Being plugged into the latest economic trends is crucial when it comes to making sound investments. Julie Jason speaks with Simon Constable, co-author of a new guide to help smart investors make sound decisions using economic trends.
FINRA foundation offers tools for understanding investment issues
If you are an investor, do you watch economic trends?
Some economists believe that being aware of economic trends gives investors an edge. I spoke with economist Simon Constable a few weeks ago to discern how his work might provide some insights and guidance to today’s investors. Constable is co-author of “The Wall Street Journal Guide to the 50 Economic Indicators That Really Matter: From Big Macs to ‘Zombie Banks,’ the Indicators Smart Investors Watch to Beat the Market.”
Constable and his co-author, Robert E. Wright, made a provocative statement in the book, which was written in 2011, a few years after the market bottomed on March 9, 2009: “The financial crisis of 2008-09 and its aftermath suggest that most investors were insufficiently nimble because they were looking at what the economy was rather than what it would become.”
They observed: “Discerning the economy’s direction — whether it will soar, plummet, or stagnate — may sound difficult, and it certainly isn’t easy, but the economy can’t help but constantly provide statistical clues about its health.”
And they provided a tool chest of 50 indicators for investors to follow.
I asked Constable the obvious question: What do the economic indicators tell us about today? Is there a bear market on the horizon?
Constable advised: “The stock market and economy are related like cousins. They are related, but can be estranged for many years.” So, there won’t be simple answers to my questions. That is, the 50 indicators will not provide a clearly defined stock market forecast. Reviewing them will provide insights, however, by watching trends as they develop.
Now, that’s quite a bit of work for the everyday investor. Being pragmatic, I asked Constable for a shortcut:
Could he identify one, two or three of the most important indicators to follow?
He offered this starting point: The Weekly Leading Index (WLI), developed in the 1980s to take an accurate read “on the future of the entire economy,” is published by the Economic Cycle Research Institute (ECRI). The WLI “is a composite leading index that anticipates cyclical turning points in U.S. economic activity by 2-3 quarters,” according to ECRI. The inputs include measures of money supply, housing activity, the labor market, and equity and bond market prices.
For this indicator to be meaningful in calling a recession, trend changes need to be “pronounced, persistent and pervasive,” explained Constable.
As it says in Constable’s book: If “there is a turn in the WLI growth rate that satisfies the three P’s, then a recession (or the end of one) can be expected seven to eight months later.” When the WLI growth rate is trending up, the economy is growing.
The best way to look at trends is graphically. ECRI provides access to free graphs (with underlying data) online at. When you visit this site, look at different time frames.
For an example of this indicator at work, change the dates at the bottom of the graph. Take a look at the end of 2005 through the end of 2009 to pick up economic trends before the financial crisis up to the year the stock market bottomed (March 2009). Zoom out to pick up 1970 through 2017.
Look for warnings as well. At the height of the 2007 market, the November-December 2007 ECRI Outlook cautioned: “The growing weakness in the growth rates of ECRI’s leading indexes is a warning that recessionary weakness could develop. One key danger is a sustained credit crunch because the credit crisis is clearly not over. … [Our] Leading Index[es are] now approaching [their] worst reading[s] since the 2001 recession. … Also, the breadth of deterioration evident in the latest data on the components of ECRI’s many leading indexes has rarely been seen except near the cusp of a recession.”
Returning to today, we are not in a 2007 market, based on economic trends. However, the economy is not the sole arbiter of stock market movements — for one, consider rare but impactful “black swan” events.
In the end, following indicators can help investors evaluate their investments in the context of the broader economic picture.
* * *
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford, Conn.) and award-winning author, welcomes your questions/comments ([email protected]). To hear Julie speak, visit here.
(c) 2018 Julie Jason.
Distributed by King Features Syndicate Inc.
Stocks Just Spiked to Record Highs After China Budged on a Key US Trade Demand
According to a Fox Business report, China “issued a document to ‘effectively curb’ violations of intellectual property rights such as trademarks and copyrights.” This move is aimed at increasing the chances of a trade deal between the two largest economies. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite Indexes reached all-time highs after China’s statement.
