passage of tax reform, U.S. fiscal policy is stimulative. If Congress can cobble together an infrastructure spending program as promised, that could add to fiscal stimulus later this year. Although interest rates are gradually rising, monetary policy remains accommodative. The Federal Reserve has so far raised short-term interest rates from exceptionally low, to merely very low. Also, the crisis-driven regulatory response is easing. We expect to see more examples of regulatory rollback this year.

Productivity growth is key to sustaining a long expansion. We define productivity as real output per hour of all nonfarm private-sector employees. It tends to be cyclical, often peaking at the end of recessions after labor has been shed and output starts to ramp up. It often declines ahead of recessions as businesses hire more workers to keep up with growing demand. So far in this expansion, productivity growth has been weaker than expected. However, through the first three quarters of 2017 productivity growth improved, with 2017Q3 registering 1.5 percent year-over-year productivity growth -the strongest since 2015Q2.We expect the recent reforms to the corporate tax code to be positive for business investment, and therefore positive for productivity growth. Productivity growth is the key lever that will determine if wage growth is inflationary or not. Strong productivity growth allows businesses to pay higher wages with-out raising their prices. Otherwise, wage growth can lead to higher inflation which could cause the Federal Reserve to raise interest rates more than expected, which can eventually lead to the next recession.

What is not sustainable? Reinhart and Rogoff offer a master class in the dangers of rapid debt accumulation. Also, financial bubbles are non sustainable. The recent rallies in both the U.S. stock market and in Bitcoin add to the "wall of worry." Mismanaged government finances are not sustainable. The Soviet Union, Greece and Zimbabwe are modern examples of self-imposed fiscal crises that led to collapse and chaos.

We expect to see an ongoing economic expansion for the U.S. in 2018, helped by rest-of-world growth, expansive fiscal policy and restrained monetary tightening. Productivity growth will be a key sustaining element of the U.S. expansion. By mid-year we will see the second-longest U.S. expansion ever, reaching 107 months in May.

For a PDF version of this report click here: USEconomicOutlook_0118

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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Comerica Economic Weekly 01052018

January 5, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic data released this week was gener-ally strong and consistent with an ongoing moderate GDP expansion through year-end.

The ISM Manufacturing Index for December in-creased to a strong 59.7 percent. With August through November readings all between 58 and 61 percent, we can say that year-end 2017 was a very positive time for U.S. manufacturing. The ISM Non-Manufacturing Index for December ticked down to 55.9 percent, still consistent with ongoing growth. The California wildfires are putting upward pressure on lumber prices. Construction labor remains in tight supply.

One hitch in the Q4 GDP giddy-up came from the U.S. international trade data for November. The U.S. international trade gap widened in November to -$50.5 billion, threatening to exert a noticeable drag on Q4 GDP growth. If the trade gap continues to widen in December it will be a threat to a third consecutive quarter of near 3-percent real GDP growth.

Job growth in December came in below expectations at +148,000 for the month. This is not a bad number, especially at this point in the economic cycle. However, the strong ADP jobs report for December, showing a net gain of 250,000 private-sector jobs, plus other strong labor-related metrics for December, fostered rising expec-tations for December payrolls. The U.S. unemployment rate was 4.1 percent for the third consecutive month.

Initial claims for unemployment insurance ticked up inconsequentially, by 3,000, for the week ending December 30, to hit 250,000. Continuing claims fell by 37,000 for the week ending December 23, to hit 1,914,000, a very low number.

U.S. light vehicle sales increased slightly to a 17.85-million-unit rate, up from 17.53 million in November. Strong consumer confidence, buoyed by sustained economic momentum and tax reform, may be extending the rally in auto sales that began last September. We still expect to see auto sales ebb this spring to below a 17-million-unit rate.

The minutes of the December 12/13 Federal Open Market Committee meeting show a Fed that is still struggling to resolve its interpretation of inflation. Typically, in a mid-to-late-cycle economy, a low unemployment rate results in warming inflation. This is the key justification for the Fed to increase short-term interest rates, holding back economic growth and preventing runaway inflation. However, the Fed's favored measure of inflation, the trimmed-mean PCE price index continues to run below the Fed's 2-percent inflation target, as it has for most of the past five years. So there is a group within the Fed that is challenging the standard view in inflation dynamics.

The standard view is that low unemployment will lead to higher wages, which will contribute to increasing inflation, which will justify further fed funds rate hikes. In the December jobs report, we see that average hourly earnings were up just 2.5 percent over the previous 12 months. This is not inflationary as long as we have reasonable productivity growth. Moreover, the trend in the year-over-year gain in average hourly earning through 2017 still looks soft. Wages are not the only factor in overall inflation. Oil prices increased through Q4 and this will keep upward pressure on headline inflation.

So what will the Fed do at the upcoming FOMC meeting over January 30/31? Likely nothing. According to the fed funds futures market, there is only a 0.5 percent chance of a late January rate hike.

For a PDF version of this report click here: Comerica_Economic_Weekly_01052018

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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Wealth

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Weekly Market Overview

December 26, 2017 by Peter Sorrentino

Despite the lighter pre-holiday trading, the passage of the tax legislation produced a dramatic impact on the U.S. equity market.  The prospect of immediate expensing of capital expenditures led to energy shares climbing 4.7% for the week on less than a 3% rise in crude oil prices.  The basic materials sector was a distant second, posting a 2.1% gain.  Utility shares were the week’s laggards, falling 4.7% on a combination of warmer weather and the potential for litigation resulting from service outages due to recent wildfires and storms.  Healthcare shares suffered a modest decline, as the political winds again turned against them with the sector posting a 0.96% loss. There was a slight size bias last week as the Russell 2000® Index led the Standard & Poor’s 500® Index by fifty basis points at +0.8% to +0.3%, respectively.  Commodity prices were broadly higher last week with all segments reporting gains more than 2%; the exception being the prices of cryptocurrencies that began trading futures on the CME, a week after the CBOE (Chicago Board Options Exchange) initiated trading.  Following an initial surge, prices began to falter, closing the week 21% to 25% lower, depending upon the currency. Foreign markets posted strong gains as developed markets added 1.23%, and emerging markets added 2.02% last week.

