In my view the Beige Book offered little surprise. The statistical compilation utilized at the upcoming Fed meeting stated the economy expanded at a modest pace across most the country since mid-April causing the labor market to tighten as employers continued adding jobs and nudging wages higher. Additionally prices grew “slightly” in most districts.
Fed fund futures—or an indicator of market sentiment—were unchanged following the release of this document; a 24% chance at the June meeting and a 53% chance by the FOMC’s July session.
As noted the markets were little affected by the Beige Book as equities had already rebounded from modest losses following a report that Saudi Arabia may agree to a production cap.
The rebound was led by the value candidates which recent statistics indicate have received $5.5 billion in fresh cash in 2016 where growth has witnessed a 6.2 billion withdrawal.
Many times I have commented about the massive outperformance of growth versus value for many years. Growth is dominated by the handful of mega capitalized momentum issues.
Data provided by Bloomberg indicate value has been a lost cause since July 2006, the longest streak on record, inferring such long underperformance is the result of momentum investing and ETF mania which are essentially closet indexers chasing the same few companies.
Ned Davis research states the growth edge has gone on about three times longer than what it normally has since records dating back to 1932.
Why the recent outperformance of value? I would argue four reasons. First is lack of ownership. Second growth is price to perfection. Third value as compared to growth is the cheapest since at least 1980. Fourth, value stocks historically outperform when the economy is recovering.
In my view a major reason of mega capitalized growth’s hegemony over the last decade has been their ability to grow even when GDP expands slowly. As all know, the current recovery is the weakest on record since WW II where escape momentum has thus been elusive.
Is this about to change??
What will happen today? The ADP Private Sector Employment survey is released, so are Challenger Job cuts and weekly jobless claims. How or will this data influence opinions for tomorrow’s BLS report?
Last night the foreign markets were up. London was up 0.34%, Paris up 0.05% and Frankfurt up 0.07%. China was up 0.40%, Japan down 2.34%and Hang Sang up 0.47%.
The Dow should open flat ahead of a monthly jobs report and outcomes of key meetings for OPEC and the ECB. The 10-year is unchanged at a 1.83% yield.
