Economic Risk Factor Update: July 2017

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1 Economic Risk Factor Update: July 2017 July 12, 2017 by Brad McMillan of Commonwealth Financial Network The data for June was generally positive, with a rebound in job growth and a surprise increase in business confidence supported by continued high levels of consumer confidence. After a run of weak data in the past couple of months, the June rebound is a good sign. Although there is still a gap between confidence and actual hard data, the persistence of confidence suggests that most economic factors remain positive and that the current expansion is likely to continue. The Service Sector The ISM Nonmanufacturing Index surprised by rising in June, despite expectations of a small decline. This increase offset a modest decline in May. As a diffusion index, readings above 50 indicate Page 1, 2018 Advisor Perspectives, Inc. All rights reserved.

expansion, and readings below 50 indicate contraction. After some weakness in late 2016, this index has registered increasing business confidence, so it remains a green light.

2 expansion, and readings below 50 indicate contraction. After some weakness in late 2016, this index has registered increasing business confidence, so it remains a green light. Private Employment: Annual Change June job creation beat expectations, with 222,000 jobs added against expectations of 178,000. In addition, May s disappointing results were revised up to a healthy 152,000 new jobs. The underemployment and unemployment rate both ticked up slightly during the month, but even this was positive, as the increases were driven by a bump in the labor force participation rate. Because this is an annual figure, changes are slower and smaller than those we see in more frequently reported data. The major thing to watch here is the trend, which indicates slowing job growth over time. Despite the slowing trend, job growth is still quite positive overall, so this indicator remains a green light. Private Employment: Monthly Change Page 2, 2018 Advisor Perspectives, Inc. All rights reserved.

3 These are the same numbers as in the previous chart but on a month-to-month basis, which can provide a better short-term signal. The positive results in June were welcome given monthly volatility in this measure to start the year. The labor market appears to be relatively healthy given the low levels of job openings and high levels of voluntary exits, which are often associated with tight labor conditions. While we will continue to monitor the headline job creation numbers, June s healthy results, and the continued strength of the longerterm numbers, indicate that the overall employment situation remains a green light. Yield Curve (10-Year Minus 3-Month Treasury Rates) Page 3, 2018 Advisor Perspectives, Inc. All rights reserved.

4 The yield curve flattened further in June. This was driven by lower inflation data that depressed the intermediate and long portions of the curve, as well as the Fed s decision to raise short-term rates in mid-june. The Fed s decision was widely seen as validation of the strength of the economy; however, the increase in the short-term rates flattened the yield curve to levels not seen since early Although the spread between the 10-year and 3-month rates remains well outside of the risk zone, the fact that it is now at post-crisis lows suggests that caution is warranted. I am leaving this measure at green for now, but I will be keeping an eye on it given the downward trend. Consumer Confidence: Annual Change Page 4, 2018 Advisor Perspectives, Inc. All rights reserved.

5 Consumer confidence increased slightly in June, following decreases in the previous two months, and remains near 16-year highs. This high level of consumer confidence bodes well for second-half growth. On an annual basis, the trend is also positive, with a significant increase over that time. Overall, this measure is a green light. Conclusion: Economy healthy, positive trends improve Continued high levels of consumer and business confidence support expectations for future growth, while a strong jobs report suggests that the hard data may be improving as well. Although there are some concerns over trends in the data, as well as weaker reports earlier in the year, the economy remains on track overall, and we conclude at a green light for this month. Page 5, 2018 Advisor Perspectives, Inc. All rights reserved.

6 Brad McMillan is the chief investment officer at Commonwealth Financial Network, the nation s largest privately held independent broker/dealer-ria. He is the primary spokesperson for Commonwealth s investment divisions. This post originally appeared on The Independent Market Observer, a daily blog authored by Brad McMillan. Forward-looking statements are based on our reasonable expectations and are not guaranteed. Diversification does not assure a profit or protect against loss in declining markets. There is no guarantee that any objective or goal will be achieved. All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance is not indicative of future results. The information contained in this message is being transmitted to and is intended for the use of only the individual(s) to whom it is addressed. If the reader of this message is not the intended recipient, you are hereby advised that any dissemination, distribution, or copying of this message is strictly prohibited. If you have received this message in error, please immediately delete. Commonwealth Financial Network Page 6, 2018 Advisor Perspectives, Inc. All rights reserved.

Monthly Market Risk Update: March 2019

Monthly Market Risk Update: March 2019 March 14, 2019 by Brad McMillan of Commonwealth Financial Network Market risks come in three flavors: recession risk, economic shock risk, and risks within the market