As 2017 ends, we look back on a year of exceptional returns, not only in the investment realm but the global economy as well.  We are now in the second longest domestic economic expansion on record and have already surpassed the longest stock market advance without a correction on record.  As a result, valuations extended as indicated by elevated price to earnings ratios for forward earnings and price to book ratios for asset valuation.  In fixed income, we see yields compressed not only over the time horizon, but across credit as well.  For any system, increasing the compression raises not only the prospect of failure, but damaged caused should it occur.  It only makes sense to review holdings across all asset classes and markets to look for opportunities to back the pressure down or, at a minimum, establish some safeguards should a failure occur.  Those can be as simple as stop-loss orders and zero-cost collars, or as elaborate as downside hedges across an entire portfolio.  To do nothing is not an option.  A study published years ago found that individual asset prices were aligned with the underlying economic value of an enterprise only 20% of the time. For the balance of the study period, the market value was either more than or fell below that value.  This was long held to be the value add for active investing.  By avoiding the round trip, if you will, you could achieve better utilization of your assets by skipping over the troughs.  While this all made sense at the academic level, in the real world getting the timing of when to sell and when to buy proved infinitely more difficult.  But the cyclical nature of the business cycle and, therefore, the markets persists, and while selling out and buying back in may not be a reliable strategy, balancing and diversifying risk remains a time-proven strategy.  Below, you will find the asset class score card for the recent past; note how rarely the winners repeat.  Chasing returns never works, and yesterday's losers are often tomorrow's winners.

On behalf of the team at Comerica, Happy New Year and best wishes for 2018.

 

Asset By Class, Capitalization & Style

Total Return - 15 Calendar Years Ending 2017*

Source: Crandall, Pierce & Company

 

 

Source: All statistics herein obtained from Bloomberg.

NOTE: IMPORTANT INFORMATION

This is not a complete analysis of every material fact regarding any company, industry or security.  The information and materials herein has been obtained from sources we consider to be reliable but Comerica Wealth Management does not warrant, or guarantee, its completeness or accuracy. Materials prepared by Comerica Wealth Management personnel are based on public information.  Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of Comerica Wealth Management, including investment banking personnel.

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Weekly Market Overview

November 6, 2017 by Peter Sorrentino

In yet another example of 'be careful what you wish for,' the markets were unsettled by the release of the proposed income tax overhaul plan.  Initial reaction to the plan is that it is not as friendly to small business as hoped, and is aimed very much at lower and middle-income taxpayers.  This led to a modest sell off for both the Standard & Poor's® 400 and 600 indices, slipping 0.17% and 1.7%, respectively. The bellwether Standard & Poor's® 500 Index managed to finish the week on the positive side, adding 0.3%.  The continued resilience of crude oil, now holding above $55 per barrel for WTI crude, boosted the energy sector to a 1.99% gain, followed by the information technology sector with an advance of 1.52%.  The announcement of Jay Powell as the Administration's choice to succeed Janet Yellen received a lukewarm response, with the finance sector slightly positive at +0.3% for the week.  Several commentaries were circulating Friday regarding the fact that, if approved, the governance of the Federal Reserve will, for the first time, not be in the hands of trained economists, but lawyers. Aside from the continued strength in crude oil, commodity prices slipped slightly last week following several weeks of gains.  The notable exception was the platinum metals group (+3.325%), which includes palladium, a key component of catalytic converters.  The recent strength in auto sales led to speculation of greater-than-expected demand for the metal.  International markets again outpaced the U.S., with EAFE posting a 0.9% gain and emerging markets adding 1.44% last week.

The resilience of the U.S. market has been remarkable, largely oblivious to geopolitical turmoil, domestic upheavals and a significant change in the interest rate environment.  Accelerating growth rates and relatively tame inflation data seem to be assuaging investor fears.  It is truly remarkable when you consider that, in a year, 30-day T-Bill rates have more than tripled from 0.2408% to Friday's 1.0114% and, while not nearly so dramatic, the 10- and 30-year Treasury yields have added roughly 35% and 13%, respectively. Yet, the housing market continues to demonstrate consistent strength, and auto sales are only down modestly from last year's record pace.  As you can see in the chart, while the curve has flattened somewhat over the last twelve months, we are still far from the dreaded inverted yield curve, harbinger of plague, famine and overall bad stock performance. Yes, caution is warranted as the current market leadership is extended, narrow and looking tired.  But, overall business conditions remain positive with business spending accelerating along with consumer incomes. With new leadership at the Fed and the prospects of a change in the income tax landscape, the 'Wall of Worry' is still standing, and we are still climbing.

 

Source: Bloomberg

 

 

Sources: All statistics herein obtained from Bloomberg.

 

