ISM SERVICES UP (Bloomberg)
“Service industries in the U.S. expanded in
July at the fastest pace since December 2005, showing the economy was building
more momentum at the start of the second half of 2014. The Institute for Supply Management’s
non-manufacturing index
increased to 58.7 from the prior month’s 56…’The U.S. economy has continued to pick up a little
bit of steam,’ Guy Berger, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut…” Story at…http://www.bloomberg.com/news/2014-08-05/service-industries-in-u-s-expand-at-fastest-pace-since-2005.html
FACTORY ORDERS RISE 1.1% (ABC News)
Orders rose a seasonally adjusted 1.1 percent compared to the previous month, the Commerce Department reported Tuesday. Factory orders had fallen 0.6 percent in May after three straight months of gains. An 8.4 percent jump in demand for commercial aircraft fueled the latest gains. But there were additional increases outside this volatile category that point to businesses investing with the expectation of economic growth.” Story at…
http://abcnews.go.com/Business/wireStory/us-factory-orders-rise-11-percent-june-24846352
Good news may be bad news as increased growth leads to the next story…
FED MAY RAISE RATES FASTER THAN EXPECTED (Bloomberg)
“Investors may be underestimating the pace at which the Federal Reserve will raise interest rates over the next two years, said Jeffrey Lacker, president of the Federal
Reserve Bank of Richmond [Lacker is a consistent critic of the Fed’s record
easing who votes on policy next year.]…’The market is about in line with the
Fed in terms of the timing of the first rate hike -- somewhere around June --
but is well behind in terms of the pace of tightening,’ said Roberto Perli, a
partner at Cornerstone Macro LP in Washington.” Story at…http://www.bloomberg.com/news/2014-08-04/lacker-fed-may-raise-rates-faster-than-investors-expect.html
RECESSION? (Yahoo Finance)
“David Levy, chairman of the Jerome Levy Forecasting Center,
forecasts that the U.S. could be headed for a recession. He tells Yahoo Finance
there's a 65% probability that we will see a U.S. downturn some time in 2015. This
contrarian view stands in contrast to Fed estimates, for example, which have
the U.S. growing at an annual pace of at least 3% for the rest of the year
and all of 2015. Levy thinks slow growth in other countries will
drag down U.S. output.” Story at…http://finance.yahoo.com/news/levy-forecasting-us-could-face-recession-130128183.html
Since the Morgan Stanley Cyclical Index is no longer reported, I compared the Industrial Select Sector SPDR ETF (XLI) (comprised of cyclical Industrials) with the S&P 500 going back to 2008. Like the Cyclical Index, it seems to predict S&P 500 performance when there is significant divergence with the S&P 500. It does not provide a timely signal though because the divergence can be present for some time before a breakdown in the S&P 500 Index occurs. The XLI has underperformed the S&P 500 by over 6% over the past 2-months. That would imply a fall in the S&P 500, but perhaps not a recession. I still think the S&P 500 will suffer a valuation collapse (like 2000) and that will lead to a recession, but that could be as much as a year away.
