Market and Economic Update - May to June 2016 | Sklar Capital Advisors
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May / June Market Update

May / June Market Update

The US stock market (S&P 500) continues to be trapped in a sideways trading range for the past 30 months. This means stocks have not experienced any meaningful gains in over 2 years! This rarely occurs and something has to give. Stocks at some point will either breakout of the range to the upside or the downside. Based on the economic indicators we have been tracking this year, we still believe the highest probability is to the downside, which is why we continue to hold a low allocation to stocks in client portfolios.

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Here is the evidence for our current thinking:

Building permits have been a consistent leading indicator of the economy and have recently turned negative.

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Source: Variant Perception

Manufacturing has been weak all year while services remained resilient. It now appears that services are trending lower. Manufacturing is 12% of the US economy while services make up the remainder. However, manufacturing makes up 1/3 of all corporate revenues and is very important to health of the stock market.

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Source: Variant Perception

The Federal Reserve closely follows the Labor Market Condition Index which tracks 19 different labor market indicators. It is close to levels that have been previously associated with recessions. This is consistent with payrolls report that came out last week ,which showed the slowest growth of job creation in years.

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Source: Variant Perception

Inventory to sales ratio is also near recession level territory. This ratio measures the level of business inventories to sales. If the ratio is rising it means that businesses sales are not strong enough to maintain a healthy level of inventory. Higher inventories will become obsolete and worth less in the future due to depreciation and obsolescence.

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US tax receipts are falling fast as well.

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As of now, the evidence continues to support caution. We can never be 100% certain on which direction the market will go, however we can listen and watch the underpinnings and take appropriate action. For now, we will continue to protect client’s portfolios as that is the proper course of action until the evidence says otherwise.

This site is for informational purposes only. Sklar Capital Advisors does not intend to provide investment advice through this site. This web site is in no way a solicitation or offer to sell investment advisory services or investment products and does not constitute legal or tax advice. Copies of the Firm’s SEC Form ADV (Part II) and Privacy Policy are available at any time upon request.

Sklar Capital Advisors is an independent Registered Investment Advisor (RIA). We may only transact business or render personal investment advice in states where we are registered, file noticed or otherwise excluded or exempted from registration requirements. The purpose of this website is for information purposes only.

 

This site is for informational purposes only. Sklar Capital Advisors does not intend to provide investment advice through this site. This web site is in no way a solicitation or offer to sell investment advisory services or investment products and does not constitute legal or tax advice. Copies of the Firm's SEC Form ADV (Part II) and Privacy Policy are available at any time upon request.

Sklar Capital Advisors is an independent Registered Investment Advisor (RIA). We may only transact business or render personal investment advice in states where we are registered, file noticed or otherwise excluded or exempted from registration requirements. The purpose of this website is for information purposes only.