NOTE: IMPORTANT INFORMATION
The S&P 500® Index, S&P MidCap Index, S&P 600 Index and Dow Jones Wilshire 5000 (collectively, “S&P® Indices”) are products of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and Standard & Poor’s Financial Services, LLC and has been licensed for use by Comerica Bank, on behalf of itself and its Affiliates. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). The trademarks have been licensed to SPDJI and sublicensed for certain purposes by Comerica Bank, on behalf of itself and its Affiliates. Nothing herein is sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”) or Standard & Poor’s Financial Services LLC. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC make any representation or warranty, express or implied, to the owners of the content herein, or any member of the public regarding the advisability of investing in securities generally or in particular strategies or the ability of any particular strategy to track general market performance. SPDJI and Standard & Poor’s Financial Services, LLC only relationship to Comerica Bank, on behalf of itself and its Affiliates with respect to the S&P® Indices is the licensing of the Indices and certain trademarks, service marks, and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P Indices are determined, composed and calculated by S&P Dow Jones Indices or Standard & Poor’s Financial Services, LLC without regard to Comerica Bank and its Affiliates or any of the content herein. S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation to take the needs of Comerica and its Affiliates or the owners of any of the content herein into consideration in determining, composing or calculating the S&P Indices. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC are responsible for and have not participated in the determination of the prices, and amount of any particular strategy or the timing of the issuance or sale of any particular strategy or in the determination or calculation of the equation by which any particular strategy is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation or liability in connection with the administration, marketing or trading of any particular strategy. There is no assurance that any particular investment product based on the S&P Indices will accurately track index performance or provide positive investment returns. SPDJI is not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.
NEITHER S&P DOW JONES INDICES NOR STANDARD & POOR’S FINANCIAL SERVICES, LLC GUARANTEES THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE WAM STRATEGIES OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNCATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY COMERICA AND ITS AFFILIATES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDICES OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR STANDARD & POOR’S FINANCIAL SERVICES, LLC BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD-PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND COMERICA AND ITS AFFILIATES, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
“Russell 2000® Index” is a trademark of Russell Investments, licensed for use by Comerica Bank and World Asset Management, Inc. The source of all returns is Russell Investments. Further redistribution of information is strictly prohibited.
MSCI EAFE® is a trade mark of Morgan Stanley Capital International, Inc. (“MSCI”).
FTSE International Limited (“FTSE”) © FTSE 2016. FTSE® is a trade mark of London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under license. All rights in the FTSE Indices vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE Indices or underlying data. This is not a complete analysis of every material fact regarding any company, industry or security. The information and materials herein has been obtained from sources we consider to be reliable but Comerica Wealth Management does not warrant, or guarantee, its completeness or accuracy. Materials prepared by Comerica Wealth Management personnel are based on public information. Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of Comerica Wealth Management, including investment banking personnel. The views expressed are those of the author at the time of writing and are subject to change without notice. We do not assume any liability for losses that may result from the reliance by any person upon any such information or opinions. This material has been distributed for general educational/informational purposes only, and should not be considered as investment advice or a recommendation for any particular security, strategy or investment product, or as personalized investment advice. Past performance is not indicative of future results. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The investments and strategies discussed herein may not be suitable for all clients. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Comerica Wealth Management consists of various divisions and affiliates of Comerica Bank, including Comerica Bank & Trust, National Association; World Asset Management, Inc.; Comerica Securities, Inc.; and Comerica Insurance Services, Inc. and its affiliated insurance agencies. World Asset Management, Inc. and Comerica Securities, Inc. are federally registered investment advisors. Registrations do not imply a certain level of skill or training. Comerica Bank and its affiliates do not provide tax or legal advice. Please consult with your tax and legal advisors regarding your specific situation. Securities and other non-deposit investment products offered through Comerica are not insured by the FDIC; are not deposits or other obligations of, or guaranteed by, Comerica Bank or any of its affiliates; and are subject to investment risks, including possible loss of the principal invested. Past performance is not indicative of future results. Information presented is for general information only and is subject to change.

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Weekly Market Overview

October 30, 2017 by Peter Sorrentino

Earnings reports and tax policy drove performance last week, leading to a stark performance contrast and a return of this year's early market leaders. Information technology reasserted its dominance by adding 2.36%, led by Amazon ($1100.95), Google ($1033.67), Facebook ($177.88) and Microsoft ($83.81), all of which represent new all-time highs. The dark side of the market was focused on health care (-2.07%), with the bulk of the losses coming from the large-cap pharmaceuticals and consumer discretion (-1.13%), as earnings disappointments among department stores took the group to new lows.  Large-cap shares finished the week unchanged, with the balance of the U.S. equity market posting a slight decline.  This was also the case for the developed and emerging markets, as cross currents served as effective counterbalances.  The reelection of Japan's Prime Minister, Shinzo Abe, launched a rally on Japanese exchanges. 

The holiday outlook offers little hope to the beleaguered department store group as internet and direct-to-customer retail alternatives continue to gain share and drive pricing.  A great deal of commentary has focused on the threats posed by student debt and subprime auto lending, but little attention has been given to the potential debt cascade hanging in the balance with retail.  Not only are the department stores, themselves, leveraged, so are the regional malls they occupy.  Even less attention has been given to the small retail operators that rely upon the department store traffic for their sales.  So, while we expend energy looking at the possibility that multi-family residential may be overbuilt, it is the legacy from the building boom in the late 1980s and early 1990s that may be the incubator of the next debt crisis.  This holiday shopping season may have more than a lump of coal in store for some.

 

Source: Bloomberg

 

 

Source: All statistics herein obtained from Bloomberg.

 

 

NOTE: IMPORTANT INFORMATION

The S&P 500® Index, S&P MidCap Index, S&P 600 Index and Dow Jones Wilshire 5000 (collectively, “S&P® Indices”) are products of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and Standard & Poor’s Financial Services, LLC and has been licensed for use by Comerica Bank, on behalf of itself and its Affiliates.  Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings
LLC (“Dow Jones”).  The trademarks have been licensed to SPDJI and sublicensed for certain purposes by Comerica Bank, on behalf of itself and its Affiliates.  Nothing herein is sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow
Jones Indices”) or Standard & Poor’s Financial Services LLC. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC make any representation or warranty, express or implied, to the owners of the content herein, or any member of the public regarding the advisability of investing in securities generally or in particular strategies or the ability of any particular strategy to track general market performance.  SPDJI and Standard & Poor’s Financial Services, LLC only relationship to Comerica Bank, on behalf of itself and its Affiliates with respect to the S&P® Indices is the licensing of the Indices and certain trademarks, service marks, and/or trade names of S&P Dow Jones Indices and/or its licensors.  The S&P Indices are determined, composed and calculated by S&P Dow Jones Indices or Standard & Poor’s Financial Services, LLC without regard to Comerica Bank and its Affiliates or any of the content herein.  S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation to take the needs of Comerica and its Affiliates or the owners of any of the content herein into consideration in determining, composing or calculating the S&P Indices.  Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC are responsible for and have not participated in the determination of the prices, and amount of any particular strategy or the timing of the issuance or sale of any particular strategy or in the determination or calculation of the equation by which any particular strategy is to be converted into cash, surrendered or redeemed, as the case may be.  S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation or liability in connection
with the administration, marketing or trading of any particular strategy.  There is no assurance that any particular investment product based on the S&P Indices will accurately track index performance or provide positive investment returns.  SPDJI is not an investment advisor.  Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.