Adam Phillips, director of portfolio strategy for EP Wealth Advisors, said “I don’t think we would be seeing these types of deals if the outlook for markets and the economy weren’t favorable. This is one additional piece we can look at to see the outlook for markets is a positive one.”
Bloomberg reported that equities climbed across Asia, “led by those in Hong Kong, where local elections brought a landslide victory to pro-democracy candidates. The dollar gained versus the euro and yen.”
21 Stocks Everyone Should be Watching in 2020
Interested in what stocks to look out for this year? Then you’ll love this list of the best stocks to watch in 2020.
These funds purchase multiple stocks and spread risk appropriately across the top companies. This is the advice of Warren Buffett, who once said,
“By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals.”
If you’re looking for a stock index fund, check out Vanguard’s 500 Index Fund.
With that aside, here are the most promising stocks going in to 2020:
1. Chipotle Mexican Grill
Chipotle is an international chain of restaurants specializing in tacos, burritos, and other Mexican style cuisines. They have establishments all over the world from the United States to Germany and France.
This beloved food joint performed very well in the first two quarters of 2020 and are expected to continue to grow.
P/E ratio as of August 2019: 87.81
2. Constellation Brands, Inc.
Constellation is an international beer and wine producer. They are the largest importer of beer in the United States and command 7.4% of the market share.
P/E ratio as of August 2019: 17.00
3. Lululemon Athletica
Lululemon Athletica creates athletic apparel such as performance shirts, shorts, and pants, as well as yoga accessories. They’ve built a brand over the years that millions recognize and love.
P/E ratio as of August 2019: 47.51
4. Coty Inc.
Coty Incorporated is a multinational company that specializes in beauty products and services such as cosmetics, fragrances, skincare, and nail care.
Coty owns over 70 brands, such as CoverGirl, Clairol, and Bourjois. In 2018, the company’s revenue was over $9.4 billion.
As of August 2019, Coty Inc. stock is valued at 10.42 USD. Their P/E ratio is not yet available.
5. Anadarko Petroleum Corporation
Anadarko is in the natural gas and petroleum industry. This entails everything from gathering resources to treating and transporting gas. The company is also in the hard mineral business.
In early 2019, Anadarko had an estimated 1.47 billion barrels of oil in reserve, making it one of the biggest players in the industry.
As of August 2019, Anadarko’s stock is valued at 73.48 USD. Their P/E ratio is not available yet.
6. Brookfield Infrastructure Partners L.P.
Brookfield Infrastructure Partners acquires and manages infrastructure assets all over the world. They specialize in utilities, energy, and transportation infrastructure.
The company invests in ports, toll roads, pipelines, and telecommunication lines. In other words, things that people will always need and use.
P/E ratio as of August 2019: 75.27
7. ONEOK Inc.
ONEOK (pronounced “one – oak”) Incorporated is in the natural gas industry and is a key leader in the gathering, storing, processing, and transporting natural gas in the United States.
P/E ratio as of August 2019: 22.62
TerraForm Power Inc.
TerraForm Power specializes in renewable energy, particularly solar and wind power. There is an ever-growing trend that demands less damage to the environment.
As the world values green innovations, companies like TerraForm are expected to be favored in the coming years.
P/E ratio as of August 2020: 227.44
Netflix is a service provider and production company with their main product being a subscription-based streaming service.
Streaming TV and movies have largely replaced traditional television. With no commercials and instant access to thousands of products, Netflix is suspected to continue to grow.
P/E ratio as of August 2019: 120.23
iRobot is an advanced technology company that specializes in military and domestic robots. They designed the Roomba, which is an autonomous vacuum cleaner.
The U.S. military has purchased and uses thousands of robots from iRobot and are contracted to make more.
P/E ratio as of August 2019: 22.24
Amazon is a multinational company that specializes in e-commerce and cloud computing. It’s considered one of the big four technology companies along with Apple, Google (Alphabet, Inc.), and Facebook.
Amazon is well known for distributing goods through technological innovation and on a massive scale. Some estimate that Amazon commands 50% of all goods sold online.
P/E ratio as of August 2019: 73.65
11. Apple Inc.
Apple is a multinational tech company that develops and sells computer software, electronics, and online services. They designed some of the world’s greatest tech products including the iPhone and Apple Watch.
