Market Commentary for the week of May 23, 2016

Remember when?
Throughout our lives, certain mileposts and seminal events have defined where we were, how we felt, our attitudes and prospects about the future.  Remember the moon landing, the Civil Rights movement, the Vietnam and Iraq wars, the dot.com crash, or the recent credit crisis/global recession?

Today, some pundits are identifying the current post-recession period as yet another inflection point in our lives.  By referencing interest rate policy, energy prices, domestic politics, global demographics, and the technological revolution, they create hypotheses and scenarios, drawing conclusions about a decline in opportunity and sustainable economic endeavors.  Their thesis is designed to corroborate a sense of a demise in morality, compassion, and ethics.  One gets the sense that the accrual of all these data confirms their pessimistic forecast.

To be sure, the compilation of any and all data is significant to effective forecasting.  However, when the data itself is massaged into substantiating a hypothesis, then perhaps the assumptions going in might be influenced by the questions asked, the method of analysis, or the strategist doing the prognosticating.  The above statistics are being used currently to affirm a "grumpy" and "reluctant" populace, and while several indices regarding consumer behavior might in fact be slowing, the trend line has been responding favorably from whence it came.

Subtly persistent

We, too, acknowledge the unwillingness of the consumer to dispose of discretionary cash indiscriminately.  But there are other indicators which might refute its impact upon overall economic trends.

First, employment and wage data have been improving steadily.  And while "inflation" might be the next bogey-man to inhabit our collective psyche, conservative investing and savings rates have also been expanding.  Without a doubt, we still feel inhibited by the effects of the recession, but patterns of change are paving the way for future development.

Those unseen factors which might flip "uncertainty"  and "unhappiness"  into "euphoria"  are elusive, but out there.  Whether the economy leads the consumer, or the consumer leads the economy is the great unknown at this point.

We note, for example, that workers are changing jobs more easily, and usually for better pay, during the last 5 months.  While this statistic alone does not substantiate nor foretell a trend in spending, the notion of upward job mobility  might potentially loosen the purse strings at some point in the future in tandem with other economic factors gaining trajectory.

Additionally, there are sectors within the global economy that are relatively immune to recession, in fact emboldened by the hardship of others, like agriculture, medical and pharmaceutical sciences, alternative energy, ecology, and water-related technologies.  For every "right side" of the downward parabolic curve, there is a "left side" rising...sometimes in stealth fashion.  My research finds no shortage of social and capital gains opportunities from which to profit and/or provide for the common good.

Quantitative analysis does not create the trends, it measures  them.  Current systemic patterns (financial markets, consumer confidence, employment and wages, global economic output) are rising, albeit modestly, and on a very shallow axis.  However, this is a dramatic shift from the recession period during which all of these data were in decline.  Whether one defines the current condition as early stage growth  or latter phase decline  is subject to debate...and uniquely characterized by one's timeline of perception and method of analysis.  But compressing the data to fit one's biases is putting the cart before the horse.  Is today's marketplace a defining seminal moment, or simply a way-station on the road to some other outcome?

Without question, we are in the midst of a dramatic and difficult transition from recession to growth, which is further exacerbated by the unusually extreme and vigorous angle of ascent of stock valuations during the past few years.  So whether others define this period as the apex of the recovery, or simply another upside/downside inflection point on the way to somewhere else, we choose not to forget to look back and remember how bad it really was...and the positive prospect for what lies ahead.