NEITHER S&P DOW JONES INDICES NOR STANDARD & POOR’S FINANCIAL SERVICES, LLC GUARANTEES THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE WAM STRATEGIES OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNCATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO.  S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN.  S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY COMERICA AND ITS AFFILIATES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDICES OR WITH RESPECT TO ANY DATA RELATED THERETO.  WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR STANDARD & POOR’S FINANCIAL SERVICES, LLC BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT,
TORT, STRICT LIABILITY, OR OTHERWISE.  THERE ARE NO THIRD-PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND COMERICA AND ITS AFFILIATES, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES. 

“Russell 2000® Index” is a trademark of Russell Investments, licensed for use by Comerica Bank and World Asset Management, Inc.  The source of all returns is Russell Investments.   Further redistribution of information is strictly prohibited.

MSCI EAFE® is a trade mark of Morgan Stanley Capital International, Inc. (“MSCI”).

FTSE International Limited (“FTSE”) © FTSE 2016. FTSE® is a trade mark of London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under license. All rights in the FTSE Indices vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE Indices or underlying data. This is not a complete analysis of every material fact regarding any company, industry or security.  The information and materials herein has been obtained from sources we consider to be reliable but Comerica Wealth Management does not warrant, or guarantee, its completeness or accuracy. Materials prepared by Comerica Wealth Management personnel are based on public information.  Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of Comerica Wealth Management, including investment banking personnel. The views expressed are those of the author at the time of writing and are subject to change without notice. We do not assume any liability for losses that may result from the reliance by any person upon any such information or opinions. This material has been distributed for general educational/informational purposes only, and should not be considered as investment advice or a recommendation for any particular security, strategy or investment product, or as personalized investment advice. Past performance is not indicative of future results. The material is not
intended as an offer or solicitation for the purchase or sale of any financial instrument. The investments and strategies discussed herein may not be suitable for all clients. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations.  Comerica Wealth Management consists of various divisions and affiliates of Comerica Bank, including Comerica Bank & Trust, National Association; World Asset Management, Inc.; Comerica Securities, Inc.; and Comerica Insurance Services, Inc. and its affiliated insurance agencies. World Asset Management, Inc. and Comerica Securities, Inc. are federally registered investment advisors. Registrations do not imply a certain level of skill or training. Comerica Bank and its affiliates do not provide tax or legal advice. Please consult with your tax and legal advisors regarding your specific situation. Securities and other non-deposit investment products offered through Comerica are not insured by the FDIC; are not deposits or other obligations of, or guaranteed by, Comerica Bank or any of its affiliates; and are subject to investment risks, including possible loss of the principal invested.  Past performance is not indicative of future results.  Information presented is for general information only and is subject to change.

Read More

Weekly Market Overview

October 23, 2017 by Peter Sorrentino

The fast-changing political winds again exerted themselves on the stock market last week.  Speculation surrounding the future leadership of the Federal Reserve and an increased likelihood of a December rate hike
drove the financial service sector to a 1.95% gain.  Health care experienced similar tailwinds, resulting in a 1.77% boost to shares of the group.  The storm blurred economic data releases last week and cost the consumer staples
group another 1.23%, leading investors to question future energy demand, resulting in a modest 0.54% decline among energy stocks.  If there was a disconnect last week, it was in the movement of the commodities and foreign markets relative to the U.S. dollar.  Typically, weakness in the value of the dollar results in gains for foreign stocks and a rise in commodity prices to offset the negative exchange rate impact. Last week, we experienced the reverse.  Commodity prices across all classes, agriculture and industrial surrendered 2% to 3%.  The impact on EAFE and Emerging Markets was less pronounced, down 0.31% and 0.55%, respectively. While modest, it is still something of an anomaly.

We are still in the front half of the third quarter reporting season but, thus far, the number of companies beating street estimates has surprised even market optimists. Likewise, reports from Japan have surprised to the upside, and in the week ahead, we will see if China follows suit. This is strange for a week that started off drawing parallels to the market of thirty years ago, and the sell-off that chastened a generation.  Traveling this past week with Comerica’s Chief Economist, Dr. Robert Dye, the one question asked at every event: when we will
enter the next recession?  Robert, in thoughtful detail, talks about the evolution of excess that leads to the turn
in the business cycle and how time does not cause the cycle to turn. Instead, time allows the excesses that do to accumulate and fester.  Yet, despite its age, this is not the longest recovery, nor do we yet see sufficient excess accumulating to imperil future stability.  Robert cautions that we are always subject to “unknown unknowns,” and it really does only take one nuclear weapon to spoil your whole day.  But outside of that, we could see this expansion challenge the current record of 120 months, which takes us to 2019.  As you can see highlighted in the chart on page 2, while this is one of the longest, it has been far from the strongest recovery, and at this pace, what
excesses that have emerged did so slowly enough to be dealt with. We witnessed this with the excess inventory of passenger cars that was quickly absorbed following the back-to-back hurricane-related replacement events.

Real Gross Domestic Product Distributions - The Business Cycle

 

Source: Crandall, Pierce & Company

 

Source: All statsitics herein obtained from Bloomberg.