Being a leader in tech devices, many analysts believe Apple is one of the most promising stocks to invest in.
P/E ratio as of August 2019: 16.61
12. Alphabet Inc.
Alphabet Inc. is a multinational conglomerate founded in 2015. It’s the parent company of Google, which is the dominating search engine on the internet.
Google performs 90% of all searches on the internet. Alphabet has additional subsidiaries such as Calico, Capital G, and Deep Mind.
These subsidiaries have their hands in industries such as autonomous cars, biotechnology, video game software, and internet tech.
P/E ratio as of August 2019: 23.87
13. Facebook Inc.
Facebook is the popular American social media site founded by Mark Zuckerberg. In 2018, Facebook had a net income of $22.11 billion and its total assets were $97.33 billion.
Facebook has subsidiaries such as Instagram and WhatsApp, which are also very popular social media outlets.
P/E ratio as of August 2019: 31.00
14. MarketAxess Holdings Inc.
MarketAxess is an international company that specializes in financial technology, also known as fintech.
They operate an electronic trading platform for various credit markets such as corporate bonds and income products.
P/E ratio as of August 2019: 70.82
15. AT&T Inc.
AT&T is a multinational conglomerate holding company and is the world’s largest company in telecommunications.
AT&T is the parent company of Warren Media, which makes it the largest entertainment company in the world in terms of revenue.
P/E ratio as of August 2019: 14.17
16. Verizon Communications Inc.
Verizon is a multinational telecommunications conglomerate. They are well known for their subsidiary Verizon Wireless, which is its mobile network.
Together with AT&T, these two companies dominate the mobile and landline market. Since our needs for communications will develop, these two stocks are poised to grow.
P/E ratio as of August 2019: 14.49
17. Axon Enterprise Inc.
Axon Enterprise Inc. is a U.S.-based company that develops weapon products and technology for civilians and law enforcement. This company developed the Taser, a line of electric shock weapons.
Since then, Axon developed other technologies including body cameras and a cloud-based management system that empowers police departments to manage and review evidence.
P/E ratio as of August 2019: 129.55
18. Intuitive Surgical Inc.
Intuitive Surgical Inc. develops and manufactures surgical equipment to make surgeries less invasive. As of 2017, they had 4,271 bases worldwide.
P/E ratio as of August 2019: 48.51
19. Ford Motor Company
Despite the localized recession in Detroit, the automotive giant is doing very well.
The market continues to demand their SUVs and commercial vehicles, not to mention their luxury vehicles, which are usually created under their Lincoln brand.
P/E ratio as of August 2019: 16.90
20. General Motors Company
General Motors is a multinational manufacturer of vehicles and own automotive brands like Buick, GMC, Cadillac, and Chevrolet. They have nearly 400 facilities on six different continents.
P/E ratio as of August 2019: 6.19
Let’s point out two trends from this list:
- Tech and software companies are dominating
- Utility-related companies are tried and true
About half of the world still doesn’t have internet access. And a large portion still doesn’t have access to common devices like cell phones and laptops. That means these industries are set up to grow significantly for years to come.
Of course, that doesn’t mean other industries will simply disappear. As you’ve seen in the list, there are still key industries that our society relies on, such as energy and infrastructure companies.
Some of the most promising stocks are in tech and software, such as Apple, Facebook, Google, and Amazon.
Nevertheless, the wisest investment is still a stock index fund, which bets on the collective market rather than individual companies.
Netflix Releases Third-Quarter 2019 Financial Results
Netflix, Inc. (NASDAQ: NFLX) has released its third-quarter 2019 financial results today.
You can visit the company’s investor relations website at http://netflixinvestor.com to view the Q3’19 financial results and letter to shareholders.
A video interview with Netflix Chief Executive Officer Reed Hastings, Chief Financial Officer Spence Neumann, Chief Content Officer Ted Sarandos, Chief Product Officer Greg Peters and VP, IR & Corporate Development Spencer Wang will be available at 3:00 p.m. Pacific Time at youtube.com/netflixir.
The interview will be conducted by Michael Morris, Guggenheim Securities. Questions that investors would like to see asked should be sent to [email protected].
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