Float Research: U.S. Economy Much Weaker Than Conventional Wisdom Believes
By: Minyi Chen, CFA, Chief Operating Officer of TrimTabs Investment Research and Portfolio Manager of AdvisorShares TrimTabs Float Shrink ETF (NYSE Arca: TTFS)
U.S. equity funds received $40.3 Billion in July which is the highest inflow ever, while Bond Funds lost $21.1 Billion and is the fourth-highest outflow ever. Read this investor insight by TrimTabs Asset Management to learn why caution should be considered on the long side.
– U.S. Economy Much Weaker Than Conventional Wisdom Believes: Real Wages and Salaries Edge Up 0.4% year-over-year in July, and Economy Adds Only 23,000 Jobs.
While our demand-side indicators are not pointing to a big sell-off, they suggest investors should not be aggressive on the long side. ETF flows are not auspicious for stock prices over the short term. Enormous sums are gushing into U.S. equities, which is bearish from a contrarian perspective. U.S. equity ETFs issued $35.0 billion (4.0% of assets) in the past month, the highest trailing one-month inflow since December 2008. Another short-term negative factor is that investors in leveraged ETFs are no longer betting much against equities. Leveraged long ETFs posted their first inflow in five weeks, while inflows into leveraged short ETFs slowed to a five-week low of 2.0% of assets.
Turning to our supply indicators, companies remain net buyers of shares, although corporate actions are not as bullish as they were earlier this year. Announced corporate buying (new cash takeovers + new stock buybacks) exceeded new offerings by $42.6 billion in June and $38.8 billion in July. Stock buyback announcements in the first four weeks of earnings season averaged an unspectacular 2.5 for $1.8 billion daily. The number of announcements in earnings season is running at the slowest pace since October/November 2009.
The U.S. economy is much weaker than Wall Street realizes. We estimate that the economy added only 23,000 jobs in July, the lowest growth since September 2010. The estimate from the Bureau of Labor Statistics (BLS) did not reflect the slowdown in economic growth that we measured late last month because the reference week for its establishment survey was the second week of the month. In addition, real wages and salaries increased only 0.4% y-o-y in July, down from 1.6% y-o-y in May and 1.9% y-o-y in June. We attribute the economic weakness mostly to higher borrowing costs. In its latest statement, the Federal Open Market Committee stated that economic growth has turned “modest” from “moderate,” made no mention of any “tapering,” and express concern that inflation could be too low. As a result, we doubt the Federal Reserve will slow its money printing in September unless growth picks up.
This communication is a publication of TrimTabs Asset Management. It should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Information presented does not involve the rendering of personalized investment advice. Content should not be construed as an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing performance returns. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Past performance may not be indicative of future results. Therefore, no investor should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions, may materially alter the performance of an investor’s portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for an investor’s portfolio.