 

NOTE: IMPORTANT INFORMATION

The S&P 500® Index, S&P MidCap Index, S&P 600 Index and Dow Jones Wilshire 5000 (collectively, “S&P® Indices”) are products of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and Standard & Poor’s Financial Services, LLC and has been licensed for use by Comerica Bank, on behalf of itself and its Affiliates.  Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”).  The trademarks have been licensed to SPDJI and sublicensed for certain purposes by Comerica Bank, on behalf of itself and its Affiliates.  Nothing herein is sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”) or Standard & Poor’s Financial Services LLC. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC make any representation or warranty, express or implied, to the owners of the content herein, or any member of the public regarding the advisability of investing in securities generally or in particular strategies or the ability of any particular strategy to track general market performance.  SPDJI and Standard & Poor’s Financial Services, LLC only relationship to Comerica Bank, on behalf of itself and its Affiliates with respect to the S&P® Indices is the licensing of the Indices and
certain trademarks, service marks, and/or trade names of S&P Dow Jones Indices and/or its licensors.  The S&P Indices are determined, composed and calculated by S&P Dow Jones Indices or Standard & Poor’s Financial Services, LLC without regard to Comerica Bank and its Affiliates or any of the content herein.  S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation to take the needs of Comerica and its Affiliates or the owners of any of the content herein into consideration in
determining, composing or calculating the S&P Indices.  Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC are responsible for and have not participated in the determination of the prices, and amount of any particular strategy or the timing of the issuance or sale of any particular strategy or in the determination or calculation of the equation by which any particular strategy is to be converted into cash, surrendered or redeemed, as the case may be.  S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation or liability in connection with the administration, marketing or trading of any particular strategy.  There is no assurance that any particular investment product based on the S&P Indices will accurately track index performance or provide positive investment returns.  SPDJI is not an investment advisor.  Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.

NEITHER S&P DOW JONES INDICES NOR STANDARD & POOR’S FINANCIAL SERVICES, LLC GUARANTEES THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE WAM STRATEGIES OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNCATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY COMERICA AND ITS AFFILIATES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDICES OR WITH RESPECT TO ANY DATA RELATED THERETO.  WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR STANDARD & POOR’S FINANCIAL SERVICES, LLC BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT,
TORT, STRICT LIABILITY, OR OTHERWISE.  THERE ARE NO THIRD-PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND COMERICA AND ITS AFFILIATES, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES. 

“Russell 2000® Index” is a trademark of Russell Investments, licensed for use by Comerica Bank and World Asset Management, Inc.  The source of all returns is Russell Investments.   Further redistribution of information is strictly prohibited.

MSCI EAFE® is a trade mark of Morgan Stanley Capital International, Inc. (“MSCI”).

FTSE International Limited (“FTSE”) © FTSE 2016. FTSE® is a trade mark of London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under license. All rights in the FTSE Indices vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE Indices or underlying data. This is not a complete analysis of every material fact regarding any company, industry or security.  The information and materials herein has been obtained from sources we consider to be reliable but Comerica Wealth Management does not warrant, or guarantee, its completeness or accuracy. Materials prepared by Comerica Wealth Management personnel are based on public information.  Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of Comerica Wealth Management, including investment banking personnel. The views expressed are those of the author at the time of writing and are subject to change without notice. We do not assume any liability for losses that may result from the reliance by any person upon any such information or opinions. This material has been distributed for general educational/informational purposes only, and should not be considered as investment advice or a recommendation for any particular security, strategy or investment product, or as personalized investment advice. Past performance is not indicative of future results. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The investments and strategies discussed herein may not be suitable for all clients. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations.  Comerica Wealth Management consists of various divisions and affiliates of Comerica Bank, including Comerica Bank & Trust, National Association; World Asset Management, Inc.; Comerica Securities, Inc.; and Comerica Insurance Services, Inc. and its affiliated insurance agencies. World Asset Management, Inc. and Comerica Securities, Inc. are federally registered investment advisors. Registrations do not imply a certain level of skill or training. Comerica Bank and its affiliates do not provide tax or legal advice. Please consult with your tax and legal advisors regarding your specific situation. Securities and other non-deposit investment products offered through Comerica are not insured by the FDIC; are not deposits or other obligations of, or guaranteed by, Comerica Bank or any of its affiliates; and are subject toinvestment risks, including possible loss of the principal invested.  Past performance is not indicative of future results.  Information presented is for general information only and is subject to change.

Read More

Weekly Market Overview

October 16, 2017 by Peter Sorrentino

The strongest 30-year Treasury auction in two years sent bond prices higher this week, boosting stock prices among the interest-sensitive utilities sector and leading the group to a market leading 1.35% return last week.  The consumer staples were the second strongest sector last week, advancing 1.41% on investor expectations that the reported headline Consumer Price Index (CPI) of 2.2% will translate into retail pricing power.  Financial service stocks responded negatively to strength in bond prices which served to dim hopes of further spread expansion in lending.  As a group, financials surrendered 0.84% last week. Shares in the health care sector also lost ground, down 0.57% last week as politics looked again to create uncertainty for the group.  Capitalization leadership reverted to large cap last week, reversing the small and mid-cap leadership experienced thus far in the fourth quarter.  U.S. markets took a back seat globally, as both MXEF and EAFE® registered gains of 2.07% and 1.61%, respectively.

Investors continue to grapple with the question of inflation.  Specifically, do current measures effectively capture price trends?  This week, we experienced energy prices again moving higher and headline CPI back over the Federal Reserve's stated 2% target. Strong employment data this year is manifesting itself in rising wage pressure that, coupled with the continued ascent of benefit costs, will push companies to raise prices in the months ahead. The counterbalance to this can be seen in the announcement by the European Central Bank (ECB) that they will, at least for now, continue their bond buying operation. Japan as well remains firmly committed to quantitative easing and a target yield for its ten-year debt of 0%. Will accelerating global economic growth take place with the backdrop of benign inflation, or are we all whistling past the graveyard?  There is comfort to be found in capacity utilization rates around the world.  The past cycle resulted in capacity additions that will require years to absorb.  In the U.S., we have plenty of examples of this, as energy prices have struggled to sustain the $50 per barrel price owing to the magnitude of capacity that was capped at the wellhead when prices collapsed two years ago, only to find its way to market now.  This is true for most of the industrial commodities as witnessed by iron ore and copper prices this year.  Sustained price gains are soon met with additional production as idled capacity is brought back online.

