"Kee" Points with Jim Kee, Ph.D.

Stocks were flat for the week, but are up big for the year, with the S&P 500 gaining about 16% year-to-date with three months left to go (long-term averages are around 9%-10% per year). Most of the global equities rally has been driven by actions in Europe that have lessened the perceived chances of a Euro-area meltdown leading to a global financial crisis.

But the lack of a total catastrophe doesn’t mean all is rosy. Global industrial purchasing managers indices are low or down virtually across the board, and a Europe and China-driven global growth slowdown is very evident in the data. The broader Eurozone is currently in recession, with Germany growing at an annualized rate of +1.1%. Offsetting this somewhat is the considerable global monetary policy easing in the U.S., Europe, Japan, and China. I don’t think that makes it a wash, but I also don’t think that markets have been expecting robust global growth to begin with. In the U.S., positive news from durable goods orders and housing data (new home sales/prices) has been off-set by declines in regional PMIs. It is my opinion that we aren’t going to see a lot of economic activity – business spending and hiring – until election outcomes are known.

On monetary policy, one of the better essays (few are worth reading) on recent Fed actions was published in the Financial Times last week, written by Martin Wolf. Wolf pointed out that because interest rates are already low, the Fed’s new actions ($40bb + new monthly asset purchases) are “far more likely to be helpful than transformative.” Helpful rather than transformative − I think that’s the right way to look at it.