Source: All statistics herein obtained from Bloomberg. 

 

 

NOTE: IMPORTANT INFORMATION

The S&P 500® Index, S&P MidCap Index, S&P 600 Index and Dow Jones Wilshire 5000 (collectively, “S&P® Indices”) are products of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and Standard & Poor’s Financial Services, LLC and has been licensed for use by Comerica Bank, on behalf of itself and its Affiliates.  Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings
LLC (“Dow Jones”).  The trademarks have been licensed to SPDJI and sublicensed for certain purposes by Comerica Bank, on behalf of itself and its Affiliates.  Nothing herein is sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow
Jones Indices”) or Standard & Poor’s Financial Services LLC. Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC make any representation or warranty, express or implied, to the owners of the content herein, or any member of the public regarding the advisability of investing in securities generally or in particular strategies or the ability of any particular strategy to track general market performance.  SPDJI and Standard & Poor’s Financial Services, LLC only relationship to Comerica Bank, on behalf of itself and its Affiliates with respect to the S&P® Indices is the licensing of the Indices and certain trademarks, service marks, and/or trade names of S&P Dow Jones Indices and/or its licensors.  The S&P Indices are determined, composed and calculated by S&P Dow Jones Indices or Standard & Poor’s Financial Services, LLC without regard to Comerica Bank and its Affiliates or any of the content herein.  S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation to take the needs of Comerica and its Affiliates or the owners of any of the content herein into consideration in determining, composing or calculating the S&P Indices.  Neither S&P Dow Jones Indices nor Standard & Poor’s Financial Services, LLC are responsible for and have not participated in the determination of the prices, and amount of any particular strategy or the timing of the issuance or sale of any particular strategy or in the determination or calculation of the equation by which any particular strategy is to be converted into cash, surrendered or redeemed, as the case may be.  S&P Dow Jones Indices and Standard & Poor’s Financial Services, LLC have no obligation or liability in connection
with the administration, marketing or trading of any particular strategy.  There is no assurance that any particular investment product based on the S&P Indices will accurately track index performance or provide positive investment returns.  SPDJI is not an investment advisor.  Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.

NEITHER S&P DOW JONES INDICES NOR STANDARD & POOR’S FINANCIAL SERVICES, LLC GUARANTEES THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE WAM STRATEGIES OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNCATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN.  S&P DOW JONES INDICES AND STANDARD & POOR’S FINANCIAL SERVICES, LLC MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY COMERICA AND ITS AFFILIATES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P INDICES OR WITH RESPECT TO ANY DATA RELATED THERETO.  WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR STANDARD & POOR’S FINANCIAL SERVICES, LLC BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT,
TORT, STRICT LIABILITY, OR OTHERWISE.  THERE ARE NO THIRD-PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND COMERICA AND ITS AFFILIATES, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES. 

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FTSE International Limited (“FTSE”) © FTSE 2016. FTSE® is a trade mark of London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under license. All rights in the FTSE Indices vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE Indices or underlying data. This is not a complete analysis of every material fact regarding any company, industry or security.  The information and materials herein has been obtained from sources we consider to be reliable but Comerica Wealth Management does not warrant, or guarantee, its completeness or accuracy. Materials prepared by Comerica Wealth Management personnel are based on public information.  Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of Comerica Wealth Management, including investment banking personnel. The views expressed are those of the author at the time of writing and are subject to change without notice. We do not assume any liability for losses that may result from the reliance by any person upon any such information or opinions. This material has been distributed for general educational/informational purposes only, and should not be considered as investment advice or a recommendation for any particular security, strategy or investment product, or as personalized investment advice. Past performance is not indicative of future results. The material is not
intended as an offer or solicitation for the purchase or sale of any financial instrument. The investments and strategies discussed herein may not be suitable for all clients. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations.  Comerica Wealth Management consists of various divisions and affiliates of Comerica Bank, including Comerica Bank & Trust, National Association; World Asset Management, Inc.; Comerica Securities, Inc.; and Comerica Insurance Services, Inc. and its affiliated insurance agencies. World Asset Management, Inc. and Comerica Securities, Inc. are federally registered investment advisors. Registrations do not imply a certain level of skill or training. Comerica Bank and its affiliates do not provide tax or legal advice. Please consult with your tax and legal advisors regarding your specific situation. Securities and other non-deposit investment products offered through Comerica are not insured by the FDIC; are not deposits or other obligations of, or guaranteed by, Comerica Bank or any of its affiliates; and are subject to investment risks, including possible loss of the principal invested.  Past performance is not indicative of future results.  Information presented is for general information only and is subject to change.

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Comerica Economic Weekly 01122018

January 12, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic data released this week for yearend 2017 showed ongoing economic momentum in Q4 in a benign inflation environment.

Retail sales for December were a little softer than expected, gaining 0.4 percent for the month. For the fourth quarter as whole, nominal retail sales were up by 2.7 percent quarter-over-quarter, showing a good holiday shopping season consistent with a solid GDP print for the fourth quarter.

The Consumer Price Index for December came in weaker than expected, gaining 0.1 percent for the month as the energy price sub-index dipped by 1.2 percent. Food prices were up by 0.2 percent for the month. Excluding food and energy, the core CPI was up by 0.3 percent, showing a whiff of inflation despite the soft headline number. Over the previous 12 months, headline CPI gained 2.1 percent, while core CPI gained 1.8 percent.

The December Producer Price Index for final demand eased by 0.1 percent, below expectations. In the December PPI report we see the impact of stabilizing energy prices after earlier gains. Over the 12 months ending in December, the PPI for final demand was up by 2.6 percent. The PPI for core final demand (less food, energy and trade), was up by 2.3 percent over the year.

Initial claims for unemployment insurance increased by 11,000 for the week ending January 6, to hit 261,000. This level is still within the very low range seen through all of 2017. The recent increase in initial claims, from mid -December through early January, can be discounted due to the vagaries of the seasonal adjustment process through the holidays. Continuing claims for the week ending December 30 fell by 35,000, to hit a very low 1,867,000.

The Job Opening and Labor Turnover Survey (JOLTS) for November showed a small tick down for both the job openings rate, to 3.8 percent, and the hiring rate, to 3.7 percent. Both series are still near recent highs, so this does not look like a meaningful move.

The National Federation of Independent Business's Small Business Optimism Survey for December showed a 2.6 point drop in its Business Optimism Index. This came after a sizeable gain in November. The index remains elevated in a very positive range.

Mortgage applications jumped by 8.3 percent for the week ending January 8, with a 5.0 percent increase in the purchase index and an 11.4 percent gain in refis.

The Senate Banking Committee will hold a second vote on Jay Powell’s nomination for Chairman of the FOMC on January 17 because the full Senate failed to approve him before the end of 2017.

For a PDF version of this report click here: Comerica_Economic_Weekly_01122018.

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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December Retail Sales, Consumer Prices

January 12, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Q4 Retail Sales Strong, Supportive of Q4 GDP

  • Retail Sales increased by 0.4 percent in December, capping a strong quarter.
  • The Consumer Price Index increased by 0.1 percent in December as energy prices eased.

 

Retail sales for December were just a little softer than expected, gaining 0.4 percent for the month. For the fourth quarter as a whole, nominal retail sales were up by 2.7 percent quarter-over-quarter, or up at an 11.3 percent annualized growth rate after seasonal adjustment. If we subtract a 3.7 percent annualized growth rate for headline CPI, to get an estimate of real (inflation adjusted) retail sales, we see a strong 7.6 percent growth rate estimate for real retail sales, in the fourth quarter. This is in line with our expectation of a good holiday shopping season for the end of 2017. While much of overall consumer spending does not fall under the category of retail sales, this back-of-the-envelope calculation supports our estimate of strong real consumer spending for the fourth quarter, which is a major contributor to GDP growth. Retail sales of autos increased by 0.2 percent in December, consistent with the uptick in unit auto sales to a 17.8 million unit annual rate. Building materials was the strongest individual category of retail sales for December, up by 1.2 percent. Sporting goods sales were soft, declining by 1.6 percent.

After yesterday's tepid PPI report for December, it is no surprise to see the headline Consumer Price Index for December come in a little weaker than expected. The CPI gained just 0.1 percent for the month as the energy price sub-index dipped by 1.2 percent. Food prices were up by 0.2 percent for the month. Excluding food and energy, the core CPI was up by 0.3 percent, showing a whiff of inflation despite the soft headline number. Both new and used vehicle prices had largish gains for the month. Over the previous 12 months, headline CPI was up by 2.1 percent, while core CPI gained 1.8 percent.

Market Reaction: Equity markets opened with gains. The 10-year Treasury yield is up to 2.55 percent. NYMEX crude oil is down to $63.58/barrel. Natural gas futures are down to $2.91/mmbtu.

For a PDF version of this report click here: Retail_Sales_01122018.

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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December PPI, January UI Claims

January 11, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Weak PPI in December Keeps Inflation Debate Going

  • The Producer Price Index for Final Demand decreased by 0.1 percent in December.
  • Initial Claims for Unemployment Insurance increased by 11,000 for the week ending January 6.

 

Inflation numbers are central to current conditions analysis for the U.S. economy in 2018 as the Federal Reserve charts its course for monetary policy. So, weak inflation numbers, like we see today in the December PPI report, generates speculation in the financial press. However, we believe that the Fed will see transitory factors in the December PPI report that will not move them away from an expected March 21 fed funds rate hike. We typically see some give back after strong price reports. In November, the Producer Price Index for final demand was up by 0.4 percent, capping four consecutive months of noticeable gains. Today, in the December PPI report we see the give back. The Producer Price Index for final demand eased by 0.1 percent, well below expectations. This does not mean that inflation was suddenly hot and now suddenly not. Rather, in the December producer price report we see the impact of stabilizing energy prices after earlier gains. Looking at final demand goods, the energy price sub-index was unchanged for the month after gaining 4.6 percent in November. Also, food prices eased with lower beef prices. The core index for final demand goods (less food and energy) gained a steady 0.2 percent in December. In final demand services we also see some drag from stable energy prices showing up in auto- and trucking-related areas. Over the 12 months ending in December, the PPI for final demand was up by 2.6 percent. The PPI for core final demand (less food, energy and trade) was up by 2.3 percent over the year. Tomorrow we will see the Consumer Price Index and retail sales for December.

Initial claims for unemployment insurance increased by 11,000 for the week ending January 6, to hit 261,000. This level is still within the very low range seen through all of 2017. The recent increase in initial claims, from mid-December through early January, can be discounted due to the vagaries of the seasonal adjustment process through the holidays. Continuing claims for the week ending December 30 fell by 35,000, to hit a very low 1,867,000.

Also noteworthy in the wage-inflation-interest rate discussion, today Wal-Mart announced that it is raising its starting wage to $11 an hour and will be giving one-time bonuses of up to $1,000 for low-wage workers. Wal-Mart employs 1.5 million people in the U.S.

Market Reaction: U.S. equity markets opened with gains. The yield on 10-Year Treasury bonds increased to 2.56 percent. NYMEX crude oil is up to $64.37/barrel. Natural gas futures are up to $2.88/mmbtu.

For a PDF version of this report click here: PPI_01112018.

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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2018: Out from the Shadow of the Great Recession

January 8, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

With the end of 2017 came a noteworthy anniversary. December 2017 marked ten years since the onset of the Great Recession. One generalized conclusion from Reinhart and Rogoff's masterpiece, This Time is Different: Eight Centuries of Financial Folly, is that it can take about 10 years for an economy to recover from a severe financial crisis. While there is no calendar to check off milestones of crisis and response, that ten-year time span feels about right. So we can think about the U.S. economy in 2018 less in terms of recovery from crisis, and more in terms of what can foster positive momentum, what is sustainable and what is not.

As we look ahead to 2018 and beyond, we see that the U.S. economy is generating more consistent momentum.We still have a good shot at three consecutive quarters of 3 percent or more real GDP growth beginning in 2017Q2. It would be the first such winning streak in this expansion. We will get the first estimate of 2017Q4 real GDP growth on January 26. In addition to more consistent U.S. momentum, global economic demand is improving. Europe and Japan are both gaining momentum after years of underperformance. With the recent passage of tax reform, U.S. fiscal policy is stimulative. If Congress can cobble together an infrastructure spending program as promised, that could add to fiscal stimulus later this year. Although interest rates are gradually rising, monetary policy remains accommodative. The Federal Reserve has so far raised short-term interest rates from exceptionally low, to merely very low. Also, the crisis-driven regulatory response is easing. We expect to see more examples of regulatory rollback this year.

Productivity growth is key to sustaining a long expansion. We define productivity as real output per hour of all nonfarm private-sector employees. It tends to be cyclical, often peaking at the end of recessions after labor has been shed and output starts to ramp up. It often declines ahead of recessions as businesses hire more workers to keep up with growing demand. So far in this expansion, productivity growth has been weaker than expected. However, through the first three quarters of 2017 productivity growth improved, with 2017Q3 registering 1.5 percent year-over-year productivity growth -the strongest since 2015Q2.We expect the recent reforms to the corporate tax code to be positive for business investment, and therefore positive for productivity growth. Productivity growth is the key lever that will determine if wage growth is inflationary or not. Strong productivity growth allows businesses to pay higher wages with-out raising their prices. Otherwise, wage growth can lead to higher inflation which could cause the Federal Reserve to raise interest rates more than expected, which can eventually lead to the next recession.

What is not sustainable? Reinhart and Rogoff offer a master class in the dangers of rapid debt accumulation. Also, financial bubbles are non sustainable. The recent rallies in both the U.S. stock market and in Bitcoin add to the "wall of worry." Mismanaged government finances are not sustainable. The Soviet Union, Greece and Zimbabwe are modern examples of self-imposed fiscal crises that led to collapse and chaos.

We expect to see an ongoing economic expansion for the U.S. in 2018, helped by rest-of-world growth, expansive fiscal policy and restrained monetary tightening. Productivity growth will be a key sustaining element of the U.S. expansion. By mid-year we will see the second-longest U.S. expansion ever, reaching 107 months in May.

For a PDF version of this report click here: USEconomicOutlook_0118

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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Comerica Economic Weekly 01052018

January 5, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

U.S. economic data released this week was gener-ally strong and consistent with an ongoing moderate GDP expansion through year-end.

The ISM Manufacturing Index for December in-creased to a strong 59.7 percent. With August through November readings all between 58 and 61 percent, we can say that year-end 2017 was a very positive time for U.S. manufacturing. The ISM Non-Manufacturing Index for December ticked down to 55.9 percent, still consistent with ongoing growth. The California wildfires are putting upward pressure on lumber prices. Construction labor remains in tight supply.

One hitch in the Q4 GDP giddy-up came from the U.S. international trade data for November. The U.S. international trade gap widened in November to -$50.5 billion, threatening to exert a noticeable drag on Q4 GDP growth. If the trade gap continues to widen in December it will be a threat to a third consecutive quarter of near 3-percent real GDP growth.

Job growth in December came in below expectations at +148,000 for the month. This is not a bad number, especially at this point in the economic cycle. However, the strong ADP jobs report for December, showing a net gain of 250,000 private-sector jobs, plus other strong labor-related metrics for December, fostered rising expec-tations for December payrolls. The U.S. unemployment rate was 4.1 percent for the third consecutive month.

Initial claims for unemployment insurance ticked up inconsequentially, by 3,000, for the week ending December 30, to hit 250,000. Continuing claims fell by 37,000 for the week ending December 23, to hit 1,914,000, a very low number.

U.S. light vehicle sales increased slightly to a 17.85-million-unit rate, up from 17.53 million in November. Strong consumer confidence, buoyed by sustained economic momentum and tax reform, may be extending the rally in auto sales that began last September. We still expect to see auto sales ebb this spring to below a 17-million-unit rate.

The minutes of the December 12/13 Federal Open Market Committee meeting show a Fed that is still struggling to resolve its interpretation of inflation. Typically, in a mid-to-late-cycle economy, a low unemployment rate results in warming inflation. This is the key justification for the Fed to increase short-term interest rates, holding back economic growth and preventing runaway inflation. However, the Fed's favored measure of inflation, the trimmed-mean PCE price index continues to run below the Fed's 2-percent inflation target, as it has for most of the past five years. So there is a group within the Fed that is challenging the standard view in inflation dynamics.

The standard view is that low unemployment will lead to higher wages, which will contribute to increasing inflation, which will justify further fed funds rate hikes. In the December jobs report, we see that average hourly earnings were up just 2.5 percent over the previous 12 months. This is not inflationary as long as we have reasonable productivity growth. Moreover, the trend in the year-over-year gain in average hourly earning through 2017 still looks soft. Wages are not the only factor in overall inflation. Oil prices increased through Q4 and this will keep upward pressure on headline inflation.

So what will the Fed do at the upcoming FOMC meeting over January 30/31? Likely nothing. According to the fed funds futures market, there is only a 0.5 percent chance of a late January rate hike.

For a PDF version of this report click here: Comerica_Economic_Weekly_01052018

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

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